Market Review
Global equity markets rebounded in May following the April pull-back, resuming the growth trajectory of recent months.
Market gains were driven by technology stocks, predominantly those across the semiconductor ecosystem. Investor excitement for companies aligned to the adoption of AI applications continues to build upon strong company earnings growth.
The fortunes of technology shares are showing signs of dispersion, with semiconductor stocks rising 14% in May, while software edged up just 1%. Semiconductors have outperformed software by a staggering 44% over the year-to-date. Several enterprise software stocks underperformed in May as companies’ forward earnings guidance pushed back the timing of the monetisation of their generative AI initiatives.
Expectations that the Federal Reserve (Fed) would begin to reduce US interest rates later this year brought a weaker US dollar, relative to most of its major trading currencies.
Eurozone stocks outperformed the US (when adjusted for US dollar weakness) during May. Investors grew more confident that the European Central Bank would begin a series of interest rate cuts, which it did at its 6 June meeting. This came despite improvement in the region’s manufacturing sector and labour market resilience, which raises the prospect of a softish landing in the European economy.
Portfolio Commentary
The Fund underperformed the benchmark during May. Strong performance by the Fund’s holdings in health care and communication services, the overweight position in communications services and the underweight position in energy boosted relative returns. However, this was offset by weaker performance by the Fund’s holdings in information technology and financials, and the overweight position in health care, which detracted from relative returns.
The Fund is focussed on identifying great companies through bottom-up analysis and continues to identify exciting opportunities in communications services, health care and industrials, in which it maintains overweight positions.
The Fund’s strongest contributor to relative returns in May was the overweight position in US-based Vertex Pharmaceuticals, a biopharmaceutical group that develops drugs to treat Cystic Fibrosis. It outperformed after announcing first quarter revenue and earnings ahead of investor expectations. The company also provided positive updates on new products, including a gene editing therapy for sickle cell disease.
The Fund’s holding in US-based image-sharing and social media platform Pinterest also contributed to relative returns. It outperformed after announcing strong first quarter earnings results, with a 23% growth in revenue and an 12% increase in global monthly active users.
Swiss-American eyecare specialist Alcon is a market leader in both ophthalmic surgery solutions and contact lenses. It contributed to relative returns when it outperformed after announcing stronger than expected earnings-per-share and margins for the March quarter. The company also increased its projected revenue growth.
The zero-weighting in US-based developer of advanced semiconductors, Nvidia, detracted from relative returns. It outperformed after announcing stronger than expected March quarter earnings, as net income increased 262% year-on-year. The Fund’s zero-weighting in the stock reflects concern that its current market valuation appears to assume that semiconductor businesses will capture most of the value from AI innovation.
The Fund’s holdings in software-focussed companies such as Salesforce, Accenture and Globant also underperformed, detracting from relative returns. This reflected the negative market sentiment towards software businesses. However, Harding Loevner believes that these companies are well positioned to develop AI applications that benefit customers, delivering sustainable revenue and earnings growth over time.
The Fund established a position in US-based Atkore, a leading global manufacturer of pipes, tubing, electrical cables, cable-management systems and security-fencing products. Its market leadership in various electrical equipment markets creates opportunities to benefit from ongoing growth in the electrification, digitalisation and improvements in US infrastructure.
The Fund sold its position in US industrial conglomerate Ametek which designs and manufactures electronic instruments and electromechanical devices. This follows a period of strong outperformance.
Portfolio Manager
Portfolio Manager
Portfolio Manager
An International Fund targeting superior risk-adjusted returns through investing in high-quality and durable growing companies at reasonable prices.
…
The Pengana Harding Loevner International Fund invests in high-quality, growing companies identified through fundamental research with a long-term, global perspective.
Pengana has appointed Harding Loevner to managed the Fund. Harding Loevner is a New Jersey-based global equity fund manager formed in 1989 with over US$86billion in Assets under Management.
Harding Loevner’ analysts search the world for companies that meet their high quality and durable growth criteria, conduct fundamental research, then value and rate their stocks to make them available to PMs for investment.
1. Harding Loevner was appointed fund manager as of 10 May 2021. June 2021 represents the first full month of Harding Loevner managing the Fund.
2. Class B Inception date 1 July 2015. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund (APIR PCL0026AU) in the table above which is the continuous performance of both the current and previous (shaded) strategies.
3. Harding Loevner Global Equity Strategy inception 1 Dec 1989
4. Prior to June 2021, the Harding Loevner Global Equity Strategy performance (labelled ‘Current Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of Class B. From June 2021 the strategy performance is the performance of the Pengana Harding Loevner International Fund Class B.
5. MSCI All Country World Total Return Index in AUD.
6. Performance for periods greater than 12 months are annualised. 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.
7. The Harding Loevner Global Equity Strategy performance (shown in the shaded area in the chart, and in the performance table as row labeled ‘Harding Loevner Global Equity Strategy) has been simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of the stated class. Strategy Inception 30 November 1989.
8. Annualised standard deviation since inception.
9. Relative to MSCI All Country World Total Return Index in AUD
* For further information regarding fees please see the PDS available on our website.
