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THE INVESTOR
THE INVESTOR CENTRE
E
quity markets continued their upward
trend in the second quarter. Most
sovereign bond yields decreased further
with European periphery bonds, in
particular, buoyed by the European
Central Bank’s early June decision to set
a negative deposit rate. During Q2 2014
the St. James’s Place Multi Asset fund
continued to deliver positive absolute
returns. One of the main performance
drivers was developed and emerging
market equity exposure.Active trading of
real assets, including in ation-linked bonds,
REITs and gold also added to performance.
Within xed income, exposure to
subordinated nancials, non-agency
mortgages and investment-grade credit
contributed as spreads tightened.The fund
increased its developed market exposure,
particularly to Europe, to around 40%
while retaining around 15% in emerging
market equities. US xed income exposure
was reduced by about 10%.Within real
assets, the fund currently holds exposure
to crude oil, gold, REITs and a diversi ed
investment in in ation-linked bonds that
contribute about one year of real duration.
PIMCO expects a gradually improving
global economy with steady, broad-based
growth of 2.5% to 3.0% over the next year.
While the US is likely to lead the trend
among developed economies, growth in
emerging markets is likely to slow.
Mihir Worah (above), Curtis
Mewbourne and Vineer Bhansali
PIMCO
Multi Asset
Interest rates likely to remain lower
for longer than markets expect
Active trading of
real assets also added
toperformance
T
here remains a signi cant amount of
capital targeting the property sector,
seeking stable income yield and exposure
to continued economic recovery via rental
growth.This weight of capital is supporting
valuations across all sectors of the property
market and in all but the most challenged
of locations.Acquisitions during the second
quarter include a £35 million supermarket
in Surrey, let on a long lease to Sainsbury’s,
and a £23.5 million o ce investment
situated in a prime garden square in
Soho, LondonW1.We have now acquired
properties to a value in excess of £700
million for the St. James’s Place Property
funds since taking over the mandate in
September 2011.We completed the sale
of an o ce building in Palace Street,
London SW1, following a comprehensive
refurbishment and successful letting
programme.The sale price was 10% ahead
of the most recent valuation, re ecting the
strong investor demand for good quality
property. Our asset management work
continues to add value across the portfolios
with lettings at New London House in the
City, Straiton Retail Park in Edinburgh and
57,000 sq ft at theTechnology Building in
Portsmouth, all of which were ahead of
the estimated rental value.Additionally,
we have secured planning permission
for another 60,000 sq ft of retail space at
Junction One Retail Park in Rugby.
ORCHARD STREET
Property
Our asset management work adds
value across the portfolios
We have nowacquired
properties to a value in
excess of £700million
Chris Bartram
T
he banking sector in Japan remains
depressed while other banking sectors
across the world continue to recover.The
price/book value ratio of Japanese bank and
nancial services company MUFG is 0.6. Its
loan to deposit ratio is 70%. It has room to
vastly improve its lending, and its margins,
without stretching the balance sheet. Loan
demand in Japan is gradually picking up.
MUFG’s underperformance is all part of
the continuing malaise of Japan, distrust of
Abenomics, and concern about the possible
e ect of the increase in consumption
tax, from 5% to 8% – a modest level by
Western standards. Our view is that the
government’s re ationary programme is
tentatively working, with some economic
growth in the last three quarters, and some
in ation: so far, so good.The fund has an
average price/earnings ratio of 11, while
the average for the world and ex-US indices
is 16–17. Cheap does not necessarily mean
undervalued: there are times when low
price/earnings ratios give little comfort
because the economic cycle may be such
that earnings are about to fall.There are
speci c holdings in the portfolio where
earnings are indeed likely to fall, but that
is not a general problem at a time when
growth is looking more secure.We are
rmly convinced that in this case cheap
does mean undervalued.
OLDFIELD PARTNERS
High Octane
Japan banking sector depressed but
reflationary steps start to work
Cheapdoes not
necessarilymean
undervalued
Richard Oldfield
All information correct as at 30 June 2014
