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THE INVESTOR
THE INVESTOR CENTRE
B
urgundy’s quarter-to-date return (to
5 December) was more than 7%,
almost double the European market return.
Returns were comfortably positive for
15 of our 17 portfolio companies, with
only Sano and SAP posting declines.
Sage and Publicis were among our top
performers, which we added to when
their share prices were near-lows late in
Q3. However, the largest contributor to
our recent outperformance is from not
owning energy-related companies. Oil
prices have declined more than 40% from
their peak in June, leading to substantial
declines in many oil-related stocks.This has
signi cantly increased our interest in oil-
related companies, although we have not yet
made a purchase. Most of our DreamTeam
companies (which we don’t own but would
at the right price) in this area have sales that
are much more resilient than oil prices. One
of our highest-quality, oil-related Dream
Team companies has seen a share price drop
of almost 20%; but it fell, in our view, from
an overvalued price to one that continues
to provide a slim margin of safety.We think
that companies like this may need to report
disappointing earnings before valuations
reach levels at which we become interested.
We are pleased with our current portfolio
and plan to capitalise on areas of excessive
fear in the market.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Interest increased in oil-related
stocks as share prices fall
We plan to capitalise
on areas of excessive
fear in themarket
Kenneth A. Broekaert
A
fter several quarters of uneventful
appreciation, world equity markets
rediscovered volatility in the last quarter of
2014. In October, the end of open market
purchases by the Federal Reserve caused
some short-lived jitters and brought some
markets to a correction of 10% or more.An
extremely aggressive policy announcement
by the Bank of Japan then sent stocks
back to pre-correction levels.Then, in
December, the oil price collapsed, falling
by almost 40% from levels of only a few
months earlier. Most commentators (none
of whom foresaw this eventuality) attribute
the weakness to Saudi Arabia attempting
to remind the world of its position as the
low-cost producer of oil.The fund rode
out the volatility rather well. Our lone
oil holding, Occidental Petroleum, is a
low-cost producer with long-life reserves
and signi cant production growth.A lower
oil price is like a tax cut for consumers,
so our consumer company stocks reacted
positively to the price decline.The oil price
decline will also act as a counter to in ation,
and so will enable central banks to put o
(yet again!) the need to raise interest rates.
In this low interest rate environment, we
believe both the equity markets and our
portfolio can continue to produce strong,
positive returns.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Fund rides out volatility as consumer
stocks react well to oil price slump
The oil price decline
will also act as a
counter to in ation
T
he fund delivered another impressive
quarterly return, highlighting the appeal
of the absolute return strategy in the current
market environment.The portfolio’s gains
have primarily come from a number of core
long-term positions. Pleasingly, however, we
have been able to supplement this with alpha
generated by investment ideas behind short
positions that we have maintained in the
fund for some time.While changing interest
rate expectations have been a key concern
for investors, buy-to-let business Paragon
( nancials) was a notable contributor. Private
equity player 3i Group also made good gains,
bene ting frommanagement focusing on
a higher-quality portfolio of businesses to
drive earnings growth.The oil and gas sector
will likely see considerable adjustment going
forward.We retain only limited exposure
to the energy space, but the extent of the
oil price decline, which has taken many
market participants by surprise,meant
a long position in BGGroup detracted. It
remains to be seen whether lower input
costs can provide a tailwind for equities or
if it contributes to broader concerns
regarding de ation.The impact of policy
divergence across the global economy
has become a key consideration.We see
signi cant advantages in absolute return
investing, o ering investors equity exposure
at reduced levels of volatility to that seen in
wider equity markets.
BLACKROCK
UK Absolute Return
Core long-term positions have helped
quarterly gains for portfolio
We see signi cant
advantages in absolute
return investing
Nigel Ridge
Richard Rooney
All information correct as at 31 December 2014
