March, 2021
This Fund is designed for investors who want the potential for long term capital growth and tax effective income, diversification across a broad range of Australian companies and industries and are prepared to accept higher variability of returns. The Fund may also hold cash and may use derivatives. Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select stocks based on our assessment of their long term worth and ability to outperform the market, without being restricted by a growth or value bias. Our fundamental company research focuses on valuation, franchise, management quality and risk factors (both financial and non-financial risk).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/Pendal-Australian-Equity-Fund-Factsheet.pdfDecember, 2020
The S&P/ASX 300 Accumulation index rebounded strongly over the December quarter (+13.8%), capping the year’s return at +1.7%. Stronger commodity prices, the iron ore in particular, which gained ~70% over the year propelled returns for Resources (+18.6%/+9.2% Q4/CY20); whereas Industrials (+12.6%/-0.1%) were the laggard.
Covid cases in the US continue to rise and Europe has started to deteriorate again. In the UK concern centres on the rise of cases in London, and the focus has been on a potentially new strain/variant of Covid-19. While it has proven more infectious, there is no evidence to suggest this new strain will make people sicker or is more resistant to vaccines. The latter is critical to market sentiment.
Despite worsening health news and greater restrictions, the economy is holding up better than expected. This is despite softer consumer confidence and shoppers holding back from physical retailers and restaurants. November retail sales, released in December were softer, but real times measures suggest this may have picked up again. Surveys for holiday sales continue to look ok, with a substantial shift to online.
Turning to sector performance, Healthcare (-1.0%) and Utilities (- 5.4%) were the only GICS sectors that recorded a loss over the quarter. In contrast, Financials (+22.8%), Information Technology (+22.8%), Energy (+26.1%), Materials (+15.9%), Real Estate (+13.7%), Communication Services (+12.7%) and Consumer Discretionary (+11.1%) all posted double-digit gains.
The “big four” banks all recoded strong gains over the quarter, ranging from +16.9% (WBC) to 34.2% (ANZ). For ANZ, its latest results revealed some trends that are prevalent within the sector. The good news was the bad and doubtful debts (BDD) provisions were lower, which helped drive a better capital position. However margins were softer and the cost outlook was a bit higher due to the need for investment in technology. Pre-provision profit forecasts were cut by 3-4%. There is a silver lining in that the company acknowledges the outlook for BDDs looks better than feared. This could lead to EPS and DPS upgrade in future years. Elsewhere, iron ore miners, including BHP (+19.9%), Fortescue Metals (FMG, +43.7%) and Rio Tinto (RIO, +20.7%) continued to rise on the back of the strong iron ore price – seaborne iron ore surpassed US$160/mt over the month, a price level that was last seen in 2011. End-of-year restocking, as well as concerns that recommendations on the government inquest into the Juukan Gorge incident may have some impact on supply.
Lastly, Afterpay (APT, +47.5%) and Xero (XRO, +45.7%) were the largest two return contributors within the IT sector. APT provided a trading update for November at the beginning of December, which saw its global underlying sales grow by +112% from last year to A$ 2.1b. The US region recorded sales of 1.0b, exceeding ANZ’s 0.9bn for the first time. Referrals to global retailers also continued to grow strongly with over 35m leads generated during the month of November, which was 147% up on November 2019.
In the same vein, XRO delivered a good result in November. New subscriber growth softened in the US and UK, in line with expectations given the challenges in attracting new customers during the Covid period. However, there was stronger than expected subscriber growth in Australia – and particularly in New Zealand – which was surprising given that these are already heavily penetrated markets. This may suggest a further post-Covid shift in mentality towards the importance of online cloud-based accounting. There were also constructive signals around the development of the broader platform and ancillary services.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/164222482.pdfSeptember, 2020
The market’s initial reaction to NEC’s (+28.0%) results was negative given a worse than expected update for TV ad numbers in July. However signs of improvement are coming through, while the result delivered good cash flow. Potential structural improvements in revenue – from Stan subscriptions and social media payments – coupled with cost out, place NEC in a good spot when the cycle improves, which is where the market expectation is at currently
Lower input costs and improvements in the US housing market have been providing cyclical tailwinds for the sector, which saw the likes of James Hardie (JHX, +20.4%) continue to outperform. In addition, investor sentiment has also been supported by the expectation that any housing-related stimulus in response to current economic conditions will also directly benefit the sector
IAG (-24.1%) preannounced its FY20 result in July, stating that net profit after tax (NPAT) was likely to be less than half that of FY19. While management are confident that they won’t face a flood of business interruption claims from Covid, they did increase provisions against the knock-on effects. Given this, they will also not pay a final dividend for FY20.
Afterpay (APT, +31.2%) continued its relentless re-rating, driven mist recently by the acquisition of small European and Asian businesses which are being factored into a material uplift in “total addressable market (TAM)”. The result itself was mixed; gross margin was good but there were some signs of momentum slowing in US - this could be a significant issue in next 3 months. The company also pulled back somewhat in September following the news that PayPal is releasing a buy now pay later (BNPL) option as part of its existing service to customers. We continue to prefer Xero as our growth exposure.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/P1.pdfticker: BTA0055AU
commentary_block: Array
factsheet_url:
https://www.pendalgroup.com/products/pendal-australian-equity-fund/
Right sidebar -> Quarterly Fact sheet
Or
https://investmentcentre.moneymanagement.com.au/factsheets/mi/ltd3/pendal-wholesale-australian-share
release_schedule: Quarterly
fund_features:
Pendal Australian Equity Fund aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX 300 (TR) Index over the medium to long term. This Fund is designed for investors who want the potential for long term capital growth and tax effective income, diversification across a broad range of Australian companies and industries and are prepared to accept higher variability of returns.
- The fund will typically hold between 45 – 50 stocks.
- Used derivatives.
- Cash allocation up to 20%.
- Pendal incorporates an assessment of environmental, social (including labour standards), corporate governance (ESG) and ethical factors in our investment process where those considerations are deemed material to the financial performance of an investment.
manager_contact_details: Array
asset_class: Domestic Equity
asset_category: Australia Large Blend - Core / Style Neutral
peer_benchmark: Domestic Equity - Large Cap Neutral Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund