for professional investors only uk opportunities in mid and small cap daniel nickols, fund manager...
TRANSCRIPT
For professional investors only
UK opportunities in mid and small cap
Daniel Nickols, fund managerOld Mutual UK Select Smaller Companies Fund
March 2009
2
Agenda
> Performance record
> Investment approach
> Investment universe
> Economic and market background
> Fund positioning
> Conclusion
3
PerformanceOld Mutual UK Select Smaller Companies Fund
Source: Morningstar (see important information), bid to bid, net income reinvested. Periods to 31/01/09. #Since launch 12/02/2001
Fund %Sector
average %Benchmark
index %Quartile
rank
Year to date -1.0 -0.6 -1.6 3
1 year -27.4 -35.5 -37.1 1
3 years -14.4 -35.4 -34.8 1
5 years 51.1 -6.0 -0.7 1
Since launch# 100.9 -21.0 -4.0 1
Cumulative performance
12 months to Fund %Sector
average %Benchmark
index %Quartile
rank
31/12/08 -32.8 -40.5 -40.8 1
31/12/07 0.0 -6.6 -8.3 1
31/12/06 38.1 23.6 28.0 1
31/12/05 34.6 19.8 27.8 1
31/12/04 27.4 22.5 20.7 2
31/12/03 45.6 38.8 43.0 1
31/12/02 -12.7 -27.5 -23.3 1
31/12/01# 0.3 -21.5 -17.0 1
Discrete period performance
Old Mutual UK Select Smaller Companies Fund
Hoare Govett Smaller Cos ex ITs Index (benchmark)
Sector average
0
50
100
150
200
250
300
350
400
Feb Feb Feb Feb Feb Feb Feb Feb Feb01 02 03 04 05 06 07 08 09
Manager: Daniel Nickols
4
PerformanceOld Mutual UK Select Mid Cap Fund
Source: Morningstar (see important information), bid to bid, net income reinvested. Periods to 31/01/09 #Since launch 25/02/2002
Fund %Sector
average %Benchmark
index %Quartile
rank
Year to date -2.0 -4.8 -2.1 1
1 year -25.8 -28.5 -35.0 2
3 years -12.1 -25.3 -26.5 1
5 years 49.3 4.4 17.8 1
Since launch# 92.4 3.0 35.2 1
Cumulative performance
12 months to Fund %Sector
average %Benchmark
index %Quartile
rank
31/12/08 -30.8 -32.1 -38.4 2
31/12/07 2.5 1.7 -3.7 3
31/12/06 33.5 17.5 32.1 1
31/12/05 32.2 20.9 29.7 1
31/12/04 26.8 12.8 23.6 1
31/12/03 38.6 22.1 40.3 1
31/12/02# -10.7 -20.1 -21.7 1
Discrete period performance
Manager: Richard Watts
Old Mutual UK Select Mid Cap Fund
FTSE 250 xITs (benchmark)Sector average
50
100
150
200
250
300
350
Feb Feb Feb Feb Feb Feb Feb01 02 03 04 05 06 07 08
5
A balanced approach
Make a decision
Buy/Sell/Hold
Interpretation
Economic growth
Interest rate cycle
Extreme events
Industry trends
Management
Business profile
Financial position
Bottom up analytical factors
Top down analytical factors
Valuation
Buy/Sell/Hold
Where will the investment return come from?
6
A flexible investment style
Old Mutual UK Select Smaller Companies Fund
Ind
exed
Since launch of Old Mutual UK Select Smaller Companies Fund (12/02/01)
Source: Morningstar (see important information), bid to bid, net income reinvested. Periods to 01/02/09
Hoare Govett Smaller Companies Index(ex ITs)
Year
Defensive
Bottom up stock selection
Top down Sector themes
Cyclical
0
50
100
150
200
250
300
350
400
Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb2002 2003 2004 2005 2006 20072001 2008 2009
7
Investment universe - stocksHoare Govett Index ex IT top 10FTSE250 ex IT top 10FTSE100 ex IT top 10
9.15Total13.36Total52.51Total
0.87PartyGaming plc
1.18Aggreko2.64BHP Billiton0.86Rentokil Initial plc1.18Investec2.98BG Group
0.92Carphone Warehouse Group plc
1.20Intertek Group3.32British American Tobacco
0.91Soco International1.21United Business Media
3.79AstraZeneca
0.99St James's Place plc
1.22Hiscox4.34Royal Dutch Shell B
0.81Aberdeen Asset Management
1.24Imperial Energy Corp
5.92Royal Dutch Shell A
0.96Dana Petroleum plc
1.39Lonmin6.23GlaxoSmithKline
0.93Aegis Group plc
1.51ITV6.77Vodafone Group 0.95IMI plc1.53Balfour Beatty7.35HSBC Holdings
0.94De La Rue plc
1.70Pennon Group9.17BP
NameNameName
> Opportunity in diversity
> Relative inefficiency of mid/small cap means greater scope to add value
Weight % Weight %Weight %
* Source: RBS/Factset, as at 01/01/09
8
Investment universe - sectors
* Source: RBS/Factset, as at 01/01/09
Hoare Govett Index ex IT FTSE250 ex IT FTSE100 ex IT
45.05Total44.71Total59.58Total
5.49Oil & gas producers5.14Oil & gas producers
6.69Mining
7.15General retailers6.14Media6.97Mobile telecoms
8.28Travel & leisure8.18General financial10.54Pharmaceuticals & biotechnology
9.48Financial services9.60Travel & leisure12.01Banks
14.65Support services15.65Support services23.10Oil & gas producers
SectorSectorWeight %Sector
> Mid / small more economically sensitive than large cap
> Support services a pool of growth
Weight %Weight %
9
Economic overview
> US
– US in recession, weakness affecting all sectors
– significant monetary stimulus; further fiscal stimulus to come
– eventual recovery likely to be muted
> Europe
– Europe in recession, economic weakness broadly spread
– further interest rate reductions to come
> UK
– UK in recession, weakness affecting all sectors
– unemployment to rise significantly
– inflation to fall sharply
– interest rates cut aggressively, further policy action to come
View as at 23/02/09
Synchronised recessions in developed economies
10
What we are going through in context
1901 – 1903 -46% 28.8 1906 – 1907 -49% 21.9 1912 - 1914 -44% 26.8 1916 - 1917 -40% 13.0 1919 - 1921 -47% 21.7 1929 - 1932 -86% 32.5 1937 - 1942 -60% 61.7 1968 - 1970 -36% 17.9 1973 - 1974 -48% 20.9 1980 - 1982 -27% 20.7 1987 -34% 3.4 2000 - 2002 -49% 30.6 Median -47% 21.8 Current -52% 13.0
Peak Duration (months)Decline %
Based on the Dow Jones Industrial Average prior to 1929 and S&P 500 thereafter. Source: BCAResearch.com – January 2009
US equity bear markets since 1900
A bad bear market relative to history
11Source: Morgan Stanley
10
15
20
25
30
35
40
45
79 82 85 88 91 94 97 00 03 06
Medium term outlookEurope: Shiller P/E almost back to lows in 1982
Absolute value starting to emerge
12
Near term outlook
*Based on the percentage of 93 global financial and economic variables which are rising versus falling.*Source: BCAResearch.com – January 2009
G7 Industrial Production (LS)
Global Diffusion Index* (RS)
10
5
0
-5
-10
1975 1980 1985 1990 1995 2000 2005 2010
70
65
60
55
50
45
40
%
A severe economic recession is unfoldingA severe economic recession is unfolding
An
n %
ch
ang
e
13
Near term outlook
Source: Factset, MSCI, Morgan Stanley Research
8%
10%
12%
14%
16%
18%
20%
22%
75 78 81 84 87 90 93 96 99 02 05 08
MS
CI U
K r
etu
rn o
n e
qu
ity
(%)
Bear markets don’t usually end until RoEs are significantly lower
14
UK mid/small cap index outlook
> Mid and small cap companies trading at a discount to large cap stocks
But
> Profits forecasts will decline further
> Vulnerable to further adverse economic news / deterioration in market sentiment
> Risk aversion likely to remain high
Conclusion
> Cautious overall sector view
View as at 23/02/09
15
Sector strategy – UK mid/small cap funds
Sector
Overweight
Support services Mid & Small Stocks with defensive growth attributes
Aerospace Mid & Small Defence orientated; reasonably valued
Non life insurance Mid & Small Rating environment improving; valuations attractive
General retail Mid & Small Beneficiary of aggressive monetary and fiscalpolicy action
RationaleFunds
View as at 23/02/09
16
Sector strategy – UK mid/small cap fundsUnderweight
Industrials Mid & Small High earnings risk; not adequately reflected in valuations
Real estate Mid & Small Rental values weakening and yields rising; debt covenants under pressure
General financials Mid & Small Difficult trading conditions
Mining Mid & Small Valuations demanding given current metals prices
Oil services Mid & Small Oil capex budgets under pressure
View as at 23/02/09
Sector RationaleFunds
17
Conclusion
> Recessionary conditions in most major economies
> Valuation levels attempting to discount poor profits outlook
> Investor confidence remains weak
> Market volatility likely to remain very high
> Mid/small more economically sensitive than large cap
> Stock selection and sectoral themes will be key to adding value
View as at 23/02/09
18
Important information
This investment presentation is for professional investors only.
Please remember that the value of an investment and the income from it can go down as well as up and that you may not get back the full amount invested. Past performance is not a guide to future performance. Exchange rate fluctuations can affect both capital and income values.
Smaller companies may be subject to greater and more rapid changes in price than larger companies.
Data Source - © 2008 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
This information is being communicated only to persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001, as amended (the Order) and to persons to whom it may otherwise be lawful to communicate it to (all such persons being referred to as relevant persons). Other persons should not rely or act upon this document or any of its contents. The recipient should not use the information in this document in any way which would constitute 'market abuse'.
This document does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. No representation or warranty, express or implied, is or will be made by OMAM, its advisors or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document and any reliance you place on them will be at your sole risk.
OMAM is the appointed investment adviser for Old Mutual Fund Managers in-house funds.
Old Mutual Asset Managers (UK) Limited (OMAM) is the investment manager of the Funds and is authorised and regulated by the Financial Services Authority.
Issued by: Old Mutual Asset Managers (UK) Limited, 2 Lambeth Hill, London EC4P 4WR, England. Registered in England No. 2949554.
March 2009 U4561/02/09
For professional investors only
UK opportunities in mid and small cap
Daniel Nickols, fund managerOld Mutual UK Select Smaller Companies Fund
March 2009