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Global equities: Which sectors look best right now

Which global equities sectors look good in the current environment? Pendal Global Select Fund portfolio manager NUDGEM RICHYAL explains

  • Rate rises are the only certainty
  • Fed more worried about inflation than investors
  • Consumer staples, healthcare relatively attractive

INFLATION, politics and war makes for a challenging environment for investors.

About the only sure thing is that interest rates will rise, though by how much remains unknown.

By lifting the official interest rate last week and laying out a timetable of rate increases for the rest of the year, the US Federal Reserve joined a host of other central bank in a tightening cycle.

“There was already a political inflation issue in the US and the crisis in Europe has exacerbated the inflation pressure in the United States,” says Nudgem Richyal (pictured below), co-manager of Pendal Global Select Fund. “The US Federal Reserve Fed had little room.

“It shows that the stock market, which was up 29 per cent last year in the US, is not the Fed’s priority at the moment.

“Its priority is to try and tame inflation — and there’s political pressure to do so because President Joe Biden is on the record saying the inflation is something the Fed fixes.”

Add to that mid-term elections later this year where control of the House of Representatives is up for grabs, and inflation is clearly the number one public policy issue for the Fed.

“Many Americans live on low incomes and feel inflation acutely,” Richyal says. “People who are living pay check to pay check really care about gas prices and food prices and rent payments.”

Pendal Global Select Fund

Something very different in global equities

Another complication is that sharp, upward moves in crude oil often precedes a recession.

“The Fed could find itself raising rates to curtail demand to try and get inflation under control.  But the energy price is itself curtailing demand.

“So, you have this non-negligible risk of the Fed raising rates into a slowdown.

“The Fed may even be raising rates into what we realise, ex-poste, is a recession. That’s when you get stagflation.”

Which sectors look best in this environment?

“If equities and bonds fall together, then that’s a market proxy for inflation, so we have to look at what tends to work in that environment.

“Historically the sectors that do best, in a relative sense, include consumer staples and healthcare,” Richyal says.

“They are sectors where businesses have pricing power and can pass on the cost of goods — where goods have limited substitute products.

“Relative earnings in those sectors will start to look better. The tend to have a more stable earnings profile. They will be crimped to some extent but will do relatively better.”

Unknowns ahead

But there are still plenty of unknowns in the quarters ahead, cautions Richyal.

“If the Fed capitulates and goes back to printing money, you’d get asset inflation and that would be great for markets.

“But it wouldn’t be good for society and the people living hand to mouth. That’s not going to happen because inflation is politically unpalatable.

“If there’s a commodity price induced recession while the Fed is raising interest rates, then that will do some of the central bank’s job for it, and they may not lift rates as much.

“If the whole issue of supply chain disruptions resolves itself, and the war is over quickly and supply chains improve, it’s possible that economies could move back into structural disinflation.

That would be great for the person in the street and might be good for market participants as well.

“But that seems a bit of a long shot right now.”


About Nudgem Richyal

Nudgem Richyal co-manages Pendal Global Select Fund with Chris Lees. The pair have been working together in global equities investing for more than 20 years.

Nudgem has 22 years of industry experience, joining J O Hambro Capital Management (a wholly owned subsidiary of Pendal Group) with Chris in 2008. He was previously an investment director with the Global Equity Group of Baring Asset Management, where he worked closely with Chris since 2001.

About Pendal Global Select Fund

Pendal Global Select Fund is a global equities portfolio with a distinctive, yet proven approach and a 17-year track record of outperformance. Since its inception, the underlying strategy (JOHCM Global Select Fund) has delivered top-decile performance in Lipper and 2nd decile in Morningstar.*

About Pendal

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management. Pendal Group includes Pendal Australia, J O Hambro Capital Management, Regnan and Thompson, Siegel and Walmsley (TSW).

Contact a Pendal key account manager here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at March 23, 2022. PFSL is the responsible entity and issuer of units in the Pendal Global Select Fund (Fund) ARSN: 651 789 678. 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 8:00am to 6:00pm (Sydney time) or visit our website www.pendalgroup.com

* Source: JO Hambro, Morningstar universe – Global Large-Cap Growth Equity funds, Lipper survey – Sector quartile ranking: IA Global, and Lipper Global Equity Global domiciled in the UK, offshore Ireland, or offshore Luxembourg. Lipper ranking is from A GBP Class. Please note that these performance figures have not been calculated in accordance with the Financial Services Council (FSC) standards.

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