UBP Swiss Equity Franchise Update

Transcription

1 COMMITTED TO YOU August 2012 UBP Swiss Equity Franchise Update Defensive Growth Union Bancaire Privée, UBP SA Rue du Rhône CP Geneva 1, Switzerland Tel.: Fax:

2 A play on wealth creation and globalisation From a tomato seed to an IPO with Swiss leaders Swiss leader Entrepreneur Buy Kumato tomato seeds, start tomato pulp/juice production No time to cook more ready made meals at home Start exporting. Build warehouse, insure property & plant Stress leads to health problems. Diagnosed as metabolic and cardiovascular Restructured with Private Equity support First profits: buy a watch on first trip to Europe IPO Local authority Improve burdened power transmission, improve water treatment Strengthen bridge to village due to increased traffic Regional bank can t manage foreign payments High fiscal inflow spent building new sports stadium External event Import restrictions lifted on tomato imports to EU New regulations on quality of earth for tomato imports Asset Management 2

3 Cyclical growth and downside protection Swiss companies have traditionally sought and cultivated their key markets abroad in order to expand on a relatively small domestic market. Switzerland has become an important player in world trade. Balanced between very dynamic industrial (ex: ABB) and cyclical sectors (ex: the large luxury sector, Swatch and Richemont) and reliable defensive ones (ex: Nestle, SGS) Switzerland grows in an expanding economic cycle and withstands a contracting one Index: Dec.1988 =100 Swiss performance Index (SPI) has outperformed MSCI World over the last 20 years Swiss Performance Index (SPI) MSCI World TR in CHF Source: SWX, MSCI, UBP Asset Management

4 A defensive and cyclical country With its quality cyclical growth companies and strong defensive core the Swiss market is able to stand firm during a financial crisis and grow in a rising economy Switzerland s GDP participates fully in periods of growth and corrects less during crisis Currently Switzerland offers the most attractive real dividend yield for developed markets 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% Cumulative GDP growth since GDP yoy % 2012 consensus Eurozone Switzerland UBP United States Japan Germany UK Switzerland United States 3.07% 5.81% 7.83% 7.47% 3.73% 6.87% 8.72% Japan 1.29% 2.99% 5.22% 4.09% -1.66% 2.73% 1.98% Germany 0.83% 4.76% 8.31% 9.19% 3.64% 7.33% 10.62% UK 2.09% 4.75% 8.38% 7.18% 2.50% 4.64% 5.46% Switzerland 2.64% 6.37% 10.24% 12.55% 10.44% 13.44% 15.54% Asset Management 4

5 Swiss Equity Market The SPI includes approximately 220 equity issues but the largest 4 stocks account for approximately 50% of the index s market capitalisation Stable political, economic, fiscal and financial environment in Switzerland make it an ideal base for internationally active companies. Corporate tax rate in Switzerland is around 25% vs 30% in Europe. Expect a stable rate due to low levels of public debt and general economic, political and social stability Approximately 40% of investors in Switzerland are foreigners Well established equity culture thanks to an early introduction of defined contribution pension plans SPI is the 2 nd largest index in Europe Market Cap (CHF) Market Cap (Local) FTSE Bn 1570 Bn SPI 915 Bn 915 Bn CAC Bn 613 Bn DAX 630 Bn 525 Bn Country Switzerland United States Germany France Italy United Kingdom 2011 Debt to GDP (%) Asset Management 5

6 CFROI comparison Switzerland at the top Switzerland displays among the highest CFROI levels in the world (around 12% for the last 3 years). Asset Management 6

7 Swiss equity franchise at UBP UBAM Swiss Equity (SICAV, Lux) Relative performance to SPI Active management Conviction positions (TE 5-8%) Aims to outperform SPI by 300 bps/year Focuses on companies with stable/high and/or improving CFROI UBAM (CH) Swiss Excellence Benchmark agnostic, thematic Long term capital appreciation Aims to capture «Swiss-made» label Allows investors to participate in global growth through Swiss companies Invests in Swiss leaders: Number one global player of its sector Future-oriented sector Stable,high and/or growing CFROI Institutional mandate CH Equity Relative performance to SPI Active management Conviction positions (TE 5-8%) Aims to outperform SPI by 300 bps/year Focuses on companies with stable/high and/or improving CFROI Both funds are managed with a similar process to CP International global mandate and 30 Global Leaders Asset Management 7

8 Active management outperforms at UBP Asset Management 8

9 UBAM SWISS EQUITY (Lux) Investment process and sell discipline A four step process Cyclical bias increased both in core and opportunistic holdings: - Core: Geberit, Swatch, SGS - Opportunistic: Komax, Sulzer, Zehnder Emerging market exposure considered as important - Core: Richemont, Swatch - Opportunistic: Syngenta Monitoring the Investment Universe Stock and theme idea generation Company meetings Dynamics of valuation, fundamentals and momentum Top-down input Screening tools Fundamental Research and Stock Selection Proprietary company data forecasts Growth potential and valuation focus CFROI based modeling Portfolio construction and risk control Liquidity Balance between sectors Contribution to risk Conviction Catalysts Monitoring and Exit Strict sell discipline company-specific and portfolio factors considered Selected technology companies favoured in view of their attractive product positioning - Core: none (fading CFROI large Swiss tech) - Opportunistic: Austriamicrosystems, Inficon, Cicor Potential re-entry over the next cycle Financials underweight maintained in view of sovereign risk and operational headwinds exposure via diversified financials and non life insurances vs. Banks - Core: Partners Group - Opportunistic: Swiss RE Healthcare underweight reduced (structural pressures on the sector, but short term attractive defensive characteristics) Asset Management 9

10 UBAM SWISS Excellence Investment process and sell discipline A four step process The core concept of the fund is to capture the world famous «Swissmade» label by picking the Swiss leaders of tomorrow who are maintaining and improving their cash flow return on investment (CFROI) By Swiss leaders we mean globally, not only in Switzerland, with a competitive advantage and not in a declining industry Portfolio very concentrated, about 20 stocks, minimum 15 Up to 30% in a single stock, and up to 60% for the overall portfolio composed by stocks weighing 10% each No longer reflecting the Swiss market, but its global leaders Portfolio turnover: no big changes in stocks but rather in weighting POSITION PRODUCT Monitoring the Investment Universe Stock and theme idea generation Company meetings Dynamics of valuation, fundamentals and momentum Top-down input Screening tools Fundamental Research and Stock Selection Proprietary company data forecasts Growth potential and valuation focus CFROI based modeling SUPPORTING RETURNS Portfolio construction and risk control Liquidity Balance between sectors Contribution to risk Conviction Catalysts Potential re-entry over the next cycle Industry leaders' competitive advantages including balance sheet strength and networks 1 Specialized products and unmatched core competencies Monitoring and Exit Strict sell discipline company-specific and portfolio factors considered OFFERING GROWTH Exposure to geographic and demographic growth markets Penetration opportunities due to value added or socio-demographic trends Loyalty discouraging competition, and quality of brand sustained BRAND through decent Corporate Social Responsibility (CSR) 1 Such as sourcing, clients, distribution channels "Aspirational" brands attracting additional customers Source: UBP Asset Management 10

11 Investment process and sell discipline A four step process Monitoring the Investment Universe Fundamental Research and Stock Selection Portfolio construction and risk control Monitoring and Exit Stock and theme idea generation Proprietary company data forecasts Liquidity Company meetings Dynamics of valuation, fundamentals and momentum Top-down input Growth potential and valuation focus CFROI based modeling Balance between sectors Contribution to risk Conviction Catalysts Strict sell discipline company-specific and portfolio factors considered Screening tools Potential re-entry over the next cycle Asset Management 11

12 Investment process and sell discipline Step 1: Monitoring the investment universe Monitoring the Investment Universe High quality Swiss and Intl companies Large, mid, small cap candidates Sustainable cash flow return on investments (CFROI) for longer than the market discounts Strong growth potential Stock Ideas: sector specialists, industry best talents, Hedge funds, Traditional funds Themes: regional, sectoral Asset Management 12

13 Investment process and sell discipline Step 2: Fundamental research and stock selection Fundamental Research and Stock Selection Large, mid, small cap, growing beyond current market expectations Approximately 35 Companies Companies growing and generating a high level of returns for investors Analysis based on fundamentals and quantitative screening Primary research own assumptions Secondary research consensus expectations and momentum Valuation through CFROI method, HOLT Asset Management 13

14 Investment process and sell discipline Step 2: focus on two stages of the lifecycle 1 2 Source : Credit Suisse, UBP Asset Management 14

15 Beating the fade: Nestlé: Superior competitive position maintains growth and CFROI spread Komax: >50% market share in wirebonding Steady long term growth and investment CFROI growth alongside controlled asset growth Long term outperformance Shift in asset growth and CFROI growth leads to strong share performance Growth: penetration of packaged food in emerging markets Growth trend: automation, miniaturisation Valuation: priced for steady, not growing returns Source : UBP estimates Valuation: much faster snap back to peak growth levels than market expects Asset Management 15

16 Investment process and sell discipline Step 3: Portfolio construction and risk control Portfolio construction and risk control Liquidity influences weight Volatility, liquidity, degree of conviction as well as catalysts influence the weighting of each position Balance between sectors Benchmark: Swiss Performance Index (SPI) Tracking error: 5-7% Information ratio: 0.5 Risk management (tracking error, beta, contribution to tracking error of a single position) Portfolio construction aims to balance more defensive and more cyclical sectors, while remaining a stockpicking approach Asset Management 16

17 Investment process and sell discipline Step 4: Monitoring and exit Monitoring and Exit Avoid exposure to cyclically fading growth Strict sell discipline Non compliance with investment criteria leads to exclusion Weekly and monthly quantitative reports decomposition of systematic and specific risk, performance attribution, etc. Active management make room for better ideas Risk management (elevated risk contribution may lead to reduction of a position) Asset Management 17

18 Sell example: Nobel Biocare: leadership is competed away leading to fading CFROI Falling asset growth and falling CFROI from high level Growth: fading, faced with higher competition and waning health spend Valuation: priced to return to growth when the latter is elusive Share price begins to stagnate Source : Credit Suisse Asset Management 18

19 Company selection and monitoring overview Analytical research and quantitative screening Fundamentals (CFROI pattern): Absolute level of CFROI Spread between CFROI and CoC Change in CFROI Using the team s combined experience of 30 years in Swiss portfolio management for extensive primary research Using close ties with Swiss industrial leaders to identify new opportunities Valuation: Upside to Price target PE ratio Dividend yield Price / Book Momentum: CFROI momentum (changes in consensus estimates) Price momentum Evolution in stock liquidity Using a team of seven global sector analysts to identify trends and events influencing Swiss companies Using secondary research and network to challenge investment ideas Using quantitative tools to screen and model investment ideas Asset Management 19

20 Portfolio construction Discipline STRONG RISK MANAGEMENT: Control of tracking error target range and maximum level Absolute and marginal contribution to portfolio tracking error at the single stock level Tracking error decomposition in specific and systematic risk components Source : UBP Source : UBP Analysis of performance attribution allocation, selection, down to single stock level Source : UBP BUY: Growing companies with good management and improving CFROI and ability to beat expected CFROI SELL: Negative change in corporate strategy / operating environment Price target reached or better opportunity identified Asset Management 20

21 Holdings 36 positions (as of ) TOP TEN HOLDINGS The weighting should contribute a total of 33bp to the portfolio tracking error Source : UBP TOP TEN RELATIVE HOLDINGS Source : UBP Asset Management 21

22 UBP Swiss equity Franchise Actively managed funds in a market dominated by passive strategies Stock-specific approach with an emphasis on fundamentals and cash flow generation Experienced team with proven track record Strong discipline in the portfolio construction Clear and transparent reporting Asset Management 22

23 UBAM (CH) Swiss Excellence Equity Performance since inception* (as of ) UBAM Swiss Excellence vs. SPI 15% Cumulative returns 10% 9% 9% Absolute return 7% 5% 3% 1% -1% -3% -5% 4.99% 2.07% 0.08% 5.62% 3.52% 0.06% -1.70% 1.33% 7% 2.71% 5% 3% 1% -1% -0.27% -3% -5% Excess return 5% 0% -5% -10% -7% -7% -15% -9% Oct Dec Feb Apr Jun 10* Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Swiss Excellence SPI Excess return Jun 12-9% -20% -25% UBAM Swiss Excellence SPI Source : Bloomberg, UBP Source : Bloomberg, UBP YTD Swiss Excellence 7.39% % 12.58% SPI 2.40% -7.72% 10.70% Excess return 4.99% -4.70% 1.88% *Inc date : Asset Management 23

24 Portfolio as of Asset Management 24

25 UBAM Swiss Equity Outperformance vs. Competition (as of ) UBAM Swiss vs. SPI A b so lu te retu rn 40% 30% 20% 10% 0% -10% -20% -30% -40% 6.88% 3.55% 5.54% 3.87% 0.02% 1.02% YTD -0.37% UBAM Swiss Equity SPI Excess Return (cum) 8% 6% 4% 2% 0% -2% -4% -6% -8% E xcess return Sources : Bloomberg, Lipper, UBP Sources : Bloomberg, Lipper, UBP YTD UBAM SWISS 24.22% 1.55% % 22.69% 10.36% % 13.61% SPI 20.67% -0.05% % 23.18% 2.92% -7.72% 10.70% Performance vs SPI 3.55% 1.60% -2.88% -0.49% 7.44% -4.95% 2.91% Asset Management 25

26 Portfolio as of Asset Management 26

27 Swiss stocks - CFROI momentum Asset Management 27

28 Current outlook 2012 Still weak Swiss PMI orders at 47.8 (45.5, 42.7, 47.8), below Summer 2011 Major trading partners leading indicators show weakness (all PMIs below 50) Switzerland has best and most credible EPS momentum (+10.2% 2012 after -9% 2011, both partly FX driven) Earnings estimates have been revised downwards, expect weak earnings season and cautious outlook, favourable FY comps coming up in H2 CHF currency - surety of the forecast (1.20 no change) and more favourable comps in 2012 Portfolio outlook: move from high to low beta industrials, reduced defensive underweights, increased company specific investments (Syngenta, Galenica, Geberit). Asset Management 28

29 Current topic (1): Relative performance opportunity vs. best market in Europe YTD SPI vs. DAX SPI DAX Perf. in CHF January February March April May June July SPI 1.3% 3.2% 2.4% -0.3% -4.2% 3.3% 5.0% DAX 8.4% 6.3% 1.2% -2.9% -7.4% 2.4% 5.6% delta (bps) Asset Management 29

30 Current topic (2): Currency Strength Comparable to previous business cycles more activities and production are outsourced limiting the effect of the strong currency Despite long term appreciation, Switzerland remains competitive in exports due to its niche end markets and therefore retains strong pricing power (luxury, specialised machinery, chemicals ) Strong CHF forces Swiss companies to focus on competitive and innovative advantages The convergence between local equity markets in Europe is over. Divergence is back. The SNB intervention to set a floor at 1.20 CHF/EUR relieves the Swiss economy from a major burden in the short term and facilitates forex management for Swiss companies CHF/GBP CHF appreciation CHF/USD and more recently against the EURO CHF/EUR Asset Management 30

31 Current topic (2): Currency Strength Trade is the key to prosperity in Switzerland Exports are a big part of Switzerland s GDP and a big part of Swiss companies revenues The gap between export and import prices may have narrowed due to strengthening of CHF, however it is still at an elevated level The European Union is by far its largest trading partner accounting for about 62% of exports and 79% of imports, of which Germany accounts for 20% Asset Management 31

32 Current topic (3): companies strong fundamentals Profitability may decline from peak, but remain at high level Asset Management 32

33 Current topic (3): companies strong fundamentals Aggregated net profits since 1999 (CHF bn) % % % % % % % % % % -48% % % % % E 2013E 2014E Source: Vontobel Equity Research Asset Management 33

34 Conclusion Swiss companies are typically managed to generate high returns on investments while maintaining healthy balance sheets Less government intervention leads to prudent corporate management The Swiss market has both quality cyclical growth companies and a strong defensive core Promising macro trends (low unemployment rate, solid GDP growth, stable currency, global trade beneficiary) Switzerland provides an economically, politically, financially, fiscally, geographically and socially attractive environment Asset Management 34

35 UBAM Swiss Equity Portfolio Management Team Martin Moeller has been in banking since 1992, since 1998 involved in equity research and portfolio management. He is in charge of Global Equity mandates and the Equity portfolio management team in Geneva. Before joining UBP in 2006, he spent 14 years at Deutsche Bank in Berlin, Frankfurt and New York. His research and portfolio management focus has been on banks, insurance companies and other financial service providers globally. Prior roles include credit analysis on financial institutions such as banks, broker/dealers, and asset managers. He holds an MA in Banking and Finance from the Hochschule für Bankwirtschaft (Business School of Finance and Management), Frankfurt. Mr Moeller is the author of Strategic Concepts of Universal Banks, published by Bankakademie Verlag in 2000, and earned the CFA designation in Eleanor Taylor-Jolidon has been working in banking and finance for 18 years. She joined UBP Equity portfolio management in 2008 and manages the Swiss Equity mutual fund and Swiss Equity institutional mandates. Prior to joining UBP, she worked for four years at Independent Asset Management (IAM) in Geneva as a Swiss Equity analyst and as part of the Swiss Equity portfolio management team. Before IAM, she worked for 4 years at Bank Sal. Oppenheim in Zurich in institutional sales and Swiss equity analysis. She worked for three years as a management consultant for financial services with PriceWaterhouseCoopers in Geneva and Zurich. Her career started at Banque Indosuez (now Crédit Agricole) in London, Paris, Luxembourg and Geneva in private banking discretionary portfolio management, marketing and risk management. She holds a Diplôme d études approfondies (DEA) in Economics from the College of Europe, Natolin (Poland) and a M.A. in Modern and Medieval Languages (French and Russian) from the University of Cambridge, United Kingdom. Fares Benouari has been working in banking since On joining Union Bancaire Privée in September 2006, he worked as an equity analyst covering European small and mid capitalizations. He is since 2009 responsible for the industrial sector coverage. Mr. Benouari is also involved in Swiss and Global equity portfolio management with the team. Prior to joining UBP, he completed internships in Mirabaud & Cie s Hedge Funds department and in UBS SA s Institutional Advisory department. In 2005, Mr. Benouari was awarded an MSc in Economics by the Faculté des Hautes Etudes Commerciales (HEC) in Lausanne, and earned the CFA designation in Asset Management 35

36 Contacts Martin Moeller, CFA Global Equity Portfolio Manager +41 (0) Eleanor Taylor-Jolidon Swiss Equity Portfolio Manager +41 (0) Fares Benouari, CFA Portfolio Manager +41 (0) Asset Management 36

37 Global Disclaimer The content of this booklet is based on information and data obtained from sources deemed reliable. However Union Bancaire Privée, UBP SA does not guarantee its accuracy or completeness and accepts no liability for any direct or consequential losses arising from the use of the information contained in this document. The information contained herein is subject to change without prior notice. Past performance is not a guide to current or future results. The performance data do not take into account fees and expenses charged on issuance and redemption of the shares nor any taxes that may be levied. Changes in exchange rates may cause the NAV per Share in the investor s base currency to go up or down. This is a marketing document. It does not replace the prospectus or any other legal documents that can be obtained free of charge from the registered office of the funds or from Union Bancaire Privée, UBP SA, Geneva. Any subscriptions not based on the latest prospectus, and the latest annual or semi-annual reports of the funds, shall not be acceptable. Investors are invited to read carefully the risk warnings and the regulations set out in the prospectus and are advised to seek professional advice from their financial, legal and tax advisors. The present document neither constitutes an offer nor a solicitation to subscribe for shares in the funds in any jurisdiction where such an offer or solicitation would not be authorised, or to any person to whom it would be unlawful to make such an offer or invitation. Union Bancaire Privée, UBP SA is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA) and in the United Kingdom by the Financial Services Authority (FSA). Asset Management 37