Three megatrends set to accelerate global equities portfolios

Deglobalisation, digitisation and decarbonisation are the three global megatrends that will dictate portfolio returns post-Covid, says Pendal portfolio manager Chris Lees

• Deglobalisation, digitisation, decarbonisation are key trends
• Look for ‘good stocks in good neighbourhoods’
• Find out about Pendal Global Select Fund

THREE global megatrends will drive stock markets returns in coming years: deglobalisation, digitisation and decarbonisation, says portfolio manager Chris Lees, who oversees Pendal Global Select Fund with Nudgem Richyal.

The concept of megatrends driving returns forms part of Lees’ and Richyal’s highly differentiated, high-conviction global equities strategy.

“Global megatrends transcend sector, they transcend geography,” says Lees, speaking at a Pendal webinar introducing the Global Select fund. The fund was awarded a Zenith “Highly Recommended” rating on September 27, 2021.**

“Deglobalisation, digitisation and decarbonisation are three of the biggest megatrends that we see — and they are all accelerated by Covid.

“These mega, long-term themes are beginning to reassert themselves as the market moves on from Covid bounce recovery plays. It’s now mid-cycle and the market is now really beginning to be driven by these trends.”

Lees says the three themes play off each other to cause a “triplification” effect on markets: “There’s a huge capex boom ahead,” he says.

The megatrends view of investing forms part of Lees’ and Richyal’s longstanding investment process which takes broader themes into account rather than simply stock-specific factors.

“What we try to do is very similar to real estate investing,” says Lees.

“If you buy a good house in a rapidly deteriorating neighbourhood, you’re not going to make much money.

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“The way make really good money over the long term in real estate investing is look for the improving neighbourhoods.

“The stock market is exactly the same… We go looking for good stocks and fixer-upper, improving stocks in rapidly improving neighbourhoods.”

Lees says the history of global investing shows big themes drive markets.

In the 70s, successful investing was about tilting portfolios to gold. The 80s were about Japan. The 90s were about the NASDAQ. The early 2000s were about iron ore and the 2010s about the US tech stocks.

“Bubbles are fun early on. That’s where you make money. The concept is tilting into the new neighbourhood — the new bubble,” says Lees.

“People who view the stock market as mean reversion are mathematically correct, but they’re implementing wrong,” he says.

“A much better way to look at markets is extreme reversion — markets go from one extreme to the other, from fear to greed, from fear to greed.”

Richyal says the trick to successful portfolio management is taking an equal weight approach in a portfolio and weeding out the losers ruthlessly.

“What we can do is mitigate our own foibles by doing it this way.

“We are trying to mitigate the endowment effect — the concept that we as human beings assign more value to something we possess than what somebody else would pay for it.”

Find out more about Pendal Global Select Fund

** The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned ) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners. com.au/RegulatoryGuidelines

About Chris Lees and Nudgem Richyal

Chris Lees and Nudgem Richyal are senior fund managers of Pendal Global Select Fund. The pair have been working together as investment managers for more than 20 years.

Chris has more than 32 years of investment industry experience. He joined Pendal Group’s UK-based asset manager J O Hambro Capital Management (JOHCM) in 2008 after spending 19 years at Baring Asset Management, ultimately as head of its global sector team.

Nudgem has 22 years of industry experience, joining JOHCM with Chris in 2008. He was previously an investment director with the Global Equity Group of Baring Asset Management, where he worked closely with Chris since 2001.

About Pendal Global Select Fund

Pendal Global Select Fund is a global equities portfolio with a distinctive, yet proven approach and a 17-year track record of outperformance. Since its inception, the underlying strategy (JOHCM Global Select Fund) has delivered top-decile performance in Lipper and 2nd decile in Morningstar.*

* Source: JO Hambro, Morningstar universe – Global Large-Cap Growth Equity funds, Lipper survey – Sector quartile ranking: IA Global, and Lipper Global Equity Global domiciled in the UK, offshore Ireland, or offshore Luxembourg. Lipper ranking is from A GBP Class. Please note that these performance figures have not been calculated in accordance with the Financial Services Council (FSC) standards. 

About Pendal

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management. Pendal Group includes Pendal Australia, J O Hambro Capital Management, Regnan and Thompson, Siegel and Walmsley (TSW).

Contact a Pendal key account manager here