July was another strong month for global share markets and, while it can be tempting to ride the positive momentum, it is important to stick to our fundamental principles.
Deputy portfolio manager, Steven Glass, also appeared on CNBC’s Capital Connection to discuss the team’s reducing exposure to large-cap U.S. growth companies. Watch the interview HERE
July was another strong month for global share markets and, while it can be tempting to ride the positive momentum, it is important to stick to our fundamental principles. We hold quality businesses at reasonable valuations, and we do this to avoid overpaying, and to minimise downside risks.
The US stock market is one example of extreme price movements and valuations, particularly within the technology sector. As such, the Pengana International Fund has been taking profits on certain holdings where valuations reached levels that appeared to be pricing in a potentially benign, if not positive, outlook for the US economy. Our cautious stance on the US economy and stock market is also reflected in our underlying US dollar exposure that we have lowered to approximately 20%, which is significantly below the Benchmark.
Without compromising on quality, we have found value outside of the US as we have seen greater opportunities across Europe and emerging markets.
With an active shift away from the strongest market and sector, being US and technology, the Fund returned 1.6% over the month while the MSCI AWCI TR Index returned 1.1%. We are very pleased with the Fund’s performance particularly in a strong market and despite its defensive tilt.
The Fund’s outperformance was driven by strong active stock picking. Pinterest, Vestas Wind Systems and Charter Communications were notable contributors to relative return adding 1.2%, 0.6%, and 0.4% respectively while Bharti Infratel, MOWI, and Cigna detracted 0.5%, 0.4%, and 0.4% respectively to the Fund’s relative return.
As at the 31 July 2020 the Fund has 89% of total NAV invested, with the remainder in AUD cash. Notable regional exposure includes 41% in the US vs. 60% in the Benchmark, and 30% in Europe (ex. UK) vs. 13% in the Benchmark.
We believe the Fund is positioned well and is in good stead to meet its three key aims of making money, protecting capital, and minimising volatility.
The Pengana International Ethical 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 are, in our opinion, harmful to people, animals or the environment.
1. Net performance figures are shown after all fees and expenses and assume reinvestment of distributions. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. A new strategy was implemented for the Pengana International Ethical Fund from 1 July 2017 by the Pengana team. The financial information refers to the strategy currently employed by the Pengana International Ethical.
From July 2017, performance figures are those of the Pengana International Ethical Fund (the “Fund”) 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 Fund. From July 2017 the Fund has been managed by the same team and with the same portfolio construction strategy as the Pengana International Fund, complemented by strict ESG filters and processes. 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.
