The Point

Conservative, pragmatic and style-agnostic: how to think about equities right now

“There really is no obvious default for investors in this kind of market,” says Brenton Saunders, who manages Pendal Midcap Fund.

“With macro factors lurching around so quickly, it pays to have a very balanced portfolio.

“Things that once took a year to play out are happening inside a quarter. If you have big macro tilts in your portfolio, you run a big risk of getting it wrong at some stage if you’re not nimble enough.

“We’ve seen an extension of the de-rating of high-multiple, high-growth sectors. We’re now seeing cyclical stocks like commodities getting impacted as well.”

A sensible positioning is to stay conservative, pragmatic and style-agnostic, says Brenton.

“It’s very much a stock-picker’s market. It is really now about understanding a company’s specifics and spending time with a company.

“Even subtle differences in terms of exposures in cost and revenue bases can create quite different outcomes in similar-looking companies.

“It is an environment where research and stock picking are making a difference.”

Good times for stock-pickers as rate-hike cycle arrives

“For the first time in a while, it’s our sense that 2022 will be less about beta and more about alpha,” says Pendal’s Brenton Saunders.

Wholesale sell-off is creating opportunities for equity investors willing to take a stock-picking approach, says Brenton, who co-manages Pendal MidCap Fund.

“Previous rate hike cycles have been short and sharp — this one will be different.”

This has important implications for asset allocation and sector allocation within equities, he says.

“A lot of the stocks and sectors that were beneficiaries of the huge stimulus we’ve seen through Covid are now starting to battle the impact of higher bond yields and the prospect of higher interest rates down the line.

“We think asset performances will be quite moderate this year and stock selection will be more important than it has been in recent years.”

Why self storage could be a good place to stash some cash

“The world of self-storage is not something you often hear about, but it’s an asset class we like,” says Pendal PM Julia Forrest, who co-manages property investing in Pendal’s Aussie equities team.

Record high immigration and a downsizing trend towards apartment-living should fuel ongoing strength in the self-storage industry, says Julia.

“Self-storage space in Australia represents 2.1 square feet per capita. In the US, it’s closer to 6.1 square feet per capita.

“So, in terms of available space, Australia is relatively under-serviced. There is a bit of a runway to catch up.”

Julia points to the example of ASX-listed National Storage REIT – her biggest active position in Pendal’s property strategy.

National Storage (ASX: NSR) is Australia’s biggest self-storage owner-operator with 230 centres across Australia and New Zealand.

Julia Forrest: Retail and industrial lead the way in A-REIT sector

A surprising rebound for shopping malls was the standout feature of this year’s real estate investment trust reporting season, says Pendal’s Julia Forrest.

Rising interest rates and the expiration of interest hedges meant earnings declined for many Australian REITs, surprising investors in a sector where performance is typically well-flagged.

“But the positive surprise was in shopping malls where operating metrics improved,” says Julia who co-manages Pendal’s property trust portfolios.

“Occupancy is pushing towards completely occupied – that’s a long way from where we were two or three years ago.

“There’s genuine demand by tenants for more – and better – space and there’s been no supply for four or five years so you’re seeing competitive tension between tenants.”

A rising population and wages growth has sent retail sales 15 per cent above 2019 levels.