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.
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February was an extraordinary month within a normally placid bond market. Catalysed by growing inflation expectations, longer date 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%, 26% invested in Europe (ex-UK) Vs the Benchmark’s 13%, and 17% 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 approximate 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.
The Pengana International Fund invests in 30-50 companies across developed and developing markets, large and small companies. The Fund predominantly invests in franchises 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’).
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. Inception 1st July 2015.
3. Annualised standard deviation since inception.
4. Relative to MSCI All Country World Total Return Index in AUD
* For further information regarding fees please see the PDS available on our website.
