THE INVESTOR CENTRE
THE INVESTOR
|
33
W
e expect the big theme of 2016 to be
interest rate policy divergence – that
is, interest rates will move away from
emergency settings in the US whilst
monetary policy in Europe and Japan will
remain very accommodative; the European
Central Bank and Bank of Japan may decide
to do more to support economic growth. In
the UK, current pricing in the bond market
suggests that we won’t see any interest rate
rises before 2017.
What does this mean for investors?We
think that the era of abnormally low equity
market volatility is at an end.To put it another
way, there will no longer be a rising tide of
global quantitative easing (money printing
by central banks) that lifts all boats. In this
environment, it will make sense to diversify
within and across asset classes, but broad
market returns are likely to be quite modest.
We expect investors to become more
switched on to income strategies as a source
of attractive total returns in a world where
organic earnings growth is hard to nd.
Several global industries will continue to face
challenges on pricing due to overcapacity.
COLUMBIA
THREADNEEDLE
Strategic Managed
Increased volatility will make it
essential to diversify assets
Expect further interest
rate divergence during
the course of 2016
Richard Colwell, Stephen Thornber
and Jim Cielinski
O
ne of the important contributors to our
recent and long-term results has been
the companies we have chosen
not
to own.
We have avoided large permanent losses
because of our focus on companies that are of
high quality and that have businesses we
thoroughly understand.
Our top three contributors to returns
were a reinsurance company (Hannover Re,
+39%), a software company (Sage, +33%)
and a consumer goods company (Imperial
Tobacco, +33%). Our worst-performing
holding was a global advertising agency
called Publicis (-6%).We took advantage
of this share price weakness and added to
Publicis during the quarter. Publicis shares
are among the most attractively valued in
our portfolio, trading at an enterprise-value-
to-EBIT multiple of less than 11.We think
the shares are depressed for reasons that are
temporary.We think the companies in our
portfolio continue to have a more attractive
combination of quality and valuation
than those in our DreamTeam and most
companies within Europe. However, we
remain concerned about the broadly high
valuation levels fuelled by ultra-low interest
rates and signi cant monetary stimulus.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Hannover Re, Sage and Imperial
Tobacco have been star performers
Quality stock-picking
ensured strong results
during 2015
Kenneth A. Broekaert
W
ith the exception of commodity-
related markets, equity returns in
2015’s fourth quarter were strong.While
attention continued to be focused on the
Federal Reserve’s oft-postponed rate hike,
the balance of investor opinion appeared to
be that one rate hike would not indicate a
hawkish Fed. Our fund fully participated in
the rising markets, roughly matching the
global averages in both the quarter and
year-to-date.
As in previous advances, markets showed
a pronounced quality bias.The leading
positions in our portfolio tended to be
concentrated in the consumer staples area,
with Johnson & Johnson, Philip Morris
International, Heineken and Unicharm
all among the leaders, as were Keyence
and Hannover Re. Heineken, Keyence
and Hannover Re were also our three best
positions over the year.
Weak performers in the portfolio tended
to be in the energy area, unsurprisingly.
Cenovus, our western Canadian energy
producer, su ered both from a declining oil
price and a dramatically weakening Canadian
currency. Union Paci c Railroad, which
has big businesses in oil, coal and frac sand
shipping, was actually the worst-performing
stock in the portfolio, and is now enticingly
cheap.The portfolio balances high-quality
business franchises with a small number of
very inexpensive names from cyclical areas.
We feel that this is appropriate positioning in
this environment.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Mix of high-quality franchises and
inexpensive cyclical businesses
Superior stocks show
their value during
periodof volatility
Kenneth A. Broekaert
