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International Fund - Ethical Opportunity

February 2021 - Monthly REPORT

monthly report

SUMMARY

February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.

View full commentary here

PORTFOLIO

Top Holdings (alphabetically)

Alibaba Group Holding LTD China Consumer Discretionary Charter Communications Inc United States Communication Services Cigna Corp United States Health Care Houlihan Lokey Inc United States Financials Indus Towers Ltd India Communication Services Lumentum United States Information Technology Pinterest Inc United States Communication Services Rakuten Inc Japan Consumer Discretionary Tencent Holdings China Communication Services UnitedHealth Group Inc United States Health Care

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

Segment

PERFORMANCE

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE FOR PERIODS ENDING 28 Feb 20211
1 Month1 Year3 Years P.A.5 Years P.A.SINCE INCEPTION
Fund 1.4%18.7%12.3%12.7%11.5%
Benchmark 1.4%8.5%10.5%12.4%10.0%
1 Month1 Year3 Years P.A.5 Years P.A.SINCE INCEPTION
Fund
1.4%
18.7%
12.3%
12.7%
11.5%
Benchmark
1.4%
8.5%
10.5%
12.4%
10.0%

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer-dated bond yields rose by relatively large amounts and the spread of nominal yields and real yields widened. This had an immediate negative impact on growth stocks, which declined, while reflation stocks rebounded.

We have long argued that inflation is arguably the most significant risk facing the stock market and we continue to vigilantly monitor that risk. Some of the Fund’s positions that should benefit from inflation and performed well, as anticipated, during Feb-21 include ING, Epiroc, Mowi, CME, Vulcan Materials, and Flow Traders. Meanwhile, the Fund’s ‘growthier’ stocks that we anticipate to be most negatively impacted by rising rates were the weaker performers during the month and include, Thermo Fisher, Alibaba, Sunrun, and Electronic Arts. In aggregate the stocks performed as we would expect given an inflation scare, which provides us with a working compass should we choose to tilt the portfolio more meaningfully towards the reflation trade.

The Fund remained relatively unchanged during the month and we added just one ‘growthier’ stock that was sold off during Feb-21. In aggregate, the portfolio remains highly differentiated from the market with 45% invested in the US Vs the Benchmark’s 57%, 28% invested in Europe (ex-UK) Vs the Benchmark’s 13%, and 18% invested in Emerging Markets Vs the Benchmark’s 13%. It is a similar story when viewed along sector exposure lines with the Fund meaningfully overweight Materials and underweight Information Technology and does not own a single FAANG stock.

By our analysis, the Fund has an approx. 5.5% FCF yield, 8% revenue growth, and <1x net debt/EBITDA, all of which compare favourably to the market. These factors coupled with our diversification and various risk controls given us confidence in the outlook for the Fund.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
9.4%
NUMBER OF STOCKS
36
BETA4
0.76

FEATURES

  • APIR CODE HHA0002AU
  • REDEMPTION PRICEA$ 2.8525
  • FEES * Management Fee: 1.5%
  • Minimum initial investment Closed to new investors (existing investors may make additional investments)
  • FUM AT MONTH END A$ 63.66m
  • STRATEGY INCEPTION DATE 1 July 2015
  • BenchmarkMSCI All Country World Total Return Index in AUD**

Fund Managers

James McDonald

CIO

Description

“The Pengana International Fund – Ethical Opportunity (the Fund) is a long only fund that holds 30-50 companies across developed and developing markets, large and small companies. The Fund predominantly invests in companies that deliver stable yet growing free cash flow throughout cycles (which we classify as ‘Core’ holdings) whilst also taking positions in more cyclical companies (‘Cyclical’) and those whose valuation has been materially misconstrued by the market (‘Opportunistic’). We avoid investment in companies that, in our opinion, are harmful to people, animals or the environment. Important Note: There are significant accumulated tax losses contained within the Fund which may benefit existing investors.
We have accordingly closed the Fund to new investors in order to maintain the interests of existing investors. We strongly urge you to seek tax advice if you are an investor in the Fund, to understand how this may benefit you.

EXPLORE OUR FUNDS

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Axiom International Fund
Axiom International Fund
Axiom International Fund (Hedged)
Axiom International 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
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit Fund

1.2. A new strategy was implemented for the Pengana International Fund – Ethical Opportunity from 1 July 2017 by the Pengana team. The financial information below refers to the strategy currently employed by the Fund. For full performance history of the Fund, please refer to the Pengana website. From July 2017, performance figures are those of the Hunter Hall Pengana International Fund – Ethical Opportunity’s class A units (net of fees). Between July 2015 and June 2017, performance figures have been recalculated by adjusting the Pengana International Fund’s (ARSN 610 351 641) net returns to reflect the management fee of the Pengana International Fund – Ethical Opportunity. From July 2017, the Pengana International Fund – Ethical Opportunity has been managed by the same team and with the same strategy as the Pengana International Fund. The Pengana International Fund’s net track record data is historical. Past performance is not a reliable indicator of future performance. The value of the investment can go up or down.
3. Annualised standard deviation since inception. 4. Relative to the MSCI All Country World Total Return Index in AUD.
* For further information regarding fees please see the PDS available on our website.
**The benchmark was changed from MSCI World Total Return Index (net, AUD) effective 6 June 2017.
Important Note: There are significant accumulated tax losses contained within the Fund which may benefit existing investors.
We have accordingly closed the Fund to new investors in order to maintain the interests of existing investors. We strongly urge you to seek tax advice if you are an investor in the Fund, to understand how this may benefit you.