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THE INVESTOR
THE INVESTOR CENTRE
T
he fourth quarter provided a strong
close to a rewarding calendar year.
The market is up 20% for the year and
almost 16% per year for the past two.
Burgundy outperformed these periods by
3.7% and 5.5%, respectively. However,
we think the higher valuation multiples in
the European markets require sustained
low interest rates and a healthy economic
tailwind.We avoid owning companies that
are dependent upon that bet.This year we
have been selling more companies than we
have been buying and almost 9% of our
portfolio is currently in cash. Burgundy’s
increasingly concentrated portfolio of 18
companies remains attractive in our view.
Our portfolio’s price-to-earnings ratio
(P/E) of 16x is similar to the European
market, yet its quality is much higher.
For example, over the past ve years our
portfolio companies’ return on equity
was 25% compared to the index average
of 12%, and its earnings growth was
more than 7% per year compared to at
index earnings.We have made no new
purchases this quarter.The average P/E
ratio of our DreamTeam list has reached
20x, almost 30% more than our portfolio.
However, it only takes a couple of Dream
Team companies to stub their toes in the
short term or a macroeconomic hiccup to
provide meaningful buying opportunities.
We are ready and waiting.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Portfolio return above index average,
with opportunities for year ahead
We have been selling
more companies than
we have beenbuying
Kenneth A. Broekaert
W
orld equity markets continued
to show extraordinary strength
in the fourth quarter of 2013, and the
powerful returns for the year rank with
the best years in the past decade.The
Federal Reserve Board’s delay in tapering
of securities purchases was welcomed by
the markets in October, as was its decision
in December to scale back the programme
very gradually; and the con rmation of
Janet Yellen as the next Fed chair was
interpreted as good for the markets.Yellen
has always been considered one of the most
‘dovish’ members of the Fed and markets
clearly expect her to live up to that
reputation.To be sure, there appears to be
little for a central banker to be‘hawkish’
about these days. In ation continues to be
almost absent from the world economy,
and in fact de ation continues to be a
worry in some places, particularly in the
eurozone. Positive economic news also
supported the markets’ bullish behaviour.
China appears to have stabilised its growth
rate above 7%, so it continues to underpin
a major portion of world growth.The US is
growing slowly but surely and now the UK
appears to be emerging from the economic
doldrums.With somewhat extended
valuations supported by improving
fundamentals, we believe high-quality
equities can continue to deliver attractive
rates of return in 2014.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Despite start of tapering, Yellen
expected to be ‘dovish’
There appears little for
a central banker to be
‘hawkish’ about
E
quity markets experienced a
continuation of low volatility and a
gradually improving economic backdrop
in the nal quarter of 2013 as market
participants continued to reposition
themselves for the introduction of Fed
tapering.After the signi cant re-rating
of UK equities over the year (driven by
liquidity and policy support), the recovery
in the UK does appear to have progressed
and investors are beginning to have a greater
focus on underlying company fundamentals.
With the US and Europe also slowly
heading in the right direction, and China
moving ahead with an aggressive reform
agenda to better reposition its economy,
there is less macro-level risk on the horizon
than has been the case for a number of
years. Strong positive performance in the
quarter included one of the highest monthly
performance returns in November since
the launch of the portfolio, despite the
wider UK equity market seeing a negative
monthly return.All three strategies (naked
long, naked short and pair trading books)
have contributed, pointing to an attractive
environment for active stock-picking.We
expect positive results into 2014 but would
not rule out equity market falls if policy
withdrawal is mismanaged or recessionary
fears return. Fed tapering had begun and
the likelihood is that the‘lower for longer’
interest rate policy being used by central
banks will remain while we live in a world
of low, slow positive global growth.
BLACKROCK
UK Absolute Return
Less macro-level risk on the horizon
as portfolio performs strongly
Recovery in theUK
does appear tohave
progressed
Nigel Ridge
Richard Rooney
