SUMMARY
The Fund generated a solid 1.5% in the month of October.
The Fund generated a solid 1.5% in the month of October.
The Fund generated a solid 1.5% in the month of October.
In comparison, the Australian stock market grew by 2.1% and the RBA cash rate yielded less than 0.1%.
Optimism in the macro outlook grew steadily throughout October, starting with an indication of further monetary easing from the RBA, followed by a Federal Budget which was viewed as being more supportive than most investors had anticipated, and culminating in a re-opening of Victoria towards the end of the month. As a result, Consumer and Corporate confidence measures improved markedly through October. We applaud the government authorities’ efforts in stabilising the economy during the pandemic.
On the corporate front, AGM trading updates were mixed as a whole, still reflecting the bifurcation in business models that are either struggling or thriving in the current environment. That said, improved confidence in the outlook at both a company and macro-level drove sharp upgrades to consensus forward earnings estimates, which grew in aggregate over 3.5% in October, one of the largest monthly increases in over a decade (albeit it off a very low base). Another feature of the month was the emergence of corporate activity, taking advantage of selectively depressed valuations and very cheap debt. Examples in October included Coca-Cola Amatil, AMP and Link all receiving bids, and activity has continued into November. We suspect that we are only at the start of this trend.
At a Fund level, our holdings in Resmed, Credit Corp, National Australia Bank and CBA were the main contributors to performance whilst Flexigroup, Telstra, Aristocrat and Evolution Mining impacted negatively.
During the quarter we added to our positions in the Financials, increasing holdings in Westpac and ANZ, whilst also adding to positions in Telstra on share price weakness and CSL. We trimmed our positions in Bingo, Credit Corp, Waypoint REIT and Meridien after strong rallies.
Having underperformed the broader market for some time, the Financials ‘caught a bid’ in October, increasing in aggregate by over 6% in the month. Whilst valuation has been broadly supportive for some time now, the outlook for the banks benefited in particular through the month by evidence of:
These factors were key to the Fund increasing its exposure to the major banks during the month.
As we exit ‘AGM season’, November continues to present a number of milestone events for us to test our investment thesis for a number of our core holdings, including (among others) an investor day for Telstra, and full-year results for Aristocrat.
In the meantime 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:
CIO and Senior Fund Manager
Deputy CIO and Fund Manager
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.
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.