Monthly Update

• 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.

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.

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.