Healthy growth prospects at the most attractive valuations
PORTFOLIO
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Sector Breakdown
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PERFORMANCE
PERFORMANCE SINCE STRATEGY INCEPTION
NET PERFORMANCE FOR PERIODS ENDING 31 Aug 20201
PERFORMANCE SINCE STRATEGY INCEPTION
NET PERFORMANCE SINCE INCEPTION2
COMMENTARY
August was another very strong month for global share markets, with the MSCI ACWI TR index returning 6.1% in US dollar terms. This was driven by large cap US technology stocks (and the FAANGs in particular).
Towards the end of the month, as the rally in the FAANGs picked up steam, it became increasingly difficult to find any fundamental justification for the repricing of the stocks in question. However, there was talk in the market of a “Nasdaq whale” taking huge positions in the tech sector and stoking the gains. It has since come to light that the “whale” in question was the Japanese technology conglomerate Softbank. Various news sources revealed that Softbank began purchasing billions of dollars’ worth of derivative exposure to the large tech names, which forced the investment banks on the other side of those trades to purchase an enormous amount of stock (in order to hedge their own exposure).
The other notable development during August was the strength of the Australian dollar, which rose more than 3% against the US dollar. As a result, the MSCI ACWI TR index ended up returning 2.9% in Australian dollar terms.
The Fund delivered 3.5% for the month. This is a particularly pleasing result given that, for risk management purposes, the Fund was heavily underweight the US market and the US tech sector in particular. Flow Traders, Vestas, and Alibaba were notable contributors to the Fund’s relative return, adding 0.47%, 0.45%, and 0.36% respectively, while Lumentum, Rakuten and Bharti Airtel detracted 0.24%, 0.20%, and 0.17% respectively from the Fund’s relative return.
During the month, the Fund increased its position in SIG, took profits on holdings such as Pinterest and Thermo Fisher, and exited in full its remaining positions in Microsoft and Alphabet (Google). This means that the Fund is no longer exposed to large-cap tech stocks.
While the FAANGs have been very popular, and now make up approximately 15% of the global benchmark, it is very important that we adhere to our fundamental principles, regardless of the prevailing mood in the market (and especially when the path of least resistance would simply be to follow the herd).
Microsoft and Alphabet are both extraordinary companies. However, given the extent to which their share prices have risen, the justification to hold on to our positions had worn thin. We, therefore, used the surge in the large cap tech space (which, as outlined above, was being driven by some extraordinary forces) as an opportunity to lock in our gains, preserve client capital and minimise volatility risk.
We would like to highlight that the risk to markets (and to the US market in particular) has been mounting in recent times. Challenges include:
- the ongoing impacts of the COVID pandemic,
- the uncertainty surrounding the upcoming US election,
- the continued escalation in US-China tensions,
- as well as the unknown end game from promiscuous global monetary policy.
We continue to allocate client capital into businesses that we see as offering healthy growth prospects at the most attractive valuations. We believe that the US Tech and Financial Tech sectors are very expensive. Therefore, we strongly believe that it is important to be looking elsewhere. We have been able to identify more favourable risk/reward opportunities for our clients in other parts of the market and we are continuing to find pockets of value in different sectors around the world. The Fund remains 86% invested in companies that we believe offer comparable growth prospects, with more favourable valuations.
PROFILE
STATISTICAL DATA
PORTFOLIO SUMMARY
FEATURES
- APIR CODE HOW0002AU
- REDEMPTION PRICEA$ 3.015
- FEES * Management Fee: 1.35% p.a
- Minimum initial investment $25,000
- FUM AT MONTH END A$ 341.16m
- STRATEGY INCEPTION DATE 1 July 2015
- BenchmarkMSCI All Country World Total Return Index (net, AUD)
Fund Managers
Description
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.
EXPLORE OUR FUNDS
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.