Schroder ISF European Opportunities and ISF European ......Pragmatic approach combining top-down...
Transcript of Schroder ISF European Opportunities and ISF European ......Pragmatic approach combining top-down...
September 2015 | For professional investors and advisers only
Schroder ISF
European
Opportunities
September 2015
Steve Cordell | Fund Manager
Periods to 31 August 2015
Schroder ISF European Opportunities Performance
Performance in EUR % 3 months 6 months 1 year 3 years p.a. 5 years p.a.
Schroder ISF European Opportunities -7.1 -1.8 +12.9 +19.9 +14.1
MSCI Europe -9.2 -6.3 +7.6 +13.1 +10.2
Relative
+2.0 +4.6 +5.3 +6.7 +3.8
Quartile Q1 Q1 Q1 Q1 Q1
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Source: Morningstar, performance and quartile rankings are based on ‘A’ acc shares, on the Morningstar Europe Equity Large Cap Blend category.
** Remove from final presentation **
Steve Cordell – Fund Manager
Fund Manager
Moved across to Schroders as part of the takeover of
Cazenove Capital in July 2013
Originally joined Cazenove Capital in 2002
A senior member of the Pan-European equity team and
manager of the Schroder European Opportunities Fund,
Schroder ISF* European Equity Absolute Return, Schroder ISF
European Opportunities, Schroder ISF European Equity ex UK
and Schroder European Absolute Target fund
Previously at HSBC Asset Management (Europe) Ltd
where he was responsible for several retail and institutional
Pan-European portfolios
Has 21 years of investment experience
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Source: Schroders. *Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation
** Remove from final presentation **
Business cycle Pan-European Equity team
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Source: Schroders, as at 31 August 2015
Matt Hudson
Head of Business Cycle
UK
Matthew Hudson (UK Equity and Income)
Michael Zorko (UK Equity Income)
David Docherty (UK Equity)
Charlotte Morrish (UK Equity)
Wade Pollard (UK Equity)
Europe
Steve Cordell (Pan Europe)
Lionel Rayon (Pan Europe, High Alpha)
James Sym (Europe ex UK)
James Rutland (Europe ex UK)
All team members have sector research responsibilities as well as product responsibilities
A range of European funds
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Source for ratings: Morningstar OBSR, Citywire, Rayner Spencer Mills and Trustnet , as at 31 August 2015
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Schroder ISF European Equity
Absolute Return Fund
Steve Cordell
Luxembourg UCITS
€115m
Equity Europe
Long / Short
Schroder ISF European Equity
(ex. UK)
Steve Cordell
Luxembourg UCITS
€184m
Equity Europe (ex. UK)
FTSE World Series Europe ex
UK TR EUR
Schroder ISF European
Opportunities
Steve Cordell
Luxembourg UCITS
€372m
Equity Europe
MSCI Europe Net TR
Investment process
Business cycle – a pragmatic approach
Analyse sensitivity of companies’ earning streams to business cycle
Use leading indicators to assess where we are in the business cycle
This will determine how much risk we want in the portfolio
The beta of the portfolio should therefore change through the different phases of the cycle
Stock selection will usually be the key driver of return except at turning points in the cycle
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Source: BofAML European Quantitative Strategy
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‘Designed to deliver consistent performance’
Business cycle
Sector market divides are not homogenous. They do not necessarily help us determine the behaviour of these
stocks within the cycle
Define the beta of stocks and allocate them to seven style groupings:
Pragmatic approach combining top-down macro view with earnings based security selection
Avoid permanent style/size bias
Demand for products and services changes throughout the business cycle
Operational gearing of companies impacts profitability of companies
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Source: Schroders
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Commodity cyclicals Growth Financials Growth defensives
Consumer cyclicals Value defensives
Industrial cyclicals
HIGH BETA LOW BETA
Business cycle and style performance
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Source: Schroders
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Growth defensive
Value defensive
Financials
Growth
Consumer cyclicals
Commodity cyclicals
Industrial cyclicals
Industrial cyclicals
Consumer cyclicals
Financials
Growth
Commodity cyclicals
Growth defensive
Value defensives
Growth
Consumer cyclicals
Commodity cyclicals
Industrial cyclicals
Growth defensives
Financials
Value defensive
Growth
Growth defensive
Value defensive
Financials
Consumer cyclicals
Commodity cyclicals
Industrial cyclicals
Overweighting
Market
Underweighting Sty
le g
rou
ps
Slowdown Recession Recovery Expansion
Seven style groupings
Commodity cyclicals Stocks whose revenues are linked either directly or indirectly to a particular commodity product such as oil, steel, gas, mining, bulk chemicals
e.g. BHP Billiton, ENI
Consumer cyclicals Cyclical stocks which rely on consumer spending for their revenues e.g. retailers, automotives, house builders, leisure, general retail
e.g. Marks & Spencer, Electrolux
Industrial cyclicals Stocks which manufacture capital goods or have revenues linked to industrial production e.g. engineering, aerospace, construction
e.g. GKN, Atlas Copco
Growth Stocks which grow revenues well in excess of GDP with a high degree of uncertainty or volatility e.g. luxury goods, medical technology, IT
e.g. Capita, Hennes & Mauritz
Financials/interest rate sensitives Stocks whose business depends on interest rate spreads, financial markets and asset valuations e.g. banks, insurers, real estate
e.g. Barclays, BNP Paribas
Growth defensives Stocks which grow revenues in excess of GDP with a low volatility and high visibility e.g. pharmaceuticals, defence
e.g. Tesco, Roche
Value defensives Stocks which grow revenues at or below GDP with low volatility and high visibility e.g. telecommunications, utilities, food producers,
beverages, tobacco, food retailers e.g. GlaxoSmithKline, France Telecom
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The stocks and sectors mentioned above are shown for illustrative purposes only and are not a recommendation to buy or sell
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IFO business cycle indicator
EZ Composite PMI vs. Money Supply
How we determine turning points in the business cycle
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Source: Top: JP Morgan as at August 2015. Bottom LHS: Absolute Strategy Research. RHS: Datastream as at August 2015
The Inventory Cycle Bond yields also key
Normalised forecast errors 3m change in orders less inventories European Cyclicals vs Defensives price rel US yield curve (10y – 2y)
Portfolio construction
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Pan-European Equity
strategy meeting
Portfolio
Position sizing
Stock selection process
7 style tilts
Strength of view
Potential returns
Stock volatility
Quantitative screening
Qualitative screening
Stock opportunities analysed more in depth
Where are we?
Where are we going?
Tilts weighting to reflect our business
cycle view
Avoid permanent style/size bias
Diversified portfolio
Beta changes through cycle
Emphasis
50%
50%
Source: Schroders
EPS momentum
Price momentum
Valuation
Leverage
Analyst revisions
Databases: Bloomberg, Reuters, Datastream,
FactSet, Mirabaud Securities
Qualitative and quantitative screening of the
stock universe is undertaken in order to detect
potential opportunities
Looking for turning points in relative revisions Quantitative analysis
Stock selection process
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Source: Mirabaud Securities, Schroders, as at September 2015
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THALES
0.00
0.25
0.50
0.75
1.00
Earn
ings R
evis
ion R
ankin
g
0
50
100
150
200
Pric
e R
ela
tive
Sep 12
Dec 12
Mar 13
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Jun 15
Sep 15
50
100
150
200
250
300
350
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Thales: Trend P/E relative, 1985 - 2015
Trend P/E relative Average + 1 SD - 1 SD
Performance and
Positioning
Periods to 31 August 2015
Schroder ISF European Opportunities Performance
Performance in EUR % 3 months 6 months 1 year 3 years p.a. 5 years p.a.
Schroder ISF European Opportunities -7.1 -1.8 +12.9 +19.9 +14.1
MSCI Europe -9.2 -6.3 +7.6 +13.1 +10.2
Relative
+2.0 +4.6 +5.3 +6.7 +3.8
Quartile Q1 Q1 Q1 Q1 Q1
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Source: Morningstar, A Inc, Total Return, bid to bid, net of fees. Quartile rankings are based ‘A’ inc. Share, on the Morningstar Europe Equity Large Cap Blend category.
Pan Europe strategy Fund positioning – Sector
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Source: Schroders, as at 31 August 2015. The sectors and securities shown are for illustrative purposes only and not a recommendation to buy or sell. Based on Schroder ISF
European Opportunities
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Sector Active view Direction of travel Key stock
Commodity cyclicals -2.1% BG Group
Consumer cyclicals +2.5% ITV
Financials +8.7% Merlin Properties
Growth -0.9% Pandora
Growth defensives -8.6% Bayer
Industrial cyclicals +2.5% = CRH
Value defensives -4.2% Imperial Tobacco
Market outlook
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10
15
20
25
30
35
40
45
50
55
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Pan Europe US Asia-Pac ex Japan
54% upside to get to average valuation
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Source: Thomson Datastream. As at 31 August 2015
The global opportunity set Europe remains attractively valued
Current: 13.2x
Pan Europe
Average 20.3x
Cyclically adjusted P/E of global regions
+1 St dev
+1 St dev
Divergence between European and global macro is
slowing the “recovery”
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Source: Top: BofAML European Quantitative Strategy. Bottom: JPM. As at August 2015
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15
MSCI Eurozone +ve to -ve EPS revisions S&P500 MSCI UK Topix MSCI EM
Commodity deflation
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Source: Bloomberg, August 2015
The USA is a worry
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Source: JPM. Top LHS: Bloomberg. As at August 2015
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Focus on domestic recovery
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Source: BofAML European Quantitative Strategy, August 2015
Persistent European ‘Recovery’ is very favourable for domestic-cyclicals (Financials)
Italian financials preferred
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Source: JPM, August 2015
Key holdings in Banca Popolare di Milano and Anima
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