E
quity markets were strong during the
fourth quarter due to an improving
outlook for growth. However, monetary
policy continued to dominate markets
and investor behaviour with growing
expectations that the US Federal Reserve
would soon begin to taper its asset-purchase
programme.The future isn’t bright for
the average business. Fortunately, we
don’t own the average business.We search
for companies that can grow in spite of
macroeconomic headwinds and build our
portfolios around our proprietary insights.
We recognise that short-term market
movements are completely random. Despite
the theories about why the market goes up
or down, in truth no one actually knows.
We try not to ascribe too much meaning
to these blips and pay attention instead
to adding value for our investors. Strong
performance globally has made nding
attractive investments more di cult.
Although it’s still possible to uncover
businesses with good long-term growth
prospects without paying full price for that
growth, today we need to look much harder
for these opportunities than we did a few
years ago, which is more consistent with
a normal operating environment.We’re
pleased with the collection of businesses in
the portfolio and excited about their long-
term prospects.
EDGEPOINT
Satellite manager: Global Equity
Uncertainty likely to persist as we
search for companies that can grow
We buildour
portfolios aroundour
proprietary insights
Tye Bousada and Geoff MacDonald
W
e were privileged to meet the
owner of a Greater China property
company recently and were able to ask him
why he had written an attack on mainland
Chinese corruption in his 2012Annual
Report. He provided two insights for us.
The rst was that he thought the top o cials
in China would be supportive of this.The
second was that his family had part of their
wealth invested in the US; a country run
on a free enterprise basis.This conversation
suggests that the Chinese leadership’s
commitment to reform is wedded to the
idea of governance at some level.The
retreat from communism has rarely been
accompanied by good governance and/
or economic performance. China has
been more successful than many other
countries because the government, in one
guise or another, continues to e ectively
ll the vacuum created by the absence of
broader legal checks and balances.This is
encouraging because it means we should
be able to nd more companies that meet
our quality-based criteria in coming years.
The second implication is that the most
successful owners of global emerging
market businesses have already moved assets
outside their home markets to preserve
wealth.We have attempted over the years
to follow this example by investing clients’
money in diverse businesses that can
weather serious disruptions in one country
by having exposure to others.
FIRST STATE
Global Emerging Markets
Future bright for companies that
meet quality-based criteria
China has beenmore
successful thanmany
other countries
Jonathan Asante
THE INVESTOR CENTRE
THE INVESTOR
|
31
T
he link between central bank money
printing and the full valuation of many
listed companies (especially the well-run
ones) is both understood and accepted
by many. It seems that one mistake
policymakers have repeatedly made over
the past 15 years is to think that awareness
of over-valuation will stop people buying
assets.There are many reasons for this
not being the case; in particular human
weakness.The appeal of easy short-term
gains is just irresistible for some and,
perhaps even more importantly, the
perceived loss of not participating is too
painful to bear for others.Then there is the
nature of incentives in the nancial services
industry.Woe betide a fund manager who
is appraised on performance over one
year who severely lags a rising market in
a rm bent on selling fashionable funds
to its clients! So nearly 13 years after the
technology bubble burst and only ve after
the so-called‘global nancial crisis’, we nd
ourselves faced with full equity valuations
again; while developed world markets have
mostly caught up with developing ones
in valuation terms.We remain focused on
capital preservation and are having to sell
some holdings earlier than we would have
thought necessary.As in 2006/2007 we are
determined to resist the sort of speculative
activity that characterises market peaks
in order to preserve as much capital as
possible to invest when companies are
more cheaply valued.
FIRST STATE
Joint manager: Worldwide Managed
and Worldwide Opportunities
Focus on capital preservation leads
to early sale of some holdings
We ndourselves
facedwith full equity
valuations again
Jonathan Asante
