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Harding Loevner International Fund

An International Fund targeting superior risk-adjusted returns through investing in high-quality and durable growing companies at reasonable prices.

October 2022 - Monthly REPORT

October Report

SUMMARY

  • Equity markets rebounded strongly in October as company earnings showed resilience
  • Investors are turning their attention to an eventual easing of the speed of interest rate increases as the global economy shows signs of slowing
  • The Fund returned 4.1% in October, while the benchmark returned 6.6%

 

We have also included below our recent interview with Ray Vars, Investment Specialist from Harding Loevner.

PORTFOLIO

Top Holdings (alphabetically)

Alphabet Inc
United States
Communication Services
Alphabet Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.
Amazon
United States
Consumer Discretionary
Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.
Deere & Co
United States
Industrials
Deere & Company manufactures and distributes a range of agricultural, construction, forestry, and commercial and consumer equipment. The Company supplies replacement parts for its own products and for those of other manufacturers. Deere also provides product and parts financing services. Deere and Company extends its services and products worldwide.
First Republic Bank
United States
Financials
First Republic Bank and its subsidiaries provide private banking, private business banking and private wealth management in urban, coastal markets in the U.S. First Republic delivers relationship-based service by providing a single point of contact for all of its services.
HDFC Bank Ltd
United States
Financials
HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.
L'Oreal SA
France
Consumer Staples
L'Oreal manufactures cosmetics. The Company offers mascara, lip gloss, foundation, eyeshadow, primer, nail polish, lipstick, face powder, blusher, and concealer, as well as skin, hair, and body care products. L'Oreal serves customers worldwide.
Microsoft
United States
Information Technology
Microsoft Corporation develops, manufactures, licenses, sells, and supports software products. The Company offers operating system software, server application software, business and consumer applications software, software development tools, and Internet and intranet software. Microsoft also develops video game consoles and digital music entertainment devices.
Schneider Electric SE
France
Industrials
Schneider Electric SE manufactures electrical power products. The Company offers car chargers, home security goods, light switches, access control, sensors, valves, circuit breakers, cables, accessories, signaling devices, fuse, motor starters, and voltage transformers. Schneider Electric serves customers worldwide.
UnitedHealth Group Inc
United States
Health Care
UnitedHealth Group Incorporated owns and manages organized health systems. The Company provides employers products and resources to plan and administer employee benefit programs. UnitedHealth serves customers in the United States.
Vertex Pharmaceuticals Inc
United States
Health Care
Vertex Pharmaceuticals Incorporated discovers, develops, and commercializes pharmaceutical products. The Company develops drugs for the treatment of cystic fibrosis, cancer, inflammatory bowel, autoimmune disease, and neurological disorders. Vertex Pharmaceuticals serves healthcare sector worldwide.

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE FOR PERIODS ENDING 31 Oct 20226

Pengana Harding Loevner International Fund Class B

The Class was established in 1 July 2015. From June 2021 Harding Loevner was appointed as the investment manager for the Fund.

1M 1Y
Since
Harding Loevner
Appointed June 20211
3Y 5Y
Since Fund
Inception
July 20152
Since Strategy
Inception
November 19893
Fund (APIR PCL0026AU)1,2

Managed by Harding Loevner from June 2021
4.1% -22.0% -9.6% 4.5% 6.4% 7.5%
Current Strategy (Partial Simulation)4

Harding Loevner Global Equity Strategy
5.2% 7.6% 9.3% 8.9%
Index5 6.6% -6.0% 1.5% 7.5% 9.1% 9.2% 6.9%

Swipe horizontally to see all columns

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE SINCE INCEPTION7

COMMENTARY

Market Review 

Global share markets rebounded in October as investors digested resilient company earnings reports. The market also contemplated the prospect of less aggressive central bank rate increases as US data showed signs of an economic slowdown. This followed the rapid series of rate hikes this year.

The MSCI World All Countries Total Return Index AUD returned 6.6%. Australian dollar weakness modestly boosted share price gains.

Emerging Markets was  the only region in which equites declined during the period. This was impacted by weakness in China, where the share market fell almost 17%. This followed the five-yearly Communist Party Congress held in mid-October, where President Xi secured an unprecedented third term. The Party further centralised political and economic control and gave little indication of an early relaxation in the zero-Covid policy that has constrained economic growth.

In Europe, the extremely high price of natural gas eased somewhat when storage levels increased as the weather remained relatively mild. This should help ease medium-term inflationary pressures.

UK equity, fixed income and currency markets rebounded after the appointment of Jeremy Hunt as Chancellor of the Exchequer. This led to the swift reversal of his predecessor’s controversial plans for unfunded tax cuts and spending. His appointment was confirmed when Rishi Sunak took over as Prime Minister at the end of October.

Energy was the strongest performing sector during the month, while Communication Services declined modestly on concerns of weaker advertising spending as the economy slows.

Portfolio Comment

In late September the Fund increased its holding in the US technology-focussed banking group SVB Financial Group. The stock had underperformed the market upon concerns that start-up companies, which represent a sizable portion of SVB’s customer base, would fare poorly in the face of interest rate increases and a possible recession.

While the weakness in the company share price had left it attractively valued, the stock continued to underperform in October when the company released weaker earnings guidance. This highlighted the impossibility of identifying the low point of a stock cycle other than with hindsight.

However, the decision to increase the Fund’s exposure to the company reflects its focus on identifying high-quality, businesses that demonstrate the ability to grow sustainably over the long-term. The Fund seeks to invest in such opportunities when market valuation levels fail to reflect their strong business fundamentals, providing attractive investment opportunities.

US banking and wealth management group First Republic Bank underperformed the market after it announced disappointing net interest income margin guidance.

US-based social media technology group Meta Platforms significantly underperformed the market after the company reported weaker earnings. This was due to continued high levels of investment in Horizon Worlds, its social virtual reality business and Quest, its virtual reality headset unit. This supports its strategy of pivoting the business towards establishing a market leadership position in the metaverse.

US-based manufacturer of agricultural machinery John Deere and US industrial automation group Rockwell Automation both outperformed the market during October. The two industrial companies continue to benefit from the trend of shortening supply chains to increase manufacturing resilience, and industrial automation, which are gathering pace in the US.

PROFILE

STATISTICAL DATA2

PORTFOLIO SUMMARY
VOLATILITY8
11.1%
NUMBER OF STOCKS
67
BETA9
0.86

FEATURES

  • APIR CODE PCL0026AU
  • REDEMPTION PRICEA$ 0.7711
  • FEES * Management Fee: 0.974%
    Performance Fee: Nil
  • Minimum initial investment $10,000
  • FUM AT MONTH END A$ 44.14m
  • STRATEGY INCEPTION DATE 1 December 1989
  • BenchmarkMSCI All Country World Total Return Index (net) in $A

Fund Managers

Peter Baughan

Portfolio Manager

Jingyi Li

Portfolio Manager

Description

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.

EXPLORE OUR FUNDS

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Australian Equities Fund
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High Conviction Property Securities Fund
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Global Small Companies Fund
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WHEB Sustainable Impact Fund
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Emerging Companies Fund
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High Conviction Equities Fund
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Pengana International Equities Limited (ASX: PIA)
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Private Equity Trust (ASX: PE1)
Private Equity Trust (ASX: PE1)
Alpha Israel Fund
Alpha Israel Fund

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.