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Emerging Companies Fund

An Australian small caps fund with a 15+ year track record

June 2022 - Monthly REPORT

UPCOMING EVENT

June Report

SUMMARY

The Fund fell -9.7% in June, outperforming the Small Industrials Index by 0.4% and outperforming the Small Ordinaries Index by 3.4% as the Small Resources Index tumbled -22% on weaker commodity prices. For the 12 months to June, the Fund was down -15.9%, outperforming the Small Industrials Index by 8.1% and outperforming the Small Ordinaries Index by 3.6%.

Despite the negative absolute performance for the year, we are nevertheless pleased that the Fund was able to outperform its benchmarks in what was a very choppy year for equity markets.

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Jun 20221
1 MTH 1 YEAR 3 YEARS P.A. 5 YEARS P.A. 10 YEARS P.A. 15 YEARS P.A. SINCE INCEPTION P.A.
Emerging Companies Fund -9.7% -15.9% 4.9% 6.8% 11.9% 6.8% 11.8%
S&P/ASX Small Ordinaries Index -13.1% -19.5% 0.4% 5.1% 5.4% 0.4% 4.2%
Outperformance 3.4% 3.6% 4.5% 1.7% 6.5% 6.5% 7.6%
ASA Small Cap Industrials Index** -10.0% -24.0% -2.2% 3.3% 7.3% 1.5% 4.6%
Outperformance 0.4% 8.1% 7.1% 3.4% 4.6% 5.3% 7.2%

Swipe horizontally to see all columns

COMMENTARY

Equity markets ended the year on a disappointing note with the ASX200 falling -8.8% in June (SP500 -8.3%) as central banks around the world pushed interest rates higher and concerns grew among investors that many Western economies will face a recession in late 2022 or 2023.

Over the year to June the ASX200 fell -6.5% as the decline in Industrials (down -9.2%) more than offset the small rise in Resources (+3.3%).  Globally the S&P500 fell -10.6% over the financial year.

With inflation in Australia growing at its fastest pace in twenty years, the real risk that house prices could materially fall over the coming two years, and consumer confidence nose-diving to near record lows, we remain particularly wary of companies relying on a strong economy to grow earnings.

Our best performers in June included:
Hansen Technologies (+2%) as the market warms to the recurring nature of its earnings. Technology One (+2%) improved on the back of a better than expected profit result released in late May. IPH Limited (+3%) benefited from a falling $A as its revenue is denominated in $US. Ebos Group (+4%) and Propel Funeral Partners(+4%) were positively rerated for their defensive earning streams. Uniti Group (-1%) as the all cash takeover bid for the company underwrites the share price.

The key detractors for June were:
MA Financial Group (-27%), Aussie Broadband (-21%), and Charter Hall Group (-17%) slipped as rising interest rates saw analysts downgrade their valuations. Notwithstanding our broader concerns surrounding the economy, these companies have resilient earnings and now trade on very cheap valuations. Capitol Health (-18%) was impacted by restrictions imposed on elective surgery reducing demand for their radiology services and City Chic Collective (-23%) was hampered by a combination of earnings downgrades and concerns surrounding elevated inventory levels.

The uncertainties surrounding economic growth and the direction of interest rates has led to there being a larger degree of subjectivity than usual in attempting to forecast a company’s earnings prospects. In this environment our playbook is to be more defensive than usual until the haze passes; favouring companies with earning streams that are unlikely to be as buffeted by an economic downturn and seeking out companies with profit margins that are well protected from the damaging effects of inflation.

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

PORTFOLIO

Top Holdings (alphabetically)

AUB Group
Australia
Financials
AUB Group Limited provides financial services. The Company offers equity-based risk management, insurance broking, and specialist underwriting agencies, as well as focuses on risk solutions for clients and strengthening our partners risk advisory capabilities.
Charter Hall Group
Australia
Real Estate
Charter Hall Group invests in and develops real estate. The Company manages real estate investment funds and develops commercial, residential, and industrial properties.
EBOS Group Ltd
New Zealand
Health Care
EBOS Group Limited supplies and distributes medical consumable products and equipment to the hospital and primary care sectors of the New Zealand and Australian healthcare markets. The Company's products include diagnostic instruments, surgical instruments and prosthesis, feminine protection, anesthetic equipment, and other consumer products.
EQT HOLDINGS LTD
Australia
Financials
Equity Holdings Limited provides personal trust and financial services to customers in Australia. Services include will and estate planning, trustee for settlements, financial guardian, investment and property management and fund investments. Other services provided by the company include income tax services, short term share trading and mortgage loans and investments.
Hansen Technologies
Australia
Information Technology
Hansen Technologies Limited develops, supports and integrates billing systems software for the telecommunications and utilities sectors in Australia. The Company also provides IT outsourcing services such as facilities management and develops software and services for workforce management.
Healius Ltd
Australia
Health Care
Healius Limited provides health care services. The Company offers diagnostic imaging, pathology, acute and chronic disease treatment, dental and eye care, and in vitro fertilisation services. Healius serves patients in Australia.
NIB Holdings
Australia
Financials
NIB Holdings Ltd. offers health insurance products. Depending on the specific product, the Company covers ambulance costs; and reimburses for costs not covered by Medicare including dental, optical, physiotherapy and natural therapies; and some hospitalization costs.
Propel Funeral Partners Ltd
Australia
Consumer Discretionary
Propel Funeral Partners Limited provides funeral services. The Company owns and operates funeral homes, cemeteries, crematoria, and related assets, as well as offers funeral, cremation, burial, and mortuary services. Propel Funeral Partners serves individuals and families in Australia and New Zealand.
Technology One
Australia
Information Technology
Technology One Limited is an Australian-based company that is engaged in the development, marketing, sales, implementation, support, and distribution of financial management and enterprise software solutions. The Company has operations in New Zealand, the United Kingdom, the South Pacific, and Malaysia.
Uniti Wireless Ltd
Australia
Communication Services
Uniti Group Limited provides broadband solutions. The Company offers internet access and other related services. Uniti Group serves customers in Australia.

PROFILE

FEATURES

  • APIR CODE PER0270AU
  • REDEMPTION PRICEA$ 2.2225
  • FEES * Management Fee: 1.3340%
    Performance Fee: 20.5% of the performance above the benchmark
  • FUM AT MONTH END A$ 685.01m
  • STRATEGY INCEPTION DATE 1 November 2004
  • BenchmarkS&P/ASX Small Ordinaries Accumulation Index

Fund Managers

Ed Prendergast

Senior Fund Manager

Steve Black

Senior Fund Manager

Description

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.

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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. 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.