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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.

July 2022 - Monthly REPORT

UPCOMING EVENT

Growth factors continue to reassert themselves

SUMMARY

  1. In July, growth factors continued to reassert themselves as inflation expectations declined.
  2. The Fund’s performance in July was driven by both positive allocation and selection effects.  Stock selection was particularly strong in consumer discretionary and health care.
  3. The Fund’s biggest changes during the month were allocating capital away from information technology and increasing exposure to the consumer sectors.

 

The Pengana Axiom International Ethical Fund (“Fund”) generated a return of 9.6% in July, outperforming the benchmark, the MSCI All Country World Index (“Index”) by 4.2%.

PORTFOLIO

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.
Apple
United States
Information Technology
Apple Inc. designs, manufactures, and markets personal computers and related personal computing and mobile communication devices along with a variety of related software, services, peripherals, and networking solutions. Apple sells its products worldwide through its online stores, its retail stores, its direct sales force, third-party wholesalers, and resellers.
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.
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.
Visa Inc
United States
Information Technology
Visa Inc. operates a retail electronic payments network and manages global financial services. The Company also offers global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities.

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE FOR PERIODS ENDING 31 Jul 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 1Y
Since
Axiom Appointed
June 20211
3Y 5Y
Since Fund
Inception
July 20172
Since Strategy
Inception
July 20043
Fund: APIR (HOW0002AU)1,2

Managed by Axiom from June 2021
9.6% -19.6% -4.9% 6.6% 8.6% 8.2%
Current Strategy (Partial Simulation)4

Axiom Global Equity Strategy
7.4% 11.9% 11.8% 7.6%
Index5 5.4% -5.7% 1.1% 8.1% 10.8% 10.3% 7.2%

Swipe horizontally to see all columns

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE SINCE INCEPTION6

COMMENTARY

During July the Fund outperformed the benchmark, the MSCI All Country World Index, by 4.2%.

Growth-orientated shares outperformed value stocks, despite expectations that higher interest rates would be needed to address persistently high inflation, and this would negatively impact economic activity levels.

While the strong US dollar continues to pressure European and emerging market economies, commodity prices (in USD) continued to fall. The Brent oil price fell 5% month-on-month, while European natural gas prices remained elevated on continued regional geopolitical tensions.

Global economic growth data continued to deteriorate. Data relating to European economic activity deteriorated sharply with June Germany factory orders 9.0% lower year-on-year, compared to a 3.2% fall in May.

This weakness was reflected in the US 2-to-10-year yield curve inversion growing to 35 basis points by the end of July. Inverted yield curves sometimes provide early warning of a future recession.

In China, the Zero COVID policy continued to unwind across most of the country which resulted in improved economic activity.

The Fund continues to focus on dynamic growth stocks. Upwards revisions to companies’ earnings-per-share forecasts should continue to be a key factor that drives outperformance even as the broader economic cycle deteriorates. The Fund continues to overweight information technology, consumer discretionary and health care, while it remains underweight financials, energy, and materials.

The Fund’s outperformance in July was driven by both sector allocation and stock selection. Stock selection was particularly strong in the consumer discretionary and health care sectors. Tesla, Danaher, and Hermes were the strongest contributors to performance, while ServiceNow, AIA Group, and FTI Consulting detracted from relative returns.

Electric car manufacturer Tesla reported better-than-expected second-quarter earnings results, despite production issues in China; it also reiterated its 2022 production targets.

Similarly, the US medical device manufacturer Danaher reported strong results, with growth in its core diagnostics (non-COVID) business surpassing investor expectations and its own guidance. Furthermore, despite continued US dollar strengthening, Danaher increased its 2022 incremental operating leverage target (the extent to which revenue growth translates into higher profits).

Meanwhile, the French luxury goods group Hermes reported strong (20% year-on-year) sales growth, ahead of the 13% consensus expectation. The results were also boosted by much stronger-than-expected operating leverage despite rising raw material cost increases.

Following a strong contribution to relative performance in June, US software company ServiceNow underperformed in July. This came after its CEO warned of longer sales cycles in Europe as the regional economy slowed. The Fund maintained its holding in the company, as its long-term revenue and free cash flow growth prospects remain attractive.

Hong Kong-based life insurer and wealth manager AIA Group was impacted by a series of negative growth revisions to its estimated net book value, driven by COVID-related lockdowns. The company’s high-quality network of agents is well placed to access Asia’s rapidly expanding middle class and its pent-up demand for high-margin financial products.

Business advisory firm FTI Consulting, reported weaker second quarter earnings results. This was due to some project-related revenue being deferred to the third quarter, negatively impacting second quarter revenue and profitability. The company reiterated its 2022 financial targets and outlined improving demand in its core restructuring and litigation services businesses.

The Fund continued to allocate capital away from information technology towards consumer sectors. There were no new buys or positions exited during July.

Concerns around the current semiconductor capital equipment spending cycle continue to mount, such as memory producers cutting capital expenditure guidance. This led the Fund to reduce its large position in ASML, the Dutch supplier to microchip manufacturers.

Similarly, the Fund reduced its holding in US semiconductor group Advanced Micro Devices (AMD). This followed its peer Intel reporting very poor results and providing negative commentary on many of AMD’s core markets (notably PCs and gaming).

The Fund continued to establish its position in FTI Consulting, which was the largest increase during July.

It also significantly raised its position in the French luxury design house Hermes, after significantly upgrading the outlook for the Chinese consumer. The company subsequently announced strong earnings results.

The Swiss pharmaceutical group Lonza experienced stock price weakness stemming from market concerns about biotech companies’ ability to access future funding. However, the company has only a modest exposure to biotech and it remains a continued strong, long-term growth opportunity. We took advantage of the share price decline to increase our holding in this high-quality business.

The Fund remains well positioned to benefit from dynamic growth within high quality companies over the long-term.

PROFILE

STATISTICAL DATA2

PORTFOLIO SUMMARY
VOLATILITY7
12.4%
NUMBER OF STOCKS
46
BETA8
0.88

FEATURES

  • APIR CODE HOW0002AU
  • REDEMPTION PRICEA$ 2.5363
  • FEES * Management Fee: 1.35% p.a
  • Minimum initial investment $10,000
  • FUM AT MONTH END A$ 293.87m
  • 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

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Axiom International Ethical Fund (Hedged)
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Australian Equities Fund
Australian Equities Fund
High Conviction Property Securities Fund
High Conviction Property Securities Fund
Global Small Companies Fund
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WHEB Sustainable Impact Fund
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Emerging Companies Fund
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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.