The Fund aims to achieve its investment objective by investing in units in the Pengana International Fund (the “Underlying Fund"), an actively managed global equity fund, and a risk overlay provided by a portfolio of derivatives to reduce volatility and mitigate downside risk (the “Overlay”).
The Overlay is managed by Milliman Pty Ltd and is designed to smooth the impact of volatile markets, truncate losses from sustained market falls and provide risk management through a rules based approach. The risk overlay is applied to the existing Underlying Fund so investors can have access to an international portfolio diversified across industry, geography and company size, with the added protection of an independent risk manager.
The Underlying Fund is long-only, benchmark independent and typically holds 30-50 companies. The companies considered for inclusion in the portfolio demonstrate large and growing free cash flow generation, and are priced attractively relative to their cash flow.
The Underlying Fund portfolio is created from the stock ideas that work best together, rather than just the best stock ideas.
The investment team develops an understanding of the opportunities using detailed research covering financial statements, company meetings and external research. Companies that meet the investment criteria are divided into three segments:
Core (60-80%): are stable and growing businesses that generate consistent returns.
Cyclical (0-30%): businesses operating in cyclical industries that are posed for a cyclical upturn, which is not recognised in the share price.
Opportunistic (0-20%): are unique, company specific situations that offer attractive potential upside.
The Risk Management Overlay used for the Fund employs a systematic process, referred to as the Milliman Managed Risk Strategy, which has two components;
- Volatility Management - dynamic adjustment of the equity exposure to stabilise portfolio volatility of returns
- Capital Protection - increase effective cash to reduce losses in severe market declines
Milliman manage the risk of the Fund by varying the effective exposure to cash and international equities, dynamically reducing exposure in periods of higher risk and equity market falls. This process allows the Fund to stay invested in global securities (through its investment in the Underlying Fund) but reduces the volatility of returns and dampens downside risk. The overlay may invest in cash investments, Exchange Traded Futures, option contracts, currency futures and forward contracts to manage the risk of the Fund.
BENEFITS OF INVESTING
Focus on risk management. The fund uses a risk management overlay which aims to stabilise portfolio returns and truncate losses in sustained market falls.
Skilled investment team. The investment team has over 90 years of combined experience investing in global equities and has developed a successful and repeatable investment process.
A truly active fund. A relatively concentrated portfolio that is selected purely on investment merits rather than index weight.
Investment in high quality businesses at compelling valuations. The Fund aims to invest in businesses with compelling business models that consistently generate large and growing sums of cash.
Focus on risk and return. The portfolio focuses on 30-50 stocks that work together, with sufficient concentration to deliver returns and sufficient diversification to reduce risk.
Investment approach that is suitable across market environments. The investment team invests across different geographies, industries and company sizes and can adjust to changing market environments.