Report of the Investment Committee 2008 - St James's Place

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Stamford Associates 2008Report to the Investment CommitteeDear Sirs,We are pleased to provide our report for 2008, reviewinginvestment manager–related activity across SJP’s funds over theyear. Your investors do not need us to state the obvious, namely that2008 was unprecedented, for the reasons already covered at greatlength by the wider press. The substantial share price declinesacross global equity markets, as well as the price collapse of otherfinancial assets, represent an extremely painful experience forinvestors. However, it is important to differentiate between theconsequences arising from realising an investment at a loss and amark to market price adjustment that may only turn out to betemporary.At the time of writing, global equity markets declined some 30% to40% over the year in local currency terms. Ultimately, investorsare rightly concerned about capital preservation in the long runand, therefore, it may be of little comfort that a number of yourinvestment managers achieved favourable returns relative to themarket, albeit still recording significant declines in capital values inan absolute sense.Conversely, stock market volatility, i.e. intra-day share pricefluctuations, has been at unprecedented high levels, demonstrating thefickle nature of the market in response to a wide range of externalinfluences – the credit crunch, housing market concerns, commodityprice fluctuations, government interventions, the temporary ban onshort-selling, de-leveraging, bail outs and bankruptcies.As noted in our half year report to June 2008, our views of yourinvestment managers are not influenced by short term investmentresults. This is particularly relevant in the current marketenvironment where snap-shot investment results can be significantlyand randomly impacted, for good or bad, by volatile share pricemovement at the end of the reporting period. These results simplydo not reflect the managers’ longer term investment theses nor dothey reflect the fundamentals of many of the underlying businessesin which the managers are invested.10
STAMFORD ASSOCIATES 2008 REPORT TO THE INVESTMENT COMMITTEEWe formulate our views on our understanding of the manager’sinvestment processes and the content as well as the transactions wewitness in the portfolios. Your investment managers usually take uplong term investment positions and ultimately the success of theirjudgements is a function of two key decisions – when they make aninvestment and when they sell it. In practice there is rarely, if ever,in terms of share price movements a straight line between the twoand, in recent months of course, it has only gone one way.However, the fact that many of your investment managers arenursing significant unrealised losses does not, in itself, make theinvestments inappropriate or wrong. In our view, it is more likely tomean that their investment theses has been delayed and may haveyet to play out.Your investment managers typically construct their portfolios fromthe bottom up by focusing on individual companies. They tend to bevaluation sensitive with an absolute return orientation to the stockselection process. They are not market timers and/or momentuminvestors. They typically allocate capital to quality companies whichthey believe are attractively valued, often have misunderstoodprospects and are therefore offering attractive risk/rewardcharacteristics in the medium to long term. Our assessment of theunderlying portfolios, together with frequent dialogues with themanagers, confirms that they are applying their investment disciplineson a consistent basis.At this juncture we derive considerable comfort from the fact thatthe great majority of their portfolio holdings appear relatively cheapon the basis of fundamental measures such as price to earnings,price to book, price to cash flow, etc. Furthermore, the managers’recent portfolio turnover has been relatively low, reflecting theirbelief that there is substantial inherent value to be unlocked in duecourse when more normal market conditions return. In addition,we understand from the managers that there will be many newinvestment opportunities arising from the current marketdislocations and we are optimistic that they are appropriatelypositioned to take advantage of those.11
Page 1: The 2008 Annual Report of theSt. Ja
Page 4: The strength of Partners’ relatio
Page 7 and 8: Can investors take comfort from his
Page 9: How should investors react to this
Page 13 and 14: STAMFORD ASSOCIATES 2008 REPORT TO
Page 15 and 16: Investment ManagerCommentariesThe f
Page 17 and 18: Neil WoodfordSJP/Invesco Perpetual
Page 19 and 20: Nick PurvesSJP/Schroder Managed Fun
Page 21 and 22: Bernie HornSJP/Worldwide Managed Fu
Page 24: Members of the St. James's Place We

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