It doesn't look like the RBA is planning to join the global rate-cuts club soon Pendal June 2024

AS expected, there was no rate change from the Reserve Bank today. We believe changes are more likely to happen at RBA meetings where updated forecasts are released in the form of their Statement on Monetary Policy. Those meetings are held in February, May, August and November. What did we get out of today's statement? There are a lot of known unknowns at the RBA at the moment: To what extent are lags from past policy tightening still feeding through to the economy? How will consumption growth look after tax cuts, the wealth effect from rising house prices and lower inflation? What pricing responses will we see from businesses in light of a tight labour market and slowing demand? And what of the external environment? Geopolitical risks remain elevated. The economic outlook for China and the US has improved. Commodity prices have risen. The central bank rate-cut club has increased its membership in recent months. The Bank of Canada and the European Central Bank both joined the club this month, easing by 0.25% each. Existing club members include the Swiss National Bank and Sweden's Riksbank. Anyone looking for Australia to join the club soon would be disappointed, however. The final paragraph from today's RBA note said: "Inflation is easing but has been doing so more slowly than previously expected and it remains high. "The Board expects that it will be some time yet before inflation is sustainably in the target range." So the RBA is not ruling anything in or out. Rate hikes? We see this as highly unlikely. What the RBA is looking for The RBA needs to see inflation moving sustainably towards its target before easing policy. Instead, right now it sees excess demand in the economy and a tight labour market. There is now a higher risk of an RBA policy mistake caused by holding policy too tight, for too long. The RBA is now reactive to past data. Gone are the days of relying on forecasts resulting in policy changes. That is a scenario they are more comfortable with, however. Easing policy too soon - without inflation properly contained - is the death knell for any central banker. Author: Steve Campbell head of cash strategies.

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. 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

Three big questions facing ESG investors (and how to answer them) Pendal May 2024

ESG can be pretty confusing for investors. The acronym (which stands for Environmental, Social and Governance issues) refers to a jargon-filled investment space which requires an understanding of regulations, methodologies and taxonomies. And the more ESG evolves, the more complicated it becomes for investors trying to judge the effect of these criteria on their investments. Why is ESG so confusing? How can you see through the noise? Much of the confusion about ESG stems from three questions facing investors. Here we'll try to explain them. 1. Are we looking at the same thing? Third-party ESG data providers often have different views and methodologies for rating different companies. That means ESG data requires more interpretation than, for example, balance sheets or credit ratings. Credit rating agencies may offer different ratings -- but they largely analyse the same numbers from financial statements. An ESG report can include absolutely everything that has an impact on the macro, meso and micro environmental, social and governance risks a company may face. There is also the overwhelming challenge of conflation. A fossil fuel extraction company may be managing its risks reasonably well -- but if investors don't want to invest in fossil fuels then it seems rather irrelevant. 2. Are you saying what I think you're saying? Everywhere we see advertisements aimed at convincing people that if they invest with a particular manager they'll be able to save the world. To combat this kind of hyperbole, regulators and gatekeepers have stepped in to reduce potentially misleading and deceptive conduct. This includes education for clients, longer caveats and attempts at standardising terms such as "sustainable investing". For investors, this means more surveys, greater reporting, a focus on data and ensuring proper systems are in place. Regulators are pushing for standard language and consistent data to help people understand what's being said. That's a positive step -- but more education, more disclosure and more reporting are not enough. People don't read every food label before eating. Now ESG is starting to be viewed less as a marketing problem and more as a compliance challenge. At Regnan, we continue to strongly believe that including ESG criteria in the investing process provides more information to make better investment decisions. 3. Does ESG actually affect investment decisions? Are ESG consideration linked to reality? Does it do what clients actually want? Do ESG funds outperform? You should be able to find ESG integration statements on most big asset manager websites which outline how they include ESG considerations in their decision making. Realistically, sometimes ESG considerations might have only a limited influence on an investment decision. But this differs across asset classes. For example, omitting energy stocks that gained significantly would've made outperformance difficult for some equity strategies over the past two years. But it would have had little impact on fixed income. How much ESG is included in investment decision-making is ultimately up to clients. Do you want to invest to make a more sustainable economy and potentially avoid some risks? Or is performance the only thing that matters? At the end of the day, fund managers, super funds and financial planners are all trying to serve the needs of their clients. What approach is best? It's about working out what ESG does for different clients. Some might hate anything that suggests companies need to consider the environment. Some might not want to make the world worse. Others may want to make the world a better place. These are values judgements. Here's a very simply way I explain ESG investing: If you only care about performance, that doesn't necessarily mean you should ignore ESG funds. Some ESG funds are top performers across the board. ESG approaches may also highlight non-financial risks that can become financial risks. If you want to avoid investing in bad stuff, focus on a fund that has negative screens (eg no tobacco producers or controversial weapon makers). What is considered bad may differ between clients, but these type of screens are becoming more uniform. If you prefer to invest in good stuff, look for funds that have some kind of process for selection of investments, and some kind of measurement on what those investments are doing. If you want really good stuff, look for something that explicitly addresses "impact". There may be more novel strategies available, but there will likely be trade-offs such as having funds locked-up or high volatility in performance. It's natural for clients to be apprehensive about ESG because it's a new topic full of technical words. But while there are definitely some parts that need more work, there are quite a few of us working on improvements. Author: Murray Ackman and Regnan

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. 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

Looking beyond the noise at this year's Budget Pendal May 2024

WHEN you've watched enough federal Budgets (this was my 35th in markets), you start to see familiar patterns across commentaries. Every vested interest or ideological bent comes out bleating about the Budget being irresponsible or reckless, that there's too much spending or not enough major reform. What worries me more is when people view the government as no more than a large corporation and when they speak of the budget like a profit and loss statement. Looking through the noise and self-interest is what really matters for bond markets in the year ahead. I have narrowed it down to three impacts. Inflation There are a number of direct measures that reduce inflation, one of which is electricity subsidies. Every household gets $300 off their electricity bill, by way of quarterly $75 payments directly off the bill. Businesses receive $325. The average household bill is $2,000 a year, so that's 15% off. Electricity is 2.4% of the CPI basket, so this equates to 0.36% off inflation in direct impact. The government is quoting 0.5% overall impact.   Queensland has already announced a $1,000 subsidy while Western Australia has announced a $400 subsidy, again not means tested. It will be interesting to see what upcoming state budgets keep rolling existing subsidies (no impact to inflation), let them roll off (inflationary) or, like Queensland, increase them (deflationary). If we assume modest subsidies coming up from other states, then the electricity impact on lower CPI could be 0.8% or even higher. Other measures in rental assistance and cheaper medicines are slightly deflationary. Overall, federal Treasury is forecasting inflation of 2.75% in 2024/25, which is below the current Reserve Bank (RBA) forecast of 3.2%. We expect an upcoming downward revision of the RBA forecast of 3.8% CPI for 2024, which looked too high anyway. This could also see its 2024/25 forecast moderated lower, though still near 3%. Tax cuts and spending Against the direct impact of the Budget on lower inflation, markets ask the question of whether the extra money in people's pockets may cause higher inflation if and when it is spent. There is around $20 billion of new spending measures (the Stage 3 tax cuts have been locked in since 2019) in this Budget, with the majority in the next two years. The Budget will return to deficit, with a forecast of $28.3 billion for 2024/25 and $42.8 billion in 2025/26. While still low by international standards, the main question is whether or not deficits are appropriate at this point of the cycle. It must also be noted that it also is based on the usual conservative commodity price forecasts. For example, an iron ore price of US$60 is assumed, despite a current price nearer US$110 and a five-year average of US$120. This opens up potential upside surprises as we have seen in the past few years. This has really excited Budget hawks and has some calling for higher rates as all this money is supposedly spent, stoking inflation. The question I would ask is whether or not this money is being injected into an economy at full capacity. On this, my view is that we are sufficiently past the pandemic that supply chains can handle the modest rise in consumer spending without stoking inflation. Consumers will be spending more in the year ahead. Tax cuts, subsidies and lower inflation should finally see some growth in real incomes - however, this is from a base of real incomes having for the past few years.   Bond issuance We will see an update on the 2024/25 program from the AOFM shortly. Given high refinancing (two benchmark maturities totalling $83 billion) the borrowing task is expected to be around $90 billion, as the RBA has borrowed much more than needed this year. It is important to remember that when determining yields, bond demand and supply dynamics are largely outweighed by economics. As a bond manager, I only view supply and demand as a short-term impact around supply events. Ignore the booming debt rhetoric from some commentators and self-styled bond vigilantes - Australian debt will remain AAA for at least the medium term, and with the RBA moving to an "ample liquidity" framework, demand for bonds will remain robust. So, what does this mean for bonds? Well, the market always votes straight away, and has already made a half-hearted attempt to run with the higher spending higher inflation narrative. However, as the dust settles (to quote the cliché), yields are "sharply unchanged". I think the RBA will see the Budget for what it is - a mixed bag of measures that will leave it hopeful of further inflation relief but wary of whether the 2%-3% band can be achieved and then sustained. I would also make the observation that the "Future Made in Australia" spending is an overdue response to the global game-changing US Inflation Reduction Act. By comparison, our government's measures are modest for now, but can be expected to increase in the future. We are in a very different world to the last decade and governments must respond. For now, a more detailed breakdown of the domestic economy is below. Author: Tim Hext, Pendal portfolio manager and head of government bond strategies

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. 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