T
he investment industry is yet again
showing it is predisposed to amnesia.
February saw the £1.2 billion IPO of AO,
an online retailer of fridges, freezers and
microwaves (and other low-tech, low-
margin white goods).The stock closed
up 32% higher on the rst day of trading,
valuing the company at £1.6 billion. Even
the original otation valuation put the
stock on a stratospheric 175 times earnings
and 4.5 times sales. For its founder, John
Roberts,AO could certainly stand for
Absolutely Outstanding, but perhaps from
a stock market perspective it should stand
for Amnesia Outbreak.This is 1999 redux.
AO is not the only technology stock to
be punted at gravity-defying valuations.
Venture capital backers of debt-burdened
technology companies (i.e. anything with
a half-functioning website) are making
good on an exit while they still can.And
investors seem only too keen to help,
allocating capital towards these triumphs
of hope over substance; and away from
companies with rock-solid balance sheets,
proven cash ows and established business
models, trading on sensible valuations.
The above behaviour is perfect if you
are angling to lose a serious amount of
money. Personally, we would rather leave
the rehash of dotcom dreams to others. It
didn’t turn out well last time and it won’t
this time either.
J O HAMBRO
Joint manager:
UK & General Progressive
Is investment industry forgetting the
dotcom boom-bust syndrome?
Wewould rather leave
the rehashof dotcom
dreams toothers
John Wood
F
or the rst quarter of 2014, the
portfolio realised positive relative value
from its security selections and yield-curve
positioning. Both the portfolio and the
benchmark were in positive territory as
UK investment grade continued its strong
run.The market has been supported by
an improving economic situation in the
UK, and ongoing banking-sector repair.
Broadly, banks and building materials led
the market higher, while utilities generally
lagged. Selected names fromwithin
the communications, technology and
electronics, energy, and real estate sectors
lifted relative results. Our preferences from
the services and utilities sectors mitigated
outperformance slightly. In total, sector
allocations had marginally negative impact
on relative results. Underweight exposure to
supranational issuers contributed positively
to relative performance as the sector largely
trailed the returns of others.Also adding
value was an overweight stance in the
technology and electronics industry, which
was one of the better-performing market
segments during the period. However, these
gains were o set by ground lost from the
combination of an underweight allocation to
the banking sector with that of an overweight
allocation to the energy sector. Overall,
portfolio duration remains closely aligned
with that of the benchmark.This generated
relative value as yields faced downward
pressure from a ight to quality amid global
growth and geopolitical concerns.
LOOMIS SAYLES
Investment Grade Corporate Bond
Market supported by improved
UK situation and bank-sector repair
Banks andbuilding
materials led the
market higher
Kenneth M. Buntrock
THE INVESTOR CENTRE
THE INVESTOR
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33
W
e remain strongly of the view that
the unwinding of quantitative
easing remains the single most important
factor that will impact markets and
economies over the next few years. In
our view, the drivers to economic growth
and normalisation of monetary policy are
gathering strength. US households are
stronger, with increasing employment,
lower leverage and increasing house prices,
which all support consumer con dence.
The business sector is ush with cash and
should bene t from improved labour and
energy competitiveness.The government’s
scal position continues to improve and US
banks are strongly capitalised and ready to
lend. Nonetheless, market volatility over
the quarter was in uenced by mixed US
economic data; with some data suggesting
lower consumer con dence and business
conditions, perhaps impacted by weather,
and some data suggesting stronger job
creation and manufacturing than anticipated.
Investors should not be distracted by these
shorter-term data points. Normalisation of
monetary policy, accompanied by higher
interest rates, will be disruptive to markets,
particularly those where investors have
sought duration and higher yields over the
past few years. Our strategy’s investments
remain well positioned to bene t from a
strengthening US economy, along with
normalisation of interest rates and capital
market activity.
MAGELLAN
International Equity
US business sector flush with cash
and banks strongly capitalised
Investors shouldnot be
distractedby shorter-
termdatapoints
Hamish Douglass
