CM17422 UK F&C Global Smaller Companies Annual General Meeting Peter Ewins Lead Manager 26 July 2018
Investment risks The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. The value of your investment is dependent on the supply and demand for the shares of the Investment Trust rather than its underlying assets. The value of your investment will not be the same as the value of the Investment Trust's underlying assets. Changes in rates of exchange may also reduce the value of your investment. Investments in smaller companies carry a higher degree of risk as their shares may be less liquid and investment values can be volatile. 2
Agenda Review of the 2017/18 financial year Update on portfolio structure and regional strategy Performance in the new financial year to date Outlook 3
2017/18 Results Highlights Diluted Net Asset Value total return +9.3% Benchmark total return +7.9% Share price total return +9.1% Dividend per share +17.6% Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at 30.04.2018. Benchmark: MSCI All Country World ex UK Small Cap Index (70%) / Numis UK Smaller Companies (ex investment companies) Index (30%). 4
Strong returns have been delivered by the fund 25 year performance (GBP) 1600 1400 1200 1000 800 600 400 200 0 Apr 1993 Apr 1998 Apr 2003 Apr 2008 Apr 2013 Apr 2018 F&C Global Smaller Companies NAV (diluted and total return) F&C Global Smaller Companies share price (total return) Benchmark (total return) Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at 30.04.2018. Benchmark: MSCI All Country World ex UK Small Cap Index (70%) / Numis UK Smaller Companies (ex investment companies) Index (30%). Performance is net of fees. 5
Regional performance in 2017/18 Geographical performance (total return, GBP) 20 18 16 18.8% 16.4% 15.7% 14 12 10 11.6% 10.4% 11.3% 8 6 4 7.1% 4% 5.8% 4.8% 6.4% 2 0 UK Europe USA Japan Rest of the World* Pacific ex Japan Latin America Portfolio Local smaller companies index Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at 30.04.2018. Fee costs are not attributed to the regional portfolios. 2018 MSCI ESG Research Inc. Reproduction by permission. *Performance of the Rest of World portfolio is measured against both the Asian and Latin American smaller company indices. Local Smaller Companies Indices are: UK Numis UK Smaller Companies (excluding investment companies) Index; US Russell 2000 Index; Europe Euromoney Smaller Europe ex UK Index; Japan MSCI Japan Small Cap Index; Pacific ex Japan MSCI AC Asia ex Japan Small Cap Index; Latin America MSCI EM Latin American Small Cap Index. Figures subject to rounding. 6
Some of the largest positive contributors in 2017/18 Source: Google.com as at 20.07.2018. This does not constitute a recommendation to buy or sell any particular security. 7
Economic/political background Synchronised growth across the major global economies in 2017 US economy further stimulated by moves to cut corporate and personal taxes Interest rates on the way up in more countries as oil prices rebound Ongoing Brexit debate in the UK, economy unsurprisingly slowing European elections lead to renewed question marks in relation to further integration Trade war fears intensify, placing pressure on emerging markets Past performance should not be seen as an indication of future performance. 8
Our reaction to market developments Stayed underweight in UK, added to Asian and Japanese collective fund holdings Reduced exposure to some of the more cyclical industrial stocks trading on high multiples Looked to increase weightings in beneficiaries of higher energy prices Continued to favour lower leveraged companies and those with pricing power Gearing maintained at around 5% through the year 9
Geographic split of the portfolio 30 June 2018 30 April 2018 Rest of World 11.7% UK 26.9% Rest of World 12.4% UK 27.6% Japan 9.2% Japan 9.8% Europe 11.6% Europe 11.8% North America 40.6% North America 38.4% Source: BMO Global Asset Management, MSCI as at 30.06.2018. 2018 MSCI ESG Research Inc. Reproduction by permission. Benchmark: MSCI All Country World ex UK Small Cap Index (70%) / Numis UK Smaller Companies (excluding investment companies) Index (30%). 10
Key stock positions North American portfolio Top 10 absolute holdings Sector allocation (relative to benchmark* %) Holdings Portfolio weight % Technology 4.6 STERIS 2.9 Industrials 2.6 Alleghany 2.9 Health Care 2.3 Waste Connections 2.6 Vail Resorts 2.6 WEX 2.5 Franklin Financial Network 2.4 Martin Marietta Materials 2.4 Consumer Staples Energy Materials & Processing Consumer Discretionary -0.3-0.4-0.5 1.9 LKQ 2.2 Producer Durables -2.6 ICON 2.2 Utilities -2.6 Wellcare Health Plans 2.1 Total 24.8 Financial Services -5.0-8% -4% 0% 4% 8% Source: BMO Global Asset Management as at 30.06.2018. *Benchmark: Russell 2000 Index. Figures subject to rounding. 11
Recent North American portfolio strategy Reduce highly leveraged holdings/switch into lower leveraged options Sold out of telecoms sector but remain overweight to technology Added to energy sector related exposure and to materials Remained underweight in REITs but moderated stance following underperformance Source: BMO Global Asset Management as at 30.06.2018. REITS = Real Estate Investment Trusts. 12
Key stock positions UK portfolio Top 10 absolute holdings Sector allocation (relative to benchmark* %) Portfolio weight % Health Care 4.1 Craneware 2.9 Technology 2.3 CLS Holdings 2.8 Faroe Petroleum 2.3 John Laing Group 2.3 Huntsworth 2.3 Dechra Pharmaceuticals 2.0 Consumer Services Basic Materials Oil & Gas Utilities -0.1-0.9 2.0 1.8 Restore 2.0 Consumer Goods -1.3 Draper Esprit 1.9 Telecommunications -1.5 Computacenter 1.9 Industrials -2.0 Treatt 1.9 Total 22.2 Financials -4.5-6% -4% -2% 0% 2% 4% 6% Source: BMO Global Asset Management as at 30.06.2018. *Benchmark: Numis UK Smaller Companies ( excluding investment companies ) Index. Figures subject to rounding. 13
Recent UK portfolio strategy Retaining a cautious approach to UK domestic consumer facing sectors, underweight to retail and specialist lenders Overweight to sectors offering quality growth stocks including health care, media, financial services Underweight to real estate in overall terms, exposure in sector has favoured overseas facing stocks Relatively neutral stance relative to energy sector, taken some profits more recently Continuing a selective approach with new issues Source: BMO Global Asset Management as at 30.06.2018. 14
Key stock positions European portfolio Top 10 absolute holdings Sector allocation (relative to benchmark* %) Portfolio weight % Industrials 7.8 Forbo Holding 4.0 Basic Materials 3.6 CTS Eventim 3.8 Consumer Goods 3.5 Ringkjøbing Landbobank 3.8 Health Care 0.4 Gerresheimer 3.6 Cerved Information Solutions 3.5 IMCD Group 3.4 Lenzing 3.2 Consumer Services Oil & Gas Telecommunications -1.2-1.9 0.0 Vidrala 3.2 Utilities -2.9 Sligro Food Group 3.2 Technology -3.6 Aareal Bank 3.1 Total 34.9 Financials -5.7-10% -5% 0% 5% 10% 15% Source: BMO Global Asset Management as at 30.06.2018. *Benchmark: Euromoney Smaller Europe ex UK Index. Figures subject to rounding. 15
Recent European portfolio strategy Some sales of positions where confidence in the investment thesis had been eroded Also taken some profits in strong performing financial stocks Cautious on global industrial stocks on valuation grounds Added exposure to health care sector with equipment/testing services holdings Overweight to Germany, Norway, Ireland and Spain, underweight in France, Belgium, Finland and Italy Source: BMO Global Asset Management as at 30.06.2018. 16
Collective holdings for Japan and Rest of World at 30 June 2018 Holdings Portfolio weight % Eastspring Investments Japan Smaller Companies Fund 5.0 Aberdeen Global Japanese Smaller Companies Fund 4.2 Pinebridge Asia ex Japan Small Cap Fund 2.9 The Scottish Oriental Smaller Companies Trust 2.7 Utilico Emerging Markets 1.9 Manulife Global Asian Smaller Cap Equity Fund 1.8 HSBC GIF Asia ex Japan Equity Smaller Companies Fund 1.3 Aberdeen Global Asian Smaller Companies Fund 0.7 Australia New Horizons Fund 0.3 Total 20.9 Source: BMO Global Asset Management as at 30.06.2018. 17
Japan and Rest of World portfolio strategy Added to Japanese and Asian weighting in last year Asia continues to grow faster than global economy but US/Chinese trade outcome will be key for relative performance Reduced size of holding in Aberdeen Asian small cap fund, added to other positions especially Pinebridge and Manulife Asian small cap funds Remain cautious in relation to Latin America Continue to assess new holding options for the portfolios Source: BMO Global Asset Management as at 30.06.2018. 18
Performance in the new financial year up to 20 July 2018 Diluted Net Asset Value total return +7.5% Benchmark total return +6.2% Share price total return +5.1%. Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at 20.07.2018. The NAV total return shown is inclusive of all costs. 19
Performance over the last five discrete years Discrete performance %, 12 month rolling (GBP, net of fees) Percentage growth, % 2017-2018 2016-2017 2015-2016 2014-2015 2013-2014 NAV 12.4 25.9 6.6 14.8 14.0 Share Price 10.6 28.4 4.2 14.7 13.7 Benchmark 10.9 25.8 7.5 10.5 14.5 Past performance should not be seen as an indication of future performance. Source: BMO Global Asset Management as at 30.06.2018. Benchmark: MSCI All Country World ex UK Small Cap Index (70%) / Numis UK Smaller Companies (ex investment companies) Index (30%). The discrete annual performance table refers to 12 month periods, ending at the date shown. 20
Market backdrop PMI developed market 65 Consumer confidence 160 10 60 120 0-10 55 80-20 50 40-30 -40 45 Aug 2013 Apr 2015 Nov 2016 Jun 2018 US Europe Ex UK UK Japan 0-50 Jun 2012Jun 2013Jun 2014Jun 2015Jun 2016Jun 2017Jun 2018 US Europe Ex UK UK Japan Source: Bloomberg as at 30.06.2018. PMI data: US - ISM Manufacturing PMI, Europe Ex UK - Markit Eurozone Manufacturing PMI, UK - Markit/CIPS UK Manufacturing PMI, Japan - Nikkei Japan Manufacturing PMI. Consumer confidence data: US - Conference Board Consumer Confidence Index, Europe Ex UK - European Commission Consumer Confidence Indicator Eurozone Index, UK - UK Consumer Confidence Indicator Index, Japan - Japan Consumer Confidence Households Index. PMI = Purchasing Manager s Index. ISM = Institute for Supply Management. 21
Market valuation Developed Market Forward P/E Developed Market Forward P/B 30 3.0 25 2.5 20 2.0 15 1.5 10 1.0 5 0.5 0 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 0.0 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 MSCI World SC MSCI Europe ex UK SC MSCI US SC MSCI UK SC MSCI World SC MSCI Europe ex UK SC MSCI US SC MSCI UK SC MSCI Japan SC MSCI Japan SC Source: Bloomberg as at 30.06.2018. P/E = Price-Earnings. Ratio P/B = Price to book ratio. 22
Outlook Global background still helpful for many companies though risks have risen with trade war developments Near-term equity valuation multiples are extended in most markets especially running into monetary policy tightening phase Dollar earnings more in favour for now, at the margin less positive on Europe Watching Brexit developments closely, cautious on domestic cyclicals given macro/political risks Focus on strong balance sheets, leverage likely to become less attractive characteristic Still identifying new ideas across markets, global small cap remains an attractive investment universe Source: BMO Global Asset Management. 23
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