Schroder ISF Swiss Small & Mid Cap Equity

Transcription

1 Marketing material for professional investors or advisers only Schroder ISF* Swiss Small & Mid Cap Equity Quarterly Fund Update Returns to 30 September 018 (%) A accumulation shares CHF returns Q3 018 YTD 1 year 3 years p.a. September 018. Schroder ISF Swiss Small & Mid Cap Equity A Acc Swiss Performance Index Extra SPIEX Portfolio Q3 018 YTD 1 year 3 years p.a September 018. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the amount originally invested. Calendar year returns (%) Index Fund Index Summary returned 0.% in the third quarter of 018, outperforming the benchmark SPI Extra by 0.1%. During the third quarter of 018, we participated in the IPO of SIG and sold our position in GAM Holding. In addition, we used the heightened volatility to actively manage our positioning. Markets in Q3 showed diverging trends with the US market performing strongly (S&P % in CHF) whilst Europe and emerging markets were lagging. In Switzerland, the SPI returned.7%. Small & mid caps (SPIEX +0.1%) underperformed large caps for the time since Q 016. We expect equity markets to continue to stay selective and volatile. The earnings outlook remains positive, backed by a strong global economy. GDP growth globally, as well as in Switzerland, paired with ongoing productivity gains, will help Swiss earnings to grow over proportionately. As longterm fundamental investors, the current market environment offers us attractive entry points and we have continued to increase high quality names that have corrected substantially. Portfolio characteristics Fund manager Daniel Lenz Managed fund since 8 June 00 Fund launch date 8 June 00 Fund benchmark Fund size Annual management fee SPI Extra CHF 97.3mn 1.50% p.a. Ongoing Charges (latest available) 1.86% p.a. Number of stocks in fund 50 Fund base currency CHF Source: Schroders, as at 30 September September 018. *Schroder International Selection Fund is referred to as Schroder ISF throughout this document. 1

2 Economic environment For professional investors and advisers only The global economy's expansion continued in Q According to US Department of Commerce figures, US GDP growth accelerated to its fastest pace since 01 in Q 018. On September 6, the US Federal Reserve hiked rates for the third time this year to a target range of.0%-.5%, citing strong economic activity and low unemployment. On the other side of the Atlantic, Eurozone GDP growth for the second quarter 018 came in at 0.%, following 0.% in Q1 (both figures not annualised), as reported by Eurostat. In Switzerland, the State Secretariat for Economic Affairs (SECO) released GDP growth figures for Q 018. GDP growth amounted to 0.7% (non annualised) in the second quarter of 018, and estimates for Q1 018 were revised upwards to 1.0% (from 0.6%). The above average rate of growth was supported by strong manufacturing and exports, underpinned by more favourable exchange rate movements. Hence, the Swiss economy grew at a faster pace than the Euro area. The unemployment rate remained low at.%. Market environment Markets in Q3 showed diverging trends with the US market performing strongly whilst Europe and emerging markets were lagging. Despite the trade war between the US and China and the ongoing increase in tariffs, the US market developed well. Switzerland performed well in Q3, trailing the US in local currencies but still returning.7% (SPI Index TR). For the first time this year, small & mid caps underperformed large caps, as the SPIEX increased +0.1% compared to the +5.7% of the SMI (total return). Within Swiss small & mid caps, telecommunication services (+10.0%), health care (+3.7%) and materials (+1.8%) shares were most positive. Consumer discretionary (-9.%), technology (-.3%) and real estate (-.8%) titles performed the worst. Performance review returned 0.% in the third quarter of 018, outperforming the benchmark SPI Extra by 0.1%. Over a rolling three-year period, the fund returned 16.1% p.a., 0.5% behind the index. On a stock level, we benefitted from positions in Sensirion, Orior, Forbo, Interroll, Sunrise, Belimo and Sonova as well as from our underweight in ams, SPS and Dufry. On the negative side, our overweights in CEVA Logistics, Aryzta, Implenia, Autoneum and Swatch as well as underweights in Lindt & Sprüngli, Vifor Pharma and Temenos most detracted from performance. Please note that past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the amount originally invested. Risk considerations The capital is not guaranteed. Investments in small companies can be difficult to sell quickly which may affect the value of the fund and, in extreme market conditions, its ability to meet redemption requests upon demand. The fund will not hedge its market risk in a down cycle. The value of the fund will move similarly to the markets *Schroder International Selection Fund is referred to as Schroder ISF throughout this document.

3 Portfolio positioning as at 30 September 018 * Sector Industrials Cons. Disc. Cash Utilities Telecom Financials Basic Materials Technology Cons. Staples Real Estate Healthcare Relative weights -.9% -6.7% -.0% -3.% -0.3% -0.6% Source: Schroders, as at 30 September 018. * Data can differ from our factsheet due to different sources. 1.9% 1.7% 1.7% 7.1% 5.5% Top 10 overweights For professional investors and advisers only Relative weight (%) Top 10 underweights Relative weight (%) Forbo 3.0 Lindt & Sprüngli -5.9 Orior.6 Kühne & Nagel -3. Tecan. Straumann -3.1 Daetwyler.0 Temenos -.8 Belimo 1.9 Vifor Pharma -. Bell 1.9 SPS -.3 Logitech 1.9 Barry Callebaut -1.5 Bucher 1.8 EMS-Chemie -1.5 BKW 1.8 Partners Group -1.5 Sunrise 1.7 BB Biotech -1.5 Key portfolio activity and positioning During the third quarter of 018, we participated in the IPO of SIG and sold our position in GAM Holding. In addition, we increased Autoneum, Baloise, Bucher and Swatch. We reduced Galenica, Interroll, Logitech, Sonova, Temenos and VAT Group. In late September, we participated in the IPO of SIG, a competitor to Tetra Pak in the aseptic packaging market. While market dynamics are supported by mega trends such as urbanization, population growth and rising income levels, we expect that SIG s more flexible technology will lead to market share gains. New geographic market entries should also provide avenues for growth. The company is positioned as a solid number behind Tetra Pak, enjoys high margins and, because of its long-term contracts with customers, can be viewed as defensive within the industrial sector. We had been long-term shareholders in GAM Holding and had substantial interactions with the Board over the past years, especially regarding compensation, with positive results. However, in July, GAM disappointed with a too soon intangible write-down and an illexplained suspension of the highest revenue generating fund manager. We sold the position after a meeting with the Chairman that could not allay our concerns. Furthermore, we used the heightened volatility and increased our positions in Autoneum, Baloise, Bucher and Swatch. On the other hand, we took profits in Galenica, Interroll, Logitech, Sonova, Temenos and VAT Group following strong share price performance. On a sector view, the biggest overweight sectors are industrials and consumer discretionary. The biggest underweight sectors are healthcare and real estate. Our cash level was at 1.9% at the end of the quarter (previous quarter 3.1%). 3

4 Outlook We slightly reduced our expectations for global growth from 3.% to 3.3% in 018, before moderating to 3.0% in 019 (previously 3.%). Incorporating President Trump s fiscal stimulus packages, US growth is forecast at.8% in 018 and.% next year. The Fed has now started its balance sheet reduction (quantitative tightening) and with core inflation rising, we expect another rate hike in December and two more in 019, ending the forecast at 3%. Eurozone growth is forecast to moderately slow to.0% in 018, but remains robust overall. Italian political risk has returned and has reintroduced volatility, meaning growth should moderate in 019 to 1.7%, but at this level, remains above trend. Inflation is expected to remain under %, with higher energy price inflation in 018 replaced by higher core inflation in 019. The European Central Bank is likely to end QE in December 018, before raising interest rates in 019. In Switzerland, the Swiss State Secretariat for Economic Affairs (SECO) considerably increased its growth outlook for 018 from.% to.9%. For 019, GDP is expected to increase by.0%. Swiss companies benefit from a sound global economic environment and ongoing productivity gains. Emerging economies are forecast to see growth largely unchanged at 5% for 018 before slowing to.8% in 019. China s GDP growth is forecast to continue its secular decline, exacerbated by trade wars. The trade wars between the US and China have escalated with another round of tariffs from both sides. We expect the dispute to be prolonged with all trade between the two nations being subject to tariffs by the end of next year. The impact on global activity is negative, but the dispute would have to escalate beyond China and the US to end the cycle. Nonetheless, when combined with the impact of tighter monetary policy and a fade in fiscal stimulus, the effect of the clash on trade and investment will contribute to a slowdown in 019 and a potential end to US expansion in 00. Global growth breakdown Contributions to World GDP growth (y/y), % Forecast US Europe Japan Rest of advanced BRICS Rest of emerging World Source: Thomson Datastream, Schroders Economics Group, 17 August 018 Until 017, equity markets were very momentum driven and every market correction has been recovered extremely quickly. This behaviour has started to change over the course of 018, with only the US stock market enjoying prolonged momentum. We expect equity markets to continue to stay selective and volatile. The earnings outlook remains positive, backed by a strong global economy. The Swiss Franc has appreciated again from the weakness seen during the second half of 017 and the first half of 018. As a result, we expect a neutral FX effect on earnings of Swiss companies; but GDP growth globally, as well as in Switzerland, paired with ongoing productivity gains, will help Swiss earnings to grow over proportionately. As long-term fundamental investors, the current market environment offers us attractive entry points and we have continued to increase high quality cyclical names, as well as selective defensive large caps, that have underperformed strongly. Our conclusion is that equity markets behaviour has started to change. While, until 017, equity markets were very momentum driven and every market correction has been recovered extremely quickly, markets in 018 are much more selective. As highlighted above, divergence of returns at the sector as well as stock levels is significant. As long-term fundamental investors, the current market environment offers us attractive entry points and we have continued to increase high quality names that have corrected substantially.

5 Important Information For professional investors and advisers only. This material is not suitable for retail clients. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the Company ). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. The offering of shares in certain jurisdictions may be restricted and accordingly persons are required, by the Company, to inform themselves of and observe any such restrictions. Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published). The prospectus and the key investor information document(s) for Switzerland, the articles of association, the annual and semi-annual reports can be obtained, free of charge, at the offices of the Swiss representative, Schroder Investment Management (Switzerland) AG, Central, P.O. Box, CH-801 Zurich (authorised and regulated by FINMA) and the Swiss paying agent, Schroder & Co. Bank AG, Central, P.O. Box, CH-801 Zurich. An investment in the Company entails risks, which are fully described in the prospectus. The Company has its registered office in Luxembourg and is regulated by the Commission de Surveillance du Secteur Financier. Past performance is no indication of future fund performance. This depends on the trends in markets, investment returns and exchange rates (if relevant), and how successful the asset manager is in implementing the investment policy. The performance shown does not take account of any commissions and costs charged when subscribing and redeeming units. Prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. This document is issued by Schroder Investment Management (Switzerland) AG, Central, P.O. Box, CH-801 Zurich. For your security, communications may be taped or monitored. Third Party Data Disclaimer Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or contains additional disclaimers which apply to the third party data. 5