With more than half of global GDP reliant on healthy ecosystems, biodiversity is fast emerging as a critical lens for long-term sustainable investing.

• Biodiversity underpins over half global GDP, shaping investment
• World Bank bond funds conservation and sustainable livelihoods
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD Biodiversity and Sustainable Development bond from the World Bank.

More than half the world’s GDP is estimated to be dependent on biodiversity and ecosystem services.

Fresh water, fertile soils, clean air and even insects pollinating plants – the flow-on effects of the degradation of biodiversity are immense.

Biodiversity is emerging as an investment focus, coinciding with businesses increasingly disclosing the different environmental risks they face.

This bond is helping to position nature as central to development through promoting conservation, training, and policy to seek nature-based solutions in agriculture, forestry and fisheries.

Through this bond, the Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund are investing in projects around the world that are promoting biodiversity, including by providing training and opportunities to manage resources. 

The World Bank lists examples of projects that may be funded by bonds like this. One example looks at oases in Tunisia.

Oases, which has long been the centre of trade and cultural exchange, are threatened from water wastage, soil salinity and fertility loss.

Local knowledge about how to manage these resources is being lost.

The World Bank project is funding improved governance of these spaces by improving water saving and reducing land degradation.

This project will place 25,000 hectares under sustainable landscape management practices, providing financial support for 250 small and medium enterprises. 

Another example of a project that is relevant to a biodiversity bond is in Mexico.

There are 12 million people in Mexico who live in poverty in forests and are directly dependent on local natural resources.

This project is helping to strengthen sustainable forest management and provide other economic opportunities.

This includes conservation and business development and providing other economic opportunities apart from logging and land clearing.

This project places a particular focus on the underserved such as indigenous people and women.

ASX midcaps to benefit from retirement shake-up | Sticky inflation, oil shock and income positioning | Emerging small cap opportunities amid Middle East turbulence

Pendal’s investment in the Asian Development Bank’s gender bond helps accelerate gender equality across the Asia-Pacific while keeping credit exposure anchored to a AAA-rated supranational issuer.

• Gender bond funds Asia-Pacific gender equality
• Targets women’s financial inclusion, improving access to credit
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in a sustainable bond from the Asian Development Bank (ADB) called a gender bond.

These bonds are issued in Australian dollars, and we have no exposure to any project level credit risk.

Our exposure is solely to the AAA rated ADB, a multilateral development bank established in 1966 and owned by 69 member countries[1] across the Asia Pacific region.

The ADB exists to promote inclusive, resilient, and sustainable development, and one of its core priorities is accelerating progress on gender equality.

The Asia Pacific region still experiences some of the widest gaps between women and men across economic participation[2], financial inclusion, education access, and leadership representation.

ADB’s work recognises that closing these gaps is crucial for improving economic productivity and supporting long-term social stability.

These bonds with their specific focus on gender allow investors to contribute to these goals while maintaining exposure to a high-quality supranational credit.

An example of the type of project that these gender bonds support is the Uzbekistan Inclusive Finance Sector Development Program[3].

This program aims to expand access to finance for underserved micro and small entrepreneurs, particularly women-led businesses, by strengthening the regulatory environment, improving consumer protection, and enabling new microfinance institutions to operate sustainably.

Uzbekistan has made progress in broadening financial inclusion and around 60 per cent[4] of adults now hold a financial account, driven in part by rapid growth in digital finance.

However, women entrepreneurs still face significant barriers in accessing credit.

ADB’s program supports targeted reforms such as increasing the ceiling for microloans, developing responsible lending guidelines, and establishing gender-focused lending quotas to help narrow these gaps and improve opportunities for women to participate in economic life.

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[1] https://www.adb.org/who-we-are/about

[2] Economic and leadership gaps: constraining growth and skewing transitions – Global Gender Gap Report 2024 | World Economic Forum

[3] 57245-001: Inclusive Finance Sector Development Program Subprogram 1 | Asian Development Bank

[4] ADB Program to Boost Financial Development and Inclusion in Uzbekistan | Asian Development Bank

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Industry super funds are under increasing pressure from the government to provide more products enabling them to service members beyond retirement. Pendal’s BRENTON SAUNDERS discusses the changes and the midcaps set to benefit

• Super funds pushed to improve retirement drawdowns
• Global companies circling Australia’s annuity market
• Find out more about the Pendal MidCap fund

RETIREES could see a wave of new retirement products hit the market from mid-year, as APRA resets capital requirements for decumulation products, like annuities — a change expected to lower barriers for providers and encourage large overseas insurers to compete in Australia.

The shift comes as the government increases pressure on super funds to help members spend down balances in retirement, rather than die with “fully stacked” accounts.

“The problem the government has is that a lot of people, when they pass, their super funds balances are still high, and they haven’t really used that money over time and effectively decumulated,” explains Brenton Saunders, portfolio manager for Pendal MidCap Fund.

“A big part of the reason is that there are very few easy to understand and effective decumulation products out there.”

An annuity is one of these types of products. It is a financial contract with an insurance company that provides a guaranteed income stream, either immediately or in the future, often used for retirement planning.

However, Saunders says up until now annuities haven’t been particularly popular in Australia due to a complicated administrative process and limited availability.

Challenger (ASX:CGF) is one of the only Australian investment management companies that currently offers annuities.

“The Australian framework historically has required a much more capital-intensive approach to annuities because capital adequacy requirements were higher,” says Saunders.  

“So it’s never really attracted a lot of the big global annuity players into the market to facilitate mass development of products.”

What’s changing

APRA finalised its review at the end of March with the amendments set to come into effect from 1 July 2026.

The amendments are designed to make annuities less capital-intensive to write, potentially widening the limited provider pool and attracting new entrants to the market

At the same time, Challenger is investing in technology to make annuities easier to quote, implement and service through advisers and super funds.

“Challenger will also partner with industry super funds to provide them with products that they can then pass on to their members,” adds Saunders.

“It’s a big opportunity for Challenger specifically, but what will happen is – and what we’re seeing happen now – is other participants from Japan and the US are entering the annuity market.

“So, it’ll become quite a vibrant landscape.

“I suspect in time companies like Challenger, given that they’re much smaller than the big global annuity providers, could be acquired by these bigger companies.”

Why it matters for retirees

If more insurers enter and super funds expand retirement offerings, retirees may have more ways to convert part of their balance into a predictable “pay cheque”.

“Companies like financial services business Generation Development Group (ASX:GDG) and AMP (ASX:AMP) have launched products that are more market-linked than annuity based, but are very tax efficient and getting a lot of traction with the retirement market,” says Saunders.

Evolution of SMSFs

Over the past decade, there has also been an evolution of self-managed super funds.

“The superannuation industry is growing incredibly fast. We’ve had super contributions as individuals increase a couple of times over the last five years, and with strong markets we’ve also had super balances grow materially over the last five or six years,” says Saunders.

Saunders says two offerings have been gaining share with “tech ready,” attractively priced and well serviced platforms; Netwealth Group (ASX:NWL) and Hub24 (ASX:HUB).

“That all manifests in these platforms, and notably Hub and Netwealth have been big beneficiaries of that.

“We back them to continue taking market share in the platform market from industry superannuation funds on the one hand, and from the incumbent platforms on the other.”

Pendal MidCap Fund owns a position in CGF, GDG, AMP, NWL and HUB.

Here are the main factors driving the ASX this week, according to Pendal’s ANTHONY MORAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

US equity markets are rallying on strong earnings and “good-enough” economic data, while the ASX is lagging due to lower exposure to tech/AI and greater weight in resources and banks – which had a breather last week.

The S&P 500 gained 0.92%, the NASDAQ +1.1% and the small cap Russell 2000 +0.9% last week. The S&P/ASX 300 finished down 0.7%.

Brent and West Texas Intermediate oil both put on around US$10/barrel over the week with no progress on Iran.

We remain in a limbo period where existing inventories and demand destruction are preventing things from getting out of hand – but it’s only a matter of time before this changes.

US reporting season was generally positive and highlights a resilient consumer.

Several big tech companies reported last week, providing a positive backdrop with revenue generally ahead of consensus and increases to AI-related capex.

The Australian economy remains resilient. Last week’s Q1 consumer price index was high but in line with expectations, affirming the need for further rate rises.

Indications are that Australian consumers also remain resilient for now.

Markets appear to be marking time until the global economy starts slowing more materially.

US macro and policy

Rates

The US Fed held rates steady as expected but delivered some hawkish takeaways.

• Four out of 12 governors dissented – the most since 1992. Three of the four wanted to remove the inclusion of an easing bias in the statement. Chair Jay Powell noted there was a “vigorous debate” over the inclusion of the statement and it could be removed next meeting. Stephen Miran provided his customary vote for a rate cut.
• Powell said the bar for “looking through” the oil shock was high, given officials are already looking through the tariff shock while inflation has been high for a number of years.
• Citing concerns about Fed independence, Powell is staying on as a governor even after Kevin Warsh becomes Chair on May 15. This raises concerns of conflict with the White House.

Bond yields rallied last week due to higher oil prices, then rose faster after the Fed decision.

GDP

Elsewhere, the US economy showed stronger growth with Q1 GDP data up 2 per cent (annualised) versus the previous quarter. This was consistent with company feedback and not a surprise given the base effect of the government shutdown in Q4.

• Real final domestic demand grew 2.9% (or 2.5% excluding recovery from the government shutdown)
• Fixed business investment was the key driver, running at +10.4% annualised, due to information-processing equipment, software and data centres
• There was a partial offset from imports (+21%), driven by tech goods
• Real personal consumption slowed but remained reasonable at +1.6%, with stronger momentum over the quarter
• On the other side residential housing investment fell 8% annualised, down to 3.7% of GDP – the lowest level since Q4 2015.

The upshot is the US retainsgood momentum in GDP growth but is heavily dependent on tech investment.

Looking forward there will be a drag from higher oil prices – and this will build. But other energy prices are low, so the US is relatively well positioned versus other economies.

Fiscal stimulus is also providing short term support. US consumer plays which have been sold off may to surprise to the upside.

Inflation

The Fed’s preferred inflation measure, the Core Personal Consumption expenditures (PCE) price index, rose 3.2% annually to March. This is the most since 2023 but was in line with expectations.

It eased slightly on a monthly basis, to a still-firm +0.3%.

Real personal consumption expenditures grew at +0.2% monthly, showing robust support for economic growth. However, this relied on a declining savings rate – and is likely to come under pressure from rising inflation and declining government transfers.

The savings rate is still well above recession levels but needs wage growth to pick up to support continued spending growth.

Housing

New housing starts data for February and March came out last week. After falling slightly in February to 1,356K they jumped in March to 1,502K (versus about 1.4k expected), helped by warmer weather.

Homebuilding has been more resilient than feared but recent homebuilder commentary suggests a slowdown in April with permits quite weak in March.

Australia macro and policy

Inflation rose 1.4% in Q1, which is high but in line with market expectations.

Trimmed-mean CPI rose 0.8% for the quarter, which is also high, albeit slightly below consensus and the RBA forecast.

Bond yields were flat in response.

• Culprits:  Services inflation (+0.8%) has remained high for the past three quarters driven largely by inflation in meals out and takeaway food. Insurance prices rose 2.2%, hairdressing and personal grooming services were up 1%, and maintenance and repair of motor vehicles gained 1.5%.
• Consumer durables rose 1.4% on furniture, flooring and electric appliances, but softer housing turnover may take some pressure off. Clothing and footwear rose 3.8% due to higher silver and gold prices (the category includes jewellery).
• Offsets: At-home food inflation eased to +0.4%, but there was some medium-term upside risk from fertiliser prices. Government-administered inflation (excluding electricity prices) slowed significantly to +0.4% (eg childcare -0.7%). Housing inflation also slowed to +0.9%.

Electricity prices rose 17.8% due to the expiry of government rebates, while auto fuel prices rose +5.2%.

The Q1 data is a bit stale, given the key concern is now about higher hydrocarbon prices filtering through the economy and potentially into wage claims.

The consensus view is that we see another interest rate increase this week, and risk that further hikes will be required.

Stockland Group’s quarterly noted that total retail turnover grew 3.8% on a yearly basis to Q3 FY26, versus +3.6% in H1 FY26.

The “mini-major” category (stores between 400 and 1500 square metres such as JB Hi-Fi, Rebel Sport, Officeworks, Dan Murphy etc) and food saw the strongest growth. Homewares and apparel were the slowest.

Feedback from unlisted retailers suggests resilient spending growth.

The upshot is that there is more tightening coming in this cycle.

Short-term earnings look fine, but we are more cautious around discretionary retail and housing-related names in the medium term.

Other macro insights

The Eurozone’s economic outlook is looking much more challenged.

Q1 GDP slowed to +0.1% quarterly, while April’s CPI rose +3% yearly, up from 2.6% the previous month. While this is no worse than feared, Europe appears at greater risk of stagflation than other parts of the globe.

This is before the impact of higher oil prices on the economy (which EU is more exposed to).

The European Central Bank (ECB) and Bank of England (BOE) both left rates unchanged as expected.

The BOE noted weakening growth as an offset to inflation.

The ECB was more hawkish, as expected, warning that upside risks to inflation and downside risks to growth had increased.

Both central banks appear biased towards addressing inflation first, with a hike at the June meeting.

Commodities

Oil rose through the week given a lack of progress towards opening the Strait of Hormuz.

The longer this drags out, the longer it will take longer for supply to be restored after production shut-ins and shutdowns.

Right now, inventory releases and demand destruction – particularly in developing countries – is helping offset the supply shortage.

Asian economies have seen a raft of shortened working weeks, restrictions on transport and fuel rationing.

Australia continues to find incremental supply. The federal government announced it had secured 450mL of diesel and 100mL of jet fuel.

We are seeing some demand destruction in developed economies also.

Traffic volumes are already declining in the US and Australia. But the supply gap should increase from here – requiring more demand destruction.

There is also some circularity. Right now, the US economy is relatively insulated, allowing President Trump to stall talks and an agreement.

Conditions in the US may need to get worse before the conflict is resolved.

The UAE’s exit from OPEC is long-term bearish for oil but has little impact in the short term.

The UAE was operating near peak utilisation and will need to do repairs after the conflict ends. But long term the Emirates want to increase their supply.

US oil exports are surging, helping to fill the shortfall. But there has been no increase in shale production yet. Listed players, which dominate production, remain capital-disciplined.

It is interesting to note that LNG prices have not risen as much as expected – up only a fraction of the surge seen in response to the Ukraine conflict in 2022.

This has helped alleviate some of the conflict’s pressure on European power prices and Asian economies.

It comes as Chinese LNG demand has been softer than expected due to the impact of more investment in renewables – as well as the abundance of domestic coal as a substitute.

We are also seeing LNG demand destruction in markets like India.

Gold has been negatively correlated to oil in this episode.

Weakness in AUD terms means downgrades on mark-to-market for Australian gold miners. Given their large margins this means issues like higher diesel costs are dwarfed by the commodity price impact.

More broadly, the resources stocks have benefited from the market focus on the supply impacts from the Iran conflict.

We are mindful of the risk that the focus shifts to the demand impacts of weaker economic growth and sees the sector roll over.

Markets

US equities

US markets are hitting record highs, given less economic sensitivity to the Iran conflict and greater exposure to AI/tech. 

The tech sector was initially softer last week after reports OpenAI missed an internal revenue target (which the company later refuted).

But Anthropic’s revenue growth suggests this is driven by competition rather a slowdown in industry growth.

A strong result ultimately saw tech rebound.

Almost two-thirds of the S&P 500 has now reported with 61% beating consensus by more than a standard deviation.

Only 5% of companies have missed estimates.

But because of the uncertain macro backdrop, the reward for beats has been small.

Four AI “hyper-scalers” (Amazon, Alphabet, Meta and Microsoft) reported last week, beating consensus on sales, earnings and capex guidance.

• Alphabet rose 10% after reporting acceleration in Google Cloud growth
• Amazon gained 1% on stronger Amazon Web Services growth
• Microsoft fell 4% as growth in Azure didn’t accelerate meaningfully
• Meta lost 9% as capex guided higher despite disappointing user growth and not delivering operating leverage.

The upshot is AI infrastructure demand continues to grow.

Alphabet noted it was compute-constrained and cloud revenue would have been higher if it had the capacity. Their 2027 capex was set to “significantly increase” over 2026.

This is a positive read-through for local AI infrastructure providers such as NextDC (NXT).

Other results demonstrated a robust consumer:

• Fast-moving consumer good companies P&G, Mondelez and Unilever all showed volume growth after a softer December quarter
• Fiber Packaging companies also saw improving volume growth
• Casinos demonstrated resilient land-based revenues
• Quick service restaurants are delivering continued growth in the US as well

The impact of tax refunds is likely helping support things. But the risk is to the downside as Iran conflict drags on.

Australian equities

The ASX underperformed the US with less exposure to AI/tech and the key sectors of resources and banks taking a breather.

Utilities and healthcare were weaker on stock-specific news, while ongoing fears of a consumer slowdown weighed on consumer discretionary.

On the positive side the energy sector followed oil prices up. With economic concerns weighing on other sectors, we saw outperformance from REITs and the defensive industrials.

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About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has almost three decades of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund is a high-conviction equity fund with a two-decade track record across a range of market conditions.

Pendal is an Australian investment management business focused on delivering superior returns for our clients through active management. Pendal is part of Perpetual Group.

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Here are the main factors driving the ASX this week, according to Pendal investment analyst SONDAL BENSAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE AI thematic is driving related sectors higher, boosted by earnings revisions and positive observations on demand, notably last week from chipmaker Intel.

This is countered by growing uncertainty around Middle East conflict resolution and timing of the reopening of the Strait of Hormuz.

As a result, indices with large AI exposure such as the S&P 500 (+0.6%) and the NASDAQ (+1.5%) were up last week. The remainder, such as the S&P/ASX 300 (-1.8%), ended down.

As geopolitical uncertainty flows into changing inflationary expectations, we saw Treasury yields reverse the positive move from last week, with US 10-year government bond yield rising 6 basis points (bps) to 4.3%.

On a positive note, the price of refined oil products fell materially last week, as refining margins reversed from extended levels. This is a further indication that demand is likely being affected by caution around higher energy costs.

While the week was relatively quiet for economic data releases, there is a raft of economic data this week.

With tech the only positive driver of markets in the absence of better news from the Middle East conflict, there will be a big focus on tech results this week. Five of the Mag7 will report – Microsoft, Google, Amazon, and Meta on Wednesday, followed by Apple on Thursday.

US – Iran conflict

After a failed deal over the previous weekend, the oil price was relatively stable last week.

Hopes of any form of resolution faded over the week and the oil price ground higher by the day, to currently trade at US$108 a barrel (Brent crude).

While a deal no longer seems imminent, indications remain that an offramp and peace discussions are still the desired outcome.

President Donald Trump continues to find avenues to extend the ceasefire. Peace talks mediated in Pakistan planned during the week fell through.

Iran’s economic sensitivity to the US blockade of the Strait during the ceasefire is likely to be of increasing importance to the urgency with which Tehran engages on a peace deal.

The debate here is the impact on Iranian oil fields once their storage capacity is reached.

Current storage capacity is estimated by some to be less than 20 days, while the White House suggests that it is measured in days, not weeks.

The risk is reservoir damage from forced shut-ins. Once storage fills and wells must be shut in, the consequences are geological rather than just operational.

Forced shut-ins can break reservoir pressure balance, drive water and gas intrusion into the oil-bearing zones, and trigger paraffin buildup that clogs tubing and pores – after as few as four days.

The specific process is called water coning; when production stops, water sitting below the oil pushes upward into the well, trapping oil in rock pores where it becomes difficult or impossible to extract, resulting in permanent loss of output.

The recovery process is slow and extremely expensive.

This means there is a view that the US blockade is basically threatening destruction of energy infrastructure without missiles.

Refining spreads

The oil price increase in isolation would not be a major drag on the global economy.

The sting this time around has all been in the refining spread which, for some fuels, has gone up more than the absolute per barrel cost of oil.

With supply dynamics largely unchanged week to week, softening demand conditions in response to price and availability are choking off demand and refining spreads are reversing from highly abnormal levels.

For example, the “crack spread” for petrol fell from US$37.8 to US$25.5 per barrel between the 17^th and 23^rd of April. It fell from US$79.9 to US$66.2 for diesel and from US$79.6 to US$55.4 for jet fuel over the same time.

US policy and macro

Last week’s data, while minimal, continues to support the theme of economic resilience.

March retail sales were strong and above consensus, rising by 1.7% month/month. This is the largest monthly gain since January 2023.

Growth in core retail sales (excluding motor vehicle and parts & gasoline) was solid despite the oil price spike, coming in at +0.7% month/month.

Revisions to February data were also positive.

Sales are being supported by inflated tax refunds, which is helping to absorb the higher cost of fuel.

In other news Kevin Warsh, Trump’s Fed Chair elect, spoke at the Senate Banking Committee confirmation hearing saying he’s not ‘pre-committed to any policy decision’.

He argued that the Fed should reduce size of the balance sheet and also emphasised trimmed mean and median as better measures of inflation – both of which are substantially lower than the Fed’s current preferred measure (the core personal consumption expenditures index) at the moment.

Though a dovish tilt, this change is unlikely to have a near-term impact on the path of interest rates in the US.

Warsh’s confirmation now appears to be largely a done deal, with the Department of Justice dropping the investigation into outgoing chair Jerome Powell.

At the earliest, Warsh could take over when Powell’s term as Chair expires on the 15^th of May.

This Wednesday is the April FOMC meeting.

Markets are pricing a near-100% chance of a hold, driven by upward inflation pressures stemming from the war as well as the resilient macro backdrop such as improving labour market trends and resilient consumer spending.

Markets

The bull run for the US tech sector continues.

Intel reported a strong beat and upgraded outlook, driving the stock and tech sector higher. It provided renewed bullish demand commentary for central processing units (CPU), noting the attach rate of graphic processing units (GPU) to CPUs in new AI workloads could move from 1:8 to 1:2 or even 1:1 going forward.

Meta also announced that it will partner with Amazon to deploy hundreds of thousands of AWS Gravitron CPU chips.

Software stocks were rattled by a downgrade from Service Now, a company providing cloud-based software to automate business workflows. It fell 18% and drove the sector down 6% in one day, highlighting the sensitivity of these stocks to negative earnings news.

The software index was basically flat for the week after rising early in the week.

US Reporting Season

US reporting season is now two weeks in with 26% of companies (by market cap) having reported. This week 25% of the S&P (by market cap) will report.

Results have been generally positive both for actual results and overall revisions.

• The blended earnings growth rate stands at 15.1%, up from 12.6% at the start of earnings season.
• Forward revisions are in the order of 2-3% to date.
• In aggregate, companies are reporting earnings that are 12.3% above expectations, above the 7.2% one-year average positive surprise rate and the five-year average of 7.3%.

Australia

The S&P/ASX 300 was down 1.8% over the week, lagging Asia and US peers due to the absence of direct AI beneficiaries.

Defensive sectors led given the renewed uncertainty. Banks have continued lower on increased provisions stemming from disruption caused by the war.

The list of companies pre-announcing earnings continues to grow.

Stocks where the earnings misses have been driven by revenue have been hit hard, as have those where the negative impact from the Middle East conflict came as a surprise.

Those companies where the earnings misses related to Middle East disruption were already transparent, or are temporary in nature, have not seen major reactions to announcements.

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About Sondal Bensan and Pendal

Sondal Bensan is an investment analyst with over 19 years of experience covering the Retail, Telecom, Media and Transport sectors. He joined Westpac Investment Management in 1999 and has previously held roles with Commonwealth Bank and Bell Commodities. Sondal holds a Bachelor of Commerce (Finance) and a Bachelor of Science (Maths and Statistics).

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Three things that matter in uncertain times | How to position credit portfolios for Middle East chaos | Which ASX midcap sectors look well positioned right now

While others reposition amid today’s market ructions, Pendal’s BRENTON SAUNDERS has seen volatility before – and is focused on the midcap opportunities now emerging

• Volatility revives active opportunities in sold-off midcaps
• Energy, infrastructure benefit; SaaS de-rated
• Find out more about the Pendal MidCap fund

Across three decades, Brenton Saunders – portfolio manager of the Pendal MidCap Fund – has navigated everything from the 1997 Asian financial crisis and the dot-com bubble to the global financial crisis and Covid.

He says the current situation in the Middle East is different in its particulars, but the ripple effects may feel familiar.

“This is a very geographically focused issue that is slowly permeating into different parts of the economy globally, beyond the obvious beneficiaries and companies suffering as a direct result of it,” Saunders notes.

Even so, he isn’t making material changes to the fund’s midcap positioning, preferring to build portfolios designed to weather a range of market scenarios.

“We see ourselves as portfolio planners, not market predictors. We try to build portfolios that are resilient across environments by diversifying properly and avoiding unintended macro exposures,” Saunders explains.

That balance matters during rotations and volatility. Recent swings have been driven by the conflict in the Middle East as well as investor concerns about AI-enabled competition for SaaS providers.

Volatility can create active opportunities

Saunders says periods like these can favour active management.

“When we have big geopolitical events, the market extrapolates what that means for the economy – assuming it will persist,” he says.

“That has created opportunities in companies that have been sold off.”

Historically, Saunders and the Pendal MidCap team have been able to use episodes of market volatility to identify and add value via opportunities in individual companies.

Against that backdrop, Saunders says parts of the energy complex are among the more obvious potential beneficiaries.

“You’ll likely see individuals and governments looking to shore up supply lines—becoming more self-reliant in procurement and refining of oil, for example, and more broadly in the procurement and generation of power,” Saunders says.

“Companies that produce energy are obvious beneficiaries.

“Alternative sources of energy such as lithium – given its role in batteries – could also get an added impetus from heightened energy-security concerns.

“Nuclear energy, too, is getting more attention globally than it has in some time as an alternative.”

Saunders also expects governments to duplicate and reinforce parts of their fuel-supply infrastructure, creating a tailwind for engineering and construction companies.

“Some contractors we can invest in – companies like Worley – are well placed to help design and manage the construction of facilities such as LNG plants, as well as oil and gas infrastructure that may need repair in the Middle East.”

Pendal MidCap Fund owns a position in Worley.

AI not necessarily an ‘existential threat’

SaaS providers, meanwhile, have faced significant de-rating following a wave of new generative-AI product releases.

But Saunders believes the fallout has been a bit overdone.

“These software companies will no doubt have to adapt to an AI-heavy environment, but most are solid businesses,” he says.

“We haven’t seen a clear impact from AI in their earnings so far. And we think many are likely beneficiaries if they incorporate AI into their products in a meaningful way.

“The notion of AI potentially disintermediating  software companies shouldn’t be dismissed – but we think the market narrative has swung too far.”

The sell-off has pushed valuations to levels Saunders describes as attractive – both relative to history and in absolute terms.

“Our assessment so far is that many of these high-quality software and SaaS businesses are exceptional. They benefit from incumbency… and they’re among the most tech-savvy companies we deal with.”

Saunders notes that many software companies also have access to proprietary data that generic AI applications may not be able to access via the public internet.

“So there are more strings to their bows than I think people are giving them credit for.

“Over time, there may be instances where products are replicated or competition increases, which could show up in pricing. But I don’t think it’s necessarily an existential threat for most of them – at least not yet,” Saunders says.

Investing can deliver more than returns. The African Development Bank’s social bonds are helping drive lasting change across some of the country’s most vulnerable communities.

• African Development Bank social bonds fund essential services
• Senegal livestock project boosts livelihoods, climate resilience
• Find out more about Pendal’s Responsible Investing capabilities 

THE Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund continue to support projects that have positive outcomes outside Australia.

An example of this is the AUD Social Bond from the African Development Bank which is a AAA rated development bank.

These types of social bonds have projects that focus on the underprivileged in society in Africa.

The focus of African Development Bank Social Bonds is on the most pressing needs of people who live in Africa. They address access to essential services, basic infrastructure, food security and sustainable food systems, employment generation and socioeconomic advancement.

Examples of the type of projects that these types of bonds fund include support for a project in Senegal in West Africa that is seeking to provide healthier and more sustainable food production of meat, milk and honey.

The project involves increasing the productivity, processing, marketing and logistics of animal production.

This is done by assisting stock breeders, meat wholesalers, small businesses – especially those owned and managed by women and youth, and public livestock services.

The project is estimated to assist 32,000 people directly, half of which are women and youth, and indirectly benefit 950,000 people. An aspect of this project is focused on climate adaptation, which is particularly vulnerable to drought events.

These types of projects are helping support the underserved in the world by providing livelihoods, as well as sustainable food supply. We can support projects like this through our investments in social bonds like those from the African Development Bank.

Through the World Bank’s Sustainable Development Bonds, investors can help channel capital into practical projects that strengthen communities, improve access to essential services and support climate resilience.

• Capital advances poverty reduction, climate stability and shared prosperity
• Funding has supported people affected by Ukraine war
• Find out more about Pendal’s Responsible Investing capabilities 

THE Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in a World Bank (International Bank for Reconstruction and Development, IBRD) Sustainable Development Bond, which supports a broad portfolio of development projects across emerging and developing economies.

IBRD lending spans a wide range of environmental and social priorities. On the environmental side, financing supports renewable energy and energy‑efficient infrastructure, as well as climate‑resilience activities.

Alongside this, lending delivers important social outcomes, including improved access to education and healthcare.

Examples of projects supported through this lending include the expansion of electricity supply to rural areas of Bolivia, where more than 100,000 people[1] gained access to new or improved electricity services.

In Angola, IBRD financing has strengthened public health preparedness through training programs that equipped around 10,000 health workers[1] with skills in infection prevention and control.

More recently, this funding has supported people affected by the war in Ukraine through the Housing Repair for People’s Empowerment project[2].

This program has enabled rapid repairs to partially damaged homes, helping families secure safe and habitable housing ahead of winter. In many cases, this support is genuinely life‑saving.

These bonds provide exposure to a AAA‑rated supranational issuer while directing capital toward globally significant development outcomes, including supporting climate stability, poverty reduction and shared prosperity across emerging and developing economies.

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[1] https://thedocs.worldbank.org/en/doc/d8c088d3286decf305a7c0f3fe667130-0340022025/original/World-Bank-IBRD-FY24-IMPACT-REPORT.pdf

[2] https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099082223100029507

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