Interest rate cuts and lower energy prices providing near term support for consumer
The impact of lower interest rate cuts and energy (petrol) prices is having a positive impact on consumer spending in low to mid value discretionary spending.
Virtually all consumer facing companies reported a strong acceleration in activity in the months of January and February of this year.
The Fund has exposure to this channel via Super Retail Group and JB Hi Fi from a discretionary retail perspective and Crown Resorts and Tatts Group in wagering. All four of these companies have been strong performers through reporting season.
Adjustment of Australian dollar to more rational levels improving profitability of non A$ earners
We continue to be attracted to businesses with non AUD earnings streams which are enjoying a substantial tail wind following the fall in the AUD.
Non AUD earners make up almost 20% of the portfolio and include CSL, Resmed, Ryman, Fox Group and Crown.
We monitor carefully the impact of a lower AUD on the cost base of companies which import raw materials or inventories from non AUD markets.
Aged care demand continues to build
The aged care industry is currently characterised by an excess demand for quality high care facilities, and aging demographics suggest demand growth in the medium and long term well ahead of current expansion in supply.
Hence the Australian (and New Zealand) governments have recently instigated a new regulatory and funding regime which considerably improves the economics for existing commercial high care aging facilities to expand supply.
Whilst the Australian operators are trading on hefty valuation multiples, we were able to gain exposure through acquiring Estia Health shares following a short term sharp drop in its share price, and similar exposure to the same theme in New Zealand via a stake in a company called Arvida.
Markets have become very expensive – increasing risk to capital preservation
The Australian stock market has risen almost 9% calendar year to date, valuations are high and rising, and increasing our focus on capital preservation.
Our cash holdings within the fund have risen to almost 30%, due to the scarcity of attractively valued opportunities for us to invest.
We believe cash is a valuable, low risk, income producing option to take advantage of future opportunities.
Furthermore, we have begun to take out some ‘insurance’ via the acquisition of ASX All Ordinaries Puts. We do not look to actively trade such instruments, nor do we hope we ever need to use them, but we do feel the current environment warrants their inclusion as downside protection in the event of a market correction.
Media Contact
Rhett Kessler
Australian Equities Fund Manager
Pengana Capital
02 8524 9988
0430 346 794
Rhett.kessler@pengana.com
Damian Crowley
Director of Distribution
Pengana Capital
02 8524 9970
0422 466 895
Damian.Crowley@pengana.com