For nearly two decades, Pengana Capital’s head of Australian equities, Rhett Kessler, has championed a simple investment philosophy: prioritising businesses that demonstrate sustainable cash earnings. This mantra has shaped a portfolio designed to be deliberately contrarian, standing apart from prevailing market fads like momentum and passive investing. Kessler’s approach has navigated the global financial crisis, a pandemic, and a challenging period for active managers, remaining steadfast in its valuation-first, cash-driven discipline. Pengana’s Australian equities strategy manages approximately $500 million, primarily for high-net-worth individuals and financial planners.
Kessler focuses on businesses with sustainable cash earnings, understandable business models, competent management, and attractive prices. He emphasises after-tax cash earnings yield as the core metric, prioritising real cash generation over reported earnings. The portfolio, typically comprising around 25 stocks, includes companies like ResMed, Evolution Mining and CSL. Pengana Capital is an Australian fund manager offering a range of investment solutions to individuals, family offices, and institutions. The company aims to deliver superior investment performance through active management and a focus on long-term value.
ResMed, a sleep-apnoea device maker, stands out due to its predictable cash generation and durable growth. Evolution Mining is favoured for its management’s focus on profit over size, a rarity in the commodities sector. While CSL has faced recent challenges, Pengana maintains a position based on its underlying asset valuation, recognising its defensive characteristics. Kessler seeks businesses that provide essential, everyday services, such as insurance, packaging, healthcare, and telecommunications.
Pengana has also increased exposure to companies benefiting from Australia’s housing shortage, including Stockland, Mirvac, BlueScope Steel, and James Hardie. The fund returned 9.4 per cent over one year and 10.6 per cent per annum over three years, and has returned 8.7 per cent a year since inception. Kessler states that maintaining a consistent approach is what clients value most.
