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Citywire thomas moore (mg 17 october 2013) Citywire thomas moore (mg 17 october 2013) Presentation Transcript

  • This presentation is intended for investment professionals and must not be relied on by anyone else Standard Life Investments October 2013
  • UK Equity Income Unconstrained Fund Thomas Moore
  • Unconstrained approach to UK Equity Income At least 110% of FTSE All Share Yield Dividend growth Fund income pay-out outstripping market Capital growth Capital return benefit of Unconstrained approach Total return focus TOTAL RETURN Dividend yield 3
  • Thomas Moore – Background Title Investment Director Professional Qualifications BA (First Class) in Economics and Politics, Exeter University Associate of the CFA Society of the UK Brief Job Description Thomas Moore is an Investment Analyst and Manager in our UK Equities team. He is responsible for managing the UK Equity Income Unconstrained Fund and the Standard Life Equity Income Trust, managing two institutional funds (combined value of over £400m) and analysing the Banks and Financial Services sectors. 2013 2012 2011 2010 2009 2008 2008 2007 2006 2005 2003 2002 1998 1998 Income Unconstrained Fund breaks through £200m Income Unconstrained Fund breaks through £100m and achieves its 3rd top decile year (out of 4 under manager tenure) Assumed responsibility for Standard Life Equity Income Trust Voted no.1 Pan European buy side Speciality & Other Finance analyst in the 2010 Thomson Extel Survey (voted for by companies and sell side analysts) Assumed responsibility for the Income Unconstrained Fund. The Fund is top decile during manage tenure Voted no.1 Pan European buy side Speciality & Other Finance analyst in the 2008 Thomson Extel Survey (voted for by companies and sell side analysts) Assumed responsibility for managing a segregated institutional pension fund Assumed responsibility for two UK institutional funds, Stock Exchange Asset Fund and International Asset Fund Joined UK Equities team Appointed Investment Director Joined Emerging Markets Equity team, managing EMEA portfolios with a focus on the South African market Joined Standard Life Investments in September 2002 as Investment Analyst Joined Schroder Investment Management as Assistant Fund Manager, UK Equities. Subsequently appointed Investment Analyst, Emerging Markets Graduated with a BA in Economics and Politics from Exeter University. 4
  • UK Equity resource Average years experience Average years at Standard Life Investments 14 UK Large Company Specialists 14 11 5 UK Small Company Specialists 20 11 2 Quantitative analysts 15 12 8 Governance & Stewardship and SRI 20 9 Key Attributes Optimum team size Coverage, co-ordination, communication, rapid investment response Clear incentivisation and accountability Rewarded on delivering client and business performance objectives Structured global input Active communication structure Source: Standard Life Investments, 30 September 2013 5
  • Key Benefits of Unconstrained approach Agenda – 2 key benefits of Unconstrained approach Increased diversification • Conviction-based position sizes • Avoids heavy concentration of mega caps Potential for superior total return • Focus on dividend growth, not just dividend yield • Dividend growth driving capital growth Unconstrained approach potential to diversify income and enhance return Selective exposure to best total return opportunities Diversification Total Return 6
  • Process driving repeatability Portfolio construction Stock selection Full coverage of FTSE 350 and benefit from expertise of UK Smaller Companies team Focus on Change idea generation Stock screening Matrix Quant Model Focus on EPS / dividend momentum and scrutiny of dividend policy Conviction-based position sizes increase diversification vs. benchmark-led approach Heavy representation of Winners List stocks in portfolio Weekly screen of holdings and portfolio style analysis Portfolio income forecasting Income Monitoring Risk Diversification Iterative risk model identifies risk clusters Best ideas 7
  • Unconstrained approach reduces concentration risk 9 UK Equity Income Sector UK Equity Income Unconstrained 8 Top 10 holdings = 41.3% Top 10 holdings = 26.5% 7 % position size 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 Stock number by order of position size Sources: Standard Life Investments & Lipper, July 2013 Conviction-based approach increases portfolio diversification Diversification Total Return 8
  • Where is the average UK Equity Income Fund invested? Average weight in UK Equity Income Funds % UK Equity Income Unconstrained Fund % % of Funds in sector holding stock Rank Asset Name 1 GlaxoSmithKline 7.7 0.0 88.6 2 AstraZeneca 6.3 0.0 67.1 3 BT 4.8 4.2 72.9 4 British American Tobacco 4.2 0.0 70.0 5 BAE Systems 3.8 0.0 57.1 6 Imperial Tobacco 3.2 0.0 61.4 7 Centrica 3.1 1.0 75.7 8 Reckitt Benckiser 2.9 0.0 32.9 9 Royal Dutch Shell 2.8 0.0 67.1 10 HSBC 2.5 2.0 74.3 Source: Lipper UK Equity Portfolio Analysis, 30 June 2013 Challenge consensus Diversification Total Return 9
  • Dividend growth driving share price performance 10 year dividend growth and performance (CAGR) Average performance (% per annum) 25% 20% Income portfolios have few stocks with gearing to growth 15% 10% Income portfolios heavily concentrated in bond proxies 5% 0% -5% Down Up to 5% Between 5% and 10% Between 10% and 20% More than 20% Dividend growth (average) Sources: Oriel Securities, July 2013 Flexibility to invest in the large dividend payers of tomorrow Diversification Total Return 10
  • Unconstrained income growth outstripping market income growth Dividend payments* Apr Oct Dividend payments* Apr Capital return Datastream UK Market income growth Datastream UK Market income index Dividend growth Dividend growth Oct Total return profile under tenure 3 Years to Oct 2012 Market income growth +16% Fund income growth +46% Rebased to 100 on 31 October 2009 160 160 80 80 60 60 40 40 20 20 0 0 140 140 120 120 3½ Years to April 2013 100 100 Market income growth +22% Fund income growth +53% +5% +28% +9% Oct 2013 Apr 2013 Oct 2012 Apr 2012 Oct 2011 Apr 2011 Oct 2010 Apr 2010 Oct 2009 +10% * Dividend paid bi annually; ex dividend dates: 30 April, 31 October, payment dates: 30 June, 28 (29) February ** Based on investment in institutional income units between October 2009 and April 2013 Source: Lipper Investment Manager, 31 August 2013 Focus on income growth, not just yield Diversification Total Return 11
  • More rapid dividend growth a key benefit of unconstrained approach Dividend per share (rebased to 100 in Q3 2011) 210 Winners List holdings 190 easyJet L&G Inchcape 170 150 130 Mega-cap stocks not held Imperial Tobacco RD Shell AstraZeneca 110 100 90 70 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Source: Datastream, September 2013 Increased focus on dividend growth, rather than dividend yield Diversification Total Return 12
  • Focus on dividend growth potential easyJet BUY EXAMPLE Date of purchase Purchase price 432p Yield at point of purchase 2.4% Book cost yield 5.0% 2012 special dividend 8.1% Capital return Relative share price Consensus Dividend Forecast Year 1 (R.H Scale) Consensus Dividend Forecast Year 2 (R.H Scale) 26/01/12 +141.2% Total Return +152.4% Source: Datastream, all yields based on purchase price and returns since purchase date, 09 October 2013 Cumulative dividend yield of 15.5% on original purchase Diversification Total Return 13
  • Mid Cap dividends more robust than Large Cap UK dividend indices Index (as at 08 October 2013) 39.3 14.3 47.3 FTSE Small Cap 2.7 5.8 Not in index FTSE 250 83.0 FTSE 250 FTSE 100 Fund % FTSE 100 750 Index % 0.0 7.7 650 550 450 350 250 27 years to September 2013 Compound average annual dividend growth 150 FTSE 100 4.7% FTSE 250 6.9% Jan 2013 Jan 2012 Jan 2011 Jan 2010 Jan 2009 Jan 2008 Jan 2007 Jan 2006 Jan 2005 Jan 2004 Jan 2003 Jan 2002 Jan 2001 Jan 2000 Jan 1999 Jan 1998 Jan 1997 Jan 1996 Jan 1995 Jan 1994 Jan 1993 Jan 1992 Jan 1991 Jan 1990 Jan 1989 Jan 1988 Jan 1987 Jan 1986 50 Source: Datastream, 08 October 2013 Potential benefit from income opportunities from across the market Diversification Total Return 14
  • UK Equity Income Unconstrained Top 10 Holdings % BT 3.6 DS Smith 3.1 Legal & General 3.0 easyJet 2.5 Staffline 2.4 Rio Tinto 2.4 HSBC Overweight / Underweight Sectors* 2.4 Financial Services Travel & Leisure Nonlife Insuranca Support Services Media Mobile Telecommunications Mining Banks Close Brothers Tyman 2.2 Pharmaceuticals & Biotech 2.1 Oil & Gas Producers Beazley 2.0 -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% * Sector Bet relative to FTSE All Share index Source: Standard Life Investments, 08 October 2013 Stock selection is key – conviction-based portfolio construction Diversification Total Return 15
  • Outperformed through changing market conditions Overall markets Rising markets Falling markets Outperformed peer group Outperformed peer group Outperformed peer group 39 months 26 months 13 months out of a possible 56 out of a possible 34 out of a possible 22 70% 76% 59% Source: Lipper Investment Manager, 01 January 2009 to 31 August 2013 Thomas Moore appointed manager on 01 January 2009 Outperformance is not dependent on market direction 16
  • Outlook – baton passing from valuation to earnings • Baton set to pass from valuation re-rating to earnings momentum • Supportive environment of accelerating economic growth and corporate earnings recovery • Valuation re-rating has not been broad-based, creating opportunities, e.g. EM stocks, REITs and defensives • Focus on highest-conviction ideas allows the Fund to avoid any vulnerable parts of the market Unconstrained approach driven by stock selection, not market direction 17
  • Unconstrained approach to UK Equity Income Agenda – 2 key benefits of Unconstrained approach Increased diversification • Conviction-based position sizes • Avoids heavy concentration of mega caps Potential for superior total return • Focus on dividend growth, not just dividend yield • Dividend growth driving capital growth Unconstrained approach potential to diversify income and enhance return Selective exposure to best total return opportunities Diversification Total Return 18
  • Appendices
  • Risk characteristics UK Equity Income Unconstrained* FTSE All Share* Predicted Beta 1.03 - Predicted Tracking Error 4.76 - Predicted Volatility 15.63 14.42 Biggest contributors to relative risk Overweight Underweight Tyman Royal Dutch Shell Staffline Group BP DS Smith GlaxoSmithKline International Personal Finance Vodafone Howden Joinery AstraZeneca UK Equity Income Unconstrained Fund 01/01/2009 – 31/08/2013 (%) Upside Capture 141.85 Downside Capture 92.20 * Standard Life Investments (Northfield) 30 September 2013 Source: Capture numbers sourced from Factset, 31 August 2013 Unconstrained does not necessarily mean high risk Diversification Total Return 20
  • Top decile performance 3 years out of 4 + YTD Performance against peer group and market during manager tenure UK Equity Income Unconstrained Fund 310 280 Standard Life UK Equity Income Unconstrained Inst Acc Mstar (IMA) UK Equity Income (NX) GBP FTSE 350 High Yield TR GBP (NX) GBP 263.2% 250 220 190 182.3% 160 163.4% 130 100 70 Source: Morningstar, 09 October 2013 Thomas Moore appointed manager on 01 January 2009 Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary information to the Mutual Funds UK Equity Income Unconstrained GIPS® composite report, which is enclosed in the Appendix for your reference Top decile in IMA sector under current manager tenure Diversification Total Return 21
  • UK Equity Income Unconstrained Performance attribution relative to FTSE All Share 40.00 Stock Selection Market Cap Allocation 35.00 30.00 25.00 % 20.00 15.00 10.00 5.00 --5.00 -10.00 2009 2010 2011 2012 YTD* Tenure** * 01 January 2013 to 30 June 2013 ** Since 01 January 2009 Source: Factset, gross performance, 30 June 2013 Stock selection the primary driver of performance 22
  • Unconstrained income growth outstripping market income growth 160 Rebased to 100 on 31 October 2009 150 140 130 120 110 100 90 80 Oct 09 Apr 10 Oct 10 Apr 11 Fund income distribution Oct 11 Apr 12 Oct 12 Apr 13 UK equity market income * Dividend paid bi annually; ex dividend dates: 30 April, 31 October, payment dates: 30 June, 28 (29) February ** Based on investment in institutional income units between October 2009 and April 2013 Source: Lipper Investment Manager & Datastream, 31 August 2013 Focus on income growth, not just yield Diversification Total Return 23
  • Example of process: Inchcape (purchase July 2012) Stock selection BUY-rated stock. Encouraging management meeting in March 2012, following which stock sold off sharply on macro concerns Stock screened well on Matrix, in particular EPS revisions and balance sheet strength Dividend outlook underpinned by EPS upgrades and balance sheet + management confident Weighting in portfolio reflects conviction levels + avoids opportunity cost of large holdings in low growth mega-caps Portfolio construction Focus on Change idea generation Matrix Quant Model Stock promoted to Winners List in October 2012 following team discussion Weekly screen highlights very high Matrix score (22) including maximum score (4) for EPS revisions ratio Income Monitoring Significant contributor to portfolio income: +42% final DPS followed by +42% interim DPS (declared August 2013) Risk Diversification Awareness of stock’s correlation to other stocks in the portfolio – overall portfolio highly diversified Best ideas 24
  • Stock example – Inchcape E D D Purchased, July 2012 Eurozone crisis E D Inchcape/FTSE 350 Source: Datastream, 30 September 2013 D Inchcape – DPS1MN (RH Scale) Inchcape – DPS2MN (RH Scale) 25
  • Heightened risk for funds exposed to bond proxies 2800 2700 0.5 Imperial Tobacco (LHS) 1.0 10 Year UK Government Bond Yield (RHS) 2600 2500 1.5 2.0 2200 2.5 3.0 2000 Imperial Tobacco (p/share) 2400 R² = 0.72 2300 2100 1900 3.5 1700 1800 4.0 1600 Aug 09 4.5 Mar 10 Oct 10 May 11 Dec 11 Jul 12 Feb 13 1500 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 10 Year UK Government Bond Yield Source: Bloomberg & Standard Life Investments, August 2013 Income funds heavily exposed to bond-like equities – need for diversification 26
  • Mega cap income suffering downgrades AstraZeneca Earnings forecasts Relative share price Consensus Earnings Forecast Year 1 (R.H Scale) Consensus Earnings Forecast Year 2 (R.H Scale) Dividend forecasts Relative share price Consensus Dividend Forecast Year 1 (R.H Scale) Consensus Dividend Forecast Year 2 (R.H Scale) • Need to be selective among perceived "defensive" sectors • Dividend downgrades reflect underlying concerns over company fundamentals • Dividend cover becoming more stretched Source: Thomson Datastream, 08 October 2013 Consensual view + waning earnings momentum = dangerous combination 27
  • Defensive sectors have generally performed well... Total return, 12 months to June 2013 35 30 25 20 15 10 5 0 Food Producers Beverages Telecoms Pharmaceuticals Food Retailers Utilities Tobacco Source: Datastream & Oriel, 30 June 2013 Sector performance not typical of a rising market 28
  • …..but have disappointed on earnings Revisions to 2013 earnings estimates, 12 months to June 2013 0% • Deteriorating fundamentals affecting profitability in -2% sectors perceived to be -4% defensive • Positive FX only partially -6% mitigating against -8% fundamental headwinds • Highlights need to be -10% selective and invest only -12% Beverages Food Producers Utilities Tobacco Telecoms Food Pharmaceuticals Retailers where we have conviction Source: Datastrea & Oriel, 30 June 2013 Earnings downgrades provide a ceiling to share prices among defensives 29
  • Matrix Factor Performance Chart Since 1997 Equally Weighted Performance vs Equally Weighted FTSE350 Index (Ex Inv Trusts) – Since Jan 1997 250 200 150 100 50 0 -50 -100 1m Chg in 6m MAV Fwd 12m PE Source: Standard Life Investments, 07 October 2013 1m Chg in 9m MAV Rolling 12m EPS Growth Price / Sales Ratio Revisions Ratio (EPS FY1) Dividend Yield FY1 3m EPS Revisions 30
  • UK Equity Team Sector coverage (FTSE350) David Cumming Oil & Gas Producers (Royal Dutch Shell, BP & BG), Mining (ex Diamonds & Precious Metals), Industrial Metals Euan Stirling Aerospace & Defence, Life Insurance, Private Equity, Equity Investment Instruments John Wilson Pharmaceuticals & Biotechnology, Oil & Gas (exc.Royal Dutch Shell, BP & BG) Services & Distribution, Oil Equipment Karen Robertson Gas, Water & Multiutilities, Electricity, Beverages, Tobacco Lesley Duncan Support Services (ex Business Support Services), Household Goods (ex Reckitt), Construction & Materials Edward Legget Industrial Transport, Industrial Engineering (inc. GKN), Electronics & Electrical Equipment, Automobile & Parts Thomas Moore General Financials (ex Private Equity), Banks Kiki MacDonald General Retailers (inc. Burberry), Food & Drug Retailers Elena Fernandez Media, Technology Hardware & Equipment, Software & Computer Services Andrew Millington Support Services (Business Support Services), Telecoms (Fixed line & Mobile) Ian Runacres Non Life Insurance, Travel & Leisure Henry Flockhart Chemicals, Real Estate Abby Glennie Food Producers, Health Equipment & Services, Personal Goods, Diamonds & Precious Metals Source: Standard Life Investments, 30 June 2013 31
  • Learning Gateway • Learning Gateway is a comprehensive portal of educational resources that has been designed to complement your professional body's ongoing structured CPD and training requirements both pre and post 01 January 2013 • For free access to a wide range of investment, business and compliance related online courses please visit us at www.standardlifeinvestments.com/training • Offers advisers free access to a comprehensive range of 136 investment, business and compliance related online courses* • All tutorials are suitable for CPD purposes with a number of leading trade bodies including the CISI, PFS, CII and CFA • We are partnering with Intuition, a leading and established provider of eLearning Focused on delivering superior performance Investment focused learning relevant to this product: • Equities - An Introduction • UK Equity Market • US Equity Market • Japanese Equity Market * See Appendix for list of launch content Working in partnership with our distributors 32
  • Mutual Funds UK Equity Income Unconstrained Composite Name Mutual Funds UK Equity Income Unconstrained Creation Date 01-03-2007 Firm Standard Life Investments Currency GBP Report End Date 31-12-2012 Composite Group Benchmark Mutual Funds Morningstar UT - UK Equity Income Anlzd Return (Composite) Anlzd Return (Benchmark) 3 Year Anzld StdDev (Composite) 3 Year Anzld StdDev (Benchmark) Dispersion Market Value Total Firm Assets % of Firm Assets Number of Portfolios Dec 2003 NA NA NA NA NA NA NA NA NA Dec 2004 NA NA NA NA NA NA NA NA NA Dec 2005 NA NA NA NA NA NA NA NA NA Dec 2006 NA NA NA NA NA NA NA NA NA Dec 2007 -11.52 -2.20 NA NA NA 38,694,783 137,224,600,000 0.03 1 Dec 2008 -43.27 -29.77 NA NA NA 13,092,899 117,976,300,000 0.01 1 Dec 2009 44.16 23.41 NA NA NA 19,599,658 127,011,600,000 0.02 1 Dec 2010 25.83 13.94 26.63 19.10 NA 26,094,543 131,730,800,000 0.02 1 Dec 2011 -9.44 -3.04 19.49 14.92 NA 71,829,227 123,331,600,000 0.06 1 Dec 2012 25.10 14.15 15.54 11.89 NA 105,171,530 133,922,900,000 0.08 1 Firm Disclosures A complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products. Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Standard Life Investments 'The Firm' consists of all fee-paying funds managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments (USA) Limited and Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the performance record of the new firm Standard Life Investments. The new firm was created on 01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by Pricewaterhouse Coopers for the periods 1996 to 2012. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation Composite Disclosures Derivatives may be used for efficient portfolio management purposes Includes part period return for 2007 from 01/03 The composite includes funds that invest in UK high yielding equities or equity type investments with no restrictions regarding index weightings, sector constraints or company size. The benchmark is Morningstar UT Equity Income. The standard annual fee applicable to this composite is 0.80%, but individual fees are negotiated on an account basis 33
  • The information shown relates to the past. Past performance is not a guide to the future. The value of investment can go down as well as up. For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of please refer to the full prospectus which can be found on www.standardlifeinvestments.com Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. **Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time." Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training. www.standardlifeinvestments.com © 2013 Standard Life, images reproduced under licence 34