2023 In Review with Portfolio Manager Ed Prendergast

In this interview, Lana Ward speaks with Ed Prendergast, the Portfolio Manager for the Pengana Emerging Companies Fund, where they discuss the Fund’s strategic insight and resilience amid 2023’s market dynamics.

Despite the underperformance of small caps compared to large companies, Ed reflects on the Fund’s performance in 2023, highlighting positive contributors such as non-residential construction and defensive earning streams.

The conversation delves into the impact of inflation and interest rates on market volatility and the Fund’s investment philosophy, emphasizing a consistent approach focused on active engagement and understanding of investments, unchanged over the fund’s 20-year history.

Key Takeaways:

1. Performance Amidst Challenges: Despite a challenging environment for small companies in 2023 due to rising interest rates and inflation, the Pengana Emerging Companies Fund managed to achieve a net return of 11.6%, outperforming the Small Industrials Index by 0.2% and outperforming the Small Ordinaries Index by 3.8%.
2. Diversified Portfolio: The Fund’s success was attributed to a diversified portfolio, with investments in sectors like non-residential construction, car sales, and defensive earning streams such as Propel Funerals and Oz Brokers.
3. Risk Management: While some investments performed well, others, like Capital Health, faced challenges such as a lack of pricing power and cost inflation. The Fund maintains a cautious approach, acknowledging potential risks associated with inflation and interest rate fluctuations.
4. Opportunities in Small Companies: Despite recent underperformance compared to large caps, Ed expresses confidence in the long-term prospects of small companies. Historically, periods of volatility have presented strong opportunities for performance as market conditions stabilize.
5. Consistent Investment Philosophy: The Fund’s investment philosophy, characterized by active engagement, understanding of investments, and avoiding investments in areas not fully comprehended, has remained unchanged over its 20-year history. This consistency underpins the Fund’s track record of delivering consistent performance and earning trust from investors.