The case for investing in smaller companies. For financial advisers only

Transcription

1 The case for investing in smaller companies For financial advisers only

2 Smaller companies are under-researched despite their proven ability to broadly outperform their larger peers. They remain overlooked, and investors who choose this dynamic asset class have the potential to continue to be rewarded into the future. Smaller companies superior performance Smaller companies vs. larger companies 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% January 2000 January 2002 January 2004 January 2006 January 2008 January 2010 January 2012 January 2014 January 2016 January 2018 MSCI World Small Cap Index [345.47%] MSCI World Index [96.33%} Source: FE Analytics, 31 December 1999 to 31 May 2018 Although marginally more volatile than their larger counterparts, since the start of the century global smaller companies have delivered superior returns to larger companies. 02/12 The case for investing in smaller companies

3 1 Small companies provide big opportunities Smaller companies have the ability to deliver strong earnings regardless of what is happening in the wider economy, and deliver superior risk-adjusted returns to larger companies. Risk-adjusted returns measure the return of an investment compared with its volatility. Smaller companies generate greater returns for a given amount of risk than larger companies. Risk adjusted returns by region (January 2001 to December 2017) Larger companies Smaller companies % return per % unit of risk ACWI USA Europe ex UK UK Japan Pacific ex Japan Emerging Markets MSCI All Country World Index and MSCI All Country World Small Cap Index. Source: Aberdeen Standard Investments, 01 January 2001 to 31 December 2017 in GBP 2 Opportunities to add value Smaller companies are an under-researched asset class, which opens up opportunities for the smaller companies team to find compelling investment ideas that others have yet to discover. 3 Room to grow Smaller companies tend to be undervalued relative to their growth prospects and have potential for substantial returns that are more difficult to achieve from companies perceived to be fully grown. The case for investing in smaller companies 03/12

4 Aberdeen Standard Investments is a leading asset manager with an expanding global reach. The smaller companies team have an exceptional reputation within the industry and a proven track record in smaller companies investing. 1 Flexibility in your investment options With three funds investing across different regions, the Standard Life smaller companies funds offer greater flexibility and diversification. 2 The resource capabilities of a leading asset manager At the heart of their success is over 1700 investment professionals and support staff working for Aberdeen Standard Investments around the world. They thoroughly research and analyse each company before they add it to any fund. They constantly look ahead to anticipate change to they can deliver the best rewards for you. 3 A robust, repeatable and proven investment process Aberdeen Standard Investments combine the use of their stock screening tool with in-depth qualitative analysis by the smaller companies investment team. This has resulted in the funds strong performance record to date. The investment process, and an emphasis on quality, provides a solid grounding that allows the funds to perform consistently in the medium-long term. 04/12 The case for investing in smaller companies

5 Aberdeen Standard Investments aim to identify positive drivers of change within a company that have not yet been identified by the wider market. With a focus on finding high quality, profitable businesses with significant growth potential, the smaller companies team seek to identify tomorrow s larger companies today. What do the team look for in a smaller company? The experience of the smaller companies team is that companies with potential for high returns typically exhibit organic expansion and operate in growth sectors. They look for companies that have high quality business models elevated levels of recurring revenue strong cashflow How are the stocks chosen? In the search for companies with long-term sustainable growth prospects, the smaller companies investment team are supported by their stock screening tool. The tool is used to track a group of factors that have been shown to enhance stock performance. These include: Getting to know the companies The smaller companies team place face-toface meetings at the core of their investment process, allowing them to perform in-depth qualitative analysis, which provides a number of benefits: 1) They allow the team to cross-check the accuracy of their investment rationale. This could mean scrutinising company forecasts or verifying assessments based on the stock screening tool with company management. 2) They allow the team to assess the strength and repeatability of a company s business model. Factors such as recurring revenue, barriers to entry, price flexibility and market share are all important considerations. measures of price and earnings momentum valuation earnings growth cashflow balance-sheet strength This process enables the team to create a manageable list of companies on which they can focus their research capabilities in order to identify high-quality companies with the potential to outperform. The smaller companies team seek to identify tomorrow s larger companies today. The case for investing in smaller companies 05/12

6 The Standard Life Global Smaller Companies Fund aims to provide long term growth by investing predominantly in the shares of smaller companies listed on the global stock markets. The fund typically holds a concentrated portfolio of stocks and is actively managed by Aberdeen Standard Investments. Fund Manager Alan Rowsell Launch Date 14 Oct 2013 Fund Size 65.6m Underlying Fund Size m Base Currency EUR Source: Aberdeen Standard Investments, 31 May 2018 Performance from 14 October 2013 to 31 May % 100% 80% 60% 40% 20% 0% -20% October 2013 October 2014 October 2015 October 2016 October 2017 May 2018 Source: FE Analytics, 31 May Net of annual management charge. Annualised performance to 31 May Months 6 Months 1 Year 3 Years Since Launch 11.2% 12.2% 23.6% 13.9% p.a. 15.5% p.a. Source: FE Analytics, 31 May Net of annual management charge. Performance based in Euro. 06/12 The case for investing in smaller companies

7 Top Five Holdings* 1. Abiomed A US medical device manufacturer 2. Grubhub A US online and mobile food-ordering and delivery company job A provider of integrated human resource services in China 4. Fever-Tree A UK producer of premium drink mixers 5. Sunny Optical Technology A Chinese optical instrument and lens manufacturer Stock Spotlight - Grubhub* In the world of food, technology notably the ubiquity of smartphones and tablets is increasingly changing the way we view and order our meals. Yet, in the US, the adoption of online ordering has been surprisingly slow. This is particularly true when it comes to family-owned independent restaurants. And that s where GrubHub comes in. Thanks to its scale, recognised brand and unrivalled tech platform, it is able to connect thousands of independent food outlets with nearly 10 million customers across the US. Its strategy is working: last year the company filed an average of 300 orders per minute, with revenues up 49% and net income climbing 100% as a result. The outlook for GrubHub looks particularly appetising: it recently announced a tie-up with Yum! Brands (owner of KFC and Taco Bell), markedly increasing the company s restaurant partnerships and expanding its customer base. Fund Composition by Sector* Information Technology 22.8% Industrials 20.8% Customer Discretionary 15.3% Health care 13.6% Financials 12.5% Consumer Staples 6.7% Cash and Other 3.9% Energy 2.1% Materials 1.2% Real Estate 1.1% Fund Composition by Country* USA 45.4% UK 11.4% Japan 9.8% China 9.2% Germany 5.3% Italy 5.2% Hong Kong 2.0% Australia 1.8% France 1.8% Netherlands 1.3% Ireland 1.1% Taiwan 1.1% Spain 0.4% Sweden 0.3% Cash and Other 3.9% * Source: Aberdeen Standard Investments, 31 May 2018 The case for investing in smaller companies 07/12

8 The Standard Life European Smaller Companies Fund aims to provide long term growth by investing predominantly in the shares of smaller companies listed on European stock markets, including the UK. The fund is actively managed by Aberdeen Standard Investments, who will select stocks to try to take advantage of opportunities they have identified. Fund Manager Andrew Paisley Launch Date 8 Aug 2007 Fund Size 176.8m Underlying Fund Size 739.4m Base Currency EUR Source: Aberdeen Standard Investments, 31 May 2018 Performance from 8 August 2007 to 31 May % 150% 100% 50% 0% -50% -100% August 2007 August 2008 August 2009 August 2010 August 2011 August 2012 August 2013 August 2014 August 2015 August 2016 August 2017 May 2018 Source: FE Analytics, 31 May Net of annual management charge. Annualised performance to 31 May Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Launch 5.3% 7.1% 11.0% 9.7% p.a. 16.0% p.a. 12.9% p.a. 10.1% p.a. Source: FE Analytics, 31 May Net of annual management charge. Performance based in Euro. 08/12 The case for investing in smaller companies

9 Top Five Holdings* 1. Nemetschek A German vendor of software for architects, engineers and the construction industry 2. Intermediate Capital Group A British-based specialist asset manager 3. Kesko A Finnish retailing conglomerate 4. Fenner A British-based manufacturer of industrial belting and other polymer-based products 5. Teleperformance A French customer relationship management company Stock Spotlight - Teleperformance* Customer relationship management company Teleperformance helps businesses worldwide look after their customers by providing outsourced services such as customer acquisition, debt collection, technical support and social media. Currently, only around 25% of such services are outsourced globally and our latest meeting with management reinforces our belief that Teleperformance is strongly positioned to tap into this substantial growth opportunity. Operating out of 74 countries, it is the most international of its peers. This and the breadth of services it offers are helping Teleperformance win contracts with multinational firms looking for a one-stop shop. As well as top-line growth, Teleperformance is intent on improving its business mix and profitability by expanding the higher-margin specialised services segment through further acquisitions. Target areas are healthcare and the public sector, both markets where there is substantial appetite to reduce costs. Fund Composition by Sector* Industrials 41.0% Consumer Staples 11.3% Financials 10.4% Information Technology 10.1% Materials 8.2% Customer Discretionary 7.5% Real Estate 4.4% Health Care 4.2% Cash and Other 2.9% Fund Composition by Country* UK 33.1% Germany 21.1% France 11.9% Italy 9.1% Switzerland 5.4% Finland 3.8% Netherlands 3.0% Cash and Other 2.9% Spain 2.6% Denmark 2.2% Ireland 2.2% Sweden 1.5% Norway 1.2% * Source: Aberdeen Standard Investments, 31 May 2018 The case for investing in smaller companies 09/12

10 The Standard Life UK Smaller Companies Fund aims to provide long term growth by investing mainly in the shares of smaller companies listed on the UK stock market. The fund is actively managed by Aberdeen Standard Investments. Fund Manager Harry Nimmo Launch Date 1 Apr 2005 Fund Size 80.6m Underlying Fund Size m Base Currency EUR Source: Aberdeen Standard Investments, 31 May 2018 Performance from 1 April 2005 to 31 May % 400% 300% 200% 100% 0% -100% April 2005 April 2006 April 2007 April 2008 April 2009 April 2010 April 2011 April 2012 April 2013 April 2014 April 2015 April 2016 April 2017 April 2018 Source: FE Analytics, 31 May Net of annual management charge. Annualised performance to 31 May Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Launch 6.1% 8.9% 14.8% 9.9% p.a. 14.0% p.a. 12.4% p.a. 12.9% p.a. Source: FE Analytics, 31 May Net of annual management charge. Performance based in Euro. 10/12 The case for investing in smaller companies

11 Top Five Holdings* 1. First Derivatives A provider of products and consulting services to finance, technology and energy institutions 2. Dechra Pharmaceuticals A manufacturer of veterinary pharmaceuticals and products 3. NMC Healthcare A UK listed private healthcare provider operating in the United Arab Emirates 4. Cranswick A food producer and supplier of premium, fresh and added-value food products 5. Workspace London provider of office and studio space to all business types Stock Spotlight - First Derivatives* We tend to favour companies with good international exposure. Some 55% of the portfolio s revenues are derived overseas. A successful UK smaller company often has a business model that initially works in the UK but can then generate success in international markets. Eight out of our top-10 largest holdings have made very significant breakthroughs outside the UK. This should further cushion the blow of any Brexit fallout. First Derivatives is a big data firm whose products have applications across numerous sectors, including financial services, media and aerospace. The company is showing great momentum, while earnings growth and upgrades are continuing to come through. Fund Composition by Sector* Industrials 24.1% Consumer Services 17.1% Technology 14.2% Health Care 13.1% Consumer Goods 13.0% Financials 10.9% Telecommunications 4.0% Cash and Other 3.6% Small-cap investing in a Brexit world* While acknowledging relatively high market valuations and a now mature bull market, it is difficult to accurately forecast how Brexit negotiations will impact equity markets. However, if 2017 is anything to go by, we would recommend against obsessing over macro scenarios and instead concentrate on company fundamentals. Guided by our focus on quality, growth and business momentum, the portfolio is skewed heavily towards non-cyclical companies that can grow against a variety of different economic backdrops and, as such, are more in control of their own fate. Indeed, experience gained over the lifespan of the Fund indicates that our companies are typically more resilient in the face of challenging market conditions. Thus, driven by micro considerations, we remain confident the Fund will continue to deliver outperformance for investors no matter how the macro picture develops. * Source: Aberdeen Standard Investments, 31 May 2018 The value of your clients investment may go down as well as up and may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance. The case for investing in smaller companies 11/12

12 (01) Mon-Fri, 9am to 5pm. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority in the UK and is regulated by the Central Bank of Ireland for conduct of business rules. Standard Life Assurance Limited is registered in Dublin, Ireland (905495) at 90 St Stephen s Green, Dublin 2 and Edinburgh, Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary. SCC V Standard Life Aberdeen. Images reproduced under licence. All rights reserved.