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THE INVESTOR
THE INVESTOR CENTRE
O
ver the period, US markets rose as
many companies reported better-
than-expected earnings and the Q3 gross
domestic product growth rate was revised
upward to 5%. European markets also
posted generally positive returns, but the
Asia ex Paci c region was hampered by
negative data from China. Contributors to
performance during the period included
Whirlpool Corporation, based on its
improved outlook, Eaton Corporation Plc
and Mondelez International, Inc., based
on strong results.The strategy’s holdings
in Statoil ASA, NipponTelegraph and
Telephone Corporation (NTT) and Sano
S.A. detracted from performance. Declining
oil prices hurt Statoil’s share price, while
NTT cut its outlook and Sano ’s stock fell
after it lowered sales forecasts for its largest
drug. During the period we eliminated
holdings in Eni S.p.A. andTyco International
Ltd. on valuation grounds.We believe
global central banks’ accommodative
monetary policies will likely contribute to
strong economic growth in 2015.The US
economy should continue improving as
declining oil prices and overseas de ation
keep in ation and interest rates low.We also
believe US equity valuations are high.We
see opportunities in European companies
with international operations and favourable
equity valuations, particularly if the euro
weakens.The success of Japan’s recent
reforms is uncertain.
MANULIFE
Global Equity Income
Global central banks’ accommodative
monetary policies to stimulate growth
Europeanmarkets
alsoposted generally
positive returns
A
gainst a volatile UK and global
market backdrop, we have continued
to focus on hunting for companies that
can signi cantly improve their market/
competitive position through operational
improvement. Overall, we have made
progress in Q4, both in absolute and
relative terms.Two stocks stand out:
the UK life insurer Friends Life, which
received a bid approach, and Man Group.
The fund also bene ted from selling down
the majority of its oil positions in late
summer. On the negative side, our position
in Sainsbury’s underperformed as investors
fretted about the prospects for the food
retail sector.The core of the fund remains
UK general nancials but, by being able
to invest up to 20% of the fund overseas,
we remain open to opportunities outside
the UK, too. Having returned from our
summer trip con dent of the US economic
recovery, we started holdings in companies
focusing on delivering breakout growth,
such as BrooksAutomation and Microsoft.
Lastly, we have also added a few more
traditionally‘defensive’ companies, such
asTate & Lyle, where valuations suggest
many investors have thrown in the towel,
just as we see signs management are nally
starting to turn their operations around.
Looking into 2015, the US economy seems
to be achieving‘escape velocity’ from QE,
although it might get dragged back by the
oil-price collapse and pressure on emerging
market countries, such as Russia.
MAJEDIE
UK Income
Fund is open to opportunities from
overseas, especially the resurgent US
US economy seems to
be achieving ‘escape
velocity’ fromQE
T
he problems atTesco have continued.
It appears that the pro t margin in
the UK business will turn negative in the
second half of this year.The new CEO, Dave
Lewis, has cited the changed arrangements
with suppliers as the main reason.This has
had a near-term negative impact on pro ts
but should be positive in the medium term.
There appears to us to be nothing in the
current share price for the UK operations:
the value of theAsian and European
businesses, the bank, and Dunnhumby
together come to approximately the
present market capitalisation of the
company. Looking at the fund more
generally, recent poor performance has
come from three energy companies:
Eni, BP and Lukoil. Despite the sharp
fall in the oil price, we believe they each
remain attractively valued. Eni, an energy
conglomerate, has been disposing assets.
BP, though still facing residual Macondo
issues, has emphasised value over volume.
Lukoil – priced at only $2.50 per barrel
of reserves – is, in spite of some e ect
from sanctions, likely to increase both
production and returns to shareholders
through dividends. Our enthusiasm for
Japanese companies continues. Scepticism
about Japan is understandable after two
and a half decades of decline, but we think
that the extent to which companies are
gradually becoming more focused on
returns is underrated and that the priorities
of management are changing.
OLDFIELD PARTNERS
High Octane
Priorities of management changing
after decades of decline
Our enthusiasmfor
Japanese companies
continues
All information correct as at 31 December 2014
Chris Reid
Paul Boyne and Doug McGraw
Richard Oldfield
