THE INVESTOR CENTRE
THE INVESTOR
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37
G
lobal equity markets were volatile, as a
sell-o in September was followed by
a strong rebound in October and at market
returns in November. Concerns about a
Chinese economic slowdown contributed to
volatility, as did global central bank actions.
China announced an interest rate cut and
the European Central Bank indicated the
possibility of additional stimulus.Meanwhile,
the US Federal Reserve considered its rst
interest rate hike in seven years, making
that move in December. Commodities were
weaker as the price of oil remained volatile.
Stock selection within the consumer staples
and nancials sectors aided performance.
Individual contributors included McDonald’s,
Microsoft and Philip Morris. Stock selection
within the consumer discretionary and
IT sectors detracted from performance,
speci cally Macy’s, Pearson and Novartis.We
added Canon and Kohl’s to the portfolio.
We believe US equity markets have slightly
above-average valuations on earnings but
are highly valued on a cyclically adjusted
price-earning basis. Forward estimates may
generally prove optimistic, particularly
considering the potential peaking of margins
and declining impact of share buybacks.
European multiples appear cheaper than
their US counterparts, in our view, and may
have more earnings recovery potential.We
continue to focus on companies with what we
believe to be sustainable cash ow streams.
MANULIFE
Global Equity Income
McDonald’s, Microsoft and Philip
Morris performed well
StrongOctoberwas
temperedbyvolatility
at the endof the year
T
he quarter was dominated by concerns
over the sustainability of Chinese
economic growth, which resulted in a rout
in commodity markets; mining and energy
stocks su ered accordingly. Our commodity
holdings were detractors:Vedanta Resources
su ered following its decision to drop the
interim dividend payment, RioTinto was
not spared and BHP Billiton’s exposure to
a major incident at a Brazilian mine added
to the unfavourable sentiment. Given the
signi cant litigation costs the company faces,
we decided it was the right time to exit.
However, the macro background remains in
transition as companies move to rationalise
capacity in response to low prices and reduce
supply – hence our view that the cure for low
prices is low prices.
Aside from the mining positions, we had
a series of stock-speci c setbacks: Pearson
announced a Q3 sales decline; and Chemring
announced a pro t warning, mainly due to
the deferral of a Middle Eastern ammunition
contract into the forthcoming nancial year.
We have retained our large weighting
in general nancials, which performed
positively over the period.
We are frustrated to have given back some
of the strong performance of earlier in the
year, but equally this is the lot of a stock-
picking fund. Unfortunately, a cocktail of
sharp commodity price falls and individual
pro t warnings over the quarter has been a
little too much for the portfolio to swallow.
MAJEDIE
UK Income
High weighting in general financials
performs strongly
Concerns over China
lead todramatic falls in
commoditymarket
T
he US high-yield market was quite volatile
during the quarter, and the divergence
in performance between higher-quality and
lower-quality bonds continued, with BB-
rated and B bonds solidly outperforming the
higher-risk CCC segment.The performance
for CCC-rated bonds was emblematic of the
market’s risk aversion.
Negative sentiment accelerated within
commodity-linked credits, with energy and
metals and mining sectors down materially.
Additional sectors such as retail, broadcasting
and telecoms also saw their performance turn
negative.The three top-performing industries
were food and beverages, gaming and housing
– ranging from 5% to 7% up for the year.
US economic data has remained positive
with recently reported strong employment
growth and unemployment levels nearing
the Federal Reserve’s target rate.We have
continued to position the portfolio cautiously
and towards companies with a strong risk
pro le, credit metrics and business prospects
while avoiding exposure to meaningful
commodity risk, or economic cyclicality.
We have also sought to maintain relatively
short portfolio duration to reduce potential
interest rate risk.We believe the dispersion
within the high-yield market has created
meaningful market opportunity for good
asset selection and attractive entry levels.
MIDOCEAN
Joint manager: Strategic Income
Top three sectors were food and
beverages, gaming and housing
Volatility in theUS
high-yieldmarket led
tomixedperformance
Chris Reid
Paul Boyne and Doug McGraw
Jim Wiant and Michael Apfel
