R
egular readers of our commentaries
will know that we hung up our
quantitative easing surfboard some time
ago. However, there has been a large
number of highly respected investors
advocating staying in the water to enjoy
the last remnants of the tidal surge,
arguing that timing the exit is dependent
on something signi cant, such as electoral
cycles, or more inconsequential matters.
Our concern has been to make sure our
swimming costumes are securely fastened
when the tide turns. Our aversion to
low-quality corporate assets, in particular
to former private equity assets which
are ooding back on to the public equity
markets, means we strive to ensure that
we are not found swimming naked when
the liquidity waters nally recede. Our
focus continues to be on identifying
companies that can generate above-average
returns over the long term through
compounding growth. Unfashionably,
we seek to buy and hold stakes in
companies characterised by high-quality
franchises that generate plentiful free
cash ow and which have solid balance
sheets marked by low levels of debt.We
believe we can achieve attractive long-
term returns through the patient process
of holding stocks that regularly compound
their growth over time.
J O HAMBRO
Joint manager:
UK & General Progressive
When tide turns one’s swimming
costume must be securely fastened
Low-quality corporate
assets are ooding
back on to themarkets
John Wood
S
ecurity selection decisions have
led to underperformance for the
period.These losses have overshadowed
bene cial yield curve positioning and
sector allocations. Select names in banking,
insurance, non-electric utilities (water
and gas), and transportation have weighed
on relative performance. Financials have
tightened substantially since mid-year and
not all issues have kept pace.This has also
been the case for certain issues within
transportation.These losses more than
o set positive choices within aerospace/
defence, telecom (service providers), media
(cable) and supranational issues. Sector
allocation strategies have added value.
Overweights to telecoms and food & drug
retailers have been positive. Underweight
exposure to supranationals and agency
bonds has also been adding value.These
gains have made up for lost ground from
an underweight stance in banking. Overall
portfolio duration remains closely aligned
with that of the benchmark.Yield curve
positioning contributed marginally over
the month. Select positions along the
front end of the curve have picked up
some gains in an environment driven by
central banking policy.The UK investment
grade market continues to shine, outpacing
gilts as well as the US and European
markets substantially.
LOOMIS SAYLES
Investment Grade Corporate Bond
Beneficial yield curve positions
overshadowed by losses
Financials have
tightened substantially
sincemid-year
Kenneth M. Buntrock
THE INVESTOR CENTRE
THE INVESTOR
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33
A
s the quarter began, the economic
backdrop was dominated by
uncertainty created by the US government
shutdown. However, once the political
brinkmanship that caused it began to
dissipate, the rally that characterised
earlier 2013 resumed. In the US, the
Federal Reserve maintained its rate of
bond purchases, citing contained in ation,
persistent labour market weakness and
headwinds to growth resulting from
October’s government shutdown, as
justi cation, though tapering was later
announced. In Europe, the ECB also
pointed to high unemployment and
low in ation in its decision to cut rates
further. Elsewhere, the Bank of England
noted economic improvement in the UK,
but continued to keep monetary policy
accommodative;Australia cut interest
rates further; China saw more signs that
its economy was stabilising; and Japan saw
in ation rise in response to itsAbenomics
policies (and a signi cantly weaker yen).
Over the period, the strategy’s large-cap
technology investments were decisive
in driving performance. Google saw its
shares rise sharply after strong results
mitigated concerns that had arisen in the
preceding period. Microsoft also made
gains as its enterprise business performed
strongly. Conversely, eBay lost ground
after announcing weaker-than-expected
guidance, despite strong earnings growth.
MAGELLAN
International Equity
Rally resumes after US government
shutdown causes uncertainty
The Federal Reserve
maintained its rate of
bondpurchases
Hamish Douglass
