The Pengana Australian Equities Market Neutral Fund Class A ("Fund") aims to generate a net return of 5-10% p.a. above the average RBA cash rate, after all fees and with a risk target (annualized standard deviation) of 8-10% p.a.
The Manager employs a fundamentally based quantitative investment approach to stock selection. Stocks are scored across 7 main investment themes: value, earnings, cashflows, profit growth, momentum, liquidity and behavioural. The Manager considers that these 7 main investment themes are the aggregation of many underlying company fundamentals that have been shown to explain share price behaviour.
The Manager's fund management team use proprietary computer based models to score the stocks based on information derived from an entity's balance sheet, income statement and cash flow analysis combined with independent analyst research, earnings forecasts and price momentum. Stocks are then weighted into an optimal portfolio using a stock's aggregate score and contribution to portfolio risk.
The portfolio construction process attempts to control risk by maintaining neutral exposures to:
*Relative market movements (position size and market exposure constrained)
*Sector exposures (limits are placed on the net weight in each sector)
*Size bias (reduces the effect of large cap versus small cap performance)
By reducing these exposures, market neutral investing becomes a pure stock selection model that derives returns from company specific factors. As there is limited market exposure, the Fund's relevant performance benchmark is the RBA Cash Rate.
In order to achieve market neutrality, the Fund may invest "long" (the purchase of securities which the Investment Manager believes will appreciate in value) and "short" (the sale of securities which the Investment Manager believes will depreciate in value). The Fund may also employ leverage up to a maximum of 400% of the Net Asset Value of the Fund.