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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 December 2015
T
he portfolio underperformed the broader
UK market over the quarter. Investors
continued to grapple with a mixed macro
outlook, coloured by dissenting voices over
the direction of Chinese growth and the turn
in the US interest rate cycle.The commodity
market su ered further heavy price falls.
Focus settled on theVienna meeting of
OPEC, which o ered nothing to support the
oil price as SaudiArabia pursued its strategy
of market share gains at the expense of US
shale.Activity in the high-yield bond market
suggested the strategy is close to paying o as
shale investors liquidated positions.
Our early move into the beaten-up
valuations of commodity names such as
AngloAmerican and BHP Billiton weighed
on performance as the market fretted about
short-term price declines, ignoring the stark
language of production cuts which should
help holdings. Sentiment also remained poor
towards the banks and UK supermarkets;
holdings in Barclays, RBS,Tesco andWM
Morrison struggled, despite evidence that
revamped business models are set to o er
shareholders improved returns.
We are increasingly convinced by our
research that we are on the cusp of a
signi cant period of market rotation.The
soft performance should prove to be a small
cost of giving the portfolio exposure to the
decade-low valuations of sectors the market
continues to ignore, despite increasing
evidence that the sands have started to shift.
MAJEDIE
UK Growth
Joint manager: UK & General Progressive
Opportunities to add value by
targeting unpopular sectors
Research suggestswe
are on the cuspof a
market rotation
Richard Staveley, James de Uphaugh,
Matthew Smith and Chris Field
I
nvestment grade corporate bonds have
been fairly resilient after a few quarters of
underperformance. Even with considerable
weakness in certain sectors of the market,
the broader market performed admirably in
October and November. Despite the spread
tightening, we believe that US investment
grade o ers decent value.The European
investment grade corporate market continues
to bene t from a supportive European
Central Bank and we will continue to
evaluate speci c opportunities on a credit-
by-credit basis.After a strong October, high
yield struggled due to depressed commodity
prices, declining corporate pro tability and
uncertainty surrounding Fed rate hikes.
While exposure to investment grade
corporates lifted returns, there were
security-speci c elements weighing on results
from oil- and gas-related companies.An
overweight stance in sterling-denominated
investment grade added value, highlighted by
positions inActavis, HSBC, Ford, Lockheed
Martin,Telecom Italia and Comcast.
‘More of the same’ appears to be the
message for global economic prospects in
early 2016.We expect US GDP growth of
about 2.5% in 2016, aided by the consumer
and housing, but held back by a strong dollar
and weak net exports.The eurozone is
expected to continue stabilising in 2016 with
moderate GDP growth, relying on a weak
euro and a gradually recovering consumer.
LOOMIS SAYLES
Investment Grade Corporate Bond
US GDP growth of 2.5% is expected
during 2016
Resilient corporate
bonds shouldo er
further value in 2016
T
he start of the quarter saw global equity
markets rally, recovering from the sharp
fall experienced inAugust, supported by
positive economic data, notably stronger US
employment.The further fall in the price
of oil brought it down to 2009 levels.As a
consequence, energy-related companies were
a drag on markets later in the quarter.
During the period, our investments in the
information technology sector were generally
strong, with Intel and eBay being amongst the
major contributors.Microsoft’s share price
reached a 15-year high after management
announced strong results, including triple-
digit growth of its cloud business. Home
improvement companies Home Depot and
Lowe’s also added to performance and so did
payment processing companies PayPal and
Visa, bene ting from the continued shift to
cashless forms of payments.
UK retailerTesco was a major detractor
after it reported a 55% decline in operating
pro ts and restated its 2014 pro ts lower, to
correct its accounting, which also lowered its
pro t forecast.Yum! Brands was another poor
performer; the stock fell 19%when, with
third-quarter earnings results, it lowered its
2015 guidance, citing a sharp deterioration
in trading at its Chinese Pizza Hut casual
dining chain. It also announced its intention
to split the company, separating its operations
in China into a master franchisee by the end
of 2016.
MAGELLAN
International Equity
IT stocks performed strongly with
growth in Intel, eBay and Microsoft
Energy-related
companies drag down
market performance
Kenneth M. Buntrock
Hamish Douglass
