A new generation of weight-loss drugs has the potential to fight the obesity epidemic. Regnan analyst MAXIME LE FLOCH explains more

• Obesity affects one billion people worldwide
• New treatments are showing much greater efficacy
• Find out about Regnan Global Equity Impact Solutions Fund
• Making Money and Making Change: Watch a new webinar with Regnan’s Tim Crockford and former RBA deputy governor Guy Debelle

DEMAND for a new generation of weight-loss drugs such as Novo Nordisk’s WeGovy is soaring — particularly in the US where demand is outstripping supply.

Bloomberg estimates global sales of branded anti-obesity drugs could hit $US44 billion by 2030.

While medications are not the only solution required to combat obesity, “they are one revolutionary step forward in countering the epidemic” noted Scientific American recently.

Some doctors say drugs like Wegovy “could help stem a tide of weight-related conditions such as heart disease or joint pain”.

Sustainable investing leader Regnan, which is part of the Pendal (and now Perpetual) family, is a long-term investor in Danish pharmaceutical group Novo Nordisk.

“We like companies that have a relentless pursuit of continuous innovation,” says Maxime Le Floch, an analyst with Regnan Global Equity Impact Solutions fund.

“We want companies that innovate, have brand awareness and can build a market from scratch,” says Le Floch.

Novo Nordisk develops treatments for serious chronic illnesses such as diabetes and obesity. The two are linked, though obesity is becoming a greater health risk.

A potential treatment for obesity

More than 700 million people are obese — of which around one-third are children, according to the World Health Organisation. 

In the United States alone, more than 40 per cent of adults are obese, and nine per cent are severely obesity.

“Ninety per cent of people with obesity have weight related comorbidities … and half have a combination of health conditions such as diabetes, higher blood pressure, coronary heart disease and risk of stroke,” Le Floch says.

“There’s also increased risk of kidney cancer and colon cancer, digestive problems, liver problems and sleep disruption.”

It has become a major cost to economies with eight per cent of healthcare budgets spent on obesity related medical conditions, Le Floch says.

“Until now there have been two main treatments for obesity – weight loss programs which are difficult to put in place, and the average weight loss is just 5 per cent.

The other option is bariatric surgery which can lead to about 30 per cent weight loss but is very invasive, has associated risks, and is hard to scale to a larger number of patients,” Le Floch says.

“What’s really game changing right now is the rise of drugs that can address obesity,” he says. “One example is Wegovy from Novo Nordisk which has been an incredible success with limited side effects.

“The average weight loss is 15%, with one-third of people losing more than 20 per cent of their weight and prescription trends are skyrocketing. There are already 40 million people in the US with access to Wegovy,” Le Floch says.

“This is a market that has doubled from 2022 and we expect it to grow in double digits in coming years.”

Long-term investment

Regnan has been a long-term investor in Novo Nordisk, impressed with not only the current crop of drugs but also research into new treatments.

“You continue to see a pipeline of impressive innovations in clinical trials showing promising data, including even more effective weekly injectable treatments such as CagriSema, and oral treatments.

“The main issue Novo Nordisk has had recently is keeping up with demand,” Le Floch says. “This year, there were some supply disruptions which have been resolved as the company adds capacity.”

Novo Nordisk is not the only pharmaceutical company in the obesity treatment market. Eli Lilly also has a new treatment.  

“But outside Novo Nordisk and Eli Lilly, it is very hard for competitors to catch up. Pfizer discontinued one of their clinical trials. Smaller players so far have shown very mixed data,” he says.

“Also there is a lot of brand awareness by patients. Patients are coming to their physicians asking for the Novo Nordisk treatment.”

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About Maxime Le Floch

Maxime is an analyst with Regnan’s impact investment team. He focuses on Regnan Global Equity Impact Solutions Fund. Maxime has more than 10 years of experience in sustainable investment. Before joining Regnan he was an investment analyst with Hermes where he helped launch and manage the Hermes Impact Opportunities Equity Fund.

Barbie and Oppenheimer may be breaking box office records right now, but Hollywood is a complex environment for investors. SUE SCOTT explains what to look for

• Movie industry a challenge for investors
• Look for innovation and strong content libraries
• Find out about Pendal Concentrated Global Share Fund

BARBIE is the biggest flick of the year, taking $US155 million in its first three days of ticket sales in the United States.

In Australia, it was the biggest opening weekend for a movie released this year — double the second best.

Investors observing the success of blockbuster films such as Barbie and Oppenheimer may be wondering how to get exposure to Hollywood right now.

But all the hype can’t hide the fact that showbiz is a complex investment environment with actors and writers strikes, a super-competitive streaming market and the potential of AI-generated content.

“For investors, it comes down to the age-old adage, ‘content is king’”, says Sue Scott, senior investment analyst for Pendal Concentrated Global Share Fund.

Sue and the team are investors in NASDAQ-listed Warner Bros. Discovery – the studio behind Barbie – as well as Netflix.

Both own large libraries of content.

Scott believes both Netflix and Warner are well positioned for the current tough environment in Hollywood.

“Thanks to the actors and writers’ strike, the industry is going to have to rely on their content libraries.

“Warner Bros. Discovery have an extensive library of premium content from HBO, HBO Max, CNN, Turner Sports, Discovery Channel, Food Network and Eurosport. We think there’s a lot of latent value in that back content,” Scott says.

“Netflix has ten years under its belt and has the first-mover advantage in streaming. It now has a ten-year premium library built up which is exclusively theirs.”

“Both companies are also innovative around ways to drive incremental revenue beyond a movie ticket or a subscriptions or advertising,” Scott says.

“Take a look at the whole Barbie marketing campaign.”

The outlook for Netflix

Netflix’s recent June quarter results show a 5.9 million increase in subscribers since March, and more than 238 million subscribers globally, though the stock was sold off following the release.

“I thought the number were really good. Netflix has reached a point of being cash flow positive which is unlike many of their peers. And they have the content library behind them.

“Investors were disappointed about the lack of revenue growth. We think Netflix has now reached a level of maturity that you should be more focused on cash flow growth,” Scott says.

“What we want are companies that have a good library of content. Content is king. Netflix and Warner Bros. Discovery tick that box.”

 

 

 

Inflation isn’t under control and the RBA still has work to do, argues Pendal’s OLIVER GE

You can also listen to this podcast on Apple or Spotify

An excerpt from this interview with Oliver Ge, an assistant portfolio manager with Pendal’s income and fixed interest team

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Inflation isn’t under control and the RBA still has work to do, argues Oliver Ge, an assistant portfolio manager with Pendal’s income and fixed interest team

“I think at 4.1% we’re still at least a couple of hikes away,” says Oliver in our latest fast podcast.

“Depending on where wages and inflation prints later this month, I think possibly we may follow the path of New Zealand or the UK into the 5.5%, possibly 6% region.”

Oliver points to three things blunting the impact of rate rises:

“Firstly, the Australian economy is demonstrating a level of resilience that’s greatly surpassed most expectations.

“Secondly, there seems to be a wage-price spiral in certain aspects of inflation that continues to channel within the CPI basket, so it persists at a level that warrants concern.

“Thirdly, despite market chatter about the potential fallout from high interest rates – particularly for mortgage holders – our analysis shows that Australians, on aggregate, aren’t as vulnerable as one might assume.”

Oliver goes into detail in the podcast.

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About Oliver Ge and Pendal’s Income and Fixed Interest boutique

Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.

Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.

Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

The invests across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

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About Pendal Group

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

Contact a Pendal key account manager

Which companies will benefit from AI technology in the long term? Which are caught up in a short-term frenzy? Pendal global equities analyst SUE SCOTT explains what to look for

• AI has changed investment landscape within months
• Companies ignore AI at their own peril
• Find out about Pendal Concentrated Global Share Fund

WITHIN months, artificial intelligence (or AI) has changed the investment landscape, helping drive the S&P500 into a bull market.

But which companies and sectors stand to benefit from AI technology in the longer term?

Which are just caught up in a short-term frenzy?

The technology has the potential to change every industry, says Sue Scott, a senior investment analyst with Pendal’s Concentrated Global Share Fund.

It’s about much more than investing in companies providing computing power and AI services, says Scott.

It’s about investing in companies that understand AI will become intrinsic to how business runs.

“The genie is out of the bottle. At an enterprise level you risk disruption if you ignore it.

“AI is going to have a significant impact on how all industries operates.”

Signs of a good AI strategy

What does Pendal’s global equities team look for when assessing a company’s AI capabilities?

“We’re looking for signs that the board and management are examining how the technology can improve their products and services and increase productivity,” Scott says.

“It’s not about how many times it’s mentioned on a conference call. It’s about understanding AI.

“Does the board have technical expertise? Are management introducing pilot programs? Are they thinking about the ways they can harness AI to improve productivity? Do they have a robust governance function?

“They’re the sorts of things were asking any of the companies we invest in.”

Look also for companies with a strong Chief Technology Officer, she says.

The CTO role “is becoming increasingly important, whether you’re a technology company, a mining company, or a consumer company.”

AI pitfalls

AI has its challenges too, Scott says.

“Mass adoption means a huge amount of additional computing power is required, which is currently expensive and energy intensive.

“Lots of data storage is required and you need a network robust enough to transport all the information.

“The elephant in the room is regulation. Regulators have shown in the past that they are very slow on the uptake when it comes to new technology,” she says.

Scott says while Open AI’s Chat GPT was only launched late last year, AI has been around for much longer.

“AI is essentially a combination of computer science and data sets that enable problem solving and that’s been happening for years,” she says.

“Think about your first interaction with a chatbot and how that has improved over the last few years. Think about how much better search, Siri and Alexa are.”

“There’s also been huge developments in industrial sectors – autonomous mining trucks, automated fulfillments centres underpinned by AI technology have driven productivity gains, while consumer sectors have benefited from improved online advertising conversion rates.”

A printing press moment

The release of OpenAI’s ChatGPT was a turning point, however.

Scott agrees with founder OpenAI founder Sam Altman’s comment that AI could be a “printing press moment”.

“Right now it’s a load of raw data that generates outputs based on statistical probabilities when prompted. In the future you will see more multi-modality models. It won’t be just text but images, audio and video.

“A ChatGPT-equivalent won’t be writing just the speech, but the slide presentation to go with it. A search engine won’t just give the recipe for a chocolate cake, but also a video explanation of how to make that cake.”

All companies should be thinking about AI and how it can improve commercial outcomes for their business, she says.

 

 

 

Just as mortgage holders locked in fixed rates two years ago, now could be the time to lock in 10-year bonds, argues Pendal’s TIM HEXT in our latest fast podcast

You can also listen to this podcast on Apple or Spotify

An excerpt from this interview with Pendal’s head of government bond strategies Tim Hext:

It looks like RBA boss Phil Lowe’s “got one more hike he’s itching to do” in July or August, says our head of government bond strategies Tim Hext in our latest fast podcast.

“The inflation data should start to turn down from that point,” says Tim.

“The RBA should then use that as a reason to be on pause for the rest of the year.

“Looking further beyond, towards the middle of next year, I think what you’re going to see is potentially the US starting to cut rates early next year.

“With that backdrop, there is a possibility we get lower rates in the second half of next year, even if inflation – and particularly wages – remain a bit sticky.”

For now, Tim argues investors should consider 10-year bonds which are hovering around the 4 per cent mark.

“I don’t think interest rates and cash rates in Australia, though they’re currently 4.1 per cent, are going to be averaging that over the next five or 10 years.

“I think they’ll settle eventually back down in the 2 to 3 per cent band.

“It’s a bit like mortgage holders two years ago should have locked in fixed rates for their mortgages.

“Now I reckon investors ought to consider locking in fixed rates for their investments.”

Listen to the full podcast above

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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.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

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

Impact investing can be an important source of diversification in a number of ways, argues Regnan’s TIM CROCKFORD

• Impact investing can be a source of diversification
• Small, mid-cap, growth exposure
• Find out about Regnan Global Equity Impact Solutions Fund

IMPACT investment funds can be an important source of diversification in an equity portfolio because of their focus on small and mid-caps – and a tendency towards holding over very long time-frames, says Regnan’s Tim Crockford.

Crockford leads Regnan’s London-based impact investing team, which aims to find listed businesses well-placed to solve the world’s biggest environmental and societal problems.

Typically, these are companies with market capitalisations in the US$1 billion to US$10 billion range.

“Ultimately, as an impact investor you are managing on three dimensions rather than two,” says Crockford.

“It’s not just about risk and return, but also about the positive impact of companies bringing something good to the world.

“As a result, from a strategic asset allocation lens that gives you something very different from what you get with a traditional listed global equity allocation.

“The first level of that differentiation is that it gives you exposure to those smaller and mid-cap companies.”

That’s especially important in 2023 because smaller companies are trading relatively cheaper than their larger counterparts in an inversion of normal patterns driven by the market’s appetite for US mega-cap tech stocks.

“You would normally expect to pay a premium for small companies because they tend to have higher growth rates,” says Crockford.

“But something has changed across 2022 and smaller caps are now trading at a lower PE multiple than large caps.

“These kinds of abnormalities in markets can persist longer than you expect them to persist, but things eventually mean revert — they rarely become the new normal.”

Early access

Crockford says impact investing also offers investors a way to hold growth stocks at an earlier stage than in a traditional portfolio.

The Regnan Global Equity Impact Solutions Fund aims to buy companies at a point when they are seeing a tipping point in demand for their product or service.

“What we do is try to identify businesses where growth rates are starting to tick up,” says Crockford.

“Like it or not, human beings find it very difficult to forecast growth rates that are increasing and compounding.

“That tends to make the market myopic and short term — analysts are trained to take the past and extrapolate that in the future.

“We look for these inefficiencies across our investment universe of environmental and social solutions providers and seek to take advantage of them.

“These are companies that have the potential to grow into large caps over the very long-term holding periods that we have for them.”

Longer time frame

The longer time frame of impact funds is another differentiator from a traditional equity allocation.

“This is a generational opportunity,” says Crockford.

“This is not the FOMO trade of the next six months. This is about finding companies with a structural tailwind for the next decade and beyond.”

As industry, consumers and governments invest to make the world more sustainable, winners will emerge over the next decades from the companies that supply the products and services to enable this, Crockford believes.

To find them, investors need to broaden their horizons beyond the top end of the market.

“We’ve been looking under stones that have not been turned over for a long time to find names that have been forgotten about in areas in markets that have been forgotten.

“This is about identifying individual businesses that have differentiated technology, differentiated services and a differentiated way of doing business.

“That gives them a moat. That gives them the ability to deliver this impactful environmental or social solution in a way that the peers can’t match.

“The fact that they are small now? Look the winners of the last market cycle – we didn’t refer to them as ‘big tech’ back in 2008.”

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About Tim Crockford

Tim Crockford leads Regnan’s Equity Impact Solutions team and is senior fund manager of Regnan Global Equity Impact Solutions Fund. Tim previously managed the Hermes Impact Opportunities Equity Fund after co-founding the Hermes impact team in 2016.

China has emerged quickly from zero-Covid, but its property industry is holding the economy back. What does that mean for investors? Here’s a view from Pendal’s head of income strategies AMY XIE PATRICK

You can also listen to this podcast on Apple or Spotify

An excerpt from this podcast

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Amy Xie Patrick, Pendal’s head of income strategies:

The dropping of zero-Covid measures largely means that the huge restrictions on mobility no longer exist in China and you can go about living life as you wish.

Post Covid we saw in Australia a massive lift in the demand for services, a massive lift in the desire to go traveling, and a shift in consumption towards services.

That’s exactly what’s happened in China in the first few months of re-opening.

The difference with the China story though, is that a large part of the economy is still on its knees – and that’s the property part of the economy.

When the property sector is in a slump, it means that confidence from the private sector generally is in a slump as well.

That’s what’s is leading to a lot of the recent data showing that the initial momentum from China’s reopening story seems to be petering out.

The longer-term structural story for property in China is not a good one.

The Chinese inflation picture – and especially its Producer Price Index (a leading indicator of inflation) –will continue to drag more on the global inflation story – which is good for bonds, argues Amy.

We think there are many strong reasons both cyclically and structurally to be favoring fixed income and bonds in portfolios right now.

The way the China growth story is shaping up for 2023 presents as one of the top five reasons to be buying bonds right now.

With inflation still high but ‘sufficiently well-behaved’, the factors influencing recession are now unemployment and wages. Pendal’s TIM HEXT explains in this fast podcast

You can also listen to this podcast on Apple or Spotify

An excerpt from this interview with Pendal’s head of government bond strategies Tim Hext:

Consumers are feeling gloomy but are we still headed for recession?

With inflation “sufficiently well-behaved”, the main factors are now unemployment and wages, says our head of bond strategies Tim Hext.

“I think in the US it’s still the case that we are going to have a very mild recession at some point.

Whie it’s taken longer than expected, the impact of 5.25% of rate hikes in just over a year are starting to show through among consumers.

“The one thing that’s keeping the US economy ticking over still quite well is employment.

Jobs and wages should remain “not strong, but well-behaved” this year, which should stop any chance of near-term rate cuts, says Tim.

In Australia the chances of recession are far lower due to population growth, says Tim.

“But there is definitely a possibility we’ll have a GDP per capita recession. In other words, the economy will be better off but individually we may not feel that way.

Tim goes into detail here

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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.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

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

How should fixed interest investors think about the turmoil among US regional banks? In our latest fast podcast, Pendal assistant portfolio manager OLIVER GE gives a plain-language explanation

You can also listen to this podcast on Apple or Spotify

An excerpt from this podcast with Oliver Ge, an assistant portfolio manager with Pendal’s Income and Fixed Interest team

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“The problems with First Republic and SVB are not unique,” says Oliver.

“There are potentially cracks opening up in the 5th, 6th, 7th, and 13th largest banks.”

If further failures occur, investors may be over-confident that the Federal Reserve wil continue to launch rescue missions, says Oliver.

The relatively mild market response could suggest “a disconnect between what investors are pricing in and what’s actually happening”, he says.

In this podcast, Oliver explains what that could mean for investors – and why he believes cash and government bonds are an important consideration for portfolios right now.

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About Oliver Ge and Pendal’s Income and Fixed Interest boutique

Oliver Ge is an Assistant Portfolio Manager with Pendal’s Income and Fixed Interest (IFI) team.

Oliver works on developing and running key quantitative investment models, and acting as trading support for the Income & Fixed Interest team. Oliver received his Bachelor of Commerce (Finance) from the University of Sydney and is also a CFA Charterholder.

Pendal’s IFI boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

The invests across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

---

About Pendal Group

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

Contact a Pendal key account manager

It’s become increasingly important for equities investors to understand how companies in their portfolios are protected from data breaches, says Pendal’s SUE SCOTT

• Increased focus on cyber security
• Investors need comfort from cyber policies
• Find out about Pendal Concentrated Global Share Fund

AFTER the recent Optus and Medibank data breaches, stockmarket investors may be wondering what to look for when assessing how vulnerable a company is to a hack attack.

Big, listed companies can make attractive targets for hackers.

“The larger the company, the more data it has and the more critical it is to society,” asks Sue Scott, a senior analyst in Pendal’s global equities team.

“These companies are more likely to be targeted for a cyber-attack,” Scott says. “Given our investment philosophy, it’s a particular risk for several of our portfolio companies.

“Understanding the risk, and what is being done by management to mitigate the associated with a cyber-attack on that business is critical.”

Scott use the example of Spanish financial services giant CAIXA, which Pendal has assessed for cyber-security risks.

CAIXA has the largest IT platform in Spain and processes some 30,000 transactions per second.

“They receive 74 attacks every hour and the number of attacks has increased 2.6 times in 2022 compared to 2021,” Scott says.

Yet CAIXA hasn’t experienced a successful critical attack, says Scott.

What to look out for

Before investing, Pendal scrutinised the policy framework CAIXA has in place to understand preparedness for cyber-attacks and mitigation efforts.

“Importantly we saw that there are very clear roles and responsibilities defined within CAIXA.

“It has a cyber policy that’s corporate wide and mandatory for everyone to comply with.

“They have a specialised Cyber Security Committee which includes executive management representation; an audit team which presents to the board regularly; and three board members with specific technical expertise.  

“Board members receive training and it’s reflected in the KPIs of management.”

An important addition at CAIXA is the Cyber Risk and Compliance role, separate from the Chief Technology Officer role.

“CAIXA felt when tackling cyber security, it’s important to have someone with a technical focus, and someone focused on governance.

“It also undertakes independent assessments of their cyber security capabilities twice a year, as well as complying with  all European regulation regarding cyber safety,” Scott says.

Danger from within

Risks can also come from staff — whether intentional (such as a dissatisfied employee) or unintentional.

CAIXA monitors unusual behaviour among staff and their use of data.

“If there’s any abnormalities exposed then they investigate further,” Scott says.

“For non-intentional risks CAIXA has comprehensive training programs for staff and customers.”

One challenge is the ability to attract the relevant talent into a cyber security division.

“Everyone wants technical talent now to negate cyber risk. The fact that CAIXA has scale and is heavily resourced has helped attract people and keep the attrition rate very low,” Scott says.  

“It gives us a lot of comfort talking to them, helping us understand what good looks like in terms of a cybersecurity policy and implementation of that policy.

“While good policy and technical expertise aren’t enough to prevent all attacks, they do mitigate the risk of an attack where critical business functions are affected, and reputational damage is inflicted.”