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Emerging Companies Fund

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

May 2022 - Monthly REPORT

May Report

SUMMARY

The Fund fell 8.0% in May, underperforming the Small Industrials by 0.6% and underperforming the Small Ordinaries by 1.0%. For the 12 months to May, the Fund was down 1.4%, outperforming the Small Industrials Index by 10.8% and outperforming the Small Ordinaries Index by 3.2%.

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 May 20221
1 MTH 1 YEAR 3 YEARS P.A. 5 YEARS P.A. 10 YEARS P.A. SINCE INCEPTION P.A.
Emerging Companies Fund -8.0% -1.4% 8.8% 9.5% 12.9% 12.5%
S&P/ASX Small Ordinaries Index -7.0% -4.6% 5.5% 8.5% 6.3% 5.1%
Outperformance -1.0% 3.2% 3.3% 1.0% 6.6% 7.4%
ASA Small Cap Industrials Index** -7.4% -12.2% 1.5% 6.0% 8.3% 5.2%
Outperformance -0.6% 10.8% 7.3% 3.5% 4.7% 7.2%

Swipe horizontally to see all columns

COMMENTARY

Global markets were mixed over May, with the US and Europe largely flat, Emerging markets strong, and the Australian market off 2%. As interest rates have risen, value stocks have outperformed growth stocks by 20% over the past six months (source: Macquarie). To illustrate, since the market peak in early January, the NASDAQ is off 25% and the Dow Jones has fallen only 11%.

The Australian market drift in May featured a 9% fall in the property and tech sectors, which are both typically heavily influenced by interest rates. The RBA initiated a tightening cycle in May with a 25pt rate rise, followed in early June by a 50pt increase. Inflation is clearly worse than originally expected, and it remains to be seen whether the dampening effect of higher interest rates will be enough to bring it under control. To a certain extent, many of the drivers of inflation (supply chain disruptions, China lockdowns, Russia/Ukraine, etc) are not easily contained with higher interest rates.

Our key positive movers in May were:
Propel Funerals (+7%) was firm as statistics show the death rate in Australia has recovered from two quieter years, and the market ascribes higher value to the relative certainty of its income. Capitol Health (+5%) was buoyed by the expectation of a resumption in scan volumes, which were postponed due to Covid. IPH Group (+4%) benefits from a lower A$, and relative security in its earnings streams. EQT Holdings (+2%) remains a defensive financial services play and escaped the downdraught felt by other similar stocks. Uniti Group was flat in a falling market due to the takeover offer which is moving towards completion in mid-July.

Our key negative movers in May were:
Aussie Broadband (-25%) fell after warning of slightly lower profits due to staff shortages in its service center which impacted customer growth in the short term. Charter Hall (-15%) underperformed a weak property sector given its leverage to valuations through the fund management operation. AUB Group (-18%) was weaker as the market digested a $350m capital raising to fund the $880m acquisition of Tysers in the UK. Johns Lyng (-33%) was weaker in a market wary of excessive valuations (a reminder we had taken advantage of this overvaluation by selling most of our holding before this rapid fall). MA Financial (-11%) was downrated due to its earnings leverage from property prices which came under pressure.

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.
Aussie Broadband Pty 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.
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.
MA Financial Group Ltd
Australia
Financials
MA Financial Group Ltd provides corporate advisory, equities, and asset management services. The Company focuses on merger and acquisition, divestments, equity and debt raising, equities research, capital management, and recapitalization. MA Financial Group serves customers worldwide.
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.
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$ 2.4599
  • FEES * Management Fee: 1.3340%
    Performance Fee: 20.5% of the performance above the benchmark
  • FUM AT MONTH END A$ 765.52m
  • 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.