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THE INVESTOR
THE INVESTOR CENTRE
T
he positive sentiment in the latter half
of 2013 continued into 2014 with
an increasing amount of investor capital
targeting the sector.As the economic
recovery is spreading, we are seeing a
gradual increase in occupier demand
beyond central London to the regions,
which is supporting valuations across a
wider part of the market than in 2013.
Asset valuations within the St. James’s Place
property portfolios have continued to rise
during the rst quarter; this, together with
strong rental income streams from the 620
tenants, have provided positive returns
during the period.We have completed the
acquisition of Richmond Riverside,West
London for £64.5 million.The asset is a
prime mixed-use development consisting of
six self-contained o ce blocks, eight high
street retail units and three bar/restaurant
units in an attractive riverside setting.The
allocation to the Life and Pension funds is
70% (£45.15 million), with the remainder
allocated to the UnitTrust. In addition,
we have completed the purchase of an
industrial estate in Basingstoke for £13.25
million.The estate consists of 20 warehouse
and trade units over 130,000sq ft, let to
multiple tenants. Occupancy in the St.
James’s Place property portfolios remains
strong at 97.9% for the Property UnitTrust
and 94.7% for the Life and Pension funds,
compared to 90.8% for the wider property
market as measured by IPD.
Chris Bartram
ORCHARD STREET
Property
Property continues to strengthen
outside central London
Investor capital is
seeking product in
the regions
W
e continue to be cautious about
companies in the US, which tend
to have relatively high valuations, and
prefer those in Japan and Europe.Although
valuations around the world have risen,
we still nd plenty of opportunity, and
the portfolio has an average upside to
our targets of 33%.We have bought
Lukoil recently, not surprisingly weak
as the Ukrainian situation deteriorated.
A buyer of Lukoil’s shares pays less than
$3 for every barrel of the company’s
reserves. It is the second-largest owner
of oil reserves in the world.The price-
earnings ratio is 4 and the dividend yield
6%.The company’s production is likely to
grow at about 3.5% until the end of the
decade. But it is Russian, and that is a big
‘but’. Howard Marks, legendary founder
of the US manager Oaktree, has some
maxims which are relevant to this:‘When
everyone believes something is risky, their
unwillingness to buy usually reduces its
price to the point where it’s not risky at
all’, and‘Scepticism is usually thought to
consist of saying “No, that’s too good to be
true” at the right times... [but] sometimes
scepticism requires us to say, “No, that’s
too bad to be true”.’‘Not risky at all’
would be an overstatement for Lukoil;
but it is probably the most outstandingly
undervalued company in the portfolio.
OLDFIELD PARTNERS
High Octane
Look beyond the US in favour of
Japan, Europe and the Balkans
We continue to
be cautious about
companies in theUS
Richard Oldfield
Y
our portfolios outperformed a volatile
market during Q1. Rolls-Royce
su ered from cuts in US defence spending;
however, what we gained in not holding
Rolls-Royce, we lost for similar reasons
through holding BAE Systems. Despite
announcing securing a Saudi contract for
the Euro ghter in one breath, it warned
on 2014 earnings in another. Our increase
in exposure to the pharmaceutical sector
(AstraZeneca) reaped reward, as did our
much-treasured small cap portfolio, which
makes up around 10% of your portfolio.
To give you a taste, Northgate, a van
leasing company, which is highly sensitive
to economic activity, rode on the back of
the UK economy’s continued growth; and
Grainger, a housing owner, cantered along
with the rise in house prices (fuelled by
the government’s Help to Buy scheme).
Centrica became the politicians’ punchbag
as the debate about fuel bills raged; andWm
Morrison’s poor Christmas period turned
sentiment sour. In outlook, we retain our
view that companies reliant upon emerging
markets for their growth are likely to su er
as the e ects of weak currencies and bloated
money supplies play out in an uncontrollable
manner. Economic news, particularly from
emerging markets, appears to be building
some negative patterns, whether they be
currency hiccups from the‘Fragile Five’ of
Brazil, Indonesia, India,Turkey and South
Africa, or the steady ow of disappointing
data from China.
MAJEDIE
UK Growth
Joint manager: UK & General Progressive
Emerging markets are weak but
Europe sees growth
WmMorrison’s poor
Christmas turned
sentiment sour
James de Uphaugh
All information correct as at 31 March 2014
