The Fund rose 2.7% in February, outperforming the Small Industrials by 1.3% and outperforming the Small Ordinaries by 1.2%. For the 12 months to February, the Fund was up 15.2%, outperforming the Small Industrials Index by 2.3% and underperforming the Small Ordinaries Index by 2.0%.
Senior Fund Manager
Senior Fund Manager
The Pengana Emerging Companies Fund combines the skills of highly experienced small company investors (collectively over 45 years’ experience) with a limited fund size and an objective of providing above market returns over the medium term. Our benchmark is the S&P/ASX Small Ordinaries Accumulation Index. The fund managers Steve Black and Ed Prendergast are part owners of the business and investors in the Fund, providing a strong incentive to perform. The Fund has strong research ratings from all major research houses and over the period since its inception has delivered returns well above benchmark.
1. 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.
2. Inception 1 November 2004.
* For further information regarding fees please see the PDS available on our website.
** The Fund does not invest in resource stocks.
COMMENTARY
Global markets remained firm in February due to declining incidences of COVID in Europe and the US ahead of the full vaccine roll-out, which is gathering pace. This sparked a strong interest in sectors and stocks leveraged to a recovery in activity such as travel. Commodity markets also rallied on the back of the expectation of improving global activity enhanced by government stimulus. While bond markets have recently corrected on the fear of inflation creeping up, the Fed and other central banks have signaled a resolve to keep official interest rates low, which remains a tailwind for markets in the shorter term.
The domestic market rose 1.5% driven by mining and banking stocks. The banks are rallying on the back of their relatively high dividend yields, and the strong rebound in residential mortgage activity (with January new house financing at 17-year highs). The RBA has signaled that rates are unlikely to change until 2024, which is feeding into stronger residential prices, and very strong demand. This is likely to cushion the effect of the roll-off of JobKeeper, however, a smooth transition is never guaranteed.
We are pleased with our performance over February as it was results season, hence a period when share prices tend to be driven by facts rather than daily volatility.
Our key winners for the month were:
Uniti Wireless (+17%) following a strong result that featured solid organic growth and progress in integrating two recent strategic acquisitions. AUB Group (+17%) posted a better than expected result with an earnings upgrade as the company draws out efficiency benefits in its insurance broking operations. Lifestyle Communities (10%) showed resilient sales outcomes in its Victorian retirement village operations notwithstanding the lockdown. Johns Lyng (+15%) proved again that its core division of residential/commercial repairs for insurance companies is largely immune from economic disruption, posting 20% EPS growth in the first half. EML Payments (+30%) revealed 30% profit growth despite the interruption to its shopping center loyalty programs given COVID restrictions in the US and Europe.
Our key detractors were:
Charter Hall (-13%) fell in line with a correction in the property index, despite showing strong profit growth and increasing its full-year profit expectation. Equity Trustees (-5%) showed a profit result slightly below expectations due to pressure from lower domestic equity markets and higher costs as the company builds out capacity to capture outsourcing opportunities in the superannuation trustee services market. HUB 24 (-15%) and Netwealth (-19%) both showed strong profit growth, however gave up ground after very strong rallies in the prior 12 months. Mainfreight (-3%) retraced following a 44% rally in the prior six months.
Our portfolio remains heavily skewed towards growth stocks that enjoy structural advantages and low economic sensitivity. In the cyclical areas we have a mild exposure to mining services (where the outlook remains positive), and a range of stocks that stand to benefit from low-interest rates and the likely effect on property prices (especially industrial and residential) over the coming year or two.