The Investor 90

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THE INVESTOR CENTRE
SCHRODERS
Managed Growth
Schroder Managed
Lonmin, Anglo American and South32
benefited from commodities rally
Mining sector recovers
well a er shaky start
to the year
STEWART INVESTORS
Global Emerging Markets
Indian companies including Tech
Mahindra benefit portfolio
SELECT EQUITY
Joint manager: Worldwide Managed
and Worldwide Opportunities
UK economy is fundamentally stable
despite short- and medium-term risk
Chinamust devalue
currency to alleviate
domestic challenges
We began toprepare
for an exit vote in the
thirdquarter of 2015
T he fund bene ted from positions
in Indian companies, Housing
Development Finance andTech
Mahindra over Q2 and Brazilian bank
Banco the negative side,
positions inAxiata Group (Malaysia:
telecomservices) andUnicharmCorp
(Japan: consumer staples) declined.
When Chinese national champion
Lenovo acquired IBM’s PC business
in late 2004 for $1.8 billion there were
only two other overseas acquisitions
by Chinese companies exceeding
$500 million.Twelve years on and
$2 billion acquisitions by Chinese
companies aren’t even notable.
Overseas acquisitions re ect an
arti cially lowcost of capital for Chinese
companies, particularly government-
linked equities, as the rapid growth of
wealthmanagement products,implicitly
guaranteed by the central government,
seek investments.The rush to buy assets
in foreign currencies is perhaps also
indicative of an awareness that China
needs to devalue its currency to alleviate
some of its domestic
believe that China’s voracious appetite
for overseas assets is propping up stock
market prices globally, which has
dangerous implications for medium-
term returns from owning equities.
T he fund’s UK equity portfolio
outperformed the FTSEAll-
Share index.The fund’s mining
sector positions continued to recover
with rming commodity prices,
led by platinum producer Lonmin,
diversi ed minerAngloAmerican
and base metals-focused South32.
Electrical retailer Darty was subject
to a bidding contest between France’s
Groupe Fnac and SouthAfrican retailer
Steinho International; and electricity-
generation business Drax recovered in
line with rising energy prices.
On the negative side,Tesco
performed poorly after the publication
of its full-year results.The results were
broadly in line with consensus
expectations but the market focused
on the outlook statement that
investment into the business would
suppress pro ts in the short term.
Our holdings in interdealer brokers
Tullett Prebon and ICAP also
detracted from performance,with the
latter performing poorly following
marginally disappointing full-year
results.These were driven by the
global broking division,which it is in
the process of merging withTullett’s
voice broking operations.
Over the past few quarters we’ve
become increasingly wary of the
global macro ’ve
noted the relentless GDP downgrades
across the world, the dangers of
increasingly unorthodox monetary
policy and,most recently, the
meaningful risks posed by the UK
referendum on the EU.
We have been focused on the UK
referendum since David Cameron’s
unexpected general election win on
7May last year, a result which was
secured only with the promise of
a national plebiscite to determine
whether the country would integrate
further into the EU or break from it.
We began to prepare for the possibility
of an exit in Q3 2015 and structured a
game plan for either result.
The turmoil in global markets
provides us with the opportunity for
‘thoughtful o ence’, focused on
companies that we believe are best
equipped to ourish under adverse as
well as benign view the
UK economy as fundamentally stable
despite short- and medium-term
uncertainty,while we are cognisant
of the greater risk that nationalist
sentiment across Europe poses to
further dislocation.
Kevin Murphy and Nick Kirrage George Loening and Chad Clark Jonathan Asante
THE INVESTOR | 39