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Transcript of Citywire thomas moore (mg 17 october 2013)
Standard Life Investments
October 2013
This presentation is intended for investment professionals and must not be relied on by anyone else
UK Equity Income Unconstrained Fund Thomas Moore
Unconstrained approach to UK Equity Income
3 Total return focus
Dividend yield At least 110% of FTSE All Share Yield
Dividend growth Fund income pay-out outstripping market
Capital growth Capital return benefit of Unconstrained approach
TO
TA
L R
ET
UR
N
4
Thomas Moore – Background
Title
Investment Director
Professional Qualifications
BA (First Class) in Economics and Politics, Exeter University
Associate of the CFA Society of the UK
Brief Job Description
Thomas Moore is an Investment Analyst and Manager in our UK Equities team. He is responsible for managing the UK Equity
Income Unconstrained Fund and the Standard Life Equity Income Trust, managing two institutional funds (combined value of over
£400m) and analysing the Banks and Financial Services sectors.
2013 Income Unconstrained Fund breaks through £200m
2012 Income Unconstrained Fund breaks through £100m and achieves its 3rd top decile year (out of 4 under manager tenure)
2011 Assumed responsibility for Standard Life Equity Income Trust
2010 Voted no.1 Pan European buy side Speciality & Other Finance analyst in the 2010 Thomson Extel Survey (voted for by companies and sell side analysts)
2009 Assumed responsibility for the Income Unconstrained Fund. The Fund is top decile during manage tenure
2008 Voted no.1 Pan European buy side Speciality & Other Finance analyst in the 2008 Thomson Extel Survey (voted for by companies and sell side analysts)
2008 Assumed responsibility for managing a segregated institutional pension fund
2007 Assumed responsibility for two UK institutional funds, Stock Exchange Asset Fund and International Asset Fund
2006 Joined UK Equities team
2005 Appointed Investment Director
2003 Joined Emerging Markets Equity team, managing EMEA portfolios with a focus on the South African market
2002 Joined Standard Life Investments in September 2002 as Investment Analyst
1998 Joined Schroder Investment Management as Assistant Fund Manager, UK Equities. Subsequently appointed Investment Analyst, Emerging Markets
1998 Graduated with a BA in Economics and Politics from Exeter University.
5
Average years experience Average years at
Standard Life Investments
14 UK Large Company Specialists 14 11
5 UK Small Company Specialists 20 11
2 Quantitative analysts 15 12
8 Governance & Stewardship and SRI 20 9
UK Equity resource
Key Attributes
Optimum team size Coverage, co-ordination, communication, rapid
investment response
Clear incentivisation and
accountability
Rewarded on delivering client and business performance
objectives
Structured global input Active communication structure
Source: Standard Life Investments, 30 September 2013
6
Increased diversification
• Conviction-based position sizes
• Avoids heavy concentration of mega caps
Potential for superior total return
• Focus on dividend growth, not just dividend yield
• Dividend growth driving capital growth
Selective exposure to best total return opportunities
Key Benefits of Unconstrained approach
Unconstrained approach potential to diversify income and enhance return
Agenda – 2 key benefits of Unconstrained approach
Diversification Total
Return
Full coverage of FTSE 350
and benefit from expertise of
UK Smaller Companies team
Portfolio construction
Process driving repeatability
Focus on Change
idea generation
Matrix Quant Model
Income Monitoring
Risk Diversification
Stock screening
Conviction-based position sizes
increase diversification vs.
benchmark-led approach
Focus on EPS / dividend
momentum and scrutiny of
dividend policy
Stock selection
Heavy representation of
Winners List stocks in portfolio
Weekly screen of holdings and
portfolio style analysis
Iterative risk model identifies
risk clusters
Portfolio income forecasting
Best ideas
7
8
Unconstrained approach reduces concentration risk
Conviction-based approach increases portfolio diversification
Sources: Standard Life Investments & Lipper, July 2013
Diversification Total
Return
Stock number by order of position size
% p
os
itio
n s
ize
0
1
2
3
4
5
6
7
8
9
1 2 3 4 5 6 7 8 9 10
UK Equity Income Sector
UK Equity Income Unconstrained
Top 10 holdings = 41.3%
Top 10 holdings = 26.5%
9
Where is the average UK Equity Income Fund invested?
Rank Asset Name
Average weight
in UK Equity
Income Funds %
UK Equity Income
Unconstrained Fund
%
% of Funds in
sector holding
stock
1 GlaxoSmithKline 7.7 0.0 88.6
2 AstraZeneca 6.3 0.0 67.1
3 BT 4.8 4.2 72.9
4 British American Tobacco 4.2 0.0 70.0
5 BAE Systems 3.8 0.0 57.1
6 Imperial Tobacco 3.2 0.0 61.4
7 Centrica 3.1 1.0 75.7
8 Reckitt Benckiser 2.9 0.0 32.9
9 Royal Dutch Shell 2.8 0.0 67.1
10 HSBC 2.5 2.0 74.3
Challenge consensus
Source: Lipper UK Equity Portfolio Analysis, 30 June 2013
Diversification Total
Return
10
Dividend growth driving share price performance
Sources: Oriel Securities, July 2013
10 year dividend growth and performance (CAGR)
-5%
0%
5%
10%
15%
20%
25%
Down Up to 5% Between 5% and 10% Between 10% and 20% More than 20%
Dividend growth (average)
Ave
rag
e p
erf
orm
an
ce
(%
pe
r a
nn
um
)
Diversification Total
Return
Income portfolios
heavily
concentrated in
bond proxies
Income portfolios have
few stocks with gearing
to growth
Flexibility to invest in the large dividend payers of tomorrow
Unconstrained income growth outstripping market income growth
11 Focus on income growth, not just yield
* Dividend paid bi annually; ex dividend dates: 30 April, 31 October, payment dates: 30 June, 28 (29) February
** Based on investment in institutional income units between October 2009 and April 2013
Source: Lipper Investment Manager, 31 August 2013
Oct 2009
Oct 2010
Oct 2011
Oct 2012
Oct 2013
Apr
2010
Apr
2011
Apr
2012
Apr
2013
Total return profile under tenure
Apr Oct
Capital return
Dividend growth
Dividend payments*
0
20
40
60
80
100
120
140
160
+5% +28% +9%
+10%
0
20
40
60
80
100
120
140
160
Datastream UK Market income growth Apr Oct
Datastream UK Market income index
Dividend growth
Dividend payments*
Diversification Total
Return
3 Years to Oct 2012 Market income growth +16%
Fund income growth +46%
Reb
as
ed
to
10
0 o
n 3
1 O
cto
ber
20
09
3½ Years to April 2013 Market income growth +22%
Fund income growth +53%
More rapid dividend growth a key benefit of unconstrained approach
12
Source: Datastream, September 2013
Increased focus on dividend growth, rather than dividend yield
70
90
110
130
150
170
190
210
Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Div
ide
nd
per
sh
are
(re
ba
se
d t
o 1
00
in
Q3
20
11
)
easyJet
L&G
Inchcape
Imperial Tobacco
RD Shell
AstraZeneca
Winners List holdings
Mega-cap stocks not held
Diversification Total
Return
100
BUY EXAMPLE
Date of purchase 26/01/12
Purchase price 432p
Yield at point of
purchase 2.4%
Book cost yield 5.0%
2012 special
dividend 8.1%
Capital return +141.2%
Total Return +152.4%
Source: Datastream, all yields based on purchase price and returns since purchase date, 09 October 2013
Cumulative dividend yield of 15.5% on original purchase
Focus on dividend growth potential
13
easyJet
Relative share price
Consensus Dividend Forecast Year 1 (R.H Scale)
Consensus Dividend Forecast Year 2 (R.H Scale)
Diversification Total
Return
14
Mid Cap dividends more robust than Large Cap
Source: Datastream, 08 October 2013
UK dividend indices
Potential benefit from income opportunities from across the market
27 years to September 2013
Compound average annual dividend growth
FTSE 100 4.7%
FTSE 250 6.9%
Index
(as at 08 October 2013)
Index
%
Fund
%
FTSE 100 83.0 39.3
FTSE 250 14.3 47.3
FTSE Small Cap 2.7 5.8
Not in index 0.0 7.7
Diversification Total
Return
50
150
250
350
450
550
650
750
Jan
19
86
Jan
19
87
Jan
19
88
Jan
19
89
Jan
19
90
Jan
19
91
Jan
19
92
Jan
19
93
Jan
19
94
Jan
19
95
Jan
19
96
Jan
19
97
Jan
19
98
Jan
19
99
Jan
20
00
Jan
20
01
Jan
20
02
Jan
20
03
Jan
20
04
Jan
20
05
Jan
20
06
Jan
20
07
Jan
20
08
Jan
20
09
Jan
20
10
Jan
20
11
Jan
20
12
Jan
20
13
FTSE 100 FTSE 250
15
UK Equity Income Unconstrained
Oil & Gas Producers
Pharmaceuticals & Biotech
Banks
Mining
Media
Support Services
Nonlife Insuranca
Travel & Leisure
Financial Services
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Overweight / Underweight Sectors*
Stock selection is key – conviction-based portfolio construction
* Sector Bet relative to FTSE All Share index
Source: Standard Life Investments, 08 October 2013
Top 10
Holdings %
BT 3.6
DS Smith 3.1
Legal & General 3.0
easyJet 2.5
Staffline 2.4
Rio Tinto 2.4
HSBC 2.4
Close Brothers 2.2
Tyman 2.1
Beazley 2.0
Mobile Telecommunications
Diversification Total
Return
16
Overall markets
Outperformed
peer group
39 months
out of a possible 56
Rising markets Falling markets
Outperformed
peer group
26 months
out of a possible 34
Outperformed
peer group
13 months
out of a possible 22
Outperformance is not dependent on market direction
Source: Lipper Investment Manager, 01 January 2009 to 31 August 2013
Thomas Moore appointed manager on 01 January 2009
Outperformed through changing market conditions
70% 76% 59%
17
Outlook – baton passing from valuation to earnings
• Baton set to pass from valuation re-rating to earnings momentum
• Supportive environment of accelerating economic growth and corporate earnings recovery
• Valuation re-rating has not been broad-based, creating opportunities, e.g. EM stocks, REITs and defensives
• Focus on highest-conviction ideas allows the Fund to avoid any vulnerable parts of the market
Unconstrained approach driven by stock selection, not market direction
18
Increased diversification
• Conviction-based position sizes
• Avoids heavy concentration of mega caps
Potential for superior total return
• Focus on dividend growth, not just dividend yield
• Dividend growth driving capital growth
Selective exposure to best total return opportunities
Unconstrained approach to UK Equity Income
Unconstrained approach potential to diversify income and enhance return
Agenda – 2 key benefits of Unconstrained approach
Diversification Total
Return
Appendices
20
Risk characteristics
* Standard Life Investments (Northfield) 30 September 2013
Source: Capture numbers sourced from Factset, 31 August 2013
Biggest contributors to relative risk
Overweight Underweight
Tyman Royal Dutch Shell
Staffline Group BP
DS Smith GlaxoSmithKline
International Personal Finance Vodafone
Howden Joinery AstraZeneca
UK Equity Income Unconstrained* FTSE All Share*
Predicted Beta 1.03 -
Predicted Tracking Error 4.76 -
Predicted Volatility 15.63 14.42
Unconstrained does not necessarily mean high risk
UK Equity Income Unconstrained Fund 01/01/2009 – 31/08/2013 (%)
Upside Capture 141.85
Downside Capture 92.20
Diversification Total
Return
21
Top decile performance 3 years out of 4 + YTD
Source: Morningstar, 09 October 2013
Thomas Moore appointed manager on 01 January 2009
Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary
information to the Mutual Funds UK Equity Income Unconstrained GIPS® composite report, which is enclosed in the Appendix for your reference
Top decile in IMA sector under current manager tenure
Performance against peer group and market during manager tenure
UK Equity Income Unconstrained Fund
Diversification Total
Return
263.2%
182.3%
163.4%
70
100
130
160
190
220
250
280
310
Standard Life UK Equity Income Unconstrained Inst Acc
Mstar (IMA) UK Equity Income (NX) GBP
FTSE 350 High Yield TR GBP (NX) GBP
UK Equity Income Unconstrained
Stock selection the primary driver of performance 22
* 01 January 2013 to 30 June 2013
** Since 01 January 2009
Source: Factset, gross performance, 30 June 2013
Performance attribution relative to FTSE All Share
-10.00
-5.00
--
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2009 2010 2011 2012 YTD* Tenure**
%
Stock Selection Market Cap Allocation
23
Unconstrained income growth outstripping market income growth
Focus on income growth, not just yield Diversification
Total
Return
* Dividend paid bi annually; ex dividend dates: 30 April, 31 October, payment dates: 30 June, 28 (29) February
** Based on investment in institutional income units between October 2009 and April 2013
Source: Lipper Investment Manager & Datastream, 31 August 2013
80
90
100
110
120
130
140
150
160
Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13
Fund income distribution UK equity market income
Rebased to 1
00 o
n 3
1 O
cto
ber
2009
Portfolio construction
Example of process: Inchcape (purchase July 2012)
Focus on Change
idea generation
Matrix Quant Model
Income Monitoring
Risk Diversification
Stock selection
Best ideas
Weighting in portfolio reflects
conviction levels + avoids
opportunity cost of large holdings
in low growth mega-caps
Dividend outlook underpinned by
EPS upgrades and balance
sheet + management confident
Stock screened well on Matrix, in
particular EPS revisions and
balance sheet strength
BUY-rated stock. Encouraging
management meeting in March
2012, following which stock sold
off sharply on macro concerns
Stock promoted to Winners List in
October 2012 following team
discussion
Weekly screen highlights very
high Matrix score (22) including
maximum score (4) for EPS
revisions ratio
Significant contributor to portfolio
income: +42% final DPS followed
by +42% interim DPS (declared
August 2013)
Awareness of stock’s correlation to
other stocks in the portfolio – overall
portfolio highly diversified
24
Stock example – Inchcape
Inchcape/FTSE 350 Inchcape – DPS1MN (RH Scale) Inchcape – DPS2MN (RH Scale)
Purchased, July 2012
Eurozone crisis
D
Source: Datastream, 30 September 2013
D
E
D D
E
25
Heightened risk for funds exposed to bond proxies
Income funds heavily exposed to bond-like equities – need for diversification
Source: Bloomberg & Standard Life Investments, August 2013
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.51600
1800
2000
2200
2400
2600
2800
Aug 09 Mar 10 Oct 10 May 11 Dec 11 Jul 12 Feb 13
Imperial Tobacco (LHS)
10 Year UK Government Bond Yield (RHS)
1500
1700
1900
2100
2300
2500
2700
1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
R² = 0.72
Imperial T
obacco (
p/s
hare
)
10 Year UK Government Bond Yield
26
27
Mega cap income suffering downgrades
Source: Thomson Datastream, 08 October 2013
• Need to be selective among perceived "defensive" sectors
• Dividend downgrades reflect underlying concerns over company fundamentals
• Dividend cover becoming more stretched
Consensual view + waning earnings momentum = dangerous combination
AstraZeneca
Relative share price
Consensus Earnings Forecast Year 1 (R.H Scale) Consensus Earnings Forecast Year 2 (R.H Scale)
Relative share price
Consensus Dividend Forecast Year 1 (R.H Scale)
Consensus Dividend Forecast Year 2 (R.H Scale)
Earnings forecasts Dividend forecasts
Defensive sectors have generally performed well...
Total return, 12 months to June 2013
Source: Datastream & Oriel, 30 June 2013
Sector performance not typical of a rising market
0
5
10
15
20
25
30
35
FoodProducers
Beverages Telecoms Pharmaceuticals FoodRetailers
Utilities Tobacco
28
29
…..but have disappointed on earnings
Revisions to 2013 earnings estimates, 12 months to June 2013
Source: Datastrea & Oriel, 30 June 2013
• Deteriorating fundamentals
affecting profitability in
sectors perceived to be
defensive
• Positive FX only partially
mitigating against
fundamental headwinds
• Highlights need to be
selective and invest only
where we have conviction
Earnings downgrades provide a ceiling to share prices among defensives
-12%
-10%
-8%
-6%
-4%
-2%
0%
Beverages FoodProducers
Utilities Tobacco Telecoms FoodRetailers
Pharmaceuticals
30
Matrix Factor Performance Chart Since 1997
Source: Standard Life Investments, 07 October 2013
Equally Weighted Performance vs Equally Weighted FTSE350 Index (Ex Inv Trusts) –
Since Jan 1997
-100
-50
0
50
100
150
200
250
1m Chg in 6m MAV 1m Chg in 9m MAV Price / Sales Ratio Dividend Yield FY1
Fwd 12m PE Rolling 12m EPS Growth Revisions Ratio (EPS FY1) 3m EPS Revisions
31
David Cumming Oil & Gas Producers (Royal Dutch Shell, BP & BG), Mining (ex Diamonds & Precious Metals), Industrial Metals
Euan Stirling Aerospace & Defence, Life Insurance, Private Equity, Equity Investment Instruments
John Wilson Pharmaceuticals & Biotechnology, Oil & Gas (exc.Royal Dutch Shell, BP & BG) Services & Distribution, Oil
Equipment
Karen Robertson Gas, Water & Multiutilities, Electricity, Beverages, Tobacco
Lesley Duncan Support Services (ex Business Support Services), Household Goods (ex Reckitt), Construction & Materials
Edward Legget Industrial Transport, Industrial Engineering (inc. GKN), Electronics & Electrical Equipment, Automobile & Parts
Thomas Moore General Financials (ex Private Equity), Banks
Kiki MacDonald General Retailers (inc. Burberry), Food & Drug Retailers
Elena Fernandez Media, Technology Hardware & Equipment, Software & Computer Services
Andrew Millington Support Services (Business Support Services), Telecoms (Fixed line & Mobile)
Ian Runacres Non Life Insurance, Travel & Leisure
Henry Flockhart Chemicals, Real Estate
Abby Glennie Food Producers, Health Equipment & Services, Personal Goods, Diamonds & Precious Metals
UK Equity Team
Source: Standard Life Investments, 30 June 2013
Sector coverage (FTSE350)
32
Focused on delivering superior performance
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Investment focused learning relevant to this product:
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* See Appendix for list of launch content
Mutual Funds UK Equity Income Unconstrained
Composite Name Mutual Funds UK Equity Income Unconstrained
Creation Date 01-03-2007
Firm Standard Life Investments
Currency GBP
Report End Date 31-12-2012
Composite Group Mutual Funds
Benchmark Morningstar UT - UK Equity Income
Firm Disclosures
A complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance
calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in
market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time
Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products.
Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Standard Life Investments 'The Firm' consists of all fee-paying funds
managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments
(USA) Limited and Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the
performance record of the new firm Standard Life Investments. The new firm was created on 01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has
prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by Pricewaterhouse Coopers for the periods 1996 to 2012. The verification report is
available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are
designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation
Composite Disclosures
Derivatives may be used for efficient portfolio management purposes
Includes part period return for 2007 from 01/03
The composite includes funds that invest in UK high yielding equities or equity type investments with no restrictions regarding index weightings, sector constraints or company size. The benchmark is Morningstar UT Equity
Income.
The standard annual fee applicable to this composite is 0.80%, but individual fees are negotiated on an account basis
Anlzd Return
(Composite)
Anlzd Return
(Benchmark)
3 Year Anzld StdDev
(Composite)
3 Year Anzld StdDev
(Benchmark) Dispersion Market Value Total Firm Assets
% of Firm
Assets
Number of
Portfolios
Dec 2003 NA NA NA NA NA NA NA NA NA
Dec 2004 NA NA NA NA NA NA NA NA NA
Dec 2005 NA NA NA NA NA NA NA NA NA
Dec 2006 NA NA NA NA NA NA NA NA NA
Dec 2007 -11.52 -2.20 NA NA NA 38,694,783 137,224,600,000 0.03 1
Dec 2008 -43.27 -29.77 NA NA NA 13,092,899 117,976,300,000 0.01 1
Dec 2009 44.16 23.41 NA NA NA 19,599,658 127,011,600,000 0.02 1
Dec 2010 25.83 13.94 26.63 19.10 NA 26,094,543 131,730,800,000 0.02 1
Dec 2011 -9.44 -3.04 19.49 14.92 NA 71,829,227 123,331,600,000 0.06 1
Dec 2012 25.10 14.15 15.54 11.89 NA 105,171,530 133,922,900,000 0.08 1
33
34
The information shown relates to the past. Past performance is not a guide to the future. The value of investment can go down as well as up.
For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of please refer to the full prospectus
which can be found on www.standardlifeinvestments.com
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Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent
permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data)
shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third
party sponsors, endorses or promotes the fund or product to which Third Party Data relates.
**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated
companies (whether direct or indirect) from time to time."
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