RBA likely to move to quarterly tightening in 2023 Pendal December 2022

THIS week's 25-point rate rise probably won't be the last — but the Reserve Bank's pace of tightening is likely to move from monthly to quarterly increments next year. The cash rate will now sit at 3.1% for the summer. The RBA's next monetary policy statement is due on February 10. Between now and then we will see fourth quarter inflation data released on January 25. It will be high. The annual headline inflation rate will be around 8% for 2022. This will set the case for another hike in February. Tuesday's RBA statement contained nothing new. The central bank remains data dependent while the global outlook has deteriorated. Domestically the labour market remains tight. Economic growth has been strong and household spending will start to slow due to policy tightening delivered so far. For some this is yet to occur, given the higher-than-usual number of fixed-rate mortgages that are yet to reset. This is the reason why the RBA doesn't need to be as aggressive. Fixed-rate mortgages at rates around 2% will be resetting closer to 5.5% mid next year. The RBA acknowledges they are walking a tight rope. "The path to achieving the needed decline in inflation and achieving a soft landing for the economy remains a narrow one." The further they push policy, the harder the landing becomes. The RBA doesn't want to cause a recession. But given a choice of embedded higher-inflation expectations or better growth, the former wins out for any central banker.   The longer-term task is no simpler. Policy action to date "has been necessary to ensure that the current period of high inflation is only temporary", the RBA statement said. "High inflation damages our economy and makes life more difficult for people." In a speech late last month RBA governor Phil Lowe pointed out that variability in inflation outcomes was more likely to increase than what we've become accustomed to. He cited four key areas where supply issues in the longer term will occur: Reversal of globalisation Demographics Climate change The energy transition in the global economy. The RBA has under-shot or over-shot its 2-3% target band more often than not over the past 15 years. More variability in inflation outcomes? Who would want to be a central banker. Central banks have tightened policy significantly over 2022 — and that will weigh on demand over 2023. The current Christmas spendathon — where we are let loose for the first Christmas in three years — will hold activity up for now. But it's unlikely continue into the new year hangover. The supply side of the global economy is also likely to see capacity increase and downward inflationary pressure next year. The supply issues that have resulted from the pandemic and Russia's invasion of Ukraine will resolve over time. But with it comes another set of challenges. And those are more likely to be skewed towards higher inflationary pressure in the longer term. Author: Steve Campbell, Head of Cash Strategies

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Global equities: It's time for 'Covid losers' to shine Pendal November 2022

A WEAKER earnings season in the US is indicating a recession is likely next year, but there is evidence it could be mild and short-lived as capital spending offsets slowing consumer demand, says Pendal's Ashley Pittard. Nine in ten S&P 500 companies have reported their third quarter earnings, with results largely in line with analysts' expectations. In a market where the average company typically beats earnings forecasts by 2.7 per cent, the overall picture is one of a weakening economy, says Pittard, who heads Pendal's global equities team. Pittard says one of the most telling signals out of reporting season was the way companies were punished by the markets when they missed forecasts. "On average, when a company missed this earnings season its share price fell more than 6 per cent. That's the biggest average fall ever. What that tells us is that we are at a tipping point in the markets," he says. Mild recession There was also a spike in the number of companies mentioning softening demand in their earnings reports this quarter. That's a measure that traditionally rises prior to a recession, says Pittard. "In this earnings season, the number of companies mentioning weak demand is at the same highs as it was in the global financial crisis and Covid," he says. Still, indications are that any recession should be mild because there are signs companies are stepping up their investment in rebuilding supply chains post the pandemic. "Capital expenditure by corporations is up 24 per cent year on year — that's a real positive that may help any recession be milder," says Pittard. "It's companies 're-shoring' supply chains and bringing jobs back to America." To be sure, the strong US dollar is counting against corporate America, with the foreign exchange rate at its highest levels for seven years. "It's a mixed bag. It's like a rip tide dragging out to sea while the tide's coming in — there's choppy waters ahead. "You've got all of these positives, but you've also got a few negatives." Which sectors look good in 2023 For global equities investors, the story of the coming year will be one of correcting a "misallocation of capital" that occurred during the pandemic, says Pittard. "You don't want to be in the Covid winners, you want to be in the Covid losers. "During the last few years there has been an over-investment into technology and the cloud and a misallocation away from industrials, supply chain, energy and those sorts of companies. "You're now seeing that misallocation of capital unwind." He points to "strong-demand" commentary from companies like Delta Airlines, United Airlines and Visa, alongside negative commentary from Microsoft, Meta Platforms and Google. United claimed there had been a "permanent structural change in leisure demand because of the flexibility that hybrid work allows", saying "this is not pent-up demand. It's the new normal". Visa said consumers are "still spending the same amount of money… as they did before". Meanwhile Microsoft and Meta announced layoffs, along with a slew of other US tech companies. Microsoft reported "materially weaker PC demand" and Google noted a "pull-back in spend" by advertisers. Look to industrial and financial stocks "It's that misallocation of capital that will drive the hits and misses on the markets," says Pittard, "If you look at new job postings, they are down 50 per cent from their peak of 2021 and 41 per cent of consumers are saying it's tough paying their bills compared to 38 per cent in Covid. "There's no doubt stresses are increasing. There's no doubt the macro is getting weaker. "But as an investor, you want to look through it. "Our cash level is at the lowest that it's ever been, but you've got to have the tide going with you. "That's why the answer is the industrial companies and the financials. "Dividend yield on the banks is more than 8 per cent. "If you hold those kinds of stocks, you're getting paid to just wait for the economy to turn around." Author: Ashley Pittard, leads Pendal's Global Equities investment boutique

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Sustainable investing: Five steps to avoid greenwashing Pendal October 2022

AS DEMAND for sustainable investing grows, Australians are becoming more attuned to the threat of "greenwashing". What is greenwashing? Australian investments regulator ASIC defines it as "the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical". The value of Australian assets managed using a "rigorous, leading approach to responsible investment" passed $1.5 trillion last year — 43% of the total market, the Responsible Investment Association Australasia reported earlier in the month of October. RIAA last year certified 225 products in Australia and New Zealand, representing $74 billion of assets under management — up $18 billion in a single year. (Pendal is named by RIAA as one of 74 responsible investment leaders in Australia.) But not all investment managers are as green as they may seem. So what steps can you take to avoid greenwashing? "It can be a real challenge to spot whether a product you've invested in is truly green versus one that's just claiming to be green," says Pendal senior risk and compliance manager Diana Zhou. In June, Australian Securities and Investments Commission published guidelines to help product issuers self-evaluate their sustainability-related products. But investors can still find it problematic separating financial products that are sustainable from the ones that just say they are. Elise McKay, an investment analyst with Pendal's Australian equities team, says there are broad global questions on what exactly represents best practice in ESG. Right now European regulators are leading the way with explicit regulations on disclosures, reporting and metrics. "My view is that ultimately Australia will head down a similar path towards greater regulation — but we are not there yet. "From an investor perspective, people are selecting these funds because they have an ethical desire to invest aligned with their beliefs. "Product issuers have an obligation to be 'true to label' and deliver them the solution they are after." How can investors be sure that the products they are investing in are delivering what they promise? McKay and Zhou offer these five steps for investors and advisers to avoid falling victim to greenwashing: 1. Dig deeper than the glossy marketing material Investment opportunities often come with glossy brochures, but behind the marketing material is a product disclosure statement (PDS), usually available on the product issuer's website. Zhou says "the PDS, by law, must disclose the extent to which ESG practices are taken into account in selecting, retaining or realising an investment. "Investors should read the offer documents (PDS and Additional Information Booklet) in detail rather than relying only on marketing. These documents should provide details on a manager's ESG practices. "A PDS needs to be submitted to ASIC and needs to comply with certain rules in the Corporations Act — so there is regulatory oversight." 2. Check up on a product issuer's governance Companies with strong governance frameworks are more likely to be in compliance with rules and regulations, says Zhou. "You're looking for a dedicated responsible investment page on the an issuer's website. "There will usually be policies and statements about responsible investing, climate change, human rights, modern slavery and stewardship. " "The proxy voting process is important for transparency. There should be a record of how the manager voted at the annual meetings of its portfolio companies. Investors should be able to see which resolutions were voted on and which way the investor voted. "Investors can also look at whether the manager is a signatory to the Principles for Responsible Investment (PRI) which gives an indication of the level of commitment a manager has on implementing its responsible investing strategies" 3. Understand how sustainability is integrated into the investment framework There are a number of ways a manager can integrate ESG factors into the investment process - but some are more effective than others, says McKay. Some managers may simply screen out investments while others conduct detailed benchmarking of a portfolio company's ESG targets. "Look for detailed benchmarking on areas like climate change, diversity, biodiversity and natural resources, the circular economy and so on to identify who are really leading sustainability and ESG targets." 4. Look for evidence of stewardship activity. A fund manager that genuinely cares about making a difference will be actively engaged with portfolio companies. This goes beyond proxy voting, says McKay. "Spend time understanding what stewardship activities are done — what are the areas that a manager is working on with companies." You can read more here about what to expect from a modern investment manager's engagement activities. 5. Spend time with the investment team Finally, and potentially most importantly, McKay urges investors to get to know their fund managers and get into a direct discussion with them to go behind the written word. "Go and talk to the fund manager — get them to explain the framework to you," says McKay. "Go beyond disclosure and get into a discussion to find out if they are really doing what they say they are doing." Author: Diana Zho,  Senior Risk and Compliance Manager

Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com