M
arkets have failed to meet
expectations so far this year as
companies struggle to convince investors
that meaningful growth is imminent.
The average multinational has had to face
currency headwinds and the removal of the
hitherto reliable growth from emerging
markets. China is causing consternation
as the authorities continue to report
7% growth, which nobody gives any
credence to. Nevertheless, this is proving
a headwind for our miners, which have
a very competitive cost base.The longer
metal prices remain low, the greater the
chance capacity will shrink.We have sold
two US holdings.TimeWarner Cable
has performed well and we decided to
take pro ts despite the company being
subject to bid interest.We sold Cisco, a
little higher than book cost.We believe its
current structural threats will prevail and
the stock will remain cheap, with good
reason.There is little to excite us across
the market, with no signs of meaningful
earnings growth.The IPO market worries
us.When last we looked, the sale of
hallucinogenic substances was illegal but it
seems IPO participants are taking them in
vast quantities, thus tolerating valuations
that may prove truly unique! Many of
these companies are being sold by private
equity rms: theVikings of the investor
world.They must be truly grateful for the
enthusiasm of their new investors.
I
n January, major equity markets declined
as the reality of tapering seemed to be
having an impact. However, global markets
reversed course in February, climbing
to new highs.Although earnings season
was generally positive, we see little in
overall economic activity to justify the
buoyant prices in the market – except
perhaps for Janet Yellen, who o cially
took the reins of the US Federal Reserve
in February and appears to be following in
the footsteps of her predecessor. Several
of our stocks reported solid results during
the quarter, including Google, which
reported earnings that showed strong
growth in the business. It also announced
the divestment of Motorola’s handset
business, which has been a drag on pro ts.
In other news this quarter, Royal Bank
of Scotland Group (RBS) announced a
strategy review outlining its restructuring
e orts. RBS plans to shrink the balance
sheet and increase focus on its core UK
retail and commercial banking business –
which we continue to believe is a highly
valuable franchise.We believe that stocks
are mostly fairly valued. Our cash position
remains elevated, and there was limited
activity in the portfolio this quarter.We
exited our investments inAstraZeneca and
Direct Line, which reached our estimates
of intrinsic value.
T
he rst quarter of 2014 was relatively
lacklustre for equity markets, though
bond returns were positive. Investors
continued to be cautious about China and
other emerging markets where growth data
generally disappointed.The timing of the
Chinese New Year might have had some
impact, while bad weather in the US and
much of Europe also had a negative impact
on economic data. Events in Ukraine were
also unsettling.We made no signi cant
change in asset allocation, though we did
add modestly to emerging markets in March
following signi cant underperformance;
our weighting had fallen over the past
year as new cash coming into the fund was
invested elsewhere. It is always hard to
pinpoint turning points exactly, but equities
in these regions now look attractively
priced compared to recent history. Tapering
of quantitative easing should now be
discounted as a driver of valuation and
many governments have increased interest
rates signi cantly recently, and have taken
other measures to correct their structural
problems.We remain nervous, however,
in relation to some of the frontier markets,
such asTurkey and SouthAfrica. Investment
returns were disappointing in absolute
terms, though our relative performance in
equities was satisfactory. Our cautious stance
towards bonds, however, was unhelpful as
they rallied.
Adrian Gosden and Adrian Frost
Dan O’Keefe and David Samra
Richard Peirson
THE INVESTOR CENTRE
D
THE INVESTOR
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ARTEMIS
UK & International Income
No sign of meaningful earnings
growth across the market
ARTISAN PARTNERS
Global Managed
Global
Equity markets decline one month,
then rise the next
AXA FRAMLINGTON
AXA Framlington Managed
Balanced Managed
Reaching a turning point as equities
start looking attractively priced
Markets have failed
tomeet expectations
so far this year
Several of our stocks
reported solid results
during the quarter
We remainnervous,
in relation to some of
the frontiermarkets
A
