Pengana International Equities Limited (ASX: PIA)
Pengana International Equities Limited (ASX: PIA)
Growing inflation expectations
February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.
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February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.
We have long argued that inflation is arguably the most significant risk facing the stock market and we continue to vigilantly monitor that risk.
Some of the portfolio’s positions that should benefit from inflation and performed well, as anticipated, during Feb-21 include ING, Epiroc, Mowi, CME, Vulcan Materials, and Flow Traders.
Meanwhile, the portfolio’s ‘growthier’ stocks that we anticipate to be most negatively impacted by rising rates were the weaker performers during the month and include, Thermo Fisher, Alibaba, Sunrun, and Electronic Arts. In aggregate the stocks performed as we would expect given an inflation scare, which provides us with a working compass should we choose to tilt the portfolio more meaningfully towards the reflation trade.
The portfolio remained relatively unchanged during the month and we added just one ‘growthier’ stock that was sold off during Feb-21. In aggregate, the portfolio remains highly differentiated from the market with 46% invested in the US Vs the Benchmark’s 66% and 28% invested in Europe (ex-UK) Vs the Benchmark’s 15%. It is a similar story when viewed along sector exposure lines with the portfolio meaningfully overweight Materials and underweight Information Technology and does not own a single FAANG stock.
By our analysis, the portfolio has an approx. 5.5% FCF yield, 8% revenue growth, and <1x net debt/EBITDA, all of which compare favourably to the market. These factors coupled with our diversification and various risk controls give us confidence in the outlook for the Fund.
The portfolio managers will be hosting a webinar for investors entilted: Finding opportunities in an environment of low interest rates, increased inflation expectations and a growing wealth divide.
You are invited to register at pengana.com/webinar-series
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Alibaba Group Holding LTD | China | Consumer Discretionary |
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Charter Communications Inc | United States | Communication Services |
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Cigna Corp | United States | Health Care |
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Houlihan Lokey Inc | United States | Financials |
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Indus Towers Ltd | India | Communication Services |
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Lumentum | United States | Information Technology |
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Pinterest Inc | United States | Communication Services |
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Rakuten Inc | Japan | Consumer Discretionary |
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Tencent Holdings | China | Communication Services |
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UnitedHealth Group Inc | United States | Health Care |
February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.
We have long argued that inflation is arguably the most significant risk facing the stock market and we continue to vigilantly monitor that risk.
Some of the portfolio’s positions that should benefit from inflation and performed well, as anticipated, during Feb-21 include ING, Epiroc, Mowi, CME, Vulcan Materials, and Flow Traders.
Meanwhile, the portfolio’s ‘growthier’ stocks that we anticipate to be most negatively impacted by rising rates were the weaker performers during the month and include, Thermo Fisher, Alibaba, Sunrun, and Electronic Arts. In aggregate the stocks performed as we would expect given an inflation scare, which provides us with a working compass should we choose to tilt the portfolio more meaningfully towards the reflation trade.
The portfolio remained relatively unchanged during the month and we added just one ‘growthier’ stock that was sold off during Feb-21. In aggregate, the portfolio remains highly differentiated from the market with 46% invested in the US Vs the Benchmark’s 66% and 28% invested in Europe (ex-UK) Vs the Benchmark’s 15%. It is a similar story when viewed along sector exposure lines with the portfolio meaningfully overweight Materials and underweight Information Technology and does not own a single FAANG stock.
By our analysis, the portfolio has an approx. 5.5% FCF yield, 8% revenue growth, and <1x net debt/EBITDA, all of which compare favourably to the market. These factors coupled with our diversification and various risk controls give us confidence in the outlook for the Fund.
The portfolio managers will be hosting a webinar for investors entilted: Finding opportunities in an environment of low interest rates, increased inflation expectations and a growing wealth divide.
You are invited to register at pengana.com/webinar-series
CIO
Pengana International Equities Limited provides access to the benefits of an actively managed core portfolio of 30-50 ethically screened companies across developed and developing global markets via a listed investment company structure. Investments are made predominantly in companies that deliver stable yet growing free cash flow throughout cycles (which we classify as ‘Core’ holdings) whilst also taking positions in more cyclical companies (‘Cyclical’) and those whose valuation has been materially misconstrued by the market (‘Opportunistic’). We avoid investments in companies that in our opinion are harmful to people, animals or the environment.
1. As at the last day of last month prior to publishing of this report. Performance figures refer to the movement in net assets per share, reversing out the impact of option exercises and payments of dividends, before tax paid or accrued on realised and unrealised gains. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception date of PIA: 19 March 2004, new investment team with new mandate adopted: 1 July 2017. Pengana International Equities Limited has been managed under the new investment mandate by the Pengana investment team since 1 July 2017. The performance since mandated in the table above refers to the movement in net assets per share since the new mandate adopted on 1 July 2017.
3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.
