T
he UK market held its ground in the
face of adverse news ranging from Putin
to Perth; all of which made the continued
lack of earnings growth seem like a lesser
consideration. Nevertheless, it is the
market’s aim to progress from here.The
relentless outperformance of non-mid-cap
companies has paused and factors such as
valuation di erential and a weaker sterling
may make for a more even performance
outcome.The major UK corporate event
over the summer was the further demise of
Tesco.The dividend cut and weak balance
sheet take the company further away from
our‘to buy’ list.We increased our holding in
ImperialTobacco on the back of a US deal,
which should further underpin an attractive
dividend yield and dividend progression.
We added to Centrica, after very poor
recent performance, feeling that at this
valuation the positives and strengths of
the company are under-appreciated.We
reduced our holding in SSE, which has
recovered remarkably well while facing
similar pressures to that of Centrica.
Overseas we have a holding in CBS
OutdoorAmericas, which is a bene ciary
of continued strength in the US economy.
Latterly, the disposal of Standard Life’s
Canadian business is bene cial to our
positive stance; and good drug trial results
from Novartis have aided what is a large
position for the fund.
G
lobal markets advanced in July and
August as investors largely shook
o worries about geopolitical tensions,
focusing instead on central bank policies and
corporate earnings. Several of our stocks
reported solid results during the quarter,
including Royal Bank of Scotland. Quarterly
earnings showed improved credit quality
and capital ratios alongside lower operating
costs. Microsoft was also a top contributor.
The company reported strong growth in
revenue and underlying bookings. Only a
handful of positions detracted from overall
results, including UK food retailerTesco.
The company cut its dividend and issued a
pro t warning as competition from discount
stores intensi ed.We took a new position
in Qualcomm, a global leader in mobile
phone technology and equipment. In our
view, the company is well-positioned to
bene t from the rapid growth in global
smartphone penetration, both through
ownership of intellectual property critical
to providing mobile broadband (3G/4G),
and also through a market-leading mobile
semiconductor business.The company has
25% of its market cap in cash and returns
most of its cash ow to shareholders.
We believe our entry price is highly
attractive given the growth pro le, balance
sheet and capital allocation.
E
quities and bonds made modest
progress during the quarter despite
little growth in Europe and geopolitical
tensions in a number of regions.The
Scottish referendum produced a‘No’
vote but a last-minute panic damaged
the credibility of the coalition and made
the result of next May’s general election
even more uncertain. Sterling weakened
as a result. US and UK growth was
stronger than expected but there were
few positive surprises elsewhere.We made
no signi cant change to asset allocation,
continuing to hold more cash than usual in
the‘bonds and cash’ part of the portfolio
in view of the very low yields available
from government bonds. In the UK we
continued to increase the percentage
invested in large international earners, at
the expense of more domestic situations
which performed so well during 2013.
As quantitative easing comes to an end in
the US, it should continue in Japan and we
may get some form of it in Europe, so a
signi cant scal stimulus should remain.
Interest rates in the US and UK are
unlikely to rise before 2015 and then only
gradually provided the economic recovery
is sustained. Equities don’t look obviously
cheap with many indices close to record
levels, but their yields are still attractive
compared with bonds and cash, and M&A
activity should also provide support.
Adrian Gosden and Adrian Frost
Dan O’Keefe and David Samra
Richard Peirson
THE INVESTOR CENTRE
D
THE INVESTOR
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27
ARTEMIS
UK & International Income
Pause in outperformance of mid-cap
companies as sterling shows weakness
ARTISAN PARTNERS
Global Managed
Global
RBS and Microsoft among top
contributors as markets advance
AXA FRAMLINGTON
AXA Framlington Managed
Balanced Managed
Few positive surprises despite
strong UK and US growth
ThemajorUKcorporate
eventwas the further
demiseofTesco
Several of our stocks
reported solid results
during the quarter
Last-minutepanic
damagedthecredibility
of thecoalition
A
Dan O’Keefe, David Samra and
James Hamel
R
