Pengana has completely exited large-cap technology companies in its International fund over fears regarding their steep share price rise this year.
The global equity fund had already been underweight in the US region, specifically US technology companies, and the sales now meant it had zero large-cap tech exposure. As well as concerns about their steep share price rise, it was also foresaw challenges regarding the US presidential election and US/China trade war.
The performance of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) led the performance of the US markets this year and were largely the reason it was able to report positive performance during the pandemic.
The tech-heavy Nasdaq index returned more than 30% since the start of 2020 to 18 September compared to returns of 0.2% for the wider S&P 500 and losses of 10% for Australia’s ASX 200.
Performance of Nasdaq, S&P 500 and ASX 200 since start of the year
“During the month, the fund exited in full its remaining position in Microsoft and Alphabet (Google). This means the fund is no longer exposed to large-cap tech stocks,” Pengana said.
“While the FAANGs have been very popular and now make up approximately 15% of the benchmark, it is very important that we adhere to our fundamental principles regardless of the prevailing mood in the market and especially when the path of least resistance would be simply to follow the herd.”
The firm justified the decision as it was cautious over their steep increase in price in recent months. The best-performing FAANG year to date was Amazon, which had risen 55% as home lockdowns necessitated the need for online shopping while Netflix and Apple had both also risen by more than 40%.
“Towards the end of the month, as the rally in the FAANGs picked up steam, it became increasingly difficult to find any fundamental justification for the repricing of the stocks in question,” it said.
“Microsoft and Alphabet are both extraordinary companies. However, given the extent to which their share prices have risen, the justification to hold on to our positions had worn thin. We, therefore, used the surge in the large-cap tech space as an opportunity to lock in our gains, preserve client capital and minimise volatility.”
According to FE Analytics, within the Australian Core Strategies universe, the Pengana International fund had returned 18% over one year to 31 August, 2020, versus returns by the global equity sector of 5%.
Performance of Pengana International fund versus global equity sector over one year to 31 August 2020
