The Investor 90

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THE INVESTOR CENTRE
MAGELLAN
International Equity
Bank of New York Mellon, Visa and
Lowe’s performed well during quarter
Positive start to
quarter falters due to
Brexit uncertainty
LOOMIS SAYLES
Investment Grade Corporate Bond
Opportunities to add to high-yield
holdings such as energy and telecoms
Impact of Brexitwill be
containedalthough
volatilitywill remain
J O HAMBRO
Joint manager:
UK & General Progressive
Focus on absolute valuation
control and holding cash
Environment getting
worse thanks to central
bankmanipulation
John Wood Kenneth M. Buntrock Hamish Douglass
Equity markets began the quarter
in a positive mode, supported by
a partial recovery in commodity prices
and generally supportive guidance
from central banks.However,
sentiment faltered ahead of the Brexit
referendum,which put markets into a
‘risk-o ’mode.
During the period, investments in
Bank of NewYork Mellon,Visa and
Lowe’s made the largest contributions
to performance.Visa and Lowe’s have
exhibited resilience amid the recent
market weakness and have been well
supported following the release of
their respective Q1 earnings
results. Bank of NewYork Mellon
also delivered strong earnings that
featured an improvement in its net
interest margin – a key indicator of
pro tability. Its headline pro t also
grew despite the negative impact
from currency uctuations and lower
asset values.
The main detractors from
performance were positions within
the IT and consumer-related sectors.
Positions inTesco and Target were the
largest detractors.Meanwhile,
Microsoft detracted fromperformance
after issuing disappointing guidance
for the current quarter.
At the risk of being as repetitive as
the biennial phenomenon of the
England football team entering a major
football tournament burstingwith
patriotic pride and crashing out meekly
a fewweeks later,there is no change in
our message. Perhaps, if anything
though, the dysfunctional environment
caused by central bankmanipulation is
gettingworse,because the poor
behaviour we see around us only seems
to be ’re always happy
not to follow the crowd, and we will
avoid the clamour to extract the last
dregs of the momentum trade. Instead,
we maintain our absolute valuation
control, stick to our sell discipline and
hold as much cash as we can in the
face of overin ated asset prices that bear
little relation to crumbling underlying
corporate fundamentals.
After many years of stock markets
being in ated through high-octane
monetary policy rather than improving
discrete fundamentals, our focus will
remain: to judiciously allocate capital
to quality companies with strong
balance sheets run by skilled
management teams with a long-term,
investment-led approach. It’s not sexy
football but we think it gets decent
results in the long run.
Global credit markets continued
their strong performance from
Q1 inApril before cooling slightly in
May and June.Corporate bonds were
supported by stability in oil prices and
dovish commentary by the US Federal
Reserve.Trading was a bit cautious
during the nal stretch of the quarter
due to uncertainty around the UK
vote on EUmembership and some
lacklustre economic data releases.
Selections in high-yield energy
credits lifted results during the period.
Positions in select supermarkets and
food and beverage companies added
value as well.Our European and US
banks proved resilient and contributed
positively,while a fewUKbanks lagged.
It is our expectation that the ultimate
impact of Brexit will be contained,
though uncertainty and volatility will
remain elevated for continue
to be favourable towards credit as
accommodative central banking
policies, particularly those of the ECB
and Bank of Japan, should prolong the
credit plan to be prepared to
add to our existing holdings, such as
those in high-yield, energy and
telecoms, several of which have
minimal European exposure, if they
drop to attractive levels.
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