Citywire Benelux Forum 2013European Equities                        Niall Gallagher                        Investment Dire...
Introduction     ● 15 years experience investing in equities            Strategy managed                       Dates manag...
GAM Star Continental European Equity – EURPerformance from 30 Nov 2009 to 28 Mar 2013Past performance is not indicative of...
GAM Star European Equity – EURPerformance from 30 Nov 2009 to 28 Mar 2013Past performance is not indicative of future perf...
Process overviewHigh conviction, fundamentally driven investing ●    Bottom up unconstrained approach        – Primarily l...
High conviction focused portfolio                                                           GAM                           ...
Investment teamManaging Pan European and Continental European long-only strategies                                        ...
How to think about investing in this environment  ● In a developed world characterised by low growth focus on companies th...
How to find growth?  ● Geographic positioning of companies     – Presence in growth markets vs no growth markets     – Tot...
GAM Star European EquityThis document is confidential and intended solely for the use of the person to whom it is given or...
GAM Star European Equity InvestmentsTop 10 holdings (of 37) as at 28 Mar 2013Source: GAM                                  ...
GAM Star European Equity InvestmentsMost overweight and underweight stocks versus MSCI Europe as at 28 Mar 2013     Stock ...
GAM Star European Equity InvestmentsMost overweight and underweight sectors versus MSCI Europe as at 28 Mar 2013   Sector ...
GAM Star European Equity InvestmentsIndustry Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100% ...
GAM Star European Equity InvestmentsGeographic Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100...
GAM Star European Equity InvestmentsMarket cap quintile as at 28 Mar 2013     MC Quintile 1: 23921.9 - 180028.8       MC Q...
GAM Star European Equity InvestmentsStyle analysis as at 28 Mar 2013     Style weightsSource: GAM/UBS PAS                 ...
GAM Star Continental European EquityThis document is confidential and intended solely for the use of the person to whom it...
GAM Star Continental European Equity InvestmentsTop 10 holdings (of 40) as at 28 Mar 2013Source: GAM                      ...
GAM Star Continental European Equity InvestmentsMost overweight and underweight stocks versus MSCI Europe ex UK as at 28 M...
GAM Star Continental European Equity InvestmentsMost overweight and underweight sectors versus MSCI Europe ex UK as at 28 ...
GAM Star Continental European Equity InvestmentsIndustry Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not ...
GAM Star Continental European Equity InvestmentsGeographic Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may no...
GAM Star Continental European Equity InvestmentsMarket cap quintile as at 28 Mar 2013  MC Quintile 1: 21732.1 - 180028.8  ...
GAM Star Continental European Equity InvestmentsStyle analysis as at 28 Mar 2013Source: GAM, UBS/PAS                      ...
Stock IdeasThis document is confidential and intended solely for the use of the person to whom it is given or sentand may ...
Gas NaturalSpanish Utility                                           Gas Natural                                       31 ...
ContinentalAutomotives Tyres and Parts                                           Continental                            E...
DuerrAutomotive Paint Shop Systems                                               Duerr                                    ...
Paddy PowerTraditional sports bookmaker                                           Paddy Power                             ...
SchindlerGlobal Elevator Installed Base                                             Schindler                             ...
ElektaRadiation Therapy Equipment                                               Elekta                                    ...
HenkelGerman HPC and Adesives                                             Henkel                               Global adh...
InditexLargest clothing retailer in the world                                              Inditex                        ...
The Case for EuropeThis document is confidential and intended solely for the use of the person to whom it is given or sent...
Some ‘older’ common views on European equities  ● Low economic growth prospects for European economies  ● Significant sove...
2012 confounded expectations  ● Eurozone did not fall apart  ● Policymakers were not useless  ● Banks did not go bust  ● S...
Valuation (1)     ●     Point valuation metrics are still cheap versus history but have expanded from the lows     ●     T...
Valuation (2)     ● Normalised valuation metrics are much cheaper     ● Shiller / CAPE ratio of 12.6x versus 32 year avera...
Shiller PEFrom 30 Nov 1979 to 31 Dec 2012                                               Shiller PE                        ...
Valuation (3)  ● Cross asset valuations are even cheaper still  ● (Close to) record low valuation versus sovereign bonds  ...
Market Dividend Yield/Gilt YieldFrom 15 Jan 1965 to 11 Jan 2013Source: Citigroup                  42
European Corporate Bond Yield/Earnings YieldFrom 30 Dec 1988 to 11 Jan 2013Source: Citigroup                              43
Valuation (4)  ● Valuations are still cheap but not as cheap as they were  ● Some re-rating still likely on valuation alon...
Some perspective on European equities  ● European equities are global not local          – 50% of revenues are from outsid...
Revenue composition for Europe 100%   90%   80%   70%   60%   50%   40%   30%                                             ...
Economic context in which we invest  ● Global economic growth forecast by IMF and other forecasters at 3–3.5%  ● Broadly, ...
Very significant economic divergence within Europe  ● Northern and Central Europe are heavily exposed to global trends    ...
Focus on the current account – % of GDP                                                                        2011   2012...
AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not...
Niall Gallagher  Investment Director  Niall Gallagher is an Investment Director responsible for European markets. Prior to...
GIPS Supplemental Information  All GAMs discretionary assets have been allocated to appropriate GIPS  composites. GAMs fun...
GAM Continental European Equity Composite (G026)                                                                          ...
GAM European Equity Composite (G025)                                                                                      ...
Disclaimer  Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, o...
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Gam

  1. 1. Citywire Benelux Forum 2013European Equities Niall Gallagher Investment Director GAMThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  2. 2. Introduction ● 15 years experience investing in equities Strategy managed Dates managed GAM AuM: BlackRock European Dynamic Fund Sep 03 – Oct 06 GAM Star GAM Star BlackRock European Growth Fund May 05 – Oct 06 Continental European Europe Equity Equity T. Rowe Price Europe ex UK Fund Mar 07 – Apr 09 EUR 474.8m EUR 61.6m T. Rowe Price European Fund Mar 07 – Apr 09 GAM European Equities Since Nov 09 GAM European Equities: EUR 536.4m ● Highly active, unconstrained approach – Concentrated – Bottom-up, Research down – No index constraintSource: GAM as at 31 Mar 2013 2
  3. 3. GAM Star Continental European Equity – EURPerformance from 30 Nov 2009 to 28 Mar 2013Past performance is not indicative of future performance. Performance is provided net of fees.Source: GAM, MSCI 3 3Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  4. 4. GAM Star European Equity – EURPerformance from 30 Nov 2009 to 28 Mar 2013Past performance is not indicative of future performance. Performance is provided net of fees.Source: GAM 4Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  5. 5. Process overviewHigh conviction, fundamentally driven investing ● Bottom up unconstrained approach – Primarily large cap investor with some exposure to mid and small caps Return target (net) Benchmark + 300 – 400bps pa ● Aim for detailed understanding of each position Typical tracking error 4 – 6% pa – High conviction research driven stock selection – Focussed portfolio of 30 – 50 stocks Implied information – Long-term (3 – 5 year) investment horizon 0.75 ratio ● Absolute, cash-flow based valuation approach augmented by a range of multiples incorporating entire capital structure Active Share >85% – Free Cash Flow Equity / Enterprise Value % – EV/Sales Peer group comparison Achieve first quartile ranking – EV/CE – EV/EBIT – Analysis of all metrics vs long-term historical range ● Quality ‘bias’ – Preference for High Return on Capital Employed businesses – Preference for strong Free Cash Flow generation – Requirement for robust balance sheets ● Portfolio construction techniques aim to maximise risk-adjusted returns and reduce risk concentrationsThere is no guarantee that targets will be achieved.Source: GAM 5Allocations and holdings are subject to change.
  6. 6. High conviction focused portfolio GAM An active style: Star Continental High European • Bottom up focus and totally Equity unconstrained approach Diversified Concentrated stock picks stock picks • Fundamentally driven stock selection Active Share with a high emphasis on diversification Medium • Produces a highly active, concentrated but diversified portfolio Closet Factor indexing Bets Low 0 Pure indexing 0 Low Medium High Tracking Error 6
  7. 7. Investment teamManaging Pan European and Continental European long-only strategies Niall Gallagher Investment Director – 15 years’ experience – Joined GAM in 2009 – Responsible for all portfolio decisions James Wigley Swetha Ramachandran Investment Analyst Investment Analyst – 11 years’ experience – 13 years’ – Joined GAM in 2010 experience – Joined GAM in 2012 Trading and Administration James Davidson John Paul Hodder-Williams Head of Investment Head Dealer Administration – 11 years’ experience – 23 years’ experience – Joined GAM in 2004 – Joined GAM in 1997 Supported by two additional members of the dealing teamSource: GAM as at 31 Mar 2013 7
  8. 8. How to think about investing in this environment ● In a developed world characterised by low growth focus on companies that possess – Good revenue growth prospects, ideally indexed to Global Nominal GDP – High Return on Capital Employed (ROCE) – High Free Cash Flow conversion – Strong balance sheets 8
  9. 9. How to find growth? ● Geographic positioning of companies – Presence in growth markets vs no growth markets – Total geographic composition of revenues ● Industry / technological positioning – Innovation and evolution – Market leadership – Barriers to entry ● Structural vs cyclical growth – Growth does not just imply defensiveness – Many attractive global growth companies have embedded cyclicality 9
  10. 10. GAM Star European EquityThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  11. 11. GAM Star European Equity InvestmentsTop 10 holdings (of 37) as at 28 Mar 2013Source: GAM 11 11Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  12. 12. GAM Star European Equity InvestmentsMost overweight and underweight stocks versus MSCI Europe as at 28 Mar 2013 Stock % Overweight Stock % Underweight Schindler Holding-Part Cert 4.8 Nestle -3.2 Paddy Power 4.7 HSBC Holdings -2.7 Swatch Group 3.8 Vodafone Group -1.9 Ryanair Holdings 3.7 BP -1.8 Gas Natural 3.6 SANOFI -1.7 Wirecard 3.6 Royal Dutch Shell A -1.7 Fresenius 3.3 Glaxosmithkline -1.6 Atlas Copco Ab-A Shs 3.1 Total Sa -1.4 Continental AG 3.0 Siemens AG -1.2 LVMH Moet Hennessy Louis Vuitton 3.0 Royal Dutch A -1.2Source: GAM/UBS PAS 12Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  13. 13. GAM Star European Equity InvestmentsMost overweight and underweight sectors versus MSCI Europe as at 28 Mar 2013 Sector % Overweight Sector % UnderweightConsumer Durables & Apparel 8.9 Banks -8.2Capital Goods 5.8 Materials -5.7Software & Services 5.6 Telecommunication Services -5.5Health Care Equipment & Services 5.5 Insurance -5.4 Pharmaceuticals, Biotechnology & LifeAutomobiles & Components 3.9 -5.3 SciencesConsumer Services 3.8 Food, Beverage & Tobacco -3.1 Diversified Financials -2.3Transportation 2.6 Media -1.9Household & Personal Products 2.1 Food & Staples Retailing -1.7Technology Hardware & Equipment 1.2Retailing 0.8 Real Estate -1.0Source: GAM/UBS PAS 13Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  14. 14. GAM Star European Equity InvestmentsIndustry Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100% due to rounding of data at source. 14 14Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  15. 15. GAM Star European Equity InvestmentsGeographic Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100% due to rounding of data at source. 15 15Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  16. 16. GAM Star European Equity InvestmentsMarket cap quintile as at 28 Mar 2013 MC Quintile 1: 23921.9 - 180028.8 MC Quintile 2: 11200.1 - 23212.8 MC Quintile 3: 6338.1 - 11083.4 MC Quintile 4: 4440.1 - 6303.6 MC Quintile 5: 329.0 - 4375.3 GAM Star European Equity MSCI Europe Index 0 10 20 30 40 50 60 70Source: GAM/FactSet 16Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  17. 17. GAM Star European Equity InvestmentsStyle analysis as at 28 Mar 2013 Style weightsSource: GAM/UBS PAS 17Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  18. 18. GAM Star Continental European EquityThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  19. 19. GAM Star Continental European Equity InvestmentsTop 10 holdings (of 40) as at 28 Mar 2013Source: GAM 19 19Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  20. 20. GAM Star Continental European Equity InvestmentsMost overweight and underweight stocks versus MSCI Europe ex UK as at 28 Mar 2013 Stocks % Overweight Stocks % Underweight Paddy Power 4.7 Nestle -4.8 Schindler Holding-Part Cert 4.3 SANOFI -2.5 Swatch Group 3.8 Total SA -2.1 Ryanair Holdings 3.6 Siemens -1.9 Fresenius 3.5 Bayer -1.8 Wirecard AG 3.4 Banco Santander SA -1.5 Gas Natural 3.3 Unilever -1.4 Continental AG 3.1 Novo Nordisk A/s-B -1.4 Kone 3.0 Allianz -1.3 Saipem Spa 2.7 Eni Spa -1.2Source: GAM/UBS PAS 20Allocations and holdings are subject to change.Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  21. 21. GAM Star Continental European Equity InvestmentsMost overweight and underweight sectors versus MSCI Europe ex UK as at 28 Mar 2013 Sectors % Overweight Sectors % Underweight Pharmaceuticals, Biotechnology & Life Consumer Durables & Apparel 6.1 -7.7 Sciences Capital Goods 5.4 Banks -6.2 Health Care Equipment & Services 5.3 Insurance -5.8 Software & Services 5.0 Food, Beverage & Tobacco -4.9 Consumer Services 4.4 Materials -3.8 Automobiles & Components 4.1 Diversified Financials -3.2 Household & Personal Products 2.6 Telecommunication Services -2.7 Media 2.4 Food & Staples Retailing -1.3 Transportation 1.9 Energy -1.2 Commercial & Professional Services 0.9 Real Estate -0.9Source: GAM/UBS PAS 21Allocations and holdings are subject to change.Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  22. 22. GAM Star Continental European Equity InvestmentsIndustry Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100% due to rounding of data at source. 22 22Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  23. 23. GAM Star Continental European Equity InvestmentsGeographic Analysis as at 28 Mar 2013Source: GAM, MSCI Note: Totals may not add to 100% due to rounding of data at source. 23 23Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  24. 24. GAM Star Continental European Equity InvestmentsMarket cap quintile as at 28 Mar 2013 MC Quintile 1: 21732.1 - 180028.8 MC Quintile 2: 10821.5 - 21612.1 MC Quintile 3: 6492.3 - 10721.9 MC Quintile 4: 4336.6 - 6431.5 MC Quintile 5: 329.0 - 4308.7 GAM Star Continental European Equity MSCI Europe ex UK Index 0 10 20 30 40 50 60 70Source: GAM, FactSet 24Allocations and holdings are subject to change.Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  25. 25. GAM Star Continental European Equity InvestmentsStyle analysis as at 28 Mar 2013Source: GAM, UBS/PAS 25Allocations and holdings are subject to change.Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  26. 26. Stock IdeasThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  27. 27. Gas NaturalSpanish Utility Gas Natural 31 Mar 03 to 28 Mar 13  Quasi regulated electric/gas assets in Spain & Latam  Regulatory risk under control  Growth prospects in LNG supply & Latam networks  Strong balance sheet  Outstanding free cash flow generation  Decent returns 11% ROE, 10% ROIC  Valuation — 10x PE, 7.5% FCFE/EV, 15% FCFE 2014 — Dividend yield 6.2%, >2x covered — Leverage 3x — Market Cap / EV only 45% Extraordinary value opportunity for long–term oriented investorsSource: Thomson Reuters 27Reference to a security is not a recommendation to buy or sell that security
  28. 28. ContinentalAutomotives Tyres and Parts Continental  Excellent tyre business – replacement tyres have controlled 31 Mar 2003 to 28 Mar 2013 distribution & strong pricing power.  Well positioned in auto parts – strong growth & margin potential in powertrain.  High pre-tax ROIC c.20% despite goodwill burden – tangible returns substantially higher.  Strong reinvestment opportunities to drive growth.  Balance sheet getting stronger after heavy debt burden following 2007 acquisition  Potential to reduce interest costs substantially over next few years as refinance & deleverage.  Significant shareholder overhang creates value opportunity.  Valuation — 8x PE 2014 — 7% FCFE/EV 2014 Significant value opportunity for long–term oriented investorsSource: Thomson Reuters 28Reference to a security is not a recommendation to buy or sell that security
  29. 29. DuerrAutomotive Paint Shop Systems Duerr 31 Mar 03 to 28 Mar 13  Global #1 for automotive paint shop systems  Dominant player in Chinese market  Emerging market auto penetration drives growth  Prepayments and low capex lead to high ROIC  Significant opportunity from monetising installed base  Net cash balance sheet  Outstanding free cash flow generation  Excellent returns 39% ROIC 2011  Valuation — 10% FCFE/EV 2014 — Dividend yield 2.8%. Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 29Reference to a security is not a recommendation to buy or sell that security
  30. 30. Paddy PowerTraditional sports bookmaker Paddy Power 31 Mar 03 to 28 Mar 13  Betting shops in Ireland and UK  Expansion into online sports bookmaking and online gaming — Acquired largest online sports bookmakers in Australia  Online now 80% of profits  Mobile internet and expansion into Italy  Canada and Australia offer huge growth potential  Financial metrics — 53% Return on Capital Employed in 2011 — Net cash of EUR 136m at end of 2011 — 10 year EPS compound annual average growth rate of 18% — Share price performance of almost 27x in 12 years Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 30Reference to a security is not a recommendation to buy or sell that security
  31. 31. SchindlerGlobal Elevator Installed Base Schindler 31 Mar 03 to 28 Mar 13  2nd largest installed base of elevators globally  Installed base provides highly stable earnings  Emerging market urbanisation drives growth  Prepayments ensure high ROIC  Significant long term margin upside  Over CHF2bn of net cash for acquisitions available  Outstanding free cash flow generation  Excellent returns >100% ROIC  Valuation — 7.5% FCFE/EV 2014 — Dividend yield 1.5% — 20% discount to peer Kone Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 31Reference to a security is not a recommendation to buy or sell that security
  32. 32. ElektaRadiation Therapy Equipment Elekta 31 Mar 03 to 28 Mar 13  Global duopoly in radiation therapy equipment  Significant barriers to entry due to high switching costs  Installed base provides stable recurring revenue base  Demographic tailwind of aging population  Very low penetration rates today in emerging markets  Outstanding growth opportunities  Excellent returns >30% ROIC  Valuation — 5% FCFE/EV 2014 — Dividend yield 1.3% Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 32Reference to a security is not a recommendation to buy or sell that security
  33. 33. HenkelGerman HPC and Adesives Henkel  Global adhesive market leader – adhesives is a GDP plus 31 Mar 2003 to 28 Mar 2013 growth industry  Strong consumer brands e.g. Schwarzkopf, Persil – steady growth  Long term restructuring – margins have doubled over 10 years – and still rising  Working capital focus has reduced capital intensity – more gains to go for.  High ROIC and should continue to grow with further restructuring  Rising capex indicates high level of re-investment opportunities within the business  Rapidly deleveraging with balance sheet capacity to make acquisitions – strong track record  Valuation attractive 2014 – unleveraged PE of 15.4x, 7% FCFE/EV. Ords at 15% discount to Prefs. Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 33Reference to a security is not a recommendation to buy or sell that security
  34. 34. InditexLargest clothing retailer in the world Inditex 31 Mar 03 to 28 Mar 13  Key brands: — Zara, Zara Home, Massimo Dutti, Pull & Bear, Bershka, Oysho, Stradivarius, Uterque  Significant global expansion over last 10 years — Spain was 46% of revenues in 2003 and 27% of revenues in 2012 — Growth in fast growing countries  Financial metrics — 28% Return on Capital Employed (lease adjusted) — 10 year compound growth of 16% — 5 year compound sales growth of 11% — €3.5bn net cash on balance sheet as of last reporting period — Shares up 7x since IPO in 2001 Extraordinary wealth creation for long–term oriented investorsSource: Thomson Reuters 34Reference to a security is not a recommendation to buy or sell that security
  35. 35. The Case for EuropeThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  36. 36. Some ‘older’ common views on European equities ● Low economic growth prospects for European economies ● Significant sovereign and financial sector stresses ● Weak policymaking infrastructure ● Unquantifiable tail risks European equities are uninvestable 36
  37. 37. 2012 confounded expectations ● Eurozone did not fall apart ● Policymakers were not useless ● Banks did not go bust ● Significant bounce in European equities Is the asset class still investable? Have we missed the rally? 37
  38. 38. Valuation (1) ● Point valuation metrics are still cheap versus history but have expanded from the lows ● Trailing PE ratio of 13.6x versus 40 year average of 15x ● Forward PE ratio of 11.6x versus 25 year average of 14x ● Trailing Price Book ratio of 1.6x versus 37 year average of 1.8xSource: Morgan Stanley (European Strategy Team) as at 31 Dec 2012 38
  39. 39. Valuation (2) ● Normalised valuation metrics are much cheaper ● Shiller / CAPE ratio of 12.6x versus 32 year average of 17.5x ● Very large discount to US equities on normalized metrics – 33% discount on CAPE vs. a 32 year average of 8% discountSource: Morgan Stanley (European Strategy Team) as at 31 Dec 2012 39
  40. 40. Shiller PEFrom 30 Nov 1979 to 31 Dec 2012 Shiller PE Europe vs USSource: MSCI, OECD, various national sources, Haver, Morgan Stanley Research - European Strategy Team 40Note: European inflation data is based on market cap weighted aggregation of constituent country inflation rates.
  41. 41. Valuation (3) ● Cross asset valuations are even cheaper still ● (Close to) record low valuation versus sovereign bonds ● (Close to) record low valuation versus European corporate bonds 41
  42. 42. Market Dividend Yield/Gilt YieldFrom 15 Jan 1965 to 11 Jan 2013Source: Citigroup 42
  43. 43. European Corporate Bond Yield/Earnings YieldFrom 30 Dec 1988 to 11 Jan 2013Source: Citigroup 43
  44. 44. Valuation (4) ● Valuations are still cheap but not as cheap as they were ● Some re-rating still likely on valuation alone ● Earnings growth and recovery increasingly important Stock selection will be key 44
  45. 45. Some perspective on European equities ● European equities are global not local – 50% of revenues are from outside of Europe – 30% of revenues are from emerging markets – Significantly less exposure to € currency than assumed ● European equity market is not homogeneous – Significant divergences in ‘geographic exposures’ within the market – Some sectors / stocks are almost completely global – Some sectors / stocks are almost completely local ● In many industries European companies are the global leaders Europe is not a good proxy for European equities 45
  46. 46. Revenue composition for Europe 100% 90% 80% 70% 60% 50% 40% 30% Europe 20% Japan USA and Canada 10% Other Americas Asia ex Japan 0% Rest of World 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2015Source: Redburn Securities 46
  47. 47. Economic context in which we invest ● Global economic growth forecast by IMF and other forecasters at 3–3.5% ● Broadly, in line with long-term averages although subject to frequent revision ● Significant regional divergences – Global growth primarily led by emerging economies – Emerging economies strong(er) – Developed economies weak(er) – US economy somewhere in between 47
  48. 48. Very significant economic divergence within Europe ● Northern and Central Europe are heavily exposed to global trends – Strong export sectors and core competitive advantage – Stronger fiscal positions ● Virtuous feedback loops – Record levels of employment → decent wage growth – Decent wage growth → strong domestic demand – Strong domestic demand → improving fiscal positions ● Monetary policy is increasingly set for peripheral Europe – Interest rates too low for northern Europe – Exchange rate very competitive for northern Europe 48
  49. 49. Focus on the current account – % of GDP 2011 2012 2013 US -3.1 -3.0 -3.1 UK -1.9 -2.4 -1.4 Euro area 0.0 0.5 0.4 Strong Europe Germany 5.7 5.7 4.0 Switzerland 15.0 12.2 11.6 Sweden 6.5 6.7 6.9 Denmark 6.5 5.5 5.4 Netherlands 9.0 9.6 9.6 Weak Europe France -2.2 -1.7 -0.9 Italy -3.2 -1.7 -1.3 Spain -3.5 -1.4 -1.8 Portugal -8.1 -4.9 -2.8 Greece -9.6 -6.6 -2.1 Ireland 1.1 -0.1 1.7Source: Citigroup September 2012 Global Economic Outlook and Strategy 49
  50. 50. AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  51. 51. Niall Gallagher Investment Director Niall Gallagher is an Investment Director responsible for European markets. Prior to joining GAM in November 2009, Niall worked as a portfolio manager managing Pan-European equities and Continental European equities at T. Rowe Price for two years. Before that, he was at BlackRock for nine years, where he worked as an investment analyst before managing both continental European and pan-European equity strategies. He began his career as an economist at the Bank of England. Niall holds a BA in Economics from Manchester Metropolitan University and an MSc in Economics and Finance from Warwick University, and is a CFA Charterholder. He is based in London. 51
  52. 52. GIPS Supplemental Information All GAMs discretionary assets have been allocated to appropriate GIPS composites. GAMs funds often are structured as investment pools with underlying currency classes and it is at the investment pool level that GIPS composite allocations have been made. Supplemental information shown in GAMs materials, including performance, geographic/industrial asset allocations, attribution details and other statistical analyses are based on a sample account of the relevant composite that represents the management style. Other accounts in the composite may have slightly different portfolio characteristics. In some cases sample accounts have history that pre-dates GAMs compliance with GIPS of 30 June 1996. Indices other than the benchmark are sometimes used in presentations for illustrative purposes. Please refer to the relevant GIPS compliant report. 52
  53. 53. GAM Continental European Equity Composite (G026) GAM has prepared and presented this report Composite Performance 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD in compliance with the Global Investment Performance Standards (GIPS®). A Composite Returns % 11.24 18.92 34.23 20.67 10.20 -35.98 26.80 16.34 -10.66 35.87 6.92 complete list and description of composites is available on request. Benchmark Returns* % 19.49 13.60 28.30 22.00 5.94 -42.20 29.77 9.56 -11.63 20.66 4.75 Composite Standard Dev 3Yr % 16.35 13.82 10.13 8.74 9.68 14.96 17.74 18.75 16.36 14.53 14.42 * The benchmark shown is for comparative purposes only. The composite is not Benchmark Standard Dev 3Yr % 22.68 20.06 12.73 8.52 9.35 16.89 21.25 22.08 18.71 14.57 14.49 managed to a specific benchmark. Number of Portfolios in Composite <6 <6 <6 <6 <6 <6 <6 <6 <6 <6 <6 There is no guarantee that targets will be High Return % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A achieved. Low Return % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Composite Asset value (DEXm) 12 14 84 77 124 75 67 192 232 343 442 Total Firm Assets (DEXm) 21,464 27,844 46,881 51,702 51,833 28,205 34,412 42,284 36,395 38,443 40,325 1: Established in 1983, GAM delivers active investment management to private clients, institutions and intermediaries. All GAMs assets are included in the GIPS definition of the firm, except for clients who set up separately- managed accounts which are administered by an independent third party for their fixed income hedge strategy and/or currency hedge strategy. 2: GAM claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. GAM has been independently verified from 1 January 1996 through 31 December 2011. In May 2009, GAM acquired Augustus Asset Managers Limited (Augustus) and subsequently claims compliance for a single firm representing the combined business. Having determined that the GIPS portability criteria were satisfied, the pre and post acquisition performance records of Augustus are linked. Augustus has been subject to independent verification testing from 1 January 2000, the date from which Augustus performance results are first displayed. The verification reports are 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 firms 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. 3: The composite consists of actively managed portfolios of European equities (excluding the United Kingdom). Mid to large capitalisation stocks are selected from attractive sectors based on existence of or potential for above average Cash Flow Return on Investment. 4: Derivatives may be used in the portfolios to gain market exposure as well as for hedging purposes. Further details are available on request in the relevant product documentation. 5: Composite results are presented gross of investment management fees and net of trading expenses and net of withholding taxes on dividends, capital gains and interest. Benchmarks are gross of withholding taxes on dividends. 6: The composite was created in Nov 2002 and applied retrospectively. 7: The maximum investment management fee for accounts is 1.5% per annum. Management fees may vary by product and jurisdiction. 8: High and low returns (for those constituents present in the composite throughout each period) are presented above to demonstrate dispersion within the composite. Dispersion information is only required by GIPS where there are 6 or more portfolios in the composite. 9: From 01 Dec 2009 Niall Gallagher took over as manager from John Bennett. 10: The benchmark shown is MSCI Europe ex UK Index. 11: DEX - The reporting currency for this composite is EUR. Prior to Dec 1998, this composite was denominated in DEM. 12: Policies for valuing portfolios, calculating performance and preparing compliant presentations are available on request. 13: In 2005 GAM changed its methodology for calculating its Total Firm Assets (TFA) to follow the principles and guidelines of FINMA, resulting in TFA as of Nov 2005 increasing by 38%. In May 2009, GAM acquired Augustus resulting in an increase of 22% in TFA and a change in the Firm definition to incorporate an exclusion of certain assets as detailed above. GAMs TFA before these exclusions were $53,251m. GAM discloses its TFA on a quarterly basis. Current data is as at 31 Dec 2012. 14: FX rates used for valuation of funds and portfolios within the composite are those at 23:00 hours GMT. FX rates for benchmark and composition calculation are those at 16:00 hours GMT.Source: GAM as at 28 Feb 2013 53
  54. 54. GAM European Equity Composite (G025) GAM has prepared and presented this report Composite Performance 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD in compliance with the Global Investment Performance Standards (GIPS®). A Composite Returns % 13.72 16.76 28.56 20.56 6.60 -38.85 26.94 11.26 -9.71 30.76 5.57 complete list and description of composites is available on request. Benchmark Returns* % 15.76 12.65 26.68 20.18 3.17 -43.29 32.55 11.75 -7.51 18.09 3.85 Composite Standard Dev 3Yr % 16.81 15.20 10.92 7.90 9.22 15.21 18.20 18.91 15.91 13.69 13.63 * The benchmark shown is for comparative purposes only. The composite is not Benchmark Standard Dev 3Yr % 20.15 17.85 11.31 7.37 8.73 16.22 20.21 20.84 16.98 13.00 12.89 managed to a specific benchmark. Number of Portfolios in Composite <6 <6 <6 <6 <6 <6 <6 <6 <6 <6 <6 There is no guarantee that targets will be High Return % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A achieved. Low Return % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Composite Asset value (DEXm) 581 647 874 1,255 1,412 718 406 277 190 52 54 Total Firm Assets (DEXm) 21,464 27,844 46,881 51,702 51,833 28,205 34,412 42,284 36,395 38,443 40,325 1: Established in 1983, GAM delivers active investment management to private clients, institutions and intermediaries. All GAMs assets are included in the GIPS definition of the firm, except for clients who set up separately- managed accounts which are administered by an independent third party for their fixed income hedge strategy and/or currency hedge strategy. 2: GAM claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. GAM has been independently verified from 1 January 1996 through 31 December 2011. In May 2009, GAM acquired Augustus Asset Managers Limited (Augustus) and subsequently claims compliance for a single firm representing the combined business. Having determined that the GIPS portability criteria were satisfied, the pre and post acquisition performance records of Augustus are linked. Augustus has been subject to independent verification testing from 1 January 2000, the date from which Augustus performance results are first displayed. The verification reports are 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 firms 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. 3: The composite consists of actively managed portfolios of European equities (including the United Kingdom). Stocks are selected from attractive sectors primarily on a cash-flow based valuation approach and the fundamental long- term growth prospects of the business. 4: Derivatives may be used in the portfolios within the composite to gain market exposure as well as for hedging purposes. Please note that further detail is available on request. 5: Composite results are presented gross of investment management fees and net of trading expenses and net of withholding taxes on dividends, capital gains and interest. Benchmarks are gross of withholding taxes on dividends. 6: The maximum investment management fee for accounts is 1.5% per annum. Management fees may vary by product and jurisdiction. 7: The composite was created in Nov 2002 and applied retrospectively. 8: High and low returns (for those constituents present in the composite throughout each period) are presented above to demonstrate dispersion within the composite. Dispersion information is only required by GIPS where there are 6 or more portfolios in the composite. 9: From 01 Dec 2009 Niall Gallagher took over as manager from John Bennett. 10: The benchmark shown is MSCI Europe Index. 11: DEX - The reporting currency for this composite is EUR. Prior to Dec 1998, this composite was denominated in DEM. 12: Policies for valuing portfolios, calculating performance and preparing compliant presentations are available on request. 13: In 2005 GAM changed its methodology for calculating its Total Firm Assets (TFA) to follow the principles and guidelines of FINMA, resulting in TFA as of Nov 2005 increasing by 38%. In May 2009, GAM acquired Augustus resulting in an increase of 22% in TFA and a change in the Firm definition to incorporate an exclusion of certain assets as detailed above. GAMs TFA before these exclusions were $53,251m. GAM discloses its TFA on a quarterly basis. Current data is as at 31 Dec 2012. 14: FX rates used for valuation of funds and portfolios within the composite are those at 23:00 hours GMT. FX rates for benchmark and composition calculation are those at 16:00 hours GMT.Source: GAM as at 28 Feb 2013 54
  55. 55. Disclaimer Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis). This material is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation to subscribe and is by way of information only. The fund is a sub-fund of GAM Star Fund plc. GAM Star Fund plc is an Irish umbrella fund with segregated liability between sub-funds. GAM Star Fund plc is authorised as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (S.I. No.352 of 2011) and is a recognised scheme in the UK under the Financial Services and Markets Act 2000. The fund is managed by GAM Fund Management Limited which is regulated by the Central Bank of Ireland. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the fund. Copies of the fund’s prospectus, Key Investor Information Documents (KIID) and financial statements can be obtained free of charge from GAM Fund Management Limited, George’s Court, 54-62 Townsend Street, Dublin 2, from the centralising agent for France, BNP Paribas Securities Services, 66 rue de la Victoire, 75009 Paris, from its representative in Switzerland GAM Anlagefonds AG, Klausstrasse 10, CH - 8034 Zurich, from the information agent in Germany Bank Julius Baer Europe AG, An der Welle 1, D-60322 Frankfurt am Main ,from the information agent in Austria, UniCredit Bank Austria, Schottengasse 6 - 8, A-1010 Vienna. Paying Agent in Switzerland is State Street Bank GmbH, Zurich Branch, Beethovenstrasse 19, CH-8027 Zurich. Shares are not available for sale in any state or jurisdiction in which such sale would be prohibited. The Shares of the fund have not been registered under the US Securities Act of 1933, as amended (the “Securities Act”), and the fund is not registered under the US Investment Company Act of 1940, as amended (the “Company Act”). Accordingly, unless an exemption is available, such shares may not be offered, sold or distributed in the United States or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company Act, the shares may be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering. The views expressed herein are those of the manager at the time and are subject to changes. The price of Shares may go down as well as up and the price will depend on fluctuations in financial markets outside GAMs control, as a result an investor may not get back the amount invested. Past performance is not indicative of future performance and reference to a security is not a recommendation to buy or sell that security. Prices quoted refer to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time. In the United Kingdom, this material has been issued and approved by GAM London Ltd, 12 St Jamess Place, London SW1A 1NX, authorised and regulated by the Financial Conduct Authority. 55

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