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Pengana International Equities Limited (ASX: PIA)

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

October 2022 - Monthly REPORT

October Report

SUMMARY

  • Equity markets rebounded strongly in October as company earnings showed resilience
  • Investors are turning their attention to an eventual easing of the speed of interest rate increases as the global economy shows signs of slowing
  • The Portfolio returned 3.7% in October, while the benchmark returned 7.8%

 

We have also included below our recent interview with Ray Vars, Investment Specialist from Harding Loevner.

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.
HDFC Bank Ltd
India
Financials
HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.
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.
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 Oct 20221
1M 1Y 3Y Pengana SI
July 20171
(ASX: PIA) 3.7% -22.9% 3.3% 6%
Index2 7.8% -4.2% 8.8% 11%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE MANDATED

COMMENTARY

Market Review 

Global share markets rebounded in October as investors digested resilient company earnings reports. The market also contemplated the prospect of less aggressive central bank rate increases as US data showed signs of an economic slowdown. This followed the rapid series of rate hikes this year.

The MSCI World Total Return Index Net Dividends Reinvested Unhedged AUD Index returned 7.8%. Australian dollar weakness modestly boosted share price gains.

Emerging Markets was the only region in which equites declined during the period. This was impacted by weakness in China, where the share market fell almost 17%. This followed the five-yearly Communist Party Congress held in mid-October, where President Xi secured an unprecedented third term. The Party further centralised political and economic control and gave little indication of an early relaxation in the zero-Covid policy that has constrained economic growth.

In Europe, the extremely high price of natural gas eased somewhat when storage levels increased as the weather remained relatively mild. This should help ease medium-term inflationary pressures.

UK equity, fixed income and currency markets rebounded after the appointment of Jeremy Hunt as Chancellor of the Exchequer. This led to the swift reversal of his predecessor’s controversial plans for unfunded tax cuts and spending. His appointment was confirmed when Rishi Sunak took over as Prime Minister at the end of October.

Energy was the strongest performing sector during the month, while Communication Services declined modestly on concerns of weaker advertising spending as the economy slows.

Portfolio Comment

In late September the Portfolio increased its holding in the US technology-focussed banking group SVB Financial Group. The stock had underperformed the market upon concerns that start-up companies, which represent a sizable portion of SVB’s customer base, would fare poorly in the face of interest rate increases and a possible recession.

While the weakness in the company share price had left it attractively valued, the stock continued to underperform in October when the company released weaker earnings guidance. This highlighted the impossibility of identifying the low point of a stock cycle other than with hindsight.

However, the decision to increase the Portfolio’s exposure to the company reflects its focus on identifying high-quality, businesses that demonstrate the ability to grow sustainably over the long-term. The Portfolio seeks to invest in such opportunities when market valuation levels fail to reflect their strong business fundamentals, providing attractive investment opportunities.

US banking and wealth management group First Republic Bank underperformed the market after it announced disappointing net interest income margin guidance.

US-based social media technology group Meta Platforms significantly underperformed the market after the company reported weaker earnings. This was due to continued high levels of investment in Horizon Worlds, its social virtual reality business and Quest, its virtual reality headset unit. This supports its strategy of pivoting the business towards establishing a market leadership position in the metaverse.

US-based manufacturer of agricultural machinery John Deere and US industrial automation group Rockwell Automation both outperformed the market during October. The two industrial companies continue to benefit from the trend of shortening supply chains to increase manufacturing resilience, and industrial automation, which are gathering pace in the US.

PROFILE

STATISTICAL DATA (Since Mandated)

PORTFOLIO SUMMARY
VOLATILITY3
11.2%
NUMBER OF STOCKS
66
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$ 1.142
  • NTA Pre Tax ** A$ 1.116
  • Price Close ** A$ 1.005
  • Shares On Issue ** 256.32m
  • Premium/Discount to pre-tax NTA ** -9.9%
  • 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$.3. Annualised Standard Deviation since mandated
4. Relative to MSCI World
**. As at the last day of last month prior to publishing of this report. The figures are unaudited.
***. MSCI World refers to the MSCI World Total Return Index, Net Dividends Reinvested, in A$.