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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 March 2015
D
espite some uncertainty at the
beginning of the year, stock markets
have made good progress in 2015. The
market moves in Europe have been
nothing short of spectacular following the
con rmation by the ECB that it intended to
undertake QE, and this has had a knock-on
e ect on the UK. Six years of ultra-low
interest rates have been very supportive
for nancial markets and, while it is
di cult to see that interest rates will rise
meaningfully any time soon, investors
should recognise that stock markets have
come a very long way since the dark days
of 2008. In today’s heady environment they
must not forget the importance of retaining
a valuation discipline.We see signs that this
is not happening in some areas and that
investors are no longer being adequately
compensated for the risks that they are
taking.As we have said for some time, we feel
that the most attractive stock valuations are
to be found in some of the largest companies
that have often been laggards in a strong
market.Typically, dividend yields here are
more attractive and, while the companies
may not o er spectacular growth rates,
they o er the prospect of stability in what,
at some point, will likely become a more
challenging environment.
RWC
Equity Income
Valuation discipline key for investors
in today’s heady environment
Stockmarkets have
come a longway since
the dark days of 2008
Nick Purves
T
he suppression of global interest
rates, and the actions of central banks
in the US, Europe and Japan in utilising
‘unconventional monetary policy’, has led
to a compression of volatility as the fear
of falling growth has subsided.Against
this backdrop, equity markets have made
progress as investors have focused on the
prospect of a pick-up in global growth.
The fund has generated positive returns in
this environment with its UK equities, in
particular, providing returns ahead of the
FTSEAllshare index. History tells us that
some of the most costly investment mistakes
come from buying below-average businesses
at a time when pro ts are buoyed by the
economic cycle.We believe we may be at
such a point for many UK-quoted companies
and are being careful not to become
complacent.Today’s buoyant sentiment
provides good opportunities to sell shares
where we feel their long-term prospects
are priced in, and we will continue to take
advantage of these opportunities when
o ered. Our UK equity investment process
is based on an empirically proven belief that
investing in cheaper companies leads to
better returns over time.We seek to ensure
that the fund re ects this view at all times
and do not alter our philosophy just because
the approach has done well recently.
B
usinesses we own often invest substantial
amounts of capital in order to realise
their full long-term earnings growth
potential.Although investment cycles can
distort earnings over short periods, we are
willing to own businesses if we believe in the
company’s long-term opportunity. Baidu’s
near-termmargins may come under pressure
as it invests to transform from a search
engine into a transactional platform capable
of capturing more value from consumers’
online purchases.While the investment is
expected to be signi cant, it should result
in a di erentiated search experience that
would be di cult for competitors to match.
Investments are not always in the form of
large capital outlays. Such is the case with
Alibaba, which is taking steps to improve
its business for the long term, albeit at the
expense of short-term pro ts.Alibaba
recently altered its search algorithm to
prioritise results by an item’s relevance, based
on individual users’ search history, rather
than quantitative features such as price.This
change decreased merchants’ ability to pay
for a higher ranking in search results, leading
to lower revenues.We are not concerned
with a short-term decrease because we
believe this change will makeAlibaba a
stronger business by improving customer
satisfaction. Furthermore, increasing the
relevance of associated advertising should
drive greater revenue.
SCHRODERS
Schroder Managed
Managed Growth
Compression of volatility provides
opportunites to sell shares
SANDS CAPITAL
Satellite manager: Global Equity
Long-term steps to improve a business
can be better than short-term profit
Investors have focused
on the prospect of
a pick-up in growth
Investments are not
always in the formof
large capital outlays
David Levanson, Sunil Thakor and
Perry Williams
Kevin Murphy and Nick Kirrage
