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High Conviction Equities Fund

A concentrated portfolio of ethically screened global companies

February 2022 - Monthly REPORT

The markets at war

SUMMARY

The Fund fell 4.1% in February as Russia’s invasion of Ukraine battered markets. There was however some good news in our portfolio and we used the weakness to add to some of our holdings.

PORTFOLIO

Top Holdings (alphabetically)

Ardent Leisure Group Ltd
Australia
Consumer Discretionary
F45 Training Holdings Inc
United States
Consumer Discretionary
Lamb Weston Holdings Inc
United States
Consumer Staples
NEC Electronics
Japan
Information Technology
Telix Pharmaceuticals Ltd
Australia
Health Care

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 28 Feb 20221
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. 5 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Equities Fund Class A -4.1% -3.8% 9.8% 12.4% 10.7% 27.2%
MSCI World Total Return Index (net, AUD) -5.4% 18.2% 12.8% 13.7% 13.4% 12.0%
RBA Cash Rate plus 3% 0.2% 3.1% 3.2% 3.5% 3.9% 4.2%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

US-listed fitness franchise company F45 continued its strong performance rising 19%. As we wrote last month, the company has strong visibility over the next 12 months as it has presold 1400 new franchises on top of its 1600 existing franchises, many of which will open this year. Long term the company sees a global potential of 23,000 gyms which makes 13x 2023 PE look attractive in our view.

Australian listed but the mostly US operated entertainment facility operator Ardent Leisure rose 18% after reporting strong results at its US Main Event chain with attendance running approximately 20% above pre-Covid levels. Dreamland in Australia is also performing well. We continue to see strong pent-up demand for leisure-related activities following the Covid pandemic reopening.

Norwegian listed bladder cancer diagnostic producer Photocure reported strong quarterly results as patients return to cancer screening post-Covid. The shares rose 5%.

US-listed advertising technology company Magnite reported strong quarterly results driven by consumers switching from traditional linear TV channels to so-called Connected TV (CTV) where consumers watch TV via apps such NineNow. TV operators can demand premium pricing for advertising, which is more targeted to viewers. Magnite’s technology allows advertisements to be served on CTV programs.

On the negative side of the ledger, many of the portfolio holdings fell due to the Russian invasion of Ukraine, in some cases despite reporting quite positive news.

Australian radiotherapy company Telix fell 27% despite reporting an upbeat outlook for the launch of its recently approved prostate cancer diagnostic called Illucix. We are extremely encouraged to see US-listed competitor Lantheus report very rapid revenue growth for its prostate cancer diagnostic Plarify, which was approved in May 2021 and bodes well for a similar uptake of Illucix. Lantheus forecasts 2022 Plarify revenue of USD300-325mln, which equates to AUD415-465mln. If Telix, which is currently valued at AUD1.5bn with $200mln of cash, is able to sell half that amount in 2023 the shares should perform extremely well. Illucix, despite being 6 months late to the party, has a significant advantage over Plarify as it can be produced conveniently in so-called “cold kits” onsite at hospitals, which can also earn revenue from the product, compared to Plarify which is made in large, often distant, off-site cyclotron facilities, which is problematic for radioactive products with short half-lives. We used the weakness to buy back shares that we had sold at higher levels. ‘

US Covid vaccine producer Novavax gave guidance for the first time of USD4-5bn for 2022 revenue, which was considered positive, however, it still fell 13%. The company has a market value of USD6bn and USD1bn of net cash, which we think is attractive given the current year’s revenue forecast and the long-term market for Covid and flu booster shots.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
24.9%
NUMBER OF STOCKS
19
BETA4
0.6
MAXIMUM DRAW DOWN
-20.2%

FEATURES

  • APIR CODE HHA0020AU
  • REDEMPTION PRICEA$ 1.0965
  • FEES * Management Fee: 1.80% p.a. (Class A) | 1.25% p.a. (Class B)
    Performance Fee: 15.38% (Class A) | 20% (Class B)
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 43.28m
  • STRATEGY INCEPTION DATE 11 December 2014
  • BenchmarkRBA Cash Rate + 3%

Fund Managers

James McDonald

Portfolio Manager

Jeremy Bendeich

Portfolio Manager

Description

The Pengana High Conviction Equities Fund (the Fund) invests globally in a concentrated portfolio of up to 20 stocks. The Fund can invest in both small and large cap stocks and is diversified across countries and sectors. We avoid investment in companies that are currently, in our opinion, unnecessarily harmful to people, animals or the environment.

EXPLORE OUR FUNDS

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Axiom International Ethical Fund
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Axiom International Ethical Fund (Hedged)
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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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Pengana International Equities Limited (ASX: PIA)
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Private Equity Trust (ASX: PE1)
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Alpha Israel Fund
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1. Net performance figures are shown are those of Class A Units, after all fees and expenses and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 11 December 2014.
3. Annualised standard deviation since inception.
4. Relative to MSCI World. Using daily returns.
* For further information regarding fees please see the PDS available on our website.