Multi-Asset Performance

PAC Monthly Performance - February

Clayton Larcombe
March 15, 2022

Multi Asset

In February, the PAC Global Balanced Fund returned -1.91%, relative to the benchmark return of 0.68%. Also, the PAC Capital Growth Fund return -2.28% relative to the benchmark return of 0.72%.

Our exposures to Australian Shares (+2.12%) and Australian Property (+0.83%) provided support during another challenging month for global markets. We encountered meaningful underperformance from International Equities (-5.63%) and Global Infrastructure (-3.83%).

On 24th February, Russia began an open military invasion of Ukraine. This conflict added to the numerous existing challenges of 2022, including: (i) rising inflation; (ii) expectation for rising interest rates; and (iii) fears of further COVID outbreaks. Furthermore, the outbreak of war in eastern Europe increased uncertainty surrounding global commodity market production and transportation which placed exceptional pressure prices. In addition, U.S. headline inflation rose to 7.9% from a year ago, the highest rate since 1982. While this was in line with expectations, continued and elevated levels of inflation will increase pressure on the Federal Reserve to pursue tighter monetary policy, with many analysts now predicting between five and seven rate rises in 2022. Financial markets have historically shown weakness during periods with numerous, complex, and interconnected characteristics (i.e., UK 1972-1974). 2022 has proven no exception as global markets continue to show: (i) a weakening appetite for risk; (ii) high levels of volatility; and (iii) aggregate market price declines.

We made no meaningful changes to portfolio positioning during February. Our overall risk exposure remains very close to target. We retained a slight overweight to exposure to international equity and real assets (i.e., property, infrastructure, and commodities) and a structural underweight to emerging market equities.

PAC Global Innovation Fund

In February, the PAC Global Innovation Fund returned -15.19%. This performance was primarily driven by our core holdings that included: (i) Volkswagen AG (-2.88%); (ii) Ionis Pharmaceuticals Inc (4.97%); and (iii) Ginkgo Bioworks Holdings Inc (-24.75%).

Volkswagen AG continued to compete for electric vehicle production market share with strong auto manufacturing figures during February. In our opinion, Volkswagen AG offers exposure to the shift towards electric/carbon neutral vehicles at an unassuming valuation relative to its peers. Ionis Pharmaceutical exceeded market expectations during 2021 and guided towards strong performance through 2022. Their ambition of becoming a leading fully integrated biotechnology company is supported by: (i) the commercialisation of its RNA-targeted therapeutics; (ii) a strong pipeline of therapeutic development through 2022 and beyond; and (iii) a collaboration with AstraZeneca to jointly develop and launch several key products.

During February, market volatility provided us with numerous opportune moments to reduce the Fund’s net exposure. We were fortunate to reduce our positions in Kambi Group PLC and Genius Sports Ltd prior to the military invasion of Ukraine in late February. We intend to reintroduce exposure opportunistically as our understanding and expectations around inflation and the conflict within Ukraine become clearer.

PAC Global Esports Fund

In February, the PAC Global Esports Fund returned 27.21%. This performance was primarily driven by our core holdings that included: (i) Evolution AB (-3.00%); (ii) Razer Inc (+10.96%); and (iii) Turtle Beach Corp (+16.98%).

We maintained a core exposure to Evolution AB as it continues to grow its operations undeterred by a slew of allegations into the legitimacy of its business. Evolution AB continues to exhibit earnings quality amongst the highest percentile of our investment universe. While the stock was down over the month, we may look to increase our holding if we see a continuation of weakness in the company’s share price in the near term. Further, we were fortuitous to remove PointsBet Holdings Ltd and increase our exposure to the consumer electronics sector through Razer Inc and Turtle Beach Corp last month. These positions proved particularly resilient and shielded the fund from continued weakness in global markets.

During February, we took advantage of aggregate market volatility to reduce the Fund’s overall net exposure. We were fortunate to reduce our positions in Kambi Group PLC, Evolution AB and Skillz Inc prior to the military invasion of Ukraine in late February.

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