The Investor 89

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THE INVESTOR CENTRE
Markets continue to be supported
by central banks,which have
been easing policy in recent months as
they attempt to stimulate growth and
combat deflation and recession.The US
Federal Reserve has said there will be
fewer interest rate rises this year than
expected, with only two 0.25% rises
likely, as it adjusts to expectations that
inflation will be lower than forecast.
Similarly, the ECB reached into its
policy toolkit once again and cut the
main deposit rate of interest by 0.1%.
It expanded its QE programme, again
in a bid to thwart barriers to growth.
These arise from the Chinese
economic slowdown, stubbornly low
commodity (especially oil) prices and
uncertainty due to the forthcoming
EU do not see
eurozone inflation picking up while
these deflationary pulses continue.
In terms of dividend stocks, it is
surprising that in such a low-growth,
low-return environment, growth
stocks (those that investors believe
have the potential for substantial
growth) have been outperforming
value stocks (those that are
undervalued). But growth stocks at a
good price can deliver a decent yield,
so we remain on the hunt for these.
COLUMBIA
THREADNEEDLE
Strategic Managed
Growth stocks with decent yield
remain a target for portfolio
Just twoUS rate rises
likely as Fed adjusts
to lower inflation
Richard Colwell, Stephen Thornber
and Jim Cielinski
The first quarter of 2016 was highly
volatile and this created
opportunities.The European stock
market fell almost 17% in euro terms
from the start of the calendar year
to its low on 11 February, before
recovering close to the level where
it started the year.
We bought four new holdings
during market weakness, including a
UK software company calledMicro
Focus International. Its products help
IT administrators manage important,
but very old, internal
are attracted toMicro Focus because
of the management team,who
prioritise profitability and rational
capital allocation over revenue growth.
This focus has enabled them to grow
eps by more than 175% over the past
five years on a revenue base that
declined were able
to buy our position at approximately
13x current year’s earnings.
This quarter gave us the chance to
upgrade the value within our portfolio
while maintaining our high quality
standards.However, the rapid stock
market recovery leaves us where we
started the year,with few companies
on our DreamTeam list trading at
attractive valuations.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
UK software company Micro Focus
International added to portfolio
Volatile quarter
createdopportunities
to buyvalue
Kenneth A. Broekaert
World equity markets returned to
the levels at which they began the
year, after declining 10% (in sterling)
to 11 February, before recovering.
The portfolio earned a modest
return, slightly ahead of the market;
it declined significantly less to
11 February and lagged the recovery.
Our enthusiasm grew as stock prices
weakened during the quarter, but we
were disappointed that prices did not
correct took advantage of
the weak market and added to some
existing holdings at low valuations.
Our portfolio of 21 companies
across the US, Europe, Japan and
Canada are among the strongest in
their industries and regions, yet they
trade at sensible valuations with an
average price-earnings ratio of
approximately 15x and a dividend
yield in the high 2%.Our portfolio
provides an attractive combination of
quality and value.
As bottom-up investors,we avoid
investments that overly rely on good
macroeconomic think
this is especially prudent at a time when
growth and inflation remain muted –
notwithstanding the huge monetary
stimulus around the world and
negative interest rates in some countries.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Portfolio’s mix of companies provides
combination of quality and value
Weakmarket created
opportunities to add
to existing holdings
Kenneth A. Broekaert
THE INVESTOR | 33