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Pengana International Equities Limited (ASX: PIA)

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

August 2022 - Monthly REPORT

Monthly Update

SUMMARY

  • Global equity markets fell in August upon expectations of higher for longer interest rates and rising geo-political uncertainty
  • Energy was the only sector to deliver positive returns during August, reflecting Europe’s strong demand for non-Russian natural gas, while Health Care, and Information Technology underperformed; Emerging Markets were the strongest region, while Europe was the weakest
  • In August the Portfolio returned -3.2%, while the MSCI All Country World Total Return Index returned -2.5%.

 

We are pleased to announce that Pengana Capital Group has been named a Responsible Investment Leader by the Responsible Investment Association Australasia in its landmark annual Responsible Investment Benchmark Report launched this month, as part of our commitment to responsible investing.

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.
Amazon
United States
Consumer Discretionary
Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company products include books, music, computers, electronics and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Amazon also operates a cloud platform offering services globally.
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.
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 31 Aug 20221
1M 1Y 3Y Pengana SI
July 20171
(ASX: PIA) -3.2% -25.1% 3.5% 6.2%
Index2 -2.5% -9.5% 8.1% 10.5%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE MANDATED

COMMENTARY

Market Review 

Global equity markets fell in August upon expectations of higher for longer interest rates and rising geo-political uncertainty.

A speech by US Federal Reserve Chair Jerome Powell reiterated its commitment to reducing inflation. This led investors to expect that interest rates have further to rise, dashing hopes of an early return to a more accommodative monetary policy.

In Europe, tensions with Russia, previously the region’s main supplier of natural gas, continued to rise. This led to speculation that gas consumption by large-scale energy-intensive users will be rationed over the northern winter. This could result in materially lower industrial production in countries such as Germany and possible power outages impacting households.

In Asia, US House Speaker Nancy Pelosi visited Taiwan. This prompted China to undertake extensive military exercises in the Taiwan Strait, effectively blockading the island for a few days. This renewed fears that any conflict in the region would disrupt the global semiconductor supply chain, in which Taiwan plays a key role.

Energy was the only sector to deliver positive returns during August, reflecting Europe’s strong demand for non-Russian natural gas. The most significant underperforming sectors were Health Care, and Information Technology which was impacted by semiconductor companies that reported slowing sales of PCs, laptops, and smartphones impacting demand.

On a regional basis, Emerging Market companies outperformed. Many Indian stocks performed strongly when Apple announced it would manufacture iPhones in the country, reflecting improvements in India’s manufacturing capabilities.

China stocks were little changed overall in August. The government faced escalating defaults in its highly leveraged property market and slower economic growth from continued COVID-related lockdowns.

Europe was the weakest performing equity market, due to persistently high inflation and concerns over energy supplies.

Portfolio Comment

One of the portfolio’s largest holdings is Vertex Pharmaceuticals, a company focused on developing and commercialising therapies for the treatment of cystic fibrosis.

Last year, Vertex was among the portfolio’s most significant detractors from relative performance. Revenue growth had slowed from the company’s unsustainably high 2020 pandemic-related levels. These were driven by consumers seeking to ensure access to the company’s lifesaving solutions throughout lockdowns.

The company retains its competitive advantage, consistently developing effective treatments, while other companies have struggled to deliver competitive products.

The company’s pipeline of new drugs appears promising, including a sickle cell anaemia treatment that is undergoing phase three trials. This has helped the company strongly outperform the market this year.

Social media group Pinterest reported strong earnings, having stabilised user growth and increased its share of advertising spending. The company recently hired Bill Ready, a former executive at Google and PayPal, as CEO, raising hopes of management improvement.

Good stock selection within US companies contributed to the portfolio’s relative performance. Advertising technology company The Trade Desk outperformed after its earnings exceeded market expectations due to strong demand for advertising viewed on internet-enabled televisions.

Eyecare specialist Alcon underperformed, when despite reporting good earnings growth it lowered future guidance to reflect the adverse impact of currency movements.

 

PROFILE

STATISTICAL DATA (Since Mandated)

PORTFOLIO SUMMARY
VOLATILITY3
11.2%
NUMBER OF STOCKS
65
BETA4
0.83

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$ 1.143
  • NTA Pre Tax ** A$ 1.113
  • Price Close ** A$ 1.010
  • Shares On Issue ** 256.03m
  • Premium/Discount to pre-tax NTA ** -9.2%
  • 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. 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$.3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.