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Global equities: where to hunt as tech rotates to value

The first half of this year will be all about volatility, but the Fed’s ability to control inflation will be the critical factor in 2022, says Pendal’s head of global equities ASHLEY PITTARD

  • 2022 kicks off with rotation from tech to value stocks
  • Fed rate rises critical to second-half outlook
  • Commodities should benefit from China acceleration

THIS year will again be a tale of two halves for investors, and the critical factor is whether the US Federal Reserve can control inflation, without busting the business cycle. 

That’s the view of Pendal’s head of global equities Ashley Pittard.

“Last year was a tale of two halves,” Pittard says. “The first was about re-opening, and the second was about Delta and Omicron. 

“This year will also be a tale of two halves, but it will be very different.

“The first half this year will be all about volatility. The Fed has been behind the curve and needs to increase interest rates to get inflation under control. 

“Expectations of rate rises have risen over the past couple of months. Late last year we expected market volatility to increase, and January hasn’t let us down,” Pittard says.

There’s already significant rotation from the tech stocks into the value sector, including banks and energy companies, he says. That’s demonstrated by the big fall in the tech stock heavy NASDAQ, which so far this month is down more than 10 per cent.

“A lot of these stay-at-home companies are being torched,” Pittard says. 

“Heading into the holiday period, we thought tech stocks were likely to underperform, and the lofty valuations in that part of the market, and the relative weighting of tech companies in indices, meant equities would underperform. And that’s what’s happened.”

It’s likely to continue if early profit reports for the last quarter are indicative. With about 5 per cent of companies having reported, two of the most notable have been tech stocks, Pittard says. 

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Pendal Concentrated Global Share Fund

Netflix’s share price fell more than 20 per cent immediately after it reported disappointing subscriber growth numbers.

High-tech home fitness company Peloton outlined production challenges and potential staff lay-offs and its share price fell as low as $US24 a share. That’s down from its peak of $US160 a share last year.

In contrast, several non-tech companies have provided positive earnings results. 

Rail companies Union Pacific and Alston, construction company Scandic Builders, and sportwear group PUMA have all performed relatively well, Pittard says.

What’s next?

That’s the story of the first half of 2022 — inflation and higher interest rates, volatility and rotation out of tech stocks.

“The second half will depend on how well the Fed does its job,” Pittard says. “Will it go too hard and push the economy into recession or will it do enough to cap inflation and not kill the business cycle?”

“If the Fed does a good job — clamps down on inflation without short-circuiting the cycle, then in the second half there’ll still be geopolitical tensions.

“And there’s mid-term elections in November. If the Republicans win the House back, it makes it harder for President Joe Biden to do much in his second two years.

“But at least if you get four rate hikes, and not six or seven, then in the back half of the year there should be a re-rating of the market,” Pittard says.

One sector which could benefit is commodities.

“While the US is raising rates, China is cutting rates. They’re adding more liquidity and that economy is built on manufacturing which needs commodities. That underlying dynamic should help commodities over time.” 


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.

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 January 25, 2022. PFSL is the responsible entity and issuer of units in the Pendal Concentrated Global Share Fund (Fund) ARSN: 613 608 085. 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

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