The Investor 89

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THE INVESTOR CENTRE
OLDFIELD PARTNERS
High Octane
Current conditions mean that many
companies are attractively priced
At its lowest point, the
MSCIWorld Indexhad
fallen 24% from its peak
MIDOCEAN
Joint manager: Strategic Income
Volatility provides opportunities to
purchase stocks at risk-adjusted prices
US high-yieldmarket
sawmost volatile
period since 2008/09
ORCHARD STREET
Property
Focus on prime locations as
secondary sites suffer
Demand for good
qualityUKproperty
remains positive
Jim Wiant and Michael Apfel
Despite the headlines about
uncertainty related to economic
growth and Brexit, ongoing occupier
demand for good-quality UK
commercial property remains positive.
There has been little speculative
development in most markets for the
past eight years and there is nothing in
the current development pipeline to
suggest oversupply will become a
problem in the near term.Yet occupiers
are focusing on best-in-class properties,
resulting in a polarised market,with
the better properties flourishing and
secondary properties suffering.The
limited supply of new property has
created supply shortages in some
markets,which by Q4 2015 had led
to rental values increasing at the rate
of 4% per annum.
The St. James’s Place Property fund
is invested in prime stock and has a low
vacancy rate of 7%versus the industry
benchmark of 8.7%. But, volumes of
sales in the investment market have
slowed.InQ1we invested £172million,
which included the acquisition of
garden centres let on 25-year leases to
Wyevale Garden Centres, a prime
office building in Newcastle, and a
mixed-use scheme in an excellent
location in central Birmingham.
In Q1, the US high-yield market saw
one of the most volatile periods
since the 2008/09 financial crisis,
down as much as 5.13%.
Since then,US high-yield has staged a
significant rally and is now comfortably
positive for the year.Dovish central
bank policy combinedwith incremental
improvements around global concerns
such as oil,Chinese andUS growth, and
European banks led risk assets to come
back into favour among investors.
High-yield benefitedwith record
inflows over a four-week period.
The Fed’s unexpected decision to
cut its interest rate projections by 50
basis points and to two hikes expressed
an inherently more dovish tone.The
Fed’s plan should be supportive of US
and global growth, and therefore risk
assets. In addition, fears of a US
recession are fading,which should also
be a positive for high-yield bonds.
While the severity of market volatility
may dissipate in the short term,we
believe macro headlines will continue
to impact the markets over the
medium term. Similar to our strategy
in Q1,we intend to take advantage of
future volatility to purchase positions
at attractive risk-adjusted prices.
T his was a turbulent quarter,
the depths being reached on 11
February, before a strong
its lowest point, theMSCIWorld Index
had fallen 24% from its peak inMay
2015.A recent table in the Financial
Times recorded the nine bear markets
for the US since 1957. From the point
at which a bearmarket was declared – a
fall of 20% from the peak – the average
return over the next year was 10%.
Falling markets make people gloomy
about the future, but the general
experience is that after a 20%fall,which
already reflects the reasons for gloom,
returns are good.That has beenour view.
An average is only an average,and this
could be one of those times whenworse
follows.A great deal hinges on the US
economy: is recession on the way or
not? Very low interest rates would be
an unusual precursor to recession; and
employment levels, housing and car
sales are all doubt the US
economywill go into reverse in the near
future; and it seems to us that currently
recession is embedded in the valuations
of many companies which, in its
absence, are extremely attractively
include in this the oil sector,
where we believe that the present oil
price is unsustainably low.
Richard Oldfield Philip Gadsden
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