THE INVESTOR CENTRE
THE INVESTOR
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33
E
conomic activity remains sound; growth
could be somewhat above potential in
2015.The rate-hike cycle due to start this
year has been priced out by many. In ation
has fallen well under the BoE’s targeted
2%, given oil prices. Our expectation is
for a hike of 0.25% in the next 12 months.
Monetary conditions are set to remain
loose until in ation and wage growth
take hold.We are mindful of volatility as
a result of the 7 May election.Although
we expect the BoE to begin raising rates
in the next 12 months, we are not looking
for dramatic rate increases and it should
remain a rate-friendly environment for
corporations.The UK investment grade
(IG) market continues to perform the best
among the major, developed IG markets.
Spreads have generally tightened; returns
year-to-date are positive. Demand for UK
IG has bene ted from the signi cantly
better value proposition versus euro IG.An
overweight allocation to corporate bonds
added value as the segment has outpaced
quasi-government issues (supranationals and
government-backed enterprises). Selections
among banking names have performed well.
Insurance and telecommunications selections
have weighed on results slightly.The UK
yield curve has largely moved in line with
other higher quality global curves – lower in
January and higher since.
LOOMIS SAYLES
Investment Grade Corporate Bond
UK should remain a rate-friendly
environment for corporations
Anoverweight
allocation to corporate
bonds addedvalue
Q
E is under way in the eurozone as
ECB President Mario Draghi seeks
to kick-start a sclerotic eurozone economy
that is slipping into de ation.There is little
evidence from the US and the UK that QE
actually does anything at all for the real-
world economy other than pump up the
price of nancial assets to ever higher levels.
We have seen stock market indices hit record
highs in recent weeks helped, to a great
extent, by the news of European QE and the
latest game of kick-the-can-down-the-road
with Greece. But this liquidity rally, counted
in years rather than months now, can still go
on a lot longer. Occasionally, it seems a dose
of sanity returns to the market – who would
have thoughtAOWorld wasn’t going to
sell every single fridge freezer and washing
machine in Europe in 2014? But when you
appreciate that this stock still trades on 46
times earnings, post its recent pro t warning
(for something which is essentially a modern
version of theArgos catalogue), you are
reminded that valuations in the stock market
remain merely on distant cousin terms with
fundamentals. It’s not a fashionable view, but
we still think absolute valuations matter.
J O HAMBRO
Joint manager:
UK & General Progressive
Liquidity rally in US and Europe can
still go on a lot longer
Occasionally, it seems
a dose of sanity
returns to themarket
John Wood
G
lobal equity markets had a slow start
to the year before bouncing back
following the ECB’s announcement that it
would start buying €1.3 trillion of sovereign
bonds fromMarch to act against low in ation
and weak growth outlook.Markets were
further buoyed by positive US economic data
and supportive central bank policy actions
in China and Canada.The US economy
continues to strengthen, with improved
labour market conditions and increased
consumer disposable income sustained by
the decline in oil prices. However, there
remains considerable uncertainty about the
future trajectory of its monetary policy.
YUM! brands performed well over the
period, reporting a record number of store
openings and 3%‘same store’ sales growth
for the year, despite a 16% decline in sales
growth in China.Tesco was another strong
performer as the share price recovered from
its fall last year after its new CEO announced
meaningful steps to strengthen the company’s
balance sheet. US home improvement
companies, Lowe’s and Home Depot,
continue to bene t from the housing
market recovery in the States. Conversely,
Microsoft announced disappointing results
for 2014, alongside conservative guidance
for 2015, whileAmerican Express faces
revenue growth pressures from lower than
expected economic growth, competitive
pressures, regulatory challenges and foreign
exchange headwinds.
MAGELLAN
International Equity
Improved labour market and more
consumer income strengthens US
Marketswere further
buoyedbypositive
US economic data
Kenneth M. Buntrock
Hamish Douglass
