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Pengana International Equities Limited (ASX: PIA)

The largest International Ethical LIC on the ASX. Targeting fully franked dividends, paid quarterly.

June 2021 - Monthly REPORT

Ushering in a new era of drug development

SUMMARY

The Portfolio returned a pleasing 7.1% for it’s first month under the new investment team at Harding Loevner, compared to the benchmark’s return of 4.5%.

PORTFOLIO

Top Holdings (alphabetically)

Alphabet Inc United States Communication Services
Amazon United States Consumer Discretionary
Deere & Co United States Industrials
Facebook Inc United States Communication Services
First Republic Bank/CA United States Financials
Illumina United States Health Care
Microsoft United States Information Technology
PayPal United States Information Technology
SVB Financial Group United States Financials
Wuxi Biologics Cayman Inc China Health Care
Communication Services
Alphabet Inc United States
Consumer Discretionary
Amazon United States
Industrials
Deere & Co United States
Communication Services
Facebook Inc United States
Financials
First Republic Bank United States
Health Care
Illumina United States
Information Technology
Microsoft United States
Information Technology
PayPal United States
Financials
SVB Financial Group United States
Health Care
Wuxi Biologics Cayman Inc China

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Jun 20211
1M 1Y 3Y Since Mandated1
(ASX: PIA) 7.1% 27.6% 15.1% 14.3%
Index2 4.6% 27.5% 14.4% 14.6%

 

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE MANDATED

COMMENTARY

In recent decades, thanks to a deeper understanding of underlying biological mechanisms, drug development has progressed in leaps and bounds as research into new compounds has evolved beyond a trial-and-error approach. Whereas traditional methods screened large numbers of compounds in a scattershot search for desirable therapeutic effects, researchers now look for compounds that only bind with previously identified targets associated with specific disease vectors. Vertex has been a trailblazer of this new approach and its generalized adoption in conjunction with a reduction in the cost of gene sequencing at companies like Illumina is ushering in a new era, in which many of the treatments we receive will increasingly be more precise, personalized, and effective than they are today.

To design drugs with the precise shapes required to bind to the intended biological targets at the right location, scientists need to determine the molecular structure of the targets. FEI, acquired by Thermo Fisher Scientific in 2016, is a pioneer in cryogenic electron microscopy (cryo-EM), an innovation in atomic resolution imaging that was recognized with the 2017 Nobel Prize in chemistry. Cryo-EM is simpler to use than older techniques and produces three-dimensional biochemical maps with far more detail which are vastly expanding the range of targets available for potential exploitation.

The types of drugs are also expanding, beyond traditional small molecule drugs to next-generation formats such as “biologic” drugs, in particular a sub-category called monoclonal antibodies (mAb). These mAbs, roughly 1,000x larger than small-molecule drugs, are too complex to be synthesized chemically and thus need to be produced biologically from specially engineered cells. Biologic drugs have great therapeutic and commercial potential in oncology and autoimmune diseases, areas with large patient populations with unmet needs. Of the top 30 global blockbuster drugs in 2020, over two-thirds were new biologics, including Herceptin and Avastin, oncology drugs manufactured by Roche and its Japanese partner, Chugai Pharmaceutical**.

Innovations in biologics have sparked a wave of drug discovery efforts across the biopharma industry, and we are invested in a handful of participants well-placed to deliver persistent and profitable growth. Genmab is a pioneer in new types of mAb which binds with not just one, but multiple therapeutical target sites. Abcam, based in the UK, produces and distributes high-quality research-grade antibodies that allow live cells to be analyzed at a molecular level. A significant drawback of biologics, however, is the demanding and highly complex manufacturing process with the attendant exacting regulatory scrutiny. Many smaller biopharma companies with promising drug candidates simply don’t have the capital or know-how to manufacturer large-molecule drugs themselves. As a result, small- and mid-sized biotech companies, and even some large ones, often outsource development and commercial production to contract development and manufacturing organizations (CDMOs), such as Lonza and WuXi Biologics, as well as Patheon, another Thermo Fisher subsidiary. Outsourcing speeds up the development process by leveraging manufacturing expertise and reduces the need for capital expenditure.

The strong growth in biologic drugs emerging from the development phase to full production is a boon to Danaher, a leading provider of highly specialized equipment for manufacturing them. Its bioprocessing business grew over 20% in Q1, a growth rate that excludes the additional boost to revenues emanating from vaccine-related demand. Spirax-Sarco, a British industrial company, is another enabler of the biologics industry; its Watson-Marlow unit is a leading maker of peristaltic pumps, a critical component of bioprocessing. We see companies like these as the “shovel makers” in a gold rush across the life sciences that, after years of hype, is finally approaching what could be some deep veins.

Healthcare remains our largest overweight and an area where we have recently added.

[**] Morgan Stanley Equity Research

PROFILE

STATISTICAL DATA (Since Mandated)

PORTFOLIO SUMMARY
VOLATILITY3
8.5%
NUMBER OF STOCKS
72
BETA4
0.66

FEATURES

  • ASX CODE PIA
  • FEES Management Fee: 1.23% p.a.
    Performance Fee: 15.38% of any return greater than the MSCI World***
  • INCEPTION DATE 19 March 2004
  • MANDATED 1 July 2017
  • BenchmarkMSCI World Total Return Index, Net Dividend Reinvested, in A$
  • NTA Post Tax ** A$ 1.417
  • NTA Pre Tax ** A$ 1.466
  • Price Close ** A$ 1.320
  • Shares On Issue ** 255.08m
  • DRP Yes

Portfolio Managers

Peter Baughan

Portfolio Manager

Jingyi Li

Portfolio Manager

Description

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.

EXPLORE OUR FUNDS

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

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. The index is the MSCI World Total Return Index, Net Dividends Reinvested, in A$.3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.