The Fund was down -6.7% in March, in line with the Small Industrials and underperforming the Small Ordinaries by -3.1%. For the 12 months to March, the Fund was up 6.0%, outperforming the Small Industrials Index by 9.8% and outperforming the Small Ordinaries Index by 7.2%.
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
March saw dramatic moves in global markets, with the US index down 5.8% and NASDAQ off 8.2%, dragging all major markets lower. Offsetting this was a 10.6% rise in gold prices and strong rises in copper, silver and other commodity prices. Uncertainty around tariffs from the new US administration raised fears of a recession in the US, which also saw bond prices rally on the expectation of lower interest rates. The Australian market fell 4.0% in March, somewhat cushioned by the mining sector, which benefitted from higher commodity prices (esp gold). The small cap index fell 3.6%; however, the mining component (which we do not invest in) rose 3.9% compared to a 6.7% drop in small industrial shares.
The volatility has worsened in early April and could continue as the picture evolves, however it is worth remembering that in 2023 and 2024 the US market rose 24% and 23%, hence a correction (albeit violent) is certainly not unexpected.
This volatility may be unsettling for some, however we remain steadfast in our investment discipline. The impact of tariffs on economic activity is far from certain, and the vast majority of our portfolio does not export products to the US and is relatively immune from economic cycles. That will not stop individual share prices from being swept up in the volatility, but it will insure the portfolio against a worsening economy. The volatility has already opened up opportunities to buy stocks we favour that had previously been overvalued, with our experience showing that often the best purchases are made in the midst of panic.
Our key positive contributors in March were:
The common threads in our best relative performers in March were defensive cash flows, non-cyclical earnings, a lack of international exposure, and modest valuations. EQT Holdings (+4.9%) is a financial services stock but is especially resilient given its low overall exposure to equities markets. IVE Group (+3.8%) is a relatively low growth, low volatility operation on modest valuations. Channel Infrastructure (+3.3%) and Aussie Broadband (+1.9%) equally display defensive earnings, while Praemium (+0.6%) had a modest bounce after falling 20% in February.
Our key negative contributors in March were:
ZIP Co (-34.6%), a small investment for us, was hit due to concerns over the potential for lower consumer activity and potentially higher credit risk in the US market. Pinnacle Investments (-21.8%), Netwealth (-14.5%), and HUB 24 (-11.8%) retraced sharply as their business models are linked to asset markets and hence typically underperform in sharp corrections. CAR Group (-14.3%) was hit perhaps in a combination of fear over the impact of lower consumer activity (which we believe it is largely insulated from) and a retracement globally in stocks with higher short-term valuations (the NASDAQ effect).