The market has eyes only for Trump Pendal November 2024

SEPTEMBER quarter wages data (the Wage Price Index) was released today and, for the third quarter in a row, sat at 0.8%. This sees a 3.2% annualised pace, though the 1.1% outcome from the 2023 December quarter keeps the annual rate at 3.5% for now. All sector WPI, quarterly and annual movement (%), seasonally adjusted (a) Source: Wages grow 3.5 per cent for the year | Australian Bureau of Statistics Both private and public wages rose 0.8%. A key factor was awards and minimum wage outcomes, which were set at 3.75% in June, down from 5.75% the previous year. This would be very welcome news for the RBA. Wage growth and underlying inflation are now heading back towards 3%. Given the two feed into one another, it reflects a more sustainable path for the medium term. Recent RBA forecasts have underlying inflation at 3% and wages at 3.4% by June next year. If the RBA has more confidence in reaching these levels sooner, it opens the door for rate cuts in the first half of next year. Outlook In another time or place, this data would have seen a decent market rally. But the market has eyes only for the future of Trump's presidency. This future is viewed as one of increasing government debt and higher tariff-led inflation in the US, feeding out into the globe. As a result, markets now have only 30% chance of an RBA February rate cut and less than one cut by mid-year. On domestic factors alone, this is very cheap, but reconciling it with Trump is proving the problem. We think the Trump impact will be more mixed outside the US. Australia's trade deficit with the US should see us well down the list of targets, but key trading partners are at the top of the list. Either way, Trump's policies are unlikely to hit hard data until the back half of 2025 at the earliest, making central banks' jobs more difficult for now. We maintain the view that upcoming data leaves a February rate cut wide open. At only 30% priced in, the risk/reward is becoming attractive, and we will use the sell-off as an opportunity to enter positions. Further out the curve remains at the mercy of US bonds which, even at 4.5%, don't seem to be finding widespread support. Australia should outperform but yields may still move higher. Author: Tim Hext

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

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

Debunking a myth about fossil fuels and sustainable fixed interest Pendal October 2024

Exclusion of fossil fuels presents minimal challenges for sustainable bonds compared to other asset classes, writes Pendal head of credit and sustainable strategies, GEORGE BISHAY SUSTAINABLE funds typically screen out industries such as fossil fuels, tobacco, weapons, alcohol, gaming, pornography and uranium mining. This is generally with a revenue threshold, where companies with a certain level of revenue linked to a particular activity are screened out.   Different asset classes have different potential exposures to fossil fuels. Fossil fuel companies typically make up a large part of equities indices (about 15 per cent of the ASX 300 in July 2024). By contrast, issuers involved in fossil fuel extraction, exploration or refining are a small component of the Australian fixed-income benchmark. Chart 1 below shows these issuers make up only about 0.1 per cent of the Australian fixed income benchmark, according to the rules applied to Pendal Sustainable Australian Fixed Interest Fund (see Chart 1 footnote below).   However, there can be variations in the exclusions of different funds. For example, in Australian equities a fund's revenue threshold can dictate whether a company such as BHP (at about 9% weight in the ASX300 index) is included or not. BHP's revenue includes coal mining. Other iron ore miners such as Fortescue Metals and Rio Tinto are not typically excluded. Notwithstanding these variations in exclusions, active performance in the average sustainable equity fund is influenced by changes in oil prices.   As a result of these differing levels of benchmark exposure, sustainable fixed-income portfolios in Australia are less sensitive to the movements in oil prices than equity counterparts.   What drives the active performance of Pendal Sustainable Fixed Interest Fund? Active credit management is the main driver of excess returns in Pendal Sustainable Australian Fixed Interest Fund. The green circles in the chart below highlight periods when the manager's active de-risking and re-risking of its credit exposures process led to strong outperformance.   These returns are driven by active management and are delivered despite rising oil markets. The black circle highlights a period of rising inflation concerns due to Covid supply chain issues driving goods inflation and central bank hiking fears. This led to a risk-off event in credit markets which saw most active fixed-income funds underperform the benchmark.     Given the volatility of oil markets, Pendal Sustainable Australian Fixed Interest Fund has delivered consistent returns, outperforming its benchmark in 75%1 of months since inception to July 2024.    The chart below illustrates the number of excess return months under different buckets of excess returns.   Social and environmental benefit + portfolio diversification benefit Many sustainable fixed-income investors are attracted to ESG-labelled bonds which aim to address green, social and sustainability issues. The proceeds of these bonds are usually ring-fenced for specific environmental or social projects to support climate stability and/or the underserved in society. The Australian ESG labelled fixed-income market was valued at some $A124 billion in August 2024, constituting 7.6% of the total Australian fixed-income benchmark. The ESG-labelled bond market offers sustainable Australian fixed interest managers exposure to an additional opportunity set beyond traditional fixed income - environmental and social projects across varying sectors, credit qualities and tenors. These labelled bonds can complement an overall fixed-income portfolio, bringing added diversification benefits. The credit spread on these bonds may not directly follow the credit spread on an equivalent vanilla bond issued by the same issuer. This arises from the different technical supply and demand factors affecting these types of bonds. These bonds are desirable and often in greater demand than vanilla counterpart bonds. The Australian fixed interest market has ESG labelled bonds in 13 of its 14 sub-sectors (transport is the only missing sector), providing investors with the ability to diversify across numerous sectors. In August 2024, the Pendal Sustainable Australian Fixed Interest fund held more than 66% in ESG-labelled securities. Sustainable fixed income as part of your core fixed income allocation Unlike sustainable equities, which may underperform during periods of rising oil prices, Australian sustainable fixed-income exhibits minimal sensitivity to oil markets or any other screened activities. This differentiation allows investors to integrate sustainable fixed income into their overall core fixed interest allocation with minimal additional benchmark risk.    By incorporating Australian sustainable fixed income alongside other traditional assets, investors can achieve a robust portfolio while also supporting climate stability and/or the underserved in society. Author: George Bishay

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

1 Pendal Sustainable Australian Fixed Interest outperformed the Bloomberg AusBond Composite 0+yr in 72 of 96 months from inception (Aug-16) to July 2024, gross of fees.   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

Five key takeaways from the latest GDP data Pendal September 2024

TODAY'S June quarter GDP numbers paint a reasonably bleak, but not unexpected, picture of the Australian economy. Quarterly GDP was 0.2% for the third consecutive quarter, leaving annual growth at 1%. It was the weakest financial year - excluding the Covid hit of 2020/21 - since the recession of 1991/92. We are avoiding a technical recession overall this time, but the consumer is going backwards - even with 2.5% population growth. Remember, the main GDP you hear reported is a chain volume, not price measure. I prefer looking at numbers on a state basis, split into consumption and investment. This gives a better picture of what is going on in the economy.   Source: ABS Here are five key takeaways from today's numbers: 1. Government spending remains strong despite government investment tapering off Government expenditure contributed 0.3% to GDP, government investment 0.1%, while government spending rose by a strong 1.4%. The main driver is social benefit programs for health services (largely the NDIS). This also remains a major source of strength for employment and inflation, and is central to the current animated debate between Treasurer Chalmers and the RBA (though Governor Bullock has wisely toned down prior comments, leaving RBA proxies to continue it). State governments are also major drivers of growth and inflation. However, NSW has now seen government investment go negative (down 3.8%) as major projects like the Metro are completed. Victoria (up 5.4%) and South Australia (up 5.8%) clearly didn't get the RBA memo asking for restraint. 2. Households are going backwards again Household expenditure fell by 0.2% over the quarter, leaving it up only 0.5% on the year. Each person is buying 2% less of goods and services than a year ago. NSW was particularly hard hit (down 0.6%) for the quarter, with Queensland (up 0.1%) and WA (up 0.4%) bucking the trend. Maybe tax cuts and assorted subsidies bring back the consumer in Q3, but early data from July suggests it may be a slow burn. 3. Households are barely saving anything The national accounts do not directly measure savings - it is a residual item after income and expenditure are calculated. However, it does give an insight into household behaviour. The saving ratio remained at 0.6%.  Source: ABS Now, there can be opposing explanations of a fall in the savings ratio. On the positive side, it can reflect animal spirits as optimistic consumers go on a spending spree, believing their finances are strong - we saw this pre-GFC when the savings rate regularly went negative. However, it can also reflect that in the nominal economy, income growth is not exceeding price growth, meaning consumers need to either save less or draw down on existing savings. Given current rates and sluggish spending, this is a better explanation. 4. Australia's commodity boom is waning (negative for GDP) but remains historically strong Australia's terms of trade - the prices we receive for our exports versus what we pay for our imports - fell 3% in the quarter. Import prices were flat but export prices, dominated by bulk commodities, fell 3%. It is down 6.4% from a year ago. The terms of trade peaked in June 2022 and is now around 20% lower, but it still remains slightly above the post-GFC average. The main impact for governments is a tapering of the "rivers of gold" from royalties and mining company taxes. On a more positive note, service exports are growing strongly again (up 5.6%), though recent Federal Government overseas student policy announcements may dampen this. 5. Finishing on an optimistic note, GDP should pick up from here A lot is being made, especially by the government, around the positive impact that tax cuts and subsidies should have in the year ahead. Of more importance, though, is the fact that for the first time since the inflation boom of 2022, incomes are increasing faster than inflation. This real wage growth is being driven by falling inflation, which will continue in the year ahead. The RBA is forecasting GDP of 1.7% for 2024 and 2.6% for 2024/25. Given the first two quarters of this year are only up 0.4%, the RBA is expecting a 0.6% to 0.7% quarterly rises over the next year. This may seem a bit optimistic, but the possibility of rate cuts and falling inflation could well see a decent rebound in the economy. Public demand should moderate over the medium term, but current reforms will take time. The fact it is an election year for the Federal Government should see public demand remain around 4%, meaning household consumption need only return towards 2%, or population growth, for its forecast to be hit. Author: Tim Hext

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

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