The MSCI World ex Australia (net dividends) index gained 9.1 per cent over the 12 months to the end of September, in AUD. It has been a relatively volatile period; the index was down -11.1 per cent for the December 2018 quarter, before staging a +22.8 per cent rebound over the following nine months. It has also been characterised by strong thematic drivers, with the expectation of low interest rates and bond yields driving outperformance of growth stocks over value.

Macro and geopolitical uncertainty has been high, driven by factors such as a reversal in US Federal monetary policy, Brexit, US-China trade and ongoing doubts about US and Chinese economic growth. This has regularly punctuated the market with sharp swings in sentiment, adding an additional challenge.

Nevertheless, the Pendal Concentrated Global Share Fund has outperformed its benchmark, before fees, over the 12 months and finished in the second quartile of its Mercer peer group. Specialised tech component makers such as Analog Devices and Texas Instruments in the US made strong contributions. Positions in Germany’s Deutsche Boerse and in Canada’s Restaurant Brands International have also helped relative performance – as has not owning Amazon.

Pendal’s Concentrated Global Share strategy reached its three-year anniversary in August 2019 and the achievements since launch put it in a strong position to drive further success from here.

First, it has outperformed its benchmark, both before and after its wholesale fee, since inception. In doing so it held up much better than the index and most of its peers during the drawdown of Q4 CY2018, emphasising the strategy’s defensive qualities. At its three year anniversary, its Morningstar Rating placed it in the top quartile of the Morningstar Large Cap Blend category.

It has reached almost $350 million in funds under management (as at end of August 2019) with an early take-up by several clients – including the first institutional client. This is pleasing given that there has been a relatively low-key approach to marketing, with the focus being on building a track record with which to demonstrate the strategy’s credentials. The Fund has also been approved for addition to seven investment platforms, with others in the pipeline, allowing broad investor access.

All this has been helped by the achievement of a ‘Recommended’ rating from the first review by both Lonsec and Zenith. In each case, the rating has been underpinned by the strategy’s process and the longer-term track record that portfolio manager, Ashley Pittard, brings to the table.

We have launched a separately managed account (SMA) version of the fund. This allows access for investors seeking greater visibility on holdings and individual tax treatment. This has been added to platforms and is generating flows. We have also launched a Dublin-domiciled open-ended investment company (OEIC) version of the fund, under the JOHCM brand. This enables investment by potential European-based investors, which can be promoted by JOHCM’s sales force in the region.

We believe that the key building blocks of a good three-year track record, a stable and established team, momentum in inflows, research house endorsement and ease of investor access are now in place. This puts the boutique in a strong position to start driving material growth.

It is helped in this regard by an investment strategy which is well suited for the current environment. The portfolio is built from a concentrated group of high conviction ideas, built without reference to the benchmark index. As a result, it can avoid those parts of the market at demanding valuations, regardless of how large an index position they may be.

There have been recent signs of a rotation away from highly-rated growth stocks towards value. There is a multitude of factors which will determine whether this trend continues – if it does, it will be in sharp contrast to the prevailing environment of the last five years. The portfolio, being style neutral, is not dependent on the thematic trends shifting one way or the other. Instead, it will continue to own the leading companies in specific industries, investing when they are out of favour on short-term issues, which provides the valuation upside that has historically driven outperformance.