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THE INVESTOR
THE INVESTOR CENTRE
W
e have had a very busy start to
the year with the team travelling
extensively across Europe to try to uncover
new investment opportunities.The overall
tenor of the meetings continues to support
our view that Europe is recovering more
rapidly than many believe. In particular, we
note a real sense of optimism in Spain.The
property market appears to be stabilising if
not actually recovering in prime locations.
Export orders are at a 20-year high and
last year tourism reached record levels.
Right across the region, furthermore,
we are starting to see business managers
talk of increased capital expenditure, job
hires and even M&A.We believe that the
greatest investment opportunities remain
in the more domestically oriented areas of
the market.As we have written previously,
many of the best-quality international
growth stocks are now just too expensive,
especially considering a possible slowdown
in emerging market demand.This has
become patently evident as crisis engulfs the
emerging markets at the time of writing.
In contrast, many domestic European
companies are trading at discounts to their
American equivalents in excess of 50%.
More domestically oriented companies now
constitute almost two-thirds of the fund.
Most notably, banks and companies from the
periphery of Europe now represent 29% and
27% of the fund respectively.
T
he global macroeconomic picture is
distorted by monetary interventions in
developed economies and we believe global
growth could remain sluggish for several
years.This environment should provide
a favourable backdrop for Select Equity’s
investment style.We invest in established
franchises with growth tailwinds, pricing
power, solid balance sheets and sustainable
competitive barriers.We also believe our
companies trade at substantial discounts
to intrinsic value.We expect the US
economy to accelerate in 2014.The US
housing recovery and related household
wealth e ect should support consumer
spending. Meanwhile, we believe that
non-residential construction – which has
yet to rebound in the US – could revive this
year.We expect US manufacturers to see
continually improving results, helped by
low electricity and natural gas prices.The
picture is also improving elsewhere in the
developed world.The eurozone has likely
bottomed, while Japan’s GDP growth is
accelerating, thanks to quantitative easing.
Still, Europe and Japan face signi cant
structural headwinds to long-term growth.
Meanwhile, many emerging economies –
the primary drivers of global growth over
the past decade – face meaningful cyclical,
political and liquidity headwinds over the
near term.Those that rely most on foreign
nancing and/or commodity exports are
particularly vulnerable.
S. W. MITCHELL CAPITAL
Continental European
Joint manager: Greater European
and Greater European Progressive
Domestically-oriented companies
form the majority of the fund
SELECT EQUITY
Joint manager: Worldwide Managed and
Worldwide Opportunities
US economy expected to grow but
Europe and Japan struggle
Inparticular, we note
a real sense of
optimism in Spain
Global growth could
remain sluggish for
several years
Stuart Mitchell
T
he resurgence in equity market
con dence over the past 12 months
or so has driven valuations higher as share
price rises have outpaced the improvement
in company pro ts.As a result, we are
somewhat cautious about the short-term
outlook for stock markets (although we
remain optimistic about the long-term
future for the fund).Today’s market
sentiment is much more bullish and
provides good opportunities to sell shares
where we feel their long-term prospects
are priced in, and we will continue to
take advantage of these opportunities
when o ered. Our investment process
is based on an empirically proven belief
that investing in cheaper companies leads
to better returns over time.We seek to
ensure the fund re ects this view at all
times; and do not change philosophy
based on short-term gains or falls.We are
extremely pleased with the returns of the
past two years, which are a well-deserved
reward for clients’ patience following the
challenging market of 2011.Although
valuation levels are not egregiously
high, we believe the current level of
outperformance is unsustainable.We will
continue to take advantage of opportunities
to sell expensive shares; recycling cash into
cheap stocks when opportunities arise and
allowing cash positions to increase when
they do not. Our aim remains constant: to
protect and grow capital for clients over
the longer term.
Kevin Murphy and Nick Kirrage
SCHRODERS
Schroder Managed
Managed Growth
Cautious about short-term outlook,
but optimistic for future of fund
Today’smarket
sentiment ismuch
more bullish
George Loening and Chad Clark
All information correct as at 31 March 2014
