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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 2022 - Monthly REPORT

UPCOMING EVENT

Monthly Report - June

SUMMARY

  1. Global markets fell in June as inflation reached a 40-year high in both the US and Europe.
  2. Amid strong style headwinds and economic uncertainty, we continue to find opportunities to purchase high-quality, growing businesses.
  3. The Portfolio’s overweight in Health Care was a contributor to relative returns as Health Care stocks significantly outperformed the broad index.

 

The Portfolio fell -4.0% in June, outperforming the Index (MSCI World Total Return Index (net) in $A) which fell -4.7% for the same period.

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.
AMETEK Inc
United States
Industrials
AMETEK, Inc. is a global manufacturer of electronic instruments and electromechanical devices. The Company manufactures advanced instruments for process, aerospace, power, and industrial markets and is a supplier of electrical interconnects, specialty metals, technical motors and systems, and floor care and specialty motors.
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.
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.
SVB Financial Group
United States
Financials
SVB Financial Group is the holding company for Silicon Valley Bank. The Bank is a commercial bank that serves emerging growth and middle-market growth companies in targeted niches, focusing on the technology and life sciences industries. Silicon Valley operates offices throughout the Silicon Valley and other areas of California, as well as in other states.
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 Table

NET PERFORMANCE FOR PERIODS ENDING 30 Jun 20221
1M 1Y 3Y Pengana SI
July 20171
(ASX: PIA) -4% -23.3% 2.9% 5.6%
Index2 -4.7% -6.5% 7.7% 10.1%

 

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE MANDATED

COMMENTARY

Market Review

Global markets fell in June as inflation reached a 40-year high in both the US and Europe. In response, policymakers outlined aggressive rate hikes, putting further pressure on equities. In the US, the Federal Reserve raised rates by 75 basis points—the largest increase in nearly 30 years—and signalled further rate increases of a similar magnitude. Similarly, the European Central Bank signalled that it would deliver its first rate hike since 2011 in July.

Energy prices continued to be the largest driver of inflation in Europe as Russia took further steps to further choke off supply; the Nordsteam pipeline is now operating at 40% capacity due to a “gas turbine issue”. Further exacerbating the situation, a prolonged outage at the Freeport LNG plant in Texas has significantly reduced the US supply of liquified natural gas to the continent. Elsewhere, China was the only positive market this month as the country began to emerge from its COVID-induced lockdowns and central bank officials cut interest rates and injected a fresh round of stimulus into the economy.

Portfolio Comments

Amid strong style headwinds and economic uncertainty, we continue to find opportunities to purchase high-quality, growing businesses. Kering is a French luxury good conglomerate that is in the process of diversifying away from an outsized reliance on the Gucci brand. Management has historically delivered an impressive track record of innovation and growth, resulting in a company that is profitable, generates a high free cash flow, and is rapidly moving toward a net cash balance sheet. Poor sentiment due to weak consumer demand in China (one of Kering’s largest markets) has been an overhang on the stock for much of 2022; however, this provided us with an opportunity to purchase shares at an attractive valuation.

June Attribution

  • In Health Care, shares of Chinese biologics service provider WuXi Biologics soared as US export authorities were allowed to inspect one of the company’s Chinese facilities, raising prospects that WuXi may soon be removed from the US trade blacklist.
  • The Portfolio’s overweight in Health Care was a contributor to relative returns. Health Care stocks significantly outperformed the broad index despite posting negative returns for the month.
  • In Industrials, shares of US agricultural equipment manufacturer John Deere underperformed as farmers faced weakening economics (due to higher input costs like fertilizer) and higher financing costs for large farm equipment (due to rising interest rates).

 

High-quality, fast-growing companies, have significantly underperformed year-to-date. The severity of these style headwinds has contributed to Portfolio underperformance across all major sectors and regions. In our view however, the Portfolio is loaded with high-quality global growth companies trading at increasingly attractive valuations. On balance, our companies continue to report strong results and, without exception, continue to invest through uncertain times from positions of financial strength. For the most part, the weakness in stock prices is a function of transient or cyclical pressures affecting short-term results and not a result of cracks in their fundamentals.

PROFILE

STATISTICAL DATA (Since Mandated)

PORTFOLIO SUMMARY
VOLATILITY3
10.8%
NUMBER OF STOCKS
67
BETA4
0.81

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$ 1.124
  • NTA Pre Tax ** A$ 1.082
  • Price Close ** A$ 0.875
  • Shares On Issue ** 256.03m
  • Premium/Discount to pre-tax NTA ** -19.1%
  • 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$.3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.