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Michael Blayney: Stay diversified, cautious — and ready

A stockmarket rally has left some calling the start of a new equities bull market. But investors should remain diversified with exposure to bonds and alternatives, says Pendal’s MICHAEL BLAYNEY

A STRONG rally in markets since the lows of June has left some calling the start of a new equities bull market.

But Pendal’s Michael Blayney says it will pay to stay conservative for the rest of 2022 — and watch for better buying opportunities as the inflation outlook matures.

Better-than-expected inflation figures and a benign US earnings season have fuelled a rally over the past few weeks on hopes the pace of interest rate rises might be slowing.

But Blayney, who heads Pendal’s multi-asset investment team, says it pays to be wary of bear-market rallies. A balanced, conservative approach is the best way to ride out the coming months, he says.

“You have to have cautious — when you look at history, you see the strongest rallies in bear markets.

“Inflation has moderated a little bit in the US but it’s still at an uncomfortably high level.”


For all the new-found excitement, global markets remain “somewhere between fair and expensive, depending on where you look”, Blayney says.

“Australian equities are probably one of the better-value markets but it’s not a bargain hunter’s paradise out there in any way, shape or form.

“So, we’re not at the point yet where we would want to go overweight equities in portfolios — and infact we’re still a little bit underweight.”

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Blayney says the US earnings season has been more benign than many feared.

“We haven’t yet seen huge pressure on earnings and that’s something that investors need to keep an eye out for.

“If you look at past instances of inflation and monetary tightening, you often see pressure on earnings, particularly if that tightening pushes the economy into recession.”

What to watch

Investors looking to wade back into markets should watch for signs inflation is coming under control, allowing the US Fed to stay its hand and avoid pushing the economy into recession.

But on the flip side, there is still the risk of a return to falling markets. That could create a buying opportunity.

“If inflation doesn’t subside and the Fed needs to hike more aggressively, that would be one trigger.

“The other is if we start to see pressure on earnings.”

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Where to diversify

Blayney says the golden rule is to maintain diversification.

“The first thing is we always maintain some bond exposure. If you look through history, in down markets for equities, bonds will give you a positive return 70 per cent of the time.

“We also leave a certain amount of our global shares unhedged which gives us foreign currency exposure.”

Foreign currency exposure creates a useful automatic stabiliser for Australian investors because in times of trouble the Australian dollar tends to get sold off, lifting the value of foreign assets held by a local investor.

“And something that has really helped support our portfolios this year has been alternatives exposure.

“We invest in a range of assets, including listed renewables and other sustainable infrastructure with inflation linked cash flows, as well as commodity-type assets.

“People love to say the 60:40 portfolio is dead, but the reality is that style of balanced portfolio has stood the test of time.”

“So, the message is stay diversified, be a little bit cautious, but be ready for when those buying opportunities do come along if we see something nasty and everyone starts to panic.”

About Michael Blayney and Pendal’s Multi-Asset capabilities

Michael Blayney leads Pendal’s multi-asset team. Michael has more than 20 years of investment management and consulting experience. He was previously Head of Investment Strategy at First State Super and head of Diversified Strategies at Perpetual.

Pendal’s diversified funds provide investors with a variety of traditional and alternative asset classes and strategies.

The team — which also includes Allan Polley — manages our multi-asset portfolios with a focus on strategic asset allocation, active management and tactical asset allocation.

Find out more about Pendal’s multi asset funds:

Contact a Pendal 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 August 18, 2022. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. 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 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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