United European Small and Mid Cap Fund Semi Annual Report for the half year ended 31 st December 2017
MANAGER UOB Asset Management Ltd Registered Address: 80 Raffles Place UOB Plaza Singapore 048624 Company Registration No. : 198600120Z Tel: 1800 22 22 228 DIRECTORS OF UOB ASSET MANAGEMENT Lee Wai Fai Eric Tham Kah Jin Peh Kian Heng Thio Boon Kiat TRUSTEE State Street Trust (SG) Limited 168 Robinson Road #33-01, Capital Tower Singapore 068912 CUSTODIAN / ADMINISTRATOR / REGISTRAR State Street Bank and Trust Company, acting through its Singapore Branch 168 Robinson Road #33-01, Capital Tower Singapore 068912 AUDITOR PricewaterhouseCoopers LLP 7 Straits View, Marina One East Tower, Level 12 Singapore 018936-1-
A) Fund Performance 3 mth % Growth 6 mth % Growth 1 yr % Growth 3 yr Ann Comp Ret 5 yr Ann Comp Ret Since Inception 10 yr 10 April 2000 Ann Ann Comp Comp Ret Ret Fund Performance/ Benchmark Returns United European Small and Mid Cap Fund -1.09 5.93 20.87 7.94 8.01 0.19 0.77 Benchmark 2.33 9.47 22.85 11.72 13.65 3.00 6.92 Source: Note: Lipper, a Thomson Reuters Company, UOBAM. The performance returns of the Fund are in Singapore dollars based on a NAV-to-NAV basis with dividends and distributions reinvested, if any. The benchmark of the Fund: Apr 00 - Dec 01: MSCI Europe Small Cap USD; Jan 02 - Jul 08: Citigroup Broad Market Index Europe < US$2 billion; Aug 08 - Nov 14: MSCI Europe Mid Cap; Dec 14 - Present: MSCI Europe Small Companies Index. For the six months ended 31 December 2017, the net asset value of the Fund rose 5.93%, underperforming its benchmark the MSCI Europe Small Companies Index by 3.54%. The Fund underperformed its benchmark, the MSCI Europe Small Companies Index during the second half of 2017. At sector level, the Fund had a positive contribution from Consumer Discretionary and Telecommunication Services. In contrast, some of our holdings within Information Technology and Materials detracted. Within Consumer Discretionary, our holding of auto component manufacturer Faurecia was a particularly rewarding position. During the quarter, the company issued a strong set of Q3 results which came in ahead of consensus expectations allowing the share price to gain ground. In addition, our holding of gaming company Paddy Power Betfair posted gains. In November, the company issued a trading update for Q3 which saw revenues grow by 9%. Encouragingly, the company experienced positive international growth with both the U.S. and Australia helping sentiment towards the name. In Information Technology, our holding of semiconductor manufacturer Dialog was the primary detractor. In November, investors became increasingly nervous after Apple (a key customer) was intent on designing its own power management chips as early as 2018 and should this come to pass, would be a clear headwind for the name. Also, our holding of Spanish IT and defence systems company Indra Sistemas underperformed given the general weakness of Spanish names in the wake of the political issues in the region during the month of October. The Fund added gains within Telecommunication Services. At stock level, our holding of Sunrise performed well. Q3 results showed that revenues were a little light, however earnings exceeded expectations driven by solid performance in the company s mobile service division. In Materials, our holding of plastic packaging manufacturer RPC Group appeared to be subject to some profit-taking in the wake of the recent good performance. The company reported a reassuring set of results in the first half of 2017 and we remain comfortable with our investment case in the name. On a more positive light, our holdings of nutrition company Christian Hansen performed well after results in the financial year exceeded expectations, and the message surrounding the outlook was positive. Within Industrials, our holding of Rheinmetall performed well. The company reported a solid set of quarterly results which highlighted better margins coming through in the company s defence business. Furthermore, an upbeat capital markets day helped to buoy the share price. On the other side, our holding of capital goods company FLSmidth underperformed. The company noted that order intake in the company s key cement business unit fell which dampened sentiment towards the name. The Financials sector cost the Fund some relative performance. At a stock level, our holding of UK-based Provident Financial was the primary detractor. The company issued a significant profit warning in August, driven by its change in business model, resulting in a shortfall in collection activity. On top of this, the company s CEO announced that he was leaving the company, which further fuelled nervousness around the name. Recognising the significant uncertainty going forward, we took the decision to remove the position from the Fund. -2-
A) Fund Performance (continued) In the Consumer Staples sector, our holding of food processer Greencore underperformed. In August, it was announced that the company had lost a frozen food contract with a significant U.S. client. Investors are now concerned that more contracts could be lost in other areas of the product offering. Finally, within Energy, the higher oil prices we saw during the final weeks of 2017 was a clear support for the sector. Against this backdrop our holding of oil field engineering company Schoeller-Bleckmann performed strongly, as did our holding of E&P company Cairn Energy. As at end December 2017, the Fund had the following sector allocation: Industrials (25.1%), Financials (15.2%), Consumer Discretionary (13.1%), Materials (11.3%), Information Technology (8.6%), Real Estate (6.6%), Health Care (5.5%), TelecommunicationServices (5.3%), Energy (4.2%), Consumer Staples (2.3%), Utilities (1.1%). Note: The above holdings, performance and asset allocation pertain to that of the underlying Fund, Pioneer Funds European Potential, which the United European Small & Mid Cap Fund invests all or substantially all of its assets into. Pioneer Funds European Potential is managed by Amundi SGR S.p.A and the commentary that follows reflects the views of the investment manager. Economic and Market Review From a macroeconomic standpoint, data continued to be strong with the purchasing managers index (PMI) pointing to an ongoing expansion in the Eurozone economy. Perhaps the most interesting event was the European Central Bank (ECB) meeting in October. Investors had placed much focus on the potential for a more hawkish rhetoric given the more encouraging economic environment in the region. Instead, ECB President Mario Draghi vowed to continue the current pace of monetary stimulus to year-end, and while ECB purchases will be reduced next year, a very accommodative policy will remain in place as long as necessary. This was naturally supportive for risk assets. Given the strong performance of the asset class in 2017, valuations are clearly less attractive, in our view. As a result, the most recent Q3 earnings season was much in focus as investors demand to see further evidence of robust earnings delivery to justify share prices. What we saw was a slowdown of top line growth which can be attributed in part to the euro strength, while earnings per share (EPS) growth has remained on positive trajectory. In November, we saw some weakness as the slowing revenue growth grabbed headlines, however this was short lived as the market recovered the lost ground during the final weeks of the year. Outlook and Fund Strategy As we enter 2018, we maintain our constructive outlook for European equity markets, where we see the delivery of earnings growth being the key catalyst to drive further upside. 2017 was a positive year for European markets, successfully navigating some potential hurdles such as key elections in both France and Holland. As a result, investors now face a more benign political backdrop in 2018, with the Italian election the main focus. Away from politics, we have read much analysis about the potential impact a stronger euro could have on corporate profitability, and ultimately on the European market. Our view is that, while this is of course a potential headwind, the underlying reasons for the strengthening euro should be viewed as a positive. Finally, the optimism that we saw in 2017 has pushed valuations to fuller levels, and when we look at the European market in absolute terms it is expensive. However, relative to other geographies it is relatively attractive, and assuming we see the ongoing delivery of earnings growth this could act as a key support going forward. Within our Fund, we remain alert of the potential for market rotations. With this in mind, we will focus on investment cases which we believe can continue to deliver improved profitability over the medium term. -3-
B) Investments at fair value and as a percentage of net asset value ( NAV ) as at 31 December 2017 under review classified by i) Country Fair Value (S$) % of NAV Luxembourg 6,152,798 99.13 Portfolio of investments 6,152,798 99.13 Other net assets/(liabilities) 53,824 0.87 Total 6,206,622 100.00 ii) Industry N/A iii) Asset Class Fair Value (S$) % of NAV Quoted unit trusts 6,152,798 99.13 Other net assets/(liabilities) 53,824 0.87 Total 6,206,622 100.00 iv) Credit rating of quoted bonds N/A C) Top Ten Holdings 10 largest holdings as at 31 December 2017 Fair Value (S$) Percentage of total net assets attributable to unitholders % PIONEER FUNDS - EUROPEAN POTENTIAL CLASS X EUR NON DISTRIBUTING 6,152,798 99.13 There was only 1 holding as at 31 December 2017. -4-
C) Top Ten Holdings (continued) 10 largest holdings as at 31 December 2016 Percentage of total net assets attributable to Fair Value unitholders (S$) % PIONEER FUNDS - EUROPEAN POTENTIAL CLASS X EUR NON DISTRIBUTING 5,948,279 99.59 There was only 1 holding as at 31 December 2016. D) Exposure to derivatives i) Fair value of derivative contracts and as a percentage of NAV as at 31 December 2017 N/A ii) Net gains/(losses) on derivative contracts realised during the financial period from 01 July 2017 to 31 December 2017 N/A iii) Net gains/(losses) on outstanding derivative contracts marked to market as at 31 December 2017 N/A E) Amount and percentage of NAV invested in other schemes as at 31 December 2017 Please refer to the Statement of Portfolio. F) Amount and percentage of borrowings to NAV as at 31 December 2017 N/A G) Amount of redemptions and subscriptions for the financial period from 01 July 2017 to 31 December 2017 Total amount of redemptions SGD 1,045,270 Total amount of subscriptions SGD 259,701 H) The amount and terms of related-party transactions for the financial period from 01 July 2017 to 31 December 2017 i) As at 31 December 2017, the Fund maintained current accounts with State Street Bank and Trust Company as follows: Bank balances SGD 100,775 ii) Investment in Initial Public Offerings managed by UOB Group N/A -5-
H) The amount and terms of related-party transactions for the financial period from 01 July 2017 to 31 December 2017 (continued) iii) As at 31 December 2017, there was no brokerage income earned by UOB Kay Hian Pte Ltd. I) Expense ratios 2017 2016 $ $ Total operating expenses 231,564 193,488 Average daily net asset value 6,459,111 6,596,215 Weighted average of the Investee Fund s expense ratio 0.07% 0.07% Expense ratio 3.66% 3.07% Note: The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ). This is the sum of the Fund s expense ratio and the weighted average of the Investee Fund s unaudited expense ratios. The unaudited expense ratio of the Investee Fund is obtained from Investee Fund s Manager.The calculation of the Fund s expense ratio at 31 December 2017 was based on total operating expenses divided by the average net asset value respectively for the financial period. The total operating expenses do not include (where applicable) brokerage and other transaction costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The average net asset value is based on the daily balances. J) Turnover ratios 2017 2016 $ $ Lower of total value of purchases or sales 842,089 - Average daily net assets value 6,626,219 6,007,916 Turnover ratio 12.71% - Note: The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower of the total value of purchases or sales of the underlying investments divided by the average daily net asset value. K) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts N/A -6-
L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well i) Top 10 holdings at fair value and as percentage of NAV as at 31 December 2017 and 31 December 2016 10 largest holdings as at 31 December 2017 Pioneer Funds - European Potential Class X EUR Non Distributing Percentage of total net assets attributable to Fair Value unitholders (EUR) % ASR NEDERLAND NV 37,034,855 3.15 RHEINMETALL AG 35,810,325 3.05 UDG HEALTHCARE COMPANY PLC 33,386,529 2.84 RPC GROUP PLC 33,290,086 2.81 SUNRISE COMMUNICATIONS GROUP AG 32,212,881 2.74 LOGITECH INTERNATIONAL S.A. 31,485,060 2.68 GVC HOLDINGS PLC 31,332,547 2.67 FAURECIA S.A. 31,080,622 2.65 AMPLIFON S.P.A. 30,790,050 2.62 VALMET 30,747,288 2.62 10 largest holdings as at 31 December 2016 Pioneer Funds - European Potential Class X EUR Non Distributing Percentage of total net assets attributable to Fair Value unitholders (EUR) % RPC GROUP PLC 34,575,369 3.37 JOHN WOOD GROUP PLC 32,869,078 3.22 GAMESA CORPORACION TECNOLOGICA, S.A. 28,875,517 3.04 LOGITECH INTERNATIONAL S.A. 28,424,543 2.79 TRELLEBORG AB CLASS B 27,997,259 2.74 AAREAL BANK AG 27,585,437 2.70 DURR AG 26,360,143 2.58 SAAB AB CLASS B 25,692,647 2.52 RHEINMETALL AG 25,517,315 2.50 BOLIDEN AB 25,043,605 2.46-7-
L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well (continued) ii) Expense ratios for the financial period ended 31 December 2017 and 31 December 2016 Pioneer Funds - European Potential Class X EUR Non Distributing 31 December 2017 0.07% 31 December 2016 0.07% iii) Turnover ratios for the financial period ended 31 December 2017 and 31 December 2016 Pioneer Funds - European Potential Class X EUR Non Distributing 31 December 2017 42.00% 31 December 2016 42.00% M) Soft dollar commissions/arrangements UOB Asset Management has entered into soft dollars arrangements with selected brokers from whom products and services are received from third parties. The products and services relate essentially to computer hardware and software to the extent that they are used to support the investment decision making process, research and advisory services, economic and political analyses, portfolio analyses including performance measurements, market analyses, data and quotation services, all of which are believed to be helpful in the overall discharge of UOB Asset Management s duties to clients. As such services generally benefit all of UOB Asset Management s clients in terms of input into the investment decision making process, the soft credits utilised are not allocated on a specific client basis. The Manager confirms that trades were executed on a best execution basis and there was no churning of trades. N) Where the scheme offers pre-determined payouts, an explanation on the calculation of the actual payouts received by participants and any significant deviation from the pre-determined payouts N/A -8-
STATEMENT OF TOTAL RETURN For the half year ended 31 December 2017 (Un-audited) 31 December 31 December 2017 2016 $ $ Income Interest 1 - Total 1 - Less: Expenses Management fee 58,418 53,031 Trustee fee 2,546 2,521 Audit fee 10,119 7,555 Registrar fee 7,582 7,531 Valuation fee 6,676 6,061 Custody fee 4,733 2,533 Other expenses 32,452 7,895 Total 122,526 87,127 Net income/(losses) (122,525) (87,127) Net gains/(losses) on value of investments Net gains/(losses) on investments 498,533 647,152 Net foreign exchange gains/(losses) (874) (695) 497,659 646,457 Total return/(deficit) for the period 375,134 559,330-9-
STATEMENT OF FINANCIAL POSITION As at 31 December 2017 (Un-audited) 31 December 30 June 2017 2017 $ $ Assets Portfolio of investments 6,152,798 6,496,354 Receivables 8,547 5,617 Cash and bank balances 100,775 173,826 Total assets 6,262,120 6,675,797 Liabilities Payables 55,498 58,740 Total liabilities 55,498 58,740 Equity Net assets attributable to unitholders 6,206,622 6,617,057-10-
STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the half year ended 31 December 2017 (Un-audited) 31 December 30 June 2017 2017 $ $ Net assets attributable to unitholders at the beginning of the financial period/year 6,617,057 6,052,721 Operations Change in net assets attributable to unitholders resulting from operations 375,134 1,372,934 Unitholders contributions/(withdrawals) Creation of units 259,701 556,697 Cancellation of units (1,045,270) (1,365,295) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (785,569) (808,598) Total increase/(decrease) in net assets attributable to unitholders (410,435) 564,336 Net assets attributable to unitholders at the end of the financial period/year 6,206,622 6,617,057-11-
STATEMENT OF PORTFOLIO As at 31 December 2017 (Un-audited) Holdings at 31 December 2017 Fair value at 31 December 2017 $ Percentage of total net assets attributable to unitholders at 31 December 2017 % By Geography - Primary Quoted Unit Trusts LUXEMBOURG PIONEER FUNDS - EUROPEAN POTENTIAL CLASS X EUR NON DISTRIBUTING 2,769 6,152,798 99.13 Portfolio of investments 6,152,798 99.13 Other net assets/(liabilities) 53,824 0.87 Net assets attributable to unitholders 6,206,622 100.00-12-
STATEMENT OF PORTFOLIO As at 31 December 2017 (Un-audited) Percentage of total net assets attributable to unitholders at 31 December 2017 % Percentage of total net assets attributable to unitholders at 30 June 2017 % By Geography - Primary (Summary) Quoted Unit Trust Luxembourg 99.13 98.18 Portfolio of investments 99.13 98.18 Other net assets/(liabilities) 0.87 1.82 Net assets attributable to unitholders 100.00 100.00 As the Fund is invested wholly into a Quoted Unit Trust, it is not meaningful to classify the investments into industry segment. -13-
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