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Everyone’s looking for something different in global equities. Here’s how to find it

Chris Lees and long-time investing partner Nudgem Richyal have spent 17 years building a highly differentiated — yet highly successful — global equities investment strategy. Here they explain their process

THESE days a lot of global equities strategies have started to look very similar — particularly after the outperformance of big tech stocks in recent years.

But as investors eye high stock prices and volatility among the popular picks, the question becomes — how do you find differentiation? How do you assess sectors and geographies to find attractive opportunities?

Chris Lees and long-time investing partner Nudgem Richyal have been thinking about this for many years.

Over the past 17 years they have built their JOHCM Global Select Fund into a highly differentiated — yet highly successful global equities strategy.

The pair recently brought their strategy to Australian investors, launching Pendal Global Select Fund. Research house Zenith awarded the fund its highest “Highly Recommended” rating on September 27, 2021.**

Lees and Richyal use a distinct four-dimensional investment process (stocks, sectors, countries, time/change), which focuses on the behaviour of a company’s share price to determine whether the most important driver of each prospective investment is stock-specific or based on sector, country or another factor.

“When you look at the way the world is — not the way consultants say it should be — the average western large cap stock has surprisingly low alpha and surprisingly high correlation to the sector it’s in,” says Lees.

“Take the Aussie mining companies. There isn’t that much money to be made deciding between Rio Tinto or BHP. It’s about deciding when commodities are going up or commodities are going down.

“What we’ve mathematically discovered is that most people’s ladders are up against the wrong wall,” he says.

Pendal Global
Select Fund

Something very
different in
global equities

“When you look at large caps in the west, it’s the sector effect that drives most stocks, and the move to passive investing and ETFs (exchange traded funds) has just made that greater.

“In the east, in places like Japan and emerging markets in Asia, it’s the country effect. For example, Toyota doesn’t behave like a global automobile company. Chinese banks don’t behave like financials.” Those share prices are highly correlated to the country.

“An average stock in a great sector or country usually makes you more money than a great stock in a terrible sector or neighbourhood,” says Lees.

Understanding global trends

To outperform, investors need to identify and understand global trends.

In the 1980s winning portfolios needed to include Japan, Lees says. In the 1990s its was technology, media and telecommunications companies.

In the 2000s investors needed emerging markets and commodities to consistently outperform. Over the past decade it’s been the big tech FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) — which is why most global portfolios include them today.

Today, high stock prices among the FAANGs and recent volatility have some investors looking for “a different path to the summit”, says Lees. (It’s a familiar analogy since he lives in a small town in the Swiss Alps.)

Video: Fund manager Chris Lees gives an overview of Pendal Global Select Fund

“There will be a regime change and we have a proven process that locks in on new regime shifts,” he says.

(The pair say digitisation, decarbonisation and deglobalisation are the new themes or “neighbourhoods” to consider.)

Zigging when others zag

Lees and Richyal have outperformed most global equity funds without owning all the FAANG stocks. They refer to it as not being a one-trick pony.

Lees and Richyal created their strategy in 2004 at Barings Asset Management. It was later launched at Pendal Group’s UK-based asset manager JOHCM in 2008 and since then has delivered 3.13%* annualised alpha (before fees) compared to the MSCI All Country World NR Index benchmark.

Since its inception, the underlying JOHCM Global Select Fund strategy has delivered top-decile performance in Lipper and 2nd decile in Morningstar.*

“The fact that we’ve proven we can outperform over a long period and many cycles with different portfolio tilts and geographies — and a different set of stocks — gives our clients confidence that we aren’t a one-trick pony.”

The obvious question is what’s the next decade about?

“It’s going to be healthcare,” Lees says. “That’s where we are getting positive signals.

“Great and improving fundamentals, improving valuations and the beginning of a new price trend. And not many of the winning global equities portfolio have much healthcare in them.”

Find out more about Pendal Global Select Fund

* 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. 

** 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


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at September 27, 2021. PFSL is the responsible entity and issuer of units in the Pendal Global Select Fund (Fund) ARSN: 651 789 678. 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. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8:00am to 6:00pm (Sydney time) or visit our website 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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