Merger and acquisition activity is returning to the smaller end of the Australian share market, as buyers look through short-term uncertainty and focus on mispriced assets. Pendal’s LEWIS EDGLEY explains

• Small-cap M&A is accelerating amid mispricing
• Buyers see value in quality industrials
• Find out about the Pendal Smaller Companies Fund

AFTER several years in which small caps have lagged their larger peers, valuation gaps have become hard to ignore — and strategic buyers and private equity appear increasingly willing to act.

Lewis Edgley, co-portfolio manager of Pendal’s MicroCap Opportunities and Smaller Companies funds, says the recent pickup has been striking.

“We observed around 15 small cap bids or approaches in the eight weeks to the end of August,” he says. “This was a huge pickup compared to this level of M&A activity we’ve seen in the preceding year.”

The activity has been broad but not evenly spread.

Edgley notes that 10 of the 15 approaches were for industrial companies, the remainder were in resources.

That split reflects where buyers are finding value: in quality industrial businesses that have been de-rated, and in resource names benefitting from stronger commodity momentum.

Where bidders see hidden value

Among the industrial names attracting interest, FleetPartners has been one of the clearest examples, according to Edgley.

The fleet leasing business received an initial proposal at $3.60 a share, representing a 27 per cent premium to its last traded price, before the situation developed into what Edgley describes as “a four-party bidding war with subsequent bids as high as $4”.

While the stock is trading around $4.20, above the initial bids, he says the small caps team sees meaningful further upside from here.

“Our view of value sits in excess of the current share price, but the ultimate price will be a function of where the current bidders see value. We expect this to become evident in coming weeks.”

Other companies that have caught buyer interest include Peet, which received a cash-and-scrip proposal from Ingenia; Austal, where an offer for its US business highlighted significant value in the remaining Australian operations; and SkyCity, which disclosed approaches it considered too low and opportunistic.

Edgley also points to AUB Group and Iress as businesses where potential M&A optionality remains, while stressing that the investment case for both does not rely on a takeover.

“We think that M&A is not over, there’ll be continued activity,” he says.

“When we look at our own fund, we think about where we are likely to see bids come from. We think both Iress and AUB Group for us are obvious candidates for future M&A.”

Both businesses have been approached previously, but a takeover didn’t progress for one reason or another.

However, Edgley says the potential for another takeover approach is strong given the strategic nature of the assets as well as a “significant amount of valuation upside”.  

“AUB is now the sole listed insurance broking business on the ASX. There were three, but over the last two years Steadfast and PSC Insurance have been taken out.

“It is important to note, our thesis on both AUB and Iress does not rely on M&A and a takeover – we just see this as upside optionality”

Why small caps look ripe for re-rating

The backdrop is a market where small caps have materially underperformed large caps.

“We’ve seen small caps underperform significantly for the last couple of years versus large caps,” Edgley says. “The valuation divergence has become even more significant.”

He adds that small caps are trading close to one standard deviation cheap relative to their long-term average, and a full standard deviation below large caps on a relative basis.

“When there is mispricing of stocks in public markets, eventually there’s always another buyer out there that will look to take advantage of that,” Edgley says.

Here are the main factors driving the ASX this week, according to portfolio manager RAJINDER SINGH. Reported by investment specialist Chris Adams

• Find out about Crispin Murray’s Pendal Focus Australian Share Fund

EQUITY markets are holding up despite higher bond yields and a resurgence in the US-Iran conflict, which pushed up energy prices (Brent crude +7.8%).

Last week was relatively quiet for US data after a very strong earnings season.

Strong manufacturing and jobs numbers, along with broad growth in corporate profits, indicates that the US economic growth continues to be robust despite numerous headwinds.

The S&P 500 was largely flat for the week (+0.1%).

In Australia, the release of credit and quarterly GDP figures showed that while the economy has been travelling okay, there are signs of slowing in areas such as housing.

Weak productivity growth means the economy is operating close to its speed limit and presents the RBA with a dilemma in deciding whether to raise rates again.

The S&P/ASX 300 fell 0.4%, however we saw dispersion in the performance of various market components.

Large caps held up (S&P/ASX 20 -0.2%) while midcaps and small caps were weaker (S&P/ASX Midcap and S&P/ASX Small Ordinaries both -0.9%).

At the sector level Materials (-3.6%) and Technology (-5.1%) were weak while there was rotation into other sectors such as Financials (+2.0%) and Consumer Staples (+2.1%).

Macro and policy US

Statements from Federal Open Market Committee (FOMC) members John Williams and Christopher Waller were scrutinised to give an indication of the central bank’s next move.

Williams stated that there is evidence inflation continues to ease as the tariff impact fades, with higher energy prices not spreading into other services, while Waller said he would support holding rates steady if price pressures keep easing.

The Fed’s decision is likely to be heavily influenced by August inflation data which is due on Friday this week.

It is worth noting that despite the rise in two-year yields, the spread of this to the Fed Funds rate has moved higher – but is not significantly more than previous periods.

This can be seen with the market now only pricing one hike this year and another by early 2027.

In other US releases, the August ISM Manufacturing PMI slipped to 54.6 from 55.6 (consensus 55.2), however this comes after the recent reading in July which was the highest index level since May 2022.

As activity continues to expand, these numbers suggest that the manufacturing sector in the US is running quite strong.

The BLS employment report was also strong, with nonfarm payrolls up 162,000 month/month in August and upward revisions of +55,000 to prior months.

Job gains were broad-based with healthcare continuing to be a key contributor to US job growth but there were also increases in the construction, manufacturing, and leisure and hospitality sectors.

US payrolls have clearly moved past the trough of late 2025 and led to a decreasing unemployment rate this year

Macro and policy Australia

The Private Sector Credit statistics from APRA unsurprisingly reflected a slowdown in credit growth, given recent changes to the housing sector.

Overall credit still grew a healthy 0.4% in July (+8.4% year/year) with continued strong business growth of 0.6% (+10.0% year/year) offsetting slowing housing growth of 0.2% (+6.7% year/year).

Within housing, Investor mortgages slowed down to only +0.1% in July, while Owner Occupier grew 0.3%.

Major bank economists are now forecasting mortgage growth to slow to between 2.5% and 5.0% per annum, with recent updates shifting towards the lower end of the range as the housing downturn continues.

Elsewhere, the National Accounts from the ABS showed real GDP grew a modest 0.4% in the June quarter, which was a touch above consensus.

Annual growth was a solid 2.1% which was notably above both consensus and RBA expectations (+1.8% and +1.9% respectively).

However, there was evidence that the economy is slowing with the last two quarters annualising to just over a 1% growth rate.

Despite the negativity around the Middle East conflict, houses and inflation, households did not curb consumption – including discretionary spending which rose 1.4% in the June quarter. A key component of this household expenditure growth was a lift in vehicle purchases by 10.3%.

Private business investment continues to be strong, and this component alone added 1.2% – or just over half – of overall annual growth. This is being driven largely by data centres and related energy investment.

A more concerning aspect was that while income for wage and salaries is solid +6.2% (and so supporting the previously mentioned household consumption), productivity continues to be weak. This actually was negative for the quarter, continuing its anaemic pattern of previous periods.

Overall, commentators saw this as evidence that the economy is operating near its potential speed limit and this, with the weak productivity outcome, supports the case that the economy needs to slow for CPI to return to the RBA’s target.

The upshot is that the market is now pricing roughly a 60% chance of a rate hike at the September meeting and a rate hike is fully priced in by November.

Speeches from the RBA’s Deputy Chair Andrew Hauser and Chief Economist Sarah Hunter next week could provide an indication of the RBA’s thinking.

Elsewhere, it was interesting to note the VFACTS report on new car sales for August 2026.

New vehicle sales grew 4.9% year/year in August 2026, with Chinese and Electric cars strong as light commercial vehicle/four wheels drive sales remained weak.

The headline grabber was that EVs outsold petrol cars for the first time with more than 27,000 EVs sold over the month compared to 25,000 petrol cars.

The record 24.9% for EV share of sales is up from around 8% in 2025 and just 1.9% in 2022.

Government subsidies, a sustained rise in fuel prices and a lift in cheap Chinese imports continue to transform the country’s car market.

Macro and policy global

Last week China’s official manufacturing PMI rose 0.6 to 49.8, above consensus expectations at 49.5.

Meanwhile, the non-manufacturing PMI was steady at 49.0.

Overall, this led to a slight increase in the composite PMI to a neutral 49.5.

In comparison, Japan’s July monthly data was largely encouraging with both industrial production and retail sales exceeding expectations. Industrial production rose 4.1% year/year, supporting a robust pick-up in the economy.

Markets

It is worth recognising the remarkable results of the recently concluded US reporting season.

Over 86% of S&P 500 companies beat earnings expectations, with strength broad-based across sectors, though tech and energy led.

The overall quarterly EPS surprise was 24% in aggregate – a result not seen since the recovery from the Covid-induced recession. 

Earnings expectations are typically revised downwards through the year – however expectations for both 2026 and 2027 continue to inflect upward.

When looking at the underlying components of earnings, estimates for the median stock have risen across top-line revenue growth, bottom-line earnings, as well as for free cash flow, highlighting the underlying strength of earnings growth.

September is typically seen as a weak month seasonally for US stock returns. However, whenever there has been a strong eight-month YTD performance in August (and the market is +13% thus far in 2026), the final four months tend to finish quite strong.

The US market continues to be quite rotational in terms of the best performing sectors.

In particular, we have seen the most recent relative highs coming in the healthcare and resource sectors.

Fixed income

Despite concerns the funding requirements for AI are driving up global interest rate costs, there has been very little move in the more sensitive corporate spreads – for example BofA BB US High Yield Spread

In terms of the fear that the world is reluctant to finance the US deficits, it is worth noting that foreign holdings of US treasuries have actually continued to increase, with sharp increases from 2020 onwards from places such as the UK, Belgium and Canada.

However, the mix has changed; there has been a shift from public holders to the private sector, as well as the reduction in Chinese holdings being offset by an increase in European holdings. 

Australian equities

July monthly activity for the banks showed the start of a slowdown in mortgage credit – particularly investor loans, which dropped from 10% to 6% on a one-month annualised basis.

However, July is seasonally weak. The bigger test will come in August, given the two-to-three-month lag between lower applications post-budget and borrower drawdowns.

Through reporting season, major banks highlighted a 15-20% reduction in mortgage applications. NAB suggested this would translate into mortgage credit growth of 2.5%.

CBA was more hopeful of ~5% but its economics team has since downgraded the outlook for house prices and is due to update its mortgage growth forecast.

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About Rajinder Singh and Pendal’s responsible investing strategies

Rajinder is a portfolio manager with Pendal’s Australian equities team and has more than 18 years of experience. Rajinder manages Pendal’s sustainable and ethical funds, including Pendal Sustainable Australian Share Fund.

Pendal offers a range of other responsible investing strategies, including:

• Pendal Sustainable Australian Share Fund
• Crispin Murray’s Pendal Horizon Sustainable Australian Share Fund
• Pendal Sustainable Australian Fixed Interest Fund
• Pendal Sustainable Balanced Fund
• Regnan Credit Impact Trust

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

Contact a Pendal key account manager here

How active investing helps guide responsible data-centre growth | How to build defensive income portfolios | Where fixed income can make an impact

Australia’s latest national accounts paint a mixed picture of the economy. Pendal head of government bond strategies TIM HEXT highlights the five key takeaways — and what they could mean for markets and interest rates

• Mining states are outperforming, consumer spending is holding up and private investment should recover
• The data reinforces the case for a near-term RBA rate hike
• Find out about Pendal Government Bond Fund
• Browse Pendal’s fixed interest funds

1. Mining states are doing well, non-mining states are not.

Queensland (+1.1%) and Western Australia (+1%) continue to benefit from healthy commodity prices.

NSW (flat) and Victoria (-0.3%) remained weighed down by cautious consumers and falling public investment as governments look to tighten their belts.

Source: Australian Bureau of Statistics

2. Consumers are doing OK overall (led by buying of EVs).

Final consumption expenditure grew 0.5% overall (government 0.6% and private 0.4%).

Record growth in EV sales was half of the private consumption growth. A mild winter held back energy spending and Middle East worries meant fewer overseas trips.

3. Private investment was flat after a massive Q1, but will pick up ahead.

The theme of massive data centre investment remains in place but took a breather in these accounts.

We expect it to pick up again in the second half of the year although dwelling investment will remain under downward pressure, especially if the RBA hikes rates.

Source: Australian Bureau of Statistics

4. Income growth remains too high for RBA comfort.

Compensation of employees, a wider measure than the Wage Price Index (WPI), grew by 1.5% in the quarter. Private sector growth was 1.4% and Public 1.8%. Health led the way as large-scale pay rises hit in NSW, Victoria and Queensland.

Unit Labour costs, stripping out the extra hours worked, increased by 1.2% and 3.6% annually, higher than the WPI suggests.

5. Trade was a positive contribution for the first time in two years but will continue to drag going forward.

GDP measures net trade, or volume of exports minus imports. Less overseas trips (an import) and reduced imports of AI related products meant a positive contribution this quarter.

Unless things worsen in the Middle East these should prove temporary.

In fact, Australia has regressed back to business as usual as the current account deficit is again 3% of GDP. Our net foreign debt position means higher interest servicing costs as rates rise globally.

The brief COVID induced (2020 to 2023) balance of payments surpluses are receding into the sands of time.

Even our balance of trade is now in deficit for the first time in a decade (this is revenue based, not volume based as per GDP so is impacted by terms of trade).

What the National Accounts mean for markets

While only slightly higher than RBA expectations, today’s national accounts will do nothing to stop the likely rate hike from a recent uptick in inflation.

The RBA narrative of tight supply means that 2% annual GDP, a modest number historically, is now seen as a stronger not weaker number.

Markets will remain buffeted by oil price moves but the Q3 trimmed mean CPI number in late October, likely to be 1% versus 0.8% RBA expectations a month ago, is likely to bring a November RBA rate hike, which is now fully priced.

Even September is now above 50/50 expectations, and the debate at the September RBA meeting should be very robust.

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

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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

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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.

Contact a Pendal key account manager

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

US FEDERAL Reserve Chair Kevin Warsh used his Jackson Hole speech to re-establish his inflation credentials, signalling a clear focus on the 2% target – as measured by the current favoured personal consumption expenditures (PCE) deflator.

He also noted that inflation needs to come down at sufficient speed and implied this was not yet the case.

The odds of a September rate rise rose as a result, driving up two-year Treasury yields.

The great bond debate continued, with Treasury Secretary Scott Bessent highlighting more mechanisms to hold yields down.

The bond market responded via high-profile investor Stanley Druckenmiller who, in a Wall Street Journal op-ed, pointed out that suppressing yields doesn’t solve the problem of unsustainable spending, which is a political issue.

The 10-year yield ended flat for the week.

Equity markets were relatively flat, with good corporate news (e.g. Nvidia and Salesforce in US) and lower oil prices (Brent crude -5.4%) being offset by rising bond yields. The S&P 500 finished +0.5%, the NASDAQ +0.9% and the S&P/ASX 300 +0.5%.

Australian reporting season reached its peak. Overall, we saw decent results in an economy that is slowing gradually.

The large supermarkets had decent performance and resource stocks continued to rally (although a tougher Warsh on Friday night may see this reverse).

Poor domestic consumer price index (CPI) data raised the likelihood of rate increases here and affected rate-sensitives like the REITs.

Macro and policy US

Kevin Warsh used his Jackson Hole speech to stop digging a hole on policy direction and restore confidence that he was committed to achieving the Fed’s inflation target.

He clarified two points, which had caused confusion in his last press conference. He noted:

1. The inflation target is 2% on the PCE deflator, i.e. he is not currently moving the goal posts, saying it was the “fixed, firm target”.
2. The active instrument of policy is the Fed Funds rate (“the predominant tool”), i.e. he won’t just let the bond market do the work of tightening policy if that is what is necessary.

He also set a moderately hawkish message on near-term rates, saying:

• The FOMC “must be confident that underlying inflation is moving to our objective, clearly at sufficient speed”.
• Underlying data trends over the summer, while better, did not indicate that inflation trajectory had meaningfully improved. He noted 54% of items in the PCE basket had price rises above 3%, which compares to an average 32% in the 20 years pre-pandemic. The inference is that more good news on inflation is needed to avoid a rate hike.
• He noted that the economy was proving resilient.
• He said that it would be hard to make a case financial conditions were restrictive.

His timeline is unclear, but the market conclusion is that the September meeting is ‘live’ and the market has priced a 57% chance of a hike, up from 40% last week.

He also provided more colour on his philosophy, notable points being:

• Avoid communication distorting the pricing signals from the market, which he views as being important inputs as to what is happening in the economy.
• More focus on trends in underlying inflation so policy can be more forward-looking.
• The need to understand supply-side factors to assess the consequences of demand.
• A view the Philips curve does not exist, i.e. there is no trade-off between employment and inflation.
• Money supply can provide a perspective on the inflation outlook.

Elsewhere, headline PCE inflation was a bit higher than expected at +0.2% month/month and 3.7% year/year, while core was in line +0.2% month/month and 3.3% year/year.

This didn’t budge from a level which is considered too high, so was no help for Warsh; but equally it was not any worse, so there was no incremental impact on policy.

Personal income and spending data showed a slowing in spending in July, with the savings rate bouncing to 3.0% from 2.7% but still well below the 4.5% in August 2025.

It appears consumers used savings to buffer the initial impact of the Iran conflict and were now using income growth to rebuild savings rate.

Bond market

We previously noted Secretary Bessent’s jawboning of the bond market, where he talked about how the Treasury can increase the level of buybacks at the long end on the yield curve.

The goal was to provide a cap on yields, however the one-day drop in yields was quickly reversed, leading him to escalate his commitment last week by pointing to their ability to draw upon the firepower of the Treasury General Account (TGA).

This is potentially material. The buyback is around US$15-20 billion per quarter, against US$400 billion+ of 20+ year annual gross issuance. It also compares to the QE run rate of $240 billion per quarter.

However, the TGA is currently US$967 billion compared to a Janet Yellen-era level of US$550-600 billion and policy floor of US$150 billion.

So they could credibly use up to US$200 billion i.e. US$50 billion/quarter.

There was what some saw as a rebuke of Bessent from Stan Druckenmiller in his WSJ op-ed, noting that intervening in the bond market was not resolving the fundamental problem that the US deficit is too large and unsustainable.

Given an apparently close relationship between Bessent and Druckenmiller (and Warsh, for that matter), the better reading of this was a message that the onus on solving this problem was on the political system, not the Treasury secretary, and may be an indirect signal Bessent wanted to give on that issue.

There are other tools available to Bessent, the most relevant being a shift in the issuance mix which currently has 24% slated to 10+ year maturities (11.6% being 20 and 30 year), which is US$924 billion gross issuance in the next 12 months.

Historical precedent suggests the 20- and 30-year issuance could be cut to 8%, which would reduce supply US$136 billion per annum i.e. US$34 billion/quarter.

So, on paper he has tools that could equate to reducing supply US$100 billion/quarter – which is significant.

We believe the goal is not to meaningfully drive yields lower, but to hold the line at 4.70% and flush the shorts out of the market, taking away a left tail ‘bond crisis’ risk to the economy and the Presidency.

Our view is that they are likely to achieve this and bond yields won’t derail equities.

Macro and policy Australia

July monthly CPI data was worse than expected with headline +1.02% month/month and 3.5% year/year (versus 3.3% expected) and trimmed mean +0.49% month/month and 3.6% year/year (versus 3.5% expected).

The monthly trimmed mean number was the highest since July 2025 and puts pressure back on the RBA to raise rates.

Anecdotally through reporting season companies have said they are subject to cost pressures, be it wages (4.75% set by Fair Wage Commission), regulatory and/or construction costs and are looking to pass these on to consumers.

Markets

The US market was focused on the Nvidia result, which was well received, although the stock only ended up 1.3% for the week, with semis overall down 2%.

The key news was:

1. Revenue growth was strong. The July quarter was 5% more than expected, growing 18% quarter/quarter and 106% year/year. It was the third quarter of acceleration in the year/year number.
2. The company provided revenue guidance for its FY28 (February 2027 to January 2028) at +70%, which was at the optimistic end of market expectations. It says this is supply constrained and understates true demand.
3. Nvidia clarified gross margin outlook for FY28 of 72-73%. This had been a concern for the market given input cost inflation and was down on current year (75% in Q2), but the certainty it provided alleviated downside concerns.
4. The company provided more detail on the breakdown within its data centre business between Hyperscalers and AI clouds/industrial & enterprise (ACIE). The former is slowing and more vulnerable to substitution, the latter is growing faster driven by neoclouds and is more reliant on NVDA.
5. There was more clarity on financial arrangements to address the circular financing concerns. Nvidia disclosed investments of US$50 billion in frontier AI labs. Also, it has now provided US$366 billion of financial commitments for customers, the clear largest proportion is US$279 billion for supply commitments (mainly memory) up from US$119 billion in Q1. There is also US$29 billion for cloud service agreements, US$25 billion for DC leases, US$25 billion for equity investments and US$5 billion for capex. There is an additional US$108 billion for other guarantees. The company is forecast to make pre-tax profit of US$269 billion in the current FY and US$456 billion next year.

The relevant inconsistency coming out of this result is the gap between Nvidia’s revenue growth expectation of 70% in CY27 and the market’s forecast hyperscale AI capex spend growth of 36%.

Bears will say that the customers will not have the cashflow to fund the 70% forecasts of Nvidia. The bulls say the acceleration in revenue and profitability we saw in Q2 suggests that they are getting the pay-back and will spend the money.

Looking at the rest of the US market, we continue to see the recovery in healthcare, which is transmitting across to our market, with the sector leading the ASX +18% for August.

We are also seeing a continued move in software (+6% for the week), with a catalyst from the Salesforce (+22%) result, at which the company launched its Claudeforce product with Anthropic. This sees Claude become the reasoning layer inside Salesforce products.

The message is that by embracing the models Salesforce preserves its franchise, as enterprise (large, complex businesses) finds it too difficult to build the tools over Claude to get the insights that Salesforce provides.

Many will see this as a potential stay of execution; however it highlights that the most extreme concerns for software have not materialised.

The iShares Software ETF (IGV) has almost recaptured its November 2025 highs, while Salesforce is 70% off its June lows and within 3% of its level on 1^st January 2026.

We have not seen the same recovery in Australian software names. Xero (XRO) is still -25% calendar year-to-date, while Wisetech (WTC) is -40%.

Part of this is stock specific issues at WTC, but for XRO the concern is the type of business. XRO focuses on small companies rather than enterprise, suggesting there is less complexity to shift software vendors.

However, we believe a similar benefit exists in utilising AI through the software vendor – particularly the one acting as your system of record and understanding your workflow processes.

Australia

The market ground out a small rise (S&P/ASX 300 +0.5%) over the busiest week of reporting season, which was a good outcome given the shift in the outlook for interest rates.

Resources (+2.2%) and Consumer staples (+1.5%) led the market, with REITS (-1.8%) underperforming, mainly on the increased probability of a rate rise.

Themes from results last week were:

1. Supermarkets had solid performance, managing costs and see reasonable sales momentum.
2. Strong dividends out of the resource sector and fuel refining/distribution stocks, highlighting good capital discipline.
3. Some industrials are managing a tough environment on higher input costs relatively well; Ansell (ANN) beat expectations, Qantas (QAN) and Virgin (VGN) are containing the fallout from higher fuel, while Nine Entertainment (NEC) is dealing with subdued advertising.
4. Some companies are struggling to adapt to structural challenges and revenue headwinds (e.g. Endeavour (EDV) and Sonic Healthcare (SHL).

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 flagship Pendal Focus Australian Share Fund is a high-conviction equity fund with a two-decade track record across a range of market conditions.

Pendal is 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

Why Latin America’s political shift matters for investors | The case for investing in green bonds from utilities | VIDEO: Opportunities in bonds

Through investment in WATC green bonds, Pendal is supporting projects that protect WA’s natural assets while funding practical climate and infrastructure solutions

• Protecting forests, wetlands and rangelands
• Funding renewable energy and adaptation
• Find out more about Pendal’s Responsible Investing capabilities 

REGNAN Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund are invested in two Western Australia Treasury Corporation (WATC) green bonds.

The first WATC green bond finances renewable energy, clean transport and water infrastructure.

The second WATC green bond, which launched in 2026, continues to support these categories, with the additional inclusion of projects explicitly linked to environmental resilience outcomes[1].

These resilience focused allocations include projects supporting natural capital.

This includes the addition of approximately 6.5 million hectares¹ to Western Australia’s conservation estate, providing protection across wetlands, rangelands, forests, marine environments and areas of threatened flora and fauna.

A number of these reserves are jointly managed with Traditional Owners, supporting employment, training and economic participation in regional and remote areas of Western Australia.

The bond framework also permits funding aligned with the Forest Management Plan for the South West, covering approximately 2.4 million hectares¹ of predominantly native forest managed for long-term forest health and resilience.

This represents a shift away from large-scale native timber logging and includes protections for at least 400,000 hectares¹ of karri, jarrah and wandoo forest, alongside new forest and fire research programs and expanded recreation opportunities.

Following the cessation of native forest logging, eligible projects also include the expansion of softwood plantation estates, supporting long-term timber supply and reducing pressure on native forests.

Alongside these natural capital-related investments, the bond continues to support the same categories as the prior WATC green bond.

This includes renewable energy such as wind farms and school solar programs, energy efficiency through large-scale battery projects, and climate change adaptation measures, including a desalination facility powered by renewable energy.

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[1] Sustainable Bond Program Allocation and Impact Report

From geothermal baseload to wind generation, Pendal’s sustainable fixed income strategies are supporting renewable energy across New Zealand

• Funding renewable electricity generation in New Zealand
• Supporting cleaner, more resilient energy systems
• Find out more about Pendal’s Responsible Investing capabilities 

REGNAN Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD‑denominated green bond issued by a New Zealand electricity generator, supporting renewable electricity generation in a market that is already largely decarbonised.

New Zealand’s electricity system is among the cleanest in the developed world, with the majority of generation coming from renewable sources, particularly hydro, geothermal and wind.

This provides a low‑emissions baseline while also allowing new renewable capacity to directly displace remaining thermal generation and support growing electricity demand as transport and industry electrify.

Proceeds from the bond are allocated to a portfolio of operating renewable energy assets, predominantly geothermal power stations and wind farms located across the North Island and lower North Island[1].

Eligible geothermal assets include the Rotokawa, Ngā Awa Pūrua, Mōkai and Ngātamariki plants, while wind assets include Tararua, Turitea (North and South), Waipipi, Mahinerangi and Kaiwera Downs[2].

Together, these projects represent several hundred megawatts of installed renewable capacity and form part of New Zealand’s baseload and variable renewable generation mix.

Geothermal power plays a critical role in New Zealand’s electricity system because it provides continuous, weather‑independent generation.

Geothermal plants harness naturally heated water and steam from deep underground reservoirs, using this energy to drive turbines and generate electricity before reinjecting the fluids back into the geothermal system.

While geothermal is not entirely emissions‑free, lifecycle emissions are materially lower than fossil‑fuel generation and well below grid‑average intensities, particularly in a system where geothermal displaces coal‑ or gas‑fired power.

Wind generation complements geothermal by providing additional zero‑carbon electricity during periods of strong wind conditions, helping to diversify supply and reduce reliance on hydro inflows during drier years.

Collectively, these assets contribute to a resilient, predominantly renewable electricity system and support New Zealand’s ongoing transition to a low‑emissions economy.

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[1] Mercury NZ Limited Green Financing Framework

[2] Mercury Retail Green Bond Offer

A social bond issued by South Korea’s primary public housing developer is helping fund new public rental housing for lower-income households

• Financing homes for lower-income tenants
• Supporting energy-efficient affordable housing
• Find out more about Pendal’s Responsible Investing capabilities 

ACCESS to affordable housing has become increasingly challenging in many developed economies.

Rising housing costs can place significant pressure on lower-income households, particularly younger people, low-income workers and those at risk of homelessness.

Stable and affordable housing is often a prerequisite for securing employment, accessing services and participating fully in society.

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD-denominated social bond issued by Korea Land and Housing Corporation, South Korea’s primary public housing developer.

Proceeds from the bond are dedicated to affordable housing projects, including the construction of new public rental housing, refurbishment of existing housing stock and rental support for lower-income tenants.

Eligibility is focused on households earning below 50 per cent of the national median income[1], with rents set well below market levels.

Thousands of additional affordable homes are expected¹ to be delivered through these programs, helping reduce housing stress and improve access to long-term housing for underserved households.

The bond is primarily supporting the development of new affordable housing rather than refinancing existing projects.

Importantly, all newly constructed dwellings financed through the program must meet South Korea’s Zero Energy Building standard.

While the primary objective of the bond is social, improved building efficiency provides an important environmental co-benefit by supporting climate stability through lower energy demand over the life of the assets.

Like the fund’s investments in Housing Australia bonds, this investment supports long-lived social infrastructure that seeks to improve housing outcomes for vulnerable communities while also delivering environmental co-benefits through more energy-efficient buildings.

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[1] Korea Land & Housing Corporation Social, Green and Sustainability Bond Framework

Here are the main factors driving the ASX this week according to Pendal portfolio manager JIM TAYLOR. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE ramifications of the unrelenting rise in long-term US bond yields were acutely in focus last week.

US Treasury Secretary Scott Bessent surprised the market with a strategy to burn bond market short-sellers by doubling the size of long-duration bond buybacks out to the end of the year.

Bessent has promised lower long-dated yields since gaining office and this strategy is the latest in a long line of attempts to achieve that goal.

It lowered yields for a day or so.

But related strength in gold (+2%), bitcoin (+22.6%) and commodities (Brent crude +6.6%) – along with US dollar weakness (DXY -0.9%) – was maintained to the end of the week.

We will see how Fed Chair Kevin Warsh responds to this move in his commentary from Jackson Hole this week.

Minutes from the July Fed meeting were seen as less hawkish than feared. This had a modest calming effect and saw chances of near-term hikes little moved.

Elsewhere, data centres (DCs) are becoming increasingly critical to upcoming US elections. Numerous state governors who have been big supporters of DC development are now under pressure from rivals to stem further development on escalating concerns about power prices and water consumption.

Locally, the FY26 Australian reporting season heads into its last week.

Results have been very mixed and share price reactions have displayed the volatility evident in previous seasons.

The S&P/ASX 300 fell 0.4% last week, while the S&P 500 was down 1.4% and the NASDAQ lost 2%.

Bessent and Treasury activism

The US Treasury announced it would double its buyback at the long end of the government bond yield curve.

This aims to lower long-term yields, since the buybacks will be funded by issuing T-bills (which have maturities of less than one year). 30-year yields fell about 6bps immediately after the announcement.

The Treasury buys bonds on a weekly basis. Between now and November there are seven nominated dates where they will be buying 10-to-20-year and 20-30-year bonds.

It has previously been buying about US$2bn each time, so this equates to something in the order of an additional US$14bn buying of long-dated bonds.

This represents about 0.5% of the stock in that maturity bucket.

Bessent’s framing for the surprise announcement is broadly as follows:

1. The bond market was mispricing long-dated US bonds given thin August liquidity with a lot of corporate (AI) issuance and “many underlying factors” that the market is not looking at. He noted a lot of the corporate issuance was almost yield-agnostic given the build-out of AI and high returns that companies are expecting. Most commentators agree liquidity is thin in August. However, the unusual environment of the private sector crowding out the public in terms of issuance – and the resulting higher yields – is a feature we may well see more of, rather than less, in the medium term. 
2. The enhanced buyback operation had a “signalling” component intended to show the administration thinks yields do not reflect fundamentals. The signal is clear and may prompt a reconsideration of pricing, but only if investors buy the arguments being made.
3. There is scope to upsize operations if appropriate or draw on other undisclosed elements of a “big toolkit” (or both). Escalation is available but also carries the risk that it may look like the Treasury is trying to defend a particular yield level.
4. Investors have “bad information” – including misunderstanding of and misinformation around fiscal dynamics – and there is speculation about “asymmetric information” the government may possess. It seems a stretch to think bond investors don’t have a pretty good insight into fiscal dynamics – and if information really was poor, this could imply higher term premia.
5. There is a “very good chance” the US has hit peak deficit, with consolidation in 2026 and one-time tariff rebates that will not be issued in 2027, and there will be a new focus on fiscal consolidation. In our view the market is sceptical on the prospects of material deficit reduction, including through another DOGE-like effort to eliminate waste.
6. Treasury and the Fed will “work together” to offset any adjustment in Fed balance sheet policy. Warsh has previously indicated he is uncomfortable with the duration of Fed holdings (versus the market duration), so Bessent is indicating issuance to offset a Warsh-driven maturity curtailment. 
7. The US continues to have a “strong-dollar policy” and the dollar is only back down to where it was a couple of months ago, which should not make any material difference to inflation. The risk is policy errors could create a scenario that may see a much bigger decline in the dollar that could, in conjunction with concerns around financial repression, raise inflation and inflation expectations. 

US policy and macro

The July meeting minutes from the rate-setting Federal Open Market Committee were more dovish than expected and may suggest Warsh was not under as much pressure as thought.

Notwithstanding this interpretation of the minutes, economic data since the July meeting (GDP, retail sales, CPI, PPI and payrolls) have all surprised to the downside, taking out some of the impetus to raise rates near term.

Key observations from the minutes included:

Current interest rates:

• While “most” participants supported the decision to maintain the target range for the fed funds rate at 3.50-3.75%, “several” favoured a rate hike at the July meeting.
• “Some” judged that financial conditions “might not currently be sufficiently restrictive” to return inflation to 2%.

Interest rate outlook:

• “Many” participants judged that rate hikes would likely be necessary if inflation did not decline.
• “Various” participants noted that financial conditions had tightened over the intermeeting period between the June and July FOMC meetings, partly reflecting “market expectations that the Committee would adopt a more restrictive policy stance before long”.

Inflation outlook:

• While participants judged that inflation risks were skewed to the upside, “most” participants expected declining inflation over the rest of the year “as the effects of tariffs and earlier energy price increases wane”.
• “Several” saw tariff passthrough to prices as “largely complete” and upward pressure from AI-related cost increases so far “limited to select categories”.
• “Many” noted “a protracted conflict” in the Middle East could boost inflation and that several years of above-target inflation “could begin to affect inflation expectations”.

Labour market:

• Regarded as stable with “some” participants noting nominal wage growth was “moderate and consistent with inflation moving toward 2 per cent”.
• Economic activity is growing at a “solid” pace, supported by strong consumer spending and business investment, concentrated in AI-related spending.
• “Most” participants noted that higher equity prices had supported consumer spending, especially among higher-income households.

Meeting schedule:

• Chairman Warsh “observed that six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings and provide policymakers and the staff more time to consider strategic monetary policy moves”.
• The minutes noted that Chairman Warsh had solicited feedback from committee members on the idea, but that no decisions were made and any change would not affect the schedule over the rest of 2026. 

Australia policy & macro

The number of employed people fell 15.9k in July, versus consensus expectations of +13.5k.The unemployment rate rose to 4.5% consensus, which is in-line with the RBA’s year-end forecast. Consensus was at 4.4% for July.

The participation rate at 66.85% was a touch below consensus (66.9%).

Hours worked were down 0.6% month/month and +0.2% year/year.

Overall, the data was on the soft side and provided further evidence that the labour market is weakening slowly.

It moved the chance of a rate hike by year end from 68% to 62%.

Markets

In the US, it is worth noting that Walmart was down 9% despite a modest beat-and-raise at it 2Q27 result.

The CFO noted that higher fuel prices are weighing on lower-income shoppers and as fuel prices climbed above US$4/gallon during the quarter there appeared to be “a psychological impact” that led to visible trade-offs by customers, with June being “a little more obvious” in terms of this.

The Australian market was led by healthcare (+9.1%) and resources (+5.6%). Consumer discretionary (-6.2%) and financials (-4.4%) were weaker, with banks (-4.8%) weighing on the latter.

It has been interesting to note that the bank sector has moved from “overbought” to “oversold” territory according to the relative strength index (RSI) indicator, all within August.

This continues this year’s trend of the sector’s relatively rapid oscillation between the two extremes.

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About Jim Taylor and Pendal Focus Australian Share Fund

Drawing on more than 25 years of experience investing in top-performing Australian companies and a background in accounting, Jim manages our Long/Short Fund and co-manages our Imputation Fund. He is a Chartered Accountant with membership of the Australian Institute of Chartered Accountants.

Pendal Focus Australian Share Fund is managed by Crispin Murray. The fund has beaten its benchmark in 14 years of its 18-year history (after fees), across a range of market conditions. 

Find out more about Pendal Focus Australian Share Fund here.

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