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THE INVESTOR
THE INVESTOR CENTRE
C
ompany earnings and our meetings
with management suggest that
company fundamentals in Europe have
started to improve from their lows of
2013, although not dramatically. On
average, the operating pro ts of our
portfolio companies were at in 2013 in
euro terms and in the mid-single digits in
British pounds and US dollars; below the
average of approximately 7% over the last
business cycle.The main reasons were: 1)
weak currencies against the euro, especially
in emerging markets and 2) low in ation
that didn’t allow our companies to use
their pricing power. Looking beyond the
short term, we think it is an advantage to
own companies with strong positions in
many countries around the world that have
pricing power.This quarter we increased
our position in Colruyt near its 52-week
low.We exited IMI, a position we entered
opportunistically during the euro crisis
of 2011, more than doubling our money.
Our original investment thesis was that
the core businesses were of high quality
and underappreciated by the market, and
management was planning to improve and
potentially divest the non-core businesses.
The operating performance of the core
has been underwhelming but the valuation
multiple doubled.Also, a large special
dividend was announced from the proceeds
of selling the non-core businesses.We sold
when IMI was fully valued and the highly
respected CEO departed.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Company performances in Europe
pick up from their lows of 2013
This quarterwe
increasedour position
inColruyt
Kenneth A. Broekaert
T
he year 2014 promises to be a very
interesting one, judging by its rst
quarter.World equity markets seesawed
as uncertainties were encountered but,
despite considerable short-term volatility,
never produced either a winning or a
losing streak. Most of the gains or losses
investors received came from changes in
currency levels, not equity prices. Janet
Yellen’s succession as Fed chair was seen
by the markets as a good thing. So was
the Ukrainian overthrow of Yanukovych.
Russia’s intervention in Crimea caused
some losses, especially in the Russian
currency and stock market, but even the
reawakening of ColdWar rhetoric has not
truly shaken most world equity markets;
nor did the rst defaults on Chinese retail
wealth products, governance problems in
Thailand, Libya, Iraq, Syria andVenezuela,
or the rise of secessionist sentiment in
Scotland and Quebec.As always, it is
di cult to decide whether the markets are
delusional, or just astute.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Seesawing world equity markets
never had a winning or losing streak
It is di cult todecide
whether themarkets
are delusional
T
he global economy remained in
recovery mode in the rst quarter of
2014. Softening growth expectations across
the emerging markets are partly to blame.
Against this backdrop, the fund followed
up signi cant alpha generation in Q4 of last
year with more positive absolute returns
over Q1, despite a substantial change in
the market environment. Furthermore,
the fund’s low net exposure and low-risk
approach has helped produce a stable return
and avoided the volatility of mainstream
indices. Stock selection has generally
contributed to overall returns. Naked long
positions in CarphoneWarehouse and
Better Capital were the largest positive and
negative performer respectively. Pleasingly,
the pair book managed to capitalise on the
di erential between good and bad company
performance within sectors.The fund’s
positioning to bene t from certain elements
(and geographies) of the global economic
recovery, in construction and publishing in
particular, performed well in that context.
Furthermore, the short book has been able
to o er protection, as well as alpha, this
quarter.This has been most evident in UK
food retailers, as discounters and a growing
customer preference for convenience and/
or online has disrupted the traditional
supermarket model.We expect a pedestrian
growth environment to persist across the
global economy, with increasing market
volatility, and expect equity markets to end
in negative territory for the year.
BLACKROCK
UK Absolute Return
As global economy recovers, equity
markets are to stay negative in 2014
Stock selectionhas
generally contributed
tooverall returns
Nigel Ridge
Richard Rooney
All information correct as at 31 March 2014
