Second-half performance fees crashed from $54.5 million to just $5.9 million as Pendal’s active funds with a bias to value and small caps underperformed, as investors bid up the value of global growth stocks, leaving value returns trailing in their wake.
However, Pendal chief executive Emilio Gonzalez said there are signs that value stocks in Europe are staging a comeback, particularly in the UK, and negative one-year fund returns have been trimmed significantly in the past month.
He said confidence was growing that the market is turning. “We have been on the front foot,” Mr Gonzalez told analysts at an earnings presentation. “The time to be active is now.”
Mr Gonzalez said that excluding performance fees, which are often “volatile in nature”, operating profit was $198.5 million, down 8 per cent on the previous year.
Funds under management dropped to $100.4 billion from $101.6 billion, weighed down by net outflows of $4.7 billion as investors reduced their exposure to European equities by $2.7 billion on Brexit concerns and a subdued growth outlook.
“Clarity over Brexit should see investor confidence improve,” Mr Gonzalez said.
The company declared a final 2019 dividend of 25 cents a share, 10 per cent fully franked, payable on December 19, with the 88 per cent payout ratio near the upper end of the company’s range. It paid out 20 cents in the first half.
However, the dividend fell well short of analysts’ consensus expectations of more than 51 cents a share. The company paid out 52 cents a share in fiscal 2018.
Mr Gonzalez said there was an increasing focus for the company to grow and develop income products for retirees.
“The ageing population globally is driving increased demand for products to provide income in retirement and investors are willing to pay for active management to provide products that meet those income needs,” he said.
Over the past few years Pendal had progressively rolled out a series of income products in Australia and also offshore, “which are now gaining traction in terms on inflows,” Mr Gonzalez said.
“This adds to our overall revenue possibilities as well as stability to the portfolio.”
Stephen is Investment Editor at The Age and Sydney Morning Herald. He writes about personal finance issues and markets as well as editing Money.