Pengana Global Small Companies aims to obtain returns greater than the MSCI All Country World Index SMID Cap unhedged in Australian dollars (‘Index’) over rolling 3 year periods after fees.
• Global equity markets continued to weaken in September as higher interest rates threatened to further slow consumer spending and rising bond yields impact company valuation levels.
• Smaller companies underperformed large cap stocks during the month.
• The Fund returned -4.2% in September, which was in line with the benchmark.
Global equity markets continued to decline in September as smaller companies again underperformed large-cap stocks. This trend was accelerated by rising longer-term bond yields which reflect growing concerns that inflation has not yet been brought under control.
Despite core US inflation moderating to 4.3% in August, rising oil prices pushed headline inflation back up to 3.7%, well ahead of the 2.0% targeted by the Federal Reserve (Fed). The Fed reiterated its “higher for longer” stance on interest rates, making the timing of lower rates very hard to predict, but likely lying further into the future.
Consumer spending was strong in the third quarter, yet there are now growing fears of a slowdown in consumption, as savings accumulated during the pandemic have now largely been spent. In August, the New York Fed highlighted that credit card balances have risen for five consecutive quarters, and rose at the fastest rate in more than 20 years during the June quarter.
What is Pengana Global Small Companies Pengana Global Small Companies is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - World Mid/Small 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 Global Small Companies has Assets Under Management of 128.01 M with a management fee of 1.33%, 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 Global Small Companies has returned 5.23% in the last month. The previous three years have returned 1.35% annualised and 12.94% each year since inception, which is when the Pengana Global Small Companies 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 Global Small Companies first started, the Sharpe ratio is 0.42 with an annualised volatility of 12.94%. The maximum drawdown of the investment product in the last 12 months is -10.79% and -29.04% 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 Global Small Companies has a 12-month excess return when compared to the Foreign Equity - World Mid/Small Index of -6.26% and -0.53% 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 Global Small Companies has produced Alpha over the Foreign Equity - World Mid/Small Index of -0.48% in the last 12 months and 0.03% since inception.
What are similar investment products?
For a full list of investment products in the Foreign Equity - World Mid/Small Index category, you can click here for the Peer Investment Report.
What level of diversification will Pengana Global Small Companies provide?
Pengana Global Small Companies has a correlation coefficient of 0.89 and a beta of 0.94 when compared to the Foreign Equity - World Mid/Small 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 Global Small Companies and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Pengana Global Small Companies with the Developed -World Index?
For a full quantitative report on Pengana Global Small Companies compared to the Developed -World Index, you can click here.
Can I sort and compare the Pengana Global Small Companies to do my own analysis?
To sort and compare the Pengana Global Small Companies financial metrics, please refer to the table above.
Has the Pengana Global Small Companies 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.
How can I invest in Pengana Global Small Companies?
How do I get in contact with the Pengana Global Small Companies?
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Pengana Global Small Companies. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 • Equity markets weakened in August upon rising recession fears, with smaller companies underperforming larger cap stocks
• Australian dollar weakness offset the impact of lower share market returns when stated in AUD terms
• The Fund returned -0.8% in August and trailed the index return of 0.3% as smaller companies underperformed larger cap stocks
Global share markets were generally weaker during August, with smaller companies underperforming larger cap stocks. This was offset by the depreciation of the Australian dollar when expressed in AUD terms.
US economic news was mixed. Credit rating agency Fitch downgraded the US long-term credit rating, citing weakening fiscal conditions, the growing debt burden, and the repeated debt limit standoffs. Bloomberg’s median probability of a recession over the next 12 months remains at 60%.
On a more positive note, both core retail sales and industrial production showed month-on-month growth. The median estimate for third quarter US economic growth is 1.4% quarter-on-quarter, which may be somewhat conservative given the particularly strong 2.4% recorded in the second quarter.
In Europe, share markets broadly declined in August. The only sectors that performed well were energy and real estate, which traditionally do not fall within the Fund’s investment universe. Both the UK and Eurozone composite purchasing managers’ data indicated economic contraction, with the Eurozone’s reading reaching a 33-month low.
In China, share prices declined steeply in local currency terms during August. The economic slowdown continued in July, with unexpected slowdowns in both retail sales and industrial production. Furthermore, China’s property crisis intensified, raising concerns about contagion effects impacting the wider consumer economy. The near-term outlook appears bleak.
In Japan, the economy grew during the second quarter, driven by strong exports and tourism. However, signs of wage inflation are starting to emerge which is slowing momentum in corporate earnings growth.
Smaller company stocks underperformed larger cap stocks in August, negatively impacting the returns of the Fund relative to its benchmark. Continued weakness in companies at the smaller cap end of the small companies’ investment universe is weighing on the Fund. However, it also creates a highly attractive investment opportunity, when the discounts at which smaller companies are valued in the market become historically wide when compared to larger businesses.
Performance Commentary - July 31, 2023 • Global share markets continued to strengthen in July, with smaller-cap stocks performing well as cooling inflation appears to be bringing interest rates close to their peak
• Market returns were especially strong in banks, mining companies, and North America, where attractively priced quality companies are more difficult to find
• The Fund returned 0.5% in July, while the index returned 3.5% Global share markets performed well in July, with smaller companies making good gains, although a stronger
Australian dollar detracted from returns in AUD terms.
The Fund returned 0.5% net of fees in Australian dollar terms during July, trailing the MSCI All Country World SMID Cap Index, which gained 3.5% in the period.
The US share market performed strongly despite the Federal Reserve raising interest rates by a further 0.25% in July. The market now expects that interest rates are either at or close to their peak of the current cycle. While June headline inflation cooled for the 12th successive month, falling to just 3.1%, core inflation proved to be stickier at 4.8%. The US economic outlook improved further, with GDP growing by 2.4%, well above earlier market expectations.
European stocks also performed well as Eurozone inflation fell to 5.3% and its GDP expanded by 0.3%, which was faster than expected. Although corporate earnings have been resilient, July economic data was weaker. UK equities performed better than those in Continental Europe as headline inflation fell sharply to 7.9% in June from 8.7% in May.
Japanese equities made more modest gains in July after strong quarterly earnings results were offset by earnings forecasts which reflected the impact of continuing increases in wage costs. Elsewhere in Asia, China’s GDP growth slowed and the post-Covid rebound appears to be running out of steam. Despite this, China’s stock market performed strongly upon hopes of further government stimulus. The Fund underperformed the benchmark during July, due largely to the Fund’s long-term underweight positioning towards banks and mining companies. The Fund’s underweight position in North America, where companies are relatively more expensive, further detracted from relative returns.
Performance Commentary - June 30, 2023 • Shares in global smaller companies strengthened in June upon signs that inflation is now cooling and fears of a recession are easing
• Larger companies continued to outperform smaller ones, especially in technology-orientated sectors
• The Fund returned 0.7% in June, while the benchmark returned 3.0%
Global smaller companies strengthened during June, although a stronger Australian dollar detracted from returns in AUD terms. Larger companies continued to outperform smaller ones, especially in technology-orientated sectors.
The broader global share market performed well as US inflation moderated, raising hopes that interest rates may start to fall in 2024. The continued strength of economic activity and the labour market eased fears that the global economy would enter recession later this year. The US Federal Reserve stress test showed all 23 major banks had sufficient capital to survive under a severe recession scenario.
European shares made positive – but more limited – gains, reflecting receding fears of a potential energy crisis.
However, there were cautionary signs as both the service and production indices contracted in June. UK equities also made gains, with positive GDP growth despite inflation remaining well above target. The Bank of England raised the interest rate by 0.50% to 5.00% in June, the 13th successive increase. The market expects more interest rate hikes before the year-end.
Japanese stocks continued to perform well, benefiting from a weak yen and a strong industrial base. Chinese equities were also positive, driven by the real estate and communication services sectors, despite weak industrial production data.
The Fund underperformed the benchmark in June due to its focus on smaller stocks within the investment universe. Larger stocks outperformed, especially in the US, during the month. These stocks are now valued at highly attractive discounts to larger companies, which gives confidence that they will deliver strong performance as the global economy recovers.
SoftwareOne is a Swiss software reseller and cloud service provider to small and medium-sized businesses in more than 70 countries. The position was established in the third quarter of last year when the weak share price reflected investor concerns about the company’s margin profile. A new CFO has joined the business and helped establish credibility amongst investors. The business is now growing again, and margins are improving. Bain Capital noticed this and has made an indicative offer to buy the business. The founding families, who own 29.1% of the business, rejected the offer, believing that it undervalues the company. The Fund supports this position and continues to maintain its holding, believing it likely that Bain will make a higher offer. If this does not materialise, the stock remains attractive on a free cash flow basis, and the fundamentals continue to improve.
Dino Polska is a Polish retail chain of mid-size discount grocery stores and distribution centres. The stock contributed to relative returns when it outperformed the market in June, extending a long period of strong performance. The company has exploited what had been an immature retail market in Poland. It has rolled out modern western-European style stores with effective supply chains that delivered discounts to shoppers in excess of 20% compared to traditional grocery stores. This has enabled it to grow revenues by 20%-30%, delivering strong returns on equity for more than a decade.
Performance Commentary - May 31, 2023 • The Fund was down 2.0% in May 2023, trailing the MSCI All Country World SMID Cap Index, which declined 0.7%.
• The AI surge drove interest in a narrow subset of primarily larger US companies.
• Economic momentum slowed in Europe, China, and the UK.
• New investment in Moringa, one of the largest confectionary companies in Japan.
U.S. Equities performed well in June. The S&P 500 rose 2.61% buoyed by large-cap tech stocks as well as the debt ceiling agreement. Economic data was healthy: retail sales were robust, core inflation cooled to 5.5%, and the labor market remained tight. The (Small Cap) Russell 2000 also fared well with a 1.23% gain. Europe’s economic momentum in April decelerated in May. All sectors fell aside from information technology which was boosted by optimism surrounding Artificial Intelligence. Germany entered a technical recession after showing a negative growth in the first quarter of 2023 and U.K. equities fell as core inflation accelerated to 6.8%, the highest level since 1992. Nevertheless, on many 1Q earnings calls, many of the European managers still signaled a rebound in 2H 2023.
China’s economic data were much weaker than anticipated with the manufacturing PMI falling below the neutral 50-mark. China’s downturn may create a knock-on problem for the global luxury sector later this year. On the other hand, Japanese stocks did well. While core inflation continues to be strong at 4.1%, full-year earnings results were strong. Furthermore, the Tokyo Stock Exchange urged listed companies to put a stronger emphasis on increasing shareholder returns and many companies have responded.
The top five performers contributed evenly. The two most notable names were Flextronics and Melrose. FLEX performed strongly on the back of strong demand and a growing order backlog for its specialist manufacturing capabilities. Our thesis on Melrose continued to play out nicely. The spin-off of the automotive business (Dowlias) revealed to investors a strong Melrose’s Aerospace business with improving fundamentals. On the other hand, PRA Group was by far the biggest laggard, with a drag of -1.49% on total performance. We were negatively surprised by the weak first quarter results and decided to exit the position.
The Fund added a new position, Morinaga. Morinaga is one of the largest confectionary companies in Japan. It possesses the best-selling ice cream in Japan. The Company has announced its intention to improve its capital allocation policies. We expect this catalyst to drive a higher return on capital and accelerate earnings growth during the investment horizon.
Performance Commentary - April 30, 2023 Global smaller companies were moderately stronger in April upon signs of solid economic activity, moderating inflation, stable earnings results and corporate activity.
Strong stock performance and an overweight position in Europe along with an underweight position in North America contributed to relative returns during April.
The Fund returned 1.6% in April, in line with the benchmark
Performance Commentary - February 28, 2023 Global smaller companies strengthened in February upon signs that the global economy remains resilient and that earnings are holding up reasonably well.
Strong stock performance and an overweight position in Europe contributed to relative returns during February.
The Fund returned 3.7% in February, while the benchmark returned 1.9%.
Performance Commentary - February 28, 2023 Global smaller companies were moderately weaker in March as cautious investors tilted their asset allocation towards more liquid larger company stocks.
Strong stock performance in Asia and an underweight position in Financials contributed to relative returns during March.
The Fund returned -0.1% in March, while the benchmark returned -0.
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