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Australian Equities Fund

A portfolio of Australian businesses with transparent and resilient business models

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September 2020 - Monthly REPORT

What is the new normal?

SUMMARY

The Australian stock market had a reasonable quarter to September 2020, ending up 1.1%. In comparison, the Fund generated a 1.5% return for the same period.  For the month of September, the Fund was down 2.0% compared to the market that yielded a negative 3.4%. For comparison purposes, the RBA cash rate yielded 0.1% for the quarter.

We are pleased to include below a recent investment update with Fund Manager Rhett Kessler.

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 ResMed Australia Health Care Telstra Australia Communication Services Waypoint Reit Ltd Australia Real Estate

Sector Breakdown

Capitalisation Breakdown

Country Breakdown

Custom Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Sep 20201
1 Month1 Year3 Years P.A.5 Years P.A.SINCE INCEPTION
Fund -2.0%-7.3%2.4%5.7%8.8%
RBA Cash Rate 0.0%0.5%1.1%1.3%2.7%
ASX Accumulation All Ordinaries Index -3.4%-8.8%5.5%7.7%5.4%
1 Month1 Year3 Years P.A.5 Years P.A.SINCE INCEPTION
Fund
-2.0%
-7.3%
2.4%
5.7%
8.8%
RBA Cash Rate
0.0%
0.5%
1.1%
1.3%
2.7%
ASX Accumulation All Ordinaries Index
-3.4%
-8.8%
5.5%
7.7%
5.4%

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The Australian stock market had a reasonable quarter to September 2020, ending up 1.1%. In comparison, the Fund generated a 1.5% return for the same period.  For the month of September, the Fund was down 2.0% compared to the market that yielded a negative 3.4%. For comparison purposes, the RBA cash rate yielded 0.1% for the quarter.

The main event of the September quarter was the August reporting season which had some specific characteristics. As expected COVID played havoc with FY20 earnings and in particular with forward-looking profit statements.  More importantly, businesses that were beneficiaries of lockdowns/Jobkeeper payments (WFH, online retailer, or essential services) benefitted disproportionately to others that had to cease or curtail trading. The pertinent question has become the sustainability of future earnings or, more importantly, the sustainability of future cash flows – “what is the new normal?”

Added to that, a darkening global macro horizon (US election, US fiscal cliff, geopolitical tensions between US/China, Brexit, and the second wave of COVID in particular in Europe) made for a challenging investment environment. Conversely, during the latter part of the quarter, there seemed to be a glimmer of light emerging in Australia – a marked improvement in the Victorian COVID case rate, substantial fiscal stimulus announced in the Federal Budget, travel bubbles with NZ, progressive state bordering re-openings and the Big Four banks reporting better than expected outcomes on provisions and hardship metrics – underpinning a positive shift going forward.

At a Fund level our holdings in Super Retail, Aristocrat, Credit Corp, and Accent Group were the main contributors to performance whilst Telstra, Ampol, Resmed, and Medibank Private impacted negatively. During the quarter we added to Mirvac, Flexigroup, and EBOS whilst we trimmed our positions in Westpac and Credit Corp. We also sold our JB Hifi positions due to valuation.

We remain cautiously optimistic that volatility continues to provide sufficient opportunities to achieve our investment objectives. As such we are comfortable holding some powder dry, ready for deployment – the Fund’s cash holding was 14% at end of September.

We remain focused on maintaining and growing the purchasing power of the funds entrusted to our stewardship. As indicated in our webcast (attached to this newsletter), there are several large conundrums that will have a medium to longer-term impact on investing:

1st Conundrum – What is a Dollar (in any currency) worth when the global government/central bank “printing presses” continue to operate at these high levels?
A simplistic yet accurate definition of inflation remains when more money chases the same or smaller amount of goods and services.  In addition, investors are barely being rewarded for holding cash given record low-interest rates. Stimulus-induced liquidity appears to be driving asset prices ever higher, further eroding the purchasing power of cash. In addition to financial assets, we note that used car prices, domestic holiday costs, and even dry goods at the supermarket are experiencing significantly higher price moves.

2nd Conundrum – What is the cost of money?
Valuations are typically derived by calculations based on three factors: the cost of money, the quantum and the certainty of future cash flows. Until recently, using the 10-year government bond yields as a proxy for the cost of money made this calculation trivial. Our time was focused on quantum and certainty factors.  However, with central banks around the world crushing the yield curve, price discovery is impossible. Furthermore, central banks are executing a massive heist on investors around the world by forcing them up the risk curve – more risk for less return.  Given the prevailing uncertainties, it is difficult to see how filling portfolios with long-duration assets (equities, property, and bonds) at these levels of interest rates will not end in tears.

3rd  Conundrum – Can the government build a stimulus bridge across the lockdown valley AND THEN unwind all the debt without derailing the economy?
In our view, the Australian government has done an excellent job of extending a bridge across the COVID induced economic “lockdown” valley. Decisive and courageous action combined with robust demand for Australian commodities (hard and soft) has boosted our confidence that we may achieve a reasonable outcome, albeit landing us safely on the other side remains an enormous challenge.  However, it does appear that equity markets (based on valuations) are already anticipating success… and then some.

Our Strategy – Retain our investment methodology, discipline and focus on reasonably priced “Hard Assets”
Essentially we continue to focus on companies that have resilient business models, robust balance sheets, competent management, and are available at a reasonable price. Importantly we seek to own those businesses that have demonstrated a track record of “having the power” in their various stakeholder relationships. Typically these are represented by characteristics that include: long term contractual arrangements at favourable terms with strong counterparties (WPR), owning unique or scarce assets (BIN, RIO), being the lowest cost producer (CSL), and owning superior non-trivial intellectual property (Resmed).

PERFORMANCE TABLE

FUND PERFORMANCE (A$, NET OF FEES)
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    [145] => stdClass Object
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            [as_at_date] => 29/02/2012
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    [146] => stdClass Object
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            [as_at_date] => 31/01/2012
            [value] => 0.028514917
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    [147] => stdClass Object
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            [value] => 0.009737098
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    [148] => stdClass Object
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            [as_at_date] => 30/11/2011
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)
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%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%

2023/2024

Jul 3.3%
Aug -0.7%
Sep -3.7%
Oct -3.3%
Nov 3.9%
Dec 5.1%
Jan 2.4%
Feb -0.7%
Mar 3.2%

2022/2023

Jul 6.4%
Aug -0.1%
Sep -6.1%
Oct 2.7%
Nov 3%
Dec -2.3%
Jan 6.1%
Feb -1.2%
Mar 0%
Apr 2.7%
May -2.3%
Jun 1.2%
FUND FYTD 10%
RBA CASH RATE FYTD 2.9%
ASX ALL ORDS FYTD 14.8%

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

Platform Availability

  • AMP MyNorth
  • Asgard Element (Masterfund)
  • Asgard – E Wrap, Master Trust, Infinity
  • AET Wholesale Access Fund
  • BT Panorama
  • BT Wrap
  • Colonial First Choice
  • Centric IDPS
  • First Wrap
  • FNZ
  • HUB24
  • IOOF Pursuit
  • IOOF
  • Macquarie Wrap
  • MLC Wrap
  • Mason Stevens
  • Navigator
  • Netwealth
  • OneVue
  • Omniport(lifespan)
  • Powerwrap
  • Praemium
  • uXchange

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
11.3%
NUMBER OF STOCKS
35
BETA4
0.62
MAXIMUM DRAW DOWN
-23.1%

FEATURES

  • APIR CODE PCL0005AU
  • REDEMPTION PRICEA$ 1.6592
  • FEES * Management Fee: 1.025%
    Performance Fee: 10.25%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 841.65m
  • 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.

EXPLORE OUR FUNDS

Harding Loevner International Fund
Harding Loevner International Fund
Axiom International Fund
Axiom International Fund
Axiom International Fund (Hedged)
Axiom International Fund (Hedged)
Australian Equities Fund
Australian Equities Fund
High Conviction Property Securities Fund
High Conviction Property Securities Fund
Global Small Companies Fund
Global Small Companies Fund
WHEB Sustainable Impact Fund
WHEB Sustainable Impact Fund
Emerging Companies Fund
Emerging Companies Fund
High Conviction Equities Fund
High Conviction Equities Fund
Pengana International Equities Limited (ASX: PIA)
Pengana International Equities Limited (ASX: PIA)
Private Equity Trust (ASX: PE1)
Private Equity Trust (ASX: PE1)
Alpha Israel Fund
Alpha Israel Fund
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit Fund
CONTACT INVESTOR SERVICES
INVEST NOW

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.