THE INVESTOR CENTRE
THE INVESTOR
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35
T
here is tremendous tension in markets
at the moment: on the one hand,
record-low interest rates, record levels of
debt and high valuations in the US stock
market; on the other, the possibility, as
Warren Bu ett discussed at the 50thAGM
of Berkshire Hathaway last month, that
interest rates might stay low for some time
– in which case price/earnings multiples
for shares might well continue to rise.We
frequently refer to the expensiveness of the
US stock market. From comparable levels
of valuation today – based on various
valuation metrics – the average return over
the ensuing ten years has been low. But there
are exceptions, and persistently low interest
rates might now justify low dividend yields
and earnings yields.
However, it is not surprising that, against
this background of general expensiveness,
we nd relatively few opportunities in the
US and many more in Japan and elsewhere,
where the markets are not expensive.The
world is polarised, valuation-wise, to a
greater extent than for many years. In Japan,
recent visits and conversations have
convinced us that the new apparent emphasis
on returns on equity, and the interests of
shareholders as well as of customers and
employees, is for real.
OLDFIELD PARTNERS
High Octane
Looking for value worldwide while
US stocks remain overpriced
The average return
over the ensuing ten
years has been low
B
ond markets have been volatile in
the second quarter, driven by the
continuation of the ECB’s asset purchases
and debate about the strength of the US
economy (and hence the possible timing of
the rst rate hike) following the sharp rst-
quarter economic slowdown; while fears of
de ation in Europe have lessened amid signs
of economic recovery and a modest rise in
in ation. Bond market yields declined until
mid-April, with 10-year German Bund yields
bottoming at 0.05%, before reversing to
1%within a fewweeks. Core bond markets
subsequently recovered part of their losses
on growing fears of a Greek default, as a
repayment deadline at the end of June loomed
and negotiations between Greece and its
creditors remained deadlocked. Higher
European bond yields and expectations that
the Federal Reserve would postpone raising
interest rates until the summer led to a sell-o
in the US dollar.The non-government bond
markets generally performed well relative to
government bonds, despite increased bond
market volatility.The portfolio allocations
to the non-agency mortgage-backed and
high-yield sectors have been the primary
positive contributors to performance, given
the continued strength of the US housing
market and the recovery in the oil price,
which lent support to energy-related bonds
and the high-yield market generally.We
remain constructive on the outlook for the
non-government bond markets relative to
government bonds.
PAYDEN & RYGEL
Multi Asset
Eurozone QE leads to new all-time
lows for government bond yields
The high-yieldbond
market has recovered
very strongly this year
T
he property sector continues to attract
capital in ows seeking the stable income
yield that it provides.This is supporting
values across the sector. Demand for prime
stock is strong, coming fromUK institutional
and private investors, as well as those from
overseas. During the second quarter we have
been actively investing and have completed
three acquisitions totalling £140 million.
These include a prime o ce and retail
building in NewOxford Street in close
proximity to the new Crossrail station at
Tottenham Court Road.The property has
been comprehensively refurbished and is
well placed to bene t from the opening of
Crossrail and the improvements that will
bring to the area.We have also acquired
aTesco supermarket in Cambridge and
a multi-let o ce building in Bristol,
comprising 116,000 sq ft of gradeA o ce
space.This brings the total purchases for
2015 to £223 million.Tenant/occupier
demand is supporting our asset management
activity – at Old Jewry in the City we have
completed ten-year leases on the fourth, fth
and sixth oors, contributing to a signi cant
valuation uplift. Other major lettings include
a new 15-year lease to SelcoTrade Centres at
AvroWay,Weybridge at a rent ahead of ERV
(estimated rental value), which has boosted
the capital valuation by £2.4 million.
ORCHARD STREET
Property
Stable yields help to boost interest in
the property sector across UK
We have completed
three acquisitions
totalling £140 million
Philip Gadsden
Richard Oldfield
Scott Weiner, Brian Matthews and
Brad Boyd
