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Global equities: how to find good stocks in volatile times

When looking for good companies to invest in, remember that the medium term is an aggregation of many short terms, says Pendal’s PAUL WILD. Here are some tips for finding good companies right now

  • Think medium term, buy sustainable themes
  • Look for opportunities in healthcare, finance, tech
  • Drip feed or average into the market

THE first tip for equity investors right now is “buy good companies”.

Sound obvious?

“It’s an obvious thing to say until you try and work out what a good company is,” says Pendal senior fund manager Paul Wild.

So what’s a good company?

“A good company needs a moat around it – a moat that provides it with a defensible market share and pricing power,” says Wild, who runs European equities at Pendal’s UK asset manager J O Hambro.

“That’s most clearly illustrated in financial metrics by the return a company makes on equity, or on capital employed over a reasonable period of time.

“When you’re investing for the medium term, remember that the medium term is an aggregation of many short terms. And in the short term, prices can be distorted from fundamentals, affected by the positioning of funds.

“So, it’s a good idea to drip feed or average into the market, knowing that you’re very unlikely to ever pick the absolute low.”

Look for sustainable themes and trends “which are irrefutable”, says Wild.

“The whole area of energy efficiency is one and there’s a myriad of ways to play this.

“It might be via renewables and investing in semi-conductor capital expenditure plays, or it might be within the industrials sector.

“Digitalisation is another irrefutable trend,” Wild says.

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Something very
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Time for equities?

With that in mind, is it time to start putting money into equities?

“The more markets fall, the more optimistic we should be getting,” Wild says, with just a hint of irony.

“But managers do need to fight the behavioural instinct to get more bearish as the market falls.”

“It’s important to be cognisant of the impact of the current sea change.

“We have the dawn of serious inflation for the first time since the 1980s and rates in Europe and elsewhere are going to be rising significantly over the next year. The market needs to price this in and the effect on growth and earnings.”

How inflation and interest rate increases impact consumption, investment and credit risk, are key considerations for investors, Wild says.

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Sectors that look promising

 “Which companies have pricing power and can maintain profit margins? Which companies can maintain their return on equity?” Wild asks.

Healthcare and pharmaceutical stocks have been a “port in the storm”.

Financials have been a little more mixed, and their outlook remains that way.

While rising interest rates help many lenders improve their net interest margins, fears of a surge in non-performing loans as rates rise have partially overwhelmed the good news.

“Our view on banks is that the need to provision for bad loans will increase, but it’s coming off very low levels and thus we will see some normalisation,” Wild says.

Insurance companies look relatively attractive.

“Most large European insurance companies are undertaking share buy-backs and dividend yields tend to be north of 6 per cent.

“While they do have a lot of credit exposure in their portfolios, it tends to be high grade. It’s also a sector which has pretty good pricing power and solvency,” Wild says.

Some technology stocks present an opportunity, though they need to have strong balance sheets and be profitable.

Companies that facilitate the digitalisation process for corporates are examples of strong tech opportunities.

And there’s also opportunities in the semi-conductor sector — though Wild prefers companies that benefit from the lithography capital investment by semi-conductor companies, rather than the companies themselves.

“Clearly it is time to avoid companies that are excessively speculative, or have weak balance sheets, or will have difficulties accessing finance at reasonable rates,” Wild says.

“Investors need to look through the crisis or dislocation as best they can and know that there is always the other side, patience tends to be rewarded.”


About Paul Wild and Pendal global equities strategies

Paul Wild is senior fund manager with J O Hambro Capital Management, a London-based active investment manager which is part of Pendal Group.

Paul manages J O Hambro’s Continental European fund.

Pendal offers a range of global equities strategies to Australian investors including:

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

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 June 29, 2022. PFSL is the responsible entity and issuer of units in the Pendal Concentrated Global Share Fund (ARSN: 613 608 085) and Pendal Global Select Fund (ARSN: 651 789 678). A product disclosure statement (PDS) is available for each fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the funds 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 from 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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