The Fund rose 6.8% in April, outperforming the Small Industrials by 2.9% and outperforming the Small Ordinaries by 1.8%. For the 12 months to April, the Fund was up 56.8%, outperforming the Small Industrials Index by 18.9% and outperforming the Small Ordinaries Index by 17.0%.
View full commentary here.
We recently hosted a webinar covering portfolio updates and insights from the reporting season. Financial planners may also complete a short questionnaire available HERE for CPD points.
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 remained very strong in April, with a slight correction in bond markets removing some of the fear around an inflation-driven interest rate upward swing. The US market rose 5.4% with tech stocks quite strong, while Japan was the only developed market to fall in the month. The Australian market rose 3.5% driven by a bounce in some tech stocks, strength in real estate portal stocks and a rally in iron ore plays in line with recent commodity price strength.
The domestic tech sector has seen some severe weakness so far in 2021, where valuations were clearly stretched, and hot money had driven the sector during 2020. Stocks such as Afterpay, ZIP Money, Kogan, etc have fallen by 40-50% so far this year. We have avoided such stocks on valuation grounds, however have enjoyed some very solid recent performance from more modestly priced, high growth tech stocks such as Hansen and E-Road.
Our key positive contributors in April were:
Uniti Wireless (up 20%) continued to gain traction as the market appreciates the long-term growth, and stability of cash flows following the merger with Opticom in 2020 – the stock has risen 74% since the merger five months ago. Mainstream Group (+120%) received a takeover offer, resulting in a bidding war with four potential acquirers competing for the highly strategic asset. City Chic (+18%) updated the market showing solid sales outcomes, and early gains from the recent acquisitions in the US and UK. Cleanaway (+30%) is pursuing a potentially significant acquisition of Suez’ domestic waste operations. HUB 24 (+22%) has traded in a wide range of late with low-interest rates pressuring earnings, offset by significant market share gains.
Our key negative contributors in April were:
AFT Pharmaceuticals (-6%) provided an update showing mild slippage in sales, and longer sales cycles in overseas markets due to the distraction and disruption during the vaccine roll-out. Ryman Healthcare (-7%) came under mild pressure following the NZ government’s moves to quell a very strong residential property market. More broadly, the market in April was characterised by strength in certain sectors which are seen as beneficiaries of a “return to normal” (if indeed that plays out), which saw some stocks drift in the short term where the stability of earnings was less important to the marginal investor – such stocks include Integral Diagnostics (-4%), NZX Ltd (-1%), and Pushpay (-12%).
We are pleased with our 97% bounce in performance since the March 2020 lows and have taken profits where share prices have reached our valuations. The portfolio remains mostly invested in stable growth companies, with a smaller exposure to selective cyclical stocks and very high growth stocks where valuations are appropriate.