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THE INVESTOR
THE INVESTOR CENTRE
E
quities and high-yield credit were
volatile in July over geopolitical
concerns in Eastern Europe and Gaza,
Argentina’s default and the failure of
Portuguese bank Espírito Santo. InAugust,
however, fears subsided and risk assets staged
a recovery that lasted into September. Bond
markets, meanwhile, performed largely
positively. During Q3 2014 the portfolio
continued to deliver positive absolute
and relative returns. One of the main
performance drivers was targeted developed
and emerging market equity exposure.
Within xed income, US bond exposure
contributed; particularly in the second half
of the quarter as credit assets recovered.
Overall, the fund holds a small overweight to
equities with a tilt towards emerging market
equities, which appear cheaper than those of
the developed market. In xed income, we
remain positioned for a steepening of the US
yield curve and target high-quality credits
with attractive yields.Within commodities
we tactically allocate to energy and gold,
given the geopolitical risks. PIMCO expects
a gradually improving global economy with
steady growth of around 2.5% over the next
year.The US is furthest along in the business
cycle and leads this trend, while growth in
Europe and emerging markets is expected
to proceed at a slower pace. Europe still
struggles to exit a liquidity trap and China’s
nancial and non- nancial corporate sector
remain over-leveraged, in our view.
Mihir Worah (above), Curtis
Mewbourne and Vineer Bhansali
PIMCO
Multi Asset
Risk assets stage a recovery as
volatility eases and fears subside
We remainpositioned
for a steepening of the
US yield curve
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 continues to support
valuations across all sectors of the property
market and in all but the most challenged
of locations. During the quarter we have
completed acquisitions totalling £82
million.These include 115-126 Briggate
in Leeds city centre for £38 million, let in
its entirety to Debenhams with 19 years of
unexpired term on the lease, andWoolley
Edge motorway service station on the
M1 inYorkshire for £35.1 million. Let on
a 25-year lease with 11 years unexpired,
the rental income is subject to annual,
unrestricted RPI uplifts.This brings the
total purchases so far in 2014 to
£233 million.With increased market
liquidity we have completed the disposal of
a retail property inArgyle Street in Glasgow
for £21.5 million – well ahead of the pre-
market valuation of £19.5 million – and we
have sold two small industrial units in South
Elmsall,West Yorkshire, for £4.05 million,
also ahead of valuation.We are seeing
encouraging signs of increased occupier
demand spreading from London and the
South-East to the wider UK property
market.This has had a positive impact on
asset management initiatives across the
portfolio, with the completion of a number
of new leases, contributing to signi cant
valuation uplifts.
ORCHARD STREET
Property
Acquisitions totalling £82 million
completed during the quarter
Increasedoccupier
demand is spreading
fromthe South-East
Chris Bartram
S
tock markets were relatively subdued in
the three-month period, despite further
tensions in Ukraine and the Middle East
and evidence that the economic recovery
in Continental Europe is tailing o . There
is little doubt that the sanguine outlook
of markets has been prompted by the
continuing belief that the world’s central
banks will do‘whatever it takes’ to stimulate
growth.This unwavering faith in the power
of the central bankers is despite the fact
that there is little evidence to suggest that
the steps taken so far have been successful.
There is, however, much evidence that
quantitative easing is causing investors
to reach for yield in all asset classes and
in doing so take on risks that they would
normally feel uncomfortable with.This
therefore continues to be a challenging
environment for all income investors.
Following the spectacular gains seen in the
past few years, the median stock in the UK
now yields less than 2.5%.While the overall
index yields a more generous 3.2%, this is a
weighted average which is skewed by a small
number of very large companies which pay
over 4%.While these companies may not
o er the most attractive growth prospects,
they at least o er greater levels of stability
in a world of high valuations where the risks
appear to have increased.
RWC
Equity Income
Quantitative easing causing investors
to reach for yield in all asset classes
This continues to
be a challenging
environment
Nick Purves
All information correct as at 30 September 2014
