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Axiom International Ethical Fund

An option of HEDGED or UNHEDGED portfolios of dynamic and growing companies undergoing positive change, within a robust ethical framework.

March 2022 - Monthly REPORT

Growth factors continue to improve on a relative basis

SUMMARY

During March 2022, the Pengana Axiom International Ethical Fund underperformed the benchmark, delivering -2.4%, versus the MSCI All-Country World Index (“Index”) which delivered -1.3%, in AUD terms.

PORTFOLIO

Top Holdings (alphabetically)

Alphabet Inc
United States
Communication Services
Amazon
United States
Consumer Discretionary
Apple
United States
Information Technology
Asml Holdings
Netherlands
Information Technology
Danaher
United States
Health Care
Live Nation Entertainment Inc
United States
Communication Services
Microsoft
United States
Information Technology
ServiceNow Inc
United States
Information Technology
TE Connectivity
United States
Information Technology
Tesla Inc
United States
Consumer Discretionary

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE FOR PERIODS ENDING 31 Mar 20226

Pengana Axiom International Ethical Fund

The Class was established in 1 July 2017. From June 2021 Axiom was appointed as the investment manager for the Fund.

1M
Since
Axiom Appointed
June 20211
1Y 3Y
Since Fund
Inception
July 20172
5Y
Since Strategy
Inception
July 20043
Fund: APIR (HOW0002AU)1,2

Managed by Axiom from June 2021
-2.4% 0.9% 0.3% 11.0% 10.3%
Current Strategy (Partial Simulation)4

Axiom Global Equity Strategy
3.9% 13.7% 14.3% 14.7% 8.2%
Index5 -1.3% 4.3% 8.8% 11.7% 11.8% 12.0% 7.6%

Swipe horizontally to see all columns

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE SINCE INCEPTION6

COMMENTARY

The dual issues of accelerating inflation and slowing economic growth continue to create a challenging environment for our strategy which focuses on investing in dynamically growing businesses.  Examples of headwinds include, core Eurozone CPI growth in February accelerating 40bps to +2.7% YoY; US ISM Manufacturing New Orders slowing to 53.8 in March, from 61.7 in February; and, an inverted US yield curve in late March creating further uncertainty about the trend of medium-term global economic growth. We are however encouraged by the Fund’s improved relative performance during the second half of March as the factors we seek to invest in continue to improve on a relative basis, and EPS revisions should continue to drive outperformance at this point in the economic cycle.

Our ethical filters exclude investments in energy (the strongest performing sector year to date) and certain materials sectors such as metals and mining. This has been a major headwind to index relative performance. Consumer discretionary was the Fund’s best performing sector. We  continue to hold overweight positions in information technology, consumer discretionary, and industrials.

At the stock level, TE Connectivity, AMD, and Estee Lauder were the largest relative detractors.  While TE Connectivity’s leading position in the electrification of automobiles remains very favourable, semiconductor-related bottlenecks continue to adversely affect vehicle sales and production.  As a result, we have modestly reduced exposure.  Tesla, Danaher, and Deer & Company were our top relative performers in March.  Tesla continues its production execution excellence despite various logistical challenges while demand for its industry-leading electric vehicles continues to outpace expectations.

We continued to allocate capital away from information technology, primarily semiconductors and software as leading macroeconomic indicators continue to deteriorate.  Inflation is beginning to show signs of impacting consumer goods demand globally. The Fund’s largest trim during March was Adobe Systems given concerns around near-term operating fundamentals.  Our prediction of a potentially disappointing quarterly result was accurate as management indicated seeing a slowdown in demand during the last month of the quarter (February) in Europe given geopolitical events.  After reducing the position size by 1/3 before results, we will be maintaining the current weight as expectations have been reset and recent price increase announcements should drive positive estimate revisions in 2H22.  Our biggest add was Tesla.  Production and deliveries year-to-date continue to outpace expectations and a further positive surprise is likely as new production facilities in Germany and Texas, USA ramp throughout 2022.

We initiated new positions in Canadian National Railway, Costco Wholesale, and Nutrien, a Canadian-based supplier of fertiliser. Canadian National recently announced a new CEO with a focus on improving operational performance.   Improving operations more in-line with North American peers will be the primary dynamism driver, especially when coupled with the geopolitics driving Canada’s improved positioning in global natural resource markets.  Costco Wholesale’s membership model drives pricing power in today’s inflationary environment relative to the grocery/staples peer group.  Same-store sales continue to outperformance expectations, and we expect a membership price hike to further boost sales performance over the near/medium-term. For Nutrien, the global fertiliser supply/demand fundamentals are very favourable as supply is concentrated and continued elevated crop prices will incentivise farmers to spend on fertiliser application to boost crop yields. Nutrien is also uniquely positioned on the global cost curve as North American natural gas prices remain well below prices in Europe and Asia. Most importantly, these fundamentals were in-place before the Ukraine/Russian conflict and have only become more attractive.

We exited three names during the month, American Eagle Outfitters, Home Depot, and Tencent Holdings. While American Eagle continues to show strong revenue growth, higher-than-expected supply-chain costs are creating a downward earnings estimate revision cycle that will likely last over the medium-term, warranting exiting the position. Home Depot benefited greatly during COVID as home improvement trends accelerated. As these tailwinds began to abate in mid-2021, we began to trim the position size. As we enter 2022, our forward-looking data indicates higher mortgage rates are beginning to impact the US housing market, which is closely correlated with home improvement.  We chose to exit the remaining small position. In the context of a significant underweight posture toward Chinese internet stocks, we maintained a small position in Tencent given its unique positioning at the center of digital entertainment, advertising, and cloud computing in China. During March, regulatory conditions continued to deteriorate, and poor operating results drove us to deploy out of the region.

PROFILE

STATISTICAL DATA2

PORTFOLIO SUMMARY
VOLATILITY7
11.2%
NUMBER OF STOCKS
44
BETA8
0.82

FEATURES

  • APIR CODE HOW0002AU
  • REDEMPTION PRICEA$ 2.7106
  • FEES * Management Fee: 1.35% p.a
  • Minimum initial investment $10,000
  • FUM AT MONTH END A$ 318.92m
  • STRATEGY INCEPTION DATE 1 July 2004
  • BenchmarkMSCI All Country World Total Return Index (net, AUD)

Fund Managers

Bradley Amoils

Managing Director/Portfolio Manager

Andrew Jacobson

CEO/Chief Investment Officer

Description

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.

EXPLORE OUR FUNDS

Harding Loevner International Fund
Harding Loevner International Fund
Axiom International Ethical Fund
Axiom International Ethical Fund
Axiom International Ethical Fund (Hedged)
Axiom International Ethical 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

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. 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.