THE INVESTOR CENTRE
THE INVESTOR
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29
E
quity markets continued to struggle
towards the end of the year amid the
much-feared rise of US interest rates, which
then passed without incident.The pattern of
future rate rises will determine market
prospects over the coming year.We feel that,
despite the rhetoric, central bank action will
probably lag in ationary trends as they fear
de ation more.
Despite the stronger economies in both
the US and UK, the pressure on corporate
pro tability remains.Much of this is the
e ect of lower commodity prices. But, in
general, companies are nding that revenue
growth is hard to come by and it is di cult
to envisage how the macro and political
environment can allowmuch progress in
equities for the time being.
Our activity has been subdued with
(modest) additions to GE,AstraZeneca
and Royal Mail.We reduced Novartis and
sold the holding of HK Electric, which has
returned around 20% in absolute to the
fund in absolute terms since it was bought at
IPO last year. In part this has been due to its
7% dividend yield, but the shares have also
proved resilient in a volatile emerging market
backdrop.The company has a regulated
return that is up for discussion next year,
with a new regulatory framework to be
implemented from 2018.We believe the new
regime will be less generous going forward.
G
lobal equity gains were solid in Q4,
despite increasing volatility. Emerging
market stocks trailed on concerns that
weaker commodity prices would restrict
growth. Developed world stocks were led by
the US, aided by a stronger US dollar and an
upward revision to Q3 GDP growth
predicated on healthier business spending.
Baidu andAlphabet (formerly Google)
were among our top performers. Baidu
shares rebounded from the mid-September
low.The market has responded favourably
to Baidu selling its interest in Qunar, a
loss-making travel company, to Ctrip in
exchange for a Ctrip equity stake.Alphabet’s
most recent quarterly results demonstrated
growing momentum in its core ad business.
The company also reiterated its commitment
to improving transparency and discipline in
spending initiatives.
Qualcomm andAmec FosterWheeler
were among our weaker performers.
Qualcomm’s management gave a
disappointing forecast for licence sales in the
coming year as it is having di culty collecting
royalty payments from Chinese customers.
Amec FosterWheeler reported declining
earnings and announced a dividend cut.
However, the dividend cut is likely a prudent
step that will bene t the long-term health
of the company.We exited our position in
Flextronics as shares approached our estimate
of intrinsic value.We also exited Biogen as we
believe its pro t cycle may be decelerating.
T
he nal quarter of 2015 was a volatile
period for markets, though returns from
equities were positive.The macro news was
mixed: slower-than-expected growth from
China caused a further sell-o in commodity
prices and resources stocks; strong
employment data from the US suggested –
correctly – that the Fed would nally raise
rates at its December meeting; OPEC failed
to put a oor under the oil price; more
terrorist outrages occurred; central banks in
Europe and Japan were generally supportive
for liquidity and asset values; and M&A
activity was also a positive in uence.
We made no signi cant changes to the
equity weightings during the quarter but
did add modestly to our very low weight in
government bonds.We still nd little value
in this asset class but felt that the bonds and
cash element of the portfolio, which was
unchanged in aggregate, was too underweight
in bonds, particularly overseas.
The outlook for 2016 does not look
materially di erent to that of 2015: modest,
below-trend growth in the developed
economies, slower growth from China,
modest growth in company earnings and
limited scope for those earnings to be rerated
with current valuations, albeit M&A will
continue. Higher US rates would normally
be a negative for markets but the Federal
Reserve is likely to move very cautiously.
ARTEMIS
UK & International Income
Companies are finding revenue
growth hard to come by at present
ARTISAN PARTNERS
Global Managed
Global
Baidu is top performer after selling its
interest in Qunar to Ctrip
AXA INVESTMENT
MANAGERS
AXA Framlington Managed
Balanced Managed
Modest addition of government
bonds adds balance to portfolio
FutureUS rate rises
will impactmarket
performance in 2016
TheUS leddeveloped
world stocks, aidedby
a strong dollar
Turbulent end to 2015
and expectmore of the
same in 2016
Dan O’Keefe, David Samra and
James Hamel
Richard Peirson
Adrian Frost and Adrian Gosden
