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THE INVESTOR
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T
he Balanced Portfolio
achieved a positive return
over the period, although
at a lower level than it had
done during the first quarter.There
were also some notable shifts in the
relative performance of the component
funds; the Property and International
Corporate Bond funds were more
significant contributors to returns, but the
AlternativeAssets fund posted negative
returns following its positive contribution
in the previous quarter.
Emerging market equities enjoyed a
strong quarter, as global growth persisted
and investors continued to look for new
opportunities.The MSCI Emerging
Markets, the most widely-used index
for emerging market stocks, rose by
more than 5% over the quarter, although
this represented only half the growth
rate struck in the first three months
of the year. Some of this slowdown
was a result of the fall in prices of
leading commodities,which hit major
commodity-exporting countries.A
decline in the value of the dollar also acted
PORTFOLIO OVERVIEWS
BALANCED
announcing improved results for the
first quarter.
A relatively positive period for
consumer staples on global markets
boosted theWorldwide Opportunities
fund, the Portfolio’s best-performing
fund over the period.The fund employs
a blended manager approach – the
investment strategies employed by
Burgundy and Select Equity both
benefited strongly from their exposure
to the sector. Select Equity’s stake
inWhole Foods was an important
contributor; the stock rose around 40%
over the period, thanks to the high-end
supermarket chain’s acquisition by
Amazon. Burgundy’s significant stake
in Nestlé, the largest food and drink
company in the world, was a major
contributor to performance.The Swiss
company was buoyed by a $3.5 billion
investment made byThird Point, an
activist US hedge fund, late in the
quarter – and by improved sentiment on
European markets more broadly.
Sterling suffered significantly in the
aftermath of last year’s referendum
on EUmembership, but between
April and June, it posted its first
quarterly rise against the dollar since
mid-2015. Despite sluggish headline
growth, the UK could point to positive
corporate earnings and impressive jobs
numbers. Indeed, the fundamentals of
the economy were apparently thought
sufficient for the Bank of England to
indicate that a rate rise might even be in
as a headwind for companies that rely on
exports to the US.
Nevertheless, the Emerging Markets
Equity fund achieved the highest
return of all funds in the Portfolio – the
fund is managed byWasatchAdvisers.
One significant outperformer was
PNB Housing Finance, an Indian
public-sector housing finance provider
that enjoyed a 30% share price increase
over the period.Other contributors
includedMercadoLibre (a South
American supermarket chain), BGF
Retail (a Korean convenience retailer)
and Bajaj Finserv (an Indian financial
services company).
The Property and International
Corporate Bond funds were both
important contributors to Portfolio
performance, as each fund almost
doubled the returns achieved in the first
quarter.Orchard Street, investment
managers of the Property fund,
completed the acquisition of several assets
over the period, significantly reducing
cash levels in the fund. Purchased inMay
for almost £30 million, 38-39 Hatton
Garden is a mixed-use office and retail
property in London, just 200 metres
from Farringdon Station. The
International Corporate Bond fund
benefited from steady and stable
corporate earnings in the first quarter and
improving demand for high-yield bonds.
Commodities also suffered over
the three-month period.Nickel was
a particularly poor performer,while
the offing.Yields on government bonds
rose as a result; the Index Linked Gilts
fund was the Portfolio’s largest detractor
over the period, closely followed by
theAlternativeAssets fund, which also
suffered due to its gilts exposure.