D
espite market‘jitters’ inAugust, the
bull market in equities has charged
back.As value investors whose opportunity
set varies with equity market valuations,
bargain-hunting has become even more
challenging of late, producing a level of
residual cash reserves (15%) that has
contributed to our performance trailing
market indices somewhat. From our
perspective, risk rises when equity prices
get high in relation to our estimates of the
companies’ underlying intrinsic values,
as they are today.We have always felt
that our success as an investment adviser
is determined, in part, by our ability
to produce returns over the long term
which are more than commensurate with
the risks taken. Modest residual levels of
cash reserves over time play a meaningful
role in that risk-adjusted return stream.
The cash reserves that we carry in our
portfolios today are not representative
of a market prediction, but rather a
residual outcome of our assessment of
each individual security that we own.
We like to think of our cash position as
providing us with opportunity potential,
rather than serving as a drag on returns.
As a practical matter, we are only a handful
of opportunities away from being nearly
fully invested. Past history suggests we
will have those opportunities again and we
ultimately believe a little patience at this
point in time is likely to be rewarded.
TWEEDY, BROWNE
Satellite manager: Global Equity
Vibrant bull market in equities as
cash reserves create opportunities
Bargain-hunting has
become evenmore
challenging of late
William Browne, Tom Shrager,
John Spears, Robert Wyckoff
T
he nal quarter of 2013 began with
muted activity in the gilt market
as the shutdown of the US government
meant there were no data releases from
the US, which has been the major driver of
government rate moves.While there was
some softer data from the US immediately
after government reopened, during
November the strong payrolls print put
things back on track. Speculation over
when the Federal Reserve would start to
taper its asset-purchase programme was
still proving to be a source of uncertainty
for international markets. UK data
continued to look solid over the period,
with quarter three GDP con rmed at
+0.8%. Continuing strong data across
the board in the UK led to selling o of
gilts through November.The Monetary
Policy Committee voted to keep policy
unchanged, although the details in the
minutes hinted that tightening could start
earlier than the August In ation Report
suggested.The Bank of England announced
that the mortgage element of the Funding
for Lending scheme will be stopped in the
rst quarter of 2014, as there are concerns
of a growing housing bubble.
WELLINGTON MANAGEMENT
Gilts
UK Gilts
UK data looking solid as steps taken
over a growing housing bubble
MonetaryPolicy
Committee ‘to keep
policyunchanged’
Haluk Soykan and Paul Grainger
THE INVESTOR CENTRE
THE INVESTOR
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