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THE INVESTOR CENTRE
All information correct as at 30 September 2016
SANDS CAPITAL
Satellite manager: Global Equity
Portfolio looks to provide incremental
value through deep research
India remains a
relative bright spot in
emergingmarkets
RWC
Equity Income
Medium- to long-term effect of Brexit
is impossible to gauge
Post-Brexit recovery
helpedbysharp fall
insterling
PAYDEN & RYGEL
Joint manager: Diversified Bond
and Multi Asset
The portfolio’s position in securitised
products added to positive returns
Global bondyields
bounce back a er
historic low in July
T
he UK equity market has
continued the recovery seen at
the end of June following the result
of the Brexit vote.While stock
markets initially declined sharply,
investors quickly realised that, for the
many companies which are very
international in nature, the fall in
sterling will mean that their
international pro ts are translated at
a more attractive rate for sterling
investors, and share prices have
reacted accordingly.
In the same way for those companies
based in the UK, sterling’s weakness
has made themmore competitive in
export markets.Clearly, for companies
that sell their products or services
exclusively into the UK, the fall in
sterling is likely tomake their input
costs more expensive.These companies
may struggle to recoup these higher
input costs in the formof higher prices.
The medium- and long-term e ects of
Brexit on the underlying economy is
impossible to gauge as it depends on
how con dence evolves.
We would note that the UK
economy continues to be too reliant
on consumer spending and that we
continue to run large de cits. These
are issues thatwill have tobe addressed.
A
recent trend in the investment
management industry has been
the proliferation of exchange-traded
funds and other passive investment
strategies that simply track underlying
indices. Such passive vehicles can serve
an important role in portfolio
construction by providing investors
with a low-cost way to participate in
e cient markets. Because market
e ciency tends to be skewed toward
short-term valuation factors, our
active management approach seeks to
create incremental value for clients
by utilising deep fundamental research
to carefully evaluate long-term
business prospects.Our research
leads us to overweight the portfolio
to individual businesses, as well as to
sectors and countries that have the
greatest long-term value creation
opportunities.
An example is our overweight to
India,which remains a relative bright
spot in emerging markets.The country
has many favourable fundamentals and
a government that is making needed
reforms in key growth-stoking areas.
We own companies across a spectrum
of industries, from necessities to
higher-value goods and services.
T
he third quarter started with
volatility after the surprise EU
referendum result. However, after
reaching historic lows in July, global
bond yields moved higher inAugust
amid improving risk sentiment and
record corporate bond issuance.
Central bank activity was once again
the main focus of investors’ attention
this summer, as the Bank of England
cut interest rates while the ECB and
Bank of Japan seemed to have
reached the limits of QE. Corporate
bonds outperformed comparable
government bonds; investment grade,
high-yield and emerging markets
debt bene ted from the compression
in yield spreads and recorded gains.
Our strategy produced steady
returns in the rst two months of the
quarter.The portfolio’s allocation to
securitised products was the top
contributor as valuations improved.
Our increased allocation to high-yield
and emerging markets also added
positively.A short sterling foreign
exchange position contributed
positively early in the period, but
detracted as the trend reversed.With
the prospect of a US interest hike, our
strategy will focus on credit sectors
that are less interest-rate sensitive.
Nick Purves
David Levanson, Sunil Thakor and
Perry Williams
Scott Weiner, Brian Matthews and
Brad Boyd
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THE INVESTOR