The Point

Global equities: where to hunt for smalls and midcaps

“Now is the time for small and mid-caps to shine”, says Regnan portfolio manager Tim Crockford.

“Particularly in Europe, relative valuations have reached depressed levels that are not reflective of the underlying relative fundamentals,” says Tim, who leads Regnan’s global equities impact investing team.

“In terms of developed markets, Europe and Japan offer opportunities. In terms of emerging markets, it’s places like Indonesia and Brazil,” Tim says.

Focus on companies that are likely to grow over the next 12 months – or where the valuation is so depressed it’s priced for a highly negative drop in growth in 2024, he argues.

“Look for companies that are able to generate organic cash flows to fund at least part of their growth.

“And the remainder of the funding needs to be covered by debt that isn’t going to burden, or reverse, the positive effects of potential future cash flow growth.”

Impact investing: How GLP-1 drugs could affect sectors outside healthcare

GLP-1 medication – best known in drugs such as Ozempic and Wegovy – could have impact far beyond the treatment of diabetes and obesity.

That’s the view of Maxime Le Floch, an analyst with Regnan’s impact investment team, who has been reviewing recent studies.

Regnan invests in Novo Nordisk, one of the two dominant GLP-1 drug makers along with Eli Lilly.

Demand for GLP-1 is already outstripping supply – and potential health benefits uncovered in recent studies could drive demand higher.

Results from a recent study on cardiovascular risk using Novo Nordisk’s GLP-1 were “far better than expected,” says Maxime. Another trial on chronic kidney disease was stopped early because of the success of GLP-1.

And there is now evidence that the use of GLP-1 weight-loss drugs may be affecting sales of certain food categories.

Global equities: Where to look for AI winners

Looking for exposure to artificial intelligence?

Go beyond big tech and look for companies using AI to improve efficiency or competitive advantage, says Pendal global equities analyst Sue Scott.

For example, copper miner Freeport-McMoRan has lifted output by as much as 5 per cent at some of its facilities using AI. Energy group Total is using AI to help deploy solar to its worldwide service station network.

“There’s a lot of hype factored into what AI means for future earnings,” says Scott.

“But our focus has been looking at the companies where AI is being successfully used as a tool for productivity and product development.

“Some companies will be faster than others. Our investment philosophy is always to own the dominant players in any particular market.

“To keep their edge, it’s important for us to see that they’re at least looking at these kinds of technologies.”

Three ways impact investing can help diversify equities portfolios

Impact investing works in three ways to provide diversification to traditional equities portfolios, says Tim Crockford, who heads up Regnan’s impact investing team:

1. Good exposure to smaller and mid-cap companies
2. Early access to future growth stocks focused on new, emerging market segments
3. Long investment time frames

Impact investing funds such as Regnan Global Equity Impact Solutions Fund focus on identifying the listed companies best placed to solve the world’s biggest problems.

Right now stocks equities in the $1 billion to $10 billion range are trading relatively cheaper than their larger counterparts – an inversion of normal patterns driven by appetite for US mega-cap tech stocks, says Tim.

“You’d normally expect to pay a premium for small companies because they tend to have higher growth rates,” says Crockford. “But something has changed across 2022 and many smaller caps are now trading at a lower PE multiple than large caps.

Global equities: What equities investors need to know about hack attacks

After the recent Optus and Medibank data breaches, stockmarket investors may be wondering how to assess a company’s ability to withstand a hack attack.

“Understanding the risk, and what management is doing to mitigate the risk, is critical,” says senior global equities analyst Sue Scott.

Sue gives the example of Spanish financial services giant CAIXA, which is held in Pendal Concentrated Global Share Fund.

“They receive 74 attacks every hour,” says Sue. Yet CAIXA hasn’t experienced a successful critical attack, she says.

Before investing, Pendal scrutinised CAIXA’s preparedness for cyber-attacks and mitigation efforts. “Importantly we saw very clear roles and responsibilities.

“It had a corporate-wide cyber policy, a specialised cyber security committee, an audit team, three board members with specific technical expertise and relevant management KPIs.”

Global Equities: Two smaller European companies that look set to make an impact