European Equities. Q&A roadshow #QAroadshow2016. James Sym Fund Manager

Transcription

1 European Equities Q&A roadshow 2016 #QAroadshow2016 James Sym Fund Manager June 2016 For professional advisers only. This material is not suitable for retail clients

2 Over the last 5 years is your main European fund: 1. First quartile 2. Second quartile 3. Third quartile 4. Fourth quartile 1

3 14/06/ :22:22 Questions 1. How do European Equities stack up against other assets? 2. Is the value rally the start of a trend or a dead cat bounce? 3. How are you positioning the fund? 2

4 How do European Equities stack up against other assets?

5 Investing with Mr Nonsense or how to lose money in real terms Bonds Duration (Years) Bond Yield Equity Yield Government Swiss Gov t % n/a German Bund % n/a Corporate BASF 8 0.8% 5% Sanofi 9 0.9% 4% Zurich % 8% Unsecured Banks Intesa % 8% Santander 6 1.0% 5% Source: Bloomberg, Schroders. As at 31 March For illustrative purposes only and not a recommendation to buy or sell shares

6 Value bias Extremes within Global Equities 40 years of Value vs. Growth Source: Bloomberg, as at 08 February

7 Europe looking cheap vs America again Eurozone sector neutral P/E vs the US Almost back to crisis levels Source: JPMorgan. As at 30 April

8 Renewed European discount unjustified Relative economic outlook is better Relative earnings growth is better Relative political risk is better 7

9 Is the value rally the start of a trend or a dead cat bounce?

10 Beware the safe consensus Defensive growth versus global and domestic value in Europe Relative performance to Stoxx Europe 600. Index: 01 January 1995 = (Healthcare + consumer staples)/stoxx 600 (Commodity-Sensitive+Financials+Industrials)/Stoxx 600 So extreme is the underperformance, being overweight Commodity, Financial and Industrial stocks has become a sackable offence since 2008 I buy good quality companies is the mantra to attract assets The result: These are incredibly crowded trades Source: Kepler Cheuvreux, as at March

11 How cheap is cheap? Answer (almost) as cheap as they ever have been! Composite valuations Banks Staples +50% -20% Cutting to the chase, Value stocks offer significant double-digit upside from mean reversion Earnings inflection is the trigger This will come from higher inflation Source: Morgan Stanley. The composite valuation is the P/E, dividend yield and Price to Book Value. Percentages are the upsides from reverting to the average discount/ premium. Staples is the Food, Beverage and Tobacco sector, as at March

12 Feb 64 Feb 66 Feb 68 Feb 70 Feb 72 Feb 74 Feb 76 Feb 78 Feb 80 Jan 64 Jan 66 Jan 68 Jan 70 Jan 72 Jan 74 Jan 76 Jan 78 Jan 80 The precedent of the nifty-fifty The nifty fifty beat the market by 15% p.a. for eight years Nifty fifty valuations eventually hit bubble levels Nifty fifty stocks relative to S&P S&P performance Price to earnings of nifty fifty Dividend yield of nifty fifty Rel perf of nifty fifty S&P perf (RHS) Dividend yield (RHS) Price to earnings The nifty fifty theme analogous with the current secure global growth theme was a resounding success in the build up to the crisis of the 1970s The relative performance peak coincided with the negative event (the oil shock) The underperformance of the style from the market low was massive Source: FactSet, Morgan Stanley Research. February

13 How are you positioning the fund?

14 Mid Large Giant Different Schroder European Alpha Income Fund Core-Value Core Core-Growth High-Growth Schroder European Alpha Income Fund Selected peer group funds* Index Source: Morningstar Direct, as at 31 December For illustrative purposes only and not a recommendation to buy or sell shares 13 Our alpha franchise has a genuinely different approach to peers *Funds shown are sector portfolios over 2bn AUM including Blackrock European Dynamic, Fidelity European, Henderson European Selected Opportunities, Jupiter European, Standard Life European Equity Income, Threadneedle European Select. The Index is represented by Vanguard FTSE Europe ex-uk tracker

15 How can we help your clients? What we own a balanced European Value fund Financials More Insurance than Banks Commodities Integrated Oil over Mining and Oil services Telecommunications Incumbents over challengers Source: Schroders 14 Not expensive Not over-owned Not bond proxies Not excessively cyclical Inflation beneficiaries

16 Case study: value stocks: big oil Who were the beneficiaries of the oil boom? Share price performance of ENI, Weir and Richemont Supplier Luxury Goods Big Oil $10 oil $100 oil Big oil stocks didn t really benefit from the boom times Source: Bloomberg. As at January Examples are for illustrative purposes only and are not a recommendation to buy or sell 15

17 Case study: why we overweight big oil Who were the beneficiaries of the oil boom? ENI operating costs rose substantially over the last decade ($/bbl) At $50 oil, this level of operating costs would give an 18% free cash flow yield!! E These costs are falling rapidly Future? Source: Bernstein. As at 29 January For illustrative purposes only and are not a recommendation to buy or sell. Forecast risk warning: Please see the information slide at the end of this presentation 16

18 How we can help your clients in Europe Concentrated European Funds around 40 stocks, Pan Europe and Ex-UK A pragmatic business-cycle approach Focussed on company meetings and local knowledge from our network of local brokers Medium term (3 5 year) horizon necessary in Europe to escape the short term noise Income fund offers around 3.5% yield currently Source: Schroders, as at 30 April

19 Schroder European Alpha Income Fund As at 30 April 2016 Performance in GBP % YTD Since launch** Schroder European Alpha Income Fund Z Acc FTSE World Europe Ex UK Relative Quartile Q2 Q1 Q2 Q1* Q1 Q1* Since launch, 02 May 2012 to 31 December 2012 *Top decile. ** Launch date: 02 May 2012 Source: Morningstar, bid to bid with net income reinvested to 30 April 2016, net of fees in GBP, Z Acc. Quartile rankings are based on A share class (main unit share class), IA Europe ex UK peer group. Past performance is not a guide to future performance and may not be repeated On 24 March 2014, the fund previously named Cazenove European income Fund, changed its name to Schroder European Alpha Income Fund. Prior to 24 March 2014 the fund uses the track record of Cazenove European income fund (launched on 02 May 2012) as a performance track record Source of ratings: Morningstar, Trustnet, Citywire and Rayner Spencer Mills, as at 30 April

20 Conclusion Key Points On a relative basis European Value is outstandingly cheap This is relative to Growth stocks but especially compared to other asset classes Inflation rising will be the key to unlocking this Value In this scenario many stocks offer significant double digit upside Other considerations Inflation rising and value outperforming will be very painful for many European funds. The challenge is to access this without going too far down the quality curve or taking excessive cyclical risk The Schroder European Alpha Income Fund and Schroder European Alpha Plus Fund are reliable ways to access this opportunity Source: Schroders 19

21 Important information For professional advisers only. This material is not suitable for retail clients Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested Schroders has expressed its own views and these may change. The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use. This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Unit Trusts Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors Schroder European Alpha Income Fund: The fund primarily invests in equities and as such tends to be more volatile than a fund investing in bonds, but may also offer greater potential for growth. The value of the underlying investments in equity funds may fluctuate quite dramatically in response to the activities and results of individual companies, as well as in connection with general market and economic conditions. Derivative instruments may be used in the fund for the purposes of efficient portfolio management only. This should not lead to an increase in the risk to the fund. The managers will employ a risk management process to manage any derivative exposure achieved for the purposes of efficient portfolio management. The levels and bases of tax assumptions may change. As a result of the fees being charged to capital, the distributable income of the fund may be higher but there is the potential that performance or capital value may be eroded FTSE International Limited ( FTSE ) FTSE FTSE is a trade mark of London Stock Exchange Plc and The Financial Times Limited 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 The views and opinions contained herein are those of James Sym, European Equities Fund Manager, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. Securities and sectors mentioned are for illustrative purposes only and not a recommendation to buy or sell Source of ratings: Morningstar, Citywire, Trustnet and Rayner Spencer Mills, as at 30 April 2016 Issued in June 2016 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: England. Authorised and regulated by the Financial Conduct Authority. PEE