For professional investors only European Equity Capabilities
The prospects are bright Whilst their size and economic importance means that European equities warrant inclusion in any balanced investment portfolio we believe that there are a number of reasons why they currently provide investors with a real opportunity. Europe s economic resilience Economic conditions in Europe have improved greatly over the past few years. Stimulus actions undertaken by the European Central Bank (ECB) by way of its Asset Purchasing Programme, introduced and launched in the first quarter of 2015, are proving supportive to the region s economy and financial markets. Leading indicators continue to suggest economic improvement. The eurozone s Purchasing Manager Index (PMI) - a closely watched indicator of manufacturing and service activity - is continuing to show signs of progress. Europe s prospects for earnings growth Despite the fragile global environment, European domestic activity is positive. European corporate earnings are continuing to grow in the double-digit range. The ECB is expected to deliver further support which should benefit earnings and equities. The depreciation of the euro against the US dollar has been a tailwind for growth for European exporters and corporate earnings. Markit Eurozone PMI and GDP Europe relative to US EPS vs EUR/USD Markit Eurozone Composite PMI 50 = no Change Eurostat Eurozone GDP Quarterly % change 65 60 55 50 45 40 35 30 25 1999 2001 2003 2005 2007 2009 2011 2013 2015 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 40 30 20 10 0-10 -20-30 -40 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016-30 -20-10 0 10 20 30 PMI GDP Sources: Markit, Eurostat. GDP = gross domestic product Europe Fwd earnings rel to US (ex-financials, %yoy) EUR/USD (%yoy, rhs, reverse scale) Source: Datastream, IBES 2
An award winning team Our award-winning European equity team has many years experience in identifying the stocks that they believe will be the winners of tomorrow. The team s skill in doing this has been recognised through numerous industry awards. EUROPEAN INVESTMENT MANAGEMENT AWARDS F&C Asset Management Pan Europe Growth High quality investments Europe s stock markets provide breadth and depth of investment opportunity comparable with that found in other major markets, such as the US. The region is home to a large number of world-leading companies with globally recognised products and brands together with a host of high quality smaller and medium sized specialists. Importantly, company management teams increasingly recognise the needs of their shareholders, whose interests are in turn enhanced by a stable environment emphasising good corporate governance. Concentrating on stock-picking within a long-term investment horizon gives us a high conviction portfolio with low turnover. David Moss, Fund Manager 3
The European equities specialists Looking to access the potential of European equities? Then look no further. Our European equity team is dedicated to bringing the best of Europe to our clients. Each of our European equity funds is run using a consistently applied approach one that s designed to maximise the impact of the insights the team generate through fundamental company research. Robust approach a defined philosophy with a clear emphasis on the merits of investing in well-managed high quality businesses trading at the right price underpins our European equity funds. Each of our funds is managed using a proven and consistently applied process focusing on bottom-up stock selection and robust portfolio construction methodology. Performance delivered our range of European equity funds boasts an impressive long-term track record of benchmark and peer group outperformance. Comprehensive product range our range of funds offers investors access to the full breadth of opportunities available within Europe s equity markets. In addition to our core all-cap and small/mid-cap funds we have options for investors seeking capital appreciation together with the potential for an attractive and growing income. F&C European Equity F&C European Growth and Income Income offers scope for an attractive and reliable yield Growth potential for long-term capital appreciation Overview A portfolio of what we believe to be the very best growth orientated European investment opportunities. Whilst select small and mid cap ideas warrant inclusion the portfolio is biased towards larger companies. Designed as a potential core holding for investors seeking broad-based exposure to what we believe to be the very best European companies. The manager works to blend companies capable of generating long-term capital growth with those capable of paying attractive yields with scope for dividend growth. Benchmark FTSE All World Developed Europe NR Index FTSE All World Developed Europe NR Index Focus All cap All cap Geographic remit Pan-European Pan-European Holdings range 40-60 40-60 Vehicle SICAV SICAV Managed by David Moss David Moss Launch date 11/12/2000 30/09/2010 At a glance * Dual listed investment trust LSE and Euronext Amsterdam. ** The Trust aims to offer an attractive income of 6% per annum calculated on 1 January net asset value with dividend payments made in January, May and August. 4
Each of our European equity funds contains a range of individually researched and carefully selected high conviction long-term ideas. As a result portfolio turnover is relatively low. David Moss, Fund Manager F&C European Growth & Income Fund F&C European SmallCap F&C European Small Cap Ex UK Fund European Assets Trust Managed in the same manner as our F&C European Growth & Income SICAV but with a Europe ex-uk remit. The manager blends companies capable of generating long-term capital growth with those capable of paying attractive yields with scope for dividend growth. With a diverse and underresearched opportunity set there is real scope to add value through active stock selection. Following detailed fundamental analysis the portfolio represents what we believe to be the very best small and medium sized European companies. Our detailed fundamental analysis produces a portfolio of what we believe to be the best small and medium sized European companies, excluding the UK. This fund can make an ideal choice for those investors who already have a core UK equity allocation. Invests in what we believe to be the very best small and medium sized European companies. Whilst the manager focuses on achieving capital growth the Trust adopts a high dividend policy, targeting an income of 6%** per annum paid out of capital. FTSE All World Developed Europe ex UK Index Euromoney Smaller European Companies NR Index Euromoney Smaller European Companies (ex-uk) NR Index Euromoney Smaller European Companies (ex UK) NR Index All cap Small and mid cap companies Small and mid cap companies Small and mid cap companies Europe ex-uk Pan-European Europe ex-uk Europe ex-uk 40-60 50-70 40-60 40-60 OEIC SICAV OEIC Closed ended* David Moss Sam Cosh Sam Cosh Sam Cosh 09/11/1988 07/01/2005 16/03/2015 1972 5
A winning approach to investment Our range of European equity funds is underpinned by a robust investment approach. Stock picking through detailed proprietary research is crucial, with a clear emphasis on identifying high quality businesses in which we can invest for the long-term. A clear philosophy Overlooked attractions more often than not the wider investment community is poor at assessing the long-term value of companies capable of compounding excess returns over future years. As a result there are plenty of pricing anomalies to be found among higher quality businesses. Information advantage we work to gain insights by looking beyond demand drivers that are focused on by many other investors and that can fluctuate markedly in the short-term. By concentrating primarily on supply characteristics we are able to assess a company s real long-term potential. The management we actively seek successful management teams whose interests are clearly aligned over the long-term with those of their shareholders. Assessing how they allocate capital is key and company meetings form an integral part of our investment process. Attractive price Substantial discount to intrinsic value Present value of future cash flows Duration of superior returns Confidence in value appreciation High quality business Understandable Competitive advantages Attractive business model Good growth prospects Pricing power / scale Strong management Capable operators Good capital allocators Aligned interests Appropriate incentives How we invest In our view stock selection is the key determinant of investment success and our approach is structured accordingly: Identify our aim is to find high quality businesses capable of generating and sustaining above average returns. Quality we are clear in our view of what constitutes a quality company. Typically it is one that enjoys a strong competitive position by virtue of the likes of scale, intellectual property or brand. Value and we are disciplined in our assessment of whether a business s true value is reflected in its share price. We focus on Cash flow analysis In-depth management meetings Industry experts All team members are idea generators 12 strong team of investment professionals Proprietary research Focused portfolio We avoid Sell-side recommendations Primary issues/initial Public Offerings (IPOs) Sector or stock ownership Macro bets/switches 6
Dynamic portfolio construction A structured approach to portfolio construction that allows us the flexibility to react to a changing environment. A complementary blend of long-term growth generators Deep value We take a small contrarian exposure by investing in oversold companies that have the potential to rebound strongly once surmountable obstacles to their progress have been overcome. Transformation/recovery Up to a quarter of our portfolios are invested in transformation or recovery stocks, where companies may be benefiting from better capital allocation by new management or an improvement in end markets. Wide moat growth The next tier is what we term wide moat growth companies. In other words, those businesses that have structural growth and are able to demonstrate a sustainable competitive advantage. Durable franchise The core of our portfolio is made up of high-quality businesses with robust business models that we expect to generate sustainable attractive returns, year in, year out. We adjust the weights of these four categories based on the opportunity set while placing upper and lower bounds on each category so as to avoid unintended biases within our portfolios. Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and investors may not get back the original amount invested. Excessive optimism Excessive pessimism Durable Franchise Wide moat growth Transformation/Recovery Deep value 7
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