Please note, as at the date of this report (28 February 2023), the top 10 holdings included positions in Silicon Valley Bank and First Republic Bank. Due to recent events, these 2 positions have been removed from the top 10 holdings shown below and replaced with a more indicative view of updated top 10 holdings for the portfolio. Full commentary will be covered in the March report.
Market Review
The MSCI World Total Return Index AUD increased 2.0% during February.
Global equity markets declined in local currency terms over the month, following the strong gains which were delivered in the first few weeks of the new year.
The market falls followed growing investor concern that inflation was re-accelerating. This would require central banks to increase interest rates further than previously expected and to keep them elevated for longer.
Emerging Markets was the worst performing region, dragged down by China. Despite positive data showing a rebound in manufacturing activity, sluggish demand from Western markets continues to weigh on China’s exports.
European share markets received some support from better-than expected economic growth as energy prices continued to fall. While all sectors fell, information technology performed relatively well. Semiconductor stocks delivered positive returns as the increasing popularity of the artificial intelligence (AI) chatbot ChatGPT raised expectations that this would boost long-term demand.
Portfolio Comment
Global growth stocks outperformed value stocks by 1.1% in Australian dollar terms during February. This reflected investor concerns that more cyclical companies could see earnings come under pressure as the economy slows.
The Portfolio’s underperformance in February mainly reflected stock weakness in the financials (First Republic Bank), health care (Vertex Pharmaceuticals) and real estate (Country Garden Services Holdings) sectors. The overweight position in health care and underweight position in Apple also detracted from relative returns.
The Portfolio’s high-performing stocks in communications services (Meta Platforms), overweight position in industrials and underweight position in materials contributed to relative returns.
The Global Equity strategy has held a long-standing overweight position in health care. The Portfolio has identified a diverse range of high-quality, durable-growth businesses in the sector. These often operate in niche industries such as eye care, where industry growth is partly driven by an aging population.
Alcon is a market leader in both ophthalmic surgery solutions and contact lenses. It should benefit from higher numbers of cataract surgery procedures and increasing adoption of contact lenses worldwide. The company has invested heavily in innovation since it was de-merged from Novartis in 2019. It is now experiencing strong demand growth for its advanced intraocular lens products PanOptix and Vivity, as well as its re-engineered PRECISION1 contact lens for customers with dry eyes.
Financial stocks detracted from relative portfolio performance during February. First Republic Bank underperformed the market when net interest income growth disappointed investors and growth in interest-free deposits declined.
Vertex Pharmaceuticals underperformed the market after it reported a projected increase in 2023 operating expenses due to increased spending on research and development. Nonetheless, it delivered year-on-year revenue growth during the fourth quarter.
Meta Platforms, which owns Facebook, Instagram and WhatsApp reported resilient user engagement levels. It announced better-than-expected earnings, following material cost-cutting measures.
Portfolio Manager
Portfolio Manager
Pengana International Equities Limited (trading on the ASX as PIA) is the largest international ethical Listed Investment Company (“LIC”) on the ASX, that exists to provide shareholders with capital growth as well as regular, reliable, and fully franked dividends.
The strategy aims to generate superior risk-adjusted returns, through investing in an actively managed portfolio of global companies that meet the team’s high quality and durable growth criteria at reasonable prices. A robust ethical framework provides an added layer of risk mitigation.
These companies are identified through the conduct of fundamental research, with a long-term, global perspective, and must exhibit the following four key investment criteria: competitive advantages, quality management, financial strength, and sustainable growth potential.
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. 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 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. The index is the MSCI World Total Return Index, Net Dividends Reinvested, in A$.3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.
