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THE INVESTOR CENTRE
THE INVESTOR | 29
E quity markets produced a volatile
performance in Q1, at first taking
fright at the prospect of numerous US
interest rate rises and then fearing a
world of negative interest rates.This
caution is, in the main, valid; although
in the opening weeks of the year some
of the risks were more imagined than
real.Nevertheless, this translates to
another year in which companies are
struggling to grow.
The UKmarket is constrained by
Brexit fears, notwithstanding the fact
that weak sterling is of benefit.Our
best guess is that the UKwill reject
Brexit, but there will be considerable
uncertainty along the way.
In themarket weakness we bought 3i,
BAE Systems, Informa and SEGRO.
We added Pfizer which, along with
other pharmaceutical stocks, has
performed particularly poorly and
looks to be very modestly valued; and
Huntington Ingalls, a US defence
feel that defence budgets
have stabilised and will begin to show
sold GE at profit; and
WilliamHill,which has been a decent
success for the fear that online
will be less defensive than we had first
thought and the spectre of regulation
and tax is ever present in this sector.
A fter selling off sharply to start the
year, global equities bounced
back, largely in tandemwith oil prices.
Emerging markets have benefited
most from the commodity rebound,
outpacing developed world stocks.
Among our top performers were
Tesco and Telefônica Brasil.Tesco
rebounded from its significant
declines in 2014 and 2015; the new
management team at Tesco is starting
to see results from its turnaround
plan.Telefônica Brasil is the leading
telecom player in Brazil.Helmed by a
newCEOwith an excellent reputation,
the company is outperforming
competitors and seeing solid growth.
The largest detractors from
performance were banks, including
RBS and Citigroup.The banks
continued their slide from late last
year as global economic data has
weakened.This has investors
questioning the timing of interest rate
increases and the positive effect that
hikes would have on bank earnings.
We continue to believe RBS and
Citigroup are selling at compelling
valuations, even taking into account
these dynamics.
We exited our positions in Illumina
and Chubb in the period.
T he year started poorly as investors
worried about China; commodity
prices weakened as a result.WithOPEC
producing at full capacity, crude oil fell
to its lowest level in 12 years. Banks
also weakened due to fears about bad
debts related to lending to resources
companies.Central banks responded:
Japan introduced negative interest
rates, the ECB increased QE and
extended its reach, and the US Federal
Reserve kept rates unchanged. In
mid-February, however, commodity
prices rallied,which helped equities.
The announcement of a referendum
on the EU also helped sentiment.
We made no significant changes to
equity weightings or to the bonds and
cash mix during the quarter.While
government bonds performed well,
we find little value in this asset class.
We do not expect a global recession
or a hard landing in China but clearly
the margin for error is modest and the
central banks have limited ammunition
to influence activity.More fiscal
stimulation from governments may be
necessary but that will be difficult
do not expect the UK to
vote to leave the EU, but a rogue
opinion poll could generate volatility.
ARTEMIS
UK & International Income
Pharmaceuticals and defence stocks
look to offer value to portfolio
ARTISAN PARTNERS
Global Managed
Global
Tesco and Telefônica Brasil provide
strong returns for portfolio
AXA INVESTMENT
MANAGERS
AXA Framlington Managed
Balanced Managed
Further volatility expected, but
not a global recession
Market takes fright, but
some risksweremore
imagined than real
Global equities bounce
back in tandemwith
oil prices
Poor start to the
year improves as
commodities rally
Dan O’Keefe, David Samra and
James Hamel Richard Peirson Adrian Frost and Adrian Gosden