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Australian Equities Fund

A portfolio of Australian businesses with transparent and resilient business models

April 2021 - Monthly REPORT

"As the stimulus keeps coming you can almost hear the economy going.... Boom!" - Shane Elliot CEO ANZ Bank

SUMMARY

The Fund’s robust return of 3.6% for March reflected the buoyant conditions present in an Australian economy flush with stimulus-induced liquidity. By way of comparison, the market was up 3.9% as investors continued to search for returns against the backdrop of a 0.1% RBA Cash Rate.

PORTFOLIO

Top Holdings (alphabetically)

Accent Group Australia Consumer Discretionary Aristocrat Leisure Australia Consumer Discretionary Credit Corp Australia Financials CSL Australia Health Care Evolution Mining Australia Materials Mirvac Group Property Trust Australia Real Estate NAB Australia Financials SG Fleet Australia Industrials Super Retail Group Australia Consumer Discretionary Telstra Australia Communication Services

Sector Breakdown

Capitalisation Breakdown

Country Breakdown

Custom Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Apr 20211
1 Month1 Year3 Years P.A.5 Years P.A.10 Years P.A.SINCE INCEPTION
Fund 3.6%31.0%8.4%8.5%9.5%10.0%
RBA Cash Rate 0.0%0.2%0.8%1.1%2.0%2.5%
ASX Accumulation All Ordinaries Index 3.9%33.9%10.2%10.7%8.4%6.8%
1 Month1 Year3 Years P.A.5 Years P.A.10 Years P.A.SINCE INCEPTION
Fund
3.6%
31.0%
8.4%
8.5%
9.5%
10.0%
RBA Cash Rate
0.0%
0.2%
0.8%
1.1%
2.0%
2.5%
ASX Accumulation All Ordinaries Index
3.9%
33.9%
10.2%
10.7%
8.4%
6.8%

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The Fund’s robust return of 3.6% for March reflected the buoyant conditions present in an Australian economy flush with stimulus-induced liquidity. By way of comparison, the market was up 3.9% as investors continued to search for returns against the backdrop of a 0.1% RBA Cash Rate.

Several important themes remain at work in the domestic economy including:

a) Other than for liquidity purposes and nominal capital preservation, investors are not being rewarded for holding cash or even term deposits. Furthermore traditional safe havens – (particularly government) bonds require investors to lock in negative real interest rates with the added duration risk. Likewise property yields, even geared at low-interest rates, are not that attractive. It’s no wonder that equities look so enticing, particularly given their recent double-digit return contribution from the combination of dividend yields and capital growth. The Fund’s cash holdings, including a 1% investment in hybrids, was 7% at month-end.

b) Goods and services demand remains elevated in a supply constrained environment, which has significant implications for companies with pricing power. Most input costs are seeing upward pressure with timber (or lumber), steel, cotton and freight all exhibiting large (and in some cases unsustainable) price rises. The Fund’s iron ore exposures through Rio and Fortesque have been very profitable investments. We have trimmed these into the very recent strength. 

c) Corporate balance sheets remain robust particularly within the Fund’s holdings. We anticipate that many companies will choose to apply their surplus equity and access to inexpensive debt for mergers or acquisitions at a level of activity that will remain elevated for some time. CreditCorp, SG Fleet, Accent Group, and Evolution mining are all recent examples of shareholder accretive M&A deals for our Fund.

d) Several industries – health insurers and banks in particular – created significant (read HUUUGE) provisions on their balance sheets against potential impacts from the pandemic. Our investments in NIB Holdings and Medibank have benefitted from a favourable claims experience post lockdown. Likewise, our view that the banking sector was more than adequately provisioned against bad debts appears to have been validated. NAB, CBA, ANZ, BOQ, and CreditCorp have all reported exceptionally low levels of loan defaults and boosting earnings. We retain our view that a material level of over-provisioning still exists.

d) Importantly, I would be remiss if I didn’t mention my very real concerns regarding the frothy valuations present in many of the “meme” sectors. Furthermore, in my opinion, to describe these new and wholly fabricated asset classes as “extremely frothy” is an exuberant euphemism for rampant speculation. To be clear, while I consider blockchain technology an important and valid enabler of sophisticated financial solutions, I cannot explain the enormous valuations being placed on the unlimited amount of products being manufactured and sold by blockchain applications. If and when this unwinds, I suspect there will be significant ramifications across financial markets, potentially leading to a liquidity event. Accordingly, we have been building a position in Puts against the wider market as insurance against this potential risk. While we hope and pray that these Puts expire as worthless, we find that we have been sleeping easier since putting them in place.

In conclusion, we retain our long-held view that a focus on capital preservation and a reasonable real return for our investors is best served by a disciplined approach and consistent investment methodology. Good businesses run by honest and competent management at the right price will create a well-diversified portfolio of ever-growing cash earnings streams.

We recently hosted a webinar covering Investor Conundrums as part of the Pengana webinar series. The recording is available below, as well as hosted with all the other webinars on www.pengana.com. Financial planners may also complete a short questionnaire available HERE for CPD points.

PERFORMANCE TABLE

FUND PERFORMANCE (A$, NET OF FEES)
Year Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FUND FYTD RBA CASH RATE FYTD ASX ALL ORDS FYTD
2020/2021 1.5%2%-2%1.5%10.2%2.3%-0.9%0.3%3.1%3.6%27.7%0.2%30.2%
2019/2020 3.2%0.6%1.4%-0.5%3.5%-3.3%2.3%-3.5%-19.5%8.5%6.2%0.1%-3.9%0.7%-7.2%
2018/2019 1.3%3.4%-2.5%-8%-1.6%-2%2.4%3.4%-1.1%2.9%4.9%1.2%3.6%1.5%11%
2017/2018 0.6%1%0.1%1.9%3.2%0.1%1.5%-1.3%-3%-0%2.5%1.5%8.1%1.5%13.7%
2016/2017 6.1%2.3%0.3%-3%-0.3%3.4%-0.8%0.7%1.8%1.7%-4.7%2.7%10.2%1.5%13.1%
2015/2016 3.3%-4.2%-0.6%4.1%3.4%0.2%-1.8%-3.2%3.1%0.7%4.6%-1.6%7.7%2%2%
2014/2015 1.9%1.5%-2.4%2.5%0%1.4%2.6%4%1.3%-1.7%1.1%-3.5%8.9%2.4%5.7%
2013/2014 2%2.3%1.4%2.3%-1.2%1.3%-2%1.4%-0.4%1.2%1.5%-1%9.1%2.5%17.6%
2012/2013 2.9%2.5%0.2%2.4%2.8%1.8%5.2%4.4%0%3.5%-1.3%-2.5%24%3.1%20.7%
2011/2012 -3.1%1.4%-2.4%4.7%-2.4%1%2.9%3.6%4.2%0.7%-1.1%-1.1%8.3%4.4%-7%
2010/2011 5.1%1.1%3.6%1.8%-0.1%3%0.7%1.5%1%0%-0.8%-0.5%17.4%4.7%12.2%
2009/2010 3.5%6.1%3.8%1.2%1%2.5%-3.6%1.1%3.6%-0.2%-4%-2.5%12.5%3.7%13.8%
2008/2009 -1%3.5%-4.7%-9%-5.3%3.9%0.2%-1.4%7.9%4.4%2.1%3.8%3%4.8%-22.1%

2022/2023

Jul 6.4%
Aug -0.1%
Sep -6.1%
Oct 2.7%
Nov 3%
Dec
Jan
Feb
Mar
Apr
May
Jun

2021/2022

Jul 0.3%
Aug 3%
Sep -0.4%
Oct -1.1%
Nov -0.6%
Dec 1%
Jan -6.7%
Feb 1.3%
Mar 1.9%
Apr -0.6%
May -3%
Jun -7%
FUND FYTD -12%
RBA CASH RATE FYTD 0.2%
ASX ALL ORDS FYTD -7.4%

2020/2021

Jul 1.5%
Sep -2%
Oct 1.5%
Nov 10.2%
Dec 2.3%
Jan -0.9%
Feb 0.3%
Mar 3.1%
Apr 3.6%
May 2.6%
Aug 2%
Jun 1.1%
FUND FYTD 27.7%
RBA CASH RATE FYTD 0.2%
ASX ALL ORDS FYTD 30.2%

2019/2020

Jul 3.2%
Aug 0.6%
Sep 1.4%
Oct -0.5%
Nov 3.5%
Dec -3.3%
Jan 2.3%
Feb -3.5%
Apr 8.5%
Mar -19.5%
May 6.2%
Jun 0.1%
FUND FYTD -3.9%
RBA CASH RATE FYTD 0.7%
ASX ALL ORDS FYTD -7.2%

2018/2019

Jul 1.3%
Aug 3.4%
Sep -2.5%
Oct -8%
Nov -1.6%
Dec -2%
Jan 2.4%
Feb 3.4%
Mar -1.1%
Apr 2.9%
May 4.9%
Jun 1.2%
FUND FYTD 3.6%
RBA CASH RATE FYTD 1.5%
ASX ALL ORDS FYTD 11%

2017/2018

Jul 0.6%
Aug 1%
Sep 0.1%
Oct 1.9%
Nov 3.2%
Dec 0.1%
Jan 1.5%
Feb -1.3%
Mar -3%
Apr -0%
May 2.5%
Jun 1.5%
FUND FYTD 8.1%
RBA CASH RATE FYTD 1.5%
ASX ALL ORDS FYTD 13.7%

2016/2017

Jul 6.1%
Aug 2.3%
Sep 0.3%
Oct -3%
Nov -0.3%
Dec 3.4%
Jan -0.8%
Feb 0.7%
Mar 1.8%
Apr 1.7%
May -4.7%
Jun 2.7%
FUND FYTD 10.2%
RBA CASH RATE FYTD 1.5%
ASX ALL ORDS FYTD 13.1%

2015/2016

Jul 3.3%
Aug -4.2%
Sep -0.6%
Oct 4.1%
Nov 3.4%
Dec 0.2%
Jan -1.8%
Feb -3.2%
Mar 3.1%
Apr 0.7%
May 4.6%
Jun -1.6%
FUND FYTD 7.7%
RBA CASH RATE FYTD 2%
ASX ALL ORDS FYTD 2%

2014/2015

Jul 1.9%
Aug 1.5%
Sep -2.4%
Oct 2.5%
Nov 0%
Dec 1.4%
Jan 2.6%
Feb 4%
Mar 1.3%
Apr -1.7%
May 1.1%
Jun -3.5%
FUND FYTD 8.9%
RBA CASH RATE FYTD 2.4%
ASX ALL ORDS FYTD 5.7%

2013/2014

Jul 2%
Aug 2.3%
Sep 1.4%
Oct 2.3%
Nov -1.2%
Dec 1.3%
Jan -2%
Feb 1.4%
Mar -0.4%
Apr 1.2%
May 1.5%
Jun -1%
FUND FYTD 9.1%
RBA CASH RATE FYTD 2.5%
ASX ALL ORDS FYTD 17.6%

2012/2013

Jul 2.9%
Aug 2.5%
Sep 0.2%
Oct 2.4%
Nov 2.8%
Dec 1.8%
Jan 5.2%
Feb 4.4%
Mar 0%
Apr 3.5%
May -1.3%
Jun -2.5%
FUND FYTD 24%
RBA CASH RATE FYTD 3.1%
ASX ALL ORDS FYTD 20.7%

2011/2012

Jul -3.1%
Aug 1.4%
Sep -2.4%
Oct 4.7%
Nov -2.4%
Dec 1%
Jan 2.9%
Feb 3.6%
Mar 4.2%
Apr 0.7%
May -1.1%
Jun -1.1%
FUND FYTD 8.3%
RBA CASH RATE FYTD 4.4%
ASX ALL ORDS FYTD -7%

2010/2011

Jul 5.1%
Aug 1.1%
Sep 3.6%
Oct 1.8%
Nov -0.1%
Dec 3%
Jan 0.7%
Feb 1.5%
Mar 1%
Apr 0%
May -0.8%
Jun -0.5%
FUND FYTD 17.4%
RBA CASH RATE FYTD 4.7%
ASX ALL ORDS FYTD 12.2%

2009/2010

Jul 3.5%
Aug 6.1%
Sep 3.8%
Oct 1.2%
Nov 1%
Dec 2.5%
Jan -3.6%
Feb 1.1%
Mar 3.6%
Apr -0.2%
May -4%
Jun -2.5%
FUND FYTD 12.5%
RBA CASH RATE FYTD 3.7%
ASX ALL ORDS FYTD 13.8%

2008/2009

Jul -1%
Aug 3.5%
Sep -4.7%
Oct -9%
Nov -5.3%
Dec 3.9%
Jan 0.2%
Feb -1.4%
Mar 7.9%
Apr 4.4%
May 2.1%
Jun 3.8%
FUND FYTD 3%
RBA CASH RATE FYTD 4.8%
ASX ALL ORDS FYTD -22.1%

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
11.4%
NUMBER OF STOCKS
34
BETA4
0.63
MAXIMUM DRAW DOWN
-23.1%

FEATURES

  • APIR CODE PCL0005AU
  • REDEMPTION PRICEA$ 1.9714
  • FEES * Management Fee: 1.025%
    Performance Fee: 10.25%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 963.39m
  • STRATEGY INCEPTION DATE 1 July 2008
  • BenchmarkThe RBA Cash Rate Target plus Australian equity risk premium.

Fund Managers

Rhett Kessler

CIO and Senior Fund Manager

Anton du Preez

Deputy CIO and Fund Manager

Description

The Pengana Australian Equities Fund aims to enhance and preserve investor wealth over a 5- year period via a concentrated core portfolio of principally Australian listed securities. The Fund uses fundamental research to evaluate investments capable of generating the target return over the medium term. Essentially, we are in the business of seeking to preserve capital and make money – we are not in the business of trying to beat the market. We remain focused on acquiring and holding investments that offer predictable, sustainable and well-stewarded after-tax cash earnings yields in excess of 6% that will grow to double digit levels as a percentage of our original entry price in five years. We believe that building a well-diversified portfolio of these “gifts that keep on giving” represents a meaningful way to create and preserve financial independence for our co-investors.

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1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. The benchmark of cash rate plus 6% p.a. is included in the chart as it relates to the Fund’s investment objective and performance fee.  The Fund may invest up to 100% of its assets in equity securities.  The greater risk of investing in equities is reflected in the addition of a margin above the cash rate. 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.
2. Inception 1st July 2008.
3. Annualised standard deviation since inception.
4. Relative to ASX All Ordinaries Index. Using daily returns.
*(including GST, net of RITC) of the increase in net asset value subject to the RBA Cash Rate & High Water Mark. For further information regarding fees please see the PDS available on our website.