THE INVESTOR CENTRE
THE INVESTOR
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27
E
quity markets are facing some headwinds
as the recent rise in bond yields from
all-time lows, according to some, decreases
the comparative attraction of equities.At
the time of writing, the Greek‘solvency’
talks appear to be moving towards a negative
conclusion, but the existence of signi cant
central bank support and the better health of
economies suggest that this potential negative
can be overcome.The sell-o in bond
markets has caused investors to question
the merits of income strategies that have
unquestionably bene ted from the long bull
market in bonds. However, to label income
shares‘bond proxies’ is a lazy generalisation
in that many still o er yields way above
current bond yields, have registered decent
dividend growth and will continue to do so.
Bonds can’t grow their coupons but equities
can grow their dividends.Moreover, if the
rise in bond yields is in response to increasing
signs of economic growth then, in time, this
will generate better corporate pro ts and
cash ows. If rising interest rates and bond
yields herald a normalisation of economies
for a long-term investor, then that will be
welcomed. During the period we continued
to add exposure to banks, buying more
Barclays and a holding in Capital One.We
expect a decent period for defence spending,
so we added Lockheed Martin to the
portfolio. In Europe we bought Syngenta and
reduced Novartis.
A
pril and May brought choppier trading
conditions in stocks, commodities,
global government bonds and currencies.
In the US, a disappointing Q1 GDP report
eased fears of an impending Fed rate hike.
Although Chinese policymakers have recently
adopted a number of easing measures,
growth has remained tepid. Returns in other
emerging markets continued to be impacted
by moves in oil prices and currencies, while
European stocks were weak as growth in the
region trailed estimates. European banks
Lloyds, UBS and ING were among the best
performers.These shares continued to bene t
from the sector-wide rally that started at the
beginning of the year.There were also some
positive company-speci c developments
announced with quarterly results in May.
Samsung Electronics andApplied Materials
were the main detractors during the period.
Samsung Electronics su ered from concerns
about the prospects of the company’s
newest smartphone, the Galaxy S6, and also
heightened corporate governance concerns.
Applied Materials declined after the company
terminated its merger plans withTokyo
Electron.We fully exited our position inTNT
Express as it received a takeover o er from
Federal Express that was in line with our
estimate of intrinsic value.
T
he second quarter of 2015 was a
lacklustre period for investors, with
minimal returns from global equities and
negative returns from government bonds.
The global growth data was mixed, but
a little better in Europe, where the weakness
of the euro and quantitative easing look to
be having an impact.The UK general election
result was a surprise and was initially well
received by investors. Bond yields rose
everywhere as the prospect of an increase
in US interest rates this year became more
likely.The negotiations between Greece
and its creditors continued but only had
a negative e ect later in the period as
deadlines were missed.Together with the
interest rate background, it provided an
excuse to take pro ts in markets which didn’t
look cheap. Despite dull absolute returns,
relative performance was satisfactory. In
particular, our tactics in the bond portfolio,
which had proved costly over the previous
year, nally started to pay o as yields rose.
We made no signi cant changes to asset
allocation and continue to hold more cash
than usual. Identifying undervalued equities
has not been easy of late with valuations in
most markets towards the top of historic
ranges. In relative terms, however, equities
still look more attractive than government
bonds, where yields are at the bottom of
historic ranges.
ARTEMIS
UK & International Income
Normalisation of economies would be
welcomed by long-term investors
ARTISAN PARTNERS
Global Managed
Global
Returns in emerging markets hit by
moves in oil prices and currencies
AXA FRAMLINGTON
AXA Framlington Managed
Balanced Managed
QE is having a positive effect on
eurozone growth data
InEuropewe bought
Syngenta and reduced
Novartis
Lloyds, UBS and
INGwere among the
best performers
Equities still look
more attractive than
government bonds
Nick Shenton and Adrian Frost
Dan O’Keefe, David Samra and
James Hamel
Richard Peirson
