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| Fund Overview | Perpetual researches companies of all sizes using consistent share selection criteria. Perpetual's priority is to select those companies that represent the best investment quality and are appropriately priced. In determining investment quality, investments are carefully selected on the basis of four key investment criteria: -conservative debt levels -sound management -quality business and -in the case of industrial shares, recurring earnings In addition, Perpetual aims to take short positions in Australian shares that it believes will fall in value. The Short positions are determined based on each stock's expected returns and the investment constraints (designed to reduce the risks associated with taking short positions). Derivatives may also be used in managing the fund. The Fund's investment universe allows it to invest from time to time directly or indirectly in stocks listed on sharemarket exchanges outside Australia. To help manage the risk profile of the Fund relative to the Australian stockmarket, exposure to stocks listed outside of Australia is limited to 20% and is generally hedged to the Australian dollar to the extent reasonably practical. |
| Manager Comments | The Australian equity market, as measured by the S&P/ASX 300 Accumulation Index, rose by 5.3% during February. Equity markets continued their strong start to the year, with most regional bourses now firmly in bull market territory. Whilst some markets faltered late in the month due to concerns over US monetary and fiscal policy and an inconclusive Italian election, the Australian market pushed on to new 4 year highs. The local market was buoyed by an earnings season which, on the balance, met or beat market expectations. As a whole, industrial stocks (+6.9%) outperformed resource stocks (+0.4%), while large cap stocks (+4.9%) outperformed small cap stocks (+0.9%). In major company news, a predominantly positive reporting season dominated the headlines. The outlook in some sectors remains challenging,but those companies that were able to offer upbeat guidance were strongly rewarded by the market. Cost reductions remained a familiar theme, as investors continue to wait for signs of meaningful top line revenue growth. The Fund’s largest overweight positions include general insurer Insurance Australia Group, rail freight operator Aurizon and casino operator Crown. Insurance Australia Group is a market leader and operates in a duopoly in personal lines. Aurizon operates three main businesses including coal, freight, and network services primarily involved in the transportation of coal from mine to port. The Fund is underweight ANZ and Commonwealth Bank. The largest short positions in the Fund at the end of the month were Worley Parsons and CFS Retail Trust. The Fund is currently positioned 120.0% long (including cash) and 20.0% short. Whilst the outlook is improving, global markets remain hampered by a level of political and economic uncertainty. The Australian market is not immune from these forces; however, during periods of uncertainty and volatility, patient investors are often presented with the opportunity to acquire very high quality companies at attractive valuations. The portfolio manager believes there are a number of such opportunities at present, although these opportunities are becoming fewer. Further, recent interest rate cuts have also increased the relative attractiveness of sound, fully franked dividend streams offered by quality equities in comparison to declining term deposit rates. |
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