THE INVESTOR CENTRE
THE INVESTOR
|
33
U
K corporate bonds have been relatively
resilient given the rise in yields across
global markets since mid-April.The UK
investment grade (IG) market continues to
perform better than other major IG markets
as demand is strong given better yield
proposition versus euro IG. Our strategic
bias is currently to use bond sell-o s to
maintain a positive credit bias.After all, faster
growth is a sign that central bank policies
are nally working, and a stronger economy
is typically favourable for corporate health.
The UK general election on 7 May was a key
event.After consistent poll predictions of a
very tight race and likelihood of a minority
government, the incumbent Conservative
Party, led by David Cameron, won a clear
majority.This comforted markets, though
investors are increasingly noting that
the uncertainty is by no means over.The
portfolio bene ted from names held in
the banking, consumer goods and energy
industries.A modest allocation to the high-
yield market was a source of positive returns
as well.Meanwhile, our stock-picking within
the media sector was detrimental to results;
the portfolio was overweight toTimeWarner
Cable when its merger talks with Comcast
failed.The company did begin to recover in
May and some of this positive performance
was viewed as a selling opportunity.
LOOMIS SAYLES
Investment Grade Corporate Bond
Tory election victory comforted
markets, but uncertainty not over yet
Faster growth is a
sign that central bank
policies areworking
I
t will not surprise regular readers of our
commentaries that we remain rmly of
the view that a nancial tsunami is coming;
albeit the timing and identity of the catalyst,
as with the bursting of most nancial bubbles,
remains unclear.We are convinced that
our clients’ interests are best served by us
staying on the higher ground and sticking
to our strict absolute valuation discipline, as
re ected in our high cash balance.Absolute
valuations within the stock market, arti cially
in ated by quantitative easing and extreme
monetary policy, continue to be unattractive
to us as fundamental investors in the absence
of an improvement in underlying corporate
fundamentals. Our focus continues to be
on identifying companies that can generate
above-average returns over the long term
through compounding growth.We aim
to do this by buying and holding stakes in
companies characterised by high-quality
franchises that generate plentiful free cash
ow and which have solid balance sheets
marked by low levels of debt. High-return
investments are scarce in today’s low-
return environment, but we believe we
can achieve attractive long-term returns
through the patient process of holding stocks
that regularly compound their growth over
time.And‘patience’ does indeed remain our
watchword.We will return to the beach to
trawl through the wreckage after the nancial
tsunami has done its damage.
J O HAMBRO
Joint manager:
UK & General Progressive
Looking to the long term with a
patient approach to investment
We remain rmlyof the
view that a nancial
tsunami is coming
John Wood
R
ecent US economic data generally
suggests an ongoing economic
strengthening, though some indicators
remain weak, partly re ecting transitory
issues around weather and theWest Coast
ports dispute. Further, capital investment was
a ected by the fall in oil prices and reduced
investments in this sector. US markets
moved sideways, re ecting mixed economic
indicators and continuing uncertainty on the
timing of an interest rate increase. In Europe,
economic growth remains weak; however,
QE appears to be reducing de ationary risks.
Over the period,Tesco’s share price was
down after the company reported its full-year
results and a historic loss of £6.4 billion (net
debt is £6.6 billion).Tesco’s pro tability in
the UK remains low but should improve
in time as management progresses the
turnaround of its core UK business.
Yum! Brands performed well over the quarter.
The stock jumped after well-regarded activist
investors disclosed they had built a material
position in the company. It further bene ted
frommarket speculations on a possible spin-
o of its China business.Microsoft was also
strong.WhileWindows is still in transition,
Microsoft’s productivity software and
cloud businesses continue to grow strongly.
Likewise, the fund’s investments in nancials
contributed positively, with Lloyds being
among the top performers. It reported strong
Q1 earnings, 8% ahead of consensus, driven
by a higher net interest margin.
MAGELLAN
International Equity
US markets make a sideways move
following mixed economic signs
Capital investment
was a ectedby the
fall inoil prices
Kenneth M. Buntrock
Hamish Douglass
