Market Review
Global equity markets suffered a broad sell-off in August, as some of the gains of recent months were unwound. Signs of stubbornly high inflation brought concerns that global interest rates would be kept elevated for an extended period. This particularly impacted sentiment in the North American and European share markets.
Almost every region and sector made negative returns in local currency terms. The only exception was the energy sector, which outperformed after oil prices rebounded following production cuts by Saudi Arabia and Russia.
A faltering economy and continued weakness in its highly leveraged property sector pushed Chinese stocks lower. This weakened demand for materials and manufactured goods across global markets.
Technology and consumer stocks were generally weaker during August. However, the Portfolio’s holdings in businesses that are exposed to innovation in artificial intelligence (AI), such as Nvidia, Alphabet, and Amazon, continued to perform relatively well.
Portfolio Comment
Strong stock performance in information technology and the Portfolio’s overweight position in health care contributed to relative returns during August. This was offset by weak stock performance in financials and industrials. Strong stock performance in the US and Asia was offset by weakness in Europe.
Stocks in the financial sector were broadly weaker during August upon signs of a slowing economy and the possibility of higher interest rates. The Portfolio’s holdings in the sector detracted from relative returns in August.
This reflected underperformance by Netherlands-based digital payments processing company Adyen. Its share price fell sharply after the company announced disappointing half-year earnings results, which reported that growth in its US digital e-commerce business had slowed to 23%, half the level of last year. Furthermore, margins compressed as Adyen continued to aggressively hire engineers.
Many US e-commerce businesses opted for payment platforms provided by lower-priced – and lower-quality – competitors. These enterprises are focused on reducing costs to protect their own margins, which are coming under pressure as the economy slows. While these recent results were disappointing, the Portfolio believes that Adyen’s management is right to focus on investing for future growth despite near-term margin compression.
Adyen has built a seamless, global, end-to-end payments, data, and financial management platform, which it believes offers merchants superior functionality at the lowest total cost. Investing in technology and skilled employees to bolster its market-leading solutions in a period of industry weakness is expected to enhance the company’s prospects for long-term, profitable growth.
US-based electronic design automation (EDA) company Synopsys reported strong third-quarter earnings and raised its full-year earnings guidance. Robust chip design activity fuelled demand for its software which is used in microchip design and manufacture.
US-based global technology group Alphabet, which owns Google, continues to dominate the internet search market. It outperformed after demonstrating impressive generative AI capabilities through several key partnerships at its annual Cloud Next customer conference.
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. PIA’s objective is 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 investment 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.
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.
*** Index/MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.
