WE believe the next opportunity in Emerging Markets lies with identifying the rebounds and countries that have lagged.
Here senior portfolio manager James Syme explains why he believes this opportunity will drive a rebound in the relative performance of Pendal Global Emerging Markets Opportunities fund.
Watch this 5-minute video Q&A with portfolio specialist Chris Adams or read the transcript below.
TRANSCRIPT
Portfolio specialist Chris Adams: We’re seeing a narrow rally in growth-oriented East Asian tech, which has driven gains in emerging markets.
Since March we’ve had exposure to the theme, but we believe there is more to emerging market growth opportunities than a handful of these stocks.
We believe the next opportunity in emerging markets is identifying the rebounds and the countries that have lagged.
Very few of the 26 emerging markets (EM) have actually outperformed the index this year.
This rebound will occur at different rates at different times in emerging markets, we believe, based on the economic structure and policy options.
James where do you see the specific opportunity to make money in Emerging Markets (EM) from here?
Portfolio manager James Syme: There are two areas of particular interest and the portfolio’s exposed to both of them.
The first is in the countries outside the East Asia, China, Korea and Taiwan space, where we’ve generally seen a lag in performance.
We saw a lot of money leave those markets back in March and April, and that’s only really started to recover.
Now it does feel that November was a real sea change in markets. We saw some strong out-performance from some of those areas including parts of Latin America and including India.
That’s been driven by the pre-existing conditions of low interest rates, a weak dollar and local recoveries; and then new optimism from vaccine news, the change in power in the White House and particularly with a pickup in flows.
So some of those areas we see great opportunity as they go into recovery, which really doesn’t seem to be priced into markets.
Then secondly, in the East Asian space we’ve seen under-performance of Korea relative to China and Taiwan year to date.
Korea is a much more cyclical economy. We saw big outperformance of Korean equities in November and the portfolio is significantly overweight Korea relative to China and Taiwan within that East Asian space.
Chris Adams: I’m assuming Korea is one of your highest conviction positions. Where else are you seeing a lot of conviction with EM at the moment? And why do you think they’ll outperform from here?
James Syme: Within India we’ve seen a big build-up of liquidity and savings in the economy, a big deferral of consumption year-to-date because of the coronavirus lockdowns.
We see some real evidence of a turn in the Indian economy. We’ve seen improving coronavirus data there. We have significant exposure in the portfolio to India.
We’re becoming much more positive on opportunities within Latin America. Mexico is a big beneficiary of the Biden presidency, as well as normalisation and recovery in the US economy and in the Mexican economy.
We’ve moved more positive on Brazil. We’ve moved to a neutral position there. In Brazil we’re seeing an increase in optimism and foreign investor flows. There a few more stages we’d like to see before we went fully overweight Brazil.
But it’s those kinds of markets — markets like India and Mexico and further down the line potentially Brazil — rather than simply adding more and more to the pre-existing tech winners that did so well through the summer.
Chris Adams: Where do you see the largest investment risks clustered within the EM universe at the moment?
James Syme: It’s always the case that the biggest opportunities in markets are where consensus is universally bearish and the biggest risks are where consensus is nearly universally bullish.
There are some great companies in that technology space that have done very well from the effects of the coronavirus, as well as from underlying secular trends.
Within some of those, we’ve seen some extremely heavily owned stocks trading at very expensive multiples. They’re good businesses but it’s hard to see the marginal piece of good news that can drive them even higher.
I think this is a time to be more rotational and contrarian rather than simply trying to rely on those tech businesses getting another 10% better from what already looks like extremely strong operating conditions that have been priced into those markets.
Chris Adams: Do you need to see a large sell-off in some of those tech stocks to outperform or is there something else that’s going to drive relative performance?
James Syme: No, I think particularly if we see a recovery in investment flows into some of these markets like India and Mexico, and some of those other less technologically export-driven markets, we still haven’t seen the recovery from the big unwind in March and April.
I think these markets can deliver good returns in their own rights, irrespective of what happens with the internet and tech space.
More information: Download a PDF article with the further detail on Pendal’s Global Emerging Markets Opportunities strategy.
James Syme is a senior portfolio manager and co-manager of Pendal’s Global Emerging Markets Opportunities fund.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Here’s what’s influencing Australian equities this week according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
US Covid number continue to increase, while payroll data is disappointing. Nevertheless, equity markets continue to rally.
A number of recent developments bear watching:
- Polls indicate the Democrats may win both of Georgia’s Senate seats in the January run-off, which could hand them control of the Senate. The market has welcomed the prospect of divided US government. This could change that view.
- Delays in approval for the AstraZeneca vaccine — pending more thorough tests — may mean countries outside of the US might not achieve herd immunity until the end of 2021.
- There is some commentary around the potential for vaccine production to be held back by a lack of key inputs such as vials and needles.
- There is potential for certain strains of Covid to be vaccine resistant — specifically the N439K strain which is rare but shown to be resistant to some antibodies in recovered patients.
Nevertheless, the market remains sanguine. The S&P/ASX 300 gained 0.55% and the S&P 500 was up 1.72% last week.
The recent strong run may mean we are in for a period of consolidation — though not necessarily a material pull-back.
We still see plenty of supportive factors for markets in the near term, including:
- Vaccine means a resolution to the impact of Covid is on the horizon
- High case numbers, concerns on the economy and uncertainty on the roll-out of vaccines mean policy makers remain in the mindset of “whatever it takes”. Fiscal and monetary stimulus remains in place as a result.
- The Democrat win in the US — with Congress likely divided — means the end of the unpredictability of the Trump Administration, but lower chance of a dramatic new policy agenda.
- China’s economy continues to outperform the rest of the world. Positive interest rates are attracting capital which supports the RMB and Chinese spending power. This is good for commodities.
- Australia is in the sweet spot of summer + Covid suppression + a potential vaccine before winter. This provides a reasonably clear path for the economy.
- A Brexit deal possibly ends some uncertainty in Europe.
In the market, low rates continue to support growth stocks, which are holding up well. Value stocks are benefiting from accelerating growth and greater earnings certainty all supported by substantial liquidity. This means the current rally has decent breadth.
Covid outlook
Europe continues to improve, leaving the US as the flashpoint for the northern hemisphere wave.
It is still too early to read the consequences of the Thanksgiving break. The next two weeks will be important to determine if this has triggered a re-acceleration.
Regionally the worst states in the Midwest have begun to see some relative improvements. This has been offset by a re-acceleration in Florida, Michigan and New York — though some of this is a catch-up in post-Thanksgiving reporting. Some of the greatest strain on hospitals had been in the Midwest, so this is a marginal positive.
Hospitalisation growth broadly remains more limited than case growth at about 10 per cent. ICU occupancy improved marginally in the Midwest, which had been under some of the greatest strain. But we are seeing a broadening of severe cases, making it harder to help the badly impacted states. There are also reports of healthcare staff shortages emerging.
Economic outlook
Total non-farm payroll data for November was disappointing, suggesting the jobs rebound is decelerating. Though overall unemployment continues to fall.
This may not have too great an impact on Q4 GDP growth, given the strength in industrial production for export and to restock inventories. This continues to drive a disconnection with sluggish real-time mobility data — and the initial data for Cyber Monday retail sales — but suggests Q4 GDP may be stronger than many expect.
Softer payroll data raises the near-term chances of a fiscal package. Commentators suggest something in the order of $US500 million to $US1 billion. There are some signals the Fed may start extending the duration of the bonds it is purchasing.
Globally economic signals remain positive as industrial production ramps up and the expectation of significant on-going fiscal stimulus drives industrial commodities.
Copper rose to a 7-year high. Iron moved higher too, as Brazil’s Vale announced a smaller-than-expected increase in production next year.
These moves in commodities are driving mining stocks globally. The US mining sector has broken back above pre-Covid levels, while Australian resources look set to do the same.
Markets
Ten-year government bond yields rose 12bps in the US and 10bps in Australia, reflecting the USD fall and the rise in commodity prices. This is supportive for the market’s value stocks.
We don’t see the slow rise in bonds as a negative for equities. It’s borne of higher optimism about future growth and a belief the Fed will be later in the cycle to raise rates than normal.
The implied message from central banks is that savers will have to take one for the team in terms of an extended period of low rates.
This is beginning to be reflected in expectations of equity market performance — and in equity market ETF inflows, which have rapidly accelerated since the US election and vaccine news.
US market valuations for the five largest stocks remain extremely elevated. Beyond this, the recent “catch-up” by other parts of the market has left their valuations looking full in historical terms. Nevertheless there is the potential to rise further, particularly given the sharp recovery in earnings coming through.
In the Australian equity market a sell-off at the end of November has quickly reversed. Resources led the way last week (+5.43%) while growth names (Technology +0.34%, Health Care -2.36%) and defensives (Utilities -2.18%, Consumer Staples -0.09%) lagged.
Again, macro factors were important at the stock level. Mining stocks have broadly consolidated for a number of months, but a weaker USD and stronger global demand have the potential to prompt a move higher relative to market.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds.
He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, molecular diagnostics innovator QIAGEN.
LABORATORY and diagnostic tests influence 70 per cent of medical decisions — but account for only 2 to 5 per cent of healthcare spending, the US Health Industry Distributors Association reports.
Greater diagnostic testing could save $900 million in annual healthcare costs in the US alone, the association estimates.
In poor and middle-income countries lack of diagnostic testing is even more serious.
Some 1.5 million people died of tuberculosis in 2018 — a number that would be much smaller if the disease was identified earlier according to the World Health Organisation.
Two-thirds of cases were in eight emerging economies.
Qiagen offers innovative testing solutions
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is Netherlands-based Qiagen.
Qiagen makes molecular testing equipment and consumables for a global customer base.
Molecular diagnostics enables researchers and clinicians to quickly use biological samples to diagnose and monitor diseases, assess patient health and decide which therapies work best.
Qiagen’s molecular testing products diagnose a wide range of conditions, including tuberculosis, influenza, HIV and hospital infections. They are designed for use without requiring sophisticated expertise.
The biotech leader has also developed a number of products to help healthcare professionals quickly identify COVID-19.
For example this video shows a Qiagen solution that can prepare a sample in only two minutes to deliver results under one hour:
Qiagen has also leveraged its product philosophy to expand beyond its mainstay of infectious diseases into immune disorders and prenatal and neonatal health.
For example, the business is soon to launch a low-cost version of its revolutionary diagnostic test for latent tuberculosis detection, QuantiFERON-TB Gold.
This will make the test available for the first time in poor countries with a high incidence rate and a lack of laboratories.
Qiagen is also ramping up production of its comprehensive Covid-19 diagnostics portfolio. It is the world’s leading provider of RNA extraction kits, used as inputs for PCR tests, which detect active infections.
Qiagen’s competitive position
Leadership in technology and innovation – particularly in molecular diagnostics — differentiates Qiagen.
In the global struggle to increase and improve global diagnostics capabilities, Qiagen has achieved breakthroughs.
It has also contributed through improving the speed, accuracy and accessibility of existing diagnostic products.
Qiagen helps solve the world’s biggest problems
Regnan identifies companies such as Qiagen using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Qiagen’s activities contribute to three SDG targets for 2030:
- SDG target 2: End preventable deaths of newborns and children under 5 years of age, with all countries aiming to reduce neonatal mortality to at least as low as 12 per 1000 live births and under-5 mortality to at least as low as 25 per 1000 live births
- SDG target 3: End the epidemics of AIDS, tuberculosis, malaria and neglected tropical diseases and combat hepatitis, water-borne diseases and other communicable diseases
- SDG target 4: Reduce by one third premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For more than 20 years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, US water treatment innovator EVOQUA.
WATER pollution accounts for 1.8 million deaths a year, according to the Lancet Commission on Pollution and Health.
Governments are responding to the harmful effects of bad water by tightening environmental regulations. But companies are under-investing in pollution prevention and instead spending on costly clean-ups.
Efficiency in water use is also increasingly critical. By 2050, manufacturing demand for water will be 400 per cent higher than 2000, the United Nations believes.
A water treatment innovator
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is US water innovator Evoqua which provides water treatment services, systems and technologies mainly to North American customers.
Pittsburgh-based Evoqua serves a broad range of markets including pharma, food & beverage, microelectronics, power and general manufacturing.
It treats influent water (freshwater used in industrial, commercial, and municipal applications) and effluent water (used water that needs treating before returning to the environment).
This allows users to withdraw less freshwater from the environment and properly treat wastewater before discharge. By enabling higher rates of water re-use by manufacturers, Evoqua helps reduce their growing demand for water.
As well as selling filtration systems, Evoqua is disrupting water treatment with an attractive business model based on outsourced water treatment.
This allows customers to focus on their core business. If all industrials outsourced their water treatment, the $US 6 billion industrial water filtration market could double to $US12 billion.
A competitive position
Evoqua has the highest or second-highest market share in the US in every segment.
It has the biggest service network in North America – a competitive advantage that gives Evoqua proximity to a greater number of customers.
The company is developing its outsourcing business further with Water One, a digital platform that enables customers to optimise performance through remote monitoring and predictive maintenance.
There is no upfront cost — clients pay by volume used.
Momentum is picking up far ahead of management expectations. Clients won from competitors account for 20 per cent of Water One sales.
Evoqua is helping solve the world’s biggest problems
Regnan identifies companies such as Evoqua using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Evoqua’s activities contribute to four SDG targets for 2030:
- SDG target 3.9: Substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination
- SDG target 6.1: Achieve universal and equitable access to safe and affordable drinking water for all
- SDG target 6.3: Improve water quality by reducing pollution, eliminating dumping and minimising release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally
- SDG target 6.4: Substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For many years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well-placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, Dutch energy pioneer ALFEN.
THE RISE of renewable energy is one reason for hope in the battle against climate change.
Electric vehicles — and their gradual replacement of cars powered by internal combustion engines — is an important part of this story.
Transport accounts for 14 per cent of global greenhouse emissions. Electric vehicles also reduce pollution which triggers health problems and premature deaths.
However, the transition to renewable energy poses new challenges.
For example, the grid infrastructure finds it difficult to deal with renewable energy because most of it comes from intermittent sources.
Also, many countries lack sufficient charging points for electric vehicles.
An energy pioneer with new solutions
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is Netherlands-based Alfen which has a long history of developing market-leading products based on its expertise in electricity.
The Dutch energy pioneer has a central role in the energy grid as a builder of transformer substations, energy storage systems, electric vehicle charging stations and other products and services.
The business invested early in electric vehicle charging (from 2008) and energy storage (2011), and has now built a competitive advantage in these fields.
Alfen’s transformer substations provide millions of households and companies with energy, while thousands of electric vehicles make daily use of its charging stations.
How Alfen solves energy problems
Alfen makes storage systems that solve the problem of intermittency. This allows power produced by renewable energy to be saved until electricity consumers need it.
This also makes the electricity grid more stable by reducing the unpredictability and volatility of total power generation.
It’s a huge market. Some €40 billion ($A65 billion) must be invested into the grid across Europe in coming years to keep pace with renewables expansion, according to the European Commission.
Alfen also makes charging points for electric vehicles, which will greatly boost their use.
Over the next decade Europe will need to spend €20 billion annually on public charging points to decarbonise road transport, the European Federation for Transport and the Environment estimates.
Alfen helps solve the world’s biggest problems
Regnan identifies companies such as Alfen using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Alfen’s activities are linked to two SDG targets for 2030:
- SDG target 7.2: Substantially increase the share of renewable energy in the global energy mix
- SDG target 11.2: Provide access to safe, affordable, accessible and sustainable transport systems for all
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For more than 20 years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Kaitlyn McRae found an affordable home through Argyle Housing which is partly funded via Regnan’s Credit Impact Trust. Pic: Argyle Housing
WHEN Kaitlyn McRae fell pregnant she didn’t think she could afford to raise her child in a nice house.
Then the 20-year-old came across Argyle Housing, which develops affordable housing for Australians on low-to-moderate incomes.
One of Australia’s most experienced Tier 1 Community Housing Providers, Argyle Housing in Kooringal is partly funded by investors in Regnan’s Credit Impact Trust.
“When I began searching for a place of my own to start my little family of two, I wasn’t sure what I was looking for until I came across a place in [western Sydney suburb] Glenfield, which was operated by Argyle Housing,” Kaitlyn says.
“It had already been leased — but they had this beautiful property in [Wagga Wagga suburb] Kooringal which was brand new.
“When I arrived, I thought to myself ‘wow’ I never would have thought moving out for the first time at the age of 20, that I would even have a chance to live somewhere as nice as this.
“Now I wake up every day loving where I live, how quiet the area is, having the perfect sized home for me and my bub who is due in January.”
Social bonds provide low-cost loans for community housing
Argyle Housing — which supports 4500 tenants in 2700 properties across NSW and the ACT — is partly funded by low-cost loans from the federal government’s affordable housing organisation, the National Housing Finance and Investment Corporation (NHFIC).
“Hearing the positive outcomes of housing young mums, makes me really proud of the work we have done in creating new affordable housing in Wagga Wagga with the support of NHFIC funding,” says Wendy Middleton, CEO of Argyle Housing.
NHFIC raises money (so far more than $1.2 billion) by issuing bonds to investors such as Regnan.
Regnan is a global fund manager specialising in investment strategies that seek attractive returns while also making a positive impact in the community.
Regnan’s Credit Impact Trust — distributed by Pendal in Australia — invests in a range of green and social bonds including those issued by NHFIC.
NHFIC offers community housing providers lower interest rates at better terms than banks, saving tens of millions of dollars — while providing attractive returns to investors.
“NHFIC is very important for financing, because it’s possibly as low a cost for borrowing you could ever achieve — and it’s performed very well,” says Wendy Hayhurst, chief executive of the Community Housing Industry Association.
“It’s performed very well because it’s got a government guarantee.”
Demand for NHFIC bonds looks set to grow because Australia will need up to a million community housing homes by 2036, Ms Hayhurst says.
To fund demand, the community housing sector will need to quadruple in size, she says.
Community Housing Providers are “the most cost-effective way of solving this problem because we don’t need 100 per cent subsidy,” she says. “We can go out and borrow to cover some of the costs of construction using NHFIC.”
That’s a win for community housing providers, Regnan investors and for Kaitlyn and her soon-to-be-born bub.
“I honestly couldn’t have asked for a more beautiful home or easy process to jump start my future,” she says.
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.
Regnan thanks Argyle Housing for their co-operation in producing this article. Argyle Housing’s vision is to deliver quality housing options and connections to the community. Find out more about Argyle Housing here.
Nasima Khatun found a career thanks to low-cost loans provided via IFC social bonds. Picture: Gazi Nafis Ahmed/IFC
EIGHT years ago Nasima Khatun (pictured, above right) started work as casual labourer at Bangladesh food and beverage producer PRAN Group.
Today the 30-year-old mother of two is a full-time line supervisor in the tomato-processing division at PRAN’s plant in Natore, 250km north-west of Dhaka.
“Before working here, I did not know that women too could work and earn a living,” Nasima says. “I have now become smarter and have learnt a lot about women’s empowerment and about life.”
Now Nasima believes in her ability to work, earn a living and contribute significantly to her family’s well-being.
More women like Nasima are finding career paths with help from Regnan and Pendal investors.
Nasima’s job is partly funded by International Finance Corporation’s social bond program, which is supported by investors in Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund.
$US3 billion from social bonds for low-cost loans
The IFC — a triple-A rated bond issuer — has raised more than $US3 billion via 40 social bonds since 2017.
The funds are lent at low rates and on good terms to organisations that focus on under-served populations in emerging markets including women and low-income communities with limited access to essential services, basic infrastructure and finance.
IFC’s 2019 bond — which was supported by Regnan and Pendal — provided a $US15 million low-cost loan to Pran Group to create new jobs while investing in food lines that source from small farmers and micro businesses.
PRAN makes high-quality, low-cost, processed and packaged food readily available to lower and middle-income earners in Bangladesh and other countries.
IFC social bonds also put students into schools, supply technology and provide micro business loans and housing loans.
Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in a range of social and green bonds that support projects which make a positive impact in communities — while also earning returns.
Regnan thanks the International Finance Corporation for their co-operation in producing this article. Find out more about the IFC’s social bond program.
About Regnan
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information about Regnan Credit Impact Trust, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com or Regnan Chief Operating Officer Lisa Boyce at lisa.boyce@regnan.com.
About Pendal
Pendal is an independent, global investment management business focused on delivering superior returns for our clients through active management.
Pendal’s Bond, Income and Defensive Strategies team is one of the most experienced and well-regarded in Australia, managing some $22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Luna and mum Stacey found a place to live through Argyle Housing, which is partly funded by Pendal and Regnan investors. Pic: Argyle Housing
THE first years of little Luna’s life were spent “surfing” from one relative’s home to the next with mum Stacey.
“I haven’t had a home to call my own,” said single parent Stacey. “It was never easy, and I always felt like I wasn’t where I needed to be.
“Since falling pregnant and having to leave work early due to the pregnancy being at high risk, I returned home to Wagga, to raise my baby.
“Being a single parent is hard. Basically, surfing from house to house made things even harder.
“The pressure and the cost of living made me feel like it was impossible. So, when the opportunity was given to me to live in such a wonderful home at cost that I could actually manage I was over the moon.”
That opportunity came from Argyle Housing, a top Australian Tier 1 Community Housing Provider which develops affordable housing with help from investors in Regnan’s Credit Impact Trust and Pendal’s Sustainable Australian Fixed Interest Fund.
Community Housing Providers such as Argyle Housing develop and lease affordable housing to Australians on low incomes.
“Hearing the positive outcomes of housing young mums, makes me really proud of the work we have done in creating new affordable housing in Wagga Wagga with the support of NHFIC funding,” says Wendy Middleton, CEO of Argyle Housing.
Social bonds help Aussie on low incomes
Argyle Housing’s funding comes partly from the federal government’s National Housing Finance and Investment Corporation (NHFIC), which raises money by issuing bonds to investors such as Pendal and Regnan.
Regnan is a global fund manager offering investment strategies that aim for strong returns while also making a positive impact in the community. Regnan is part of ASX-listed investment manager Pendal Group.
Regnan’s Credit Impact Trust and Pendal’s Sustainable Australian Fixed Interest Fund invest in a range of green and social bonds including those issued by NHFIC.
NHFIC lends out the money raised (more than $2 billion so far) to housing providers at lower interest rates and on better terms than banks — while providing attractive returns to investors.
“NHFIC is very important for financing, because it’s possibly as low a cost for borrowing you could ever achieve — and it’s performed very well,” says Wendy Hayhurst, chief executive of the Community Housing Industry Association.
“It’s performed very well because it’s got a government guarantee.”
Social bonds in demand
Demand for NHFIC bonds looks set to grow because Australia will need up to a million community housing homes by 2036, Ms Hayhurst says.
As house prices rise across the country many more Australians like Stacey and Luna will need a hand.
“I’m ever so grateful for the opportunity,” says Stacey.
“I’m a single mum of a beautiful two-year-old girl, Luna. I’ve been given the opportunity to reside in one of the Argyle Housing affordable units in [Wagga Wagga suburb] Kooringal.
“To have such a beautiful place to call home I feel truly blessed.
“It really has felt that since moving in, my life with my daughter has truly begun. I want to say thank you to Argyle Housing for giving me the ability to turn my life around and to make a home for my daughter.
“Luna and I are extremely grateful.”
Regnan and Pendal thank Argyle Housing for their co-operation in producing this article. Argyle Housing’s vision is to deliver quality housing options and connections to the community. Find out more about Argyle Housing here.
About Regnan
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information about Regnan Credit Impact Trust, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com or Regnan Chief Operating Officer Lisa Boyce at lisa.boyce@regnan.com.
About Pendal
Pendal is an independent, global investment management business focused on delivering superior returns for our clients through active management.
Pendal’s Bond, Income and Defensive Strategies team is one of the most experienced and well-regarded in Australia, managing some $22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Pendal and Regnan investors helped finance this solar farm in Nyngan, NSW. Pic: Getty
AUSTRALIA was once famous for “riding on the sheep’s back”. But some of the land trodden by woolly livestock now supports new, sustainable industries such as renewable energy.
A former sheep paddock near the central NSW town of Nyngan has been transformed into one of the Southern Hemisphere’s biggest solar farms.
AGL installed more than 1.3 million solar panels on the flat land here to create a 102-megawatt solar plant which became operational in 2015.
Ideally positioned to receive strong, constant solar radiation, the Nyngan Solar Farm is expected to generate about 230,000 megawatt hours (MWh) of renewable electricity each year — enough to power some 43,000 average Australian households.
The plant is partly financed by investors in Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund.
Attractive returns and positive impact
Regnan is a global fund manager offering investment strategies that aim for strong returns while also making a positive impact in the community. Regnan is part of ASX-listed investment manager Pendal Group.
Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in a range of green and social bonds including Westpac’s Climate Bonds. These bonds help finance clean energy projects — including AGL’s Nyngan solar plant — at low rates and on good terms.
The result is “pretty amazing” says Richard Armstrong, AGL’s Asset Leader NSW and Queensland for Wind and Solar.
“It’s a very reliable asset,” Mr Armstrong says. “It hasn’t skipped a beat since it was first built.
“We’ve actually got a viewing platform which gives you a good view over the 1.3 million panels. You can’t really see the end of it once you’re standing on the platform. It looks like an ocean — all those solar panels.
“I think for the town of Nyngan it’s a really positive investment and a positive project. We do a fair bit with the community.”
Climate bonds that support clean energy
Solar power is booming in Australia. When it was built, the AGL-operated Nyngan plant was the biggest solar farm in the Southern Hemisphere.
But there are now some eight or nine bigger solar farms in the Southern Hemisphere that have been completed, commissioned or are under construction, Mr Armstrong says.
Every hour the sun delivers more power to the Earth than the entire world consumes in a year. Unlike fossil fuels it’s an unlimited source of clean energy.
“Australia’s got some unique challenges in terms of our size and moving electricity from the outback to the population centres, but the resource the sun provides is certainly abundant,” Mr Armstrong says.
By investing in such renewable energy projects such as Nyngan Solar Farm, climate bonds do more than generate millions of megawatt hours of clean energy. They aid the global effort towards a zero net emission outcome by 2050.
Besides the Nyngan solar plant, Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund help finance a variety of projects that make a positive impact in the community while generating attractive returns.
These include sustainable projects (such as wind farms, green buildings, low-carbon transport and clean water solutions) and social bonds that lend money on good terms to community housing providers, schools and micro-businesses.
About Regnan
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information about Regnan Credit Impact Trust, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com or Regnan Chief Operating Officer Lisa Boyce at lisa.boyce@regnan.com.
About Pendal
Pendal is an independent, global investment management business focused on delivering superior returns for our clients through active management.
Pendal’s Bond, Income and Defensive Strategies team is one of the most experienced and well-regarded in Australia, managing some $22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Here’s what’s influencing Australian equities this week according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
NOVEMBER was heading for the best monthly return for the S&P/ASX 300 since 1988 despite a quieter period last week.
The index lifted 0.98% to take the month’s gains to 11.58% by the end of Friday.
Equity markets look a bit extended in the near term. A period of consolidation is possible. But we remain positive given the combination of stimulus, negative real rates, vaccine roll-out, growth momentum and earnings upgrades.
US Covid cases remain a risk. But European restrictions are taking swift effect with far less economic impact than before.
With vaccines on the horizon, the market seems to be looking through near-term Covid risks to focus on a more positive 2021.
Health outlook
New daily cases in the US fell last week though this is distorted by delays in reporting in some States due to Thanksgiving.
The next couple of weeks remain important with concerns that cold weather and more travel could see an acceleration in case trends.
Hospitalisation data is not great — new admissions remain high. But it is not as bad as many feared and most States have spare capacity.
European trends continue to improve. New daily cases in France have plummeted as lockdowns take effect.
Importantly there has been a lower economic cost than last time. Toll road traffic troughed with an 80% fall in the first lockdowns. This time it was down 40% and is already showing signs of improvement.
French hospitalisations appear to have peaked for this wave and are broadly the same as the first wave despite many more infections.
On the vaccine front questions emerged over the quality of the most recent AstraZeneca trials. They appeared to be small in sample size with a skew in age profile.
This may lead to a delay in approval as further data from different trial groups is collected.
This is a material issue for vaccination plans in countries outside the US. The US plan is skewed towards Pfizer and Moderna. In places such as the EU, UK and Australia the AstraZeneca vaccine plays a bigger role. In Australia this means far more significance on the Novavax trials.
This could see a vaccination program rolled out faster in the US than in other parts of the world, with implications for relative rates of economic growth.
Economic outlook
Data points are emphasising a paradox in the US economy. On one hand consumer sentiment remains soft. Real-time economic indicators have stalled or even show signs of deterioration.
On the other hand, GDP indicators continue to accelerate.
The gap is partly explained by inventory rebuild and net export growth.
Industrial production remain strong as a result. The housing market also remain strong, which is flowing through to other parts of the economy.
Corporate profits have rebounded faster than many expected, which is feeding through to capex and jobs.
One of the key swing factors for the economy is the savings rate. After peaking at about 34% of household income earlier in the year it fell to 13.6% in October.
If this returned to a normalised level of about 8% it would add a further 4% to 2021 GDP. This potential pent-up demand could be released as a vaccine rolls out.
Liquidity and monetary stimulus remain supportive. Combined money supply across the US, EU and China was up 18% year-on-year in October.
It is worth noting that forward indicators such as credit spreads continue to trend down, also supporting markets.
Market outlook
Confidence in the economic recovery continues to drive commodity price gains. Copper was up 3.2% last week and is up 11.7% for the month — well above pre-Covid levels.
Brent Crude gained 7.2% and is up 28.6% for the month. At US$48.18 a barrel it is nearing the major technical resistance point of US$50.
Demand remains a key difference between copper and oil. A lack of air travel continues to weigh on the latter.
We would not be surprised to see a near-term pull-back in oil. But once air travel recovers we could see it returning to the US$60 range next year.
Bond yields are holding recent levels despite good news on vaccine and economic growth and the improvement in sentiment suggested by commodity prices.
There is a suggestion yields are being supported by a view that less need for stimulus means less bond issuance and debt.
Gold continues to sell off as the need for safe haven reduces for now.
There is much debate about where the US dollar goes as the US dollar index (DXY) continues to trend down.
Bears point to a weaker dollar given the surge in Covid alongside twin deficits. We are not as negative, given better-than-expected economic performance.
While the USD is unlikely to retrace recent falls in the near term, we think it may hold up better than many are predicting. Either way a weaker USD is helpful for markets.
An 11% gain in the S&P/ASX 300 month-to-date leaves the market looking a little over-bought on technical factors.
Some near-term consolidation would be unsurprising. But the market’s recent breadth has been encouraging with both growth names and cyclical stocks making gains.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds.
He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
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