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Australian Equities Fund

A portfolio of Australian businesses with transparent and resilient business models

July 2022 - Monthly REPORT

Strong start to the new financial year as we head into corporate reporting season.

SUMMARY

The Pengana Australian Equities Fund enjoyed a strong start to the new financial year, generating a +6.4% return in July.  By way of comparison, the (annual) return of the RBA cash rate plus 6% equated to approximately +0.5% for the month, whilst the Australian stock market grew by 6.3%.

Despite the strong equity market momentum, we continue to see reasons for caution.  The risks that we have been discussing for some time now – rising inflation, rising interest rates globally, the withdrawal of stimulus and money supply, geopolitical tensions in Europe and more recently, resurfacing questions of systemic risk in China – continue to present a difficult environment for protecting capital and making money.

We are also about to enter the reporting season for most companies’ fiscal 2022 year results, a period where we will be looking to test and validate our investment thesis for each of our holdings.

PORTFOLIO

Top Holdings (alphabetically)

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.
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.
ResMed
Australia
Health Care
ResMed Inc. develops, manufactures, and markets medical equipment for the treatment of sleep disordered breathing. The Company sells diagnostic and treatment devices in various countries through its subsidiaries and independent distributors.
SG Fleet
Australia
Industrials
SG Fleet Group Ltd provides vehicle leasing and fleet management services. The Company offers its services to corporate and government customers and individual employees of those customers.
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 Jul 20221
1 MTH 1 YEAR 3 YEARS P.A. 5 YEARS P.A. 10 YEARS P.A. SINCE INCEPTION P.A.
Australian Equities Fund 6.4% -6.6% 3.7% 5.1% 8.1% 8.9%
Fund Objective: RBA Cash Rate plus 6% 0.6% 6.2% 6.3% 6.8% 7.5% 8.3%
ASX Accumulation All Ordinaries Index 6.3% -2.6% 4.9% 8.4% 9.6% 6.4%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The Pengana Australian Equities Fund enjoyed a strong start to the new financial year, generating a +6.4% return in July.  By way of comparison, the (annual) return of the RBA cash rate plus 6% equated to approximately +0.5% for the month, whilst the Australian stock market grew by 6.3%.

All sectors, with the exception of Materials, rose in the month, with a strong rebound in particular from the IT and REIT sectors, whilst the ‘risk on’ environment saw small-cap stocks outperform large caps.

It was pleasing that the Fund was able to fully participate in a strong market during July, particularly given the generally defensive bias of the portfolio, the presence of put options (which lose value in a rising market), and a rising cash balance (lower equity exposure).  NAB, SG Fleet, Credit Corp, and CSL were the major contributors to the fund’s performance in July, whilst detractors were limited to BHP (weaker commodity prices) and NIB insurance, as well as the Fund’s put option position.  In contrast to much of the last 6-12 months, the Fund benefited in July from a lower relative exposure to the energy and materials sectors.

Despite the strong equity market momentum, we continue to see reasons for caution.  The risks that we have been discussing for some time now – rising inflation, rising interest rates globally, the withdrawal of stimulus and money supply, geopolitical tensions in Europe, and more recently, resurfacing questions of systemic risk in China – continue to present a difficult environment for protecting capital and making money.

We are also about to enter the reporting season for most companies’ fiscal 2022 year results, a period where we will be looking to test and validate our investment thesis for each of our holdings.  We expect corporate earnings to be mostly positive, taking into account the generally favourable conditions that continued to be in place through to June 2022.  However, with those conditions changing substantially as we enter the new financial year, we consider FY22 performance to be mostly a rearview mirror perspective. Our focus will instead be on outlook statements, both qualitative and quantitative, as management teams provide some perspective on the prospects for earnings and cash flows in what will be a very different operating environment in this financial year.

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.

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
2022/2023 6.4%2.4%0.7%6.5%
2021/2022 0.3%3%-0.4%-1.1%-0.6%1%-6.7%1.3%1.9%-0.6%-3%-7%-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%

2022/2023

Jul 6.4%
Aug -0.1%
Sep -6.1%
Oct 2.7%
Nov
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
11.5%
NUMBER OF STOCKS
28
BETA4
0.63
MAXIMUM DRAW DOWN
-23.1%

FEATURES

  • APIR CODE PCL0005AU
  • REDEMPTION PRICEA$ 1.779
  • FEES * Management Fee: 1.025%
    Performance Fee: 10.25%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 804.46m
  • 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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Axiom International Ethical Fund (Hedged)
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High Conviction Property Securities Fund
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Global Small Companies Fund
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WHEB Sustainable Impact Fund
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Emerging Companies Fund
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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. 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.