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Conservative, pragmatic and style-agnostic: how to think about equities right now

There’s no obvious default for equity investors in this kind of market says Pendal midcap portfolio manager BRENTON SAUNDERS. Research and stock-picking will make the difference

FEELING like there’s nowhere to hide in global markets? You’re not alone, says Pendal’s Brenton Saunders.

Higher energy prices from the Russian-Ukraine war are fuelling inflation. But just as policy-makers look to raise interest rates, growth is slowing in Europe and China, raising questions about the right policy response.

“There really is no obvious default for investors in this kind of market,” says Saunders, who manages Pendal MidCap Fund.

“With macro factors lurching around so quickly, it pays to have a very balanced portfolio.

“Things that once took a year to play out are happening inside of a quarter. If you have big macro tilts in your portfolio, you run a big risk of getting it wrong at some stage if you’re not nimble enough.”

Market drivers

Markets are caught between the impact of Russia’s Ukraine invasion and the ongoing effects of the pandemic, says Saunders.

The US is faced with an over-heating economy and very high inflation. But European growth is dragging as higher energy prices and the Russia-Ukraine conflict crimp growth. And China is slowing amid a resurgent pandemic.

This is causing market gyrations as investors try to take a read on the outlook.

“You’ve seen markets generally look overdone and come off the peaks,” says Saunders.

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“We’ve seen an extension of the de-rating of high-multiple, high-growth sectors. Then the most recent manifestation we’re now seeing is cyclical stocks like commodities getting impacted as well.”

Until recently commodities producers have been quite big beneficiaries of the “strange collusion of forces that is Covid and the Ukraine war”, says Saunders.

“It has all manifested quite positively for commodity players. But it’s starting to become less clear that it’s entirely positive for them.

“If you do have slowing growth, you’ll have low demand and that will manifest itself in commodity prices at some stage.”

Inflexion point for markets

Saunders says this inflexion is what the market is grappling with at the moment.

“The result is you’re seeing some fairly odd sector rotations — the market is too concerned about the growth stocks and high PE stocks to go back there just yet, especially the pre-profit growth stocks.

“But at the same time, there’s a realisation that the dream run we’ve had in commodities is at best having a consolidation period and at worst is showing signs of topping out.”

What’s the right path for investors?

Saunders says a sensible positioning is to stay conservative, pragmatic and style agnostic.

“We’re close to as conservatively positioned as we get.”

“It’s very much a stock picker’s market. It is really now about understanding a company’s specifics, spending time with a company. Even subtle differences in terms of exposures in cost and revenue bases can create quite different outcomes in quite similar looking companies.

“It is an environment where research and stock picking are making a difference.

“There’s no prizes for heroes in this market.”


About Brenton Saunders and Pendal MidCap Fund

Brenton is a portfolio manager with Pendal’s Australian equities team. He co-manages Pendal MidCap Fund and our natural resources portfolio, drawing on more than 25 years of expertise in resources, derivatives, investment banking and private equity. He is a member of the CFA Institute.

Pendal MidCap Fund features 40-60 Australian midcap shares. The fund leverages insights and experience gained from Pendal’s access to senior executives and directors at ASX-listed companies. Pendal operates one of Australia’s biggest Aussie equities teams under the experienced leadership of Crispin Murray.

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

Find out more about Pendal MidCap Fund here

Contact a Pendal key account manager here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at May 5, 2022.

PFSL is the responsible entity and issuer of units in the Pendal Midcap Fund (Fund) ARSN: 130 466 581. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.

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