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52218 final new model adviser retreat   sb - sept13
 

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    52218 final new model adviser retreat   sb - sept13 52218 final new model adviser retreat sb - sept13 Presentation Transcript

    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Anatomy of a crisis Why valuation is so important New Model Adviser Retreat 2013 September 2013 Stephanie Butcher This presentation is for Professional Clients only and is not for consumer use. Fund Manager, European Equities Joel Copp-Barton Product Director
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Investment approach  Strong emphasis on valuation as the key determinant of future returns  No inbuilt country, sector, stock, style or market cap bias  Conviction based  Long term investment horizon  Bottom up fundamental analysis within a “top down” framework 2
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Valuation is fundamental to long term investor returns 3 R² = 0.8 -5 0 5 10 15 20 25 10 15 20 25 30 35 40 45 50 10-YearTotalReturnCAGR(%) MSCI Europe Cyclically Adjusted PE (X) 14.9x Now Source: Citi, Thomson Datastream as at 31 July 2013. Each square on this chart shows returns over the following decade from a range of cyclically adjusted PEs. The period covered in the chart is from 1980. Background data used to create the chart is from 31 December 1969.
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 It’s all about cycles… 4 Source: Bofa Merrill Lynch European Quantitative Strategy – back testing period from Jan 1992 to Jan 2012.  Europe has been in slowdown/recession for 5 long years  ‘Quality’ and ‘low risk’ became investment mantras
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The Eurozone Crisis – key questions  Would the Eurozone break up?  Would we see currency redenomination? 5
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The crisis – what was being priced in? 6 Source: JP Morgan Cazenove, Thomson Datastream. All data is based on MSCI indices expect for EMU which is based on a Thomson Datastream index, as at 13 August 2013. All underlying data starts from 31 January 1970, unless separately highlighted. 1Underlying data started from 30 November 1995. 2Underlying data started from 30 January 1973. Pre-draghi speech data as at 25 July 2012. Cycle adjusted PEs for different geographies Current Shiller PE (x) LT Median (x) Discount (%) Europe 15.1 20.0 -24% US 23.3 22.4 4% Asia Pacific exc Japan1 18.4 21.9 -16% EMU2 13.6 20.8 -35% UK 14.9 18.5 -19% Germany 17.5 20.4 -15% France 14.9 23.4 -36% Italy 8.8 26.1 -66% Spain 10.0 20.3 -51% Portugal 10.7 15.2 -30% Cycle adjusted PEs for different geographies Current Shiller PE (x) LT Median (x) Discount (%) Europe 12.0 20.2 -41% US 19.2 22.5 -15% Asia Pacific exc Japan1 16.4 22.6 -28% EMU2 9.3 21.0 -56% UK 12.7 18.7 -32% Germany 14.2 20.8 -32% France 11.2 24.1 -54% Italy 6.4 26.3 -76% Spain 6.5 20.8 -69% Portugal 7.6 16.6 -54% Current ValuationsPre-Draghi speech
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The crisis – what was being priced in? Focus was purely on ‘safety’ 7 Source: ASR, Thomson Datastream as at 24 May 2013. High and low quality baskets are based on 5 years volatility of earnings, 20 year volatility of return on equity, current earnings uncertainty and current level of return on equity. Based on time-series data. “… just as TMT involved extrapolating super-normal growth to infinity and beyond, the attraction of High Quality relies on the ‘new normal’ and the assumption of no-growth being pushed out forever into the future.” ASR, 30th April 2013 50 100 150 200 250 300 350 400 Jan04 Jul04 Jan05 Jul05 Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15 US technology sector relative performance to US market ex-TMT advanced 149 months (based on Thomson Datastream Index, rebased to 100) European high quality index relative performance to low quality index (as compiled by ASR, rebased to 100)
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The Eurozone Crisis – action plan Meetings with key decision-makers across Europe  Politicians  Central bankers  Economists  Companies Our judgement; a Eurozone breakup was highly unlikely. It was in no-one’s interest 8
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Current positioning…  Overweight Spain 17.5% of the portfolio versus benchmark 6.7%.  Underweight Germany 10.1% of the portfolio versus benchmark 19.5%  Overweight Financials 32.9% of the portfolio versus benchmark 22.4%  Underweight Consumer Goods 7.2% of the portfolio versus benchmark 19.1%. How did we get to these positions? Source: Invesco Perpetual as at 28 August 2013. All data relates to Invesco Perpetual European Equity Income Fund. 9
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Spain stood out on valuation, and progress on structural reform 10 80 85 90 95 100 105 110 115 120 125 130 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Germany [Feb-13 = 86.8] France [Feb-13 = 104.8] Italy [Nov-12 = 115.0] Spain [Nov-12 = 103.2] Index of relative labour unit costs (Feb 1999=100) Source: ASR, left hand chart as at 13 August 2013. Data used is latest available: For Germany and France as at 28 February 2013. For Italy and Spain as at 30 November 2012. Right hand chart: ASR, data used is latest available, as at 31 March 2013. 85 105 125 145 165 185 205 05 06 07 08 09 10 11 12 13 Goods Non-tourist services Tourism services Spain – Exports of Goods and Services (Index 2005=100)
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Overweight Spain 11 Source: Invesco Perpetual as at 31 July 2013. Active sector positions compared to FTSE Europe ex UK index. All data relates to Invesco Perpetual European Equity Income Fund. -2 0 2 4 6 8 10 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Spain – overweight position relative to benchmark (%) Valuation in aggregate for the Spanish market became very cheap – we added throughout the sovereign debt crisis  Draghi’s ‘Whatever it takes’ speech was, for us, the indicator that the market could move on from binary discussions about Eurozone break-up. Valuation became important again.
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Spain (continued) Positions raised aggressively in December 2012, post Draghi’s speech, and a 2 day trip to Madrid and Barcelona meeting 10 companies.  Added to existing positions in BBVA, OHL  New positions in Mediaset Espana, Bankinter, Indra All data relates to Invesco Perpetual European Equity Income Fund. 12
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Mediaset Espana 13 Source: Bloomberg as at 14 August 2013. 1Consensus as compiled by Bloomberg as at 14 August 2013. All data relates to Invesco Perpetual European Equity Income Fund. For illustrative purposes only. 2.5 4.5 6.5 8.5 10.5 12.5 14.5 16.5 18.5 20.5 22.5 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Mediaset Espana share price  In 2007 the company made an EBIT of €478m. There were 6 players in the market  In 2012 the company made an EBIT of €32m. There are currently 2 players in the market  Since the peak in 2007 the Spanish advertising market is down 60%  For 2015E consensus has an EBIT of €149m1 € Position initiated in December 2012
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Bankinter 14 Source: Bloomberg as at 28 August 2013. All data relates to Invesco Perpetual European Equity Income Fund. For illustrative purposes only. • Best asset quality in Spain as per Oliver Wyman review • Top end of mass market client profile • 100% ownership of Linea Directa insurer with ROE of 23% and solvency above 30%. • In December 2012, the company traded at implied 0.6x P/TBV on the bank for a 2013 ROE of 7.6% - assuming the insurance business was worth zero. 0 1 2 3 4 5 6 7 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Bankinter share price Position initiated in December 2012 €
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Indra 15 Source: Bloomberg as at 14 August 2013. All data relates to Invesco Perpetual European Equity Income Fund. For illustrative purposes only. Indra share price  High quality IT service and solutions company  C.60% sales international growing double digits – strong position in Latin America  C.40% sales from Spain with revenues down c.50% from peak. Analysts have little to no recovery in models  Working capital at peak – government policy now aimed at easing the system  Trades at 0.8x EV/S with analysts cautious on top-line, margin and working capital 0 2 4 6 8 10 12 14 16 18 20 Aug08 Dec08 Apr09 Aug09 Dec09 Apr10 Aug10 Dec10 Apr11 Aug11 Dec11 Apr12 Aug12 Dec12 Apr13 Aug13 Position initiated in December 2012 €
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Why underweight Germany? Source: HSBC, MSCI, Thomson Reuters, World Bank as at 31 January 2012. Chart data refers to period 1974 to 31 December 2011. Key to countries: AS = Austria, BG = Belgium, CN = Canada, DM = Denmark, FR = France, GE = Germany, JP = Japan, NL = Netherlands, NW = Norway, SD = Sweden, SW = Switzerland, UK = United Kingdom, US = USA. All data relates to Invesco Perpetual European Equity Income Fund. AS BG CN DM FR GE JP NL NW SD SW UK US y = -1.7121x + 10.144 R² = 0.11 0 2 4 6 8 10 12 1.0 1.5 2.0 2.5 3.0 3.5Realequityreturns,% Real GDP growth, %  We find cheaper markets elsewhere  We are agnostic/ negative on large index positions; RWE, EON, Deutsche Bank, Allianz, BASF.  The correlation of GDP growth rates and stock performance is very low 16
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Overweight financials -15 -10 -5 0 5 10 15 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Financials Banks Nonlife Insurance Life Insurance Source: Invesco Perpetual as at 31 July 2013. Active sector positions compared to FTSE Europe ex UK index. P&C = Property & Casualty. All data relates to Invesco Perpetual European Equity Income Fund. Valuation together with dividend potential saw a rotation since the beginning of 2011 from P&C insurance, through Life insurers, and since early this year, towards banks. 17 %
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Progress on capital build means banks have potential to pay significant dividends 18 6% 7% 8% 9% 10% 11% 12% 13% -300 -250 -200 -150 -100 -50 0 50 100 150 200 250 2011 2012E 2013E 2014E 2015E CapitalSurplus/(deficit)€bn B3 Capital Surplus / (Deficit) B3 CET1 European Banking sector*: capital deficit turning to a surplus, 2011-2015E (€bn) Source: Citi as at 9 May 2013. B3 capital Surplus/(deficit) is calculated before dividends. For illustrative purposes only. *Stocks included: KBC, Erste Bank, Raiffeisen Bank Int’l, BNP Paribas, Credit Agricole, Natixis, Societe Generale, Commerbank, Deutsche Bank, Banco popolare, BP Milano, Intesa Sanpaolo, Monte dei Pacshci, UBI Banca, Unicredit, Danske Bank, DnB, Nordea, SE Banken AB, SHB, Swedbank, Credit Suisse, UBS, Barclays, HSBC, Lloyds Banking group, RBS and Standard Chartered. For illustrative purposes only. -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% Nordics France Switzerland Italy Spain UK Benelux Austria Germany B3 Capital Surplus / (Deficit) - Post-Dividends 2015E Cum. Cash Dividend 2012-15E European banking sector* by country: Capital surplus position as a % of market cap (€bn)
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Nordea 19 10.5% 11.8% 13.8% 14.7% 15.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 2011 2012 2013E 2014E 2015E Nordea: Actual Basel 3 ET1 2011-2012, JPM’s estimated Basel 3 ET1 with a 65% dividend payout ratio for 2013E-2015E1 Source: 1Nordea company reports to 2012, JP Morgan Cazenove estimates 2013-2015E, as at 15 August 2013. For illustrative purposes only. 0.26 0.34 0.53 0.59 0.64 40% 44% 65% 65% 65% 0% 10% 20% 30% 40% 50% 60% 70% 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 2011 2012 2013E 2014E 2015E EUR DPS (EUR) Dividend payout (RHS) Nordea: Actual DPS and dividend payout 2011-2012, JPM’s estimated DPS and dividend payout ratio for 2013E-2015E1  High quality pan-Nordic bank, with industry-leading capital ratios  Realistic ROE targets, with history of stable returns through-out recent crisis  Earnings upside from key divisions in Finland, Denmark and Shipping  Likely to lift pay-out ratio in response to stronger capital position. A 65% pay-out ratio in 2014 would equate to a yield >6%
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Underweight consumer goods Source: Thomson Reuters Datastream as at 30 June 2013. Great companies. They just got too expensive. 80 90 100 110 120 130 140 150 160 Q3 2003 Q2 2004 Q1 2005 Q4 2005 Q3 2006 Q2 2007 Q1 2008 Q4 2008 Q3 2009 Q2 2010 Q1 2011 Q4 2011 Q3 2012 Q2 2013 MSCI Europe Consumer staples 12mth fwd P/E ratio relative to MSCI Europe (x) LT Average 20 PE ratio indexed
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Consumer Goods Expensive with downgrades is a poor combination 21 -0.25 -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20 0.25 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Source: Left hand chart1: UBS European Equity Strategy, Thomson Datastream as at 20 July 2013. Earnings momentum defined as: (Number of estimates upgraded in last 3 months minus number of estimates downgraded in last 3 months) divided by the total number of estimates.) Based on 3 months average of 1 month absolute earnings momentum. MSCI Europe Food Producers/Beverages/Tobacco vs. Financials: 3 mths earnings momentum1
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The challenges in using our approach  Tendency to be early in. In times of true macro stress the market can ignore valuation for a period of time. Q2 2012 was very difficult.  Tendency to be early out. A valuation focus means we will often sit out the momentum stage of a bull market  Backward looking volatility measures can look higher than peers 22
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 The benefits of our approach  A tendency to be early, with preparatory valuation work already done on how the cycle may develop.  A close and experienced fund management team adds depth of analysis  Work done on the intrinsic value of a stock allows more conviction to add to positions in times of volatility  Valuation discipline means we have no pre-conceived ideas about what is and is not investable 23
    • 52218/LI/NewModelAdviserRetreat-SB-Sept13 Important information This presentation is for Professional Clients only and is not for consumer use. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns. Where Stephanie Butcher and Joel Copp-Barton have expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals. Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. The Invesco Perpetual European Equity Income Fund may use derivatives (complex instruments) in an attempt to reduce the overall risk of its investments, reduce the costs of investing or generate additional capital or income, although this may not be achieved. The use of such complex instruments may result in greater fluctuations of the value of the fund. The Manager, however, will ensure that the use of derivatives within the fund does not materially alter the overall risk profile of the fund. For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents and the Supplementary Information Document. This information is available using the contact details shown. 24 Issued by Invesco Fund Managers Limited Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxon, RG9 1HH, UK Authorised and regulated by the Financial Conduct Authority.