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 2% over the month while the MSCI ACWI 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 and by the Fund’s exposure to gold. Pinterest, Kirkland Lake Gold, and Charter Communications were notable contributors to relative return adding 1.3%, 0.6%, and 0.2% respectively, while MOWI, Bharti Infratel and Cigna detracted 0.7%, 0.6%, and 0.4% respectively from the Fund’s relative return.
As at 31 July 2020 the Fund had 87% invested in equities with the remainder in AUD cash. Notable regional exposure included 43% in the US vs. 60% in the Benchmark, and 25% 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 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.
