December, 2020
The Fund outperformed the benchmark over the month of December.
Contributors
Overweight Metcash
Metcash (MTS, +17.2%) delivered a well-received half yearly result. The supermarket side continues to do well, with stronger sales its larger competitors. Work from home accelerated sales in neighbourhood-style shopping, helping IGA, however the benefits seem to have persisted even as restrictions have eased. However the larger surprise was on the hardware side, where recent acquisitions are doing much better than expected. The larger exposure to trade – as opposed to retail – means they are well positioned to capture the surge in renovations accompanying the trend to more working from home. MTS also saw strong cash flow, as franchisees have paid back some of the emergency funding from earlier this year faster than expected. At just 14x NTM P/E – versus over 28x for Woolworths – we continue to see upside here.
Overweight BHP
Iron ore miners, including BHP (+11.5%) 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.
Detractors
Overweight Qantas
Qantas (QAN, -9.9%) gave up some recent gains in December. It provided an update which was encouraging, with domestic capacity set to ramp up to 80% of pre-Covid levels. Debt was a little higher than expected. However there was a lot of focus on the enterprise value (EV), which is returning to pre-Covid levels, potentially prompting some profit-taking from investors who bought it as a recovery play. In our view, this misses the impact of a large return of working capital, which is likely to drive the EV higher. We see more upside from current levels.
Overweight QBE
QBE (-14.7%) had a disappointing downgrade as the interim CEO flagged more prior-year reserving, while indicating higher catastrophic costs/reinsurance. The scale of the reserving, while for different reasons to IAG (-8.7%) leaves the same issue — either indicating a business that has managed risks poorly or is being conservative under new management. The downgrades are 5-6%. Nevertheless, we continue to own the insurer as it has been benefitting from a continued rise in premium rates increases, which are now running at close to 10%.
ticker: RFA0059AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Right sidebar -> Quick Links -> Provider’s own factsheet
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
manager_contact_details: Array
fund_features:
Pendal Focus Australian Share aims to provide a return (before fees, costs and taxes) that significantly 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 from a concentrated portfolio of primarily 15-30 Australian shares 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). Derivatives may be used to reduce risk and can act as a hedge against adverse movements in a particular market and/or in the underlying assets. Derivatives can also be used to gain exposure to assets and markets.