Invesco Pan European Small Cap Equity Fund

Transcription

1 Invesco Pan European Small Cap Equity Fund February 2014 This marketing document is exclusively for use for Professional Clients and financial advisors in Continental Europe and is not for consumer use. Please do not redistribute

2 European equities team Based in Henley Standing (from left to right): Adrian Bignell, Fund Manager Joel Copp-Barton, Product Director Matthew Perowne, Trainee Analyst John Surplice, Fund Manager. Seated (from left to right): Stephanie Butcher, Fund Manager Jeffrey Taylor, Fund Manager, Head of Team Erik Esselink, Fund Manager. Source: Invesco Perpetual as at 31 December On average the European Equities team have been with Invesco Perpetual for 11 years and within the industry for 17 years, as at end of 31 December

3 UK equities team fund managers Based in Henley Mark Barnett 1 Fund Manager Jonathan Brown Fund Manager James Goldstone Trainee Fund Manager Paul Lamacraft Trainee Fund Manager Stephen Lamacraft Fund Manager Years in industry: 21 Years with firm: 17 Years in industry: 16 Years with firm: 13 Years in industry: 12 Years with firm: 1 Years in industry: 18 Years with firm: 1 Years in industry: 10 Years with firm: 6 Ciaran Mallon Fund Manager Years in industry: 19 Years with firm: 9 Source: Invesco Perpetual as at 31 December Neil Woodford will be leaving the company on 29 April Mark Barnett will succeed him as Head of UK Equities. 3 Saku Saha Fund Manager Years in industry: 4 Years with firm: 4 Average tenure with firm: 10 years Average industry experience: 17 years Martin Walker Fund Manager Years in industry: 17 Years with firm: 14 Neil Woodford 1 Head of UK Equities Years in industry: 32 Years with firm: 26

4 Investment approach Market inefficiencies provide opportunities to buy mispriced companies Valuation is a key determinant of future performance A flexible approach to take advantage of short-term and longterm investment opportunities Where Invesco has expressed views and opinions, they are based on current market conditions and are subject to change without prior notice. 4

5 Investment process Idea generation Company visits Sell side analysts Input Screening tools Adrian Bignell Jonathan Brown European team ideas Input Input Macro Source: Invesco Perpetual as at 31 December For illustrative purposes only. 5 Output Invesco Pan European Small Cap Equity Fund

6 Investment process Fundamental research Business analysis Assess the key drivers and future prospects of the business Risks and sensitivities of the various business units Assess the future sustainability of growth and returns Bias for growth - aim for companies that grow sales > GDP For illustrative purposes only. 6 Returns Analysis Capital Allocation Analysis Company valuation Analysis of historical return on capital, typically over the last ten years Pricing power, barriers to entry dictate how returns grow / fade Evolution of returns do we see improvement the market does not? We regularly engage with companies, aiming to meet twice a year Are management aiming to maximise returns in the business and for the shareholders? Potential for dividends? Summary valuation analysis for candidate investments Focus on the relationship between the sustainable return on capital employed and the valuation. Cross check with other multiples An upside/downside valuation target Our research must generate an information advantage in order to be valuable. Formulate investment thesis Investment decision

7 Investment process Valuation filter Valuation screen using absolute and relative multiples Absolute DCF, EV/Sales, EV/IC V ROCE/WACC High quality compounders Improving returns Earnings upgrades Relative Multiples v market / sector peers / bonds Value opportunities For illustrative purposes only. 7 Continuously prioritised watch list for fundamental research Valuation screening reduces to stocks

8 Investment process Fundamental research Pragmatism in the choice of appropriate valuation measures Industry Groups Valuation Tools Asset Intensity For illustrative purposes only. 8 Semiconductors Basic Materials Energy Industrials Financials Autos Retail Consumer Services IT Hardware Media IT Software Utilities Telecom Services Infrastructure Health Care Consumer Staples Stability of Earnings Asset Intensity Price/Book Value vs ROE EV/Sales vs EBIT Margin Dividend Yield EV/IC vs- ROIC/WACC PE EV/EBITDA EV/Sales vs EBIT Margin FCF Yield Stability of Earnings Price/Book Value vs ROE EV/EBITDA FCF Yield EV/IC vs ROIC/WACC PE FCF Yield Dividend Yield

9 Investment process Risk management Overview The risk management process is aligned to our investment philosophy Fund manager understanding Personal accountability This places less emphasis on risk budgets and tracking error constraints Process recognises the judgement of the fund manager and inherent risks of managing clients money So, we have built a system based on 4 main factors: For illustrative purposes only. Monitoring structures Monitoring systems CIO challenge External oversight 9

10 Why Smaller Companies

11 Why are smaller companies attractive? Higher growth Source: UBS estimates, Bloomberg. Note Large caps = Stoxx large-cap; midcaps = Stoxx mid-cap index; small caps = Stoxx small-cap index. Period under review is Financials have been excluded from the index for the analysis. Historical sales EPS numbers are for the current members of the respective indices. Data as at 29 November

12 Lower coverage = greater inefficiency Average number of sell-side analysts by market capitalisation Source: Bloomberg, 31 October Data reflects the average number of sell-side analysts assigned to large-cap stocks with a market capitalisation of more than 5bn, mid-caps 1.5bn 5bn and small-caps 200m 1.5bn. Database of 3000 European companies. 12

13 Are smaller companies lower quality? GMI corporate governance scores for S&P 500 vs. Russell 2000 Source: GMI, 30 September GMI scores are from 1 to being the best governance practices. The overall governance score is split into three components: board, pay and ownership & control. 13

14 Looking at the long term small caps the best risk reward? Long-term returns and historic performance range 10-year real (1926 to 2008) Past performance is not a guide to future returns. Source: Choi et al. Journal of Business & Economics Research October 2010, Volume 8, Number

15 Europe ex UK Small Caps Annualised returns compare favourably Annualised Standard Deviation 30% 25% Asia Pac ex Japan Small Cap Europe ex UK Small Cap Asia Pac ex Japan Large Cap Europe ex UK Large Cap UK Small Cap 20% UK Large Cap Japan Small Cap US Small Cap Past performance is not a guide to future returns. Source: MSCI Indices, USD terms, 10 years to 30 September % 10% 5% Japan Large Cap US Large Cap 0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Annualised return % Annualised Return

16 Smaller companies The unique diversifier 5 year correlation (1926 to 2007) Treasury bills Intermediate government bonds Long government bonds Long corporate bonds Large cap equities Intermediate government bonds 0.85 Long government bonds Long corporate bonds Large cap equities Small cap equities Source: Choi et al. Journal of Business & Economics Research October 2010, Volume 8, Number

17 Portfolio

18 Invesco Pan European Small Cap Equity Fund Sector, country and stock weightings HSBC Smaller European Companies Invesco Pan European Small Cap Equity Fund Top 10 holdings Retail Providers Natural Resources Basic Materials Industrial Goods Technology Consumer Goods Financials Business Providers Sweden Portugal Finland Ireland Netherlands Denmark Spain Belgium Austria France Italy Switzerland Norway Germany United Kingdom Source: Invesco Perpetual as at 31 December *Formerly named EFG Financial Products. For illustrative purposes only. There is no guarantee that Invesco will hold these securities within its funds in the future. This is not investment advice for buying / holding / selling shares of the above mentioned companies % Stock Sector % Fund Navios Maritime Acquisition Business Providers 3.2 Africa Oil Natural Resources 2.8 Leonteq* Financials 2.5 Dialog Semiconductor Technology 2.3 Algeta Consumer Goods 2.2 Aareal Bank Financials 2.0 Abengoa 'B' Basic Materials 2.0 AMS Technology 1.7 Axel Springer Bpost Business Providers Business Providers

19 Invesco Pan European Small Cap Equity Fund Performance (%) Cumulative returns (EUR) YTD 3 months 6 months 1 year 3 years 5 years Invesco Pan European Small Cap Equity Fund GIF OS Europe Small-Cap Equity* Out/Under performance Quartile Past performance is not a guide to future returns Source: Morningstar 2014 as at 31 December Fund and sector performance figures are shown in EUR on a mid-to-mid basis, inclusive of gross reinvested income and net of the annual management charge and all other fund expenses for the A accumulation EUR share class. The figures do not reflect the entry charge paid by individual investors.*morningstar GIF OS Europe ex-uk Small-Mid Cap is the peer group sector for this fund. Please refer to the prospectus for details on fees and charges. 19

20 Example: Leonteq Swiss Franc The Ryanair of structured products Cost base enables market share gains Structural growth White label partner to insurance industry / Asian opportunity Source: Datastream as at 13 January For illustrative purposes only. Formerly known as EFG Financial Products. There is no guarantee that Invesco will hold these securities within its funds in the future. This is not investment advice for buying / holding / selling shares of the above mentioned companies / / / / / / /2013 LEONTEQ share price 05/ / / / / / / /2013

21 Example: Topps Tiles GBP Market Cap 270m UK s No.1 tile retailer (27% market share) Strong brand and specialist offer 100 Source: Datastream as at 13 January For illustrative purposes only. There is no guarantee that Invesco will hold these securities within its funds in the future. This is not investment advice for buying / holding / selling shares of the above mentioned companies / / / /2012 TOPPS TILES share price 10/ / /2013 Low cost operating model Strong gearing into housing market recovery (+1% lfl => +6% EBIT). EBIT margins currently 9% vs 22% at peak. If revenue grows 16% and margin recovers to 14% it could earn 12p of EPS = 5x P/E Sept 14 P/E 11.5x, 2.7% dividend Yield

22 Appendix

23 Some of the headwinds in the periphery are fading Periphery*: Breakdown of GDP growth by domestic demand and exports (q-on-q, %) Net exports Domestic demand GDP growth Source: Credit Suisse, Eurostat as at 2 October Seasonally adjusted and adjusted for working days. *Peripheral countries include Greece, Ireland, Italy, Portugal and Spain.

24 Macro pressures in Europe as a whole are also easing / / / / / /2010 Eurozone GDP growth (LHS, %, QoQ) 08/ / / / / / Eurozone Composite PMI (RHS) Source: 1 Bloomberg, Eurostat as at 30 September 2013, latest available data. 2 Bloomberg, Markit as at 19 December PMI surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. The chart includes the preliminary flash estimate for December which is subject to change. 08/

25 Lead indicators suggest YoY earnings growth is round the corner G7 OECD Business cycle indicator leads European EPS growth 6% 4% 2% 0% Correl. = % 50% 30% 10% -2% -4% -6% G7 OECD LI, YoY (10m lag) LHS Europe reported EPS YoY, RHS Source: MSCI, OECD, BofA Merrill Lynch European Quantitative Strategy as at 15 November % -30% -50% -70%

26 Within Europe the valuation of a number of sectors remain at historically low levels European market and sectors: current and long term average cycle adjusted P/E (x) Current cycle adjusted PE (x) Long term average cycle adjusted P/E (x) (Discount)/Premium Consumer Goods % Industrials % Health Care % Technology % Consumer Services % Basic Materials % Europe (excluding Emerging Markets) % Telecoms % Oil & Gas % Utilities % Financials % Source: UBS European Equity Strategy, Thomson Datastream, as at 10 December Data based on Thomson Datastream Indices. All underlying nominal earnings data starts from 8 July 1973, with the long term cyclically adjusted P/E starting from 8 July Cyclically adjusted P/E is based on 10 year average nominal earnings. Current cyclically adjusted P/E is as at 10 December

27 where earnings remain a long way below peak levels Europe (excluding emerging markets): Current earnings versus the peak of the last cycle at 17 March 2008 (%) Consumer Goods Healthcare Consumer Services Telecoms Market Source: Exane BNP Paribas, Thomson Reuters Datastream as at 17 December Data based on Thomson Reuters Datastream complied index with peak market earnings as at 17 March Current earnings as at 17 December All based on 12 month trailing earnings. Basic Materials Industrials Technology Oil & Gas Utilities Financials

28 Europe overall looks cheap the periphery even more so Cycle adjusted PEs for different geographies Current cycle adjusted PE (x) LT Median (x) Discount (%) Europe % US % Asia Pacific exc Japan AC % EMU % UK % Germany % France % Italy % Spain % Portugal % Source: JP Morgan Cazenove, Thomson Datastream as at 11 December Underlying data started from 31 January 1970 for MSCI Europe, MSCI US, MSCI UK and MSCI Germany. 2 Underlying data started from 30 September MSCI index. 3 Underlying data started from 31 January Thomson Datastream index. 4 Underlying data started from 31 January MSCI index. 5 Underlying data started from 29 April MSCI index. 6 Underlying data started from 31 January MSCI index. 7 Index captures large and mid cap representation across 4 of 5 Developed Markets countries excluding Japan and 8 Emerging Markets countries in the Asia Pacific region. Underlying data started from 30 November MSCI index. Current Shiller PE (x) as at 11 December All data on a nominal basis. Past performance is not a guide to future returns. 28

29 Valuation is fundamental to long-term returns 10-Year Subsequent Total Return CAGR (%) Source: Citi, Thomson Datastream as at 30 November Each square/data point on the chart (monthly frequency) maps the starting cyclically adjusted PE ratio from 31 December 1979 to 31 October 2003 (based on ten years average historic earnings with the underlying data starting from 31 December 1969) to the subsequent ten year total nominal return up until 30 November 2013 (expressed as a an average annual growth rate and based on historic data.) Through regression analysis a line of best fit is calculated, based on the two data sets that make up each square (all historic data). Past performance is not a guide to future returns R² = 0.8 Current MSCI Europe Cyclically Adjusted PE of 15.6x MSCI Europe Cyclically Adjusted PE (x)

30 Important information This marketing document is exclusively for use for Professional Clients and financial advisors in Continental Europe and is not for consumer use. Please do not redistribute. Data as at 31st December, 2013, unless otherwise stated. Please do not redistribute this document. For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents, the latest Annual or Semi Annual Reports and the latest Prospectus. This information is available using the contact details of the issuer and is without charge. The information is also available from our website The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.past performance is not an indication for future performance, provides no guarantee for the future and is not constant over time. Where Invesco has expressed views and opinions, these may change Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. The Invesco Pan European Small Cap Equity Fund is a smaller companies fund, you should be prepared to accept a higher degree of risk than a fund that invests in larger companies. The distribution and the offering of the Invesco Pan European Small Cap Equity Fund in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required 30 to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring the Invesco Pan European Small Cap Equity Fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls; and (iii) any relevant tax consequences. Not all share classes of this fund may be available for public sale in all jurisdictions and not all share classes are the same nor do they necessarily suit every investor. There may be differences in fee structures, in minimum investment amounts, etc. Please check the most recent version of the fund prospectus in relation to the criteria for the individual share classes and contact your local Invesco office for full details of the fund registration status in your jurisdiction. Please be advised that the information provided for the Invesco Pan European Small Cap Equity Fund in this document is referring to share class A accumulation EUR. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. Continued

31 Important information (2) Denmark: The fund is not registered for public distribution in this jurisdiction. This document is provided only to Professional Clients and must not be redistributed to retail clients. Germany, Austria and Switzerland: This document is issued in Germany by Invesco Asset Management Deutschland GmbH regulated by Bundesanstalt für Finanzdienstleistungsaufsicht. This document is issued in Austria by Invesco Asset Management Österreich GmbH and in Switzerland by Invesco Asset Management (Schweiz) AG. Subscriptions of shares are only accepted on the basis of the most up to date legal offering documents. The legal offering documents (fund & share class specific Key Investor Information Document, prospectus, annual & semi-annual reports) are available free of charge at our website and from the issuers: Invesco Asset Management Deutschland GmbH, An der Welle 5, D Frankfurt am Main, Invesco Asset Management Österreich GmbH, Rotenturmstrasse 16-18, A-1010 Vienna, and Invesco Asset Management (Schweiz) AG, Stockerstrasse 14, CH-8002 Zurich. Paying agent for the funds registered for sale in Switzerland: BNP PARIBAS SECURITIES SERVICES, Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich. An S&P Capital IQ fund grading represents an opinion only and should not be relied on when making an investment decision. Past performance is not indicative of future results. Currency exchange rates may affect the value of investments. Copyright 2013 by McGraw-Hill international (UK) Limited (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. 31