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WELCOME
TO THE
INVESTOR
CENTRE
E
uropean stock markets have
been leading the pack so far
this year, helped by the larger-
than-expected quantitative
easing programme started in
March and a weakening euro.
But stock markets in other
regions have also started the
year well, with some reaching
new highs – notably in the
UK, where the FTSE 100
finally topped its 1999 high by
breaking through the 7,000
mark, spurred by growing
signs of recovery and the
continuation of loose monetary
policy. More than 20 central
banks have cut their rates this
year, while Japan’s stimulus
package continues and the
prospect of interest rate rises
in the US was delayed again.
Political risks remain, notably
in Greece and Ukraine, where
a fragile ceasefire seems to be
holding, and across theArab
world. Falling commodity
prices are adding to
deflationary pressure but
corporate earnings are still
holding up in many areas.
IN THIS SECTION
22 Viewpoint
George Loening and Chad Clark,
Select Equity Group
24 Unit Trust Portfolios
26 Fund manager commentaries
22
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THE INVESTOR
What keycharacteristicsdoyou
look for inapotential investment?
George Loening:
We look for five key
attributes. First and foremost is
predictability.Our investment horizon is
typically three to five years, so we need to
be able to look forward at least five years.
Second, we seek out areas of the market
where we believe intensive research can
add value and avoid industries where we
can’t gain a research edge. For example,
we have no idea if the price of oil will be
higher or lower next year and there is
no amount of research that can change
that.Third is growth.While we are value
investors, we want to own businesses
that are growing – we know the value
of compounding. Fourth is valuation.
We invest in businesses that we believe
can grow their cash earnings at double-
digit rates and we aim to purchase them
at attractive valuations. Lastly, we want
strong balance sheets and companies that
generate a lot of cash.
Howdoyoudefineahigh-quality
business?
GL:
High-quality businesses are highly
predictable, with recurring revenues and
strong or rapidly increasing returns on
invested capital.The price they charge
should not be the determining factor to
their end-user; the business has‘pricing
power’.There should be high barriers to
competition and management should be
good stewards of capital.The businesses
are likely to be generating a lot of cash and
we look for management teams that will
FUND MANAGER VIEWPOINT: GEORGE LOENING AND CHAD CLARK, SELECT EQUITY GROUP
Viewpoint
GeorgeLoeningandChad
Clark, Select EquityGroup
TheWorldwideManaged andWorldwide
Opportunities fundmanagers on their key attributes
for investments and the growth prospects of China
China’s recent
growth has been
driven by property
and construction
