SUMMARY
The Fund was up 6.6% in November, outperforming the Small Industrials by 2.7% and outperforming the Small Ordinaries by 5.3%. For the 12 months to November, the Fund was up 29.1%, outperforming the Small Industrials Index by 3.6% and outperforming the Small Ordinaries Index by 9.2%.
This year also marks a significant milestone for the Pengana Emerging Companies Fund, celebrating 20 years of delivering exceptional results. Featured in the Australian Financial Review article ‘Meet the ‘emotionless’ fundies that keep outperforming’, fund managers Ed Prendergast and Steve Black credit their success to disciplined decision-making and a focus on mispriced, stable businesses.
Read the full feature here.
COMMENTARY
The US market rose 5.7% in November, with tech stocks leading the way, as the US election result was confirmed and the typical distraction and uncertainty during a long campaign ended. Further China stimulus moves also contributed to a sense of optimism. Bond markets recovered slightly, and gold prices retreated suggesting a shorter term confidence boost in economic growth.
The Australian market rose 3.4%, with industrials outperforming the mining sector which was dragged down by lower copper, gold, and oil prices. Smallcap stocks rose by 1.3%, again with industrials outperforming mining stocks. Local tech stocks were especially strong in November.
Our key positive contributors in November were:
Gentrack (+42%) released its full year result showing 26% revenue growth, and 31% growth in underlying operating earnings. Catapult Group (+40%) revealed full year revenue growth of 19% and a threefold increase in free cash flow as the business leverages a fixed cost base effectively. Technology One (+24%) also released its final result, revealing annual recurring revenue growth of 20% and an 18% increase in net profit as it continues to migrate customers onto its cloud platform, and gain market share in the UK. Generation Development (+10%) held its AGM with commentary confirming solid growth in both the investment bond operation and advisor services. Car Group (+10%) rallied after encouraging commentary at its AGM in late October.
Our key negative contributors in November were:
Propel Funerals (-2%) drifted in a market otherwise focussed on higher risk/growth stocks. Infomedia (-3%) unveiled higher customer churn which shaved its revenue growth expectations in the short term. Smartpay (-10%) is a very small investment in our fund and has been affected by the potential for the RBA to regulate transaction fees on debit cards. AFT Pharmaceuticals (-9%) disclosed its interim result, with revenue growth marginally below expectations. Coast Entertainment (-4%) posted a reasonable operating update at its AGM, however, the price drifted with its lower levels of liquidity resulting in a somewhat erratic shorter term price pattern.