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Monthly REPORT

March 2021

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.

STATISTICAL DATA VOLATILITY3     11.4% NUMBER OF STOCKS 34 BETA4 0.63 MAXIMUM DRAW DOWN -23.1%
PERFORMANCE TABLE NET PERFORMANCE FOR PERIODS ENDING 31 Mar 20211
  1 Month1 Year3 Years P.A.5 Years P.A.10 Years P.A.SINCE INCEPTION
Fund 3.1%37.3%7.2%7.9%9.1%9.8%
RBA Cash Rate 0.0%0.2%0.9%1.1%2.1%2.6%
ASX Accumulation All Ordinaries Index 1.8%41.1%10.1%10.6%8.0%6.6%
PERFORMANCE CHART NET PERFORMANCE SINCE INCEPTION2
TOP HOLDINGS (ALPHABETICALLY)
Australia Consumer Discretionary
Australia Consumer Discretionary
Australia Financials
Australia Health Care
Australia Real Estate
Australia Financials
Australia Industrials
Australia Consumer Discretionary
Australia Communication Services
Australia Consumer Staples
 
Sector Breakdown
 
Capitalisation Breakdown
 
Country Breakdown
 
Custom Sector Breakdown

CASHED-UP CONSUMERS

COMMENTARY

The Fund generated a robust 3.1% return during March 2021 against a buoyant market return of 1.8% and the consistently suppressed RBA Cash rate of 0.01%. Pleasingly, several of the Fund’s larger holdings exhibited strong share price growth including, Telstra, Aristocrat, Mirvac, and Super Retail Group.

Markets have bounced back strongly from the Covid-19 induced lows which, combined with the significant deployment of cash into attractively priced shares, have produced healthy returns of 37.3% and 9.8%pa for the Fund over the prior 12 months and almost 14 years since inception respectively.

We remain cognizant of the “extremely low cost of money” setting being applied by Central Banks globally and the inflationary impact it is having on long-duration asset valuations. In addition, the paucity of yield on offer from traditional bonds/term deposits continues to push investors up the risk curve. Our clients continue to pepper us with requests for the elusive 4% plus AAA investment option as a substitute for the 50 basis point term deposits currently on offer.

The potential consequences of these loose monetary settings combined with widespread stimulus require careful consideration. More money chasing the same amount of, or less, goods (supply chain constraints) implies higher prices and, more importantly, ever-increasing expectations of higher prices. Governments are caught between a rock and a hard place – the bond issuance (funding requirement) upgrade cycle is only getting started as any fiscal discipline continues to be overwhelmed by the pandemic-induced actions. Higher CPI readings would not help their funding costs or their indexed welfare payments.

Our portfolio has been positioned for this environment. We remain focused on “hard assets” underpinned by pricing power and robust balance sheets. Our largest holding – Telstra continues to demonstrate this via the combination of its best-in-class mobile phone network and its inflation-linked revenue stream from the NBN making up the vast bulk of the value underpinning the company. Its core competencies in Engineering – robust and widest coverage mobile network; Innovation – 5G facilitated lowest cost provider, and Marketing – consistently sustaining a 20% subscriber price premium, underpin our investment thesis.

Other examples include our holdings in Insurers – NIB Holdings, Medibank, and IAG – which should benefit from the double whammy of premium increases and increased returns from the capital and policyholder floats. Similarly, Woolworths should be a beneficiary of moving the same amount of boxes for higher revenue and earnings.

More recently, we have taken advantage of lower volatility pricing to buy portfolio insurance (for the 5th time since inception) through 6 month puts on the overall market. While we hope that these instruments expire worthlessly, we feel it is a prudent strategy given the rise in systemic risk. This strategy should be seen in conjunction with our well-diversified portfolio of companies representing good businesses, sustainable business models, and competent management at attractive after-tax cash earnings yields.

FEATURES
APIR CODE PCL0005AU
REDEMPTION PRICE A$ 1.9035
FEES * Management Fee: 1.025%
Performance Fee: 10.25%
MINIMUM INITIAL INVESTMENT A$10,000
FUM AT MONTH END A$ 944.42m
STRATEGY INCEPTION DATE 1 July 2008
BENCHMARK The 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

1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. 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.