China’s outlook is one of the most important factors investors need to weigh up right now. Here our head of income strategies AMY XIE PATRICK analyses the latest signals

• New data from China shows positive signs
• Why bonds, why now? Pendal’s income and fixed interest experts explain
• Browse Pendal’s fixed interest funds

THE latest data shows China’s economic activity starting to stabilise.

Is this a turning point in the economic cycle?

That remains to be seen.

It’s been only a few months since hopes for a re-opening led boom in economic activity were dashed.

We think activity is now stabilising on a cyclical basis, and China’s economy can continue to gradually recover into the end of the year.

But structural drags on the economy are heavy and deep rooted.

In his article we explain how far the current recovery could extend; which structural issues are most limiting; and what are the implications for global growth and investing.

A pick-up in activity

Last week we saw the latest release of hard economic data from China.

As Reuters reports here, monthly industrial output sped up and retail sales grew faster.

By most accounts, the data beat market expectations.

Yes, expectations were fairly low to begin with and therefore easy to beat. But these latest numbers suggest that sequentially, things are improving for the world’s second-biggest economy.

The fixed income team at Pendal thought this would be the case.

Electricity output is a good place to look for how the Chinese economy is going.

Electricity output is driven by energy use in the economy. Although this can fluctuate depending on weather, supply issues and other exogenous factors, a rise in energy use tends to happen when activity levels within the economy are rising.

This is why the Li Keqiang index (a proxy measure for Chinese growth) relies on electricity output as one of its three components to track economic activity.

Electricity output has been rising over the past few months, and points to upside to come in the hard data.

Climbing out of deflation

Another place to look for the health of demand in the Chinese economy is producer prices.

Although they track commodity prices closely, given that China is such a large global consumer of commodities, a falling PPI has usually been synonymous with a slowing of Chinese demand.

China’s Producer Price Index (PPI) – a measure of the change in selling prices received by domestic producers for their output – has been in deflationary territory since October 2022.

But it bottomed in June at -5.4% and has been clawing its way back in the last few months.

This may be good news for the Chinese economy, since generating positive inflation momentum is one way to combat debt-deflation dynamics.

But it has mixed implications for the rest of the world.

As the Bloomberg chart below shows, there has long existed a close relationship between China’s PPI and US inflation.

The relationship was likely solidified after China joined the World Trade Organisation in 2001 and became a heavy-weight influence over most tradeables (goods) inflation.

The dislocation between 2016-2018 was likely as a result of Trump’s trade wars against China. The dislocation since 2022 has been the dominance of services-led inflation in the US.

In fact, China’s deflation has been incredibly helpful for inflation in the developed world in the last 18 months.

Without it, goods inflation would still be high, and the market would not be so sanguine about the future path of the US Fed and other central banks.

The turning point in China’s PPI may signal that the freebie of goods price deflation is coming to an end for the rest of the world.

This may not lead to a big second wave of inflation. But it may mean a stickier path for US and other developed world inflation.

It will put the focus squarely back on local labour market dynamics and whether policy settings have become sufficiently restrictive to slow wage growth.

How meaningful a recovery?

This recovery stands out because the aim of recent piecemeal measures on stimulus was not about starting a new property cycle.

The aim has been to contain the fall-out of the property downturn while finding ways to pivot towards other sources of growth.

To that end, recent measures targeted at relaxing macro-prudential restrictions on home buying are more about easing off on the brakes rather than stepping on the gas pedal.

I would argue these measures have been working.

A huge blockage in the property system formed when property transactions slowed.

Since pre-sale down-payments were a key source of developer funding, it limited the ability of developers to continue or even initiate construction on properties they had pre-sold.

This meant buyers couldn’t take delivery of finished property. But due to the way the mortgage system works in China, they were already on the hook for servicing a part of the mortgages.

This all too easily snowballed into a crisis of confidence, which fed into a further slowdown in property sales, property prices and so on.

A crucial way to alleviate the blockage was to get sufficient funds to developers to finish what they‘d started.

Property completions have been up strongly this year as backlogs of paused works have resumed.

But this is a very different kind of property stimulus compared to the past. It certainly won’t lead to new waves of strong demand anytime soon.

This is why land sales are still contracting.

Developers only buy new plots of land when they see strong demand prospects in the pipe, as you can see in this Bloomberg chart:

Even without a new wave of property demand, it’s a good to see things are moving again in the Chinese property space.

The property sector accounts for more than a quarter of Chinese economic activity, so the flow-through effects will be positive.

Bigger challenges lie ahead

China’s structural problems have not changed.

They centre on an economy that saves too much, causing growth to rely on debt-driven investment rather than by income-led consumption.

China’s national savings rate is over 45%, compared to an OECD average of just over 20%.

The high propensity to save by the private sector in China is partly due to a lack of safety nets.

This increases the burden on the working age population to care for old and young and save for their retirement.

Housing affordability is another issue. Chinese cities have some of the worst housing affordability ratios in the world.

This means parents have to save in anticipation of their offspring one day needing help on a down-payment.

Fiscal measures aimed at easing the burden on households and boosting the social safety net are essential for supporting consumption in China.

Helicopter money is traditionally unacceptable to Chinese socialist principles. It is the main reason why even in the depths of the COVID crisis, the extent of fiscal stimulus unleashed by Beijing paled in comparison to what we saw in the rest of the world.

However, faced with the prospect of a nasty property crisis, fiscal stimulus to the consumer is now being embraced by policy-makers as the lesser of two evils.

Fiscal measures can lead to more near-term upside for the Chinese recovery, but cannot remove a higher-order headwind to consumption.

That headwind is the crowding out of entrepreneurial spirit as President Xi has consolidated his political power in recent years.

Xi’s motives are likely triggered by geopolitical insecurity (including Trump’s anti-China policies).

The outcome is a disruption of incentives for the private sector to borrow, invest and consume.

Investment implications

Against low expectations of any Chinese economic revival priced into Chinese assets, any upside surprise in data in the next few months is likely to have a bigger effect than disappointments.

This limits the ability of bearish China bets to work in Chinese markets, be they rates, currency or equities.

We have closed our short RMB bias now to be neutral, and are short China rates.

It is harder to play for upside in other risky assets though, because not much downside relating to China was priced into those markets in the first place.

Even US companies with big exposures to China’s growth outlook have remained resilient.

However, if Chinese economic momentum is basing here, it reduces the immediacy of tail risks for risk assets more broadly, which is supportive.

A more resilient US economy likely also plays into a supportive backdrop for risky assets ranging from credit to equities.

Our income funds are currently not shying away too much from risky assets, but we are mindful of this being a tactical play.

It is difficult to chart a path of “not too hot, not too cold” growth for the US economy when unemployment is at record lows.

Therefore, it is vital to take the extra risk in the most liquid way so as to preserve the ability to actively de-risk.

When that time comes, bonds will come back into play.

As for currencies, be mindful of a tug-of-war playing out on the US dollar.

It is counter-cyclical in nature, so a stronger global manufacturing cycle should weaken the greenback.

However, if China’s revival causes a sticky inflation headache, the greenback’s ability to weaken will be limited by higher for longer rates in the US.

Population growth is supporting ASX earnings | Floating rate credit as an inflation hedge | Shopping malls a bright spot for A-REITs | Value in small caps

A growing population and the uneven impact of rising interest rates are two factors supporting company earnings right now. Pendal’s head of equities CRISPIN MURRAY explains

• Rising population supports company earnings
• Company earnings driven by nominal, not per capita, GDP
• Find out about Pendal Focus Australian Share fund

MOST people would be aware from the recent per-capita recession headlines that Australia’s population growth is outstripping economic growth.

But Australia’s rapidly growing population is also a key reason why corporate earnings are holding up, says Pendal’s head of equities Crispin Murray.

“All up, we’re probably looking at about a 3 per cent rise in the population today versus where we were a year ago,” says Murray.

Population growth has been supported by direct immigration as well as temporary visas, he says.

“That’s people coming to Australia with money in their pockets needing to spend when they arrive to set themselves up and needing to get accommodation, which is driving up rents.

“This is part of the reason that we’re seeing resilience in the top line of companies because they’re basically driven by nominal GDP, not per capita GDP.”

Population growth is also helping offset the effects of the so-called ‘mortgage cliff’ forcing households into higher, variable mortgage payments as low-rate fixed loans expire.

As Pendal’s head of bond strategies Tim Hext recently noted, we are about half-way through that step-up period – and so far most fixed-mortgage holders seem to be adjusting ok.

Likewise, the effects of the mortgage cliff have been muted in company reports this earnings season.

“The mortgage cliff is real – but what is offsetting it is population growth,” Murray said at his bi-annual Beyond The Numbers webinar last week.

“With each company we met over reporting season, we talked about the issues facing them and whether they were seeing the consequences of this mortgage cliff.

“But so far, the consequences are very limited.”

Uneven interest rate burden also supports earnings

The uneven impact of rising interest rates across the community is also holding up corporate earnings, points out Murray.

“Clearly, the concentration of mortgage debt is predominantly in the under-45s and particularly in the under-40s. That’s where the core pressure remains.

“As you get older, you see a big skew to savings and the people with the savings are clearly getting the benefit of higher interest rates.

“While we have seen some draw-down on savings overall, you’re actually still seeing everyone over the age of 35 adding to their savings pool.”

Data comparing spending patterns in the last three months to the last four weeks shows a distinct change in trend for under-35s – but little change for older groups.

“There is a quite complex set of trends happening in the economy, which is why I think we’ve proven to be more resilient.

“There’s a lot of focus on the pressures on people under 45, but less awareness of the spending which is happening in the older demographics.

“It’s an important thing to be aware of.”

 

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About Crispin Murray and 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. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Pendal Concentrated Global Share Fund No.3 (APIR BTA0056AU) (ARSN 087 593 299) and
Pendal Concentrated Global Share Fund No.3 Class B (APIR BTA0270AU) (ARSN 087 593 299)

Delegated Investment Manager

As stated in our notice of 13 September 2023, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Funds’ delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

We wish to provide further details regarding the appointment and the potential impact to investors. This update should be read in conjunction with the notice of 13 September 2023.

Transaction costs

The appointment of Barrow Hanley will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case, there will be costs such as brokerage and transaction taxes involved in these transactions which will be borne by the Fund.

As a result of Barrow Hanley’s appointment, Pendal estimates that the Fund will incur total transaction costs of 0.12% (including brokerage, transaction taxes and fees). This will be a one-off cost that covers the sale of current securities and the purchase of securities selected by Barrow Hanley. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.

These costs were taken into account in assessing whether the proposed changes to the portfolio are in the best interests of investors.

Tax implications

Pendal does not provide notice of the tax implications of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the appointment of Barrow Hanley is in the best interests of investors.

At 30 June 2023, the Fund had net assets of $40M of which $5.1M were net unrealised capital gains (before the application of the 50% CGT discount). The Fund has net capital losses brought forward from prior years of $503.3M, which will be applied to reduce any realised capital gains from the sale of securities as we transact to the new portfolio to nil.

Pendal Concentrated Global Share Fund No.2 (APIR RFA0821AU) (ARSN 089 938 492)

Delegated Investment Manager

As stated in our notice of 13 September 2023, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Funds’ delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

We wish to provide further details regarding the appointment and the potential impact to investors. This update should be read in conjunction with the notice of 13 September 2023.

Transaction costs

The appointment of Barrow Hanley will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case, there will be costs such as brokerage and transaction taxes involved in these transactions which will be borne by the Fund.

As a result of Barrow Hanley’s appointment, Pendal estimates that the Fund will incur total transaction costs of 0.12% (including brokerage, transaction taxes and fees). This will be a one-off cost that covers the sale of current securities and the purchase of securities selected by Barrow Hanley. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.

These costs were taken into account in assessing whether the proposed changes to the portfolio are in the best interests of investors.

Tax implications

Pendal does not provide notice of the tax implications of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the appointment of Barrow Hanley is in the best interests of investors.

At 30 June 2023, the Fund had net assets of $73.8M of which $10.3M were net unrealised capital gains (before the application of the 50% CGT discount). The Fund has no revenue or net capital losses brought forward from prior years to offset any realised capital gains from the sale of securities as we transact to the new portfolio.

Pendal Concentrated Global Share Fund Hedged Class R (APIR RFA0031AU) (ARSN 098 376 151)
Pendal Concentrated Global Share Fund Hedged Class Z (APIR PDL6836AU) (ARSN 098 376 151)

Delegated Investment Manager

As stated in our notice of 13 September 2023, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Funds’ delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

We wish to provide further details regarding the appointment and the potential impact to investors. This update should be read in conjunction with the notice of 13 September 2023.

Transaction costs

The appointment of Barrow Hanley will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case, there will be costs such as brokerage and transaction taxes involved in these transactions which will be borne by the Fund.

As a result of Barrow Hanley’s appointment, Pendal estimates that the Fund will incur total transaction costs of 0.12% (including brokerage, transaction taxes and fees). This will be a one-off cost that covers the sale of current securities and the purchase of securities selected by Barrow Hanley. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.

These costs were taken into account in assessing whether the proposed changes to the portfolio are in the best interests of investors.

Tax implications

Pendal does not provide notice of the tax implications of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the appointment of Barrow Hanley is in the best interests of investors.

At 30 June 2023, the Fund had net assets of $185.8M of which $32.6M were net unrealised capital gains (before the application of the 50% CGT discount). The Fund has no revenue or net capital losses brought forward from prior years to offset any realised capital gains from the sale of securities as we transact to the new portfolio.

Pendal Concentrated Global Share Fund (APIR BTA0503AU) (ARSN 613 608 085)

Delegated Investment Manager

As stated in our notice of 13 September 2023, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Funds’ delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

We wish to provide further details regarding the appointment and the potential impact to investors. This update should be read in conjunction with the notice of 13 September 2023.

Transaction costs

The appointment of Barrow Hanley will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case, there will be costs such as brokerage and transaction taxes involved in these transactions which will be borne by the Fund.

As a result of Barrow Hanley’s appointment, Pendal estimates that the Fund will incur total transaction costs of 0.12% (including brokerage, transaction taxes and fees). This will be a one-off cost that covers the sale of current securities and the purchase of securities selected by Barrow Hanley. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.

These costs were taken into account in assessing whether the proposed changes to the portfolio are in the best interests of investors.

Tax implications

Pendal does not provide notice of the tax implications of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the appointment of Barrow Hanley is in the best interests of investors.

At 30 June 2023, the Fund had net assets of $602.5M of which $120.1M were net unrealised capital gains (before the application of the 50% CGT discount). The Fund has no revenue or net capital losses brought forward from prior years to offset any realised capital gains from the sale of securities as we transact to the new portfolio.

We are notifying you of some important changes relating to the Pendal Concentrated Global Share Fund No. 3 (Fund).

Following a strategic review of our global equity investment capabilities, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Fund’s delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

Why are we making the change?

As part of the broader Perpetual Group, we want to ensure our clients have exposure to competitive and differentiated strategies which utilise the investment management capabilities that we believe are best placed to meet the investment objectives of the Fund and are likely to deliver the best outcomes for investors, over the medium to long term.

Barrow Hanley, who are also part of the Perpetual Group, has a quality investment process, an experienced well-resourced team of more than 50 investment professionals, scale and depth of research and an aligned investment style to Pendal. As a result, we consider that Barrow Hanley is better placed to meet the Fund’s investment objectives, over the medium to long term.

What is changing?

Fund name

Effective on or around 31 October 2023, the Fund’s name will change (as set out below) to reflect the appointment of Barrow Hanley as the Fund’s delegated investment manager:

Current Name	New Name
Pendal Concentrated Global Share Fund No. 3	Barrow Hanley Concentrated Global Share Fund No. 3

Investment related changes

While the Fund will continue to operate in the same way, there will be some changes to the way the Fund is managed.

Effective from 31 October 2023, these changes include:

1. Minimum and maximum number of stocks

The Fund will remain a concentrated portfolio of global shares. However, the minimum and maximum number of stocks held by the Fund will reduce from 35 – 55 stocks to 25 – 40 stocks.

2. Asset allocation ranges

The Fund’s asset allocation ranges will change as follows:

Current Asset Allocation Ranges	New Asset Allocation Ranges
• Global Shares 80-100% • Cash 0-20%	• Global Shares 90-100% • Cash 0-10%

3. Emerging markets exposure

The Fund will continue to primarily invest in companies domiciled in developed markets and a 20% maximum limit will be introduced for the Fund’s allocation to emerging markets.

4. Labour, Environmental, Social and Ethical Considerations

Like Pendal, Barrow Hanley’s investment approach considers labour standards, environmental, social and ethical (ESG) risks to the extent that they are relevant to the current or future valuation of a stock, although Barrow Hanley’s investment approach does not consider ethical or moral judgements.

Effective from 31 October 2023, the Fund will no longer screen for companies involved in the following activities:

• uranium mining for the purpose of nuclear power generation;
• manufacture, ownership or operation of gambling facilities, gaming services or other forms of wagering;
• mining of thermal coal;
• factory animal farming; and
• weapons systems, components and support systems and services.

The Fund, however, will continue to screen for tobacco production and will not invest in companies that are directly involved in tobacco production, where tobacco production accounts for 10% or more of a company’s gross revenue.

5. Buy-sell Spread

Effective from 31 October 2023, the Fund’s buy-sell spread will decrease from 0.40% (0.20% buy/0.20% sell) to 0.25% (0.15% buy/0.10% sell), reflecting lower brokerage costs that are expected to be incurred by the Fund following the appointment of Barrow Hanley.

What will stay the same?

Like Pendal, Barrow Hanley’s investment process for global shares strives to achieve the Fund’s investment objectives by adopting a bottom-up investment approach focused on in-depth fundamental company research to identify companies that temporarily trade below their intrinsic value and offer long term capital growth. Like Pendal, Barrow Hanley also applies a benchmark agnostic and high conviction approach to investing.

The Fund’s benchmark will continue to be the MSCI World ex Australia (Standard) Index (Net Dividends) in AUD and the Fund will still aim to provide a return (before fees, costs and taxes) that exceeds its benchmark over the medium to long term.

Fees and costs

The Fund’s management fee will remain at 0.90% p.a.

However, we estimate that the Fund will incur additional, one-off transaction costs of 0.12% (including brokerage, taxes and fees) as a result of Barrow Hanley’s appointment.

About Barrow Hanley

Based in Dallas, Texas (USA), Barrow Hanley is a diversified investment manager offering value-focused strategies spanning global equities and fixed income. With more than AUD$69 billion in assets under management as at 30 June 2023, Barrow Hanley has been providing quality client outcomes for more than 40 years.

Portfolio Manager Brad Kinkelaar will manage the Fund. Brad has more than 27 years’ industry experience and joined Barrow Hanley in 2017.

What do you need to do?

No action is required. You will be able to continue to invest or withdraw from the Fund in the same way.

An updated PDS reflecting the proposed appointment of Barrow Hanley and outlining the above changes, is available on www.pendalgroup.com. If you would like a hard copy of the PDS, please contact Pendal Customer Relations.

If you have any questions about your investment or would like further information regarding the changes, please contact us on 1300 346 821 (for Australian investors) or +612 9220 2499 (for overseas investors) from Monday to Friday, 8.00am to 5:30pm (Sydney time).

For any questions regarding how these changes may impact your own financial situation, we recommend that you speak to your financial advisor and/or tax accountant.

We are notifying you of some important changes relating to the Pendal Concentrated Global Share Fund No. 2 (Fund).

Following a strategic review of our global equity investment capabilities, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Fund’s delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

Why are we making the change?

As part of the broader Perpetual Group, we want to ensure our clients have exposure to competitive and differentiated strategies which utilise the investment management capabilities that we believe are best placed to meet the investment objectives of the Fund and are likely to deliver the best outcomes for investors, over the medium to long term.

Barrow Hanley, who are also part of the Perpetual Group, has a quality investment process, an experienced well-resourced team of more than 50 investment professionals, scale and depth of research and an aligned investment style to Pendal. As a result, we consider that Barrow Hanley is better placed to meet the Fund’s investment objectives, over the medium to long term.

What is changing?

Fund name

Effective on or around 31 October 2023, the Fund’s name will change (as set out below) to reflect the appointment of Barrow Hanley as the Fund’s delegated investment manager:

Current Name	New Name
Pendal Concentrated Global Share Fund No. 2	Barrow Hanley Concentrated Global Share Fund No. 2

Investment related changes

While the Fund will continue to operate in the same way, there will be some changes to the way the Fund is managed.

Effective from 31 October 2023, these changes include:

1. Minimum and maximum number of stocks

The Fund will remain a concentrated portfolio of global shares. However, the minimum and maximum number of stocks held by the Fund will reduce from 35 – 55 stocks to 25 – 40 stocks.

2. Asset allocation ranges

The Fund’s asset allocation ranges will change as follows:

Current Asset Allocation Ranges	New Asset Allocation Ranges
• Global Shares 80-100% • Cash 0-20%	• Global Shares 90-100% • Cash 0-10%

3. Emerging markets exposure

The Fund will continue to primarily invest in companies domiciled in developed markets and a 20% maximum limit will be introduced for the Fund’s allocation to emerging markets.

4. Labour, Environmental, Social and Ethical Considerations

Like Pendal, Barrow Hanley’s investment approach considers labour standards, environmental, social and ethical (ESG) risks to the extent that they are relevant to the current or future valuation of a stock, although Barrow Hanley’s investment approach does not consider ethical or moral judgements.

Effective from 31 October 2023, the Fund will no longer screen for companies involved in the following activities:

• uranium mining for the purpose of nuclear power generation;
• manufacture, ownership or operation of gambling facilities, gaming services or other forms of wagering;
• mining of thermal coal;
• factory animal farming; and
• weapons systems, components and support systems and services.

The Fund, however, will continue to screen for tobacco production and will not invest in companies that are directly involved in tobacco production, where tobacco production accounts for 10% or more of a company’s gross revenue.

5. Buy-sell Spread

Effective from 31 October 2023, the Fund’s buy-sell spread will decrease from 0.40% (0.20% buy/0.20% sell) to 0.25% (0.15% buy/0.10% sell), reflecting lower brokerage costs that are expected to be incurred by the Fund following the appointment of Barrow Hanley.

What will stay the same?

Like Pendal, Barrow Hanley’s investment process for global shares strives to achieve the Fund’s investment objectives by adopting a bottom-up investment approach focused on in-depth fundamental company research to identify companies that temporarily trade below their intrinsic value and offer long term capital growth. Like Pendal, Barrow Hanley also applies a benchmark agnostic and high conviction approach to investing.

The Fund’s benchmark will continue to be the MSCI World ex Australia (Standard) Index (Net Dividends) in AUD and the Fund will still aim to provide a return (before fees, costs and taxes) that exceeds its benchmark over the medium to long term.

Fees and costs

The Fund’s management fee will remain at 0.90% p.a.

However, we estimate that the Fund will incur additional, one-off transaction costs of 0.12% (including brokerage, taxes and fees) as a result of Barrow Hanley’s appointment.

About Barrow Hanley

Based in Dallas, Texas (USA), Barrow Hanley is a diversified investment manager offering value-focused strategies spanning global equities and fixed income. With more than AUD$69 billion in assets under management as at 30 June 2023, Barrow Hanley has been providing quality client outcomes for more than 40 years.

Portfolio Manager Brad Kinkelaar will manage the Fund. Brad has more than 27 years’ industry experience and joined Barrow Hanley in 2017.

What do you need to do?

No action is required. You will be able to continue to invest or withdraw from the Fund in the same way.

An updated PDS reflecting the proposed appointment of Barrow Hanley and outlining the above changes, is available on www.pendalgroup.com. If you would like a hard copy of the PDS, please contact Pendal Customer Relations.

If you have any questions about your investment or would like further information regarding the changes, please contact us on 1300 346 821 (for Australian investors) or +612 9220 2499 (for overseas investors) from Monday to Friday, 8.00am to 5:30pm (Sydney time).

For any questions regarding how these changes may impact your own financial situation, we recommend that you speak to your financial advisor and/or tax accountant.

We are notifying you of some important changes relating to the Pendal Concentrated Global Share Fund Hedged (Fund).

Following a strategic review of our global equity investment capabilities, we have decided to appoint Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley) as the Fund’s delegated investment manager. As the Fund’s delegated investment manager, Barrow Hanley will have responsibility for the day-to-day investment management of the Fund.

Barrow Hanley’s appointment will take effect from 31 October 2023.

Pendal Institutional Limited (Pendal) will continue to act as the investment manager of the Fund.

Why are we making the change?

As part of the broader Perpetual Group, we want to ensure our clients have exposure to competitive and differentiated strategies which utilise the investment management capabilities that we believe are best placed to meet the investment objectives of the Fund and are likely to deliver the best outcomes for investors, over the medium to long term.

Barrow Hanley, who are also part of the Perpetual Group, has a quality investment process, an experienced well-resourced team of more than 50 investment professionals, scale and depth of research and an aligned investment style to Pendal. As a result, we consider that Barrow Hanley is better placed to meet the Fund’s investment objectives, over the medium to long term.

What is changing?

Fund name

Effective on or around 31 October 2023, the Fund’s name will change (as set out below) to reflect the appointment of Barrow Hanley as the Fund’s delegated investment manager:

Current Name	New Name
Pendal Concentrated Global Share Fund Hedged	Barrow Hanley Concentrated Global Share Fund Hedged

Investment related changes

While the Fund will continue to operate in the same way, there will be some changes to the way the Fund is managed.

Effective from 31 October 2023, these changes include:

1. Minimum and maximum number of stocks

The Fund will remain a concentrated portfolio of global shares. However, the minimum and maximum number of stocks held by the Fund will reduce from 35 – 55 stocks to 25 – 40 stocks.

2. Asset allocation ranges

The Fund’s asset allocation ranges will change as follows:

Current Asset Allocation Ranges	New Asset Allocation Ranges
• Global Shares 80-100% • Cash 0-20%	• Global Shares 90-100% • Cash 0-10%

3. Emerging markets exposure

The Fund will continue to primarily invest in companies domiciled in developed markets and a 20% maximum limit will be introduced for the Fund’s allocation to emerging markets.

4. Labour, Environmental, Social and Ethical Considerations

Like Pendal, Barrow Hanley’s investment approach considers labour standards, environmental, social and ethical (ESG) risks to the extent that they are relevant to the current or future valuation of a stock, although Barrow Hanley’s investment approach does not consider ethical or moral judgements.

Effective from 31 October 2023, the Fund will no longer screen for companies involved in the following activities:

• uranium mining for the purpose of nuclear power generation;
• manufacture, ownership or operation of gambling facilities, gaming services or other forms of wagering;
• mining of thermal coal;
• factory animal farming; and
• weapons systems, components and support systems and services.

The Fund, however, will continue to screen for tobacco production and will not invest in companies that are directly involved in tobacco production, where tobacco production accounts for 10% or more of a company’s gross revenue.

5. Buy-sell Spread

Effective from 31 October 2023, the Fund’s buy-sell spread will decrease from 0.40% (0.20% buy/0.20% sell) to 0.25% (0.15% buy/0.10% sell), reflecting lower brokerage costs that are expected to be incurred by the Fund following the appointment of Barrow Hanley.

What will stay the same?

Like Pendal, Barrow Hanley’s investment process for global shares strives to achieve the Fund’s investment objectives by adopting a bottom-up investment approach focused on in-depth fundamental company research to identify companies that temporarily trade below their intrinsic value and offer long term capital growth. Like Pendal, Barrow Hanley also applies a benchmark agnostic and high conviction approach to investing.

The Fund’s benchmark will continue to be the MSCI World ex Australia (Standard) Index (Net Dividends) in AUD and the Fund will still aim to provide a return (before fees, costs and taxes) that exceeds its benchmark over the medium to long term.

Pendal will continue to manage the Fund’s foreign currency exposure and may use derivatives for portfolio management purposes.

Fees and costs

The Fund’s management fee will remain at 0.90% p.a.

However, we estimate that the Fund will incur additional, one-off transaction costs of 0.12% (including brokerage, taxes and fees) as a result of Barrow Hanley’s appointment.

About Barrow Hanley

Based in Dallas, Texas (USA), Barrow Hanley is a diversified investment manager offering value-focused strategies spanning global equities and fixed income. With more than AUD$69 billion in assets under management as at 30 June 2023, Barrow Hanley has been providing quality client outcomes for more than 40 years.

Portfolio Manager Brad Kinkelaar will manage the Fund. Brad has more than 27 years’ industry experience and joined Barrow Hanley in 2017.

What do you need to do?

No action is required. You will be able to continue to invest or withdraw from the Fund in the same way.

An updated PDS reflecting the proposed appointment of Barrow Hanley and outlining the above changes, is available on www.pendalgroup.com. If you would like a hard copy of the PDS, please contact Pendal Customer Relations.

If you have any questions about your investment or would like further information regarding the changes, please contact us on 1300 346 821 (for Australian investors) or +612 9220 2499 (for overseas investors) from Monday to Friday, 8.00am to 5:30pm (Sydney time).

For any questions regarding how these changes may impact your own financial situation, we recommend that you speak to your financial advisor and/or tax accountant.