The Fund was flat1 in January, underperforming the Small Industrials by 0.2%1 and outperforming the Small Ordinaries Indices by 0.3%1. For the 12 months to the end of January, the Fund was up 3.4%1, outperforming the Small Industrials Index by 1.5%1 and underperforming the Small Ordinaries Index by 2.0%1.
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 were relatively stable over January, with the US and European indices falling 1.1%, while Asian markets rallied. The domestic market rose 0.3% with defensive stocks underperforming the cyclicals.
Domestically, the stand out sector was retail, with a number of companies showing strong sales outcomes in the Christmas period despite global uncertainty. Harvey Norman, Super Cheap Auto, Premier Investments, ARB Corporation, etc all surprised the market with solid updates. Whether this strength continues after the roll-off of JobKeeper in March is uncertain.
Our key positive contributions included the wealth platform stocks HUB (+15%), Praemium (+20%), and Netwealth (+8%). These companies released their recent funds flow data which confirms an elevated level of switching from the traditional bank-owned platforms toward these newer more nimble providers. The two larger players (HUB and Netwealth) rose 90-100% during 2020 reflecting this trend which we believe has a long time to play out. Bingo Industries rose 32% following the announcement of a potential takeover offer by private equity investors. Uniti Wireless rose 7.0% following the acquisition of Telstra’s Velocity assets which are highly complementary and position the company to compete more aggressively with the NBN in broadacre developments.
The key detractors in January were Charter Hall (-7%) in line with the 4% fall in property trusts in the month as the market swung short term focus from defensive assets to cyclicals. Pushpay fell 13% despite an update to earnings which was better than originally expected. This was driven by a shift from parishioners donating to churches on-line (which is benefiting from Covid), however, the underlying rate of growth of new churches was slower than expected. City Chic fell 6% following the 46% rise in December driven by a strategic UK acquisition. Cleanaway drifted 6% due to the unexpected departure of the CEO.
We are comfortable with our portfolio’s mix of well priced high growth stocks, and selective cyclical companies where we believe the valuation has not yet factored in a recovery. Among the cyclical stocks, we favour sectors such as mining services over retail, which we believe is showing signs of overestimating the sustainability of current trading conditions. We look forward to results season and a busy schedule of company meetings.