The main event for the Australian stockmarket, which ended the quarter to September 2020 up 1.1%, was the August reporting season characterised by businesses that were beneficiaries of lockdowns and JobKeeper payments, as well as trends such as working from home, online retailer, or essential services according to Pengana Capital.
Although the September quarter saw a darkening global macro horizon with the developments such as the US election, US fiscal cliff, geopolitical tensions between the US/China, Brexit, and the second wave of COVID in particular in Europe which made for a challenging investment environment, there seemed to be a glimmer of light emerging in Australia in the latter part of the quarter, the manager said.
This included a marked improvement in the Victorian COVID-19 cases, substantial fiscal stimulus announced in the Federal Budget, travel bubbles with NZ, progressive state bordering re-openings and the Big Four banks reporting better than expected outcomes on provisions and hardship metrics which underpinned a positive shift going forward.
At the same time, the Pengana Australian Equities fund generated a 1.5% return for the same period while for the month of September, the fund was down 2.0% compared to the market that yielded a negative 3.4%, the firm said.
“We remain cautiously optimistic that volatility continues to provide sufficient opportunities to achieve our investment objectives. As such we are comfortable holding some powder dry, ready for deployment – the fund’s cash holding was 14% at end of September,” Pengana said.
According to the manager, looking forward there would be several large conundrums that would have a medium to longer-term impact on investing which would depend on whether:
- The worth of a dollar (in any currency) when the global government/central bank “printing presses” would continue to operate at these high levels;
- The overall cost of money; and
- Whether the government would build a stimulus bridge across the lockdown valley and then unwind all the debt without derailing the economy.
Pengana described its strategy as “retain investment methodology, discipline and focus on reasonably priced “hard assets”.
“Essentially we continue to focus on companies that have resilient business models, robust balance sheets, competent management, and are available at a reasonable price. Importantly we seek to own those businesses that have demonstrated a track record of “having the power” in their various stakeholder relationships,” the manager said.
“Typically these are represented by characteristics that include: long term contractual arrangements at favourable terms with strong counterparties (WPR), owning unique or scarce assets (BIN, RIO), being the lowest-cost producer (CSL), and owning superior non-trivial intellectual property (Resmed).”
