Pengana International Fund – Ethical Opportunity provides exposure to an ethically screened diversified portfolio of highly cash-generative and growing global companies purchased at compelling valuations.
• Global equity markets weakened further during September, as the global economy continues to slow under the pressure of higher interest rates
• Longer-term bond yields increased upon fears that persistent inflationary pressures will keep interest rates elevated for an extended period, which particularly impacted growth stocks
• The portfolio returned -5.9% in September, while the benchmark returned -3.6% Global share markets again moved lower in September, as persistent inflation increased the expectation that interest rates would remain elevated for an extended period. This helped push up longer-term government bond yields, which weighed on share prices.
US inflation remains persistent, increasing in August to 3.7% year-on-year from 3.2% in July. The US dollar increased by 2.5% against a basket of key trading partners’ currencies in September. This reflected growing expectations that the US interest rate will be kept at a premium over those of other major currencies. Economic growth data remains mixed, with the picture in North America and Europe being one of gradual improvement, yet still consistent with contraction.
China’s manufacturing activity continues to expand, although the broader ‘re‑opening’ following the lifting of its zero-COVID strategy has now largely stalled. Consumer spending remains sluggish, as the highly leveraged property market continues to slow the economy. Travel and entertainment continue to support economic activity in the region.
The Fund retains its focus on dynamic growth stocks whose positive revisions to earnings per share (EPS) drive outperformance as global economic growth moderates. The Fund continues to overweight information technology, health care, and consumer discretionary, while the largest underweight sectors are financials, energy, and materials.
The surge in long-term global bond yields last month drove an equity market switch out of growth stocks – which are more sensitive to changes in yields – and into value stocks. This led global growth stocks to underperform value by around 2.7% during September. The Fund underperformed its benchmark, but by a smaller margin of 2.3%.
Strong stock performance in industrials contributed to relative returns. Weak stock performance in health care, financials and information technology were the main detractors.
US-based luggage manufacturer and retailer Samsonite continued to perform well after reporting second quarter earnings which were ahead of market expectations. The company continues to benefit from the strong growth in global travel.
Novartis is a Swiss-based diversified global pharmaceutical company with a focus on oncology, immunology, cardiovascular, and neurology. It performed well over the last month in anticipation of the spin-out of its biosimilar business Sandoz, which will effectively leave Novartis as a pure-play pharmaceutical stock. Furthermore, the Fund’s tracking of pharmacy script data for its key drug Kisquali – which remains ahead of consensus expectations – supports the positive outlook.
What is Pengana International Ethical Opp Pengana International Ethical Opp is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Growth Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Pengana International Ethical Opp has Assets Under Management of 62.41 M with a management fee of 1.5%, a performance fee of 0.00% and a buy/sell spread fee of 0.6%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Pengana International Ethical Opp has returned 0.33% in the last month. The previous three years have returned 2.02% annualised and 12.87% each year since inception, which is when the Pengana International Ethical Opp first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Pengana International Ethical Opp first started, the Sharpe ratio is NA with an annualised volatility of 12.87%. The maximum drawdown of the investment product in the last 12 months is -5.19% and -42.99% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Pengana International Ethical Opp has a 12-month excess return when compared to the Foreign Equity - Large Growth Index of 10.25% and -1.57% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Pengana International Ethical Opp has produced Alpha over the Foreign Equity - Large Growth Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Foreign Equity - Large Growth Index category, you can click here for the Peer Investment Report.
What level of diversification will Pengana International Ethical Opp provide?
Pengana International Ethical Opp has a correlation coefficient of 0.85 and a beta of 1.36 when compared to the Foreign Equity - Large Growth Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Pengana International Ethical Opp and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Pengana International Ethical Opp with the Developed -World Index?
For a full quantitative report on Pengana International Ethical Opp compared to the Developed -World Index, you can click here.
Can I sort and compare the Pengana International Ethical Opp to do my own analysis?
To sort and compare the Pengana International Ethical Opp financial metrics, please refer to the table above.
Has the Pengana International Ethical Opp been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Comments from SMSF Mates
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Performance Commentary - August 31, 2023 During August, the Fund underperformed the benchmark, the MSCI All Country World Index by 2.0%.
Growth-inclined stocks weakened upon expectations that interest rates would need to be higher for longer to bring inflation back under control. Global value stocks outperformed growth by 1.9% in August.
The underperformance of growth companies occurred despite the continued moderation in inflation. The US Core Personal Consumption Expenditure (PCE) Price Index rose 4.6% year-on-year in August, down from the 4.8% July increase.
The more negative market sentiment followed a speech by Federal Reserve (Fed) Chair Jerome Powell at the Federal Reserve’s annual Jackson Hole conference. He detailed the Fed’s plan to slow inflation through higher interest rates, which reflected a willingness to tolerate higher unemployment and slower economic growth.
This shifted market expectations towards a higher peak in interest rates next year and a longer pause before eventual monetary easing. This brought a 0.60% increase in the yield of the interest rate-sensitive two-year US Treasury bond, wider credit spreads and lower equity market valuations.
The US dollar continued to strengthen in August, pressuring European and emerging market economies. Meanwhile, commodity prices, except for European natural gas prices, continued to moderate, with the price of Brent crude oil falling by 5%.
Economic news varied by region, with stronger July US manufacturing and labour market data, while Europe and China continued to deteriorate. Eurozone purchasing managers’ data were weaker in July, indicating the sector is contracting, while regional inflation continues to accelerate (rising 4.3% year-on-year in August, from 4.0% in July).
Performance Commentary - July 31, 2023 The Pengana Axiom International Ethical Fund (Hedged) (“Fund”) generated a return of 11.3% in July, outperforming the benchmark, the MSCI All Country World Index in AUD (Hedged) (“Index”) by 4.3%. During July the Fund outperformed the benchmark, the MSCI All Country World Index (Hedged), by 4.3%. Growth-orientated shares outperformed value stocks, despite expectations that higher interest rates would be needed to address persistently high inflation, and this would negatively impact economic activity levels. While the strong US dollar continues to pressure European and emerging market economies, commodity prices (in USD) continued to fall. The Brent oil price fell 5% month-on-month, while European natural gas prices remained elevated on continued regional geopolitical tensions.
Global economic growth data continued to deteriorate. Data relating to European economic activity deteriorated sharply with June Germany factory orders 9.0% lower year-on-year, compared to a 3.2% fall in May. This weakness was reflected in the US 2-to-10-year yield curve inversion growing to 35 basis points by the end of July. Inverted yield curves sometimes provide early warning of a future recession. In China, the Zero COVID policy continued to unwind across most of the country which resulted in improved economic activity
Performance Commentary - August 31, 2022 During August, the Fund underperformed the benchmark, the MSCI All Country World Index by 2.0%.
Growth-inclined stocks weakened upon expectations that interest rates would need to be higher for longer to bring inflation back under control. Global value stocks outperformed growth by 1.9% in August.
The underperformance of growth companies occurred despite the continued moderation in inflation. The US Core Personal Consumption Expenditure (PCE) Price Index rose 4.6% year-on-year in August, down from the 4.8% July increase.
The more negative market sentiment followed a speech by Federal Reserve (Fed) Chair Jerome Powell at the Federal Reserve’s annual Jackson Hole conference. He detailed the Fed’s plan to slow inflation through higher interest rates, which reflected a willingness to tolerate higher unemployment and slower economic growth.
This shifted market expectations towards a higher peak in interest rates next year and a longer pause before eventual monetary easing. This brought a 0.60% increase in the yield of the interest rate-sensitive two-year US Treasury bond, wider credit spreads and lower equity market valuations.
The US dollar continued to strengthen in August, pressuring European and emerging market economies. Meanwhile, commodity prices, except for European natural gas prices, continued to moderate, with the price of Brent crude oil falling by 5%.
Economic news varied by region, with stronger July US manufacturing and labour market data, while Europe and China continued to deteriorate. Eurozone purchasing managers’ data were weaker in July, indicating the sector is contracting, while regional inflation continues to accelerate (rising 4.3% year-on-year in August, from 4.0% in July).
Performance Commentary - July 31, 2022 The Pengana Axiom International Ethical Fund (Hedged) (“Fund”) generated a return of 11.3% in July, outperforming the benchmark, the MSCI All Country World Index in AUD (Hedged) (“Index”) by 4.3%. During July the Fund outperformed the benchmark, the MSCI All Country World Index (Hedged), by 4.3%. Growth-orientated shares outperformed value stocks, despite expectations that higher interest rates would be needed to address persistently high inflation, and this would negatively impact economic activity levels. While the strong US dollar continues to pressure European and emerging market economies, commodity prices (in USD) continued to fall. The Brent oil price fell 5% month-on-month, while European natural gas prices remained elevated on continued regional geopolitical tensions.
Global economic growth data continued to deteriorate. Data relating to European economic activity deteriorated sharply with June Germany factory orders 9.0% lower year-on-year, compared to a 3.2% fall in May. This weakness was reflected in the US 2-to-10-year yield curve inversion growing to 35 basis points by the end of July. Inverted yield curves sometimes provide early warning of a future recession. In China, the Zero COVID policy continued to unwind across most of the country which resulted in improved economic activity
Performance Commentary - June 30, 2022 During June 2022, the Pengana Axiom International Ethical Fund (Hedged) (“Fund”) generated a return of -7.8%, slightly underperforming the benchmark, the MSCI All Country World Total Return in AUD (Hedged).
In June, growth factors began to reassert themselves as increasingly restrictive global monetary policy actions started to take their toll on economic activity levels. Overall, the MSCI All Country World Growth Index marginally outperformed the Value Index by 46 basis points in June.
Inflationary pressures showed some signs of moderation as commodity prices retreated from their highs. Brent oil was lower by -6.5% month over month, although regional natural gas prices remain elevated on continued European geopolitical issues.
Further, global economic growth data continued to deteriorate. Most notably, the June US ISM Manufacturing New Orders declined to 49.2, a cycle low and representative of a contraction in activity (reading <50). European economic activity remains mixed with consumer and industrial activity varying widely by country. The strong US dollar continues to pressure European and emerging market economies. China’s Zero COVID policy began to ease in June resulting in an improvement in economic activity. Key economic indicators, the Manufacturing Purchasing Manager’s Index (PMI) returned to expansionary territory at 50.2 versus 49.6, and Services PMI improved more rapidly to 54.7 in June versus 47.8 in May. Despite these improvements, overall Chinese economic activity remains mixed with continuous headlines around regional COVID case count increases and restrictions.
Performance Commentary - May 31, 2022 During May 2022, the Pengana Axiom International Ethical Fund (Hedged) (“Fund”) generated a return of -2.5%, underperforming the benchmark, the MSCI All Country World Total Return in AUD (Hedged), by -2.3%. Portfolio Manager Bradley Amoils recently held a Portfolio and Investment Update webinar which can be found below. The headwind for growth orientated strategies continued through May. The market sold off sharply in the early part of the month as concerns around increasingly restrictive monetary policy and the COVID-related economic slowdowns in China weighed on sentiment. However, the market ended the month reasonably flat as some evidence of “peaking” inflation (i.e. improved personal consumption expenditure in the US) started to emerge. There is less evidence in Europe, where German CPI grew +7.9% year over year, compared to +7.2%, driven by higher commodity prices and a strong US dollar, and German retail sales only rose +2.5% year over year, which was significantly less than the consensus expectations of +4.4%.
Against this backdrop, Axiom continues to focus on dynamic growth stocks. We believe positive earnings revisions will be the most likely factor to drive outperformance at this point in the economic cycle. The Fund continues to be overweight in information technology and consumer discretionary, and has moved into a slight overweight position in healthcare. We remain underweight in financials, energy, and materials and have reduced our position from overweight to underweight in industrials.
Performance Commentary - April 30, 2022 • Dual headwinds of accelerating inflation and slowing economic growth led the Pengana Axiom International Ethical Fund (Hedged) (“Fund”) underperformed the benchmark, the MSCI All Country World Index (Hedged) (“Index”), in AUD terms, by 5.5%.
• During the month the fund trimmed exposure to Semiconductors which are exposed to the deteriorating economic environment, and exited our holding in Align Technology.
• The largest positional increase was to Novo Nordisk, supported by strong demand for their drug Ozempic
The Fund’s improved relative performance during the second half of March took a step back in April. This was largely due to the headwinds of accelerating inflation and slowing economic growth, and further exacerbated by China’s Zero COVID policy which resulted in the lockdown of significant portions of the domestic population which slowed growth and intensified supply chain disruptions. Recession watchers have also been very concerned by the US yield curve with the closely watched 2- to 10-year curve oscillating between 0 and 40bps during April. The Axiom process continues to focus on investing in dynamically growing businesses and for the most part, these businesses have continued to perform strongly, notwithstanding the current environment. We ultimately expect upward earnings revisions of our portfolio companies to be the factor that will drive outperformance at this point in the economic cycle. The Fund continues to be overweight in information technology, consumer discretionary, and industrials and underweight in financials, energy, and materials.
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