THE INVESTOR CENTRE
THE INVESTOR
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37
A
s we have written many times before,
the European economy continues to
rebound strongly as the eurozone moves
ever closer to full normalisation. Our
company meetings over the past month
con rm a signi cant acceleration in the
economic recovery. In particular, we were
very impressed by Carrefour’s rst-quarter
gures, which showed an encouraging
acceleration in French sales growth. BNP
Paribas, likewise, reported signi cantly
better than expected results, with
management con dently referring to‘green
shoots’ on the back of solid domestic loan
growth.The eurozone moves closer to
normalisation, with Syriza bringing forward
the likelihood of a longer-term solution to
the country’s debt crisis. Less covered, but
equally important, is the recent 3.4% pay
award struck by employers and the highly
in uential IGMetall trade union in Germany.
This is the highest pay deal struck since 2007
and is set against a background of falling
prices in January. Crucially, this should
boost the region’s largest economy and aid
the recovery in the other weaker eurozone
economies.Matteo Renzi and François
Hollande also appear to be making progress
with much-needed reforms. Crucially, in
Italy, radical reform of the labour market
and electoral system has been passed; while
in France, Hollande employed the infamous
Article 49.3 in order to force through
business-friendly legislation.
S. W. MITCHELL CAPITAL
Continental European
Joint manager: Greater European
and Greater European Progressive
Encouraging signs of recovery in
companies across the eurozone
Wewere impressed
byCarrefour’s rst-
quarter gures
W
e believe the broader US economy,
supported by improving household
balance sheets, rapid growth in household
formations, a better job market and increased
con dence, is poised for steady GDP growth
throughout the remainder of the year.Wage
growth, the critical missing ingredient
to a healthier US economy and society, is
probably not far behind.The rest of the world
is a collection of transitioning economies
requiring agile navigation.We have seen
strong local market equity advances globally,
led by Europe, where a cocktail of improving
economic fundamentals, declining oil prices
and an increasingly competitive currency
was supported by an unwavering European
Central Bank – which has o ered to fully
fund all the other peripheral countries at
zero interest rates for at least the next 18
months.The eurozone’s economic outlook
has brightened, and it is striking to see a
succession of positive surprises in the data.
Outside of the eurozone, the countries that
rely on natural resource exports for GDP
growth will su er the consequences of both
lower commodity prices (especially oil
and iron ore) and attening demand from
China. Going forward, the global economy
continues its inexorable yet tentative
transition towards a lower-growth era.We
continue to look for businesses capable of
making their own luck: those that rely on
pricing power, market share opportunities
and penetration gains to drive growth,
irrespective of the global economy.
SELECT EQUITY
Joint manager: Worldwide Managed
and Worldwide Opportunities
The US needs wage growth to help
bolster its economic upturn
We continue to look for
businesses capable of
making their own luck
Stuart Mitchell
George Loening and Chad Clark
A
ccording to legendary value investor
Benjamin Graham:‘To have a true
investment there must be present a true
margin of safety.And a true margin of safety
is one that can be demonstrated by gures,
persuasive reasoning, and by reference to an
actual body of experience.’ Unfortunately,
we believe there is precious little margin
of safety available in public equity markets
today as many investors, if not most, starved
of yield, have been forced out on the risk
curve, bidding up the valuations of risk assets
and making our job of nding undervalued
equities inordinately di cult.The result, of
late, has been high equity valuations, negative
interest rates and highly volatile currencies.
As we write, European bonds are having a
comeuppance, as interest rates have turned
on a dime and begun to head north. Perhaps
this presages a future bumpy ride for equities.
As we have said in previous updates, if global
equity markets continue their advance in the
weeks and months ahead, we believe our
clients should participate in the advance, but
will likely trail most fully invested benchmark
indices. On the other hand, if volatility
returns to equity markets, or we get a long
overdue correction in stock prices, our client
portfolios are well positioned, with plenty of
dry powder to take advantage.
TWEEDY, BROWNE
Satellite manager: Global Equity
Scarcity of undervalued equities
means more risk for investors
Interest rates have
turnedon a dime and
begun toheadnorth
William Browne, Tom Shrager,
John Spears, Robert Wyckoff
