Investor 91 Asia

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THE INVESTOR CENTRE
G lobal markets continued to be
preoccupied with the fallout
from the UK’s vote to leave the EU,
and attempts by central banks to
stimulate growth in a low interest
rate environment. Ongoing low rates
have led to bond yields falling so
sharply that investors are looking to
riskier assets such as equities.
Global equities posted decent gains
in the quarter, supported by the
aforementioned central bank stimulus
(European Central Bank and Bank of
England) and a rise – albeit from low
levels – in the price of oil.
Eurozone business con dence
remains on a steady but shallowupward
trend and Germany continued to
outperform, supported by better-
than-forecast GDP growth of 0.4%.
US labour market data has exceeded
expectations,and services and consumer
spending continued to expand, despite
weaker recentGDP readings.Generally
positive economic indicators increased
speculation that the Federal Reserve
might raise rates before the year-end.
Yet challenges remain. Fears about
China seem to have dissipated but
underlying issues persist. Political risks
globally could return into sharp focus
nowthatmarkets are back in full force.
COLUMBIA
THREADNEEDLE
Strategic Managed
Global equities posted decent gains
in the quarter despite headwinds
Ongoing lowrates
lead to sharply falling
bondyields
Richard Colwell, Stephen Thornber
and Jim Cielinski
T heEuropean equitymarket
recovered topre-Brexit levels
during the quarter and came close to
reaching all-time highs in terms of
UK sterling, as government bond
yields were setting record lows.
Henkel,one of our holdings,was one of
the rst companies to issue a bondwith
a negative yield.
The current environment makes it
di cult to nd new ideas at reasonable
valuations without sacri cing quality.
We think the portfolio remains far
higher quality thanmost,with valuations
attractive relative toour investable
universe and long-terminterest rates.
But in our view absolute valuations are
getting high in the context of history and
based upon our conservative valuation
such,wewelcome
some disruption in markets that we
could capitalise on,aswe did inQ1
when we were able to add a position in
UBM at an attractive earnings multiple
of 14 times.UBMowns some of the
largest trade shows,worldwide.Large
business-to-business trade shows have
three excellent characteristics:they are
‘must-attend’events even in recessions;
they bene t fromstrong network e ects;
and are extremely pro table at scale.
BURGUNDY
Joint manager: Greater European
and Greater European Progressive
Disruption in market provides
welcome investment opportunities
Europeanmarkets
bounce back to
pre-Brexit levels
Kenneth A. Broekaert
T he world equity markets have
posted a signi cant recovery,
surpassing pre-Brexit levels, with the
S&P 500 in the US achieving all-time
highs during the quarter. Recently,
there has been less bad news than good.
In many regions, long-dated
government bond yields hit record lows
early in the quarter, before increasing
in of mid-September,
30-year government bond yields were
approximately 2.5% in the US, 1.6%
in the UK, 0.7% in Germany and
0.5% in Japan. Low interest rates are
one of the reasons why the MSCI
World equity index, the S&P 500 and
MSCI Pan Euro indices have price-to-
income ratios that are higher than they
were prior to the global nancial crisis.
However, long-term interest rates
were also notably higher in 2007 when
the US 30-year bond was around 5%.
Our portfolio holds 21 companies
that are among the highest quality in
their industries yet, on average, trade
at below-average valuation multiples.
Our companies provide an earnings yield
around mid-5% and dividend yield
mid-2%and historically have grown
their earnings on average in the high-
single digits.Our portfolio provides
reasonable value in this environment.
BURGUNDY
Joint manager: Worldwide Managed
and Worldwide Opportunities
Portfolio is well positioned to provide
value in current economic environment
World equitymarkets
post a signi cant
post-Brexit recovery
Kenneth A. Broekaert
THE INVESTOR | 33