HERMES INVESTMENT SYMPOSIUM

Transcription

1 HERMES INVESTMENT SYMPOSIUM 7 March 2018 For professional investors only

2 HERMES INVESTMENT SYMPOSIUM 2018 OPPORTUNITY KNOCKS IN EUROPE Martin Todd, CFA, Director, European Equities For professional investors only

3 Discussion points European equities: A broadening opportunity set for stock pickers How a flexible and forward-looking mind-set focussed on long-term structural themes creates a style agnostic portfolio 2

4 Dec 11 Apr 12 Jul 12 Oct 12 Feb 13 May 13 Aug 13 Nov 13 Mar 14 Jun 14 Sep 14 Jan 15 Apr 15 Jul 15 Oct 15 Feb 16 May 16 Aug 16 Dec 16 Mar 17 Jun 17 Sep 17 Jan 18 % Fund overview Characteristics Fund inception date 21 December 2011 Tim Crockford becomes lead PM 1 January 2015 Investible universe Mid-to-large cap with a free-float > 1bn No. of stocks 36 Active share 90.3% Turnover 20.1% per annum over 3 years Excess return over 3 years 4.80% Information ratio nd percentile (1 year) Peer Group rank 4 th percentile (3 years) Performance Tim s tenure as lead manager begins Source: Hermes as at 31 January Excess return of the F share class GBP Accumulating net of all costs and management fees, the benchmark is valued at close of business. Subscription and redemption fees are not included in the performance figures. Relative return is calculated on an arithmetic basis. Ex-post risk statistics based on the gross returns of the Fund and calculated at the close of business. Turnover figures are calculated for the three year period ending 31 January Peer Group analysis based on Morningstar data as at 31 January Fund Benchmark Source: Hermes, NT Fundamentals as at 31 January Performance shown is the F GBP share class in sterling, using close of business prices. The benchmark is FTSE World Europe Ex UK TR. Past performance is not a reliable indicator of future results. 3

5 EUROPEAN EQUITIES: Where are we now? 4

6 EPS Growth European earnings buck recent trends in 2017 European EPS Growth 20% 15% 10% Investors warm to European equities as earnings growth returns 5% 0% -5% -10% Source, Factset as at 31 December

7 Dec 12 Mar 13 Jun 13 Oct 13 Jan 14 Apr 14 Aug 14 Nov 14 Feb 15 May 15 Sep 15 Dec 15 Mar 16 Jul 16 Oct 16 Jan 17 Apr 17 Aug 17 Nov 17 Feb P/E Ratio CAPE ratio Earnings revisions making Europe look cheap Stoxx 600 valuation 1 Europe vs US CAPE ratio Europe Europe avg US US average 1 Source: Bloomberg as at 22 February Source: Barclays Research as at 31 December

8 Earnings rebased And the upgrade cycle is just getting started Stoxx 600 versus S&P 500 earnings rebased We remain in early stages of European earnings improvement US is far later in the cycle S&P 500 Stoxx 600 Source: Bloomberg as at 18 August Chart shows the Trailing 12 month earnings per share of the respective benchmarks. 7

9 Earnings recovery is increasingly broad-based Where expected earnings growth lies Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Real Estate Telecom Services Utilities Negative earnings growth Positive earnings growth Source: Expected earnings growth based on Bloomberg data, using 12 month forward EPS growth estimates. Fund active weights source: Style Research as at 31 January

10 STYLE AGNOSTIC By being flexible and forward-looking 9

11 But, positioning based purely on stock selection Where expected earnings growth lies Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Real Estate Telecom Services Utilities Negative earnings growth Positive earnings growth Fund active weights Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Real Estate Telecom Services Utilities -15% -10% -5% 0% 5% 10% 15% Active weight Source: Expected earnings growth of the MSCI Europe ex UK based on Bloomberg data, using 12 month forward EPS growth estimates. Fund active weights source: Style Research as at 31 st January

12 Dec 14 Apr 15 Jul 15 Oct 15 Feb 16 May 16 Aug 16 Nov 16 Mar 17 Jun 17 Sep 17 Jan 18 % Flexible and forward looking Performance non-reliant on style tailwind Fund relative performance compared to growth versus value Performance driven by stock selection Stock selection is not driven by the cycle We are not market timers; stock selection is not driven by style factors We are equally happy to buy stocks on 7x and 70x earnings Rolling year performance (%) 2 31/01/17 to 31/01/18 31/01/16 to 31/01/17 31/01/15 to 31/01/16 31/01/14 to 31/01/15 31/01/13 to 31/01/14 Fund relative performance Growth vs Value Fund The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. Source: Bloomberg as at 31 January Performance shown is the relative return of the Hermes Europe ex UK F accumulating GBP share class since December 2014, when Tim Crockford s tenure as lead portfolio manager began. The Growth compared to value shows the S&P Europe Large Cap Growth Total Return Index divided by the S&P Enhanced Value Europe Large Mid Cap Total Return Index. 2 Performance shown is the F share class Sterling, net of fees as at 31 January

13 Investment Philosophy Finding unrecognised and enduring change We believe in taking an active, high conviction approach, with a focus on unrecognised and enduring change that manifests itself over the long-term. Tim Crockford, lead manager, Hermes Europe ex UK Fund 12

14 Investment process A five-stage process: Ideas generation Analysis Valuation Implementation and portfolio construction Continuous 360 reappraisal Focused on change Bottom-up Structural themes Thorough investigation of the sources of enduring change Team approach Deconstructing market earnings forecasts Proprietary valuation model Portfolio of between stocks Position size reflects level of conviction Regular reassessment of portfolio holdings Analysts challenge each other s investment thesis Meeting the management Detailed financial analysis All holdings held at a positive active weight Constant monitoring of the universe and portfolio Assessment of ESG risks Analysed from multiple angles Repeatable, rigorous and forward looking 13

15 What I am looking for Companies that generate shareholder value throughout the cycle Value / emerging growth High growth / stable earnings Deep value / volatile earnings Low growth / stable earnings The Freenet stock was purchased in July 2016 and is still held within the portfolio. The Qiagen stock was purchased in July 2017 and is still held within the portfolio. The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. For illustrative purposes only. 14

16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Share price (EUR) Heavy lifting for e-commerce KION Group At the forefront of warehouse automation Supplying e-retailers, distributors and logistics companies with tomorrow s warehouses Bought on 13.5x earnings, now trades on 17.5x Source: Bloomberg as at 23 February The Kion Group stock was purchased in July 2016 and is still held within the portfolio. The above chart shows the share price return relative to the FTSE World Europe ex UK index in euros. The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. 15

17 Jun 14 Aug 14 Nov 14 Jan 15 Apr 15 Jul 15 Sep 15 Dec 15 Mar 16 May 16 Aug 16 Oct 16 Jan 17 Apr 17 Jun 17 Sep 17 Dec 17 Feb 18 Share price (EUR) Powering the biotech revolution Sartorius Powering the biotech revolution: making the equipment that makes the biologic drugs Traded between 25x and 35x earnings over the past 3 years Source: Bloomberg as at 23 February The Sartorius stock was purchased in June 2014 and is still held within the portfolio. The chart shows the share price return relative to the FTSE World Europe ex UK index in euros. The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. 16

18 Summary Building on established roots; the Fund has moved down the market cap spectrum, leading to a higher active share The opportunity set in Europe is broadening We are equally happy to buy emerging or high growth companies, meaning performance does not rely on particular style tailwinds 17

19 An experienced and stable team Tim Crockford Lead-Manager, Europe ex UK 9 years at Hermes European Equities James Rutherford Head of European Equities Lead-Manager European Alpha 11 years at Hermes European Equities Chi Chan Lead-Manager, Eurozone 10 years at Hermes European Equities Martin Todd, CFA Co-Manager, European Alpha 4 years at Hermes European Equities Richard Board Analyst 7 years at Hermes European Equities Tom Firmin Analyst <1 years at Hermes European Equities Paul Dalton Product Specialist 10 years at Hermes European Equities Sharing insights with more than 100 investment professionals Global Small Cap US Equities Hermes EOS Global Equities GEMS Asia-Pacific Credit CFA is a trademark owned by the CFA Institute. Source: Hermes as at 31 January

20 APPENDIX 19

21 Industrials Health Care Oil & Gas Technology Telecoms Basic Materials Utilities Cons Services Financials Cons Goods % Positioning Active sector positions Top 10 active positions Novo Nordisk KION Group Adidas Ubisoft ASM Intl AIB Group Amadeus Lundin Petroleum Sartorius Umicore % Source: Style Research as at 31 January

22 From novelty to headline act Umicore: the greenest company you ve never heard of At the beginning of a multi-decade opportunity Leading producer of cathode materials for lithium-ion batteries used in electric vehicles (EV) Lower emissions requirement benefits catalysis division Batteries and catalysts require recycling in the future High Barriers to entry Mass manufacturing requires lots of trade secrets Rapidly growing market Increasing capacity six-fold in 2019 and it s already sold Ideally positioned Benefits regardless of which manufacturer wins the EV race Note: Umicore was initially purchased in March 2016 for the Eurozone strategy and is now held within all portfolios. The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. For illustrative purposes only. 21

23 Biographies Tim Crockford Lead manager, Hermes Europe ex UK 11 years investment experience Tim Crockford joined Hermes in 2009 as a research analyst for the European Equities team covering the resources, oil & gas, agricultural chemicals, capital goods and the technology sector. He became lead portfolio manager of the Hermes Europe ex-uk Equity Fund in 2015 and joined Andrew Parry in forming the Impact team in August 2016, which launched the Hermes Impact Opportunities Fund at the start of 2018, which Tim also manages. Prior to joining Hermes, Tim worked at Execution Limited from July 2006 as a primary research analyst working on major projects in the consumer, retail and financial services sectors, and then joined Sourcecap as an analyst in May Tim was raised and educated in Malta and graduated from the University of Malta in 2006 with a Bachelor of Accountancy (Hons) degree, as well as a Bachelor of Commerce degree. In 2016, Tim featured in Financial News s 40 Under 40 Rising Stars of Asset Management, an editorial selection of the brightest up-and-coming men and women in the industry. Martin Todd, CFA Co-Manager, Hermes European Alpha 13 years investment experience Martin Todd joined Hermes as a senior analyst on the European Equities team in March 2013 and now is co-portfolio manager of the Hermes European Alpha Fund. Prior to this he was an investment director at Scottish Widows Investment Partnership. Martin joined SWIP as a graduate covering US equities before spending two years covering the Japanese equity market. In 2007 he joined the UK equity team and was an analyst and fund manager within a team managing more than 20bn in AUM. Between 2008 and 2012, Martin was a portfolio manager on four offshore funds and from 2010 co-managed 4.5bn in low-risk funds. In addition, he was lead sector analyst on travel and leisure, media and personal goods. Martin graduated from The University of St Andrews with an MA in Economics & Modern History and is a CFA charterholder. In 2015, Martin featured in Financial News s 40 Under 40 Rising Stars of Asset Management, an editorial selection pick of the brightest up-and-coming men and women in the industry. Source: Hermes as at 31 December

24 Disclaimer For professional investors only. Clients who fall outside of this criteria should not use the information provided in this document for investment decisions. This document does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the US Securities Exchange Act of It pays no regard to the investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a professional and/or investment adviser as to its suitability. This document is not investment research and is available to any investment firm wishing to receive it. Any opinions expressed may change. The value of investments and income from them may go down as well as up, and you may not get back the original amount investe d. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. All figures, unless otherwise indicated, are sourced from Hermes. For more information please read any relevant Offering Documents or contact Hermes. The main entities operating under the name Hermes are: Hermes Investment Management Limited ( HIML ); Hermes Alternative Investment Management Limited ( HAIML ); Hermes European Equities Limited ( HEEL ); Hermes Real Estate Investment Management Limited ( HREIML ); Hermes Equity Ownership Limited ( HEOS ); Hermes GPE LLP ( Hermes GPE ); Hermes GPE (USA) Inc ( Hermes GPE USA ) and Hermes GPE (Singapore) Pte. Limited ( HGPE Singapore ). All are separately authorised and regulated by the Financial Conduct Authority except for HREIML, HEOS, Hermes GPE USA and HGPE Singapore. HIML currently carries on all regulated activities associated with HREIML. HIML, HEEL, Hermes GPE and Hermes GPE USA are all registered investment advisers with the United States Securities and Exchange Commission ( SEC ). HGPE Singapore is regulated by the Monetary Authority of Singapore. UCITS funds: Further information on investment products and any associated risks can be found in the Fund s Key Investor Information Docum ent ( KIID ), the Prospectus, the articles of association and the annual and semi-annual reports. In the case of any inconsistency between the descriptions or terms in this document and the Prospectus, the Prospectus shall prevail. These documents are available free of charge at Hermes Investment Funds plc, Georges Court, Townsend Street, Dublin 2, Ireland, and at its representative in Switzerland (ACOLIN Fund Services AG, Affolternstrasse 56, CH-8050 Zurich, The Paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, CH-8001 Zürich. HIML is the investment manager and promoter of Hermes Investment Funds plc ( HIF ) - an open-ended investment company with variable capital and with segregated liability between its sub-funds - incorporated in Ireland. Authorised by the Central Bank of Ireland and recognised by the Financial Conduct Authority. Issued and approved by Hermes Investment Management Limited which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone calls will be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. BD

25 Hermes Investment Management We are an asset manager with a difference. We believe that, while our primary purpose is to help savers and beneficiaries by providing world class active investment management and stewardship services, our role goes further. We believe we have a duty to deliver holistic returns outcomes for our clients that go far beyond the financial and consider the impact our decisions have on society, the environment and the wider world. Our goal is to help people invest better, retire better and create a better society for all. Our investment solutions include: Private markets Infrastructure, private debt, private equity, commercial and residential real estate High active share equities Asia, global emerging markets, Europe, US, global, and small and mid-cap Credit Absolute return, global high yield, multi strategy, global investment grade, real estate debt and direct lending Multi asset Multi asset inflation Stewardship Active engagement, advocacy, intelligent voting and sustainable development Offices London New York Singapore For more information, visit or connect with us on social media: