October marked the end of our 15th year managing this fund. Over that period we have generated a 13.4% annual return after all fees1 (8.3% above the Small Ordinaries performance). The team has not changed in 15 years, nor has the investment process. The portfolio managers remain heavily invested in the fund, and strongly committed to the business.
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
The Fund fell 0.1% in October, outperforming the Small Industrials by 0.4% and the Small Ordinaries Indices by 0.4%. For the 12 months to October, the Fund was up 14.2%, underperforming the Small Industrials Index by 4.8% and the Small Ordinaries Index by 0.2%.
October marked the end of our 15th year managing this fund. Over that period we have generated a 13.4% annual return after all fees1 (8.3% above the Small Ordinaries performance). The team has not changed in 15 years, nor has the investment process. The portfolio managers remain heavily invested in the fund, and strongly committed to the business.
Global markets were firm in October, driven by optimism over a resolution to the US/China trade war. The US market rose 2%, with Nasdaq rising 3.7% indicating a skew towards higher growth, riskier stocks. The Australian market fell 0.4%, dragged down by mining stocks, and tech stocks (primarily Wisetech – see below).
This calendar year has seen a remarkable bounce in markets. US prices have risen 25%, while the Chinese index has actually risen 29%. So, while volatility and headlines have focussed on the trade situation, the over-riding factor pushing up prices is clearly interest rates.
The domestic smallcap market has normalised to a certain degree where stock picking is being rewarded again. The volatility of late 2018/early 2019 saw wild gyrations driven by liquidity rather than fundamentals, which has subsided recently.
Wisetech fell 25% following a scathing research report published by a fund set to benefit from a collapse in the share price. Putting aside the details of the report, this is a reminder to investors of the brittle nature of stocks which trade on lofty valuations, and vindicates our discipline in selling high growth stocks using our strict valuation criteria. While we may end up selling to early, the risk of significant capital loss is something we are happy to avoid.
November is AGM season, which is an opportunity for a trading update from most companies. We look forward to using this as an opportunity to touch base with management teams of our key investments.
Key stock price moves in October
Key successes during October were Praemium (+26%), City Chic (+12%), Pinnacle Investments (+12%), Integrated Diagnostics (+11%) and Lifestyle Communities (+11%). Key detractors were Navigator Global (-26%), AP Eagers (-13%), Smart Group (-7%), IPH Group (-7%) and Cleanaway (-5%).