D
uring the second quarter of 2014,
the Fed continued to normalise US
monetary policy amid expanding economic
activity and an improving employment
situation. Conversely, the European Central
Bank took further steps to support the
eurozone, which continues to su er from
below-target in ation.These include a
number of measures to boost bank lending,
including the introduction of negative
deposit rates, as well as the decision to
halt sterilisation of bond purchases, which
has been judged by some as a potential
precursor to a US-style quantitative
easing programme. In China, the property
downturn continued with little sign that
the government is ready to relax general
controls imposed on the market towards
the end of 2013.A signi cant slowdown in
China’s economy remains possible, in our
view, as the country continues to address
structural oversupply within its housing
market.The rapid rate of credit expansion,
and its role in funding the property
developers, adds to economic risk. eBay
was among the strategy’s largest detractors,
su ering a con uence of headwinds
including a data breach, a change in Google’s
search algorithm adversely a ecting its
positioning within internet search results,
slowing (but still strong) retail sales growth
and the resignation of PayPal’s CEO.We
judge these issues as of limited materiality
over the longer term.
MAGELLAN
International Equity
Worries on the horizon: a significant
slowdown in China’s economy
The ECB took further
steps to support
the eurozone
M
arkets ground higher as demand
for equities was fuelled by a belief
that central banks remain committed to
their accommodative policy measures.The
portfolios remain on a defensive footing
with a clear focus on capital preservation.
BAE Systems has for some time been
shunned by a market convinced that budget
cuts in the US would weigh on growth;
but as visibility has improved, the market
has begun to warm to a business with
strong market positions, an attractive
yield and encouraging signs of operational
improvement.We reduced ourAstraZeneca
exposure during the P zer bid period
once we felt that a deal was unlikely to be
struck – this proved timely in avoiding the
sell-o . Investors continued to see past BP’s
litigation issues and recognise the potential
for a very cash-generative company, in
what for us is a long-term holding.The fund
was held back byVodafone, as it became
apparent that AT&T would not launch a
bid (for the time being, anyway), and by
FirstGroup, which saw some pro t-taking
after a strong run.We harbour signi cant
concerns about the normalisation of
monetary policy and we continue to avoid
emerging markets, unconvinced of China’s
ability to escape unscathed from a decade-
long credit boom.All the while, equity and
bond markets are at or approaching all-time
highs, with market volatility on the oor:
complacency, in our opinion, abounds.
MAJEDIE
UK Growth
Joint manager: UK & General Progressive
The fund is on a defensive footing
and focused on preserving capital
Investors continued
to see past BP’s
litigation issues
James de Uphaugh
THE INVESTOR CENTRE
THE INVESTOR
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33
G
lobal equity markets have risen due
to the continued improvement of
economic conditions in the developed
markets. Going forward, we expect
exceptionally accommodative monetary
policy in major developed nations to
result in stronger economic growth in
2014 compared with 2013.With that
said, valuations are no longer cheap, and
corporate pro t margins in many industries
are near the high end of their historical
ranges, so some erosion here is a risk.We
remain cautious as some emerging markets
are still su ering from high in ation and
weak currencies and Japan has yet to see
structural reform and sustainable growth.
In the eurozone, while economic activity
stopped declining, we have yet to see rm
evidence that the tailwind from the nancial
markets is leading to a robust increase in
economic activity. However, the UK’s GDP
growth continues to be healthy. In Europe,
nancial markets continue to improve; and
in particular, debt issuance in the European
periphery has picked up.The US, despite
some temporary setbacks, appears to be
stable and growing and GDP growth should
be stronger in 2014 than 2013, with in ation
remaining low.Against this backdrop,
we believe our disciplined, bottom-up,
stock-selection process o ers signi cant
advantages, as we focus on rms that we
believe have strong balance sheets and the
ability to maintain or increase pro t margins.
MANULIFE
Global Equity Income
Stronger growth will result from
accommodative monetary policy
Japanhas yet to see
structural reformand
sustainable growth
Paul Boyne and Doug McGraw
Hamish Douglass
