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THE INVESTOR
THE INVESTOR CENTRE
B
urgundy’s returns were essentially
at in the last three months to 12
September, modestly ahead of the market.
We own a portfolio of companies that are
not overly dependent upon any region in
the world. However, currency changes can
over- or understate their reported growth in
the short term. Revenues of our companies
declined, on average, by 2% in euro terms
in the rst half of 2014, including a 5%
reduction from currency devaluation.
The good news is that, if current exchange
rates persist, our sales reported in euros will
begin to bene t from currency in a modest
way in the second half of 2014 and by almost
3% in the rst half of 2015.The at return
this quarter masks a market correction and
subsequent recovery during the period.
In our view, this correction did not go far
enough, with only some of our Dream
Team companies falling from signi cant
overvaluation to full valuation. However, we
did capitalise on the correction by adding
to some existing holdings at attractive
valuations.We added to Deutsche Böerse,
Colruyt, Sage and Publicis at a price-to-
earnings ratio of 14.9 times and 22% below
52-week highs on average. Cash weightings
fell by almost 50% as a result.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Market correction leads to
opportunity to add to holdings
The at return this
quartermasks a
market correction
Kenneth A. Broekaert
T
raditional market advice to‘sell in
May and go away’ would not have
been counsel for creating wealth in the
third quarter of 2014. Generally, world
equity markets continued to grind higher
throughout the period. Expectations of a
correction were disappointed as central
bank policies remained resolutely dovish,
and improvements in the global economy
continued to encourage investors; but were
not so strong as to frighten them with the
spectre of future in ation and interest rate
increases.The major move in the quarter
was the switch from Baxter International to
Walgreens. Baxter had appreciated nicely
and was fully valued, whileWalgreens, in
the aftermath of a failed irtation with tax
inversion, was languishing. Investors in
Walgreens are not yet focusing on the very
large opportunities for a new management
to greatly improve the front-of-store
operations through better merchandising.
In combination with the traditional
Walgreens strengths in retail location and
real estate, the prospect of several years of
material earnings improvements attracted
us to the company. Chaos in the Middle
East and tensions along Europe’s eastern
frontier do not seem to frighten the stock
market. Since rising interest rates appear
to be a distant prospect, we expect the bull
market to continue, and our portfolios to
participate fully.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
No prospect of interest rate rises
continues to encourage investors
Central bank
policies remained
resolutelydovish
E
quity markets have shown increased
market volatility.While full-scale
quantitative easing is yet to be initiated in
Europe, the European Central Bank appears
worried and has been forced to further
ramp up its policy arsenal in response to
this increasingly negative trend. Successful
stock-picking meant the fund outperformed
the market.This gain was within consumer
services and industrials, which along with
nancials command the largest portion
of our gross exposure. Continuing to be
rewarded for holding a negative view, our
short positions performed well. HSBC
was also a key contributor where we
still see good absolute return potential
in the international banking franchise
and the company being a bene ciary of
a strengthening US dollar. In terms of
detractors, we sawmixed performance
among other nancial positions, with buy-to-
let company Paragon Group being impacted
by a regular ux in interest rate expectations
in the UK.This quarter suggests that we are
reverting to a more normalised environment
where fundamentals matter more than has
been the case recently.The portfolio has
handled the more pronounced volatility and
uncertainty in equity markets well, providing
a consistently stable and positive return
experience.Against rapidly changing global
dynamics, we believe there is greater bene t
to be had from our more risk-conscious,
fundamental, stock-selection approach.
BLACKROCK
UK Absolute Return
Short positions perform well, while
HSBC was also a key contributor
The ECBhas been
forced to further ramp
up its policy arsenal
Nigel Ridge
Richard Rooney
All information correct as at 30 September 2014
