The Fund rose 0.4% in February, outperforming the Small Industrials by 2.1% and outperforming the Small Ordinaries by 4.1%. For the 12 months to February, the Fund was down 2.6%, outperforming the Small Industrials Index by 4.8% and outperforming the Small Ordinaries Index by 5.4%. We are especially pleased with our resilience in February, which is results season and typically a time where stock-specific news drives prices more than overall market factors.
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
Markets globally were weak in February after the strong rally in January. Earlier hopes of peak inflation and interest rates quickly faded given strong economic data released in February, which raises the likelihood of more aggressive future rate rises. The US market fell 2.4%, while the Chinese market retraced 10% during the month. This volatility is a reminder that the outlook for inflation, rates, and economic growth are far from settled, and are likely to create ongoing lurches in markets this year. The Australian market fell 2.4%, with banks and mining stocks worst hit. Small caps were equally weak, especially the resources sector which declined by 9.1%.
Our key positive contributors in February were:
The insurance brokers AUB Group (+17%), PSC Group (+6%), and Steadfast (+12%) all posted results above expectations and upgraded their outlook statements, again proving the resilience of their earnings streams. Australian Clinical Labs (+16%) rallied after posting a result in line with expectations, despite fears of earnings slippage. Kelsian (+13%) proved the resilience of its bus operations, which have the ability to pass on cost increases driven by a shortage of workers and general inflation. Seven Group (+8%) upgraded earnings with its two key divisions enjoying strong underlying conditions in the mining and engineering sectors.
Our key negative contributors in February were:
Hansen Technologies (-12%) was dragged down by global tech stocks, despite posting a highly resilient profit number. Lifestyle Communities (-13%) retraced following its interim result which featured 20% revenue growth, with profit growth impeded by higher costs to fund further long term growth. Pinnacle Investments (-11%) and MA Financials (-8%) were marked down as the overall market declined, which has a negative impact on future cashflows. AFT Pharmaceuticals (-12%), which is a small investment for us, was also sold down in the midst of a sharp correction in higher growth stocks.