CB European Quality Fund Quarterly update 30 June 2015 Morningstar - - PowerPoint PPT Presentation
CB European Quality Fund Quarterly update 30 June 2015 Morningstar Sweden and Dagens Industri: Best portfolio manager in the European equity category 2012 Fund performance* and AUM NAV, 30 June 2015 (EUR) EUR SEK Sicav A 99.75 Q2 2015
Q2 2015
Year 2015 +14.2% Fund inception 1995 (annualised) +7.9% AUM (million) 61.7.
*Sicav A
Morningstar Sweden and Dagens Industri: Best portfolio manager in the European equity category 2012
+11.7% +7.9% 569.4.
EUR SEK
Sicav A 99.75 Sicav D 94.42 Sicav I 129.09 Acc. 234.57 Distr. 98.70
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Financial Supervisory Authority
management
is performed in Luxembourg
companies
Carl Bernadotte
Portfolio manager & owner >25 years’ experience Born 1955 Owns shares in CB European Quality Fund
Marcus Grimfors
Portfolio manager 7 years’ experience Born 1981 Owns shares in CB European Quality Fund
Alexander Jansson
Portfolio manager & CEO 7 years’ experience Born 1983 Owns shares in CB European Quality Fund
Erik Allenius Somnell
Business development 3 years’ experience Born 1984 Owns shares in CB European Quality Fund
3 +0.8%
+1.6% +15.3% +13.5%
Source: MSCI, CB Fonder
consecutive quarters. We have seen a trend reversal in the sense that the fund’s quality growth strategy has outperformed in a sharply rising market in Q4 2014 and Q1 2015 (+4.7% and +0.5% outperformance respectively) as well as in a falling market in Q2 2015 (+0.8% outperformance).
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Standard deviation, % Sharpe (0%) Max drawdown, % Beta against MSCI Europe Alpha against MSCI Europe, % p.a. Consistency with MSCI Europe, % Tracking error, % Information ratio
The fund has – mostly due to the strong risk-on rally in the market between the summer
underperformed against the benchmark index, but has a positive alpha due to the low beta (0,69). The fund’s risk- adjusted return, Sharpe, is higher than that of the index.
Source: MSCI, CB Fonder
12.52 +0.43
+0.69 +1.30 50.00 8.66
14.71 +0.40
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Different indicators of stress: The Libor/OIS-spread and the Spanish-German 10Y-bond spread
Libor/OIS-spread (blue line) – a measurement
stress in the banking system – peaked following the Lehman bankruptcy and rose again sharply during the euro crisis 2011-2012. This time the spread is unchanged.
Spanish-German 10Y-bond spread (orange line) – a measurement of stress in the bond market – rose more than 500 bps during the euro crisis 2011-2012. Despite Greece’s missed IMF payment and the expiry
the bailout programme, the Spanish-German spread has hardly moved.
line) has risen more than 1 000 bps…
Unlike 2011-2012 there is no sign of capital flight – except from Greece The exposure against Greece has been sharply reduced in the private sector
(so far) is that today, the private sector do not show any signs of stress; in 2011- 2012 the PIGS countries suffered from capital flight. This time, only Greece has suffered (heavily).
against Greece has been sharply reduced in the private sector since 2011 (~70% lower).
Source: Bloomberg, CB Fonder; data for the period 2007-03-02 – 2015-07-07 Source: Deutsche Bank Research Source: Deutsche Bank Research
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indicator such as the PMI (red line) and increased retail trade (black line), see left graph below.
Source: GS Global Investment Research
Source: Deutsche Bank Research
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MSCI Europe relative to MSCI USA. Periods of out-/underperformance MSCI Europe relative to MSCI USA, in USD
U.S., with data going back to 1969.
underperformance against the U.S., all
which have bottomed when the accumulated underperformance reached ~40% - the same level that was reached at year-end 2014.
argue that a new period
and so far you have missed almost nothing (+2% since the trough at year- end 2014/2015).
Source: MSCI, CB Fonder
Since 1969 there have been three periods of outperformance for Europe relative to the U.S. – now we are seeing the start of a fourth?
Europe relative to the U.S. lasted between 24 and 101 months and resulted in an accumulated relative
percent (see graph).
(red line) mostly reminds of the period starting in 1999 (dark blue line). It could therefore be argued that there is no rush to buy Europe. On the other hand, with the same logic one could say that there is only upside risk for Europe…
Number of months Outperformance, Europe relative USA
From To
1 975- 02- 28 1 976- 1 0- 29
8% 30%
1 976- 1 0- 29 1 978- 1 0- 31 76%
84% 1 978- 1 0- 31 1 985- 02- 28 34% 1 32%
1 985- 02- 28 1 990- 1 0- 31 283% 90% 1 02% 1 990- 1 0- 31 1 999- 06- 30 224% 451 %
% 1 999- 06- 30 2007- 1 1
1 02% 1 5% 75% 2007- 1 1
201 4- 1 2- 31
56%
% 201 4- 1 2- 31 201 5- 06- 30 4% 1 % 2%
MSCI Europe MSCI USA Relative return Time period Absolute return, USD
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2016 and ECB in April 2018.
summer of 2015 (where the curves converge in the graph below). The substantial divergence since then suggests continued good performance for Europe and the pendulum (after more than seven years of expansive US monetary policy) swings in favour of European equities compared to U.S. equities.
Source: Deutsche Bank Research
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Laurel Funerals, which is in line with Dignity’s objective of consolidating the British funeral services market. The stock gained 21% during Q2, in EUR.
and is also one of the more stable companies in the portfolio: the past 10 years, Next has a profit CAGR of 7.4% and dividend CAGR of 7.9%. The stock gained 9% during the quarter, in EUR.
emerging market exposure), which we see as an advantage due to increasing growth rates in the former (as opposed to decreasing in the latter). Halma’s
the quarter, in EUR.
experienced following their acquisition of Finnish Sanitec at the beginning of the year. These type of decisions are made by the top management and we have noted that there has been no reason to question their judgement the past 15 years. The share lost 13% during the quarter, in EUR.
price after a good start to the year. We have sold the stock after vague comments by management regarding the reasons behind the margin pressure. The share lost 15% during the quarter, in EUR.
and lost 13% in Q2. Automotive stocks are characterised by large price swings; we have not made any changes to the holding.
Company Contr./Detr. %
Performance %
Dignity Next Halma Geberit Arcadis BMW +0.47 +0.42 +0.35
+20.7 +9.3 +11.4
2.8 4.9 3.5 3.6 2.3 3.7
*Average values during Q2 2015. Source: Bloomberg, CB Fonder
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cap of at least €1 billion, which we on average are far above: average market cap
Active Share for the fund: 91%.
valuation (compared to profit growth) is another.
Company Country Sector Market cap € bn Share of AUM Share of MSCI Europe EPS growth 2015E EPS growth 2016E PEG 2015 PEG 2016 Fresenius AG Germany Healthcare 31 5.9% 0.21% 24% 14% 1.0 1.4 Next UK Consumer Discr. 16 5.4% 0.20% 6% 6% 3.0 2.7 Novo Nordisk Denmark Healthcare 129 4.4% 1.22% 29% 20% 1.0 1.2 AAK Sweden Consumer Staples 2 4.1% 0.00% 8% 12% 2.7 1.6 Shire UK Healthcare 44 4.1% 0.56% 10% 15% 2.1 1.2 Legrand France Industrials 13 4.0% 0.18% 7% 8% 3.4 2.7 Continental Germany Consumer Discr. 43 4.0% 0.31% 19% 9% 0.8 1.6 Sampo Finland Financials 24 3.9% 0.25% 7%
2.0
France Consumer Discr. 13 3.9% 0.11% 21% 14% 1.0 1.4 Assa Abloy Sweden Industrials 19 3.9% 0.22% 24% 10% 0.9 2.0 Total/Average 33 43.6% 3.3% 15% 11% 1.8 1.8
Source: MSCI, CB Fonder
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No exposure to the energy sector (oil/gas companies)
Source: MSCI, CB Fonder
12 16.8% 15.7% +0.88
*36 months data on a 60-day rolling basis (EUR); Source: MSCI, CB Fonder
The fund’s standard deviation is consistently lower/in line with that of the benchmark, MSCI Europe. This becomes particularly evident when the risk in the market is rising. The fund’s beta is consistently below 1
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1 2 3 4 5
Source: MSCI, CB Fonder
time generate alpha.
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Note! Data is relative MSCI AC World; Source: Deutsche Bank Research
Note! Data is relative MSCI AC World; Source: Deutsche Bank Research
The market is forward-looking and we expect earnings recovery in Europe (0% real profit growth the last 10 years; 4-5% during the 90s and 00s). The historically low interest rates also affect the valuation.
revision ratio (grey area in the graph to the right) than the MSCI AC World index. That means that the earnings estimates in Europe are revised upwards at a faster pace or downwards at a slower pace than that for the average of the other regions in the global index, which is usually positive for relative performance. The most important explanation is a weak EUR compared to USD.
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Low Medium High Small Medium Big Huge
1 2 3 4 5 6
Unknown unknowns (black swans etc.) The expectations in the market cannot be met; low oil price, a weak euro and expansionary fiscal and monetary policy is not enough – what then? Hard landing in China Brexit A strong USD and/or prematurely interest rate hikes (compare 1937) suppresses the U.S economy. Geopolitics: Russia, Japan/China, North Korea, IS etc.
1 2 3 7 7
Grexit
5 6 4
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graph illustrates that growth companies (since 2002) is benefitting relative to value companies when volatility is high/rising. When the VIX- index (red line, left axis) is low
decreasing growth companies under- perform relative to value companies (blue line, right axis).
that, after the IT-bubble, growth companies are often characterised by robust business models that are relatively independent of the macro climate. Thus, growth companies appears as increasingly more attractive the more uncertain the market climate is/gets.
has begun to trend upwards and growth has once again started to outperform relative to value. With several uncertainties at the horizon we believe that this trend will persist going forward. CB European Quality Fund invests in proven and robust business models that are more or less independent of the macro economic climate. Hence, the fund has a high correlation to growth companies relative to value companies (0.85 and 0.57 respectively, see page 26).
Source: Bloomberg, MSCI, CB Fonder
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structural growth in mature industries; proven management and stable profit growth.
Europe Net. Consistent outperformance against the index during drawdowns.
pornography, gambling, tobacco, weapon and fossil energy (stranded assets).
distributing share class (SICAV D) pays a dividend amounting to 6% of the NAV each year.
+6.0% +19.4% +12.6%
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19
*Max 1%, dependent on client relationship
20
21
Primary
Secondary
22
Stable profit growth Structural growth is independent of the economic cycle
Drivers:
Purely driven by macro factors
Cyclical model Structural model
Credit: Allianz GI Design: CB Fonder
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Competitive rivalry among incumbents
Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael E. Porter, 1980. Design: CB Fonder
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entry/moat – see p. 22 and 23.
stable profit growth over an entire economic cycle?
promised?
screening and ranking based on quantitative variables.
the company's own history and growth rate.
trend supportive of the sector/style?
friend”.
increasing and reducing portfolio positions.
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No exposure to the energy sector (oil/gas companies)
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With a relatively low correlation compared to its benchmark index, MSCI Europe, as well as other important indices, the fund will add diversification to most
highest correlation with MSCI Europe Growth.
*Monthly data for the period 30 June 2010 – 30 June 2015 (EUR); Source: MSCI, CB Fonder