Global share markets delivered strong gains again in February as weaker US inflation reinforced market expectations that interest rates will begin to fall by the middle of this year.
The US economy remains resilient, with stronger January retail sales data indicating a soft landing, which should support earnings of a broad range of companies. Economic activity is weaker in Europe, with lower retail sales, but a drop in inflation encouraged hopes of early interest rate cuts. China’s economy remains under pressure from a weak property sector as retail sales fell again in January, although there are signs of a modest upturn in manufacturing.
The Fund continues to overweight information technology, consumer discretionary and health care, while underweighting financials, energy and materials.
The Fund outperformed across every sector in February, with stock performance in information technology, health care and industrials particularly strong. The Fund further benefitted from overweight positions in information technology and consumer discretionary, which delivered strong returns.
The strongest contributor to relative returns was the overweight position in US-based semiconductor developer Nvidia. The company published better than expected December quarter earnings. Revenues rose 265% year-on-year, earnings per share jumped 486% and forward earnings guidance exceeded analysts’ expectations.
Japan-based Tokyo Electron which makes machinery critical in manufacturing semiconductors also outperformed strongly. It reported stronger than expected fourth quarter earnings and improved forward guidance as the chip cycle improves upon rising demand from China.
Adobe, the US-based content creation and publishing software company underperformed in February. OpenAI previewed its text-to-video-tool and Google announced a generative image tool, which will compete with Adobe products. However, these applications lack Adobe’s platform advantage and the Fund took the opportunity to increase its holding.
Japan-based entertainment and electronics group Sony underperformed despite its quarterly earnings exceeding market forecasts. Its gaming business delivered weaker than expected results and reduced its full year sales guidance. However, the broader market appears in good shape and sales targets of PlayStation 5 now look more realisable.
The Fund increased its exposure to Netflix, which was first established last month, Meta Platforms, following strong fourth quarter results and confidence in the outlook for digital advertising and ASML, which Axiom believes will benefit from orders from advanced semiconductor manufacturers.
The Fund reduced positions in US technology group Apple upon weaker iPhone demand and high valuation level, Eli Lilly as the share price increasingly reflects Axiom’s expectations of obesity drug revenue growth and US cyber security group Palo Alto Networks, which delivered disappointing quarterly earnings.
During February MSCI upgraded the e.l.f. Beauty ESG rating to BBB from B upon improved greenhouse gas (GHG) emissions disclosure. This followed several engagements Axiom held with its management team over recent months regarding improving disclosure. Last month the company outlined several initiatives that it is currently progressing to start sourcing materials from outside China.
Managing Director/Portfolio Manager
CEO/Chief Investment Officer
The Pengana Axiom International Fund (Hedged) invests in companies that are dynamically growing and changing for the better, more rapidly than generally expected and where the positive changes are not yet reflected in expectations or valuation.
The Global Equity Strategy seeks dynamic growth by concentrating its investments in global developed markets, and may also invest in companies located in emerging markets.
The investment manager is Axiom Investors, a Connecticut-based global equity fund manager formed in 1998 with over US$19billion in assets under Management.
1. From 4 June 2021 the capital component of the foreign currency exposure for the Fund is hedged back to Australian dollars.
2. Axiom was appointed fund manager as of 5 May 2021. June 2021 represents the first full month of Axiom managing the Fund.
3. Inception date 1 July 2017. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund: APIR (HHA0002AU) in the table above which is the continuous performance of both the current and previous strategies.
4. Axiom Global Equity Strategy inception 1 Jul 2004.
5. Prior to 1 June 2021, the Axiom Global Equity Strategy performance (labeled ‘Current Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross USD returns of the Axiom Global Equity strategy. The Axiom Global Equity Strategy performance does not include the Pengana ethical screen
6. Prior to 4 June 2021 hedged performance has been simulated by Pengana for both the Fund and Index. This was done by: 1) using 3 month rolling forwards to hedge movements in the AUD/USD spot rate, and 2) deducting the Pengana International Ethical Fund (Hedged) management fee of 1.35% p.a. from the Fund’s performance.
From 4 June 2021, index performance is from the MSCI All Country World Total Return in AUD (Hedged). Prior to 4 June 2021, index performance is simulated from the MSCI All Country World Total Return in USD
7. Performance for periods greater than 12 months are annualised. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
8. Annualised standard deviation since inception.
9. Relative to the MSCI All Country World Total Return in AUD (Hedged).
*For further information regarding fees please see the PDS available on our website.
