7IM US EQUITY VALUE FUND

Transcription

1 7IM US EQUITY VALUE FUND A Sub-fund of 7IM Specialist Investment Funds Annual Short Report for the year ended 31 May 2016 Investment Objective and Policy The objective of the 7IM US Equity Value Fund (the Sub-fund ) is to achieve long-term capital growth through investing predominantly in a portfolio of equities of companies that are incorporated in, have their head office in and/or are domiciled in the United States of America and/or have a significant part of their operations in the United States of America. The Sub-fund may also invest in other companies that are listed in the United States of America. The Sub-fund will invest in the securities of companies, which in the ACD s opinion, are profitable and, or growing companies and which are considered, by the ACD, to trade at a discount to their intrinsic value. In order to identify such companies the ACD will primarily use publicly available data from company balance-sheets, cash-flow statements and profit and loss statements. Securities of companies trading at a discount to intrinsic value are generally defined as those with a high cash-flow to price, high book-to-price or similar valuation ratio. Profitability is defined as high return-on-equity (ROE), return-on-asset (ROA), return-on-invested-capital (ROIC) or using similar profitability metrics. High growth companies are characterised by significant positive increments in sales, dividends, earnings or growth in similar income/cash-flow variables. The criteria used for selecting shares are regularly monitored and tested and are subject to change from time to time. The Sub-fund aims to be fully invested at all times, but may for efficient portfolio management hold a portion of its assets in, derivatives and, or forward transactions (such as stock index futures and options thereon). Such transactions will not materially increase the overall risk profile of the Sub-fund. 1

2 Risk Profile The Sub-fund has little exposure to credit or cash flow risk. There are no borrowings or unlisted securities of a material nature and so there is little exposure to liquidity risk. The main risks it faces from its financial instruments are market price, foreign currency and interest rate risk. The ACD reviews the policies for managing these risks in order to follow and achieve the Investment Objective as shown on the front page. Accounting and distribution dates Accounting Distribution Interim 30 November 31 January Final 31 May 31 July Ongoing Charges Figures As at 31 May 2016 Class C Class Z ACD s periodic charge 0.25% 0.00% Other expenses 0.10% 0.10% 0.35% 0.10% Collective investment scheme costs 0.00% 0.00% Ongoing Charges Figure 0.35% 0.10% As at 31 May 2015 Class C Class Z ACD s periodic charge 0.25% 0.00% Other expenses 0.02% 0.02% 0.27% 0.02% Collective investment scheme costs 0.00% 0.00% Ongoing Charges Figure 0.27% 0.02% The Ongoing Charges Figure ( OCF ) represents the total operating expenses of the Sub-fund, expressed as a percentage of the average net assets during the accounting period. The collective investment scheme costs represent the OCFs, or a reasonable substitute, of the underlying funds which are held as portfolio investments. Their inclusion has been calculated on a weighted basis against the Sub-fund s net assets at the balance sheet date. 2

3 Synthetic Risk and Reward Indicator Typically lower rewards Typically higher rewards Lower risk Higher risk This indicator shows how much a sub-fund has risen and fallen in the past, and therefore how much a sub-fund s returns have varied. It is a measure of a sub-fund s volatility. The higher a sub-fund s past volatility the higher the number on the scale and the greater the risk that investors in that sub-fund may have made losses as well as gains. The lowest number on the scale does not mean that a subfund is risk free. This indicator is based on historical data and may not be a reliable indication of the future risk profile of this Sub-fund. The risk and reward profile shown is not guaranteed to remain the same and may shift over time. Distributions Interim Final pence pence Share Class per share per share Class C Income Class Z Income

4 Performance Record Class C Income Highest Lowest Distribution Price Price per share Calendar Year p p p 2015* ** Class Z Income Highest Lowest Distribution Price Price per share Calendar Year p p p 2015* ** * From 15 April 2015 to 31 December ** To 31 May Net Asset Value Net Asset Net Asset Value Shares Value pence Date Share Class in Issue per share Class C Income 6,254,076 6,402, Class Z Income 5,001,670 5,118, Class C Income 76,167,642 79,496, Class Z Income 96,445, ,354,

5 Fund performance to 31 May 2016 (%) 1 year 3 years 5 years 7IM US Equity Value Fund* -0.12% - - MSCI US benchmark** 4.05% - - * Sub-fund launched 15 April ** Source: Morningstar. The performance of the Sub-fund is based on the published price per C Accumulation share which includes reinvested income. Risk Warning Please remember that past performance should not be seen as a guide to future performance and that the value of an investment and the income from it can fall as well as rise and may be affected by exchange rate variations. 5

6 Sector Spread of Investments Real Estate 0.00% (0.23%) Private Equity 0.04% (0.03%) Cash, Short Term Bonds & Money Markets 1.02% (1.57%) North American Equity 99.62% (98.02%) The figures in brackets show allocations at 31 May Futures are measured by reference to the current notional exposure of the future, in other words, the economic interest in the underlying, although only the difference between the price on opening the position and the price on closing the position is settled. The sector spread of investments shown above is based on the market or notional value as a proportion of the net assets of the Sub-fund (and therefore may not sum to 100%). 6

7 Major Holdings The top ten holdings at the end of each year are shown below. % of Sub-fund % of Sub-fund Holding as at Holding as at General Electric 4.44 Amgen 3.42 Gilead Sciences 3.65 Lowe's Cos 3.22 Amgen 3.52 Archer-Daniels-Midland 3.19 Lowe's Cos 3.51 General Dynamics 3.17 EMC 3.37 Occidental Petroleum 3.15 Mondelez International 3.36 Verizon Communications 3.09 Capital One Financial 3.34 Eli Lilly & Company 3.07 PNC Financial Services Group 3.34 Time Warner Cable 3.04 Occidental Petroleum 3.25 JPMorgan Chase & Company 2.79 American International Group 3.22 Edwards Lifesciences

8 Investment Manager s Report Performance Report In the year from 1 June 2015 to 31 May 2016 the Sub-fund returned -0.12% which compares with the MSCI US benchmark return of 4.05%. Investment Background The second half of 2015 was dominated by risk aversion, starting with concerns over US growth after a cold winter dented some Q1 economic data and intensification of concerns over the Eurozone s third bailout of Greece. A brief moment of relief in July when agreement was found swiftly receded, and risk aversion took over again. This was triggered by the decision of Chinese policymakers to allow markets a bigger role in determining the rate of exchange for the Yuan and their badly mishandled intervention into the equity markets to halt the subsequent equity market decline. This rocked investors view of China as a competent market participant, and a renewed focus on slowing growth in China led to a drop in China equity markets and Asian equity markets generally, as they are viewed as being very dependent on China trade. Commodity prices fell sharply through the second half of It seems clear that this was primarily due to excess supply and to the impact of a strong US Dollar. However, many investors interpreted the commodity price fall as a sign of weak global demand, adding to fears about global growth. Markets were then primed to regard any evidence through a negative lens. When, on September 17th, the Federal Reserve opted to maintain interest rates at all-time lows, this prompted further speculation of an environment in which growth was fading. Markets, for the first time in a number of years, reacted negatively to a central bank s dovish comments. The wave of pessimism that had dominated markets in the second half of 2015 continued into January and February were very volatile months. In February the Japan Topix index dropped around 9% - the fall only mitigated for UK investors by the Japanese Yen being particularly strong almost offsetting the loss had those investors had not hedged the currency. Falling oil prices were seen as raising the risks to global growth and there was a sharp withdrawal from risk assets. Investors sought out traditional safe havens such as global government bonds. The Citigroup World Government Bond index ended up 12.2% in sterling terms. The last three months were much calmer with economic data out of the US seemingly confirming economic recovery, further stimulus from the European Central Bank helping to build confidence in European markets and the oil price rallying further allaying fears of recession with the MSCI World Equity index eventually ending up 1.0%. Developed Markets equity returns were very mixed with the US equity market strongest with a return of 6.7% helped by a strong tailwind from the US dollar, while the UK FTSE100 index was down 7.2%, partly because of its high allocation to miners and oils and the European MSCI index was down 4.2%. Emerging Markets suffered too with the MSCI Asia index down 13.2% despite a following wind from currencies while the China Hang Seng index was down 35%. Gold was up 7.4% but the GSCI commodities index was down 22.4%. Investment Report The Sub-fund invests in US equities and uses a systematic investment process, identifying profitable and growing companies which are assessed as trading at a discount to their intrinsic value using company fundamentals. Securities trading at a discount to intrinsic value are generally defined as companies with a high cashflow to price, high book-to-price or similar valuation ratio. Profitability is defined as high return- onequity (ROE), return-on-asset (ROA), return-on-invested-capital (ROIC) or similar profitability metrics. High growth companies are characterised by significant positive increments in sales, dividends, earnings or growth in similar income/cash-flow variables. 8

9 Investment Manager s Report (continued) Investment risk factors (including value, size, price momentum, sector, and market beta) are identified, isolated, and then selected in combination so that the required risk factor exposure is achieved, and exposure to risk factors which are not desired is minimised. The current asset allocation is overweight the MSCI US index in consumer discretionary, healthcare and industrials sectors, which score highly in the systematic process, and underweight information technology, energy and utilities. The top five holdings are General Electric, Gilead Sciences, Amgen, Lowe s Companies and EMC. Investment Outlook The unexpected UK referendum result has led to more uncertainty politically, economically and in markets. It is as yet unclear how this Brexit will unfold but it is likely that there will be a fairly substantial period of political limbo before Article 50, the formal request for Brexit, is triggered and probably further uncertainty afterwards too. The implications for markets are also unclear but likely more significant for UK and European markets than the US and Emerging Markets. Seven Investment Management LLP Investment Manager August

10 Buying and Selling Shares The dealing office of the ACD is normally open from 9.00am to 5.30pm London time on each business day. The ACD may vary these times at its discretion. Requests to deal in shares may also be made by telephone on each business day (at the ACD s discretion) between 9.00am and 5.30pm London time directly to the office of the ACD (telephone: or such other number as published from time to time). The initial purchase must, at the discretion of the ACD, be accompanied by an application form. Reports and Accounts This document is a short report of the 7IM US Equity Value Fund for the year ended 31 May The full Report and Accounts for the Sub-fund is available free of charge upon written request to Seven Investment Management LLP, 3rd Floor, 55 Bishopsgate, London EC2N 3AS. Other Information The information in this report is designed to enable you to make an informed judgement on the activities of the Sub-fund during the year it covers and the results of those activities at the end of the year. 10

11 Authorised Corporate Director ( ACD ) Seven Investment Management LLP 3rd Floor 55 Bishopsgate London EC2N 3AS (Authorised and regulated by the Financial Conduct Authority) Address for correspondence: Seven Investment Management LLP PO Box 3733 Royal Wootton Bassett Swindon SN4 4BG Registrar & Administrator Northern Trust Global Services Limited 50 Bank Street London E14 5NT (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Independent Auditor Ernst & Young LLP 25 Churchill Place London E14 5EY Management Committee of the ACD D. Carroll C. Darbyshire H. Paton (retired 8 April 2016) R. Poulten J. Routledge S. Sanderson T. Sheridan V. Smith C. Sparrow J. Urquhart Stewart P. Bungey (appointed 27 June 2016) Depositary Northern Trust Global Services Limited 50 Bank Street London E14 5NT (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) 3rd Floor 55 Bishopsgate London EC2N 3AS Telephone: