THE INVESTOR CENTRE
THE INVESTOR
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37
T
he advent of QE in the eurozone and
the victory of Syriza at the Greek
elections are clearly important events, but
their signi cance should not be mistaken.
Instead of re ecting an existential challenge
to the whole‘European project’, they
should, rather, be seen as milestones
on the long path towards the return of
the eurozone to economic normality.
The arrival of QE is, in e ect, an
acknowledgement by core Europe that the
periphery has reformed su ciently that
the underwriting of peripheral debt can
now, at long last, be contemplated. It is
being recognised how much the challenged
peripheral countries have done to bring
their houses into order. But what about
the victory of Syriza, with its rejectionist
platform, in the Greek elections? As
we write, only one thing is certain: it is
inevitable that some of the Greek debt
will have to be forgiven; the only debate is
how this is dressed up.This all creates an
extraordinary opportunity for investing
in the eurozone. Consensus expectations
remain framed by fears of a‘euro crisis’,
and valuations are low. So low, in fact, that
on one calculation current share prices can
be justi ed only if you accept the notion
that half of European companies will su er
declining returns on capital employed into
perpetuity – a clearly absurd assumption.
S. W. MITCHELL CAPITAL
Continental European
Joint manager: Greater European
and Greater European Progressive
QE and Greek elections are milestones
on long path to economic normality
Inevitable that some
amount of Greek debt
will have to be forgiven
W
e believe that global growth will be
muted for the foreseeable future.The
US is a notable exception as employment,
manufacturing and spending continue to
gain traction, which should be positive
for US-centric businesses.The ECB’s
monetary policy should stabilise demand
in the eurozone and bene t exporters,
though equity markets appear to have
discounted this. Emerging economies
continue to see tepid growth. However,
we are starting to see some opportunities
in the highest quality emerging market
franchises. Falling oil prices have materially
worsened prospects for commodity-linked
emerging markets, while bene ting net oil
importers. Select Equity’s investment style
remains focused on identifying businesses
that can make their own luck and grow,
even in challenging economic conditions.
We invest in high-quality businesses that we
believe will bene t from secular tailwinds
and serve niche markets with unit growth,
pricing power, solid balance sheets and
sustainable competitive barriers. Many of
our US holdings have cultivated comparative
advantages that should enable them to
gain a larger piece of a growing pie at home.
Our European and Japanese holdings
sell to a global customer base and should
bene t from weaker exchange rates.
The vast majority of companies in our
portfolio should also bene t from lower
commodity prices.
SELECT EQUITY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Opportunities arise in highest quality
emerging market franchises
The ECB’smonetary
policy should stabilise
demand in eurozone
Stuart Mitchell
George Loening and Chad Clark
W
ith monetary authorities around the
globe driving down yields on xed
income-related securities close to zero or
even into negative territory over the past
few years, equities have seemingly become
the default option for most investors,
institutional and otherwise, leading to
equity valuations that, in our opinion, are
beginning to become untethered from
underlying business fundamentals.This has,
in turn, made it inordinately di cult for
value-driven investors such as ourselves
to put money to work in above-average
yielding equities at disciplined prices.The
result has been an above-average level of
cash in our portfolio, which has been a drag
on results since the di cult market of 2011
when our dividend strategies were our
best performing.The resurgence of market
volatility of late harkens back to those days,
and, if it continues, this strategy should not
only provide welcome ballast in the storm,
but should also allow us to take meaningful
advantage, should pricing opportunities
present themselves.
TWEEDY, BROWNE
Satellite manager: Global Equity
Opportunities to take advantage of
resurgence of market volatility
Equities have become
the default option
formost investors
William Browne, Tom Shrager,
John Spears, Robert Wyckoff
