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POWERING INCOMECazenove UK Equity Income Fund       Matt Hudson, Fund Manager     Robert Thorpe, Head of UK Retail        ...
Equity yields vs bonds        UK               Equities                                                    3.76           ...
UK equities - a leading equity income source                     12                               FTSE MIB (Italy)        ...
Three Citywire AAA UK managers - three UK sector leaders  IMA: UK All Companies                   IMA: UK Smaller Companie...
Cazenove UK Equity Income Fund   Philosophy, process & performance
UK equity income – the power of compoundingIncome reinvested outperforms*                                    1400.00      ...
Appreciating capitalAnnualised returns*7.00       Total Return % (Annualised)       Capital Return % (Annualised)6.005.004...
Portfolio strategy – income through the cycle                Slowdown                 Recession              Recovery     ...
Where are we in the business cycle(s)?UK Markit Manufacturing PMI                                      UK Manufacturing PM...
Income portfolio construction – driving returns• Business cycle• Pragmatic income• Focused approachCazenove UK Equity Inco...
Cazenove UK Equity Income Fund          Current views
Safety first – the bubble in securityUnilever price: relative performance and 2013 earnings forecasts200                  ...
Income investing – yield at a premium (1)Severn Trent: Trend P/E relative, 1990 - 2012220200180160140120                  ...
Income investing – yield at a premium (2)Barclays: Trend P/E relative, 1990 - 2012140120100                               ...
Dividend recoveriesFTSE All Share – Dividend Per Share Growth (YoY %)*                                 Cazenove UK Equity ...
Portfolio strategy – active positions                         Underweight                    Market               Overweig...
Cazenove UK Equity Income Fund5 year cumulative performance40       Cazenove UK Equity Income B Inc30       IMA UK Equity ...
Summary• UK Equity yields look attractive compared to other equity markets• A business cycle fund offers an alternate UK e...
Thank you  Q&A
Regulatory information and risk warningsIssued by Cazenove Capital Management which is the name under which Cazenove Capit...
Appendix
The Cazenove UK Equity Income Fund – summaryInternal Performance Objective:“The Fund aims to outperform by 1.5% over rolli...
Cazenove UK Equity Income Fund – portfolio through the cycleBusiness cycle (+ve) active weights for                       ...
Business cycle investing – market analysis• Sector market divides are not homogenous. They do not necessarily help us dete...
Business cycle investing - seven style groupings• Commodity Cyclicals – stocks whose revenues are linked either directly o...
Business cycle investing - horses for courses                                                              Performance rel...
Stock selection - Filtrona                450• Franchise• Income        400                                               ...
Portfolio strategy – business cycle style tilts                         Change over 12 months                             ...
Cazenove UK Equity Income Fund – performance analysisCazenove UK Equity Income relative to IMA UK Equity Income (%)3.002.0...
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Cazenove capital management

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Transcript of "Cazenove capital management"

  1. 1. POWERING INCOMECazenove UK Equity Income Fund Matt Hudson, Fund Manager Robert Thorpe, Head of UK Retail For professional advisers only www.cazenovecapital.com
  2. 2. Equity yields vs bonds UK Equities 3.76 10 year gilt 1.82 AAA-AA 1.49 AAA-A 1.94 BBB 3.38 BB-B (HY) 6.43 US Equities 2.20 10 year treasury 1.76 AAA-AA 2.32 AAA-A 2.03 BBB 3.32 BB-B (HY) 5.89 Eurozone Equities 4.40 10 year bund 1.31 AAA-AA 1.25 AAA-A 1.53 BBB 3.27 HY 6.47 Source: Datastream & Bloomberg, gross market yield: 01/01/07 to 31/12/12 -2-
  3. 3. UK equities - a leading equity income source 12 FTSE MIB (Italy) IBEX 35 (Spain) DAX 10 S&P 500 Nikkei 225 FTSE All-Share 8Dividend yield (%) 6 4 2 0 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Source: Datastream & Bloomberg : 01/01/07 to 31/12/12 -3-
  4. 4. Three Citywire AAA UK managers - three UK sector leaders IMA: UK All Companies IMA: UK Smaller Companies IMA: UK Equity Income UK Opportunities Fund UK Smaller Companies Fund UK Equity Income Fund Nominated UK growth fund Winner UK smaller companies fund of the year Nominated UK equity income fundof the year 2012 Investment Week Awards 2012 Investment Week Awards of the year 2012 Investment Week Awards 2012 Industry’s best selling 2012 Industry’s best selling 2013 Industry’s best selling UK equity fund* UK small cap fund* ….….? *Source: Cazenove Capital. 2012 net sales versus IMA sector -4-
  5. 5. Cazenove UK Equity Income Fund Philosophy, process & performance
  6. 6. UK equity income – the power of compoundingIncome reinvested outperforms* 1400.00 5 years cumulative income returns** 1200.00 Cazenove UK Equity Income 25.6% FundIndex rebased to 100 as of Dec 85 FTSE All-Share 1000.00 20.3% Index 800.00 600.00 400.00 200.00 0.00 Dec 85 Dec 90 Dec 95 Dec 00 Dec 05 Dec 10 FTSE All-Share Price Index FTSE All-Share Total Return Index *Source: Lipper, Dec 1985 – Dec 2012 **Source: Cazenove Capital Management -6- 5 years ended 31/12/12 (B Income class)
  7. 7. Appreciating capitalAnnualised returns*7.00 Total Return % (Annualised) Capital Return % (Annualised)6.005.004.003.002.001.000.00 IMA UK Equity Income FTSE All-Share Cazenove UK Equity Income B Inc *Source: Lipper, B (Inc) share class, net income reinvested 31/12/05 to 30/11/12 -7-
  8. 8. Portfolio strategy – income through the cycle Slowdown Recession Recovery ExpansionPhase:Stock:Delivers: Market yield & dividend High & secure yield Low / no yield, Dividend growth & growth high capital growth rerating -8-
  9. 9. Where are we in the business cycle(s)?UK Markit Manufacturing PMI UK Manufacturing PMI vs FTSE All-Share EPS estimates65 20 6560 10 6055 0 5550 -10 5045 -20 4540 -30 4035 -40 3530 -50 30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1999 2001 2003 2005 2007 2009 2011 Headline Index New Orders Earnings revisions last 6 months Manufacturing PMI Source: Markit & Thomson Datastream at 28/09/12 -9-
  10. 10. Income portfolio construction – driving returns• Business cycle• Pragmatic income• Focused approachCazenove UK Equity Income Fund year end positioning December December December December December December December December 2005 2006 2007 2008* 2009 2010 2011 2012 Premium real yields 44 49 68 86 60 54 55 60 Superior dividend growth 37 30 21 6 10 20 30 24 Capital Returns 19 21 11 8 30 26 15 16 No of stocks 69 78 58 51 68 57 52 55 Source: Cazenove Capital Management *cash 4.7% at year end 2008 - 10 -
  11. 11. Cazenove UK Equity Income Fund Current views
  12. 12. Safety first – the bubble in securityUnilever price: relative performance and 2013 earnings forecasts200 2600190 2400180 2200170 2000160 1800150 1600140 1400130 1200 Feb 09 Feb 10 Feb 11 Feb 12 Relative price against FTSE All Share (base=100) Best Standard EPS Adjusted 2013 (LHS) Price (RHS)• Secure growth has re-rated over deep cyclicals/value stocks from 2007• Driven by the search for safety…• …and emerging market growth over developed market maturity Source: Morgan Stanley & Cazenove Capital at 20/12/12 - 12 -
  13. 13. Income investing – yield at a premium (1)Severn Trent: Trend P/E relative, 1990 - 2012220200180160140120 • Investors mistaking100 ‘low volatility’ for 80 growth 60 • ‘Secure’ dividend 40 stocks squeezed 20 upwards 0 • Value traps Trend P/E relative Average + 1 SD - 1 SD Trend historic EPS growth rate = 5.2% Source: Mirabaud - 13 -
  14. 14. Income investing – yield at a premium (2)Barclays: Trend P/E relative, 1990 - 2012140120100 • ‘High volatility’ stock de-rated is the 80 opposite side of the trade 60 • Value opportunities 40 20 0 Trend P/E relative Average + 1 SD - 1 SD Trend historic EPS growth rate = 3.9% Source: Mirabaud - 14 -
  15. 15. Dividend recoveriesFTSE All Share – Dividend Per Share Growth (YoY %)* Cazenove UK Equity Income Fund**40.0 Dividend Year distributions (net)30.0 2007 4.39p 2008 5.12p 2009 4.84p20.0 2010 4.55p 2011 4.86p 2012 5.12p10.0 0.0-10.0-20.0-30.0 Jan-73 Jan-77 Jan-81 Jan-85 Jan-89 Jan-93 Jan-97 Jan-01 Jan-05 Jan-09 *Source: MSDW/Datastream, FTSE, Global Financial Data, Morgan Stanley Research **Source: Cazenove Capital - 15 -
  16. 16. Portfolio strategy – active positions Underweight Market Overweight -4.54% BP easyJet +1.76% -4.48% Shell A Legal & General +1.73% -3.72% GlaxoSmithKline Berendsen +1.67% -3.26% Shell B GKN +1.65% -2.55% Diageo Aberdeen Asset +1.61% -2.54% BHP Billiton DS Smith +1.61% -1.86% HSBC Resolution +1.60% -1.75% Standard Chartered Rio Tinto +1.59% -1.61% Unilever BT Group +1.58% -1.50% SAB Miller Babcock +1.56% Market Cap Exposures Index Portfolio FTSE 100 84.3% 60.8%Portfolio Risk FTSE 250 13.4% 29.5%Predicted Tracking error p.a. 4.1% FTSE Small Cap 2.3% 1.5% AIM - 0.2%Beta 0.91 Ex Index - 3.1%# of stocks 55 Cash - 4.9% Source: Cazenove Capital Management 31/12/2012 - 16 -
  17. 17. Cazenove UK Equity Income Fund5 year cumulative performance40 Cazenove UK Equity Income B Inc30 IMA UK Equity Income2010 0-10-20-30-40-50 Source: Lipper 31/12/07 to 31/12/12 - 17 -
  18. 18. Summary• UK Equity yields look attractive compared to other equity markets• A business cycle fund offers an alternate UK equity income approach• Cazenove UK strength: three UK managers AAA rated by Citywire• Cazenove UK Equity Income Fund 1st decile over 1, 2, 3 ,4 and 5 years*• Fund has delivered above market and sector yield for last 5 calendar years**• Capital returns a key focus• Historic yield of 4%†• From 0.75% AMC – across all major platforms†† Citywire rating to 30/11/12.*Source: Lipper B (Inc) reinvested to 30/11/12..**Source: Cazenove Capital B (Inc) net income reinvested. †Source: Cazenove Capital, B (Inc) net income reinvested. ††X class 0.75% AMC, minimum investment £1million (waived via adviser platforms), A class 1.0% AMC, minimum investment £25, 000, B class 1.5% AMC, minimum investment £1000.
  19. 19. Thank you Q&A
  20. 20. Regulatory information and risk warningsIssued by Cazenove Capital Management which is the name under which Cazenove Capital ManagementLimited and Cazenove Investment Fund Management Limited both authorised and regulated by the FinancialServices Authority provide investment products and services. Past performance is not a guide to futureperformance. The value of investments and the income from them can go down as well as up and an investormay not get back the amount originally invested and may be affected by fluctuations in exchange rates. Thelevels and bases of tax assumptions may change. This document is for information purposes only and does notconstitute an offer to enter into any contract/agreement nor is it a solicitation to buy or sell any investment or toprovide any services referred to therein. Details of the terms and risk warnings are contained in the Prospectusand Key Investor Information Document. This document is intended for Professional Advisers, ProfessionalIntermediaries and non-private clients only. - 20 -
  21. 21. Appendix
  22. 22. The Cazenove UK Equity Income Fund – summaryInternal Performance Objective:“The Fund aims to outperform by 1.5% over rolling 3 year periods and achieve a minimum yield of 110%of the benchmark yield” Benchmark FTSE All-Share Index • Pragmatic income Number of stocks Current 55, minimum 35 • Income and Capital returns Portfolio Restrictions Stock +5% / No minimum (Rel to FTAS) Sector +10 / No minimum • Business cycle approach 50% max weight in mid-cap,10% max in small/ AIM/ other • Focused portfolio (+ minimum 80% in UK Equities) Tracking Risk 4-8% target range, current 4.1% • Top decile 1, 3 and 5 years* Launch Date 6 May 2005 Fund Size £175m Structure UK Domiciled, UCITS III Base Currency £ (Sterling) Historic Yield 4.0% *Source. Cazenove Capital Management, fund ranking in Lipper UK Equity Income universe as at 30/11/12. There - 22 - is no guarantee that the target will be met.
  23. 23. Cazenove UK Equity Income Fund – portfolio through the cycleBusiness cycle (+ve) active weights for Business cycle (-ve) active weights forCazenove UK Equity Income Cazenove UK Equity Income 40 0 35 -5 Active weight (%) 30 -10Active weight (%) 25 -15 20 -20 15 -25 10 -30 5 -35 0 -40 Commodity Cyclical Consumer Cyclical Financial Commodity Cyclical Consumer Cyclical Financial Growth Growth Defensive Industrial Cyclical Growth Growth Defensive Industrial Cyclical Value Defensive Value Defensive December December December December December December December December 2005 2006 2007 2008* 2009 2010 2011 2012 Premium real yields 44 49 68 86 60 54 55 60 Superior dividend growth 37 30 21 6 10 20 30 24 Capital Returns 19 21 11 8 30 26 15 16 No of stocks 69 78 58 51 68 57 52 55 Source: Cazenove Capital Management *cash 4.7% at year end 2008 - 23 -
  24. 24. Business cycle investing – market analysis• Sector market divides are not homogenous. They do not necessarily help us determine the behaviour of these stocks within the cycle.• Define the beta of stocks and allocate them to seven style groupings: Commodity Cyclicals Growth Financials Growth Defensives Consumer Cyclicals Value Defensives Industrial Cyclicals HIGHER BETA LOWER BETA• Pragmatic approach combining top-down macro view with earnings based security selection• Avoid permanent style / size bias• Demand for products and services changes throughout the business cycle• Operational gearing of companies impacts profitability of companies - 24 -
  25. 25. Business cycle investing - seven style groupings• Commodity Cyclicals – stocks whose revenues are linked either directly or indirectly to a particular commodity product such as oil, steel, gas, mining, bulk chemicals e.g. BP, Rio Tinto• Consumer Cyclicals – cyclical stocks which rely on consumer spending for their revenues e.g. retailers, automotives, house builders, leisure, general retail e.g. Marks & Spencer, easyJet• Industrial Cyclicals – stocks which manufacture capital goods or which have revenues linked to industrial production e.g. engineering, aerospace, construction e.g. GKN, Vesuvius• Growth – stocks which grow revenues well in excess of GDP with a high degree of uncertainty or volatility e.g. luxury goods, medical technology, IT e.g. Smith and Nephew, ARM Holdings• Financials/Interest Rate Sensitive – stocks whose business depends on interest rate spreads, financial markets and asset valuations e.g. banks, insurers, real estate e.g. Barclays, Land Securities• Growth Defensives – stocks which grow revenues in excess of GDP with a low volatility and high visibility e.g. support services, food retailers e.g. Pearson, Compass group• Value Defensives – stocks which grow revenues at or below GDP with low volatility and high visibility e.g. telecommunications, pharmaceuticals, utilities, food producers, beverages, tobacco, e.g. GlaxoSmithKline, Vodafone - 25 -
  26. 26. Business cycle investing - horses for courses Performance relative to FTSE All Share* 31.12.99 - 12.03.03 - 15.06.07 - 03.03.09 -Stock Sector Style 12.03.03 15.06.07 03.03.09 30.04.12Morgan Crucible Electronic & Electrical Cyclical -74% +272% -42% +129%Bodycote Industrial Engineering Cyclical -55% +114% -26% +120%Cookson General Industrials Cyclical -80% +98% -78% +246%Diageo Beverages Defensive +147% -17% +40% 19%Unilever Food Producers Defensive +178% -35% +57% -2%Reed Elsevier Media Defensive +72% -23% +43% -38% Source: Thomson Datastream - 26 -
  27. 27. Stock selection - Filtrona 450• Franchise• Income 400 Recovery to growth• Optionality 350 SOLD 300 250 A growth stock BOUGHT 200 A value trap 150 100 2005 2006 2007 2008 2009 2010 2011 2012 Source: Thomson Datastream, 20/01/05 to 20/01/11 Weekly - 27 - HIGH 397.30 10/1/12, LOW 110.25 23/6/09, LAST 380.30
  28. 28. Portfolio strategy – business cycle style tilts Change over 12 months Key income portfolio Fund % Index % vs FTSE All-Share holdingsCommodity Cyclicals -13.8% 6.7 25.6 Rio TintoConsumer Cyclicals +29.9% 14.8 5.4 EasyjetIndustrial Cyclicals +14.3% 9.3 6.1 ElementisFinancials +21.7% 26.7 19.4 AvivaOther/Cash/Unallocated = 7.0 4.3 CineworldGrowth +1.6% 1.2 4.3 SageGrowth Defensives +10.2% 5.1 9.1 BabcockValue Defensives -8.8 % 29.3 25.7 BATS Overweight Underweight Neutral/ NA Source: Cazenove Capital at 31/12/12 - 28 -
  29. 29. Cazenove UK Equity Income Fund – performance analysisCazenove UK Equity Income relative to IMA UK Equity Income (%)3.002.001.000.00-1.00-2.00 Blue = Positive IMA Sector Return Red = Negative Sector Return-3.00 Source: Lipper 30/06/2005 to 30/11/2012 - 29 -
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