The strong rebound in the stock market since the lows of March continues to moderate, with the Australian stock market up a relatively modest 0.6% in July. By comparison, your fund returned 1.1%.
Over recent months, market sentiment has swung from pure panic in March, bargain hunting and speculation (particular from first-time retail investors) in April and May, to a semblance of normality in June and July.
Read our full commentary below
The strong rebound in the stock market since the lows of March continues to moderate, with the Australian stock market up a relatively modest 0.6% in July. By comparison, your fund returned 1.1%.
Over recent months, market sentiment has swung from pure panic in March, bargain hunting and speculation (particular from first-time retail investors) in April and May, to a semblance of normality in June and July.
However, there are many reasons for caution for an equity investor at this juncture. Most pressing is, of course, the re-emergence of COVID-19 in Victoria with the state going into almost complete lockdown. This is clearly negative for the Australian economy as a whole and the risk that such measures spread to other states cannot be ignored. This “second wave” phenomenon also appears to be gathering pace across the globe, with obvious negative implications for global trade.
We are also just about to enter the reporting season for most companies’ fiscal 2020 year results. It promises to be a sobering experience and for investors it will be the first opportunity to see the damage that the past 6 months have wrought on their investee companies. Whilst many investors understand that FY20 has been unusual to say the least, and are focussing their attention on the prospects for FY21 and beyond, it is more difficult than ever for companies to give any forward-looking guidance. On balance, we feel that managements will err on the side of caution when making comments on the outlook for their businesses. It is likely that guidance statements for FY21 will be either very wide or deferred to a later date, possibly the annual general meeting season in November.
We also expect to see a fresh round of capital raisings associated with results announcements and that may also exert downward pressure on stocks as funds are diverted towards new issues at discounted prices.
On the political front, things are no rosier with what looks like an ever-worsening relationship between China and the USA. The US presidential election in November looms large and it is hard to see a let up in the anti-Chinese rhetoric in the lead-in.
Of course, all of the above reasons for caution may be completely overshadowed (in the short term at least) should there be an announcement of an approved vaccine against covid-19. There has never been so many resources poured into a search for a vaccine and in recent weeks we have heard of several promising preliminary results from credible research organisations.
Against this backdrop, we have positioned the portfolio with a little more caution. Our cash balance has crept up from ~5% to ~10%. The only major position change was to sell our holding in Auckland Airport. We had originally anticipated the trans-Tasman travel “bubble” to be operating from September but that now seems extremely unlikely.
Top portfolio performers for the month were Credit Corp, Telstra, Super Retail Group and Spark NZ. Our largest detractors were Ampol, Contact Energy, Westpac and Ramsay Health Care.
Fund Manager and Investment Analyst
Fund Manager and Investment Analyst
The strategy invests in a high conviction portfolio of Australian listed securities with sustainable and growing income streams. The Fund targets capital preservation over supernormal returns, through a consistent focus on the security selection process and careful management of portfolio exposure. The Fund seeks to generate consistent returns with a high component of the return from income, using fundamental company research to uncover investment opportunities. The Fund is managed by the Pengana Australian Equities team.
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. A new strategy was implemented from 1 August 2017 by the Pengana team. The financial information refers to this strategy. For full performance history of the prior strategy please refer to the Pengana website.
3. Annualised standard deviation since inception.
4. Relative to ASX 300 Accumulation Index.
* For further information regarding fees please see the PDS available on our website.
