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Fund Manager Monthly Report - November 2015

24 December 2015

View the latest portfolio and market commentaries from our range of fund managers.

Aberdeen Asset Management (Asia) - Hugh Young

Far East

In November, the fund fell 1.60% in sterling terms, underperforming the benchmark by 2.78%, owing to a combination of negative asset allocation and stock selection. Standard Chartered was a key detractor to relative performance. Its shares fell on the back of news of a £3.3 billion rights issue that will help provide a comfortable capital buffer for the lender. In Singapore, the overweight to the market cost the fund. Although third-quarter GDP growth was better than expected, the market was the worst performer in the region, hurt by concerns of a Fed rate hike. Stock selection was also negative. Notably, ST Engineering reported weaker-than-expected earnings because of lower contributions from the marine division. On a positive note, ST Engineering announced it would stop designing, producing and selling anti-personnel mines and cluster munitions. This is a pleasing outcome to our persistent engagement with the company. Elsewhere, our Japanese holdings did well, underpinned mostly by good results. Chugai Pharmaceutical rose on the back of positive analyst reports regarding its drug patents. Daikin met our expectations, as its profits were underpinned by cost cuts and robust sales in China. Japan Tobacco was buoyed by its overseas operations. The company raised its dividend forecast, lifting the pay-out ratio from 50% to 55%.
 

Aberdeen Asset Management – Jamie Cumming

Ethical

In November, the fund rose by 0.58%, underperforming the benchmark’s gain of 1.93%. Both stock selection and asset allocation were negative. At the stock level, Experian contributed to performance, buoyed by results that met expectations, with improvements in underlying trade. TSMC rode the share market rally, after buying California-based start-up Tela Innovations for US$65 million. Weir Group rebounded as investors hoped that Saudi Arabia would address oil oversupply concerns. Conversely, Standard Chartered was a key detractor. It suffered deep third-quarter losses, and unveiled a strategic review that included eliminating 15,000 jobs over three years and conducting a US$5.1 billion rights issue. Vale is being sued for damages, on top of a fine already imposed by the domestic environmental agency, for a deadly mudslide. It will create a fund with joint-venture Samarco to help with clean-up. MTN’s shares fell on expectations that a fine imposed by the Nigerian regulator will not be negotiated lower. In November, we introduced Atlanta-based clearing house Intercontinental Exchange, which has a unique business model with high barriers to entry and solid growth opportunities. Against this, we sold Ericsson, to fund better opportunities elsewhere. We added to Check Point Software, Mitsubishi Estate and Vodafone, and trimmed Zurich.

Artemis Investment Management – Adrian Frost & Adrian Gosden

UK & International Income

A calmer month for equity markets but for stock pickers the undertone was still pretty volatile as revisionsto expectations (profit warnings) more often than not elicited fairly noticeable share price setbacks. For us the only candidate in this camp was Halfords where it was less about a further downgrade to profits and more about a furtherance of the strategy with more cost and Capex needed. Despite the fact that this is in addition to the substantial ‘catch up’ investment made in the last 2 years, Halfords has emerged with little debt (helped by a dividend cut). The vision of a specialist cash generative retailer able to grow in a fragmented market and return capital remains. If this were to happen in my lifetime it would be a bonus. The Halfords negative was small and outweighed by good performance elsewhere in the portfolio. In the international list we sold the holding of HK Electric which has garnered a return of 20% mainly through the dividend stream. We foresee a new regulatory framework which will almost inevitably be less generous and may impact the dividend negatively. This is some way off but we have chosen to sell well ahead of this. There was little of note on the transaction front. An addition was made to AstraZeneca at the expense of Novartis and a sale of some Syngenta into the recurrent M&A stories.
 

Artisan Partners– Dan O’Keefe, David Samra & James Hamel

Global Unit Trust & Global Managed

Local currency equity returns were positive for the month, but dollar-based investors faced the headwind of weaker foreign currencies, or said another way, a stronger US dollar. During the month, one UK pound sterling was worth 2.5% less in US dollars, one Japanese Yen 2.1% and one Euro a whopping 4.4% less. The driver of US dollar strength has been the stated intention of the US Federal Reserve to raise interest rates—the last tightening cycle began over 11 years ago. In the meantime, most other developed and emerging economies continue to struggle and therefore remain biased towards further monetary easing, which makes their currencies relatively less attractive versus the dollar. Among the largest contributors to return this month were Baidu and Applied Materials. After a steep selloff over the summer, Baidu shares rebounded from the mid-September low. The market has responded favorably to Baidu’s decision to sell its interest in Qunar, a loss-making travel company, to Ctrip in exchange for a Ctrip equity stake. Applied Materials, a maker of semiconductor equipment, reported earnings in November. The market reacted favorably to management commentary about stability in the semiconductor capital equipment spending environment. Among the biggest detractors to returns this month were Qualcomm and Amec Foster Wheeler. Qualcomm shares fell after the release of Q4 earnings in November. The company is having difficulty collecting royalty payments from Chinese customers and, as a result, management gave a disappointing forecast for license sales in the coming year. Amec Foster Wheeler, a UK-based engineering company, reported declining earnings and a dividend cut this month as a result of headwinds from the company’s oil-and-gas customers. We view the dividend cut as a prudent step that will benefit the long-term health of the company. Other investors were likely less sanguine about the signal that a dividend cut sends. During the month, we exited our positions in Flextronics and Serco. Flextronics, a contract manufacturer of mostly electronic equipment, was a successful investment for the fund—shares appreciated over 80% since the team first acquired a position in early 2013. We sold our shares as they approached our estimate of intrinsic value. Serco, a UK-based provider of outsourced services mostly for government clients, has been one of our worst investments in recent memory—shares fell over 60% since the team first acquired a position in April 2014. At the time we made our investment, Serco had been through a number of high-profile scandals in the UK which pressured shares meaningfully. We thought Serco’s troubles were behind it as a respected management team had joined to run the company, the firm had been through an audit of its contracts by an outside consulting firm, and Serco had raised equity to shore up its balance sheet. As it turned out, the company’s troubles were far from over—new management uncovered a number of poorly written long-term contracts that required the firm to do a second and larger equity raising. Moreover, Serco has struggled to win new business given its tarnished reputation, and the company has lost a number of key executives. As a result of these developments, our estimate of intrinsic value for Serco declined to a point where we no longer had a sufficient margin of safety.

AXA Investment Managers – Richard Peirson

Balanced Managed Unit Trust & AXA Managed

After October’s strong rally November saw only modest returns from equities and bonds. Among the major equity markets the US and Japan were the best performers, returning 2.9% and 1.6% respectively in sterling terms. The UK was a laggard returning only 0.6%. The Bank of England’s quarterly Inflation Report expects only a slow increase in inflation and suggested that the first rise in interest rates was some way off, helping gilts to rally modestly. In the UK the FTSE 250 index (+1.9%) significantly outperformed the FTSE 100 (+0.3%), reasserting the trend of most of 2015. We outperformed in all of the equity regions apart from the US but our bond performance was again disappointing. In the UK we completed a new investment in Reckitt Benckiser, the FTSE 100 consumer health and hygiene company. This international business should prove defensive in a low growth environment while the company has a good track record of integrating acquisitions. Although we have no specific target in mind we do expect significant M & A activity in future, likely adding to consumer health and possibly selling or reducing hygiene, where profit margins are lower. We also added to ARM which was a new purchase in October. These purchases were funded by selling Steris, the US holding that we acquired as part of the Synergy Health takeover, SAB Miller, which had risen after bid terms were agreed and BHP Billiton, where the tragic dam collapse at Samarco in Brazil is likely to lead to significant costs and fines and ultimately a dividend cut. We also sold London estate agent Foxtons, which we have held since IPO for its branch roll-out story. We were concerned that the emergence of a number of cut-price on-line businesses would damage their medium term prospects. The most recent US jobs data was again strong, suggesting that the US Federal Reserve Board will increase interest rates for the first time in 7 years when it meets on the 15-16th December. The latest OPEC meeting ended without any action to halt the slump in the oil price which has fallen below $40 at the time of writing. Metal prices have also weakened due to slower growth data from China so the resources sector, and industrials dependent on it, continue to underperform. The ECB’s recently announced further stimulus measures also disappointed. Equities remain, in our view, more attractive than government bonds taking a medium term view but the short term outlook for both looks uninspiring.

AXA Investment Managers – George Luckraft Allshare

Income Unit Trust & Diversified Income

The UK equity market rose slightly during November despite continued weakness in the mining sector where commodity prices continued to fall. Data from China continued to indicate weaker than expected demand for these commodities as the economy continued to move to a more consumer spending dependency. The portfolio slightly outperformed helped by strength in Conviviality, Hilton Foods and Topps Tiles. A bad profits warning by DX Group caused a large fall in their shares. New purchases were made in Regional REIT and St Ives with both offering attractive yields. The holding of Astra Zeneca was increased after a period of weakness. Exposure to the UK consumer was reduced with the holdings of Pendragon and Topps Tiles being reduced. US interest rates are likely to increase with the ultimate pace and extent of the tightening being a key concern for investors. The large falls in the mining and oil prices are threatening the dividends in these sectors with a possibility that overall dividend levels in the UK market will fall next year. The fund is underweight both sectors.

Babson Capital – Zak Summerscale

International Corporate Bond

Volatility returned to the global senior secured bond market in November, however the International Corporate Bond fund held up well with the portfolio’s European allocation outperforming the US portion during the month. In the US, Federal Reserve rate rise expectations have had a notable impact on the US high yield bond market. Also, a decline in oil prices during November exerted further downward pressure on the energy sector. In Europe however, the market fared better during the month with expectations for further quantitative easing from the European Central Bank boosting demand for high yield bonds within the region. New issuance in the US high yield market saw a marked improvement in November, rising to a five-month high with 37 bond deals pricing for a total of $25.1bn. In Europe, high yield issuance was enhanced by Worldpay’s post-IPO refinancing, with the volume finishing at €2.8bn for the month. Within the European high yield market, 44% of the year-to-date issuance has been senior secured, providing an ample source of new investment opportunities for the portfolio. Notable contributors to the portfolio during November included names such as GFKL Financial Services AG, a German provider of receivables management services and Premier Foods, a UK-based food producer. Detractors over the month included names such as Murray Energy Corporation, the biggest privately owned coal company in the US and TPC Group, a US based provider of products to chemical and petroleum-based companies worldwide. We believe that the volatility within the broader markets will offer openings to take advantage of robust credits at attractive pricing levels. In both the US and European markets the balance sheet leverage levels of the companies we invest in remains restrained and the credit metrics within the market indicate a relatively robust set of underlying issuers. Credit selection however continues to play an essential role in avoiding the weaker companies amongst the opportunity set. The increase in M&A activity has contributed positively to the overall levels of senior secured bonds coming into the market and we would expect this area to remain a strong contributor to issuance volumes going forward. With there being an inevitable slowdown in the new issue market as we move into the festive period, we look forward to the opportunities that 2016 will bring. Looking ahead to the New Year, we remain confident that the International Corporate Bond fund is well placed to continue delivering strong risk-adjusted returns.

BlackRock – Luke Chappell

UK & General Progressive

The UK & General Progressive portfolio returned 0.7% over the month broadly in line with the benchmark FTSE All-Share Index, which returned 0.6%. The UK stock market ended marginally ahead in November with an increase in expectations for the Federal Reserve to raise interest rates at its December meeting. At a sector level the stock market increase was supported by the telecommunications and support services sectors. Higher US oil inventories caused the oil price to fall and together with commodity price weakness, oil and mining stocks reversed gains made in October. Positive contributors to performance included Johnson Matthey after it announced a special dividend and its half year results were better than expected. Recent concerns around growth in their catalytic converter business following VWs emissions scandal had hurt the shares in recent months. Compass gave a positive trading update with an improvement in European trading, whilst the US business continued to grow revenues. Betfair reported a strong first half increase in profits leading to profit upgrades. The main detractors to relative performance included Shire, which fell over the month following the announced purchase of US rare disease firm Dyax and on rumours it may continue its pursuit of Baxalta. EasyJet fell following flight suspensions to Egypt and given market concerns over flight bookings following the Paris terrorist attacks. However, full year results showed continued strong revenue and profit growth. Activity over the period saw us reduce positions in Rio Tinto, Royal Dutch Shell and Relx. Overall we think there is enough domestic economic growth in the US, UK and Europe to allow the world to continue to grow slowly, despite signs of slowing Chinese growth. In addition to the timing of potential interest rate increases in the US and UK, the UK vote on EU membership by 2017 may provide a source of volatility for UK equities over coming quarters. We remain constructive on UK equities relative to other asset classes and highlight the ability of fundamentally driven active management to deliver investment returns. We believe this environment is suited to our strategy of investing in a concentrated but economically diversified portfolio of best ideas that aims to identify companies with structural growth, and those companies able to positively impact earnings through self-help.

 

BlackRock – Nigel Ridge

UK Absolute Return

Subdued growth and ever lower oil prices have continued to depress inflation. A number of companies have seen this feed through to lower earnings yet equity markets have experienced a modest rally since hitting their third quarter lows. Eurozone countries are being helped by a weaker euro and an increase in bank credit, but the region is still in recovery mode. More recently the fallout from the Paris attacks will likely put further pressure on the French economy. The fund made positive gains of +0.48% (net of fees) in November. The long book drove returns with modest losses seen from the short side. From a sector perspective, consumer services positioning provided the largest gains followed by industrials with financials being the most notable detractor. Betfair’s latest results ahead of expectations saw strong double digit volume growth with the impressive beat also coming against a tough comparable. Gains also came from product testing company Intertek as the business reported better than expected organic revenue growth. Detractors were headed up by a short position in a credit services provider reporting decent results. The regulatory landscape affected Paragon Group as shares weakened ahead of stamp duty changes in the UK (from April next year). Many economic growth projections have moved downwards at the same time as expectations are rising for the US Fed to take rates off their lows. The European Central Bank on the other hand has felt it necessary to extend its QE program (in December). We believe the greater opportunity lies in successfully identifying the earnings trajectory of specific companies more than the headline level of the equity market. Reflecting conviction in the portfolio yet scope to act should any price dislocation create interesting opportunities, the headline net exposure ended the month at 22% net long while the gross exposure remained steady at around 127%.

BlueBay Asset Management – Polina Kurdyavko

Strategic Income

Although market performance was negative, we generated significant alpha, outperforming the index by 1%, with the portfolio delivering a positive absolute return of +0.34%. The biggest contributor to performance was our positioning in the commodity-sensitive sectors, namely in the oil & gas and metals & mining sectors where some commodity credits saw continued selling pressure and others fared better. Specifically, in Colombia, our zero weight in troubled Colombian oil & gas credit Pacific Rubiales was additive to returns given how poorly it traded against a backdrop of oil dropping to the low 40s. Also our off-benchmark exposure to KazMunayGas (KZOKZ) was positive, after it announced a bond tender resulting in bonds trading up meaningfully thereafter. Our zero weight exposure to troubled copper producer in Zambia, First Quantum, also added incremental alpha to the fund. Finally in Brazil, our stock selection was also positive; our underweight to the banking sector and in particular our lack of exposure to BTG yielded positive returns given the extension of the Lava Jato investigations into the financial sector and the arrest of the BTG CEO, sending bonds lower across the sector. Looking forward, the big event on the horizon before year-end occurs on the 16th December with the last FOMC meeting of 2016, where the market is pricing in an approximate 80% probability of an interest rate hike. Our base case is that this will happen, accompanied by language to suggest the path from here on will be slow and gradual i.e. a “dovish hike”. As such, we do not believe that this should result in meaningful volatility or a prolonged sell-off. We feel the EM corporate market is in a better place to navigate this risk event than previously as the hike is widely anticipated and most EM countries and companies have been bracing themselves for this eventuality. Given the level of spreads in the high yield EM corporate bond market, we feel that the natural buffer is sufficient to absorb a gradual move higher in Treasuries next year. We no longer believe that the Fed is the biggest risk factor affecting our market. We believe that post-hike, the market will again focus its attention on EM-specific risks, of which there are many. As such, we remain somewhat defensively positioned into year-end, slightly underweight interest rate duration and more meaningfully underweight spread duration. Our preference is to maintain exposure in solid, defensive credits that still offer a compelling risk-adjusted return; some of our bigger overweight’s are in sectors such as utilities, transport and infrastructure and countries such as Mexico, China and Russia.

Columbia Threadneedle – Richard Colwell, Stephen Thornber & Jim Cielinski

Strategic Managed

Global markets had a mixed month, marked by increasingly divergent monetary policies at key central banks, and the after-effects of the terrorist attacks in Paris. In the US, the Federal Reserve finally appears set to raise interest rates for the first time since 2006. Over the month, expectations grew in Europe that the European Central Bank was gearing up to further extend its programme of monetary easing. Japanese bourses rallied over the month, despite the country re-entering a technical recession. Third-quarter growth came in at -0.8%, following a contraction of 0.7% in the previous quarter. The UK Growth and Income portfolio outperformed the benchmark over November. At the stock level, Electrocomponents rose after strong third-quarter results, while BAE systems rose after the UK government announced increased defence spending. The Global Equity Income portfolio slightly underperformed its index in November. The overweight position in Plains All American Pipeline detracted, despite strong third-quarter results. TUI, one of several travel companies to decline in the wake of the Paris terror attacks, also fell but we remain confident in the management’s ability to implement a range of self-help opportunities. The Investment Grade portfolio gained in November but underperformed its benchmark over the month. Meanwhile, the US High Yield portfolio outperformed the benchmark over the period.

EdgePoint – Tye Bousada & Geoff MacDonald

Global Equity

The portfolio outperformed its benchmark, the MSCI World Index, in November. Contributors to performance were concentrated in the technology, financial and industrial sectors and included Ubiquiti Networks Inc., TE Connectivity Ltd., Rexnord Corp. and Realogy Holdings Corp. The most significant detractors were concentrated in health care such as Alere Inc. and Anthem Inc. As active managers, we believe that buying opportunities present themselves when the market values a stock at a price below its intrinsic value. Companies with mispriced stocks that also have growth potential often represent excellent investment potential. We believe that the fall in oil prices over the last year has resulted in such a situation for Flowserve Corporation, one of our top 10 holdings. With less than 10% of the company exposed to upstream oil and gas, we believe the market is overreacting to the drop in oil prices. We purchased Flowserve for the portfolio almost a year ago because we like its competitive advantages, large pipeline of potential projects and high returns on capital. Regardless of the future oil price environment, the company will continue to generate free cash flow. If oil prices rebound from their current lows, the oil and gas business will likely follow along with sentiment and valuation multiples.

First State – Jonathan Asante

Global Emerging Markets

One of the most interesting developments in recent months has been the takeover agreement between Anheuser-Busch InBev (ABI) and SAB Miller, given that the latter is one of the largest positions in the fund. This cash offer presents several challenges for us. Firstly, it may be difficult to find a franchise of comparable quality and governance with which to replace the company in our funds. Secondly and more importantly, it brings us closer to the end of the consolidation of the global beer market that arguably began with the acquisition of Antarctica by Brahma in Brazil in 1999. Investing in this consolidation through ABI and SAB Miller has been rewarding for our clients, as more favourable market structures have allowed the companies to raise prices above inflation, masking the decline in beer consumption in many developed markets. However, we fear that increasing profitability driven by real price rises, as opposed to volume growth, cannot continue indefinitely. Moreover, the surviving listed entity ABI has been built on acquiring other businesses and running them more efficiently, rather than long-term brand building. The continued ability to make meaningful acquisitions appears limited by competition commission scrutiny. Both companies’ histories have been fascinating to follow as they have transformed themselves into truly global businesses, moving their countries of incorporation to the UK and Belgium, and shaping our own thinking on what constitutes an ‘emerging market’ company in the process.

First State – Jonathan Asante

Worldwide Opportunities

This month we sold a small position in SES, a provider of satellite services. We have concerns that this company has some of the hallmarks of a deflationary business, like others in the technology and communications sector. Over time more capacity is likely to be provided for a lower price, meaning the industry relies on growing volumes just to keep revenue at a stable level. In the satellite industry some of the breakthroughs made by companies like SpaceX, Google and Blue Origin are resulting in cheaper ways to either launch satellites or provide equivalent services. Combining a deflationary industry with heavy capital expenditure and significant debt puts a lot of pressure on a company such as SES. As a result we have decided to sell our position at the present valuation.

Invesco Perpetual – David Millar

Multi Asset

Global equity market returns were mixed and while threats to global security and the ensuing reaction dominated the headlines after the terror attacks in Paris, markets remained relatively subdued and focused on increasingly divergent monetary policy from the dominant central banks. US government bonds underperformed their European counterparts with the markets increasingly pricing in a December interest rate hike in the US. At the same time, expectations of expanded monetary stimulus from the European Central Bank pushed yields on Eurozone government debt to ultralow or even negative territory. We initiated an idea favouring the Chilean peso over the Australian dollar. By pairing two commodity currencies, we go some way in neutralising the commodity theme to ensure we are pinpointing a view on the relative economic fundamentals of the two economies, which we believe to be in quite different stages of the economic cycle. We believe the Chilean peso is a measurably cheap currency and that Chilean fundamentals look stronger than Australia’s at present - taking into account GDP, current account moves and recent economic activity. The fund fell back slightly during November. There were no standout negatives but our new idea pairing the Chilean peso with the Australian dollar had a tough start as the Reserve Bank of Australia resisted market calls to reduce interest rates. The diverging fortunes of global stock markets were reflected in our more directional equity ideas. So, our selective Asian idea lost ground while our German, Japanese and European ideas performed well.

J O Hambro – John Wood

UK & General Progressive

The portfolio's overweight exposure to industrials and strength in names such as Ultra Electronic and Experian underpinned the fund's outperformance over the month. Just as in 1999/2000 and 2007/8, extreme behaviours are at work. Investor behaviour is corrupting management behaviour, with dangerous consequences for the capital base of UK plc. In a low-yielding world created by demi-god central bankers running economic lab experiments on the real world economy, investors' desperate search for yield has turned equity income managers into masters of the universe, in turn heaping pressure on corporate managers to prioritise dividends and share buybacks at the expense of self-investment in future growth. Largesse towards noisy City and Mayfair shareholders comes first, even if it impairs the balance sheet; investing in people, technology and plant for long-term future growth sadly comes a distant second. Meanwhile, spurred on by the other set of contenders for the title of masters of the universe, namely investment bankers, 2015 has seen M&A activity levels surpass those of 2000 and 2007. Deals are done, advisers are paid, management teams are rewarded for hitting short-term earnings targets and then, inevitably, these flawed deals unravel, leading to the dreadful destruction of capital. With poorly-structured long-term incentive plans for senior management that are triggered by short-term earnings per share growth and total shareholder returns targets, it can be little wonder that we find too many management teams behaving badly. Occasionally, we find an exception to the rule – Travis Perkins's board, for example, appreciates the need to target return on capital rather than crude short-term earnings per share targets – but finding management teams who will act as sensible long-term custodians of capital is a challenge in an environment of warped investor behaviours.

Loomis Sayles – Ken Buntrock

Investment Grade Corporate Bond

November was another solid month for IG corporate bonds. However, high yield credit underperformed after a strong month of October. UK IG performed the best of the developed markets during November on 12 bps of spread tightening. Excess return versus gilts of 1.16% was quite strong. Transportation, Communications, and Pharma performed the best, while Restaurants and Aerospace lagged. US IG corporates outperformed treasuries on a total return and duration-matched basis during November on 5 bps of spread tightening. Despite considerable weakness in certain sectors of the market, such as Metals & Mining and Pipelines, the broader market performed admirably. Despite the spread tightening we have witnessed over the past two months, we still believe that US IG offers decent value given our expectation of an improving economy and very gradual Fed rate hikes. The primary risks to our view include the potential for a more aggressive Fed, increasingly aggressive corporate behavior, and further commodity weakness on continued negative China news flow. Euro IG corporate spreads tightened by 3 bps during November leading to outperformance of Euro governments on both a total return and duration-matched basis. The Euro IG corporate market continues to benefit from a supportive ECB, as well as from lagging other developed credit markets terms of the credit cycle. Despite weaker economies and lower yields, we continue to evaluate specific bottom-up opportunities. After an incredibly strong month of October, HY had a very difficult November posting an excess return of -1.89% on 42 bps of spread widening. Environmental, Metals & Mining, and Energy led the way in terms of negative performance. Weak commodity and oil prices have continued to batter Mining, E&P, and Pipeline companies, while distressed Spanish renewables company Abengoa has negatively impacted the Environmental space. In addition to depressed commodity prices, declining corporate profitability, uncertainty surrounding the path of Fed rate hikes, and slower global growth have been and continue to be key determinants. The SJP account realized a return of -0.10% for the month of November. Trading activity was slightly elevated in the first half of the month as a few of the final pieces of the transition from GBP IG Corp strategy were put into place. There were some security specific elements weighing on results as names like Samarco, Kinder Morgan, and Chesapeake Energy fell out of favor with many in the marketplace. Exposure to the Insurance space also weighed on performance. However, the stance in GBP IG credit added value, as did positions in Actavis, HSBC, Ford, Lockheed Martin, Telecom Italia, and Comcast.

Magellan – Hamish Douglass

International Equity

During the month, we added a new position in Apple. Apple is the iPhone. We estimate that over 85% of Apple’s gross margin is attributable to iPhone and associated Services. iPhone sales are becoming more annuity-like, experiencing modest growth in new users and minimal losses from its large and growing installed base of iPhone users. While smartphones are highly penetrated in the high tier of the smartphone market, we expect the iPhone to grow net new users both from Android switchers and from new users entering the high tier. *Smartphones represent an installed base of about 3 billion phones globally today, and is expected to reach approximately 5.5 billion by 2022. Apple sold 231 million iPhones in 2015 and we expect it to continue to participate in this market growth. *Greater China now contributes 24% of Apple’s total revenue and is growing rapidly with the growth in the population able to afford an iPhone. Along with Windows and Android, Apple’s iOS is one of the major global digital platforms, with iOS dominating the highest-spending consumer demographic which is particularly valuable. This position provides Apple with immense optionality in terms of new devices (Apple Watch, Apple Car?) and services such as Apple Pay (payments), HealthKit (health wearables) and HomeKit (connected home). Even though it is very difficult to move Apple’s earnings needle given the immense profitability of the iPhone, more iOS devices and services make the platform more valuable and switching harder, lowering iPhone churn and helping to cross sell other Apple devices. After performing multiple valuations, stress tests, and sensitivity analyses of key assumptions we conclude that Apple is currently undervalued. During the month, the portfolio returned +2.4% in sterling terms, before fees, this compares with a benchmark return of +2.1%, giving relative performance of +0.3%. In sterling terms, the largest contributors were Microsoft (+0.5%), Home Depot (+0.4%) and eBay (+0.4%) while the largest detractors were Qualcomm (-0.3%), Tesco (-0.3%) and Sanofi (-0.3%). In sector terms, Information Technology (+1.6%), Consumer Discretionary (+0.9%) and Financials (+0.5%) contributed positively while HealthCare (-0.3%) and Consumer Staples (+0.3%) detracted. Geographically speaking, United Kingdom (-0.3%) and France (-0.3%) detracted from performance. The United States (+2.9%) and Australia (+0.1%) were positive contributors this month.

Majedie – James de Uphaugh

UK Growth & UK & General Progressive

Your portfolios underperformed a slight rise in the market during November, returning -0.02% versus 0.6% for the FTSE All-Share Index. The consumer picture appears relatively benign, with rising wages, declining fuel prices, and an expedient U-turn on tax credits in the Chancellor’s Autumn Statement. We hold retailers which benefit from increased spending, but are reducing the position due to potential inflationary conditions. We remain cautious on the overall outlook for the UK, although note that an increase in inflation will aid our food retailer holdings. At present the market is quicker to credit the negative story than the positive, therefore Tesco was the lead detractor in your portfolio, after newspaper rights issue speculation hit the shares. However, the balance sheet was helped by the sale of its South Korean business and a pension fund freeze, which reinforced our view that the positive strategic and operational changes continue. Our holdings in the miners, BHP Billiton and Anglo American, also detracted. As active equity managers we may take an ‘early’ position in selected stocks, such as these. We foresee an improvement in conditions as cost cutting, coupled with a resumption in global – read Chinese – demand, takes hold. However, during the month BHP Billiton was a source of new concern. The collapse of two dams holding waste water at a Brazilian mine owned by Samarco Mineração, a company in which BHP holds a joint stake, resulted in lethal and widespread flooding. The incident will result in significant litigation costs for BHP and the market reacted accordingly. Turning to the positive element of the month’s returns, Vodafone showed an inflection in service revenue growth.

Majedie – Chris Read

UK Income

The SJP UK Income fund underperformed a slight rise in the market during November, returning -1.0% versus 0.6% for the FTSE All-Share Index. Soft commodity prices continued to provide discomfort for the Mining sector. One such holding, Vedanta Resources, detracted from performance after its announcing their decision to drop the interim dividend payment. Another specific stock situation that dragged on the month’s performance was BHP Billiton’s exposure to a major incident at a Brazilian mine. Given the significant litigation costs that the company now faces, we decided it was the right time to exit that position. However, the macro background for the sector remains in transition as companies move to rationalise capacity in response to low prices and reduce supply – hence our view that the cure for low prices is low prices. The fund’s performance was also weakened after a failed bid by Playtech, the gambling software firm, for Plus500, which provides online trading services. The bid was pulled, as it wasn’t clear whether the deal would gain the FCA’s unqualified approval. However, the collapse of the deal means Playtech still has significant cash on the balance sheet which it could deploy for new deals, especially in gaming. We have retained our large weighting in General Financials, which performed positively over the period. In particular, our holding in ICAP did well after it disposed of its voice broking business to Tullet Prebon. Other positive features included Citizens Financial, which strengthened ahead of the expected rate rise and Phoenix Group, which consolidates back book insurers, gained market recognition for its improved efficiencies.

Manulife – Paul Boyne & Doug McGraw

Global Equity Income

Global equity market returns were relatively flat in November as investors weighed potential global central bank action. Additional stimulus was expected from the European Central Bank, while investors looked to US economic data as an indicator of whether the US Federal Reserve Board would raise interest rates in December. The US dollar climbed against the euro, pound and yen. Commodities were weaker overall, including crude oil, which fell 10%. Stock selection within the financials and materials sectors contributed to performance. Individual contributors included PNC Financial Services Group, Inc., Koninklijke Ahold N.V. and Huntington Bancshares, Inc. Stock selection within the consumer discretionary and information technology sectors detracted from performance. Individual detractors included Macy’s, Inc., QUALCOMM, Inc. and SES S.A. We believe US equity markets have slightly above-average valuations on earnings but are highly valued on a cyclically adjusted price-earning basis. Forward estimates may generally prove optimistic, particularly considering the potential peaking of margins and declining impact of share buybacks. European multiples appear cheaper than their US counterparts, in our view, and may have more earnings recovery potential. We continue to focus on companies with what we believe to be sustainable cash flow streams.

Manulife – Paul Boyne & Doug McGraw

MGlobal Equity Income

Global equity market returns were relatively flat in November as investors weighed potential global central bank action. Additional stimulus was expected from the European Central Bank, while investors looked to US economic data as an indicator of whether the US Federal Reserve Board would raise interest rates in December. The US dollar climbed against the euro, pound and yen. Commodities were weaker overall, including crude oil, which fell 10%. Stock selection within the financials and materials sectors contributed to performance. Individual contributors included PNC Financial Services Group, Inc., Koninklijke Ahold N.V. and Huntington Bancshares, Inc. Stock selection within the consumer discretionary and information technology sectors detracted from performance. Individual detractors included Macy’s, Inc., QUALCOMM, Inc. and SES S.A. We believe US equity markets have slightly above-average valuations on earnings but are highly valued on a cyclically adjusted price-earning basis. Forward estimates may generally prove optimistic, particularly considering the potential peaking of margins and declining impact of share buybacks. European multiples appear cheaper than their US counterparts, in our view, and may have more earnings recovery potential. We continue to focus on companies with what we believe to be sustainable cash flow streams.

Orchard Street – Chris Bartram

Property Unit Trust

The portfolio valuation as at 30th November 2015 was up 0.6% month on month. We have completed a new 10 year lease at 23 Hill Street, Richmond Riverside to Knight Frank which has resulted in the scheme being fully let. This asset management initiative contributed towards a capital value increase of £325,000. We have completed a 5 year lease extension on 23,000 sq ft over two floors at Holyrood Park House, Edinburgh securing £506,000 of income for the fund. The rent payable is in line with ERV. The portfolio vacancy rate is 5.5% compared with 9.2% for IPD and the initial yield on the portfolio is 4.8% which compares with 5.1% for IPD as at 30th November 2015. Property Life and Pension funds The portfolio valuation as at 30th November 2015 was up 0.5% month on month. We have completed a new 10 year lease at 23 Hill Street, Richmond Riverside to Knight Frank which has resulted in the scheme being fully let. This letting contributed towards a capital value increase of £325,000. At Junction One Retail Park in Rugby we have completed a new 20 year lease to Domino’s Pizza, this completes the line up and the retail park is now fully let. This latest letting adds momentum to our proposed new terrace comprising 36,000 sq ft of additional retail warehouse space. We have an agreement for a new 15 year lease (subject to planning) for 36,000 sq ft of proposed new industrial space at Maylands Point, Hemel Hempstead. We have completed a rent review at Stockley Park in Uxbridge, increasing the rent payable on that lease by 15% and ahead of ERV for the floorspace. The portfolio vacancy rate is 8.0% compared with 9.2% for IPD and the initial yield on the portfolio is 4.9% which compares with 5.1% for IPD as at 30th November 2015.

RWC – Nick Purves

Equity Income

In Europe, ECB President Mario Draghi signalled further loosening of monetary policy despite the Eurozone enjoying the best growth rates since 2010 as low inflation remains a key concern. This contrasts with the US where, following a strong jobs report at the beginning of the month and hawkish commentary, the market is now pricing a 74% chance of a rate hike at the December meeting. The fund performed well in November, outperforming the benchmark. The FTSE All-Share Index finished the month up with the more global FTSE 100 underperforming the more domestic FTSE 250. AstraZeneca’s share price rose 8.5% during the month. The firm’s new lung cancer drug, Tagrisso, won early approval from the FDA while a set-back to a rival’s competing drug was also a positive. It is estimated that sales could be as high as $3bn. Telecoms companies BT and Vodafone were both positive contributors during the month. Vodafone released results showing growth in organic service revenue, and the firm improved their profit guidance saying that the ‘Project Spring’ investments were paying off. Smiths Group was another good performer as the firm saw its share price spike 10%, the largest one-day price move for seven years, as the company revealed that it would put less cash into its retirement scheme, this is expected to increase free cash flow by £36m per year. UK food retailers had another tough month with both Tesco and Morrisons detracting from performance. Tesco’s share price is now back to the lows of December 2014. Discounters continue to weigh heavily on the sector with the big four seemingly struggling to find an effective way to combat them. As the actions of central bankers continue to define price action, the divergence between fundamentals and share prices remains, corporate earnings growth continues to be weak and over-all valuations remain high. We maintain a defensive stance and believe it is right to have some cash on hand to take advantage of better opportunities that may come along.

Sands Capital – David Levanson, Sunil Thakor & Perry Williams

Global Equity

We focus on the underlying fundamentals and long-term growth prospects of our businesses, not short-term stock price movements. The Global Equity portfolio is characterized by relatively low turnover, therefore positions are not frequently adjusted. As a group, our portfolio companies continue to execute and deliver solid business results. On a relative basis, the top five contributors to performance were Baidu, Illumina, Ono Pharmaceutical, Charles Schwab, and MercadoLibre. In October, Charles Schwab reported solid third quarter results based on healthy core business metrics. During the period, mild headwinds from a pullback in equity markets and lower interest rates were offset by increased trading activity and higher client cash balances. Since 2009, the near-zero interest rate environment has caused material net interest margin compression for Schwab, forcing the company to waive money market fees in order to preserve positive yields for clients. As a result, we estimate Schwab is only earning about one-third of what it could in a more normalized interest rate environment. While we wait for higher interest rates to meaningfully accelerate Schwab’s earnings growth, we believe the core business can continue to grow earnings in the low-double digits. The top five relative detractors from performance were BioMarin Pharmaceutical, Rolls-Royce, Priceline, Housing Development Finance, and Las Vegas Sands. Rolls-Royce is a leading manufacturer of aircraft engines and gas turbines with a growing presence in the wide-body airplane industry. While the company recently issued a profit warning for 2016, we believe its long-term prospects remain healthy. In our view, Rolls’s communication with investors has been poor, which has heightened investors’ concern. However, we expect this issue to largely resolve in February, when the company unveils a more detailed reporting structure along with its annual financials. We expect an enhanced level of transparency will help highlight the strength of the company’s Civil Aerospace business, which is the core driver of our investment case. We estimate Civil Aerospace operating earnings will increase as a proportion of the company’s total as its Trent XWB engine business continues to ramp up. In the near-term, the true earnings power of the segment may be obfuscated as inventory and expenses grow ahead of revenues. We view this as a natural part of launching a new product. Over the long term, we expect to see a noticeable improvement in both cash flow and earnings. There were no purchases or sales during November.

Schroders – Kevin Murphy & Nick Kirrage

Managed Growth & Schroder Managed

Global equity markets put in a lacklustre performance in November, although Europe bucked the trend, supported by the prospect of further monetary easing from the European Central Bank. By contrast the UK and US equity markets posted modest gains, as lower commodity prices and the prospect of the US Federal Reserve raising interest rates respectively weighed on the markets. In the UK, strong performances from some telecoms companies and a recovery in the defence sector managed to nudge the FTSE All-Share into the black for the month, as the resource sectors fell further. Meanwhile, the prospect of higher interest rates (and therefore net interest margins) boosted the US banking sector, which again kept the index in positive territory, even as higher yielding sectors such as telecoms and utilities faltered as investors priced in a higher risk-free rate of return. The UK equity holdings lagged the FTSE All-Share index over the month. Weak sentiment toward commodities further adversely affected our holdings in miners Anglo American and South32 and electricity generation business Drax. The latter, which operates coal-fired power stations, was further impacted by a government announcement that it wished to close all coal-fired generation plants within the next decade. On the positive side, defence contractor BAE Systems performed well as the market was reassured by a Saudi order for Hawk training jets, which was interpreted as a precursor for the long-awaited Typhoon order. In addition, Interdealer broker ICAP performed well on news it was to sell its global voice broking business to rival Tullett Prebon.

Schroders – Mike Hodgson

Multi Asset

Global equity markets put in a lacklustre performance in November – the MSCI World returned -0.4% - with strong returns from the developed world offset by poor performance in emerging markets. The best performing equity market was Europe, where the MSCI EMU returned 3% in local currency terms, supported by the prospect of further easing from the European Central Bank. Japanese equities delivered positive returns in November with the benchmark Topix up 1.4%, supported by a better-than-expected corporate earnings season and expectations for further easing measures from the Bank of Japan. The UK and US equity markets posted modest gains with the FTSE All-Share and S&P 500 up 0.6% and 0.3% respectively. In the UK, strong performance from some telecoms companies and a recovery in defence stocks managed to offset poor returns from the heavyweight resources sector. In the US equity market, the prospect of higher interest rates boosted the banking sector, while the higher yield sectors, including telecoms and utilities recorded losses. Equity market volatility, following the sudden increase experienced in late August, has continued to fall as in the previous month thus resulting in an increase in exposure to the MSCI World in the strategy which reached over 70% at the end of the month (from c.60% at the start of the month). The overall market environment and the increased exposure to equities resulted in the strategy posting negative performance for the month. It should be noted that the magnitude of the negative performance for the month was not sufficient for the puts to have a meaningful increase in value and thus hedge the downside move.

Schroders – Mike Hodgson

Strategic Income

In line with global equity markets, the Strategic Income fund posted roughly stable performance over the month with developed and emerging markets showing strongly diverging performance. In developed markets, Europe generated particularly strong performance as equity markets were boosted by prospects of further stimulus from the central bank. The US and UK posted more modest returns. Expectations about policy tightening in the US strengthened the dollar over the month. This boosted returns for UK investors holding US assets and had a positive impact on the performance of the fund. A stronger US dollar also weighed on emerging market currencies and contributed to a poor performance in the equity markets. Renewed commodity price weakness had a negative impact on a number of emerging markets. China declined and performed broadly in line with the index, as macro data remained relatively weak. Globally, high dividend stocks struggled over the month thus the high dividend bias in the fund resulted in a drag on returns. In line with range bound and stable market conditions throughout November the fund has remained fully exposed to the global equity income basket. The fund has particularly benefitted from the impact of a strong dollar despite the headwind this generated in emerging markets. Reflecting the market conditions, investors have sacrificed very little upside due to the call overwriting strategy thus boosting income with negligible impact on performance.

Select Equity – George Loening & Chad Clark

Worldwide Opportunities

Following October’s rally, global equity markets were up modestly in November 2015 as markets were able to digest the increased prospects of a US interest rate hike. Consistent with regional and sector performance this year, developed markets outperformed emerging markets and more cyclical sectors including Materials and Energy underperformed more defensive sectors. For the month of November 2015, the Sub-Account returned +2.3% on a net basis versus a +1.8% return for the MSCI ACWI. The account’s cash levels did not change meaningfully, finishing November at 9.4% of assets. The top three contributors in the month were Airgas, the largest distributor in the US packaged gases and hard goods industry; Baidu, a Chinese Internet search engine; and Mettler-Toledo, a manufacturer of scales and analytical instruments. Airgas shares surged over 40% in the month following Air Liquide’s announced takeover bid for the company. The offer represented a 50% premium over ARG’s average trading price during the last month and a 20% premium over the stock’s 52 week high. The largest detractors in the month were Signet Jewelers, the largest US jewellery retailer, operating under the Kay and Jared brands; Swatch Group, the largest Swiss manufacturer of branded luxury watches and watch movements; and Williams-Sonoma, a multi-channel specialty retailer of products for the home. The outlook for global growth is incrementally more precarious today than it was six months ago but not nearly as much as the violent swings in the market suggest. Against this backdrop, we are committing capital only to our highest-conviction ideas, investing in companies with predictable cash flow engines and proven abilities to make their own luck. Fortunately, many of these companies’ stock prices have fallen along with the global equity markets, so we remain enthusiastic yet cautious.

State Street – Mihaly Domjan, Nick Pidgeon & Jennifer Yazdanpahani

Money Market

Following November’s ‘super Thursday’ meeting of the Bank of England’s Monetary Policy Committee (MPC), the rate decision, meeting minutes and inflation report forecasts were all released within a short space of time. The combined announcements were taken as dovish, with interest rates kept on hold as expected in an unchanged 8-1 vote and the near-term inflation forecast lowered. Given the UK macro data and signals from the Federal Reserve that US monetary policy will soon be tightened, some commentators had expected at least one other MPC member join Ian McCafferty in voting to hike rates. However, the downward revision to the inflation forecast was probably enough to maintain the status quo among the committee. Inflation is forecast to remain below 1% into the second half of 2016, and to rise only slightly above the 2% target at the two-year horizon. At -0.1% in October, CPI inflation remained negative for the second consecutive month. The second estimate of UK GDP growth for the third quarter of 2015 was left unrevised at 0.5%, confirming the slowdown from 0.7% in the previous three months. The release also confirmed that the service sector was the main growth driver over the period, while manufacturing continued to struggle. The expenditure breakdown showed domestic demand was strong, while net trade provided the largest-recorded drag on growth. According to the Halifax housing report, UK house prices rose in October, and a shortage of properties for sale may put further upward pressure on values in the coming months. The average cost of a home rose 1.1% from the previous month and 10% from a year earlier, while prices advanced 2.8% in the quarter through October. Additional pressure on prices may materialise in the coming months as buy-to-let investors are likely to hurry to complete sales before the introduction of a higher stamp duty tax in April. Changes announced in the Autumn Statement mean that from April 2016 anyone buying any kind of property alongside their main home will pay a 3% premium on existing stamp duty. The Bank of England has pointed out that buy-to-let (BTL) mortgage lending has increased by more than 40% since the 2008 banking crisis. Previously, the Financial Policy Committee had asked the Treasury for powers to intervene in the BTL market as it currently only has powers over the mainstream market, and the Chancellor announced that he is in the process of granting such power. On 30 November, the Bank of England and the Treasury announced a two-year extension to the Funding for Lending Scheme (FLS). This extension will provide participants with additional flexibility to draw unused allowances earned for positive net lending, with funding remaining available to support further improvements in credit conditions for small and medium-sized enterprises (SMEs). Borrowing allowances will decline gradually over time in an effort to minimise risks to the economic recovery from the withdrawal of funding support; allowances will be reduced by 25% after six months and by the same amount every six months thereafter until the end of January 2018. As in previous months, the sterling money market curve remained relatively benign, with fixings across the 12-month curve down only around 0.005% in November. Investment yields also remained pretty static in commercial paper markets, with yields for one-month investments at 0.50%, three months at 0.55% and six months at 0.65%. Issuance in the 12-month floating rate space was an exception with issuers looking to print deals against ever widening spreads, as diverging central bank policy and currency swaps benefit sterling issuance. At the fund level, the weighted average maturity remained around a low forty-day range. Investments took a laddered approach, taking into account both liquidity for year end and investing into 2016. The fund continued to focus on diversification by both geographical location and sector, whilst maintaining high credit quality.

S.W. Mitchell Capital – Stuart Mitchell

Greater European Progressive Unit Trust & Greater European

We continue to have a positive outlook for European equities. Our various company meetings over the past month confirm our view that the domestic European economy continues to rebound somewhat more quickly than many investors are expecting. Most notably, we were comforted by our meetings with the UK house builders, a number of the telecom operators and Mediaset. At the same time, whilst we have been acutely aware of a slow-down in the Chinese economy for over the past two years, we haven’t been able to observe any real evidence that the deterioration has begun to dangerously accelerate. Brian spent a week in China visiting a broad range of companies and thought leaders. He concluded that whilst the pace of reform is slow, consumer spending remains healthy and wage growth robust. We should also remind ourselves, furthermore, that China only accounts for 4% of Eurozone exports. The United Kingdom and United States are much more important trading partners making-up 7% of Eurozone exports respectively. Indeed, Germany, the most China-exposed of the major European economies continues to experience a buoyant 10% growth in factory orders. The market remains compellingly valued with the more domestically orientated companies trading at, in many cases, 50% discounts to their counterparts in the US. We continue to find the best opportunities in the more domestically orientated areas of the market. Banks constitute 22% of the fund. We still believe that the market has failed to appreciate the benefits of rising financial margins coupled with draconian cost cutting and easing regulatory pressures. More recently, we have been pleasantly surprised by the Bank of England’s very welcome announcement that there will be ‘no Basel 4’. We have focused on the strongest retail banking franchises such as Lloyds and Intesa where we believe that returns should rather rapidly return to pre-crisis levels. We are also invested in Banco Popular and Commerzbank which are in the process of disposing of significant amounts non-performing assets in order to refocus on industry leading core businesses. Companies from the periphery of Europe make-up a further 20% of our longs. On a recovery basis, for example, the Italian media group Mediaset and the Spanish bank Banco Popular represent great value. Telecom companies represent 12% of the fund including investments in the telecom groups Orange, Deutsche Telekom and Telecom Italia. Recent quarterly results announcements have been very supportive. At the same time, speculation of further industry consolidation remains rife. Our favourite growth companies, such as Ocado and Eurofins make up the remainder of the fund.

S.W. Mitchell Capital – Stuart Mitchell

Continental European

We continue to have a positive outlook for European equities. Our various company meetings over the past month confirm our view that the domestic European economy continues to rebound somewhat more quickly than many investors are expecting. Most notably, we were comforted by our meetings with the UK house builders, a number of the telecom operators and Mediaset. At the same time, whilst we have been acutely aware of a slow-down in the Chinese economy for over the past two years, we haven’t been able to observe any real evidence that the deterioration has begun to dangerously accelerate. Brian spent a week in China visiting a broad range of companies and thought leaders. He concluded that whilst the pace of reform is slow, consumer spending remains healthy and wage growth robust. We should also remind ourselves, furthermore, that China only accounts for 4% of Eurozone exports. The United Kingdom and United States are much more important trading partners making-up 7% of Eurozone exports respectively. Indeed, Germany, the most China-exposed of the major European economies continues to experience a buoyant 10% growth in factory orders. The market remains compellingly valued with the more domestically orientated companies trading at, in many cases, 50% discounts to their counterparts in the US. We continue to find the best opportunities in the more domestically orientated areas of the market. Companies from the periphery of Europe make-up 25% of the portfolio. On a recovery basis, for example, the Italian media group Mediaset and the Spanish bank Banco Popular represent great value. Banks constitute a further 18% of the fund. We still believe that the market has failed to appreciate the benefits of rising financial margins coupled with draconian cost cutting and easing regulatory pressures.

Tweedy, Browne – William Browne, Tom Shrager, John Spears & Robert Wyckoff

Global Equity

Global equities in local currency marginally advanced with a number of fits and starts in November, and the same held for the SJP account at Tweedy, Browne; however, our underweight in US dollar denominated securities (the account’s exposure is less than50% of that of the benchmark) held us back a bit relative to our British Pound-denominated benchmark index. We had nice returns in a number of our oil & gas, insurance and industrial holdings, including Total, SCOR, and BAE Systems, but faced headwinds in several of our Asian-related banks and a handful of other companies including Cisco, G4S, and Verizon. Standard Chartered, in an apparent effort to bolster its financial strength, eliminated its dividend going forward and launched a rights offering to assure future compliance with capital requirements applicable to banks. While we believe that Bill Winters, the CEO, and his team are taking all of the right steps to improve the operating performance of the bank, we decided to sell rather than exercise our rights, feeling we had a full position in the stock. There were no other transactions in the account during the month. Bargain hunting remains challenging as global equities continue to demonstrate rather remarkable resilience in the face of significant global macroeconomic turmoil, no doubt largely due to continued monetary largesse.

Twenty Four Asset Management – Gary Kirk

Diversified Bond

The fund commenced on the 2-November and with the market approaching the end of the year, the PMs were able to source suitable assets as a steady flow of new issuance has resulted in a number of attractive secondary offers. With the continued support from the ECB, and a commitment to fix the Eurozone transmission mechanism, the PMs have a high conviction that the convergence of peripheral sovereign bonds versus the core (Bunds and OATs) will continue over the medium term. As a result the PMs have allocated 10% of EU peripheral sovereign bonds to the fund. The PMs are also confident that the Fed will announce the initial rate hike at the December FOMC meeting (16-Dec) but will accompany this announcement with a degree of dovish rhetoric and justification by highlighting the growing evidence of inflation building up in the US economy. The PMs have allocated 3% of US Treasury Inflation Protected bonds to reflect this view. There are currently no interest rate or credit hedge overlays in the fund to-date. With the fund 90% invested the credit spread duration is currently 3.9yrs (including the Government bonds) and the interest rate duration is 3.6; which is relatively low compared to the majority of bond funds.

Twenty Four Asset Management – Gary Kirk Strategic

Income

The fund commenced on the 2-November, with a relatively limited amount of cash allowing the PMs to be particularly selective, although this obviously resulted in the fund starting off being relatively concentrated. However, this fund is targeting more esoteric bonds and the PMs are have been deliberately selective when sourcing assets hence at the month-end the fund was 75% invested. In terms of performance in fixed income markets for November, US High Yield indices were down 2.25% on the month, giving back most of the October gains and bringing up 5 negative months for the last 6 reported. Here in Europe, € HY was up marginally at 0.58% and the £ HY Index was up 1.00%. In government bonds, the Eurozone returned +0.42%, Gilts were up 0.98% while the UST index posted a negative 0.37% return for the month. The PMs have not applied any interest rate or credit hedge overlays to-date but this will be considered over the near term. With the fund 75% invested the credit spread duration is currently 2.9yrs and the interest rate duration is 2.25; both relatively short and conservative to the majority of peers in the fixed income fund sectors.

Wasatch Advisors – Ajay Krishnan & Roger Edgley

Emerging Market Equity

The portfolio posted a slight gain in November, surpassing its benchmark. Our top contributor to performance was MercadoLibre Inc. Based in Brazil, this rapidly growing company hosts the leading e-commerce platform in Latin America. MercadoLibre’s business had been battered in recent months by turmoil in the currency markets. We attribute November’s rebound in the share price to the company’s solid fundamentals. Vipshop Holdings Ltd. was our poorest performer. Through its online store, this Chinese company liquidates excess inventory for manufacturers of brand-name merchandise. Although Vipshop’s stock price declined for the month due to weaker-than-expected financial results, its underlying business remains strong based on our metrics.

The information contained herein represents the views and opinions of our fund managers and not those necessarily held by St. James’s Place Wealth Management. FTSE International Limited (“FTSE”) © FTSE [2015]. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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