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ASX mid caps: Global uncertainty calls for a balanced approach to investing
October 16, 2024
In times of geopolitical tensions and shifting economic policies, it’s important to adopt a balanced portfolio approach, says Pendal portfolio manager BRENTON SAUNDERS
- Markets facing geopolitical tensions, economic shifts
- Value in focusing on stock opportunities, not taking big macro bets
- Find out about Pendal MidCap Fund
EQUITIES investors are forced to consider a complex interplay of factors when making asset allocation decisions today.
“Escalation of tensions in the Middle East has had a tangible impact on energy markets, raising concerns about inflation and causing bond yields to rise,” notes Brenton Saunders, who manages Pendal MidCap Fund.
In the US, next month’s presidential poll remains too close to call, while strong jobs numbers have contributed to the upward pressure on yields.
In China there have been significant developments, with Beijing outlining stimulus measures.
“This has sparked a notable rotation in the Australian market, with investors shifting away from large-cap financials and growth stocks and towards resources and value-oriented equities,” Saunders says.
“The continuation of this rotation will largely depend on whether China implements more direct stimulus initiatives.”
China’s Politburo and the National People’s Congress both meet in late October – the latter would need to approve any policy requiring higher deficit spending.
A balanced approach
In the face of these competing forces, Saunders emphasises the importance of a balanced portfolio approach.
Find out about
Pendal Midcap Fund
“We tend not to take big thematic bets in our portfolios,” Saunders says. “While we’re very alive to how these market developments manifest, we typically don’t have much directional exposure to any specific outcome.”
A balanced approach in the current environment mitigates risks during inflection points in the economic cycle.
By avoiding large exposures to any specific economic outcome, a portfolio may be able to generate steady returns regardless of how a situation unfolds, Saunders argues.
“Our base view is that markets will remain strong through the end of the year, as interest rates are expected to come down, albeit slightly slower than previously anticipated.
“Liquidity in the market is also seen as a strong underpinning for equities.”
There are risks, however.
“There’s the potential for higher-than-expected inflation and for a material deterioration in the Middle East conflict. In this environment, the balanced portfolio approach becomes even more crucial,” Saunders says.
“It is important not to have big macro tilts in your portfolio and to be able to produce steady returns through any outcome.”
About Brenton Saunders and Pendal MidCap Fund
Brenton is a portfolio manager with Pendal’s Australian equities team. He manages Pendal MidCap Fund, drawing on more than 25 years of expertise. He is a member of the CFA Institute.
Pendal MidCap Fund features 40-60 Australian midcap shares. The fund leverages insights and experience gained from Pendal’s access to senior executives and directors at ASX-listed companies. Pendal operates one of Australia’s biggest Aussie equities teams under the experienced leadership of Crispin Murray.
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at 15 October 2024. PFSL is the responsible entity and issuer of units in the Pendal Midcap Fund (Fund) ARSN: 130 466 581. 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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