The Fund rose 0.8% in August, outperforming the Small Industrials by 1.8% and outperforming the Small Ordinaries by 0.2%. For the 12 months to August, the Fund was down 16.9%, outperforming the Small Industrials Index by 3.1% and underperforming the Small Ordinaries Index by 2.2%.
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
Following a strong July, markets were soft in August as central banks indicated more rate rises were likely to combat inflation. Federal Reserve chairman Jerome Powell indicated at the Jackson Hole conference that it will “keep at it until the job is done”. Many of the key elements of the current inflation problem are supply-side rather than demand-side, which may dampen the effect of higher rates on inflation. Some fear that a much tougher interest rate stance may be required, sending economies into deeper recessions than otherwise would occur. The European energy crisis is also weighing on sentiment going into the northern winter.
The Australian market rose 1.2% in August, with mining and energy stocks the key positive drivers offsetting mild weakness in industrial and property shares.
August was busy for us with results season, giving us an opportunity to meet with a wide range of companies and assess the operating environment.
Our key contributors in August were:
Capitol Health (+18%) delivered a solid result notwithstanding interruptions to medical imaging volumes, together with the acquisition of FMG Group, which will likely boost EPS by 15%. Insurance brokers AUB Group (+15%) and PSC Insurance (+18%) both posted results above expectations, which further cements the industry as largely immune from uncertain economic conditions. NIB Holdings (+13%) showed solid underlying earnings despite weakness in their student and tourist insurance lines which should recover as normal activities resume. Charter Hall (+6%) posted solid profit growth despite challenging market conditions – the stock bouncing after a rough six months. Propel Funerals (+6%) delivered 45% profit growth following a return to larger funeral attendances, the higher death rate this year, and a successful series of acquisitions.
Our key detractors in August were:
City Chic (-29%) was penalised for slower revenue growth in Europe and elevated inventory levels, which have been built up to combat supply chain disruptions. Aussie Broadband (-23%) showed mildly slower than expected customer growth, and a proposed increase in operating costs, which was not well received in the short term. Hansen Group (-13%) posted 5% EPS growth, and a 20% higher dividend, however was marked down on milder medium term margin forecasts. MAF Financial (-9%) has been volatile of late given the overall market volatility, and retraced after a 37% bounce in July. Australian Clinical Labs (-8%) trimmed back notwithstanding a positive result, with some concerns the company is over-earning on the recent peak in Covid testing volumes.