Finding the hidden investment gems amid the fog of COVID, stimulus, inflation & war! August 2022 Confidential
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PIML is the issuer of units in the Barrow Hanley Global Share Fund (Managed Fund) (ASX: GLOB) (“GLOB”), which is subject to ASX and regulatory approval. A product disclosure statement (PDS) will be issued by PIML for GLOB and should be considered before deciding whether to acquire or hold units in GLOB. The PDS is expected to be available in late May 2022 and can be obtained by calling 1800 022 033 or visiting our website perpetual.com.au.A description of the target market is provided in the Target Market Determination that can be obtained by calling 1800 022 033 or visiting our website perpetual.com.au .
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Important note cont.
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Content Confidential │ Market rotation │ Valuations are still turning │ Rate hikes have only just begun │ Megatrend: Inflation │ How do we navigate them to get the best investment outcomes
5Source: FactSet % Return
© 2022 Perpetual Limited. All Rights Reserved. -30.0% -20.0% -10.0%0.0%10.0%20.0%30.0%May-97 May-99 May-01 May-03 May-05 May-07 May-09 May-11 May-13 May-15 May-17 May-19 May-21
MSCI Australia Large Value minus Large Growth, rolling 3 year returns
Australian value rotation underway
stocks* December
rotation
Tech. Bubble
The has only just begun globally
6 -23.9-20-40-60020406080 MSCI World Value MSCI World Growth Value GrowthOutperformsOutperforms
Combined weight of the five largest S&P 500 31,
1990 – June 30, 2022 % Return % Return Source: FactSet. Barrow Hanley
MSCI
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world value vs. Growth rolling 10-year cumulative excess return December 31, 1984 June 30, 2022 18.2% 19.4%25%20%15%10% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 *Apple, Microsoft, Amazon, Google, Tesla. Ending weight of 19.4% as of June 30, 2022. Sources: FactSet; Strategas Research Partners.
Australia Large Cap Value - PE - NTM MSCI Australia Large Cap Growth - PE - NTM P/E Ratio
7
Have growth stocks normalised? Where will valuations finish?
Perpetual Investment Management Limited, FactSet 302520151050 35 Jun-94 Jun-96 Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-18 Jun-20 Jun-22 Australian
Source: P/E Ratios: Value vs
Growth
MSCI
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Australian 10 Year Treasury YieldYield
Bond sell-off has helped trigger:
• Large sell off in tech
© 2022 Perpetual Limited. All Rights Reserved. 3.52.51.50.501234 4.5Aug-125 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22
%
8 Source: Perpetual Investment Management Limited, FactSet
That escalated quickly: Bond yields surging
• Large sell off in fixed income
© 2022 Perpetual Limited. All Rights Reserved. Central banks have a long way to go 9 Source: ASX / FactSet 43210 5 Aug-9276 Aug-97 Aug-02 Aug-07 Aug-12 Aug-17 Aug-22 US Federal Funds target rate - Yield% Return RBA on track for 4% cash rate Fed nears 15 year highs in Target Rate
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go 10 Source: ASX / FactSet 43210 5 Aug-9276 Aug-97 Aug-02 Aug-07 Aug-12 Aug-17 Aug-22 US Federal Funds target rate - Yield% Return RBA on track for 3%+ cash rate Fed nears 15 year highs in Target Rate
Central a long way to
banks have
© 2022 Perpetual Limited. All Rights Reserved. -2 0 1412108642 16 Jul-52 Jul-55 Jul-58 Jul-61 Jul-64 Jul-67 Jul-70 Jul-73 Jul-76 Jul-79 Jul-82 Jul-85 Jul-88 Jul-91 Jul-94 Jul-97 Jul-00 Jul-03 Jul-06 Jul-09 Jul-12 Jul-15 Jul-18 Jul-21 CPI-U, US City Average, 1982-1984=100, SA, Index - United States US CPI: The Great Inflations 11 Source: Perpetual Investment Management Limited, FactSet Time 1. LBJs war on poverty2.shock3.stimulusNixonFirstoilprice1973 4. Second oil price shock 1978 % Annual CPI
6. De-carbonisation, if pursued, will raise the cost of many products, eg cement.
3. Follow-on inflation: rent of shelter, in particular, yet to be fully reflected in CPI
7. Inflation expectations and wages: If this starts to change then inflation becomes the new normal
• But also many stocks and sectors to avoid in a changed environment
• Lots of opportunities in markets long overlooked
Some inflation may be transitory: temporary disruptions transport, freight
Significant investment implications:
1. Trade war is reversing 30 years of globalisation
2. Covid stimulus (colloquially “Peoples QE” or “Helicopter money”) was so efficacious is may become addictive
Megatrend: Where to now for inflation?
4. Geopolitics crashes the global economy: Ukraine & war change the landscape. “Dangerous decade”
5. Demographics, costs of ageing and healthcare on the system, lower savings and higher bond yields
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But more and more inflationary pressure looks structural:
8. Stagflation risks rising as economies falter but structural price pressures remain
Source: Perpetual Investment Management Limited
12
when bond yields rise Sectors outperformthatwhen bond yields rise Stoxx Europe 600 Index
years Percentage Return
13Source: Goldman Sachs Global Investment Research. -0.50 -0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 IndustrialBasicAutosCyclicalsBanksValue&PartsInsuranceResourcesEnergyGds&Svs Construction & Mats Travel & PersConsumerFinancialChemicalsLeisureRetailersServicesMediaTelecomTechnologyPrd&SvsCare,D&GStoresUtilitiesHealthCareFood,Bev.&TobaccoGrowthDefensivesRealEstate US 10-year bond yield German 10-year bond yield
A higher rates tend to favour value
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Sectors underperformthat past ten
© 2022 Perpetual Limited. All Rights Reserved. GICs sectors are mostly value. But value is complex 14Source: Perpetual Investment Management Limited The value benchmark includes cyclical value and defensive value. A true traditional value strategy that includes both offense and defense can provide a smoother ride than the boom-bust nature of other value strategies. Sector weighting difference (%) as of June 30, 2022 -12.9% -4.7%4.2% 0.3%1.1%1.1%1.5%1.8%2.1%2.7%3.5% 7.5% -15% -10% -5% 0% 5% 10% 15% Information Technology Consumer Discretionary Communication Services - ExTelecommunicationsIndustrialsTelecomsMaterialsRealEstateConsumerStaplesHealthCareUtilitiesEnergyFinancials Cyclical Defensive
- Food & Energy inflation likely to persist (STO, IPL)
- Founder Led Businesses (PMV),
• Stocks of interest
- Green Metals still attractive (OZL, ILU, JRV)
- Business models with interest rates as tailwind (IAG)
- Looking for inflating cost and no pricing power (ANN)
- Concept Stocks Continue to Sell off (Z1P)
Stock references are for illustrative purposes only. Past performance is not indicative of future performance.
- Spend on Experiences (QAN, EVT)
- Supply chain beneficiaries (J B Hunt)
15
- Vulnerable to rising rates (CSL, TCL)
- Floating rate credit is also an attractive theme
- Global Businesses with pricing power (Danone)
• Stocks of less interest
- Expensive FAANG stocks
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Market Outlook
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Corporate overview
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