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Emerging Companies Fund

An Australian small caps fund with a 18+ year track record

January 2024 - Monthly REPORT

January Report

SUMMARY

The Fund rose 2.4% in January, outperforming the Small Industrials by 0.5% and outperforming the Small Ordinaries by 1.5%. For the 12 months to January, the Fund was up 9.2%, outperforming the Small Industrials Index by 2.4% and outperforming the Small Ordinaries Index by 7.1%.

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 Jan 20241
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 2.4% 9.2% 7.1% 9.4% 10.1% 13.8% 11.9%
S&P/ASX Small Ordinaries Index 0.9% 2.1% 1.3% 5.4% 6.4% 7.1% 4.7%
Outperformance 1.5% 7.1% 5.8% 4.0% 3.7% 6.7% 7.3%
ASX Small Cap Industrials Index** 1.9% 6.8% 0.3% 4.9% 6.4% 8.9% 5.2%
Outperformance 0.5% 2.4% 6.9% 4.5% 3.7% 4.9% 6.8%

Swipe horizontally to see all columns

COMMENTARY

The US market rose 1.6% in January in an extension of the very positive move in December, driven by optimism over inflation and interest rates. Since the October market lows, when US 10-year bond yields spiked to nearly 5%, yields have retraced to below 4%, and the US stock market has risen a remarkable 18%. While the Fed has poured water on the hopes of short-term rate cuts, the market is clearly embracing the notion that rates have peaked, and inflation is largely under control. The fluidity of the situation over the past two years is a reminder that things can change quickly, so we remain reasonably conservative in our assumptions over inflation and pricing power when valuing companies.

Our positive contributors in January included:
Megaport (+38%) released its Q2 results, which showed 31% revenue growth and strong profitability. The market was spooked by a mildly soft Q1 result in October, and this updated release removed fears of a downturn. AUB Group (+11%), NIB Holdings (+10%), and EQT Holdings (+8%) bounced following a marked underperformance in the strong December rally – presumably catching up as December’s market was driven by lower-quality stocks. Jumbo Interactive (+13%) rallied as the lotto jackpot hit $200 bringing renewed interest from occasional players.

Our negative contributors in January included:
Perenti (-22%) fell away due to weakness in the nickel price, and the announced closure of Independence Group’s Cosmos mine where Perenti provides contract mining services. Chrysos (-17%) is a small investment for us and has risen 174% in the past 12 months. The stocks retraced as the company announced a slight delay in the deployment of its photon assay equipment – an event that we do not believe changes the fundamental value of the opportunity. Worley (-15%) retraced as press reports emerged of a subcontractor in Ecuador being charged with corruption, which Worley emphatically denies being a party to. Cosol (-7%) is a very small investment for us, and, given its low liquidity can move in the absence of news due to shorter-term slows in the stock.  Seven Group (-2%) drifted as the market focussed on stocks with stronger leverage to lower expected interest rates.

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

PORTFOLIO

Top Holdings (alphabetically)

ALS Ltd
Australia
Industrials
ALS Limited is a commercial services company with national and international operations. The Company's services include analytical and testing services, producing industrial and commercial chemical products, and hospitality, cleaning, and catering products.
AUB Group Ltd
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.
Aussie Broadband Ltd
Australia
Communication Services
Aussie Broadband Ltd provides communication services. The Company offers internet, mobile data, and other telephony services. Aussie Broadband serves customers in Australia.
CAR Group Ltd
Australia
Communication Services
carsales.com Ltd owns and operates a portfolio of automotive and related industry websites, including an automotive classifieds website.
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 Ltd
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.
Lifestyle Communities Ltd
Australia
Real Estate
Lifestyle Communities Ltd Limited provides resort style housing for individuals in their fifties and older.
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.
Seven Group Holdings Ltd
Australia
Industrials
Seven Group Holdings Ltd. is a diversified operating and investment group. The Groups interests include media holdings that include Seven Network, a commercial television network and publishing company, a telecommunications company, and a heavy equipment dealer that operates Caterpillar dealerships in Australia and North Eastern China.
Webjet Ltd
Australia
Consumer Discretionary
Webjet Limited is engaged in a digital travel business in global consumer markets and wholesales markets. The Company offers travel shopping and reservation services to clients as an online travel agency (OTA) in Australia and New Zealand. Webjet also provides B2B business to wholesale players by helping them fulfill accommodation requirements for their consumers.

PROFILE

  • AET Wholesale Access Fund
  • Asgard Element (Masterfund)
  • Asgard Infinity
  • BT Investment Wrap
  • BT Super Wrap
  • BT Panorama
  • Colonial First Wrap -Super/pension
  • Centric IDPS
  • Centric Super
  • Hub24
  • IOOF Portfolio Service
  • IOOF Core
  • IOOF Pursuit Select
  • IOOF Grow Wrap
  • Macquarie Wrap
  • MLC Wrap/Navigator
  • Mason Stevens
  • Netwealth
  • OneVue
  • Praemium
  • uXchange
  • Wealthtrac

FEATURES

  • APIR CODE PER0270AU
  • REDEMPTION PRICEA$ 2.2384
  • FEES * Management Fee: 1.3340%
    Performance Fee: 20.5% of the performance above the benchmark
  • FUM AT MONTH END A$ 718.3m
  • 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. 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.