Ashley Pittard: How to leverage strong US and European results in portfolios

Ashley Pittard, Pendal Group's Head of Global Equities

Many US and European stocks are reporting strong earnings. Pendal’s Head of Global Equities Ashley Pittard (pictured) explains what this means for global equities portfolios.



STOCK SELECTION is the key to successful portfolio management in 2021 as a booming earnings season in the US and Europe indicates the broader global economy is roaring out of its COVID-induced coma.

In the US, S&P 500 stocks grew earnings by 47 per cent in aggregate year-on-year in the first quarter, on the back of sales  rising more than 10 per cent.

European companies did even better with a 153 per cent lift in earnings and a 3.2 per cent rise in sales.

Pendal’s head of global equities, Ashley Pittard, says the strong performance is a result of pent-up consumer demand, the rebuilding of corporate supply chains and immense government stimulus.

But he says investors should be cautious about the index dominance of America’s big tech stocks — the so-called FAANGs of Facebook, Amazon, Apple Netflix and Google-owner Alphabet — which can give a misleading impression of the market’s overall prospects.

“How you wanted to be positioned the last few years, it was all in the FAANG stocks,” he says. “The market was very narrow because the US tech sector were the only companies that could grow their earnings.

“Now, it’s not going to be as narrow because earnings growth is going to be broader.

“The earnings today due to a stronger macro environment means that the market will be more broad, which therefore should mean that we will get higher equity markets.”

Portfolio construction perspective

From a portfolio construction perspective, Pittard says investors should move to a concentrated stock-selection stance and avoid shadowing the tech-dominated indexes.

“The S&P is near an all-time high valuation at 24 times earnings, but if you strip out the top ten stocks, the market is still very compelling. That’s why I believe that over the next three years, as long as you’re a stock picker or you’re very selective or very concentrated you will do very, very well.

“But if you shadow the index — you just mirror the market — and you’re going to do poorly.”

One reason the big tech companies did so well in the Covid recession was they brought forward demand — they were able to service households in lockdown that were unable to travel, visit the shops and eat out, Pittard says.
Pendal named 2020 Fund Manager of the Year in Zenith Awards.
Now, as the pandemic lifts, household spending will resume normal patterns.

“It’s like coming out of prohibition. People are going to go nuts. You can already see it and we don’t even have full vaccinations.”

Businesses are also lifting spending. In past recessions, inventories build up as demand reduces, leaving businesses with surplus stock to run through as the economy recovers. This time, inventories were run down as global supply chains reeled.

“So, what has to happen? They get everybody in, everybody’s doing overtime, everybody’s getting paid more and they’re rebuilding inventories,” says Pittard.

Underpinned by government spending 

Government spending is underpinning the boom.

“It’s more than double what they did in the global financial crisis,” says Pittard.

In terms of regional allocation, Pittard advises being underweight US stocks and investing instead in Europe and the UK.

“You’re getting broader earnings growth, and you don’t need to be in those top 10 stocks that have had their day because they brought forward demand.”

Pittard says the main risk to portfolios is inflation resulting from central banks keeping interest rates artificially low as they seek to drive the economic recovery.

“Over time, every government that has tried to control prices has failed,” he says. “What governments are doing now are controlling the bond rate… in a normally functioning market the bond rate is at or higher than the inflation rate.”

The best asset allocation to deal with that risk?

“You want to be more concentrated, you want to be more stock specific, you want to have a higher active share, you want to have a long-term view and you want to have quality stocks.”


About Ashley Pittard and Pendal Concentrated Global Share Fund

Ashley Pittard leads Pendal’s Global Equities investment boutique. He is responsible for setting the strategy, processes and risk management for the boutique and its funds including Pendal Concentrated Global Share (COGS) Fund.

Ashley has more than 24 years of finance experience, including roles in petroleum economics, global energy investment analysis and 20 years as a global equities fund manager.

Pendal COGS Fund is an actively managed, concentrated portfolio of global shares diversified across a broad range of global sharemarkets.

Find out more about Pendal Concentrated Global Share Fund


Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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