THE INVESTOR CENTRE
THE INVESTOR
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35
P
ayden & Rygel began managing an
absolute return xed-income strategy
for St. James’s Place during the quarter.The
objective is to provide a high level of income,
with limited downside risk.The strategy
invests in a diversi ed range of xed-income
sectors and issuers representing our‘best
ideas’, while minimising interest rate risk.
There are two principal building blocks to
the strategy: rst, a core income stream
provided by a multi-sector, xed-income
portfolio; second, tactical positions in
interest rates, currencies and credit
markets re ecting our highest conviction
investment views. Progress has been made in
diversifying the portfolio into a broad range
of sectors including investment-grade xed
and oating-rate corporate bonds, high-yield
bonds, emerging market debt and mortgage-
backed securities.The recent strength in
economic data in the US and the UK has
led to expectations that interest rates could
rise in mid-2015, although low in ation,
declining commodity prices and restrained
wage growth should limit the extent and
pace of possible rate hikes. In stark contrast
is the continued economic weakness in
Europe and Japan, where further central
bank monetary policy easing is likely.A
combination of stable short-term interest
rates, steep yield curves, strong corporate
balance sheets and low default rates should
continue to support non-government bonds
in the months ahead.
PAYDEN & RYGEL
Multi Asset
A range of fixed-income sectors and
issuers represents our ‘best ideas’
Progress has been
made indiversifying
the portfolio
T
he past three months have been marked
by a signi cant increase in stock market
volatility.Although developments in the US
have largely been positive, developments
elsewhere have not; and growth forecasts
for a number of the major economies
continue to get downgraded.The central
banks are working very hard to re-in ate
the system through quantitative easing and
this has helped to push up stock market
valuations. However, in many industries the
de ationary forces are signi cant and pro ts
are under some pressure.These pressures
are most acute in those industries which
are exposed to emerging markets. Perhaps
the most notable development has been
the dramatic fall in the oil price, although
all commodities have been under pressure.
While falling prices will impact the pro ts
of the oil companies, they are already
responding with cost-cutting and reductions
in capital expenditure.At today’s oil price,
it is likely that the companies will continue
to pay generous dividends; although there
comes a point where the risk of dividend
cuts increases. Overall we continue to
think that it is right to adopt a relatively
cautious investment approach. Stock
markets have delivered very strong returns
over the past few years and valuations in
many areas are looking full.The pro t cycle
is also quite long in the tooth and, for many
companies, the competitive pressures seem
to be intensifying.
RWC
Equity Income
Quantitative easing helps to push
up stock market valuations
Central banks are
working veryhard to
re-in ate the system
Nick Purves
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 £165 million.These
include 4 Hardman Square, Manchester for
£31 million.This is a prime asset in the core
Spinning elds area of Manchester and is let
to HSBC and GrantThornton. In addition
we have acquired a portfolio of South-East
industrial estates for £114 million and a
cinema in Cambridge for £9 million.This
brings the total purchases so far in 2014
to £397 million.We have completed the
disposal of two industrial properties in
Leeds and Hayes for £5.5 million and
£3.2 million respectively and aVW
dealership in Cheltenham for £3.9 million.
All three sales were ahead of valuation
and therefore accretive for the funds.
We continue to see encouraging signs of
increased occupier demand throughout the
UK property market.This has had a positive
impact on asset management initiatives
across the portfolio – for example, we
have re-geared three Homebase leases at
TunbridgeWells, RayleighWeir and Upton
on theWirral, which has led to a combined
valuation increase of over £2 million.
ORCHARD STREET
Property
Investors look to UK property market
for stable income yield
We continue to see
signs of increased
occupier demand
Chris Bartram
Scott Weiner, Brian Matthews and
Brad Boyd
