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THE INVESTOR
THE INVESTOR CENTRE
G
lobal growth continues to be muted,
with the accelerating US economy the
notable exception. European economies are
reducing their growth expectations, forcing
the ECB to employ an aggressive monetary
approach.This should bene t exporters
and stabilise internal demand, although
recent political instability in Greece may
once again test the ECB’s willingness to act.
Emerging economies continue to see tepid
growth, as country-level political instability
and regional geopolitical risks remain
heightened.Meanwhile, oil prices have fallen
dramatically in recent months; suddenly,
any country or company whose fortune is
tied to high commodity prices has seen its
outlook worsen materially. Our investment
style focuses on identifying businesses that
can make their own luck and continue
to grow, despite conditions.We invest in
high-quality businesses which we believe
will bene t from secular tailwinds and serve
niche markets with unit growth, pricing
power, solid balance sheets and sustainable
competitive barriers.These businesses
generally lead their respective industries and
generate strong, growing streams of free cash
ow in a predictable manner.Many of our
US businesses have cultivated comparative
advantages that should enable them to gain a
larger piece of a growing pie at home. Our
European and Japanese businesses sell to a
global customer base and should soon bene t
fromweaker exchange rates.
SELECT EQUITY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Countries tied to high commodity
prices have seen outlook worsen
European economies
are reducing their
growth expectations
All information correct as at 31 December 2014
S
tarting valuations are by far the most
important driver of future investment
returns, but they are only a reliable indicator
over longer time periods.The FTSE 100
Index now trades near its 2000 and 2007
peaks.Those respective high points were
followed by the‘dot-com bust’ in 2001 and
‘credit crunch’ of 2008; but 14 years of
earnings growth means that despite today’s
index level, valuations are not as over-
extended as they were in the past.When the
equity market reaches extremes, it gives
value investors a clear indication of what
to do.At times of fear and panic, investors
should take advantage of bargain prices;
and when euphoria prevails, selling is the
obvious, though not always the easy, decision.
Today, the UK equity market is at neither
extreme and the range of possible outcomes
is consequently diverse.As bargains become
harder to nd, many investors will take
greater risks for lesser rewards – either
by increasing exposure to risky assets
or leveraging up the safer ones.As value
investors it is imperative that we seek out
opportunities that are genuinely undervalued
in the context of history. It is only by doing
so that we can protect clients’ capital and
deliver the long-term outperformance
characteristic of value investing over the past
100 years.
C
hina is in the midst of what many
consider the broadest assault on
corruption since the country opened its
economy in 1978.We think this highly
visible campaign to reduce corruption is a
long-term positive for the country’s growth
prospects and are optimistic it will lead to
a more e cient allocation of capital over
the long term. However, over the past year
the campaign has created headwinds for
LasVegas Sands and Prada, two holdings
whose growth is driven in large part by
the Chinese consumer.As the purge has
continued, consumers have cut down on
conspicuous consumption for fear of being
targeted themselves.This has resulted in
slower growth of LasVegas Sands’ Macau
gaming business and fewer sales of Prada
handbags and apparel.We expect headwinds
will persist for each business over the near
term but retain conviction in their long-
term growth prospects.We think LasVegas
Sands’ key drivers, which include increasing
hotel count, new travel infrastructure and
increasing tourism in China, remain robust,
and believe Prada’s top-tier brand with
global appeal remains strong.
SCHRODERS
Schroder Managed
Managed Growth
At times of fear and panic, investors
should look at bargain prices
SANDS CAPITAL
Satellite manager: Global Equity
Assault on corruption is a long-term
positive for growth in China
Many investorswill
take greater risks for
lesser rewards
Consumers have cut
downon conspicuous
consumption
Kevin Murphy and Nick Kirrage
George Loening and Chad Clark
David Levanson, Sunil Thakor and
Perry Williams
