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Emerging Companies Fund

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

October 2022 - Monthly REPORT

October Report

SUMMARY

The Fund rose 6.2% in October, underperforming the Small Industrials by 1.2% and underperforming the Small Ordinaries by 0.3%. For the 12 months to October, the Fund was down 19.4%, outperforming the Small Industrials Index by 2.3% and underperforming the Small Ordinaries Index by 1.1%.

We recently held a Portfolio and Investment Update webinar, along with Q&A for shareholders, which is available below for your review. CPD points are applicable for Australian Financial Planners HERE. 

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 31 Oct 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 6.2% -19.4% 4.6% 6.1% 11.3% 6.7% 11.9%
S&P/ASX Small Ordinaries Index 6.5% -18.3% 1.5% 4.2% 5.1% 0.5% 4.5%
Outperformance -0.3% -1.1% 3.1% 1.9% 6.2% 6.3% 7.4%
ASA Small Cap Industrials Index** 7.4% -21.7% -1.3% 2.9% 7.1% 1.9% 4.8%
Outperformance -1.2% 2.3% 5.9% 3.2% 4.1% 4.9% 7.0%

Swipe horizontally to see all columns

COMMENTARY

Markets bounced firmly in October following a 15% drop over August and September. Inflation remains the primary driver of this volatility, and is likely to continue to drive wild swings in markets depending on shorter term developments. The US market’s 7.9% rise led global markets in October.

The Australian market rose 6.0% with banks and energy stocks especially strong. Mining companies underperformed due to concerns over Chinese demand following the Chinese party congress, which signalled a mild shift away from infrastructure driven growth in the next phase of Chinese economic development. China’s market fell 16.4% due to ongoing concerns on the zero-covid policy which seems to have locked the country into lockdowns following mild outbreaks.

Corporate activity in domestic technology stocks has picked up recently with well funded corporates and private equity investors making offers for Pushpay, Elmo Software, Nearmap, Nitro Software, Proptech Group, and Readytech,

Our key positive contributors in October were:
Tourism Holdings (+36%) enjoyed a rally after upgrading the synergy expectations from its proposed merger with key competitor Apollo Tourism. Lifestyle Communities (16%) strengthened following an increase in its debt facility signalling confidence in the long term growth opportunity. ALS Ltd (+13%) saw improved sentiment in line with stronger commodity prices. Hansen Technologies (+11%) had been drifting in recent months, with the recent bounce likely a response to recent takeover activity in domestic tech companies. Charter Hall (+13%) rallied in line with the domestic property sector which was up 10% in the month.

Our key detractors in October were:
NIB Holdings (-10%) suffered from indigestion following a capital raising to fund an NDIS services operation. Australian Clinical Labs (-4%) saw a cyber security incident at its recently acquired Medilab operation. Genex Power (-4%) drifted as the market perceives the chances of a competing takeover proposal has slipped with the passing of time. Kelsian (-3%) waned following comments at the AGM that the labour shortages continue to marginally hamper the bus operations. Propel Funerals (-1%) underperformed following a very strong two years’ rally.

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.
Carsales Com LTD
Australia
Communication Services
carsales.com Ltd owns and operates a portfolio of automotive and related industry websites, including an automotive classifieds website.
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.
IVE Group
Australia
Communication Services
IVE Group Limited provides advertising and marketing services. The Company offers promotional merchandising, third party sourcing, printing, retail display, and business communication services. IVE Group conducts its business 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.
Seven Group Holdings
Australia
Industrials
Seven Group Holdings Ltd. is a diversified operating and investment group. The Groups interests include media holdings that include Seven Network, a commercial television network and publishing company, a telecommunications company, and a heavy equipment dealer that operates Caterpillar dealerships in Australia and North Eastern China.

PROFILE

FEATURES

  • APIR CODE PER0270AU
  • REDEMPTION PRICEA$ 2.1222
  • FEES * Management Fee: 1.3340%
    Performance Fee: 20.5% of the performance above the benchmark
  • FUM AT MONTH END A$ 675.48m
  • 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.