A
fter a nervous start to the year, stock
markets recovered their poise in
the second quarter. In the UK, this was
despite some indications from the Bank
of England that interest rates might start
to rise sooner than had been expected.
Stock market volatility has returned to the
record low levels that we saw before the
nancial crisis.There are large numbers of
new companies coming to the market and
a marked pick-up in the level of takeover
activity.This is all indicative of very
positive and relaxed market sentiment.
We believe that following ve years
of spectacular gains (albeit from a low
starting point), the UK equity market is
looking fully valued. In our minds, the best
opportunities within the market exist in
the very largest companies; which, in many
cases, have failed to participate in the best
of the rises that we have seen over the past
few years. Here, valuations are therefore
more attractive; and while these companies
may not o er the most spectacular growth
rates, they should, by virtue of their size
and geographic diversity, provide stability
and resilient dividends – in what is likely to
become, at some point, a more challenging
environment.
RWC
Equity Income
The market’s best opportunities
lie in the very largest companies
Stockmarket volatility
has returned to
record low levels
Nick Purves
THE INVESTOR CENTRE
THE INVESTOR
|
35
T
he beginning of the quarter saw a
continuation of the sell-o of high-
growth, high-beta, high-P/E stocks.
While the technology and biotechnology
businesses held in our portfolio were not
immune, we maintain high conviction
in their long-term growth prospects.
We believe our technology businesses
are bene ting from powerful secular
drivers, such as the continued proliferation
predicted by Moore’s Law and the
adoption of cloud computing. In general,
these businesses are disruptive, highly
innovative, and are either creating new
markets or taking share from‘old tech’
companies (e.g. cloud-based businesses
disrupting on-premise legacy software
providers).They are growing at above-
average rates and reinvesting to drive future
growth – a strategy we think is sound.
The biotechnology businesses have deep
pipelines of multiple drugs in development
that, if successful, could sustain earnings
growth for years to come. Our healthcare
businesses share characteristics of our
technology companies, and are innovating
to either create new or disrupt established
markets. Over the long term, we think all of
the businesses in our Global Equity portfolio
are positioned to generate above-average
earnings growth and we are willing to
accept short-term volatility in return for the
potential to create value for our clients over
the long term.
David Levanson, Sunil Thakor and
Perry Williams
SANDS CAPITAL
Satellite manager: Global Equity
Anticipating short-term volatility
to create long-term value
Wemaintainhigh
conviction in long-
termgrowthprospects
T
imes like these – when making money
in the stock market seems to have
become a formality – are some of the most
dangerous for long-term investors.This
is because it is when traditional principles
such as patience, prudence and a focus on
valuations can start to appear outmoded and
unexciting.The temptation to de-emphasise
or even abandon them in pursuit of the
eye-catching, and apparently immediate,
gains on o er is strong. However, as a result,
the risk of overpaying for investments is
also highest now; and, as it is valuations that
drive long-term investment returns, the
seeds of future capital loss can very easily
be sown.While we believe the fund can
deliver attractive long-term returns, these
are unlikely to be of the level achieved in
recent years. Furthermore, history suggests
that value investors’ performance tends to
lag the market in ebullient times, precisely
because they refuse to embrace the hubris
of the day in order to minimise the risks of
overpaying. Our focus on the fundamentals
rather than the froth may not be rewarded
in the short term, but in the long run this
is the surest way to safeguard capital –
and to ensure that full advantage can be
taken when margin of safety, and hence
investment opportunity, becomes abundant
once again.
SCHRODERS
Schroder Managed
Managed Growth
Focus on the fundamentals rather
than the froth will reap rewards
The seeds of future
capital loss canvery
easilybe sown
Kevin Murphy and Nick Kirrage
