Global equity markets fell back in February following the strong gains made in January. This was offset by a weaker Australian dollar, with the MSCI All Country World Index AUD gaining 1.5%. The Fund underperformed the benchmark by 0.2% in Australian dollar terms.
US inflation continued its trend down, falling to 6.4% year-on-year in January from 6.5% in December. Economic growth trends remained consistent with those seen in January as purchasing managers’ data improved across the major economies. China continues to make rapid progress on re-opening, resulting in growing expectations of a strong economic recovery.
The Fund retains its focus on dynamic growth stocks. Positive revisions to earnings-per-share (EPS) can continue to drive outperformance as the economy moves into a period of weaker overall earnings growth. The Fund continues to overweight information technology, consumer discretionary and health care, while underweighting financials, energy, and materials.
Positive stock selection in industrials and health care contributed to relative returns, while negative stock selection in consumer staples and information technology were the main detractors. Overweight positions in FTI Consulting, Tesla, and Copart were the strongest contributors to relative performance, while positions in Estee Lauder, Danaher, and Alibaba were the most significant detractors.
FTI Consulting recently reported fourth quarter earnings results which were well ahead of investor expectations, with revenue increasing 15% year-on-year and EPS 14% ahead of the market consensus. Initial 2023 guidance exceeded analysts’ expectations for revenues by 5% and was in-line with its forecasts for EPS.
Copart also reported second quarter earnings results and guidance that were ahead of investor expectations. Revenues grew 10% year-on-year (3% ahead of the market consensus) following improved international vehicle sales and US vehicle services.
Tesla continued to perform well as year-to-date vehicle orders remain elevated and anticipation of the company’s high profile investor day in March continued to grow.
Estee Lauder underperformed the market following its second quarter earnings results which were slightly below market estimates and it provided updated forward guidance, which was below the consensus. The shortfall was largely the result of one-off impairments, such as re-ordering in China being delayed by a quarter. These timing issues should not materially impact its upside earnings potential over the next two to three years. However, the Fund considered it prudent to trim the position.
Danaher continued to underperform the market following its fourth quarter earnings results in mid-January, when its 2023 forecasts were below market expectations. The company has a record of conservative guidance, but there now appears to be less potential for a positive surprise, leading to the Fund reducing its position in the company.
Alibaba recently reported its fourth quarter earnings results, with a 2% year-on-year revenue growth (1% ahead of investor expectations) and EPS well ahead of market estimates. Despite the strong results, the stock underperformed following the solid share price gains in January. This was in line with the broader China technology sector, as tensions between China and the US grew over the course of the month.
The Fund established a position in the German national airline Lufthansa during the month. Prior to Covid it had the highest exposure to the Asian market of the major network carriers, which leaves it well positioned to benefit as China re-opens. Its strong balance sheet brings good opportunities to deliver outperformance as earnings growth accelerates. The stock is valued at a discount to peers and historic earnings multiples.
The Fund completed its exit from Generac, the US manufacturer of back-up power generation products, following recent share price outperformance. The alternative energy business is becoming more competitive and uncertainty surrounds the company’s order book.
In February the Fund engaged with Swiss-based food and drink manufacturer Nestle over its non-reporting of healthy food contributions to its product portfolio. This led directly to the company agreeing to establish a target by mid-September and committing to two further engagement meetings over the coming months.
Managing Director/Portfolio Manager
CEO/Chief Investment Officer
The Pengana Axiom International Ethical Fund invests in companies that are dynamically growing and changing for the better, more rapidly than generally expected and where the positive changes are not yet reflected in expectations or valuation.
The Global Equity Strategy seeks dynamic growth by concentrating its investments in global developed markets, and may also invest in companies located in emerging markets.
The investment manager is Axiom Investors, a Connecticut-based global equity fund manager formed in 1998 with over US$19billion in assets under Management.
Prior to June 2021, the Axiom Global Equity Strategy performance (shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Axiom Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of the stated class. The simulation does not include the Pengana ethical screen. From June 2021 the strategy performance is the performance of the Pengana Axiom International Ethical Fund.
1. Axiom was appointed fund manager as of 5 May 2021. June 2021 represents the first full month of Axiom managing the Fund.
2. Inception date 1 July 2017. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund: APIR (HOW0002AU) in the table above which is the continuous performance of both the current and previous strategies.
3. Axiom Global Equity Strategy inception 1 Jul 2004.
4. Prior to June 2021, the Axiom Global Equity Strategy performance (labeled ‘Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Axiom Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of the stated class. The simulation does not include the Pengana ethical screen. From June 2021 the strategy performance is the performance of the Pengana Axiom International Ethical Fund.
5. MSCI All Country World Total Return Index in AUD.
6. Performance for periods greater than 12 months are annualised. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. 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.
7. Annualised standard deviation since inception.
8. Relative to the MSCI All Country World Total Return Index in AUD.
*For further information regarding fees please see the PDS available on our website.
