CLOSE
BACK

OUR FUNDS

CLOSE

Australian Equities Income Fund

August 2020 - Monthly REPORT

A unique earnings season

SUMMARY

Equity markets performed strongly through August, with the Australian stock market up 3.0% over the month. Your fund performed in line with the market, a pleasing result given our more cautious stance of late.

We have just completed another ‘earnings season’ domestically, which was unique in this period in that it encapsulated both the depth of the COVID shut down in March and April, and the sharp rebound in economic activity in May and June.

PORTFOLIO

Top Holdings (alphabetically)

Ampol Limited Australia Energy BHP Group Ltd Australia Materials CBA Australia Financials NAB Australia Financials Spark New Zealand Ltd New Zealand Communication Services Telstra Australia Communication Services Waypoint Reit Ltd Australia Real Estate Westpac Australia Financials Woolworths Australia Consumer Staples Z Energy New Zealand Energy

Sector Breakdown

Capitalisation Breakdown

Country Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 Aug 20201
1 Month1 YearSINCE INCEPTION
Fund 3.0%-10.1%-0.4%
RBA Cash Rate 0.0%0.5%1.2%
ASX 300 Accumulation Index 3.0%-4.8%6.3%
1 Month1 YearSINCE INCEPTION
Fund
3.0%
-10.1%
-0.4%
RBA Cash Rate
0.0%
0.5%
1.2%
ASX 300 Accumulation Index
3.0%
-4.8%
6.3%

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Equity markets performed strongly through August, with the Australian stock market up 3.0% over the month. Your fund performed in line with the market, a pleasing result given our more cautious stance of late.

We have just completed another ‘earnings season’ domestically, which was unique in this period in that it encapsulated both the depth of the COVID shut down in March and April, and the sharp rebound in economic activity in May and June.

Corporate earnings were generally better than expected, supported by resilience in revenues (aided by various stimulus measures).  Earnings forecasts for FY21, however, were revised down on balance, with downgrades to Industrials, Financials and Telcos offsetting upgrades in the Resource sector.  Forecast risk remains high.  Whilst trading updates were generally positive, few management teams felt they had the visibility to provide guidance for the financial year ahead.  The current Victorian shutdown, the potential for second waves in other key states, and the timing of a withdrawal of stimulus measures were key unknown variables.  It would appear however that the market loves a mystery, with the lack of forward-visibility not preventing stocks from performing well on the day of results.

Cash flows were generally quite strong as working capital balances unwound and balance sheets were restored by a series of capital raisings over the past 3-6 months.  As anticipated, we witnessed a further round of capital raisings by corporates that were able to survive the depths of the downturn, but ultimately needed to restore balance sheets to meet investors’ (and boards’) lower appetite for gearing post-Covid. Examples include Sydney Airport, Tabcorp and Flexigroup.

Hi P/E ‘growth’ stocks continued to drive the market rally – in particular the IT subsector.  Afterpay was second only to CSL in terms of contribution to the overall index performance.  Despite only being <4% of the index, the IT sub-sector contributed ~20% of the overall index performance for the month.  The largest contributor to the index however was the Consumer Discretionary sector, fuelled by a buoyant consumer post lock down, and the fund was able to benefit from its holdings in this space including Super Retail Group, Flight Centre and Bapcor.

Super Retail Group has been a core holding for the fund since inception and we think is particularly well positioned in the current environment to benefit from COVID trends, with the consumer pivoting from international to domestic travel (road trips / camping), mass gyms to at-home fitness, and home tinkering projects around the garage.  With a balance sheet strengthened by the recent capital raise, and strong and improving omni-channel capabilities, we think the group should not only trade well through the current environment, but also emerge stronger in a post Covid world.

The market has rallied hard off its lows, to now trade at almost 20x 12-month forward earnings (Industrials ex Financials almost 30x), and we are finding it increasingly difficult to identify new opportunities that are consistent with our process and valuation requirements.  With a difficult (albeit improving) situation in Victoria, the live risk of a second wave in other key states, and the pending reality check of stimulus withdrawal and longer-term impacts on the economy, we continue to believe that there are many reasons to exercise caution. On the other hand, the increasing prospect of an effective vaccine against covid-19 is a positive influence at play.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
17%
NUMBER OF STOCKS
34
MAXIMUM DRAW DOWN
-29.2%

FEATURES

  • APIR CODE HHA0001AU
  • REDEMPTION PRICEA$ 1.0744
  • FEES * Management Fee: 0.716% p.a.
    Performance Fee: 10.25%^
  • Minimum initial investment A$20,000
  • FUM AT MONTH END A$ 12.64m
  • STRATEGY INCEPTION DATE 1 August 2017

Fund Managers

Mark Christensen

Fund Manager and Investment Analyst

Chris Tan

Fund Manager and Investment Analyst

Description

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.

EXPLORE OUR FUNDS

Harding Loevner International Fund
Harding Loevner International Fund
Axiom International Fund
Axiom International Fund
Axiom International Fund (Hedged)
Axiom International 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
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit Fund

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.