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Emerging Companies Fund

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

August 2022 - Monthly REPORT

August Report

SUMMARY

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%.

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 Aug 20221
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 0.8% -16.9% 6.7% 8.1% 12.3% 7.9% 12.2%
S&P/ASX Small Ordinaries Index 0.6% -14.7% 4.1% 6.9% 6.3% 1.5% 4.8%
Outperformance 0.2% -2.2% 2.6% 1.2% 6.1% 6.4% 7.4%
ASA Small Cap Industrials Index** -1.0% -20.0% 1.0% 5.1% 7.9% 2.5% 5.1%
Outperformance 1.8% 3.1% 5.7% 2.9% 4.5% 5.4% 7.1%

Swipe horizontally to see all columns

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.

 


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
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.
Capitol Health
Australia
Health Care
Capitol Health Limited is mainly focus in the diagnostic imaging business through radiology clinics in Australia. It has previously provided dental surgeries and facilities to self employed dentists who carry on their own dental practices. The Company had also provided administration and management services.
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.
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.
Lifestyle Communities
Australia
Real Estate
Lifestyle Communities Ltd Limited provides resort style housing for individuals in their fifties and older.
NIB Holdings
Australia
Financials
NIB Holdings Ltd. offers health insurance products. Depending on the specific product, the Company covers ambulance costs; and reimburses for costs not covered by Medicare including dental, optical, physiotherapy and natural therapies; and some hospitalization costs.
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.

PROFILE

FEATURES

  • APIR CODE PER0270AU
  • REDEMPTION PRICEA$ 2.2026
  • FEES * Management Fee: 1.3340%
    Performance Fee: 20.5% of the performance above the benchmark
  • FUM AT MONTH END A$ 703.62m
  • 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.