Seven Pendal funds recorded a loss over FY19 while its business was hurt by investor sentiment, the Royal Commission and a reduction in fees.
For the first time in eight years the group reported a reduced profit of 19% to $163.5 million, and its funds under management was reduced by 1% to $98.8 billion.
Pendal’s chief executive, Emilio Gonzalez, said that the year had been one of the toughest on record.
According to FE Analytics, the Pendal fund that made the biggest loss over the year to 30 September, 2019, was the Pendal High Alpha Fixed Income fund at a loss of 9.88%. The fund is only open to institutional investors.
Pendal’s Core Hedged Global Share fared better with a loss of 5.62% and its factsheet stated the underperformance was due to weakness in thematics, momentum and quality in all regions.
It said stock selection within industries was weakest in industrials and healthcare. It noted moving forward, the fund would make an overweight tilt towards IT and utilities, and have underweight positions in energy and consumer discretionary.
Underperforming Pendal funds year to 30 September 2019
The Total Return Fund had a loss of 3.9% and had a 12% allocation towards the Pure Alpha Fixed Income Fund that made a loss of 0.38%. The fund’s factsheet said returns were expected to have a low correlation to traditional asset classes. However, the fund has not outperformed its benchmark over the last five years except over the three months to 30 September, 2019, where it returned 0.44% compared to its benchmark that returned 0.29%.
Pendal’s Smaller Companies Fund made a loss of 2.15% and its factsheet noted that falling interest rates and bond yields globally were having a material effect on Australian equity markets.
The firm’s European Share fund experienced a loss of 0.96% and was managed by J O Hambro Capital Management (JOHCM). In its annual report, Pendal said that the reduction in fees from its JOHCM fees had contributed to its reduced profit. The report also noted that there were significant outflows from its European equity strategies.
“The fund’s value focus lies largely outside these ‘large cap value’ sectors where the top down driven sector rotations were not at play (yet). As a result the fund underperformed,” its factsheet said.
“We continue to shift the portfolio away from our successful historic investments that are closing in on their fair value and where upside is diminishing, towards beaten down, out of favour companies where we see substantial investment return opportunities.”
As mentioned above, the firm’s Pure Alpha Fixed Income Fund was next at a loss of 0.38%.
“There were some unintended consequences of the lighter than expected tiering plan that led to a retracement higher of front-end yields across European curves,” its fund manager commentary said.
While the commentary said the long-duration trade was far from exhausted, it noted its duration strategy was the largest detractor for the month of September.
“The majority of the losses were from long positions in the US front end and a tactical short-duration position in the long-end,” it said.
The last fund that made a loss over the year was Pendal Midcap fund at 0.01% that was mainly invested in Australia mid-cap shares. Its largest sector allocation was towards materials (18.2%), followed by industrials (15.1%), cash and other (13.6%), consumer discretionary (11.7%), and financials ex property trusts (10.2%).
