The Point

Global equities: how to find good stocks in volatile times

It sounds a no-brainer, but the first tip for equity investors right now is “buy good companies”, says Pendal’s Paul Wild.

“It’s an obvious thing to say until you try and work out what a good company is,” says Paul, who heads up European equities at our UK-based asset manager J O Hambro.

“A good company needs a moat around it – a moat that provides it with a defensible market share and pricing power.

“That’s most clearly illustrated in financial metrics by the return a company makes on equity, or on capital employed over a reasonable period of time.

“When you’re investing for the medium term, remember that the medium term is an aggregation of many short terms.

“And in the short term, prices can be distorted from fundamentals, affected by the positioning of funds.

“So, it’s a good idea to drip feed or average into the market, knowing that you’re very unlikely to ever pick the absolute low.”

What Aussie investors can learn from drama in European markets

Dramatic changes in European equity markets over the past six weeks — and energy prices over a longer time frame — provide poignant lessons for investors everywhere.

“It shows that investors, no matter where they are, always need to think about pricing power and relative resilience,” says Paul Wild, who runs a European equities fund at Pendal’s UK-based asset manager J O Hambro.

“The opportunity set for investors can change very quickly. In Europe it has shifted hugely since the beginning of the year and investors need to alter their stance,” Paul says.

“People in different parts of the earnings spectrum react differently. Household fuel bills will be more impactful on low-income households.”

Paul expects luxury demand to hold up better than other retail categories. “We’ve seen prices rising for jewellery and watches at the very high end.”

Healthcare is also less affected, demonstrated by the share prices of big drug companies. “Utilities as well because of the expansion of renewable assets, notwithstanding those more exposed to Russian gas exports.”

Brenton Saunders: What’s driving Aussie equities this week

Brenton Saunders: What’s driving the ASX this week?

Brenton Saunders: What’s driving the ASX this week?

ASX midcaps: It’s a good time to focus on interest rate-sensitive growth stocks

Brenton Saunders: ASX gold sector shines, but investors must be selective

The ASX gold index is up about 20 per cent this year on the back of continued strength in the precious metal’s spot price. Can it keep going? And how best to get exposure via the ASX?

“Gold is being helped by elevated inflation and strong liquidity,” says Pendal PM Brenton Saunders.

Brenton manages Pendal’s midcap strategy and is also a geologist with experience in gold mining and gold-related equities. He’s long been an advocate for selected stocks in the ASX gold sector.

“Typically what happens in gold companies at this point of the cycle is they quickly repair balance sheet issues, then they generate cash and become acquisitive.”

But investors need to be selective. “Top-of-the-cycle acquisitions by gold companies generally end badly,” he cautions.

“The gold price is up 9 per cent in Australian dollar terms this year and a lot of ASX-listed gold stocks have done incredibly well in that time.

“Gold exposure has been incredibly helpful to our portfolio. We have long held a strong position, and it has all come together in the last three months.”