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Global Equities: where to hunt as big tech stocks drop

Rates are rising and long-duration assets like big US tech stocks are underperforming. Where should global equities look? Pendal’s ASHLEY PITTARD has some answers

  • FAANG stocks continue to face headwinds
  • Opportunities in energy, financials, real estate
  • Look for pricing power, duopolies

RATES are rising and long-duration assets such as the big US tech stocks are underperforming.

The NYSE FANG+ index — which includes Facebook, Apple, Amazon, Netflix and Google — is down more than 30 per cent this year.

So where should global equities investors put their money?

“Look for duopolies, or even better, monopolies because they tend to have pricing power,” says Ashley Pittard, Pendal’s head of global equities.

“Find companies that can move prices with inflation. Keep away from the FAANG stocks.”

While the road into Covid was challenging for investors, the road out will present just as many challenges.

“The world is normalising — and when the world normalises, people don’t need as many streaming services,” Pittard says.

“People aren’t buying as much stuff online. They are going out again and eating a meal and having dinner.

“That’s why in the current earnings season in the US we’ve seen Amazon and Netflix disappoint but Coca-Cola’s numbers were fantastic.”

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Pendal Concentrated Global Share Fund

“Covid brought forward demand for many of the tech companies’ products” Pittard says. “There are supply chain problems and higher input prices.

“And rising interest rates hurt long-duration assets because the discount rate applying to future cash flows increases.

“Foreign exchange weakness in regions, such as Japan, has also knocked them around.”

Where to look

What should investors be considering?

“You want to be in energy companies, financials, consumer beverage companies and also real-estate companies,” Pittard says. “And you can still be in some long-duration assets.”

Pittard says financial stocks should benefit from rising interest rates, with one caveat – keep a watch on bad loans.

“If the US Fed is able to raise interest rates — and not put the economy into recession — the banks will track sideways before accelerating as investors realise the bad loans they’re expecting aren’t as bad as they thought.”

Coke is it

Pittard is also a fan of beverage companies. “Coca-Cola, for example, is in a duopoly market and it’s got pricing power. In an inflationary environment, that’s what you want.”

There are still some long-duration assets that will suit many investors, he says.

“Think about airports – a utility and long duration. But if the rents they’re charging tenants, and the fees airlines are paying, are inflation adjusted then they are getting good returns.”

Pittard warns interest rate disparities across economies make foreign exchange factors even more relevant.

“In Japan, unlike the US, Europe or Australia, the central bank wants to keep interest rates in a very tight band. It means the Yen has been sold off.

“If you then have a look at real estate companies in Japan, they are increasing in value because it costs more to build those assets, to refurbish those assets, and rents will be going up.

“And the sector trades below book value, or construction cost value. The real estate sector in Japan is very compelling at the moment. “

As global economies emerge from Covid, opportunities abound, he says.

“Rather than say no to FAANG stocks, I’m saying yes to everything else. And that’s because everything else is growing.”

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 May 12, 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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