threadneedle citywire north presentation september 2012
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TRANSCRIPT
Threadneedle European Select Fund
David Dudding – Fund Manager September 2012
1. Introduction
2. Investment process
3. Threadneedle European Select Fund
4. Stock examples
AP. Appendix
Agenda
2PT/12/01387
Introduction
1
Threadneedle European Select FundStrong long – term track record
Source: FactSet as 31 July 2012. Fund returns gross of tax and TER for comparison with indices. All data is quoted in €. Gross performance from 31 March 2010 onwards is based on daily cash flows and valuations, from 1 January 2008 to 31 March 2010 based on Global Close prices, and prior to January 2008 based on 12pm prices. Fund data is quoted on a bid to bid basis with income re-invested at bid. Index data provided by Thomson Financial DataStream. The relative returns shown are calculated on a geometric basis.
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Annualised (%)2012 YTD
2011 2010 2009 2008 2007 1 year 3 years 5 years 10 years
Threadneedle European Select Fund
18.5 -0.1 26.5 32.0 -40.7 4.2 14.3 19.4 2.3 8.6
FTSE World Europe ex UK 9.9 -12.5 9.7 30.7 -42.3 6.2 -2.9 6.1 -4.8 4.9
Relative return +7.8 +14.2 +15.3 +1.0 +2.6 -1.8 +17.6 +12.5 +7.4 +3.5
A leader in European equity
€31.5 billion AuM across all portfolios1
Excellent long-term performance
Deep resource
24-strong European equity team2
Close interaction across asset classes
Dedicated risk management
Clear investment philosophy, consistently applied
Stock selection key source of return
Culture of collaboration and debate
Threadneedle’s European equity credentials
Source: Threadneedle as at 31 July 2012.1 AuM includes externally managed portfolios, and includes UK-specific assets of €18.3 billion.2 Includes 14 UK-specific investment professionals as at 8 December 2011.
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6
Equity investment team
Source: Threadneedle Investment s as at 22 June 2012.1 Investment Specialist.
PT/12/01425
Leigh HarrisonHead of Equities
William DaviesDeputy Head of Equities
Mark Heslop
Governance and SRI
Iain Richards
Cathrine de Coninck-Smith
Fionnuala O’Grady
Dealers
Danny Burton Chris Fox
Nicholas Hawkes Benjamin Malone
William Davies
Stephen Thornber
Jonathan Crown
Pauline Nepgen
Esther Perkins
Ashish Kochar
Neil Robson
UK
Simon Brazier
Chris Kinder
Blake Hutchins
Aamod Mishra
Mark Westwood
Jonathan Barber
Richard Colwell
Stacey Cassidy
Europe
Philip Dicken
Dan Ison
Paul Doyle
David Dudding
Ann Steele
Fred Jeanmaire
Nick Davis
Asia ex. Japan and Emerging Markets
Vanessa Donegan
Rafael Polatinsky
George Gosden
Gigi Chan
Lisa Lim
Ilan Furman
Natasha Ebtehadj
Georgina Hellyer
Daniel Isidori
Irina Miklavchich
Robert Banham
Japan
Sarah Williams
Koji Oki
US
Cormac Weldon
Stephen Moore
Paul Gannon
William Warren
Brad Colton
Nafis Chowdhury
Diane Sobin
Olivia Miller
Global Equities
Douglas Cairns1
James Foreman
Stephane Jeannin1
Oliver Hill Gary Young
James Thorne
Dan Vaughan
Simon Haines
Neil Finlay1
Francis Ellison1
Ben Needham
Investment process
2
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European Select investment process
8
Idea generation
Macro and themes
European equity team and other investment professionals
Company meetings
Implementation
Portfolio construction
Risk management
Research / debate
Stock analysis
Investable universe – 1,500 companies 45-60 holdings
Investment process – stock analysisPorter’s Five Forces
9PT/12/01299 9
Buyer power
Degree of rivalry
Barriers to entry
Threat of substitution
Supplier power
How stocks get into the portfolio
10
1 Source: HSBC Smaller European Companies Index as at 30 June 2012.
Research and debate ImplementationIdea generation
Company meetings European team met Brenntag
Threadneedle equity teams Preference for industry
consolidation
Macro and themes Productivity enhancements;
development of E.M supply chains; environmental regulation
Deeper company analysis focuses on building conviction based on:
Barriers to entry; giving Brenntag pricing power and high margins
Positioning in fast-growing Emerging Markets
The structural trend to outsource low volume chemical distribution
Stock review meeting
Bought Sept 2010 Currently 1.9% of portfolio Index weight of 0.0%1
Held across a range of European equity portfolios
Building conviction
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Brenntag
11
1 Source: Datastream, as at 31 July 2012. Performance in EUR and rebased to 100. Initial purchase – September 2010.2 Source: Bloomberg, as at 2 August 2012.
Year to Dec2 2011 2012e 2013e
P/E 17.4x 13.7x 12.3x
EV/EBITDA 9.3x 8.3x 7.7x
RoE 17% 18% 18%
80
90
100
110
120
130
140
150
160
170
180
Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12
Reb
ased
= 1
00
Brenntag Brenntag relative to FTSE W Europe Index
Only 7% market share
Market leader
Degree of rivalry
Scale / network Breadth of offer Virtuous cycle
Barriers to entry
In-house
Threat of substitution
Several thousand suppliers Provide crucial service / access
to market
Supplier power
10,000 products to 160,000 customers Critical to customer process Low volumes
Buyer power
Porter’s Five Forces
+ Growth.
19% of sales from emerging markets, Growth through accretive acquisitions
Exposed to resilient end-markets: food, cosmetics, water treatment
Focus on outsourcing
Absolute performance and relative strength2-year performance¹
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Threadneedle European Select Fund
3
Threadneedle European Select FundTop 10 holdings
Source: Threadneedle as at 31 July 2012.1 FTSE W Europe ex UK.
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Company Description Fund (%) Index (%)1
Nestlé Food Producers 6.6 4.8
Anheuser-Busch InBev World No.1 Brewer 6.2 1.4
Schneider Electric Electronic & Electrical Equipment 5.7 0.7
Brenntag Chemicals 5.1 0.1
Fresenius Medical Care Health Care Equipment & Services 4.9 0.4
Air Liquide Industrial Gasses 4.8 0.8
Sampo Nonlife Insurance 4.7 0.3
Svenska Handelsbanken Banks 4.2 0.5
Unilever Food Producers 4.0 1.2
BASF Chemicals 3.9 1.5
Threadneedle European Select Fund Sector positioning
Source: Threadneedle as at 31 July 2012. Excludes Cash at 0.2%.
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18.6% 18.1%
3.6% 3.1%0.7%
5.2%3.6%
7.1%4.8%
13.4%11.4%
25.7%
0.0%
5.1%
19.6%
8.4%
4.7%
14.6%13.0%
19.0%
0%
5%
10%
15%
20%
25%
30%
ConsumerGoods
Industrials BasicMaterials
Health Care Financials ConsumerServices
Technology Oil & Gas Telecoms Utilities
Threadneedle European Select Fund FTSE World Europe ex UK Index
Portfolio breakdown by FTSE sector
Threadneedle European Select Fund Geographic positioning
Source: Threadneedle as at 31 July 2012. Excludes Cash at 0.2%.Other includes: Austria, Czech Republic, Greece, Hungary and Portugal.
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19.6
%
17.1
%
4.7%
3.8%
2.9%
0.0%
0.0%
0.0%
0.0%
2.5%
5.7%
3.0%
2.4%
0.4%
5.8%
1.4%
1.0% 1.9%
11.6
%
6.4%
23.8
%
1.4%2.
1%
6.2%
18.7
%
19.9
%
5.2%
22.8
%
7.6%
1.6%
0%
5%
10%
15%
20%
25%
Ger
man
y
Fra
nce
Sw
itzer
land
Sw
eden
Fin
land
Bel
gium
Net
herla
nds
Den
mar
k
Nor
way
Ital
y
Irel
and
Spa
in
Tur
key
Pol
and
Oth
er
Threadneedle European Select Fund FTSE World Europe ex UK Index
Portfolio breakdown by country
Stock examples
4
Air Liquide
1 Source: Datastream, as at 31 July 2012, in local currency.2 Source: Bloomberg.14 August 2012
17
Stock performance versus index2-year performance1
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Global leader in industrial gases
Top 4 control 70%+ of global market
Play on industrialisation of emerging markets and clean energy technology (e.g. carbon capture and storage)
30-year record of uninterrupted EPS growth
Dividend yield 2.6%90
95
100
105
110
115
120
125
Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12
Reb
ased
= 1
00
Air Liquide Air Liquide relative to FTSE W Europe Index
2012e2 2013e2
EV/EBITDA 9.4x 8.6x
P/E 18.2x 16.4x
ROE 16% 16%
Nestlé
1 Source: Datastream, as at 31 July 2012, in local currency.2 Source: Bloomberg.14 Aug 2012
18
Share price performance relative to index2-year performance1
2012e2 20132
P/E 18.0x 16.6x
EV/EBITDA 12.2x 11.2x
ROE 18% 19%
Well balanced growth – geographically, by category, across price points
No.1 or No.2 in most categories
Equity yields more than bonds
Growth drivers – emerging markets, nutrition, out of home eating, innovation
AA credit rating80
85
90
95
100
105
110
115
120
125
130
Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12
Re
ba
se
d =
10
0
Nestlé Nestlé relative to the FTSE W Europe Index
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Anheuser-Busch InBev
1 Source: Datastream, as at 31 July 2012, in local currency.2 Source: Bloomberg.14 August 2012
19
Stock performance versus index2-year performance1
Year to Dec2 2012e 2013e
P/E 17.6x 16.1x
EV/EBITDA 10.8x 9.5x
ROE 18% 18%
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70
80
90
100
110
120
130
140
150
160
170
Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12
Re
ba
se
d =
10
0
Anheuser-Busch InBev
Anheuser-Busch InBev relative to FTSE W Europe Index
World’s largest brewer
50% market share in the US
70% market share in Brazil
Concentrating industry
Pushing up prices in US
Volume growth in emerging markets
Iconic brands – Budweiser, Becks, Stella Artois
More acquisitions / cost cutting to come
Management own significant stake
Fresenius Medical Care
Stock performance versus index2-year performance1
20
Dialysis growth driven by ageing populations and dietary change
No.1 player in clinics – lowest cost operator offers governments savings
No.1 dialysis products producer
Significant barriers to entry
2012e2 2013e2
P/E 18.8x 17.2x
EV/EBITDA 10.4x 9.5x
ROE 14% 13%
80
90
100
110
120
130
140
150
Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12
Re
ba
se
d =
10
0
Fresenius Medical Care
Fresenius Medical Care relative to FTSE W Europe Index
1 Source: Datastream, as at 31 July 2012, in local currency.2 Source: Bloomberg.14 August 2012
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Appendix
AP
22
GDP will follow PMI down
Deleveraging and austerity mean banks must improve balance sheets
Years of muddling through
Eurozone macro – short term pain
1 Source: Barclays Research, Datastream, Bloomberg, 31 July 2012.2 Source: Deutsche Bank, May 2012.
GDP vs. PMI1
30
40
50
60
70
2007 2008 2009 2010 2011 2012
-8%-6%-4%-2%0%2%4%6%8%
Eurozone manufacturing PMI Germany GDP y/y% (rhs)France GDP y/y% (rhs) Italy GDP y/y% (rhs)Spain GDP y/y% (rhs) Eurozone GDP y/y% (rhs)
Bank balance sheets2
PT/12/01632
23
Austerity alone is counterproductive
Patience with Greece at an end
Greece likely to leave the Euro
Central banks’ response key
Greece
1 Source: IMF and BofA Merrill Lynch Global Research, 17 May 2012.2 Source: US Census Bureau: ISI Group.
Greece government debt / GDI1
Greece: Number of persons 65+2
PT/12/01632
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Germany – “The EU’s biggest and weakest economy” The Economist, March 2003
Reforms started in 2003
Reforms included cuts to pension, health care and unemployment benefits and also tax cuts
“The powerhouse of the Eurozone” FT, March 2012
The reforms were successful, but were painful and took years
“Agenda 2010” – Germany’s reforms created an industrial powerhouse
1 Source: Barclays as at 30 April 2012.
Gerhard Schröder
German Unemployment1
2468
10121416182022
1980 1984 1988 1992 1996 2000 2004 2008 2012
Germany (Pan): unemployment rate %Germany (West): unemployment rate %Germany (East): unemployment rate %
Labour reforms start to work
Reunification
Angela Merkel
25
Sentiment has become extremely bearish
European equities even more out of favour
The case for equities
1 Source: ASR Ltd / Thomson Datastream.2 Source: Nomura.
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2007 2008 2009 2010 2011 2012
600
800
1,000
1,200
1,400
1,600
1,800
S&P 500 Sentiment Excessive Optimism
Excessive Pessimism Index
European equities oversold relative to US equities2
PT/12/01632
Bearish sentiment1
26
Volatility to continue
Stick to defensive, growth stocks
Remain alive to political environment
Many alpha opportunities are emerging
A stockpicker’s paradise
“Business as usual” for European Select
What next?
1 Source: Mirabaud Securities LLP, 26 June 2012.2 Source: BofA Merrill Lynch Global Research, 17 May 2012. Domestic and Exporter baskets based on sales exposures in and outside the domicile of company.
PT/12/01632
Exporters vs. Domestics2
Equities are cheap1
6
10
14
18
22
26
30
Jan
80M
ay 8
1
Sep
82
Jan
84M
ay 8
5S
ep 8
6Ja
n 88
May
89
Sep
90
Jan
92M
ay 9
3S
ep 9
4Ja
n 96
May
97
Sep
98
Jan
00M
ay 0
1S
ep 0
2Ja
n 04
May
05
Sep
06
Jan
08M
ay 0
9S
ep 1
0Ja
n 12
Tre
nd
P/E
(x)
Trend PE Ex-Bubble Ave +1sd -1sd
Biography
27
DAVID DUDDINGFund Manager
David Dudding joined Threadneedle in 1999 as an Analyst. He manages the Threadneedle European Select Fund and the Threadneedle European Smaller Companies Fund.
David previously worked for John Swire and Sons in Hong Kong and for Investors Chronicle as a Financial Journalist.
He holds a Modern History degree and a European Politics Masters degree from Oxford University.
He is a CFA Charterholder.
Threadneedle start date: 1999Industry start date: 1999
Key Risks of the Threadneedle European Select Fund
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Market Risk – The value of investments can fall as well as rise and investors might not get back the sum originally invested, especially if investments are not held for the long term
Currency Risk – Where investments are made in assets that are denominated in foreign currency, changes in exchange rates may affect the value of the investments
Effect of portfolio concentration – The fund has a concentrated portfolio (holds a limited number of investments and/or takes large positions in a relatively small number of stocks) and if one or more of these investments declines or is otherwise affected, it may have a pronounced effect on the fund’s value
Volatility Risk – The fund may exhibit significant price volatility
For internal use by institutional clients, distributors, intermediaries and consultants only (not to be passed on to any third party)
Past performance is not a guide to future performance.
The value of investments and any income from them can go down as well as up.
Threadneedle Investment Funds ICVC (“TIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Services Authority (FSA) as a UCITS scheme.
TIF is registered for public offer in Austria, Belgium, France, Germany, Hong Kong, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Switzerland (some sub-funds only) and the UK. Shares in the Funds may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation.
TIF is registered with Danish Financial Services Authority for marketing to professional investors only. The Funds may not be offered or sold to retail investors in Denmark.
TIF is authorised in Spain by the Comisión Nacional del Mercado de Valores (CNMV) and registered with the relevant CNMV's Registered with number 482.
Het compartiment is op grond van artikel 1:107 van de Wet op het financieel toezicht opgenomen in het register dat wordt gehouden door de Autoriteit Financiële Markten. / Pursuant to article 1:107 of the Act of Financial Supervision, the subfund is included in the register that is kept by the AFM.
Income may fluctuate in accordance with market conditions and taxation arrangements. The difference at any one time between the sale and repurchase price of units in the scheme means that the investment should be viewed as a medium to long term investment. Investments may be subject to sudden and large falls in value, and the investor could lose the total value of the initial investment.
Shares in the Funds may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French, German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus) and can be obtained free of charge on request from the following:
Austria: Raiffeisen Zentralbank Österreich AG, Am Stadtpark 9, 1030 Wien (TIF and TSIF), and Erste Bank, Graben 21 A-1010 Wien (TFIF); Belgium: J.P. Morgan Chase Bank Brussels, 1, Boulevard du Roi Albert II, 1210 Brussels; France: BNP Paribas Securities Services, 66 rue de la Victoire, 75009 Paris; Germany: JP Morgan AG, Junghofstr. 14, 60311 Frankfurt, Ireland: J.P. Morgan Bank Administration Services (Ireland) Limited, J.P. Morgan House International Financial Services Centre, Dublin 1 Italy: State Street Bank S.p.A., via Col Moschin 16, 20136 Milano; Luxembourg: State Street Bank Luxembourg S.A., 49 Avenue J. F. Kennedy, 1855 Luxembourg; The Netherlands: Fortis Intertrust, Rokin 55, 1012 KK Amsterdam; Spain: any appointed distributor listed on the Spanish Financial Regulator’s website (www.cnmv.es); UK: Threadneedle Investments’ Client Services department P.O. Box 1331, Swindon SN38 7TA.The mention of any specific shares or bonds should not be taken as a recommendation to deal.
The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.
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Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, St Mary Axe, London EC3A 8JQ, United Kingdom. Authorised and regulated in the UK by the Financial Services Authority.
Important notes
29PL5/09/193