Axiom Investors - May 2022

1. New positions initiated in Global Pharmaceutical business Eli Lilly, And consumer good giant Nestle
2. We exited our holding in Trex which will be affected by a slowdown in US housing activity, and Block due to their exposure to cryptocurrencies, as well as the deteriorating prospects for Afterpay
3. We continue to believe that positive earnings revisions will be the most likely factor to drive outperformance at this point in the economic cycle

During May 2022, the Pengana Axiom International Ethical Fund (Hedged) (“Fund”) generated a return of -2.5%, underperforming the benchmark, the MSCI All Country World Total Return in AUD (Hedged), by -2.3%.

Portfolio Manager Bradley Amoils recently held a Portfolio and Investment Update webinar which can be found below. Financial planners may also complete a short questionnaire available HERE for CPD points.

Top Holdings (alphabetically)

Alphabet Inc

United States

Communication Services

Alphabet Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

Amazon

United States

Consumer Discretionary

Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.

Asml Holdings

Netherlands

Information Technology

ASML Holding N.V. develops, produces, and markets semiconductor manufacturing equipment, specifically machines for the production of chips through lithography. The Company services clients worldwide.

Danaher

United States

Health Care

Danaher Corporation designs, manufactures, and markets professional, medical, industrial and commercial products, and services in the sectors of test and measurement, environmental, life sciences, dental, and industrial technologies.

Estee Lauder Cos Inc

United States

Consumer Staples

The Estee Lauder Companies Inc. manufactures and markets a wide range of skin care, makeup, fragrance, and hair care products. The Company's products are sold in countries and territories around the world.

Microsoft

United States

Information Technology

Microsoft Corporation develops, manufactures, licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops video game consoles and digital music entertainment devices.

ServiceNow Inc

United States

Information Technology

ServiceNow, Inc. provides enterprise information technology (IT) management software. The Company designs, develops, and produces prepackaged computer software, cloud services, and IT service management platform. ServiceNow serves customers throughout the United States.

Sony Group Corp

Japan

Consumer Discretionary

Sony Group Corporation manufactures and distributes electronics products and provides related solutions. The Company produces televisions, cameras, mobiles, audio and video products. game equipment, and more. Sony Group also engages in game production, movie production, music production, and other businesses.

TE Connectivity

United States

Information Technology

TE Connectivity Limited provides engineered electronic components, network solutions, undersea telecommunication systems, and wireless systems. The Company designs, manufactures, and markets products for customers in industries ranging from automotive, appliance, and aerospace and defense to telecommunications, computers, and consumer electronics.

Tesla Inc

United States

Consumer Discretionary

Tesla Inc. designs, manufactures, and sells high-performance electric vehicles and electric vehicle power train components. The Company owns its sales and service network and sells electric power train components to other automobile manufacturers. Tesla serves customers worldwide.

The headwind for growth orientated strategies continued through May.  The market sold off sharply in the early part of the month as  concerns around increasingly restrictive monetary policy and the COVID-related economic slowdowns in China weighed on sentiment. However, the market ended the month reasonably flat as some evidence of “peaking” inflation (i.e. improved personal consumption expenditure in the US) started to emerge.  There is less evidence in Europe, where German CPI grew +7.9% year over year, compared to +7.2%, driven by higher commodity prices and a strong US dollar, and German retail sales only rose +2.5% year over year, which was significantly less than the consensus expectations of +4.4%

Against this backdrop, Axiom continues to focus on dynamic growth stocks.  We believe positive earnings revisions will be the most likely factor to drive outperformance at this point in the economic cycle. The Fund continues to be overweight in information technology and consumer discretionary, and has moved into a slight overweight position in healthcare.  We remain underweight in financials, energy, and materials and have reduced our position from overweight to underweight in industrials.

Turning to attribution, the Fund underperformed in the communication services, industrials, and information technology sectors. Tesla, Gartner, and Live Nation were the largest relative detractors. China’s COVID lockdowns in Shanghai continued to impact Tesla’s production, and the shares were further pressured by volatility related to founder/CEO Elon Musk’s proposed acquisition of Twitter.   Gartner reversed April’s strong performance as strong earnings and a raise to full-year guidance was sold on heightened investor expectations. Sony, Danaher, and Blackstone were our top relative performers in May.  Sony reported strong results and provided positive forward-year guidance with particular focus on their semiconductor division.  Danaher’s shares rebounded strongly late in the month along with broader markets. It was pleasing to see MSCI recognising their improved governance practices with an upgrade to their ESG rating.

Our biggest portfolio changes during the month were allocating capital away from consumer discretionary and industrial sectors, and continuing to downsize in information technology.  Tesla, Recruit and Atlas Copco were the largest position reductions.  For Tesla, the production impacts from the COVID lockdown in Shanghai are making us more cautious about near-term operational fundamentals warranting a decrease in exposure. We significantly reduced our holding in Recruit prior to their earnings announcement as we had concerns around slowing trends in their core Indeed.com job placement portal.  Slowing global economic growth also poses risks to Atlas Copco. One of the Strategy’s largest additions was Novo Nordisk.  In addition to very strong operating results, our tracking of script data indicates that key drug Ozempic continued to track above consensus expectations.

We initiated new positions in Eli Lilly and Nestle.  Eli Lily is a global pharmaceutical company currently benefitting from the dual drivers of a duopoly with Novo Nordisk in the GLP-1 class of diabetes treatments which is tracking ahead of expectations, and continuing to gain share from the breast cancer drug Verzenio, which is capturing the majority of new patient starts.  For Nestle, our analysis indicates upside for a number of  their businesses including premium coffee and pet food as pricing power and the limited price elasticity of demand are driving revenue growth above consensus expectations.

We exited two names during the month, Block and Trex.  Block’s exposure to cryptocurrencies, as well as the deteriorating prospects for the recently acquired Afterpay BNPL (Buy-Now-Pay-Later) business drove us to exit the remaining small position.  Trex, a leading provider of alternative “wood” products, primarily made from recycled materials, will be negatively impacted by the slowdown in US housing activity as increasing mortgage rates impact affordability.