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International Fund

August 2020 - Monthly REPORT

Healthy growth prospects at the most attractive valuations

SUMMARY

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).

Full written commentary available HERE

 

PORTFOLIO

Top Holdings (alphabetically)

Charter Communications Inc United States Communication Services Houlihan Lokey Inc United States Financials Lumentum United States Information Technology Mowi ASA Norway Consumer Staples Newmont Mining (USD) United States Materials Pinterest Inc United States Communication Services Rakuten Inc Japan Consumer Discretionary Tencent Holdings China Communication Services Thermo Fisher Scientific United States Health Care UnitedHealth Group Inc United States Health Care

Sector Breakdown

Capitalisation Breakdown

Region Breakdown

Segment

PERFORMANCE

PERFORMANCE SINCE STRATEGY INCEPTION

NET PERFORMANCE FOR PERIODS ENDING 31 Aug 20201
1 Month1 Year3 Years P.A.SINCE INCEPTION
Fund 2.4%17.9%13.9%11.5%
Benchmark 2.9%6.2%11.6%9.3%
1 Month1 Year3 Years P.A.SINCE INCEPTION
Fund
2.4%
17.9%
13.9%
11.5%
Benchmark
2.9%
6.2%
11.6%
9.3%

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 2.4% 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, SIG, and MOWI were notable contributors to the Fund’s relative return, adding 0.43%, 0.23%, and 0.22% respectively, while Lumentum, Newmont, and Rakuten detracted 0.24%, 0.21%, and 0.20% 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
VOLATILITY3
9.6%
NUMBER OF STOCKS
36
BETA4
0.76

FEATURES

  • APIR CODE PCL0026AU
  • REDEMPTION PRICEA$ 1.3393
  • FEES * Management Fee: 0.974%
    Performance Fee: Nil
  • Minimum initial investment $25,000
  • FUM AT MONTH END A$ 99.79m
  • STRATEGY INCEPTION DATE 1 July 2015
  • BenchmarkMSCI All Country World Total Return Index in AUD

Fund Managers

Description

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’).

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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.