I
f you look back over the past year and
a half, it has largely been a tale of two
worlds in global equity markets, with
developed markets gaining momentum,
and equity market performance slowing
considerably in emerging markets.While
bargains are beginning to pop up in the
less-developed parts of the world and in
companies that service or sell products
into that world, as evidenced by new
additions in the portfolio (Banco Santander
Brasil and Standard Chartered Bank), it is
still not a re sale of the kinds of companies
in which we like to invest.With developed
markets still awash in central bank- nanced
liquidity, interest rates at zero or negative
and market volatility at near-record lows,
as measured by theVIX, new undervalued
equities are very di cult to uncover.As a
result, cash reserve levels continue to be
somewhat elevated.That said, this idyllic,
yet arti cial, state of a airs will not go
on forever; and when volatility returns to
public equity markets, we will be ready
with dry powder to take advantage of what
it will o er us. In the interim, the portfolio
should capture a signi cant part of any
continued upside.
TWEEDY, BROWNE
Satellite manager: Global Equity
Bargains starting to pop up but no
fire sales of worthwhile companies
It has largelybeen a
tale of twoworlds in
global equitymarkets
William Browne, Tom Shrager,
John Spears, Robert Wyckoff
D
uring the second quarter there was
a recovery in‘risk on’ sentiment in
the global xed income markets.Although
the situation in Russia and Ukraine is still
far from a full resolution, the market took
the lowering of tension positively and risk
assets performed well over the period.
There was continuing improvement in
global data over the quarter, with the US
recovering strongly from the weather-
a ected weak rst quarter. President
Draghi signalled in May that the European
Central Bank would take additional steps to
ease the eurozone, and we saw constructive
measures announced at the meeting in
June. UK data continued to look stronger
through the second quarter; industrial
production, retail sales, house prices and
employment numbers all beat expectations
during the period.Wage data continues to
lag and this is where we are still waiting to
see signs of improvement. During June,
Bank of England governor Mark Carney
signalled that interest rates might rise
sooner than the market had anticipated; the
next question will be the pace at which the
Bank of England hikes rates.
T
he UK stock market has continued
to shrug o growing concerns about
market levels. In capital terms, the UK
market has hit new all-time highs in recent
months, although subdued volumes and low
volatility provide reasons to be somewhat
cautious about near-term prospects for
the market. Data on the UK economy
continued to suggest a reasonably robust
recovery is under way, although we remain
sceptical about its durability.We see little
evidence of the economic rebalancing that
we needed and were apparently striving
for and, consequently, the recovery looks
somewhat fragile. In Europe, recent data
looks less robust, particularly in France.The
continued decline of in ation across Europe
is increasingly troubling for policymakers
as will be the signi cant political shift to
the far right evident across much of the
region in the European elections. In the
US, the outlook appears healthier, but
we still anticipate a protracted period of
low global growth and have positioned
the portfolio accordingly.We continue to
favour high-quality, dependable growth
businesses with proven business models and
international diversi cation.Valuations of
companies with these characteristics tend
to be more attractive than elsewhere in
the market, albeit slightly less attractive in
absolute terms than they were a year ago.
Nevertheless, we remain con dent that we
can deliver attractively positive long-term
returns to investors.
WELLINGTON MANAGEMENT
Gilts
UK Gilts
The next big question: the pace of
interest rate hikes in the UK
WOODFORD INVESTMENT
MANAGEMENT
UK Equity, Income Distribution,
UK High Income
Has UK recovery got staying power?
UKdata continued to
look stronger through
the secondquarter
We still anticipate a
protractedperiodof
lowglobal growth
Haluk Soykan
THE INVESTOR CENTRE
THE INVESTOR
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37
Neil Woodford
For
Wasatch
see p38
