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Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
Threadneedle wealth managers retreat presentation 2012
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Threadneedle wealth managers retreat presentation 2012

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  • 1. US Equities at ThreadneedleCitywire Wealth Manager RetreatThe GroveCormac Weldon, Head of US Equities 18-19 October 2012
  • 2. Agenda / Contents1. Team and products2. Philosophy and process3. Portfolio construction4. Market outlook5. ConclusionOT.12.01817 1
  • 3. US Equities team equities Team Cormac Weldon Head of US Equities Health Care Diane Sobin Stephen Moore William Warren Materials, Energy Telecoms Technology Investment Team Brad Colton Paul Gannon Olivia Miller1 Nafis Chowdhury Financials Consumer Discretionary Consumer Staples Industrials Stéphane Jeannin Gary Young Other Investment Specialist Dedicated Dealer Other equity (including G & RI2) Property Fixed income and managed funds 21 professionals 36 professionals Additional 48 professionals resources Equity dealers Investment risk 6 professionals 9 professionals Overseeing $12.4 bn in US equities Overseeing $12.4bnSource: Threadneedle as at 30 June 2012. June 2012.Source: Threadneedle Investments as at 301 Junior analyst.1 Junior Analyst2 Governance and Responsible Investment.2 Governance and Responsible InvestmentPT.12.01817PT/11/00695 2
  • 4. Threadneedle’s main US equity strategies American American American Extended Fund Select Fund Alpha Fund Typical 4-6% 5-8% 4-8% tracking error1 Stock holdings: Long1 70-90 50-60 30-60 Stock holdings: Short1 - - 30-80 Max. sector load deviation + 10% + 10% + 15% Max. stock load deviation + 5% + 5% + 8% Benchmark S&P 500 S&P 500 S&P 500Source: Threadneedle1 The numbers indicated represent typical values under normal market conditionsPT.12.01817 3
  • 5. Gross performance in sterling Actual returns 1 year 3 years 5 years 10 years Large caps S&P 500 Composite Index +25.6% +12.8% +5.9% +7.7% Threadneedle American Fund +20.3% +14.2% +8.1% +9.0% Threadneedle American Select Fund +23.1% +11.5% +6.9% +8.9% American Extended Alpha Fund +28.3% +14.2% n/a n/aSource: FactSet as at 30 September 2012. Data quoted in GBP and annualised. Fund data is quoted on a bid to bid basis. Gross performance from 31 March 2010 isbased on daily cash flows and valuations. Prior to this Global Close prices. Prior to January 2008 based on 12pm prices 4
  • 6. Distinguishing between winners and losers We are constantly assessing  Macroeconomic information  Stock specific information We leverage Threadneedle’s resources  137 in house investment professionals  Access to 60 research houses  Company meetings with >700 US management teams per annum The questions we are asking ourselves is… What is priced in? What is our conviction in our differentiated view?PT.12.01817 5
  • 7. Ashland: a compelling upside/downside ratio $107 UPSIDE: $107 (+63%)  Greater pricing power thanks to better end markets (specialty ingredients)Share performance  Factoring-in cyclical rebound in performance2-year price performance materials  Margins uplift thanks to better mix of businesses, 80 integration efforts and cost rationalisations 75 $70  Broadly meeting management 2014 targets 70 65 DOWNSIDE: $52 (-28%)Price - $ 60  Factoring in 2008/9-like hit to businesses (but $52 taking consideration of the stronger business mix) 55  Stable margins in downturn in specialty ingredients 50 (c.50% of profits) 45  Business benefits from lower raw material prices & stickier prices on the downside 40 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12  Cyclical businesses of performance materials and water technology impacted  Limited impact on car motor oil segmentSource: Datastream as at 30 September 2012, in local currencyPT.12.01817 6
  • 8. Market background Earnings growth will slow down but margins are underpinned by:  Weak labour pricing power  Low interest and depreciation costs Corporate sector is strong – low debt and high cash flow Well capitalised and liquid banking system reduces tail risks Some sectors (housing; autos) are starting to add back to GDP growth Market valuation is attractive, especially relative to alternativesSource: Threadneedle as at 30 September 2012.PT.12.01817 7
  • 9. Housing market healingDurable goods spending% of disposable personal income¹ Existing home inventories² 18.0 4.5 4.0 16.0 3.5 3.0 14.0 2.5 Mid price Millions 2.0 12.0 1.5 Normal level 1.0 10.0 0.5 8.0 0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1959 1966 1969 1973 1976 1980 1983 1987 1990 1994 1997 2001 2004 2008 2011 19621 Source: (left hand chart) Bloomberg, Federal Reserve, as at 31 July 2012.2 Source (right hand chart):Source: National Association of Realtors (Latest Revision), House Tracker 1999 through July 2012PT.12.01817 8
  • 10. Lending cycle is starting to turnUS commercial banksYoY % change in total loans¹ 21 18 15 Average 12 9 6% 3 0 (3) (6) (9) (12) 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 RecessionSource: Federal Reserve Board, Empirical Research Partners Analysis.1 Seasonally-adjusted weekly data, 1974 through early January 2012.2 Seasonally-adjusted weekly data, 2005 through early January 2012.PT.12.01817 9
  • 11. US banks are liquid, deposits-funded and have deleveraged Reserves / NPA Loans / Assets / US P/B P/TBV PE12 PE13 NPLs / loans loans coverage deposits equityJP Morgan 0.8 1.0 8.3 6.7 3.8% 1.5% 250% 64% 12Bank of America ML 0.4 0.6 11.7 7.4 3.6% 3.0% 122% 90% 9Citigroup 0.4 0.5 6.7 5.8 4.5% 1.7% 255% 75% 10Wells Fargo 1.3 1.7 9.8 8.7 2.5% 3.4% 75% 84% 9PNC 0.9 1.4 9.4 8.7 2.7% 2.6% 105% 85% 7USB 1.9 2.6 11.2 10.3 2.3% 1.8% 126% 91% 10 Europe BNP Paribas 0.5 0.6 4.6 5.1 4.0% 6.3% 64% 127% 23 Credit Agricole 0.2 0.4 5.1 3.1 4.0% 6.0% 66% 79% 35 Societe Generale 0.3 0.4 4.9 3.7 4.1% 5.8% 70% 122% 23 UniCredit 0.1 0.1 2.2 1.7 5.9% 13.3% 45% 166% 17 Intesa Sanpaolo 0.3 0.5 5.4 4.5 5.9% 11.1% 53% 205% 13 Santander 0.6 0.9 6.6 5.4 2.5% 4.3% 59% 133% 15 BBVA 0.7 0.7 9.6 5.7 2.2% 4.3% 51% 128% 15 Deutsche Bank 0.5 0.7 5.7 5.6 1.0% 2.6% 39% 69% 40 Commerzbank 0.3 0.3 4.9 3.9 2.8% 6.5% 44% 120% 27Source: Company data, July 2012.PT.12.01817 10
  • 12. SunTrust Banks  US regional bank with strong franchise in the Eastern US (FL; GA; NC; SC; TN, VA, WV)Performance relative to S&P 500 Index  1651 branches2 year total return  $178bn in assets 110  Strong capital ratios 100  9.3% Tier 1 capital  92% loan/deposit ratio 90  New management team has de-risked the business and reduced the expense base 80  Fully provisioned the risk of mortgage repurchase 70  $300m cost savings realised by year-end’12  Cost/income ration coming down to 60%, from 70% 60  Leveraged to a housing recovery as charged-offs normalise (esp. in residential mortgages) 50 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12  Bought at less than 0.9x tangible Book Value Source: Datastream as at 30 September 2012, in local currency. PT.12.01817 11
  • 13. Shale gas now accounts for 25% of production, vs. 5% in 2006Natural gas dry production - Natural gas for next day delivery at Henry HubBillion cubic feet per day1 (US benchmark) - $ per MMBtu268 16 1464 1260 1056 8 652 448 244 0 90 92 94 96 98 00 02 04 06 08 10 12 04 05 06 07 08 09 10 11Source: Bloomberg.1 As at July 2012.2 As at 10 September 2012.PT.12.01817 12
  • 14. US chemicals are low cost globallyEthylene cash production costs, (US$/tonne) February 2003 & 2012 1,500 1,250 1,000 Asia Europe low cost 750 Europe typical 500 250 US Weighted US Ethane Average 0 Ethane Ethane C2/C3 Ethane Weighted Condensate Propane Naphtha Low cost Typical High cost Naphtha KSA Iran KSA US US KSA KSA US W Eur W Eur W Eur Asia Cash Cost 2003 Cash Cost 2012Source: CMAI as at February 2012.PT.12.01817 13
  • 15. LyondellBasell Industries  Chemicals and polymers manufacturerPerformance relative to S&P 500 IndexTotal return since listing 29 April 2010  Simplistically, profitability is based on  Brent oil prices (for sales) 220  Natural gas prices (for input) 200  Declining ethane (natural gas liquid) prices will 180 boost profitability Rebased = 100 160  Strong free cash flows 140  Management team acting to optimise shareholder returns 120  $4.50 special dividend announced in Q4 ’11 100  Quarterly dividend raised from 25 cents to 40 80 cents (+60%) in May 2012 60  Less than 9x 2012 earnings Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 Aug 12 Source: Datastream as at 30 September 2012, in local currency. PT.12.01817 14
  • 16. The fiscal cliff in 2013Percentage points of potential GDP 4.5 2013 Fiscal Cliff Fiscal Restraint (+) (% of GDP ) 3.0 Expiration of Current Law unemployment -0.2% benefits 1.5 Automatic spending cuts -0.8% (sequestration) 0.0 Expiration of -0.8% payroll tax cuts -1.5 Expiration of Bush -0.8% tax cuts -3.0 Fiscal Stimulus (-) C.-3.0% -4.5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Fiscal yearSource: Morgan Stanley, April 2012.PT.12.01817 15
  • 17. Yield relationships convey disbeliefEquity free cash flow yields as a ratio to Baa corporate bond yields1 1953 through early-January 2012 1.4 1.2 1.0 0.8 0.6 0.4 Average 0.2 0.0 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 RecessionsSource: Federal Reserve Board, Bloomberg, LP, Corporate Reports, Empirical Research Partners Analysis.1 Large-capitalisation stocks excluding financials and utilities; capitalisation weighted data.PT.12.01817 16
  • 18. Portfolio strategyCharacteristics we like Growth/high barriers to entry Exposure to domestic capital spending Proactive capital management Underleveraged balance sheets / strong free cash flowSector overweights Consumer Discretionary, Healthcare, Materials, FinancialsSector underweights IT, Consumer Staples, Utilities, EnergySource: Threadneedle. Representative account is American Fund (OEIC) as at 30 September 2012.PT.12.01817 17
  • 19. Conclusion Well resourced team Global approach in insular market Pragmatic, simple and disciplined investment process Excellent and consistent long-term recordPT.12.01817 18
  • 20. APAppendix
  • 21. Biography CORMAC WELDON Head of US Equities and Fund Manager Cormac Weldon joined Threadneedle in 1997 and is Head of US Equities. He manages the Threadneedle American, American Select and American Smaller Companies funds, as well as the Allied Dunbar North American Growth fund. Cormac started his career with KPMG. He has also worked for Provident Mutual as an analyst on their North American equities team and British Gas Pension Fund as a fund manager on their North American equities team. Cormac has a BA in Accounting and Finance from Dublin City University. He is also an associate member of the UK Society of Investment Professionals (UKSIP) and a CFA Charterholder. Threadneedle start date: 1997 Industry start date: 1989PT.12.01817 20
  • 22. Important notesFor 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 andregulated 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 circumstanceswhich do not constitute an offer to the public and are in accordance with applicable local legislation.Threadneedle (Lux) is an investment company with variable capital (Société d’investissement à capital variable, or "SICAV") formed under the laws of the Grand Duchy ofLuxembourg. The SICAV issues, redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAVis Threadneedle Management Luxembourg S.A, who is advised by Threadneedle Asset Management Ltd. and/or selected sub-advisors.The SICAV is registered in Austria, Belgium, France, Germany, Hong Kong, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan and the UK; however,this is subject to applicable jurisdictions and some sub-funds and/or share classes may not be available in all jurisdictions. Shares in the Funds may not be offered to the public in anyother 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 withapplicable local legislation.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 theapplicable 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 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 priorto 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 obtainedfrom external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not bereproduced in any form or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of ThreadneedleInvestments and must be returned upon request.Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies.Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, St Mary Axe, London EC3A 8JQ, United Kingdom. Authorised andregulated in the UK by the Financial Services Authority.PL5/09/193 21

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