F&C Global Smaller Companies AIC Global Strategies Seminar Peter Ewins Lead Manager

Transcription

1 CM13902 For professional investors only F&C Global Smaller Companies AIC Global Strategies Seminar Peter Ewins Lead Manager 7 September

2 Agenda The attraction of global smaller company investing How we manage the portfolio The advantages of the closed end structure Performance record Near term outlook and portfolio positioning/strategy 2

3 F&C Global Smaller Companies Objective - To invest in smaller companies worldwide in order to secure a high total return Benchmark 70% MSCI All Country World ex UK Small Cap Index/ 30% Numis UK Smaller Companies (ex investment companies) Index Net Assets at 31 July m Convertible Unsecured Loan Stock provides modest level of structured gearing Ongoing charges 2016/ % 47 years of consecutive dividend growth Source: F&C Investments as at MSCI ESG Research Inc. Reproduction by permission. 3

4 Why have exposure to global small caps? Faster inherent growth potential Poor level of sell side coverage provides anomalies Exposure to niches unavailable in large cap universe Asset class ill-suited to passive investment Good stock selection can add value even in difficult markets Global aspect provide scope for timely asset allocation moves Global Smallers outperform MSCI World Small Cap compared to MSCI World over 15 years Jul 2002 Jul 2003 Jul 2004 Jul 2005 Jul 2006 Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013 Jul 2014 Jul 2015 Jul 2016 Jul 2017 Rebased MSCI AC World Rebased MSCI AC World Small Cap Source: Bloomberg and F&C Investments as at MSCI ESG Research Inc. Reproduction by permission. 4

5 The challenges of small cap investing Individual small cap shares can carry high stock specific risk Often more dependent on small number of key personnel Shares may have limited liquidity Breadth of investment universe creates challenges Need to have resources invested in the form of an experienced team to manage the portfolio 5

6 Our approach to managing the trust Team based with key contributors specialising in small cap investing Focus on the fundamentals and understanding key drivers Regular interaction with management teams and potential new opportunities A long term approach but recognise the need to introduce new ideas Use third party managed funds for some parts of the world 6

7 How we work We focus on We avoid Delivering consistent performance Assessment of quality and value Management meetings Team approach Minimise downside risk Long-term mind-set Bottom-up, stock picking, bias to quality approach Focused portfolio of long-term investments Sell-side recommendations Trend and momentum investing Highly speculative situations Macro bets Benchmark hugging 7

8 Considerations in stock selection Well articulated model Competitive advantages Attractive business model Good growth prospects Pricing power / scale Financial strength Trends in metrics important Range of valuation measures used Sustainability of superior returns Conviction in value appreciation Capable operators Good capital allocators Aligned interests Prudent For illustrative purposes only. 8

9 Asset allocation process Macro economic trends Idea flow from regional teams Overall team market strategy Lead manager Closely monitor universe of potential funds Monitor regional market performances and valuations Global exposure 9

10 Investment team UK North America Europe Peter Ewins, CFA Years with BMO: 21 / Years in industry: 28 Nish Patel, CFA Years with BMO: 10 / Years in industry: 10 Sam Cosh, CFA Years with BMO: 7 / Years in industry: 17 Catherine Stanley, CFA Years with BMO: 17 / Years in industry: 26 Gordon Happell, CFA Years with BMO: 3 / Years in industry: 13 Lucy Morris, CFA Years with BMO: 10 / Years in industry: 10 Patrick Newens, CFA Years with BMO: 13 / Years in industry: 13 + Team Japan/Rest of the world Collective Funds Source: F&C Investments as at

11 The use of funds within the portfolio Used for Japanese and Rest of the World exposure Tapping in to smaller company expertise from well resourced external teams with positive track records Use a small number of funds to avoid over-diversification, holdings tend to feature in overall top 10 Closely monitor performance, regular interaction with fund managers Managers currently include Eastspring, First State, HSBC, Aberdeen, Pinebridge, Manulife 11

12 Portfolio versus Benchmark as at 31 July 2017 Portfolio as at 31 July 2017 Benchmark as at 31 July 2017 Rest of the world 11.2% Japan 8.5% North America 39.3% Rest of the world 11.4% Japan 8.1% North America 39.4% Europe 13% Europe 11.1% UK 28% UK 30% Source: F&C Investments as at

13 The advantages of the investment company structure Long term approach to investing is easier in a closed ended vehicle Avoids potential risk of being a forced seller at a time of weakness Freer to look at smaller end of the investment spectrum Scope to use leverage to enhance returns Can buy in and issue shares in an NAV accretive manner Board keep the fund manager under pressure!!! NAV = Net asset value. 13

14 Long term performance of the trust Net asset value and share price performance vs Benchmark over 25 years Net asset value and share price performance vs Benchmark over 25 years F&C Global Smaller Companies NAV (diluted and total return) Benchmark MSCI AC World Index (total return) F&C Global Smaller Companies share price (total return) FTSE100 Index (total return) Source: F&C Investments as at

15 Nearer term performance 1 year 3 years 5 years Net asset value total return (diluted) +21.0% +60.2% % Benchmark total return +19.9% +54.6% % Share price total return +23.8% +58.1% % Source: F&C Investments to Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. 15

16 Some of the largest positive contributors in 2016/17 Source: google.com as at For illustrative purposes only. 16

17 Fevertree Drinks Case Study Fevertree Drinks IPO in November 2014 at 133p Suppliers of premium tonics and mixers International spread to sales through both on and off trade Management have relevant expertise at brand development Fever tree share price, since 4 th November 2014 to 31 st July Succession of major upgrades to forecasts as distribution gains have come through Building up large cash-pile, providing options for future shareholder returns Source: F&C Investments and Bloomberg to For the purposes of illustration only and should not be construed as a recommendation to buy or sell the mentioned security. Image: Google, labelled for reuse

18 Vail Resorts Case Study Vail Resorts Owner and operator of luxury ski resorts including some of the best assets in the US, including Vail Perisher and Beaver Creek Domestic and international customer base Season pass sales reduce volatility M&A strategy aiming to drive synergies in pass system and diversify locations Vail Resorts share price, 10 years to 31 st July Jul 2007 Jul 2009 Jul 2011 Jul 2013 Jul 2015 Jul 2017 Focus on shareholder returns including progressive dividends and share buy backs Source: F&C Investments and Bloomberg to For the purposes of illustration only and should not be construed as a recommendation to buy or sell the mentioned security. 18

19 Near term outlook Some grounds for optimism over corporate earnings Pick-up in Europe now starting to become evident in company results Growth in US economy continues, uncertainties around Trump policy agenda Asian region still has driver of Chinese growth, interest rates unlikely to move much UK political risk remains elevated, economy slowing and consumer debt levels are a concern 19

20 Encouraging PMI data Developed market PMIs Jun 2014 Mar 2015 Dec 2015 Sep 2016 Jun 2017 Europe ex UK UK US Japan Source: Bloomberg as at PMI = Purchasing Managers Indices. Europe ex UK = MPMIEZMA Index - Markit Eurozone Manufacturing; UK = Markit/CIPS UK Manufacturing P - MPMIGBMA Index; US = Conference Board Consumer Conf - CONCCONF Index; Japan = Nikkei Japan Manufacturing PMI - MPMIJPMA Index. Past performance should not be seen as an indication of future performance. 20

21 Interest rates remain low globally % Global GDP Exposure to Interest Rates 32.0% Interest Rates 0.00% % 35.3% % >3.00% 24.4% 8.2% Source: Bloomberg, J.P. Morgan, World Bank as at

22 Valuations of small caps around the world Developed market forward P/Es Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 MSCI World SC MSCI US SC MSCI Europe ex UK SC MSCI UK SC MSCI Japan SC Source: F&C Investments, MSCI as at P/E = Price to Earnings. Past performance should not be seen as an indication of future performance. 22

23 Concluding remarks Fund aims to be one stop shop to provide diversified exposure to the global small cap investment universe Corporate earnings news encouraging on the whole, economic indicators still firm and European political risk lower than a year ago Uncertain outlook in the UK given the general election result and the start of formal Brexit negotiations Scope for market disappointment over Trump policy in practice Watching inflation data and bond markets where there is risk from Central Bank policy normalisation Valuations remain high but still identifying some under-appreciated stocks with long term potential Capital is at risk and on sale of shares in the Fund an investor may receive back less than the original investment. Past performance should not be seen as an indication of future performance. 23

24 Appendices 24

25 Key stock positions US portfolio Top 10 absolute Holdings Portfolio weight % Sector allocation (Relative to benchmark %) Alleghany 2.9 State Bank Financial 2.7 STERIS 2.7 Waste Connections 2.5 Martin Marietta Materials 2.4 LKQ 2.4 Amdocs 2.3 Franklin Financial Network 2.3 Leucadia National 2.2 CSRA 2.2 TOTAL 24.7 Technology Consumer Discretionary Financial Services Consumer Staples Producer Durables Health Care Materials & Processing Utilities Energy % -1% 3% Source: F&C Investments as at Benchmark: Russell Portfolio holdings are subject to change. Figures subject to rounding. Past performance should not be seen as an indication of future performance. 25

26 Key stock positions UK portfolio Top 10 absolute Holdings Portfolio weight % Sector allocation (Relative to benchmark %) CLS Holdings 2.8 Treatt 2.4 Sirius Real Estate 2.3 Dechra Pharmaceuticals 2.2 Health Care Basic Materials Industrials Technology Restore 2.2 Craneware 2.0 Consumer Services Oil & Gas John Laing Group 2.0 Clinigen Group 1.9 Utilities Telecommunications Tyman 1.8 Sanne Group 1.8 TOTAL 21.3 Consumer Goods Financials % -4% -2% 0% 2% 4% 6% Source: F&C Investments as at Portfolio holdings are subject to change. Figures subject to rounding. *Benchmark: Numis UK Smaller Companies (excluding investment companies) index. Past performance should not be seen as an indication of future performance. 26

27 Key stock positions European portfolio Top 10 absolute Holdings Portfolio weight % Country allocation (Relative to benchmark %) Gerresheimer 4.0 Ireland 9.8 Cerved Information Solutions 3.9 Sparebank 3.9 Germany Norway Spain Storebrand 3.8 Portugal 1.0 CTS Eventim 3.7 Denmark 0.7 Forbo Holding 3.4 Finland Switzerland Amer Sports 3.4 Sweden -2.3 Irish Continental Group 3.3 Austria -2.4 Origin Enterprises 3.2 Indutrade 3.1 Italy Belgium / Luxembourg France TOTAL % -4% 0% 4% 8% Source: F&C Investments as at Portfolio holdings are subject to change. Figures subject to rounding. Benchmark: Euromoney Smaller Europe ex UK index. Past performance should not be seen as an indication of future performance. 27

28 The Fund portfolio Portfolio weight % Eastspring Investments Japan Smaller Companies Fund 4.7 Aberdeen Global Japanese Smaller Companies Fund 3.9 Scottish Oriental Smaller Cos Inv Trust 3.0 Pinebridge Asia ex Japan Small Cap Equity Fund 2.1 Utilico Emerging Markets 1.7 HSBC GIF Asia ex Japan Equity Smaller Companies Fund 1.5 Aberdeen Global Asian Smaller Companies Fund 1.3 Manulife Global Asian Smaller Companies Fund 1.2 Australian New Horizons Fund 0.4 Source: F&C Investments as at Portfolio holdings are subject to change. Figures subject to rounding. Past performance should not be seen as an indication of future performance. 28

29 Disclaimer Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. FTSE International Limited ( FTSE ) FTSE 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. MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. J.P. Morgan, Copyright 2017, all rights reserved. Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright 2017, J.P. Morgan Chase & Co. All rights reserved. 29

30 Contact Us F&C Investment Business Limited 6 th Floor, Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG Tel: +44 (0) F&C Management Limited Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) F&C Investments. All rights reserved. F&C Investment Business Limited and F&C Management Limited are both authorised and regulated by the Financial Conduct Authority and members of the F&C Group. The F&C Group is wholly owned by BMO Global Asset Management (Europe) Limited, which is itself a wholly owned subsidiary of the Bank of Montreal. F&C Investments and BMO Global Asset Management are trading names of both F&C Investment Business Limited and F&C Management Limited UK 30