The Point

Brenton Saunders: ASX gold sector shines, but investors must be selective

The ASX gold index is up about 20 per cent this year on the back of continued strength in the precious metal’s spot price. Can it keep going? And how best to get exposure via the ASX?

“Gold is being helped by elevated inflation and strong liquidity,” says Pendal PM Brenton Saunders.

Brenton manages Pendal’s midcap strategy and is also a geologist with experience in gold mining and gold-related equities. He’s long been an advocate for selected stocks in the ASX gold sector.

“Typically what happens in gold companies at this point of the cycle is they quickly repair balance sheet issues, then they generate cash and become acquisitive.”

But investors need to be selective. “Top-of-the-cycle acquisitions by gold companies generally end badly,” he cautions.

“The gold price is up 9 per cent in Australian dollar terms this year and a lot of ASX-listed gold stocks have done incredibly well in that time.

“Gold exposure has been incredibly helpful to our portfolio. We have long held a strong position, and it has all come together in the last three months.”

Brenton Saunders: Traditional energy sectors look like winners in a Trump world

Sweeping policy changes under a unified US Republican government signal significant shifts for investors, with traditional energy and nuclear set to benefit amid a slower path to rate cuts.

That’s the view of Brenton Saunders, who has more than 25 years of experience in resources. Brenton leads Pendal’s midcap strategy, which offers exposure to fast-growing ASX sectors.

“As a broad brush, you could see more of a reversion to traditional energy. There’s an expectation for more traditional oil and gas production, certainly in the US and the Gulf of Mexico,” he says.

“That should keep energy availability relatively elevated, which ultimately should benefit economic growth and the consumer.”

But geopolitical uncertainty means investors should be relatively conservative for now.

“Diversification is probably the most important part of the next three to six months.”

ASX mid caps: Global uncertainty calls for a balanced approach to investing

Right now equities investors are forced to consider a complex interplay of factors when making asset allocation decisions.

“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 Pendal mid-cap equities portfolio manager Brenton Saunders.

Strong US jobs numbers are contributing to upward pressure on yields, while there is uncertainty about China’s stimulus plans.

“This has sparked a notable rotation in Australia, with investors shifting away from large-cap financials and growth stocks towards resources and value-oriented equities,” says Brenton.

In the face of these competing forces, Brenton emphasises the importance of a balanced portfolio approach.

“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,” he says.

“[But] it’s important not to have big macro tilts in your portfolio and to be able to produce steady returns through any outcome.”

Brenton Saunders: Three mid-cap themes that ASX investors should consider

Most equities investors know they need to look beyond the ASX50 get better exposure to the fastest-growing industries.

The ASX’s mid-cap space typically covers the 100 biggest companies in the ASX 50-to-150 range.

Three enduring mid-cap themes that should offer good opportunities over time are data centres; transition fuels and decarbonisation; and electric vehicles, argues Pendal PM Brenton Saunders.

“Whether we’re speaking to software-as-a-service companies or corporates, the whole notion of data migration into the cloud and trying to integrate AI into processes at a meaningful level is ubiquitous,” Brenton says. Data centre companies are an integral part of the shift.

A mismatch between the ramping up of renewable power and the decommissioning of old forms of generation also provides opportunities.

“The EV sector finds itself in pain because of over-investment in a bunch of raw materials, particularly lithium,” Brenton says. “But there is absolutely no going back on it.”

Aussie mid-caps that could benefit from India’s growth story

Pendal’s emerging markets team last week highlighted India as a growth story.

This week Pendal Aussie equities PM Brenton Saunders makes the case for a handful of Aussie mid-caps in line to benefit from India’s growth.

“India has around 1.4 billion people. It’s a democracy that’s had a number of false starts in terms of growth, political and economic reform.

“But now it’s had four or five years of achieving reform,” says Brenton, who leads Pendal’s Aussie mid-caps investing strategy.

“Sovereign wealth funds and private equity money are moving into the economy.”

On a recent research trip to India, Brenton observed rising literacy rates, improved education standards and a huge, skilled workforce.

Aussie equities: Three mid-cap themes that look promising

Three themes – energy, data centres and battery raw materials – provide promising opportunities in the ASX mid-cap space at the moment, argues Pendal equities PM Brenton Saunders.

In energy, short-term considerations revolve around oil prices and the geopolitical backdrop, Brenton says.

“It’s not just a function of the conflicts in Israel and Ukraine – but also how the US economy performs especially ahead of the election next year.”

Medium-term opportunities come from companies with strong positions in transition fuels such as natural gas. Longer-term opportunities are around uranium, he says.

Brenton also likes the data centre space as business demand for bandwidth and data storage grows – including via the AI theme.

“And it might be on the nose at the moment, but the demand for batteries and battery materials continues to ramp up aggressively,” he says.

“We are dealing with an oversupply of some raw materials for batteries, and of batteries themselves. But this should clear as EV penetration progresses.”