We have updated and reissued the Product Disclosure Statement (PDS) for the Pendal Sustainable Australian Fixed Interest Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Labour, environmental, social and ethical (ESG) considerations
We have enhanced our ESG disclosure to describe the Fund’s sustainability objective, the sustainable themes Pendal focuses on when managing the Fund, the sustainability assessment employed by the Fund and the benefits associated with the Fund’s approach to ESG.
The way the Fund is managed has not changed.
Exclusionary Screens
We have clarified, the Fund’s exclusionary screens are not applied to government securities, semi-government securities, supranational securities, cash or derivatives. And that the use of derivatives may result in the Fund having indirect exposure to the excluded companies or issuers.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the Fund have been updated to reflect financial year 2024 fees and costs. These include changes to estimated management costs and estimated transaction costs.
We now also disclose the maximum management fee we are entitled to charge under the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawals to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (i.e. investors without a financial adviser) investing directly in the Fund who may also be required to complete a series of questions as part of their online Application, to assist us in understanding whether they are likely to be within the target market for the Fund.
Updates to our complaints handling process
We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.
This document has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332 AFSL 431426 and the information is current as at the date of this document. It is general information only and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice.
The product disclosure statement (PDS) for the Pendal Sustainable Australian Fixed Interest Fund (ARSN 612 664 730) (Fund) is issued by PFSL. PFSL is the responsible entity of, and issuer of units in, the Fund. You should consider the PDS before deciding whether to acquire, dispose, or hold units in the Fund. The PDS and Target Market Determination for the Fund can be obtained by visiting www.pendalgroup.com.
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Neither PFSL nor any company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of the Fund or the return of an investor’s capital. All investing involves risk including the possible loss of principal.
We have updated and reissued the Product Disclosure Statement (PDS) for the Pendal MicroCap Opportunities Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the Fund have been updated to reflect financial year 2024 fees and costs. These include changes to estimated management costs and estimated transaction costs.
We now also disclose the maximum performance fee and management fee we are entitled to charge under the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawals to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (i.e. investors without a financial adviser) investing directly in the Fund.
If you are a non-advised investor investing directly in the Fund, you will need to request an Application Form by completing a form at www.pendalgroup.com. An issuer representation will contact you, and you will be required to complete a series of questions to assist us in understanding whether you are likely to be within the target market for the Fund. An Application Form will only be issued if you are assessed as being likely to be in the target market for the Fund,
Updates to our complaints handling process
We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.
We have updated and reissued the Product Disclosure Statement (PDS) for the Pendal Horizon Sustainable Australian Share Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Labour, environmental, social and ethical (ESG) considerations
We have enhanced our ESG disclosure to describe the Fund’s sustainability objective, the sustainable themes Pendal focuses on when managing the Fund and the sustainability assessment framework employed by the Fund.
The way the Fund is managed has not changed because of the enhancements in sustainability disclosure.
Exclusionary Screens
We have taken this opportunity to review the Fund’s exclusionary screens to assure they align with investors’ expectations. Effective 20 February 2025, the Fund will implement an exclusionary screen for companies that directly engage in live animal export.
We have also clarified the Fund’s exclusionary screens are not applied to cash or derivatives and the use of derivatives may result in the Fund having indirect exposure to the excluded companies or issuers.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the Fund have been updated to reflect financial year 2024 fees and costs. These include changes to estimated management costs and estimated transaction costs.
We now also disclose the maximum management fee we are entitled to charge under the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawals to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (i.e. investors without a financial adviser) investing directly in the Fund who may also be required to complete a series of questions as part of their online Application, to assist us in understanding whether they are likely to be within the target market for the Fund.
Updates to our complaints handling process
We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.
Local investors appear to be driving renewed interest in China stocks, argues Pendal’s SAMIR MEHTA
Chinese companies are buying back shares
Valuations are cheap
Find out more about Pendal Asian Share Fund
WHEN asked about President Trump’s first few weeks in office, David Axelrod – former adviser to Barack Obama – said: “I think he will get credit in the short term for being a whirling dervish of activity. The question is, what does that activity produce?”
The Whirling Dervishes, according to Wikipedia, are most famously associated with the Mevlevi Order of Sufism – a mystical branch of Islam, which emphasises inner spirituality and direct personal experience of the Divine, often using poetry, music, and bodily movement as pathways to God.
Ironies abound.
I am fully aware that commenting on geopolitics is above my pay grade. We stock-pickers normally eschew commenting on macroeconomics or geopolitics.
But the investment landscape has changed since the 2008 Global Financial Crisis — and continues to rapidly evolve — so we need to adapt our process, even if at the margins.
Most of us were forced to incorporate the effects of actions by central banks or government-directed economic policies or geopolitical convulsions. There are pivotal moments when these factors (rather than specific stock attributes) influence – and even alter – investing landscapes.
Since President Trump’s inauguration, the flurry of executive actions and foreign policy initiatives are nothing less than spectacular.
Find out about
Pendal Asian Share Fund
The Paris Agreement on climate change and principles of ESG are now by the wayside.
Free trade and globalisation are fettered by tariffs and transactional diplomacy.
Speeches by US vice-president JD Vance and defence secretary Pete Hegseth have rudely shaken European complacency.
Now President Trump has escalated a war of words with Ukraine’s President Volodymyr Zelensky, calling him a “dictator” and deepening a rift between the two leaders.
Europe is being dragged by the scruff of its proverbial neck from adolescence into adulthood. In fact, Europe might be weaned away from US security guarantees.
Trump even talked about inviting Russia back into the G8. Suddenly, Russia might be investible again.
And China, perceived as the arch-enemy, is no longer so different from allies like Canada and Mexico.
That begs the question: will the US Government tear up the restrictions of investing in Russia and China?
I wouldn’t bet on it, but then again, I wouldn’t have expected Europe’s current plight either.
Change of heart for China?
Meanwhile, Chinese President Xi met with private sector executives, including Jack Ma (who was famously cut down to size in November 2021) and Liang Wenfeng (the founder of DeepSeek).
Optics matter in China. Is this a change in heart by President Xi towards technology and the private sector? Or is it that state-directed spending on projects of national importance (chips and AI) have failed to deliver?
Ironically, China’s lead in AI was established by the founder of a hedge fund without much help from the government at all.
A stealth bull market in China has crept up on us. In my opinion, local Chinese investors will most likely drive this market.
Bond yields are close to 1%, there is some stability in the property markets, and deflation might have temporarily plateaued.
Sporadic stimulus measures are helping at the margin. Now, scores of companies are trading with dividend yields north of 5%, with business models that are only marginally cyclical.
Loads of companies are buying back shares and valuations are still cheap.
From here, it seems all signs point to revisiting Asian equities as an asset class.
About Samir Mehta and Pendal Asian Share Fund
Samir manages Pendal’s Asian Share Fund, an actively managed portfolio of Asian shares excluding Japan and Australia. Samir is a senior fund manager at UK-based J O Hambro, which is part of Perpetual Group.
Pendal Asian Share Fund aims to provide a return (before fees, costs and taxes) that exceeds the MSCI AC Asia ex Japan (Standard) Index (Net Dividends) in AUD over the medium-to-long term.
Find out about Pendal Asian Share Fund
About Pendal
Pendal, part of Perpetual Group, is a global investment management business focused on delivering superior investment returns for our clients through active management.
Pendal’s emerging markets team explores the latest developments in India and explains why the team remains underweight in the region
- High risk of India shifting into a down-cycle
- Pendal remains heavily underweight India in emerging markets portfolio
- Find out more about Pendal Global Emerging Markets Opportunities Fund
MOST emerging markets — particularly those with weaker export bases and greater dependence on external capital flows — go through multi-year positive and negative cycles.
In the up-cycle, incoming capital flows strengthen the currency and depress bond yields, facilitating lower policy interest rates. This drives growth, attracting more capital inflows.
In the down-cycle, outgoing capital flows weaken the currency and raise bond yields, driving policy interest rates higher. This weakens growth and encourages greater capital outflows.
There are many factors to consider in these cycles. But a core component is that in the upcycle, central banks do not need to defend the exchange rate.
India cuts rates, but currency remains weak
In February, the Reserve Bank of India cut its benchmark “repo rate” by 0.25 percentage points to 6.25%, marking the first policy interest rate cut in nearly five years.
(Repo stands for “repurchase agreement” and refers to the cost of borrowing. When banks need money they can sell government securities to the RBI with an agreement to repurchase them at a future date. The repo rate is the interest rate the banks pay on this transaction.)
The RBI’s move signalled a shift towards supporting economic growth amid declining inflation, which stood at 4.3% in January.
However, the decision came against a backdrop of geopolitical tensions, global monetary policy divergence, and volatile financial markets.
India’s appointment of a growth-focused governor, Sanjay Malhotra, was seen as a sign of prioritising expansion over inflation control.
But concerns remained regarding the exchange rate.
The Indian Rupee experienced significant volatility, reaching an all-time low of 87.95 against the US dollar before rallying in mid-February due to aggressive intervention by the RBI.
The RBI reportedly sold around $US6 billion of foreign exchange reserves to stabilise the currency, which gave the Rupee a one-day lift.
But foreign investors have continued withdrawing from domestic markets, with net sales amounting to nearly $10 billion so far this year.
Policy-easing by the RBI has encouraged speculative pressure on the Rupee, making it one of the EM universe’s weakest-performing currencies this year.
This contrasts with currencies such as the Brazilian Real, Colombian and Chilean Pesos and South African Rand, which have all strengthened against the US dollar this year.
Decline in foreign exchange reserves raises concerns
The RBI’s intervention raised another major concern: the decline in India’s foreign exchange reserves.
Reserves fell from a peak of $700 billion in September to about $631 billion by the end of January.
This depletion raises concerns about India’s ability to manage external shocks in the face of capital outflows, rising import costs, and weakening investor sentiment.
The broader economic outlook suggests slowing growth.
India’s GDP growth fell to 5.4% in the September quarter – a seven-quarter low and well below initial RBI estimates.
Weak consumer demand, sluggish private investment, and reduced government spending have contributed to the downturn.
Inflation peaked at 6.2% in October 2024 (driven by rising food prices), but lower interest rates may not be sufficient to revive growth without stronger demand.
Risk of a down-cycle
India is not yet definitively in a down-cycle.
The bond yield curve has barely moved, for example, and currency weakness is not yet driving higher forward inflation expectations.
However, the local-currency equity index peaked at about the same time as foreign exchange reserves, and a poor fourth quarter for equities has been followed by further weakness.
We believe most Indian assets are too expensive to provide a backstop to weakness and the risk of an extended down-cycle is high.
We remain heavily underweight India in our portfolio and defensively positioned where we do have exposure.
About Pendal Global Emerging Markets Opportunities Fund
James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.
The fund’s top-down allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.
James, Paul and Ada are senior fund managers at UK-based J O Hambro, which is part of Perpetual Group.
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
Here are the main factors driving the ASX this week, according to Pendal’s head of equities CRISPIN MURRAY. Reported by portfolio specialist Chris Adams
- Find out about Pendal Focus Australian Share fund
- Tune in: register to watch Crispin’s Beyond the Numbers webinar
A decent US earnings season, bond-yield resilience in the face of higher inflation and continued positive retail investor flows are supporting equity markets.
The S&P 500 gained 1.5% last week, while the S&P/ASX 300 was up 0.5%.
There was limited new developments on tariffs, but we did see building expectations of a potential Ukraine deal post Trump’s unilateral call with Putin.
This remains a complex issue, and even if something was to happen, it will take time.
The market’s breadth is narrowing, which is a concern. Seasonals also turn less favourable from here. However, the underlying liquidity environment appears supportive.
The market has also held up in the face of the first wave of negative headlines on tariffs and there is no evidence of a technical breakdown.
So overall, we believe the market remains in a gradual up-trend.
Australian reporting season has swung into action. Overall, the results so far suggest the economy is holding up – with some small positive signs, notably from Commonwealth Bank and JB Hi-Fi.
Victoria remains the standout weakest state, but everywhere else is performing well.
There are some early signs that some of the higher P/E names are not delivering sufficient upside surprise to sustain their outperformance.
US inflation and economy watch
The key focus for the US economy is the interplay between policy growth and inflation, and how that will affect interest rates this year.
The case for a June rate cut from the Fed relies on Core Personal Consumption Expenditures (PCE) growth being below 2.5%, employment not being too hot, and policy (i.e. tariffs and deportations) not being worse than is currently expected.
Last week’s CPI data for January was poor. In summary:
- Headline CPI was up 0.47% month-on-month versus 0.30% expected. It was 3.0% year-on-year versus 2.9% expected.
- Core CPI was 0.45% month-on-month versus 0.3% expected, and 3.26% year-on-year versus 3.1% expected.
Higher numbers for used cars and airfares drove the surprise – combined, they added 8 basis points (bps) to Core CPI. Communications and insurance prices were also higher, having been soft in recent months.
The market’s initial reaction was negative, with bond yields backing up 10bps. However, the reaction moderated through the week and bonds recovered because:
- There is a belief that the seasonal adjustments fail to take fully into consideration the concentration of annual price increase put through in January – that is, it overstates inflation now, then understates it later in the year. Higher communications and insurance prices indicate this.
- Some of the beat was driven by “volatile” components (e.g. used cars and airfares), which are not included in the Core PCE – the Fed’s favoured inflation measure. Used car prices appear to be moderating already, based off auction data.
- Federal Reserve Chair Jerome Powell’s comments, which signalled he was taking a muted reaction to the data point.
- Other measures of inflation look to be easing.
- The Producer Price Index (PPI) and import price data was okay – and the combination of these and CPI allows the market to market an accurate estimate of the core PCE data. Using this, the Core PCE is forecast to come in at 0.26-0.29% month-on-month (implying 2.5% to 2.6% year-on-year) versus 2.81% in December and closing in on the Fed’s target inflation of 2.5%. Consensus has Core PCE falling to 2.5% by midyear.
The market is pricing in a 40% chance of a June cut and 50% by July’s meeting. The current implied probabilities for year’s end are 22% no cut, 39% one cut and 39% of two-or-more cuts.date, breaking through technical resistance levels.
Pendal Focus Australian Share Fund
Now rated at the highest level by Lonsec, Morningstar and Zenith
US retail sales – implies the US consumer may be softening
January’s headline retail sales came in at -0.9% versus -0.3% expected (-0.4% versus +0.3% expected, excluding autos).
Again, the market is not reading this as a fundamental shift in trend given some mitigating factors:
- cold weather and the LA fires
- strong holiday season sales, which may have been pulled forward
- auto sales affected by low inventories.
It does highlight that the prior 4%+ 3-month-on-3-month annualised run rate in consumer spending was not sustainable and we may be falling back to around a 2% run rate.
This slowing consumer also affected the Atlanta Fed’s GDPNow Q1 2025 outlook, dragging it from 2.9% on 7 February to 2.3% on 14 February. This is now back in the consensus range.
Tariff watch
There were limited new signals last week from the US.
The market focus is on the meaning of “reciprocal tariffs”, with the White House instigating a study on this issue which may not report back till 1 April.
This was taken as a small positive as it is an alternative to “across the board tariffs” and will take time to prepare.
We should still expect other tariff announcements in the next few weeks, with potential targets being critical imports (e.g. pharmaceuticals and semiconductors) to incentivise a shift to domestic supply, and autos which would effectively be targeting Europe.
China appears to have been spared the expected tariffs so far.
There are plans for a meeting between Presidents Trump and Xi, which may help defer this matter, but the issue remains volatile and an increase in the current 10% tariff is still possible.
Australia
The RBA meets on Tuesday and the market continues to price a high probability of a 25bp cut to 4.1%.
Should it cut, the RBA may frame it in cautious terms – a “hawkish cut” – as the risk of a policy mistake is high given that underlying inflation (once adjusted for the one-off subsidies) remains relatively high and the economy seems to be in good shape (with the exception of Victoria).
In this vein, Commonwealth Bank (CBA) updated its customer analysis in last week’s result.
According to the analysis, essential spending is slowing as a result of falling inflation – allowing younger age cohorts to spend more on discretionary items and to start saving again. It also suggests that disposable income is recovering.
The other risk for the RBA is the currency, which is already helping to ease financial conditions and – should it fall further – would add to inflationary pressure.
The last thing the RBA will want to do is look to have eased prematurely and run the risk of needing to reverse course in the future.
Markets
US earnings season is around 80% completed and is positive, with reasonable upgrades, and is on track for 13% year-on-year EPS growth.
While strong, we are now entering a deceleration phase, with consensus bottom-up forecasts suggesting EPS growth drops back to mid-to-high single-digit growth in coming quarters.
However, this is driven by the slowing of Mag7 earnings growth; the rest of the market is expected to accelerate. The remaining 493 companies in the S&P 500 are estimated to have delivered 4% earnings growth in 2024, increasing to 15% in 2025 and 17% in 2026.
We have already seen Mag7 earnings revisions stall.
While the market remains very full value in the US, liquidity remains supportive given the following factors:
- On 21 January, the US hit its debt ceiling and cannot issue net new debt. Instead, it must fund itself by drawing down on the general account, which is effectively QE. This is likely to continue through to midyear. This has meant the market has reloaded with liquidity in the calendar year-to-date.
- US retail ETF flows remain strong. This year has seen three of the largest daily retail ETF inflows on record. Seasonal trends in ETF flows will get less supportive – January and February are typically two of the strongest months – but still remain okay.
- US corporates are now entering their buyback window. Goldman Sachs expects US$1.2T of buybacks this year. The daily flows doubles when window opens from $3b/day to $7b.
Overall, while the market is at high valuations and there are material policy risks, the liquidity that has fuelled it remains supportive.
Australian equities
Industrial and consumer stocks led the market’s small rise last week, mainly as a function of results coming through.
Healthcare was the weakest sector on the back of Cochlear’s downgrade and CSL being softer.
CBA appears to have done enough for now to maintain its high premium, however, other popular names saw muted reactions to decent results – indicating positioning may be getting tired.
Resources have been outperforming this month, up 2.1% versus a 0.5% gain in the S&P/ASX 300. There has been a lot of news flow:
- Tariffs on aluminium and steel (though the aluminium impact has been muted so far, this is going to be inflationary in the US).
- A record gold price.
- Cyclone disruption in iron ore.
- In lithium, volatility continues, with CATL restarting its large lepidolite operation in China – which you can either read as positive in terms of being in response to market demand, or negative in terms of additional supply. The mine previously accounted for about 10% of China supply, or 3-4% of global supply.
- China lending growth was strong in January, which is a constructive lead indicator.
About Crispin Murray and the Pendal Focus Australian Share Fund
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
A gradual rate cut path over 2025 should support economic growth, meaning investors should think carefully about fixed-income positioning. Pendal’s TIM HEXT and ANZ’s ADAM BOYTON explain in a new webinar
- Bonds help protect portfolio returns
- Browse Pendal’s fixed interest funds
- Watch now, on demand: Preparing for rate cuts in a shifting global economy
THE Australian economy is strongly placed as cost-of-living pressures recede and market expectations grow for a lower-rates environment – setting the stage for an economic rebound from last year’s tougher conditions.
That was the message from Pendal’s head of government bond strategies, Tim Hext, and ANZ’s head of Australian economics, Adam Boyton, at a Pendal webinar How to prepare for rate cuts in a shifting global economy.
The webinar took place ahead of this week’s Reserve Bank meeting which is expected to start a rate-cutting cycle.
A second cut is expected within the next six months. But Hext and Boyton see the pace of interest rate reductions as gradual due to underlying economic strength.
“The economy isn’t necessarily screaming out for a rate cut the way you typically see when the Reserve Bank starts easing,” says Boyton.
ANZ expects a second 25-basis-point cut in August. Hext says it could come as soon as May.
“We’re looking for just those two rate cuts,” says Boyton. “The reason being that the economy isn’t collapsing, there are signs of the consumer recovering, the labour market has performed remarkably well over the past 12 months … and inflation has eased more than expected.”
Labour market resilience and RBA caution
One factor behind the RBA’s cautious approach is the remarkable strength of the labour market.
“My best assessment is that full employment in Australia is probably between 3.75 and 4 per cent – so you’re close-ish to it. The most recent published thoughts from the RBA are a bit higher,” says Boyton.
Boyton says employment is being supported by jobs growth in health care, social assistance, public administration, and safety, and there is also evidence that the private sector is picking up as the stage 3 tax cuts wash through.
“This story of a resilient labour market is probably one that will play through for most of this year,” he continues.
“Either way, this is a really interesting cycle. We could end this economic cycle with the peak in the unemployment rate not very far at all away from full employment.
“To me, that says a couple of things – firstly, it’s great news for Australians.
“Secondly, it tells me that this is probably going to be a pretty cautious easing cycle from the Reserve Bank.
“If the unemployment rate is 5 per cent or 6 per cent you can cut much more aggressively, because you’re not going to be stoking inflation with a tight labour market.”
Falling inflation and household incomes
Further buoying the economic outlook is the fall in inflation itself – an often-overlooked factor in the economic outlook that plays an important role supporting household incomes and lifting consumer spending as real-wages improve.
“Inflation is an insidious tax on everyone – you go backwards, even if you get a wage increase, in a period of high inflation,” says Boyton.
“The fact that inflation has come down so much is really helpful for household incomes. Prices aren’t going back to where they were – but what it does mean is the wage increase you get this year isn’t going to be eroded by inflation. That will change the dynamic.”
Productivity challenges and Australia’s economic model
But while the near-term outlook is stable, Australia still faces longer-term headwinds, says Hext.
“We talk about the three Ps – population, productivity, and participation,” says Hext.
“Participation is looking good. Population is looking generally good, as it always does in Australia. But productivity has looked pretty bad for quite some time. It’s been going nowhere for almost a decade.”
Productivity means getting more output from existing resources and has been the key driver of economic growth from the industrial revolution to the IT boom of the 1990s, says Hext.
But the poor recent performance puts Australia in sharp contrast to the US economy, which has seen a very strong 10 per cent lift in productivity over the last seven years.
Hext says part of the explanation for Australia’s poor performance is a drift away from being a US-style, dynamic economy to a more government-centric, European-style economy.
“We’ve made some deliberate choices in the last five years in Australia – partly to strengthen our health care system, the NDIS, education. But there is a productivity cost to that which we’re now bearing the brunt of.
“We hear a lot about US exceptionalism – that term is used for very good reason.”
Investment implications
Hext says investors need to remember that when cash rates come down, floating rate investment returns come down – “it’s a mathematical formula”. That means lower returns on investments like term deposits and cash.
“But with bonds, you’re fixing your return – if you buy something with a yield of 6 per cent, you’re earning that 6 per cent for the life of that security. The comparison to me does look compelling.
“Would you be coming out of other asset classes, like growth assets, at this point in the cycle? I think it’s a bit early for that. Equities look to me quite fully valued, but I don’t see any major sort of trouble brewing there.”
He says bonds can also act as an insurance policy in a portfolio.
“The final thing you’ve got to remember is, as much as Adam and I sit here pontificating about the next 12 months, there’s going to be something coming from left field.
“And what bonds do, by locking in your return, is if there is a crisis that comes that none of us are seeing at the moment, that’s going to provide you insurance as your growth assets collapse.
“The way I like to say it is you’re almost getting free insurance and you’re getting a decent return.
“The two together is quite powerful.”
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
Effective 14 February 2025 the buy-sell spreads for the following funds have decreased.
| Fund Name | Old (%) | New (%) | Total Change (%) | ||||
| Buy | Sell | Total | Buy | Sell | Total | Total | |
| Pendal Australian Equity Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | –0.06% |
| Pendal Australian Long/Short Fund | 0.35% | 0.35% | 0.70% | 0.32% | 0.32% | 0.64% | -0.06% |
| Pendal Australian Share Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
| Pendal Focus Australian Equities Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
| Pendal Focus Australian Share Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
| Pendal Horizon Sustainable Australian Share Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
| Pendal Imputation Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
| Pendal MicroCap Opportunities Fund | 0.60% | 0.60% | 1.20% | 0.55% | 0.55% | 1.10% | -0.10% |
| Pendal Sustainable Australian Share Fund | 0.25% | 0.25% | 0.50% | 0.22% | 0.22% | 0.44% | -0.06% |
More about buy-sell spreads
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Here are the main factors driving the ASX this week, according to analyst and portfolio manager ELISE McKAY. Reported by head investment specialist Chris Adams
MARKETS have been dominated by political news flow – with almost daily updates on tariffs, which have been used largely as negotiating tools.
As we navigated through the tariff minefield, noisy macro data, more US earnings, as well as the start of Australian earnings, markets were relatively flat for the week.
The S&P 500 was down 0.23%, while the S&P/ASX 300 was down 0.24%.
US Treasury Secretary Bessent commented that he and President Trump are focusing on lower 10-year US bond yields and expanding energy supply to drive down inflation.
While Bessent does not control the market, this does suggest a very strong political desire to keep rates from breaking through 5% – helpful for markets!
Robert F Kennedy Jr is another step closer to becoming the Health Secretary after clearing a key senate vote. This has meaningful risk for healthcare names given some of his controversial views on areas like vaccines.
Flows are providing a strong tailwind for the US market, with retail investors so far buying the dip in 2025. The corporate buyback window is also largely open as of last Friday.
Hedge funds are again buying AI stocks following the DeepSeek sell off on 27 January and the “big four” hyperscaler results (Amazon, Google, Microsoft and Meta), which were broadly bullish on AI customer demand.
We are also seeing a bullish divergence in the calendar year-to-date, with the S&P 500 up 2.6% despite Microsoft, NVIDIA and Apple (which together make up 20% of the index) all declining 2.8%, 3.3% and 9.1%, respectively.
This is good for both stock-pickers and the extension of the bull market.
It was a quiet week on the macro front, with the market looking through a noisy jobs print and instead focusing on the University of Michigan Consumer Inflation Expectations Survey increasing to 4.3%.
This spooked the market on Friday, in combination with further threats of tariffs from Trump.
US macro and policy
Jobs
We saw a noisy jobs print on Friday, which supported the view that the US Federal Reserve should be in no hurry to cut rates at its March meeting.
While the near-term labour market is in good shape, there is potential for some softening later this year, which should support a recommencement of the rate-cutting cycle.
January payrolls increased by a weaker-than-expected 143k (versus consensus at 175k), likely dragged down by strike action and adverse weather. There was a 100k upward revision to prior months.
As a result, three-month average private sector job creation has accelerated to 237k, which is above the pace that should keep the unemployment rate stable.
After peaking at 4.25% in July 2024 and sitting within a 4.1-4.2% band for the past six months, the unemployment rate fell to 4.01% in January 2025 (versus consensus at 4.1%).
While the trend for jobs is currently accelerating and the ISM data is supportive of near-term growth, there are a few headwinds which may result in softer readings later this year:
- Hiring indicators are muted and DOGE-led policy changes are also a headwind.
- Around 60,000 government workers (2% of the federal civilian workforce) are reported to have accepted a “deferred resignation” package effective September 2025, a program originally targeting 5-10% of the workforce.
- Hiring freezes and headcount reduction programs at some government agencies may further weigh on upcoming job reports.
Wages
Average hourly earnings rose by 0.48% month-on-month (versus consensus at 0.3%) in January, but this appears to be affected by weather – with a decline in average hours likely triggered by some workers being unable to make it to work due to heavy snowfall.
The quarterly Employment Cost Index (ECI) remains more important for the Fed.
The JOLTS quits rate continues to point to weaker underlying wage growth and, therefore, softer services inflation ahead.
ISM survey data
The Services ISM dipped from 54 to 52.8 in January, driven by weakness in new orders and business activity.
The New Orders Index declined from 54.5 to 54.3 – a seven-month low – suggesting that worries about immigration and trade policy under Trump are overriding optimism on potential tax cuts or deregulation.
Meanwhile the Manufacturing ISM increased to 50.9 from 49.2, its highest level since September 2022, driven by strong new orders and production.
It is not yet clear whether this upturn is a lasting improvement or a temporary boost from purchases bought in anticipation of tariffs.
Both ISMs saw improvement in their employment indices, reflecting near-term positivity for labor markets.
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Crispin Murray,
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University of Michigan Consumer Sentiment Survey
The latest survey suggests concerns about the economy and inflation are growing among consumers, with the February 2025 preliminary reading dropping from 71.1 to 67.8 – well below consensus at 71.8.
This probably reflects Trump’s threats to impose sweeping tariffs.
The consumer expectations component (which is 60% of the index) is now running at 69.3 for 1Q25, which is consistent with year-on-year growth in consumption declining from 3.2% in 4Q to 2.0% in 1Q.
It will be important to keep an eye on this in an environment of policy uncertainty as a lead on US consumer spending.
Somewhat concerningly, consumers’ inflation expectations increased to a 15-month high of 4.3% (from 3.3% previously).
Tariffs
A busy week on tariffs underscored the dynamics of current trade policies and the unknown impact on the economy, as well as the purpose of tariffs as a negotiating tool versus a means to protect domestic trade.
Over the past week, we have seen China tariffs implemented, while the initial measures on Canada and Mexico were walked back. What we know is that this uncertainty increases volatility.
Events in chronological order:
- 1 Feb: The US announced 25% tariff on all imports from Canada and Mexico, citing concerns over illegal immigration and drug trafficking. A further 10% tariff applied on Canadian energy exports into the US, as well as a 10% additional tariff on imports from China. All were to be effective from 4 February.
- 3 Feb: Tariff implementation delayed for Canada and Mexico for 30 days. Mexico committed to deploying 10,000 National Guard troops to guard its border. Canada agreed to appoint a “fentanyl czar” and enhance border security measures.
- 4 Feb: The China 10% tariff was implemented. This is not expected to have a meaningful impact on aggregate prices alone, given imports are about 10% of consumer spending and China accounts for some 14% of total imports. In retaliation, China imposed largely symbolic 10% tariffs on US crude oil, agricultural machinery and vehicles, plus a 15% tariff on coal and LNG. China also announced export controls on rare earth metals and initiated an antitrust investigation into Google.
- 5 Feb: The US removed the “de-minimis” rule on parcels from China into the US, which previously exempted imports worth $800 and under from customs duties. This has the effect of increasing prices for US consumers purchasing inexpensive items from China, primarily affecting e-commerce players like Temu and Shein.
- 6 Feb: The Federal Reserve Bank of Boston released a study estimating an inflationary impact of 0.5-0.8% on Personal Consumption Expenditures (PCE) from tariffs.
- 7 Feb: Trump announced plans to implement reciprocal tariffs this week to match duties that other countries (e.g. China, India, the EU, south-east Asia) have imposed on US goods.
With regard to China, the US measures and retaliation from Beijing look like the opening moves of ongoing negotiations with President Trump that seek to address structural trade issues, supply chain security and technology.
US productivity growth
Productivity grew at a 1.2% annualised rate in 4Q 2024, in line with consensus, and 1.6% year-on-year. This is largely consistent with the pre-Covid trend of a touch below 2%.
It remains to be seen how the deployment of Gen-AI solutions will impact the world’s labour force and influence productivity growth. The hope is that commercial deployment of AI will drive productivity growth over the medium term, which countries like Australia need.
AI and data centres capex goldrush continues
Results for the big four hyperscalers (Amazon, Google, Microsoft and Meta) wrapped up last week.
Their collective 2025 capex budgets have increased to US$296bn, up 13% from estimates at 31 December and 34% from estimates at 30 June last year.
The market was initially expecting a $150-175bn capex for 2025 before Gen-AI became a thing in January 2023.
This suggests that the US$125-150bn uplift is purely AI, with the rest being vanilla data centres or business-as-usual capex.
An additional 8-10% increase is expected heading into 2026.
Capex investment as a percentage of revenues for these players has now increased to more than 20%, which is almost double its historical levels and also significantly greater than oil industry peak investment.
So, is this bubble territory or is this sustained by long-term demand?
It is too soon to tell, but commentary from Amazon, Microsoft and Google on their most recent earnings calls discussed capacity constraints in meeting customer demand for AI, underpinning their capex investments.
Meanwhile, Trump’s US$100-500bn Stargate initiative is underway. Last week, OpenAI said it has now sent proposals to US states looking for sites to build five-to-ten 1GW+ data centres.
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Australian macro and policy
Retail sales for December 2024 were ahead of expectations, down 0.1% month-on-month (versus consensus at 0.8%) and up 4.6% year-on-year – the fastest since March 2023.
Product discounting and Cyber Monday falling into early December were key contributors, particularly for discretionary retail.
All eyes are on the RBA meeting next week to see if we will finally start our rating-cutting cycle.
If so, this could signal the bottom for the Melbourne housing market, which fell another 0.4% month-on-month in January.
UK macro and policy
The Bank of England cut rates 25 basis points (bps) to 4.5%.
While the cut was as expected, the commentary was more dovish than expected, with two members (including the previously hawkish Catherine Mann) voting for a 50bps cut instead.
Global markets
So far, 61% of corporates (or 72% of the S&P 500 market cap) have reported. EPS growth has been stronger than expected in aggregate (up 12% versus 8% expected) and across the median (up 7% versus 6% expected).
Real US GDP growth of 2.3% in 4Q24 supported a 5% increase in revenues and profit margins expanded about 50bps to 11.6%.
Communication Services (up 29%), Financials (up 23%) and IT (up 21%) have grown the fastest, while energy declined 33%.
We note that Goldman Sachs estimates that every 5% increase in the US tariff rate would reduce S&P 500 EPS by about 1-2%.
Earnings growth divergence between the Mag 7 and the rest of the market is converging. This is good news for extending the bull market.
- Mag 7 earnings grew 36% in 2023 and 36% in 2024 (estimated) versus -4% and 3% for the remainder of the market.
- In 2025, the consensus expects the Mag 7 to grow earnings 16% versus 9% for the rest of the market. In 2026 expectations are for 17% (Mag 7) and 13% (rest of the market).
As noted earlier, the divergence between the S&P 500 (which is up 2.6% year-to-date) and Microsoft, Nvidia and Apple is also good for both the bull market extension and stock pickers.
Trading flows
After five straight weeks of selling, hedge funds were net buyers of US equities every day last week and at the fastest pace since early November, as single stocks saw the largest net buying in more than three years.
Info Tech was by far the most net bought sector, while Consumer Discretionary was net sold for a seventh straight week and is by far the most net sold US sector on a year-to-date basis.
Net buying has returned to AI for eight consecutive sessions, suggesting that hedge funds have started leaning back into the AI theme post the DeepSeek sell-off on 27 January.
Gross equities exposure is very high, which is supportive for market positioning.
Fundamental longs significantly outweigh macro shorts, so if the market sells off, those shorts will need to be covered creating demand on the way down.
Interestingly, retail involvement in the market has reached record levels to start the year, proving that at least some one is prepared to buy the dips even if institutional investors are more cautious. Some key stats:
- The largest retail buy imbalance (difference between buy and sell orders) in the history of the Goldman Sachs dataset (starting in 2019) took place on 17 January at $5.0bn. The second largest retail imbalance took place on Monday (3 February) at $4.9bn. Tuesday (4 February) was the fifth largest retail imbalance of $4.2bn.
- Four of the top five retail imbalances in the Goldman Sachs dataset took place in the last two weeks (i.e. buying the dip).
Approximately 60% of S&P 500 corporate buyback window is now open as of Friday until 16 March, with about $1.2 trillion of buying expected across 2025.
Australian market
The S&P/ASX 300 was down 0.24% last week, with Resources catching up year-to date and Healthcare lagging. Reporting season really starts picking up from this week.
Copper rallied 4.5% (up 12% CYTD) on anticipation of further China stimulus and risk of supply disruption from unrest in the Democratic Republic of Congo.
This supported further outperformance from our precious metals names.
About Elise McKay and Pendal Australian share funds
Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.
She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.
Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.
Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Impact of Trump’s tariffs | How to approach volatility in AI stocks | Inflation data “good news” for RBA