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Michael Blayney: which asset classes look good now

It isn’t an easy market to invest in, but there are opportunities if you know where to look. Here’s a quick tour of the major asset classes from Pendal’s Multi-Asset chief MICHAEL BLAYNEY

  • Equities and bonds have faced headwinds in 2022
  • Macro environment is challenging
  • Cash and inflation linked alternatives are preferred

THIS year investors have contended with rising inflation and interest rates, higher energy prices, the war in Ukraine and lockdowns in China.

There have been plenty of headwinds for both equities and bonds, says Michael Blayney, Head of Multi-Assets at Pendal Group. It isn’t an easy market to invest in.

Cash and alternative investments with inflation linkages are preferred over other asset classes, he says.

Here Blayney offers a quick snapshot of major asset classes.


Many key equity markets remain overvalued, Blayney says, notwithstanding the sell-off this year. Rising bond yields are also weighing on equity valuation.

Combined with deteriorating macro-economic backdrop, an underweight equities position may be appropriate.

“We continue to prefer better valued markets such as the United Kingdom and Japan, and rotational themes such as value/small cap,” he says.

“In US equities, large caps remain expensive while mid and smaller companies are around fair value.

“While Chinese equities screen as cheap, at this point we remain cautious due to a deterioration in earnings, and ongoing lockdowns.”


High-yield debt is offering limited reward for risk, Blayney says. Though a recent increase in investment-grade spreads means that asset class is offering decent returns on a medium-term basis.

Within credit, the best value is in investment grade, he says.

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Pendal Multi-Asset Funds

Government bonds

Yields now represent better value but bonds face a significant headwind from inflation.

Blayney recommends retaining some duration exposure for defensiveness within portfolios, though less than usual.

“Where possible, we have a preference for inflation protection and Australian exposure within portfolios.”

Listed real assets

Global real estate investment trusts are expensive, particularly considering higher bond yields, and the backdrop of rising interest rates.

However, there are select opportunities in listed infrastructure securities, Blayney says.

What it adds up to

Overlaying all asset allocation decisions is the macro-economic environment, Blayney says.

“Despite economic indicators still sitting at supportive levels, the momentum of economic indicators continues to soften,” he says.

“This is due to reduced emergency level monetary and fiscal stimulus, negative sentiment from the Russian/ Ukrainian conflict and Covid lockdowns in China.”

While headline inflation has likely peaked, inflation expectations have risen.

“Increasing doubts are emerging as to whether central banks around the world can engineer a controlled reduction of inflation or whether their actions create demand destruction and possibly recession.”

The maturing cycle and event risks suggest a defensive risk stance, Blayney says.

“Cash and alternatives with inflation linkage such as commodities and ‘value exposures’ are preferred.”

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 June 1, 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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