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THE INVESTOR CENTRE
All information correct as at 30 June 2016
S. W. MITCHELL CAPITAL
Continental European
Joint manager: Greater European
and Greater European Progressive
SAP, Essilar and Amadeus should
continue to thrive despite volatility
UKbound to lose
some growthpotential
following Brexit
STEWART INVESTORS
Worldwide Opportunities
Henkel and Banco Bradesco make
positive contribution to portfolio
Best to invest in
long-termowners or
owner-managers
Stuart Mitchell
Goodbusinesseswill
adjust touncertainty
in themarket
TWEEDY, BROWNE
Satellite manager: Global Equity
Portfolio has outperformed
benchmark quarter and year-to-date
William Browne, Tom Shrager,
John Spears, Robert Wyckoff
A lthough Brexit wasn’t the result
we wanted, and one we didn’t
expect, it is probably unwise to try to
drawmuch in the way of rm
conclusions about what happens next.
Yet I will o er a few that seem to me
pretty obvious.While the country
rethinks how it will trade with the rest
of the world, the UK economy seems
bound to lose some growth potential.
But negotiations will be tortuous: and,
if we look out a couple of years,we
may be surprised that nothing much
has changed; and that few, if any, new
barriers to trade have appeared.
Remember that just 6% of eurozone
exports are to the UK. Brexit could
threaten, by a sort of contagion, the
whole European‘project’, but there is
currently scant parliamentary backing
for referenda in other member states.
The shock felt in other European
capitals is likely to produce a response
– probably a heightened willingness to
embrace reform, to contemplate easing
the austerity straitjacket, perhaps
establish an infrastructure fund.
While clearly unsettled, there is no
reason to think that our great growth
companies such as SAP, Essilor and
Amadeus won’t continue to thrive.
The fund bene ted from positions
in Henkel (Germany: consumer
staples) and Banco Bradesco (Brazil:
nancials) over Q2, as well as Kansai
Paint (Japan:materials).On the
negative side,Unicharm (Japan:
consumer staples) and Public Bank
(Malaysia: nancials) declined over
the remain focused on
investing in quality companies trading
at reasonable valuations.
We are convinced that long
executive remuneration reports issued
by companies are often designed to
justify pay for shorter-term decision-
making – the more complicated a
report, the more likely it is to signify
this type of deal.A desirable type of
pay for boards and executive teams is
long-term simple
invest in companies where we believe
long-term owners or owner-managers
have a large degree of in uence – for
example Henkel, Berkshire Hathaway,
Markel, Loews Corp,OCBC,
Unicharm,Waters Corp andMerck
KGaA. Failing this,we prefer
management teams who have
contributed to a company’s culture for
a reasonable period and take a
long-term approach – Unilever falls
best into this category.
As the monetary mandarins’
experiments with negative
interest rates continue to prove to be
ine ectual at sparking economic
growth, and with the UK’s electorate
voting to withdraw from the EU,
global equity markets remain in
turmoil as we write and have
produced negative returns year-to-
date.Yet the St. James’s Place portfolio
atTweedy, Browne remains modestly
positive, and has outperformed its
benchmark, quarter and year-to-date.
The so-called FANG stocks (a group
of high-momentum stocks that
dominated the benchmark index in
2015) are no longer driving returns.
The value component of the market
has begun to take a leadership role.
Returns in Japan have turned solidly
negative while oil-related holdings
have gained signi cant ground as oil
prices have rmed and headed north.
As for the repercussions of Brexit
for the UK and the EU, only time will
take comfort in the fact that
businesses are a mix of human,
physical and intellectual capital, and
that the good ones are marvellously
adaptive and adjust
value investors,we are looking forward
to the opportunities that lie ahead.
Jonathan Asante
40 | THE INVESTOR