Investor 91

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THE INVESTOR CENTRE
MAGELLAN
International Equity
Portfolio benefited from positions in
eBay, Microsoft, Apple and Visa
Equitymarkets
reboundedwell,
following Brexit vote
LOOMIS SAYLES
Investment Grade Corporate Bond
Security selections and hard currency
bonds added value to portfolio
Corporatebonds
bene ted fromthe
search for yield
J O HAMBRO
Joint manager:
UK & General Progressive
Focus remains on growing companies
able to reinvest in themselves
Post-Brexit stock-market
valuations have grown
further out of kilter
John Wood Kenneth M. Buntrock Hamish Douglass
E quity markets began the quarter
in a positive mode after earlier
declines in response to the surprise
Brexit vote.Major central banks have
retained a supportive policy stance,
while the Bank of England cut the
interest rate and announced a new
round of QE. Signals from the Federal
Reserve indicate that increases in US
rates are likely to be gradual as the
economy approaches its targets.
Investments in eBay,Microsoft,
Apple andVisa made the largest
contributions to performance. eBay
performed strongly as its earnings
exceeded expectations and its US
gross merchandise value growth saw
sequential improvement.Microsoft,
Apple andVisa also rose as their
quarterly results were all ahead of
market expectations.The main
detractors from performance were
Lowe’s and Tesco. Lowe’s was weak
after its Q2 earnings release,with its
comparable sales growth declining to
2%.The company did maintain
full-year sales growth guidance of 4%
and management are con dent that
growth will improve this year.Tesco
underperformed, after broker
downgrades based on heightened
concerns around price competition.
W e were unsurprised by the
outcome of the Brexit
had conducted extensive work on UK
domestic-facing stocks ahead of the
referendum in anticipation that these
names would be heavily punished
should the UK decide to leave the EU,
as was the case. But the post-Brexit
vote market sell-o that brought
absolute valuations back into slightly
more realistic territory is now but a
memory. Stock market valuations have
grown even further out of kilter with
underlying corporate fundamentals.For
those like us,only interested in absolute
valuations and loath to play the game
of the greater fool, this makes for
head-scratching, hand-sitting and
simply cannot nd
any value in this market and prefer
inactivity to capital-destroying activity
for the sake of activity.
Our emphasis as long-term investors
remains on a concentrated portfolio
of companies capable of growing and
developing their businesses over time.
With strong balance sheets, the
companies in our portfolio can reinvest
in themselves to generate compounding
growth, irrespective of the economic
environment.And we never lose sight
of our absolute valuation discipline.
F ollowing the Brexit vote-induced
spread widening, it has been a
one-way street tighter during July and
August. Even with a more cautious
month of September, corporate bonds
outperformed government bonds by
a fairly wide margin.Credit was
supported by the Bank of England’s
announcement of corporate bond
purchases starting in September. Cash
ows into corporate bonds continued
as the search for yield intensi ed on
depressed government rates.
Security selections, including a
few high-yield names, from energy-
related issuers, global banks and
communications companies, lifted
result restive to the index. Positions in
hard currency bonds by emerging
market entities also added value.
TheAutumn will bring a variety of
developments, including Bank of Japan
announcements, Federal Reserve
meetings, the Italian referendum and
not least, the US election. In Europe,
we worry that the possible loss of the
Italian reform referendummight lead
to risk aversion and broad sell-o s in
peripheral government debt and bank
continue to emphasise
to mid-curve,mid-quality corporate
paper as our key risk overweight.
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