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Australian Equities Fund

A portfolio of Australian businesses with transparent and resilient business models

May 2022 - Monthly REPORT

Global inflation continues its upward march

SUMMARY

The Fund generated a -3.0% return in the month of May.  By way of comparison, the (annual) return of the ‘RBA cash rate +6%’ equated to approximately +0.5% for the month, whilst the Australian stock market declined by -3.1% over the month.

Global Inflation continues its upward march.  We believe domestic inflation is likely to experience further upward pressure, with wage growth just starting to emerge, energy prices likely to accelerate and retailers talking of the need for price points to go up.  Central banks continue to pursue hiking policies in an attempt to reign in escalating inflation, whilst withdrawing quantitative easing measures.  The cost of money is going up at the same time as the availability of money is going down.

Despite elevated volatility in markets, we remain as focused as ever on our primary objectives of capital preservation and generating a reasonable real return for our investors.  We continue to believe this is best served by a disciplined approach and consistent investment methodology. A variety of good businesses, run by honest and competent management teams, at the right price, will create a well-diversified portfolio of ever-growing cash earnings streams.

PORTFOLIO

Top Holdings (alphabetically)

Amcor PLC
Australia
Materials
Amcor PLC operates as a packaging company. The Company offers wide range of flexible and rigid packaging, specialty cartons, closures, and services for food, beverage, pharmaceutical, and medical sectors. Amcor serves customers worldwide.
Aristocrat Leisure
Australia
Consumer Discretionary
Aristocrat Leisure Limited manufactures and sells gaming machines in Australia and internationally. The Company also supplies gaming systems, software, table gaming equipment and other gaming related products and services to casinos, clubs and hotels.
BHP Group Ltd
Australia
Materials
BHP Group Limited operates as a mining company. The Company engages in the exploration, development, production, and processing of iron ore, metallurgical coal, and copper. BHP Group serves customers worldwide.
CBA
Australia
Financials
Commonwealth Bank of Australia provides banking, life insurance, and related services for individuals, small businesses and medium sized commercial enterprises. The Bank provides corporate and general banking, international financing, institutional banking and stock broking and funds management such as superannuation product.
Credit Corp
Australia
Financials
Credit Corp Group Limited provides collection and credit management services in Australia. The Company purchases charged-off and delinquent debts and also provides document serving and field call services, debtor location services and legal services.
CSL
Australia
Health Care
CSL Limited develops, manufactures and markets human pharmaceutical and diagnostic products derived from human plasma. The Company's products include pediatric and adult vaccines, infection, pain medicine, skin disorder remedies, antivenoms, anticoagulants, and immunoglobulins.
Evolution Mining
Australia
Materials
Evolution Mining Ltd is a gold exploration company with operations in Western Australia. The Company owns the gold mines -Cracow, Edna May, Mt Rawdon, and Pajingo - and the Mt Carlton development project.
NAB
Australia
Financials
National Australia Bank Limited (NAB) provides banking financial solutions. The Company offers internet banking, accounts, insurance, credit cards, home loans, and personal loans. NAB serves customers in Australia.
Telstra
Australia
Communication Services
Telstra Corporation Limited is a full service domestic and international telecommunications provider for Australia. The Company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services.
Woolworths
Australia
Consumer Staples
Woolworths Group Limited offers retail operations. The Company operates general merchandise consumer stores and supermarkets, as well as engages in procurement of food, liquor, and products. Woolworths Group also provides hotels which includes pubs, food, accommodation, and gaming operations. Woolworths Group serves customers in Australia and New Zealand.

Sector Breakdown

Capitalisation Breakdown

Country Breakdown

Custom Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 May 20221
1 MTH 1 YEAR 3 YEARS P.A. 5 YEARS P.A. 10 YEARS P.A. SINCE INCEPTION P.A.
Australian Equities Fund -3.0% -4.4% 5.5% 5.9% 8.4% 9.1%
Fund Objective: RBA Cash Rate plus 6% 0.5% 6.1% 6.3% 6.8% 7.6% 8.3%
ASX Accumulation All Ordinaries Index -3.1% 4.7% 8.5% 9.3% 10.5% 6.8%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

For the first time in several months, the ASX underperformed global peers during the month of May, with the S&P 500 holding broadly flat, whilst Asian and European markets mostly generated positive returns. With the exception of the Materials sector (+0.1%), all ASX sectors trended lower, led by Real Estate, Technology, and Staples.

Global Inflation continues its upward march – with the May release for the annual inflation rate in the US once again printing ahead of expectations at 8.3%, whilst CPI in Australia accelerated to 5.1% for the 12 months to March.  We believe domestic inflation is likely to experience further upward pressure, with wage growth just starting to emerge, energy prices likely to accelerate, and retailers talking of the need for price points to go up.  Central banks continue to pursue hiking policies in an attempt to reign in the escalating inflation, with the RBA this week increasing rates by 50bps, the largest single hike for more than 20 years, following its first hike for this cycle in early May.

Economies globally are facing the double whammy of having to digest the removal of unprecedented levels of quantitative easing and other stimulus support, whilst at the same time adjusting to the inflection point of a 30 yr downward interest rate cycle, with interest rates globally now rising again at pace.  The cost of money is going up at the same time as the availability of money is going down, a troubling formula (to say the least) for investing in long-duration assets.

We continue to position the portfolio with a view to navigating these challenges, ensuring exposure to business models with pricing power and low levels of price elasticity (to combat inflation) as well as those who benefit from a rising interest rate environment.  In addition, our cash balance continues to rise from a low point earlier in the year, and we continue to benefit from our put position in the portfolio, the value of which has risen considerably given recent market movements.

The main contributors to performance in the month were positions in Amcor, Ryman Healthcare, BHP, and NIB Insurance, whilst the main detractors were Credit Corp, Woolworths, and Super Retail Group.  Portfolio activity focused mainly on opportunistic adding to existing positions on weakness, in particular to BHP and Macquarie Group, whilst disposals included exiting a position in Fortescue Metals Group (focusing our materials exposure on BHP), and otherwise related to managing liquidity, trimming positions in DBI and NHF.

Despite elevated volatility in markets, we remain as focused as ever on our primary objectives of capital preservation and generating a reasonable real return for our investors.  We continue to believe this is best served by a disciplined approach and consistent investment methodology. A variety of good businesses, run by honest and competent management teams, at the right price, will create a well-diversified portfolio of ever-growing cash earnings streams.

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
2021/2022 0.3%3%-0.4%-1.1%-0.6%1%-6.7%1.3%1.9%-0.6%-3%-12%0.2%-7.4%
2020/2021 1.5%2%-2%1.5%10.2%2.3%-0.9%0.3%3.1%3.6%2.6%1.1%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%

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%

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
11.3%
NUMBER OF STOCKS
28
BETA4
0.63
MAXIMUM DRAW DOWN
-23.1%

FEATURES

  • APIR CODE PCL0005AU
  • REDEMPTION PRICEA$ 1.8573
  • FEES * Management Fee: 1.025%
    Performance Fee: 10.25%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 847.35m
  • 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 Ethical Fund
Axiom International Ethical Fund
Axiom International Ethical Fund (Hedged)
Axiom International Ethical 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

1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. 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.