Investing when the cost of money is extremely low
PORTFOLIO
Top Holdings (alphabetically)
Sector Breakdown
Capitalisation Breakdown
Country Breakdown
Custom Sector Breakdown
PERFORMANCE
Performance Table
NET PERFORMANCE FOR PERIODS ENDING 31 Oct 20191
Performance Chart
NET PERFORMANCE SINCE INCEPTION2
COMMENTARY
Backdrop
Investing when the cost of money is extremely low has been interesting, and in some cases, challenging.
People do strange things when the cost of money gets this low, and on a global basis we’ve got a chart going back 300 years for the global cost of money (which is the US 10-year bond yield) and it’s never been lower. So you’re starting to see some distortions of how people are pricing, and particularly in monetary policy, that are unusual.
The second factor, which is creating a lot of noise is the on-off trade war that we’ve seen (whether it’s a tweet coming out from Donald Trump, or it’s commentary from the Chinese authorities) is that markets have fluctuated from optimism to pessimism, and this is creating a lot of noise.
As always, we try to focus on the underlying fundamentals, and we’ve been finding fertile ground in focusing on the underlying fundamentals of companies that make, what we call, toilet paper and toothpaste type products or services.
In addition to people doing crazy things, certain share prices of our favorite stocks have done exceptionally well, and our old favorites of CSL, Credit Corp, ResMed, and, with a little bit of volatility, Super Retail have really shot the lights out in the last month, and longer. As many of you know, we’ve had these companies for many years. Over a decade in most cases, and they’ve done exceptionally well.
Valuations are getting full and during the month we trimmed some of them quite substantially but have been taking some profits. On the flipside, something else that’s occurred with worrying regularity is the volatility that we’ve seen in various share prices. We have successfully been on the right side of trades where share prices have fluctuated 10 – 15% percent within a month, and in some cases, particularly Super Retail, within a 3-day period. We have a valuation of what we think the company’s worth, some news comes out, we test that news against our investment thesis and, as is the case with Super Retail (the stock fell 10 -15 %) we bought substantial amounts of stock, and 3 days later the market decided that maybe they got it wrong and it had bounced up 10 -15%.
This has occurred regularly with several of our core holdings: Credit Corp, ResMed, Accent1, NIB, Medibank, Super Retail. It’s a flag to us that conviction is not that strong, and that there’s a lot of hot money flowing through the market.
The Portfolio
The portfolio is filled with toilet paper and toothpaste type businesses where we don’t have to worry about the economic cycle. We have no commodities and where we do have some discretionary retail, as in Super Retail, JB Hi-Fi and Accent 1, they’re being priced as though the economy is not going to recover. So, if the economy does recover from these levels, we think we’ll get a nice bonus.
And so, after a year where we’ve recovered exceptionally well from our lows of last year, we think the portfolio is very well placed, together with our put protection, to succeed in achieving our dual goals of capital preservation and delivering that risk-free rate + 6.
PERFORMANCE TABLE
FUND PERFORMANCE (A$, NET OF FEES)
PROFILE
Platform Availability
- AMP MyNorth
- Asgard Element (Masterfund)
- Asgard – E Wrap, Master Trust, Infinity
- AET Wholesale Access Fund
- BT Panorama
- BT Wrap
- Colonial First Choice
- Centric IDPS
- First Wrap
- FNZ
- HUB24
- IOOF Pursuit
- IOOF
- Macquarie Wrap
- MLC Wrap
- Mason Stevens
- Navigator
- Netwealth
- OneVue
- Omniport(lifespan)
- Powerwrap
- Praemium
- uXchange
STATISTICAL DATA
PORTFOLIO SUMMARY
FEATURES
- APIR CODE PCL0005AU
- REDEMPTION PRICEA$ 1.9303
-
FEES *
Management Fee: 1.025%
Performance Fee: 10.25% - Minimum initial investment A$10,000
- FUM AT MONTH END A$ 1030.63m
- 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
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.