Pengana scores big with Tesla

Tesla has been a “huge winner” for Pengana’s international ethical fund with the manager believing the company is taking steps to improve on areas where it fell down on environmental, social and governance (ESG) scores.

Speaking on a webinar, Bradley Amoils, manager of the Pengana Axiom International Ethical fund, said Tesla was a top 10 holding for the fund.

“Tesla has been a huge winner for us, the combination of operating criteria such as delivering on cost, on target, at the times required and having financial measures of cashflow, balance sheet improvements which were commensurate with that, it really made it a stock we could embrace,” he said.

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“It has been a very successful holding for us and one where we see significant upside in the medium term.”

In the past year, shares in Tesla had gone up 175% versus returns of 32.4% by the S&P 500.

From an ESG perspective, ratings agency S&P said the electric vehicle manufacturing company scored well on low carbon strategy but low on ‘social’ areas such as human capital development and labour practices. It was a constituent in the S&P 500 ESG Index but only received an overall score of 22/100. However, MSCI scored the company an 'A'. 

The firm said it considered Tesla for inclusion as the fund looked at stocks which were "undergoing positive change" and said the company was taking steps to improve in areas where it received a low score.

US-based asset manager Axiom took over the fund earlier this year after the departure of the two internal previous managers, Stephen Glass and Jordan Cvetanovski, who left to set up their own boutique firm.

At the time, the fund maintained its existing ethical framework and was overlaid with Axiom’s ESG framework. This involved the utilisation of a negative screening process to avoid investment in companies that derived significant operating revenues from direct and material business involvement in these sectors.

The second high-performing stock which Amoils highlighted was Moderna, producer of a vaccine against COVID-19, which rose by 219% over the past year to 9 November, 2021.

“Moderna has been a holding for three or four quarters now and we bought it at the start of the year when expectations about the vaccine rollout were very moderate and people did not realise the potential of the company and their earnings power,” Amoils said.

He said, at one point, Moderna was one of the fund’s largest holdings but that the team had since moderated its allocation to the biotech stock and it now sat outside of its top ten holdings.

The Pengana Axiom International Ethical fund had returned 29% over one year to 30 September, 2021, according to FE Analytics, versus returns of 27% by the global equity sector within the Australian core strategies universe.

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