T
he beginning of the fourth quarter
was marked by uncertainty over
the debt ceiling which was nally raised
by the US Senate following a 16-day US
government shutdown. Despite this, one
of the best-performing countries through
to the start of December was the US where
notable among the positive economic data
were November’s payroll gures, which
marked the second straight month in which
more than 200,000 jobs were created.
This development was accompanied by a
signi cant drop in the unemployment rate,
which came down to 7%. Emerging market
equity performance rose 0.7% in GBP terms
– with equities supported to a certain extent
by the expectation of continued monetary
easing during the quarter across the US and
Europe.The headline performance gure
masks a considerable divergence in the
performance of individual emerging markets
year-to-date: strong GDP gures were
announced for China and Korea; and India,
after a di cult year, also saw the beginning
of a cautious recovery.This can be contrasted
with LatinAmerica where Brazil, Chile,
Colombia and Peru were all down sharply as
they struggled with slumping commodities
prices, a strong US dollar; and, in the case of
Brazil, the e ects of a larger-than-anticipated
contraction in third-quarter GDP numbers.
R
eal yields on index-linked gilts
increased for the maturities in the
portfolio during the fourth quarter of 2013
to date.The 10-year real yield increased by
0.12% to -0.38%, while ve- and 15-year
real yields increased by 0.15% and 0.09%
respectively. Real yields remain negative at
most maturities in the portfolio, but have
moved to slightly positive at the 15-year
point.Yields on conventional gilts also
increased over the period. Break-even
in ation rates increased at 10- and 15-year
maturities but fell at the ve-year point.
RPI in ation fell by more than expected
to 2.6% in October having been above
3% for the majority of 2013. Indicators
on economic growth remain consistent
with continued expansion, with survey
data recording strong results and GDP
growth for the third quarter reported
at 0.8%, up from 0.7% in the previous
quarter.The Bank of England upgraded its
forecast for economic growth and revised
lower its in ation forecast in its quarterly
In ation Report, released in November.
The Monetary Policy Committee left
o cial interest rates and the asset-purchase
programme unchanged during the period.
The portfolio has been positioned in line
with the benchmark over the period.
Nimish Patel and Eleanor de Freitas
THE INVESTOR CENTRE
THE INVESTOR
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BLACKROCK
Core manager: Global Equity
Latin America struggles, while US
records strong fourth-quarter data
BLACKROCK
Index Linked Gilts
Real yields grow during fourth
quarter after strong UK results
Brazil, Chile, Colombia
andPeruwere all
down sharply
Indicators on
economic growth
remain consistent
Francis Rayner
S
trong market gains over the rst three
quarters of the year have given way
to some uncertainty in the fourth quarter.
European economic activity remains
subdued, although the UK stands out with
its recovery in both consumer and business
spending. Growth remains positive in
emerging markets but the rate of growth
is lower than in recent history and the shift
from infrastructure to consumer spending
has implications for resource companies.
The portfolio comprises high-conviction
investment ideas and is constructed to
ensure good diversi cation of risk across
sectors and industries.We believe investing
for the long term ultimately brings better
performance and our typical investment
horizon when initiating a new position is
two to three years.We look for high-quality
franchises that are exposed to areas of
growth, with high returns on capital, good
cash ow characteristics and sensible capital
allocation. Examples of current holdings
include plumbing and building distributor
Wolseley, in anticipation of continued
recovery in the US housing market and
self-help initiatives to drive margins
higher. easyJet remains well positioned
to take market share from the incumbent
national carriers and we expect engineer
Melrose to continue to deliver operational
improvements at its industrial businesses.
Our concentrated approach to portfolio
construction is well suited to the current
market environment.
BLACKROCK
UK & General Progressive
UK stands out as Europe experiences
continued subdued activity
Investing for the long
termultimatelybrings
better performance
Luke Chappell
