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  1. 1. OPPORTUNITIES IN EUROPE Chris Rice, Head of Pan European Equities Cazenove European Income Fund Citywire Wealth Manager Forum November 2012 For professional advisers only
  2. 2. Follow the MoneyDraghi and Financial Conditions in Europe Equity Cheap, Credit Dear?• Once again, slowing growth leads to rising political risk, which in turn leads to a strong monetary stimulus.• Different impacts on growth and asset markets.• The signal to equities from the re-rating of credit markets is very strong. Source: Datastream, Worldscope, Goldman Sachs, Global ECS Research -1-
  3. 3. Sources of WeaknessContributions to US GDP growth Contributions to Italy GDP growthContributions to Spanish GDP growth • Different countries are responding to the crisis in different ways. • As was the case in Japan, politicians intermittently lose the will to keep the deficit under control. Fiscal policy is the swing factor in growth. Source: Cazenove Capital, Datastream -2-
  4. 4. Business Cycle (1)Leading Indicators Citi Economic Surprises Indicator • European growth has slowed sharply over the last 12 months following the implementation of Europe’s ‘New Deal’ sponsored by Germany and the ECB. • The inventory cycle and monetary stimulus are upward risks to growth over the next 12 months, the wildcard is fiscal policy. Could Portugal be the first sign of the limits to austerity. Source: Cazenove Capital, Datastream -3-
  5. 5. Business Cycle (2) US Housing Market US nonfarm Employment Change• The US is healing, albeit slowly.• Weaker growth this time around is a function of 2 key dynamics – deleveraging by households and corporates, as well as negative employment growth in the public sector. Source: Cazenove Capital, Datastream -4-
  6. 6. A Pro-Risk QuarterEurostoxx 600 – key sector performance Q3 Financials vs Cyclicals +13.5% Chemicals +11.5% Insurance +11.2% Banks +2.3% Utilities +2.2% Telecoms +2.2% Construction• The financial sector has responded to monetary stimulus and the huge move in credit markets.• Most cyclicals look left behind and offer a better risk-return than financials for Q4. Source: Cazenove Capital, Cheuvreux, Factset -5-
  7. 7. Cyclicals vs Defensives Michelin Unilever 2012 PER = 7.4x 2012 PER = 17.4x 2012 eps growth = 18% 2012 eps growth = 4% 2013 expected eps growth = 0% 2013 expected eps growth = +11%• Michelin trades on a 60% discount to Unilever, having delivered 18% eps growth vs 4% for Unilever during a European double-dip recession. And now the consensus expects no growth next year just as global growth may be bottoming. Source: Cazenove Capital, Bloomberg -6-
  8. 8. The opportunity: Positioning, Valuation and Price action are all at extremes • Everyone already expects a messy euro break up • The turn, when it comes, will be extremely quick -7-
  9. 9. Cazenove European Income FundInternal Performance Objective: The Fund aims to outperform by 2% pa over rolling 3 year periods and achieve a minimum yield of 110% of the benchmark yieldBenchmark: FTSE World Europe ex UK IndexNumber of stocks: 30-50Portfolio Restrictions: Stock +10 %/ No minimum Business Cycle Style + 20%Tracking risk: 4-8% target rangeLaunch date: 2 May 2012Structure: UK ICVC, UCIT A sub-fund of Cazenove Investment Fund Company (CIFCo)Share Classes: A, B and X income + Accumulation SharesYield Frequency: QuarterlyFund Size: £63.1m as at 30 September 2012 -8-
  10. 10. Building the portfolio Top 5 stocks Key style weighting Weight FY1 FY1 Consumer Cyclical +13% PER Yield Growth Defensive -15% Axa 5.6% 6.4x 5.4% ProSiebenSat.1 5.0% 9.9x 5.7% Predicted portfolio net yield 4.4% Deutsche Tel 4.4% 15.1x 7.2% BNP Paribas 4.3% 7.1x 3.0% GSW 3.9% 17.1x 3.1% Size distribution Large Cap 54% Mid Cap 34% Small Cap 12% Source: Cazenove Capital, 30/09/2012 -9-
  11. 11. Regulatory information and risk warnings Issued by Cazenove Capital Management which is the name under which Cazenove Capital Management Limited and Cazenove Investment Fund Management Limited both authorised and regulated by the Financial Services Authority provide investment products and services. Past performance should not be seen as an indication of future performance. The value of investments and the income from them can go down as well as up and an investor may not get back the amount originally invested and may be affected by fluctuations in exchange rates. The levels and bases of tax assumptions may change. This document is for information purposes only and does not constitute an offer to enter into any contract/agreement nor is it a solicitation to buy or sell any investment or to provide any services referred to therein. This document is intended for Independent Financial Advisers, Professional Intermediaries and non-private clients only. Telephone calls may be recorded for training and monitoring purposes. - 10 -