Perpetual’s Pendal bid – the difference between predator and prey

Oksana Patron

8 April 2022

Following Perpetual’s recently announced plans to acquire Pendal Group, Financial Newswire’s Oksana Patron has looked at key funds at both groups, their performance and strategies.

The first thing to notice was the difference in how the biggest funds in the Australian equity space run by both groups were rated.

Morningstar granted the highest possible gold rating to Pendal’s Australian Share Fund while Perpetual’s Australian Fund was rated bronze.

According to Morningstar’s senior analyst, Ross MacMillan, Pendal’s highest rating for its investment team and investment process was a result of a strong quality team, run by Crispin Murray since the mid-90s, combined with a relatively low turnover while the group’s investment process represented a ‘blended style’.

“Pendal combines stocks classified as quality value stocks and quality growth stocks. They have a sort of blended investment style, whereas Perpetual have a value style and what they are after is quality value stocks which in a different point in a cycle that value investment philosophy can struggle,” he said.

“The [blended] investment process that Pendal uses means the portfolio can outperform through various economic conditions and through macro-economic cycles. And we also rate that as high which is our highest rating.

“Perpetual’s Australian Fund [the strategy] was rated bronze, which is lower, but is still a ‘medallist’. We rate Perpetual’s investment team as above average which is still very high but not as high as Pendal team.

MacMillan also stressed the market had now moved away from growth stocks into value stocks.

“What had happened in the market in Australia is definitely a rotation out of growth stocks and into value, and particularly quality value. That is the area where the Perpetual investment process is focused on. This has been a great market probably for the last two to three months for those sort of stocks and their strategy. Whereas if you have had asked this question around six months ago, Pendal was outperforming and has outperformed over the last three years.

SQM Research head of manager, Rob da Silva, said that the key differentiator for both groups was how they approached the fixed income space.

“If you look at the some of the broader products [in that space], Pendal’s products have been leaning towards the duration-based macro style bond funds that are linked to the traditional indexes whereas Perpetual tends to more credit-oriented and therefore less about duration and more about yield,” SQM Research head of manager, Rob da Silva, said.

This was particularly significant over the last 12 months when those in the duration-tilted portfolios suffered more with the interest rate rises compared to those that were more focused on yield than duration.

Da Silva also stressed that there was no credit crash, since the Global Financial Crisis (GFC), in which circumstances the Perpetual-style fixed income funds would have been more affected.

Speaking on the small and micro-cap funds, he said that both groups had done relatively well over the last few years, but Perpetual’s funds seemed to had gone “particularly strongly” in that space.