Bonds have the potential to provide a positive investment return even during central bank rate-hiking cycles. Pendal’s OLIVER GE explains how
RATES go up, bonds go down. It’s an investing truism that has become ingrained in our thinking.
But what if, in fact, bonds had the potential to provide an investment return during central interest rate hiking cycles?
That’s the finding from research by Oliver Ge, a portfolio manager with Pendal’s Income and Fixed Interest team.
Monetary policy tightening cycles are actually kinder on bonds than people believe, Ge says.
“The key is that it depends on how much is priced into the bond market at the point central banks start lifting rates.
“Looking at history, an investor who buys bonds at the moment of the first rate hike in a cycle and sells at the last rate hike actually gets quite a substantial return.”
The finding demonstrates that there is a lot more nuance to the classic doctrine of “rates go up, bonds go down”, says Ge.
Since the 1990s there have four rate hiking cycles in Australia, each averaging an increase of 2.25 per cent to the RBA’s policy rate, he says. The annualised bond return over the same period was more than 4 per cent.
“The compelling story is don’t ignore bonds when rates are rising — they can still give you mid-single digit returns.
“That’s quite significant in a market where equities are negative.”
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Pendal’s Income and Fixed Interest funds
The explanation for why bonds had positive returns over those times is based on two factors, he says.
First, rate hikes do not materialise unannounced. The RBA broadcasts its decisions in advance and a considerable portion of future hikes are already in the price of the bonds before the first hike.
This means a 25 basis points move higher rarely translates into a direct one-for-one change in the yield of a bond, says Ge.
“During the 2009-2010 cycle, the RBA moved the policy rate up by 175 basis point from 3 per cent to 4.75 per cent. Over the same horizon, a five-year Commonwealth government bond moved up by around only 35 basis points,” he says.
The second thing is the pace of rate hikes. In principle, the more gradual a central bank tightens, the more income a bond can accrue to offset would-be losses, says Ge.
By magnitude, the largest tightening cycle over the last 30 years was 300 basis points, but it occurred over a six-year window, allowing bonds to maintain mid-single digit returns per annum despite the absolute quantum of moves.
“Right now, the market expects the RBA to kick off their hiking cycle in June, ending in mid-2024 at a peak rate north of 3 per cent.
“This puts the expected bond experience somewhere between the last two hiking cycles, both of which resulted in a positive outcome for fixed income investors.
“While a negative shock can’t be ruled out, the likelihood of further inflation surprise is diminishing.
“There’s already a lot priced into bonds. And it’s reasonable to say that we’re closer to the end of this higher rates move than we are at the start.”
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.
Ultra-loose monetary policy is creating exceptions to risk and reward – and bringing opportunities for investors seeking better returns for their cash. OLIVER GE explains
- Bonds paying better returns than bank deposits
- 4x returns when held to maturity
- Find out more about Pendal fixed interest funds
THE link between risk and reward is a staple of investment theory.
But ultra-loose monetary policy as the Reserve Bank of Australia seeks to support the economy’s pandemic recovery is creating some exceptions to that age-old rule.
Investors who choose the safety of a government bond (held to maturity) are now offered better returns than a nominally higher-risk bank term deposit, says Oliver Ge, a portfolio manager with Pendal’s Income and Fixed Interest team.
“If you’re willing to hold government bonds for a year — just like you would with a bank term deposit — you’ll get four-to-six times more money than you’ll get from a bank,” says Ge.
Cash is an important asset for many investors. It provides security and flexibility, and importantly it offers protection from being forced to sell assets in a downturn.
But for investors seeking income, it can offer very poor returns.
Find out about
Pendal’s Income and Fixed Interest funds
“You go to one of the big banks and they’re offering about 0.25 per cent interest rates on a one-year term deposit — $25 on a $10,000 investment. That’s not a lot.
“But if you’re happy to lock your money away for a year, why not try a government bond? A one-year Australian government bond is paying 1 per cent, so you’re getting four times as much money.
“Unless you think the Australian government is going to default — and as long as you hold to maturity — you’re better off giving them your money.”
Ge points out that state government bonds can offer even better returns, with the Western Australian semi-government bonds offering returns as high as 1.6 per cent.
Protection against downturn
Bonds provide a further advantage over term deposits because alongside guaranteed income and capital protection, they offer protection against an economic downturn.
“If there was a catastrophic event like a Covid version two and the RBA decides not to lift rates, these bonds could return a lot more as they will rise in value,” says Ge.
“Bonds are just insurance policies that always pay you — and when things blow up, they pay you even more.”
Ge says the anomaly exists because the RBA is providing very cheap funding to the banks, meaning they do need to compete for deposits in the market and can keep deposit rates artificially low without affecting the financing of their lending businesses.
“They have so much money they can afford to do this,” he says.
By contrast, government bonds are issued into a competitive global market and rates are set by investor demand.
Ge says the anomaly is likely to stay in place as long as the banks have access to cheap funding.
“This is a genuine opportunity to get a lot more juice with the same or better safety – assuming you hold to maturity,” says Ge.
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.
Could Russia’s invasion of Ukraine prompt Chinese action in Taiwan? That’s not likely in the medium term argues Pendal’s OLIVER GE
ALARM bells are ringing in the East.
As fighting intensifies in Ukraine’s urban core, Chinese jets have entered Taiwan’s air defence zone, leading some to speculate that it’s only a matter of time before we see People’s Liberation Army boots on the ground.
At times like this it’s understandable that investors pondering their exposure to Russia’s invasion of Ukraine might also think harder about the China-Taiwan stand-off.
Pre-election positioning among Australian politicians pulls the China-Taiwan situation into even sharper focus for local investors.
However a Chinese invasion of Taiwan is a very low probability event in the short and medium term.
Near term, the Chinese Communist Party has other priorities at stake.
President Xi has promised to rectify growing domestic discontent over diminished living standards. Housing affordability and employment opportunities are key focal points for the CCP leadership.
They do not have time for major external distractions.
In the medium term, Taiwan’s support from the US remains crucial. Remember that Taiwan (but unfortunately not Ukraine) is of great strategic importance to Washington.
Its proximity over major shipping lanes and dominance in semiconductor manufacturing has seen consecutive US administrations pledge Taiwan military support in the event of a war.
China has no appetite for a direct confrontation with the US.
In the longer term these reasons above do not negate the possibility of a future conflict.
A unified China is arguably the biggest political objective of the CCP. China’s dominance in the region and military capacity continues to build.
But for now the carrot of economic cooperation remains the preferred policy over brute force.
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.
Even with the promise of meeting bond interest payments, the risk of contagion from Evergrande has increased as investors rotate away from equities and high yield credit. Pendal’s Oliver Ge explains what’s next
CHINESE property giant Evergrande has staved off default on the first of many payments covering some $US300 billion in debt.
But investors are still holding their breath to see whether Beijing will step in and what happens next.
Pendal’s Oliver Ge says the fallout on the domestic Chinese market would be minimal in the event of a controlled default.
Evergrande — which owns 1300 projects in 280 cities according to Bloomberg — represents a small 0.2% portion of China’s loan system, says Ge, an assistant portfolio manager with Pendal’s Income and Fixed Interest team.
“Right now Beijing has not been materially vocal on a rescue package, preferring instead that the company quietly sells down its assets and makes investors, suppliers and homeowners whole before quietly exiting the industry.
“But the issue is that Evergrande is unable to deliver on the ‘quietly’ part since they have no credibility in the financial system.
“No one will lend them any money. The only way they can quickly raise cash is to mark down their existing inventory of apartments.”
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Pendal’s Income and Fixed Interest funds
Markdowns as a high as 25% have been quoted, says Ge.
But going down this path means the rest of Evergrande’s peer group would have its asset book revalued too –prompting the sell-off we’ve seen so far.
Broader impact for investors
Until recently the contagion was limited to Asia and resource names such as BHP and Rio Tinto, which supply the iron ore for Chinese property projects.
Today, even with the promise of meeting bond interest payments, the risk of contagion has increased as people rotate away from equities and high-yield credit altogether, Ge says.
And the market implication for offshore USD bonds is significant.
“Right now Evergrande USD bonds are trading around 20-25c to the dollar (yuan).
“Default is almost guaranteed at those levels and other domestic peers will invariably get dragged into the sell-off.
“The current Asian high-yield default rate is around 3%. This could rise to 9% if Evergrande and its subsidiaries officially miss their debt obligations going forward.
“In lieu of a policy u-turn from the Federal Reserve, government bonds will likely thrive in this regime.”
Evergrande is just the tip of a large iceberg in China right now, says Ge.
“There is an ongoing vicious cycle that won’t stop until Beijing decides to scale back their social inequality reforms.
“Loose monetary and fiscal can help but it won’t be enough to offset existing headwinds.”
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.
As bond yields remain elevated and investors weigh the implications of inflation, growth and the AI investment surge, understanding the role of fixed income has never been more important, argues Pendal head of government bond strategies TIM HEXT
WHILE higher yields have challenged investors in recent years, Hext explains in his latest video podcast why bonds continue to play a vital role in portfolio construction, particularly during periods of genuine economic stress.
He also discusses the importance of active duration management and why the next phase of the market cycle could create attractive opportunities for long-term bond investors.
Here’s an excerpt from the video podcast:
“Defensive is for the true risk-off events like a recession, like the GFC, like the early part of COVID. That’s what we generally mean by defensiveness.
“If you lock in bonds at six per cent for five years or 10 years, and rates start coming down, you’re still earning that return. And of course, they’re going to become a lot more valuable.
“At some point bonds are going to be very, very attractive to lock in. The big question which I’ve got to manage as an active manager is when.
“There will be a point somewhere in the next six months to 18 months where we will start to extend the portfolio significantly as we tip over into this new environment.”
Find out about
Pendal Government Bond Fund
Tim Hext, Head of Government Bond Strategies
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
After a volatile five years for fixed-rate bonds, an active approach to duration can help investors manage downside risk while capturing opportunities as interest-rate conditions change. Pendal’s AMY XIE PATRICK explains
- Active duration manages risk across rate cycles
- Flexible positioning captures opportunities as yields shift
- Find out about Pendal Monthly Income Plus fund
What we mean by duration
IT IS hard to talk about fixed income and bonds without involving the term “duration”. So let’s make it clear from the start.
The term is largely used to refer to interest rate duration – or the amount of interest rate exposure, be it in a security or a portfolio.
The concept of duration can be thought of as a multiplier that translates yield moves into price returns. For example, a portfolio with one year of duration will suffer a negative 1% capital move if yields rise by 1%. Whereas a portfolio with five years of duration will suffer a negative 5% capital move from that same 1% rise in yields.
The exact return numbers may vary, depending on the contents of these portfolios and other certain technicalities. Nevertheless, thinking about duration as the multiplier from yields to returns is a helpful place to start.
Why have duration at all?
If you’ve looked at fixed-rate bond returns over the last five years and wondered what the point of duration is – that’s a fair question.
We illustrate this in Figure 1 with the total return index of the AusBond Composite Benchmark, as this is the fixed-rate benchmark of choice for many Australian portfolios.
Over the entire five-year period depicted in the chart, the benchmark has returned only a little over 1%. Its largest drawdown was over 13.5%, from which it took more than three years to recover. Since then, volatility has continued to plague this benchmark.
The disappointment is understandable when compared with the prior 10-year period of returns, as illustrated in Figure 2.
In the 10 years following the global financial crisis (GFC), central banks mostly had trouble fighting inflation that was too low while global growth slowly recovered. Perfect conditions for a smooth and upward path of bond returns. If investors bond return expectations were set in this period, then the last five years most certainly have been a disappointment.
Understanding what drives fixed-rate bonds
Bond yields ultimately move according to economic fundamentals. That is, moves and expected moves in inflation, employment and economic growth. At their core, yields are just what the market expects policy rates or cash rates will be in the future, and since the central banks setting those cash rates are trying to navigate their economies to their target levels of inflation, full employment and economic growth, bond yields do not often become dislocated from economic fundamentals, at least not for long periods of time.
So by taking on fixed-rate bonds (or duration) in your portfolio, you are expressing a view on the trajectory of economic fundamentals. As shown above in Figure 2, when those fundamentals are moving in the same direction and supportive of stable or lower interest rates, fixed rate bonds can do really well, providing a source of income and capital return to portfolios without much volatility. The perfect description of how defensive assets should behave.
However, Figure 1 shows a backdrop of very different economic fundamentals, ridden with over-heating economies, supply-shocks, labour shortages, all against a backdrop of a higher and more uncertain climate for inflation. This is not a straightforward and supportive backdrop for bonds. At times, rampant rate hikes have brought recession fears to the fore. More recently, inflation trends have been fluctuating, sometimes giving hope to quieter times ahead, only to be interrupted by tariffs, wars and Middle East oil shocks.
Bonds, or duration, as it turns out, are not able to provide defensiveness to portfolios structurally. But doing away with them entirely would mean losing a defensive lever for portfolios should the economic backdrop start to sour.
An active duration approach
Instead of an all-or-nothing approach, the Monthly Income Plus Fund takes an entirely active approach to duration. As the periods illustrated in Figures 1 and 2 have shown, duration isn’t always helpful, and at times it can be very harmful if stability and drawdown control are what portfolios are seeking.
At a high level, an active duration approach should use duration according to where we are in the interest rate cycle. For example, someone with a mortgage should choose to fix their borrowing rate while it’s low but then switch to floating when rates are high and likely to fall. Duration within a portfolio is the same, but just flipping in the opposite direction, since we’re earning the interest, not paying it.
But it gets more nuanced than simply choosing to have a floating-rate portfolio when the RBA is hiking the cash rate, and a fixed-rate portfolio when they are easing. Markets have a way of moving ahead of central banks to price in what may be coming. Sometimes, the market consensus can be wrong about the extent to which the central bank will hike or ease interest rates, leaving room for active and contrarian views to profit within the cycle.
As Figure 3 shows, over the last five years, the RBA has engaged in one large hiking cycle, one mild easing cycle, and started another hiking cycle towards the end of last year. Yet Australian 10-year government bond yields have gone through far more ups and downs than that.
Within Figure 3, all red arrows point to occasions where the market either under- or over-shot what the RBA would eventually end up doing.
It will often be shifting fundamentals within a rate cycle that cause bouts of volatility in bond yields. By adopting an active stance on duration which looks to the signals in these shifting fundamentals, these bouts of volatility can be avoided when yields are rising (and having duration would be harmful) but embraced when yields are falling.
A strong approach to active duration ought to navigate the broader interest rate cycle well, particularly adding duration before an easing cycle begins which locks in a higher level of income for portfolios as interest rates fall. A purely floating rate credit portfolio will see its income levels fall alongside the fall in cash rates. In addition, within cycles, a successful active duration lever within an income portfolio will be able to put bouts of bond volatility to use to create added sources of return.
Where does that leave us today?
The current environment is a case in point. The US Federal Reserve’s decision to hike rates in September caught markets off guard, only to be reinforced by stronger US economic data since then. Yields have continued to climb because none of the economic fundamentals (inflation, employment and growth) are currently supportive for bonds.
For the Monthly Income Plus Fund, our active duration process prioritises leading signals about these economic fundamentals. Long before the market realised that a Fed hike was probable, we had positioned the fund for exactly that outcome. Since then, the portfolio remains fully floating-rate, earning a high level of income on offer from currently higher policy rates. There is no need for any duration in this environment, but we continue to monitor for signals of economic change. As has often been the case over the last five years of inflation and economic uncertainty, the portfolio stands ready to use its ability to take on up to five years of interest rate duration to capture the more meaningful turns in the cycle and deliver a defensive outcome for our investors.
The goal shooter
As a mother to three tall daughters, I am deep in the Saturday morning netball years, so please indulge me as I end with this sporting analogy.
Your midcourt players are in every passage of play. Centre, Wing Attack – they work to keep the ball and move it down the court. I liken this to floating-rate credit in a portfolio. Always working and contributing.
However, you need a Goal Shooter to put points on the board. She doesn’t get involved in every phase of play. Some games, she will spend long stretches waiting for the ball to come to her end of the court. But when conditions are right and the team gets the ball to her, it’s up to her to convert. That’s the job of duration in a portfolio.
A portfolio without duration is a team that has left its Goal Shooter on the bench because the ball has been in midcourt all quarter. With yields where they are today, the ball is getting closer to her circle.
About Amy Xie Patrick and Pendal’s Income and Fixed Interest team
Amy is Pendal’s Head of Income Strategies. She has extensive expertise and experience in emerging markets, global high yield and investment grade credit and holds an honours degree in economics from Cambridge University.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. The team oversees some $20 billion invested 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 a global investment management business focused on delivering superior investment returns for our clients through active management.
As AI fuels a wave of data centre investment, the industry’s ability to earn and maintain community trust is becoming a critical factor in its long-term success. ELISE MCKAY explains
SOCIAL license is emerging as one of the most important non-financial risks facing companies and in this video podcast, Elise McKay, analyst and portfolio manager in Pendal’s Australian Equities team, discusses how active investors can help ensure the growth in data centres is delivered responsibly.
Here’s an excerpt from the video podcast:
“The way I think about social license is it’s the informal approval or permission that you need from the community in which you operate to operate your business,” she says.
“You might have all the planning approvals and legal permits in the world, but if you don’t have community backing, that could ultimately prevent you from being able to grow and move your business forward.
“Social license is the most important non-financial risk that data centres face in today’s world.
“The key issue with non-financial risks is that ultimately one day they may become financial risks.
“If data centres locally lose their social license, that limits a huge growth engine not only for the data centre industry but for our economy overall.”
Find out about
Pendal Horizon
Sustainable
Australian
Share Fund
Elise McKay, Portfolio Manager
About Elise McKay and Pendal Australian share funds
Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.
She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.
Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.
Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
In a volatile market, AMY XIE PATRICK explains why income portfolios need deliberate duration, quality credit and flexibility.
IN THIS video podcast, Amy Xie Patrick, head of income strategies at Pendal, shares her perspective on how duration can still play an important role when used deliberately, and how active investors can navigate uncertain rate settings.
She also discusses tight credit spreads, the rise of hyperscaler bonds in Australia, and the importance of quality, liquidity and flexibility in defensive income portfolios.
Here is an excerpt from the video podcast:
“Just because inflation is high and yield volatility is high; it doesn’t mean that you should completely say no to duration.
“Your duration allocation at any point in time should be very deliberate and considered and intentional.
“The job of active investors is to be able to make decisions when faced with uncertainty.”
Watch the full video interview
Find out about
Pendal Monthly Income Plus Fund
Amy Xie Patrick, Head of Income Strategies
About Amy Xie Patrick and Pendal’s Income and Fixed Interest team
Amy is Pendal’s Head of Income Strategies. She has extensive expertise and experience in emerging markets, global high yield and investment grade credit and holds an honours degree in economics from Cambridge University.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. The team oversees some $20 billion invested 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 a global investment management business focused on delivering superior investment returns for our clients through active management.
In this video podcast, Pendal head of government bond strategies TIM HEXT explores how shifting interest rates, accelerating AI investment and evolving macroeconomic conditions are creating opportunities across fixed income markets
An excerpt from this interview with Pendal’s head of government bond strategies Tim Hext:
“Australia’s had two great investment booms this century,” says Hext.
“The first one was the mining boom, and that was huge. In fact, in terms of scale, it’s bigger than the current IT boom we’re seeing now.
“But in the US, the current IT boom, particularly around the well-known story of data centres and AI, is bigger than anything they’ve had, and of course that puts pressure on capital.
“The promise of high returns means people borrowing the money are happy to pay more, so you start to get this term premium increase, and real interest rates go up. It’s a great spot for investors.”
Find out about
Pendal Government Bond Fund
Tim Hext, Head of Government Bond Strategies
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
The common belief is that if investors want to gain exposure to the AI thematic they have to look offshore, but Pendal’s ELISE MCKAY debunks this myth in her latest podcast interview
You can also listen to this podcast on Apple or Spotify
An excerpt from this interview with Pendal portfolio manager Elise McKay:
Where are the opportunities for ASX investors wanting AI exposure?
“When I think about AI, there’s five layers to the AI stack,” says Pendal portfolio manager Elise McKay.
“Firstly, you’ve got power, secondly, you’ve got chips, thirdly, infrastructure, fourth is models, and then the fifth layer is applications.
“Whilst the US has chips and models locked up, Australia has infrastructure, and this is what we’re really good at.
“Australia is quite uniquely placed to provide AI infrastructure to the world.
“The opportunities are in that infrastructure layer and that extends from the resources that are used, so the copper metals that are used as inputs into the server equipment, through to building out the grid to support more than our fair share of data centres.
“We have a huge amount of investment that’s going into building out and supporting that grid. We have the actual data centres themselves, and finally we have this emerging category called the neoclouds.”
Listen to the full podcast above or learn more about Elise in her latest Pendal profile interview.
Find out about
Pendal Horizon
Sustainable
Australian
Share Fund
Elise McKay, Portfolio Manager
About Elise McKay and Pendal Australian share funds
Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.
She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.
Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.
Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.