Threadneedle investments

825 views

Published on

Published in: Business, Economy & Finance
  • Be the first to comment

Threadneedle investments

  1. 1. Threadneedle UK FundCitywire Scottish Investors’ Retreat June 2012Simon Brazier – Head of UK Equities June 2012
  2. 2. Contents1. Threadneedle UK team2. Threadneedle UK Fund3. Portfolio strategy4. Stock examplesAP. AppendixPT/12/01312 1
  3. 3. 1Threadneedle UK team
  4. 4. Threadneedle UK Equities team Leigh Harrison Simon Brazier Head of Equities Head of UK Equities 29 years’ experience 14 years’ experience Richard Colwell Jonathan Barber Dan Vaughan Stephen Thornber1 Healthcare, Media Utilities, Property, Chemicals Small Caps Global Oil 21 years’ experience 21 years’ experience 18 years’ experience 24 years’ experience James Thorne Chris Kinder Aamod Mishra Daniel Belchers2 Small Caps Banks, Oil Services, Aerospace Tobacco Mining 13 years’ experience 11 years’ experience 1 year’s experience 9 years’ experience Mark Westwood Simon Haines Blake Hutchins Stacey Cassidy Travel & Leisure, Telecoms and Construction, Other Financials, Insurance, Consumer Staples, Mid Cap Oil, General Retailers, Food Retailers Housebuilders, Industrials Media Technology 13 years’ experience 13 years’ experience 4 years’ experience 3 years’ experience Neil Finlay Iain Richards Cathrine de Coninck-Smith Fionnuala O’Grady Investment Specialist Head of Governance & SRI Governance & SRI Analyst Governance & SRI Analyst 10 years’ experience 18 years’ experience 3 years’ experience Benjamin Malone Christopher Fox Dedicated UK Trader Dedicated UK Trader 20 years’ experience 15 years’ experience Experienced and resourcedSource: Threadneedle as of 31 March 2012.1 Stephen is attached to the Global Equity Team.2 Daniel is attached to the Commodities Team.Support services and Industrials are split between fund managers.PT/12/01312 3
  5. 5. UK Equities team – performance Quartile performance1 Asset class and IMA sector Fund name 1 year 3 years 5 years Since FM start Threadneedle UK Fund 1 1 1 1 30.04.10 Threadneedle UK Extended Alpha 1 – – 1 30.11.10 UK All Companies Threadneedle UK Select Fund 1 3 1 1 31.10.06 Threadneedle UK Mid 250 Fund 1 1 1 1 31.01.05 Threadneedle UK Growth & Income 1 1 1 1 31.12.09 UK Smaller Companies Threadneedle UK Smaller Companies Fund 1 2 2 1 30.04.10 Threadneedle UK Equity Alpha Income Fund 2 2 1 1 31.05.06 UK Equity Income Threadneedle UK Equity Income Fund 1 2 1 1 28.02.06 Threadneedle UK Monthly Income Fund 1 2 1 2 28.06.02 UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 1 1 1 1 31.12.09 Absolute Returns Threadneedle UK Absolute Alpha Fund 1 – – 1 29.10.10 Strong performance across a full range of productsSource: Morningstar as at 30 April 2012. Fund data is bid to bid and net of basic rate tax. All fund returns are based in £1 Quartile ranks of all funds are shown within their respective peer group sector from within the UK Unit Trust / OEICs UniversePT/12/01312 4
  6. 6. 2Threadneedle UK Fund
  7. 7. Threadneedle UK FundFund characteristics and risk framework Broadly diversified UK equity fund by market size and sector. At least 50% exposure to FTSE 100 and maximum of 10% small cap exposure Current fund size1 £1,128 million Target First quartile over rolling three year periods Benchmark UK IMA – All Companies Index FTSE All Share Index Typical tracking error range 3%–7% Typical number of stocks 50-90 Typical maximum stock weight 5% Typical maximum sector2 load difference3 +8% Aim to remain fully investedSource: Threadneedle.1 As at 30 April 2012.2 FTSE All-Share ICB Sectors.3 Against the FTSE All Share Index.PT/12/01312 6
  8. 8. Investment philosophy Aim  First quartile over rolling three year periods  Risk and reward drives all investment decisions  Reward derived from valuation and profit opportunity Philosophy  Focus on business risk rather than index risk  Portfolio risk reduced by diversification  Index aware but stock unconstrained Characteristics  Stocks across the market capitalisation spectrum  Maximise the Threadneedle research advantagePT/12/01312 7
  9. 9. Investment strategyTwo key skills Stock picking Portfolio construction  Valuation Diversify the fund by  Quality of business model  Investment theme  Financials (cash flow)  Growth drivers  Growth drivers  Style  Margin sustainability  Market capitalisation  Management  Catalysts Aiming to deliver high alpha AND low volatilityPT/12/01312 8
  10. 10. Investment strategyLimiting downside risk Valuation support Excellent management Conservative balance sheet structure Tangible and saleable assets Clear accounting policies Focus on cash flow generation Organic rather than acquired growth Shareholder value creation focusPT/12/01312 9
  11. 11. UK Fund - consistent long term performanceFund performance vs. FTSE All Share 20 14.8 14.8 15 10.8 10 3.8 3.2 5 2.3 0 -1.4 -0.7 -5 -4.7 -10 -8.0 YTD 1 year Since manager start 3 years* 5 years* UK Fund FTSE All Share Relative* +3.8% +3.6% +10.6% +3.6% +3.9%Source: Threadneedle/FactSet as at 31 May 2012. Performance is in £, using daily official Global Close valuations and daily cash flows (prior to 01.01.08 official noonprices were used). Fund data are gross of tax and T.E.R to facilitate comparison with the index. Since manager start returns are cumulative. Manager start datecorresponds to the start of Simon Brazier’s tenure as UK Fund manager (30 April 2010).* 3 and 5 year returns are annualisedPT/12/01312 10 10
  12. 12. UK Fund performancePerformance relative to FTSE All Share index 12% 10% 8% 6% 4% 2% 0% May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 122.0% 1.8%1.5% 1.3% 1.2% 1.0%1.0% 0.9% 0.8% 0.7% 0.8% 0.7% 0.7% 0.7% 0.6% 0.5% 0.5%0.5% 0.4% 0.2% 0.0%0.0% -0.2% -0.2%-0.5% -0.3% -0.4% -0.3% -0.4% -0.4% -0.4%-1.0% May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Consistent monthly returnsSource: Threadneedle as at 31 May 2012. Performance is in £. Fund data For OEICS from 01.04.2010 fund returns are calculated in FactSet using daily official GlobalClose valuations and daily cash flows. From 01.01.08 until 31.03.2010 returns are based on Global Close (prior to this date official noon prices have been used). Funddata is gross of tax and T.E.R to facilitate comparison with the indices.Fund managed by Simon Brazier from 30 April 2010.PT/12/01312 11 11
  13. 13. UK Fund performance Contributions (in %) Stocks Sectors Total Q1 2012 +2.6 +0.6 +3.2 Q4 2011 +0.3 +0.7 +1.0 Q3 2011 +0.2 -0.9 -0.8 Q2 2011 +0.6 +0.6 +1.2 Q1 2011 +0.7 -0.1 +0.6 Q4 2010 +1.0 +0.3 +1.3 Q3 2010 +1.5 -0.4 +1.1 Q2 2010 +0.4 +0.6 +1.2 Q1 2010 +1.6 +0.6 +2.2 Consistent outperformance driven by stock selectionSource: Threadneedle. Please note that attributions are approximate. Performance attribution as at 31 March 2012.PT/12/01312 12 12
  14. 14. 3Portfolio strategy
  15. 15. Markets do not go up in straight lines Decade Annualised market period return Positive vs. negative return years 1900s 4.90% 1910s -3.80% 1920s 7.80% 1930s 4.30% 1940s 3.80% 1950s 12.90% 1960s 4.40% 1970s -2.30% 1980s 15.60% 1990s 10.70% 2000s -1.20%Source: Equity Gilt Study of 10 February 2011. UK real returns on equities – gross income reinvested. Average annual rates of return between year endsPT/12/01312 14
  16. 16. Volatility is not something newDistribution of real annual equity returns 9 8 Frequency (number of years) 7 6 5 4 3 2 1 0 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 Annual return (%)Source: Equity Gilt Study of 10 February 2011PT/12/01312 15
  17. 17. UK equitiesTrailing PER (x) and subsequent 10 year real annual returns (%) 18 16 14 12 % change 10 8 6 Current multiple 4 10.6x 2 0 -2 5 10 15 20 25 30 PER (x)Source: Royal Bank of Scotland ResearchPT/12/01317 16
  18. 18. Portfolio strategy 2012 Fiscal consolidation underway, a large positive At the stock level valuation focus is key with opportunities across all sectors Including finding value in domestic cyclical stocks Very real exogenous risks (Regulation, global growth shock, sovereign debt crisis, cost push inflation) Minimising downside risk both at the stock and sector level M&A to remain a dominant feature Longer-term, more positive on the UK market than on the underlying UK economy Focusing on stocks, not sectorsPT/12/01312 17
  19. 19. UK equities - themes for 2012 Themes Portfolio strategy Examples  Market leaders  Pearson, Standard Chartered, Johnson Strong franchises /  Strong finances/management Matthey, Smith & Nephew, De La Rue, unique assets  Barriers to entry Imperial Tobacco, Experian, Booker  New management strategy  Rentokil, Wolseley, Melrose, Restructuring / recovery  Improving returns Housebuilders, Aviva, Old Mutual  Value creation  Growth potential  Rotork, Wood Group, Amec, Rolls- Quality cyclicals  Overseas earnings Royce, Smiths Group, IMI  Strong finances Contrarian views /  Strong valuation support  Rexam, Stagecoach, JD Wetherspoons, hidden gems  Out of favour growth options easyJet, Tesco  Strong global franchises  GlaxoSmithKline, AstraZeneca, BT, Undervalued megacaps  High cash yields / dividends BG, BP, BAT, Unilever, Compass  Attractive total return outlookSource: Threadneedle as at March 2012PT/12/01312 18 18
  20. 20. Portfolio Activity Using short term volatility to exploit long term valuations Reducing outperformers – Booker, Aggreko, IG Group, Rexam, De La Rue, Pearson, Filtrona, Melrose Buying on weakness – Wolseley, Carnival, Johnson Matthey, Mining, Wood Group, Daily Mail Adding new holdings – Meggitt, Derwent London, Aviva, Tesco, SIG, BSkyB, Sage Focusing on stocks, not sectorsPT/12/01312 19
  21. 21. Valuation analysis has enabled us to invest at the right priceStock performance versus index2-year relative performance 160% 110% 110% We bought We bought We bought here 150% here here 100% 100% 140% 90% 130% Rebased = 100 Rebased = 100 Rebased = 100 120% 90% 80% 110% 70% 100% 80% 60% 90% 80% 70% 50% 70% 40% 60% 60% Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 BP relative to FTSE All Share Index Persimmon relative to FTSE All Share Index Tesco relative to FTSE All Share IndexSource: Datastream as at 30 April 2012, in local currency 20
  22. 22. Threadneedle UK FundLargest 10 holdings Largest 10 active overweights Sector exposure relative to FTSE All Share Portfolio Active Top 5 overweight and underweight Active weight % weight % sub-sectors (%) weight % GlaxoSmithKline 4.4 BT +2.0 Support Services 6.7 BP 3.7 Booker +1.8 Oil Services 3.2 Royal Dutch Shell 3.5 Johnson Matthey +1.7 Travel & Leisure 3.6 BG 3.0 Persimmon +1.6 Industrial Engineering 3.1 BT 3.0 Bellway +1.5 General Industrials 2.3 AstraZeneca 2.7 Melrose +1.5 Oil & Gas Producers -3.9 Rio Tinto 2.5 easyJet +1.5 Beverages -4.2 Unilever 2.3 De La Rue +1.5 Mining -4.2 Imperial Tobacco 2.2 Wood Group +1.4 Mobile Telecoms -5.4 BAT 2.1 Wolseley +1.4 Banks -5.6Source: Threadneedle as at 31 May 2012.PT/12/01312 21
  23. 23. Conclusion Deleveraging will cause sustained low economic growth in the developed world Markets will continue to lurch from optimism to despair Value case for equities centred on strong balance sheets, strong franchises and the ability to grow profits and dividends in this environment Threadneedle UK Fund has proven track record of long term consistent outperformance, driven primarily by stock selection, and delivered with low volatility and a focus on limiting downside riskPT/12/01312 22
  24. 24. 4Stock stories
  25. 25. BT  Self-help story, with the potential for uncorrelatedPerformance relative to FTSE All Share Index returns and earnings enhancing net cost savings2-year performance for many years to come  Market has been overly concerned about pension 180 deficit, Global Services outlook and fixed line competition, leading to overly depressed 170 valuations 160  Fibre roll-out and ability to bundle dramatically 150 improving competitive position, however, and Rebased = 100 140 Global Services recovery continuing 130  Ground breaking pension prepayment of £2bn, 120 reducing pension deficit to c.£4bn (peak was £9bn) 110  Greater freedom to grow dividends as a result, implying a rebasing over the next few years back 100 to the level at which dividends were cut in 2009 90 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12Source: Datastream as at 30 April 2012, in local currency 24
  26. 26. Booker  UK biggest wholesale distributor, serving cornerPerformance relative to FTSE All Share Index shops, caterers, pubs etc.2-year performance  Excellent management led by Charles Wilson  2007 reverse takeover of Blueheath. Gained AIM 200 listing. Highly incentivised management, with >20% 190 share ownership 180  Extra store refurbishment successfully rolled out. 170 Additional growth coming from internet portal, direct Rebased = 100 160 contracts (e.g. NHS) and the expansion of the premier 150 retail branded corner shops 140  Current infrastructure could handle 50% more volume 130  Icelandic stock overhang removed. Moved to FTSE 120 full list in Autumn 2009 110  Margins continue to benefit from changes to sales mix 100 away from tobacco and towards catering 90 Mar 10 Aug 10 Jan 11 Jun 11 Nov 11 Apr 12  Strong balance sheet (net cash after £360m of debt in 2005). Started to do acquisitions to strengthen position  India opportunitySource: Datastream as at 30 April 2012, in local currency 25
  27. 27. Wolseley  Building material and lumber product distributor inPerformance relative to FTSE All Share Index the US, UK and France2-year performance  2009 was a very tough year as end markets 150 collapsed and the company needed to rebuild its balance sheet with a rights issue 140  With a rebuilt balance sheet, Wolseley is now a turnaround story with a focus on improving 130 margins and returns on capital. It is not a call on Rebased = 100 US construction recovery 120  Management is undertaking action to refocus the 110 group on high return areas and to improve low return areas for eventual sale 100  Exiting the downturn Wolseley should 90 demonstrate high operational gearing and strong cash generation 80 Mar 10 Aug 10 Jan 11 Jun 11 Nov 11 Apr 12Source: Datastream as at 30 April 2012, in local currency 26
  28. 28. Legal & General  Following the market turmoil of 2009, the companyPerformance relative to FTSE All Share Index is delivering on its plan to maintain strong cashflow2-year performance and be more selective in new business underwriting 150  The capital position of the company continues to strengthen; and this is further supported by recent 140 positive newsflow on Solvency II 130  L&G has virtually no exposure to sovereign debt inRebased = 100 the most worrisome countries 120  L&G Investment Management is an under 110 appreciated part of the valuation  35% increase in 2011 dividend announced, taking 100 it back above the level at which it was cut in 2008 90 Mar 10 Aug 10 Jan 11 Jun 11 Nov 11 Apr 12Source: Datastream as at 30 April 2012, in local currency 27
  29. 29. APAppendix
  30. 30. Threadneedle Offshore UK Equities Fund Fund name Threadneedle UK Equities Fund Fund manager Simon Brazier Vehicle structure Luxembourg domiciled UCITS compliant SICAV Comparable fund Offshore version of Threadneedle UK Fund Target performance First quartile over rolling 3 year periods Index FTSE All Share Typical tracking error range 3%-7% Typical number of stocks 50-90 Typical maximum stock weight 5% Typical maximum sector1 load difference2 +8% At least 50% exposure to FTSE 100 Market cap exposure Max 10% small cap exposure Launch date 06 December 2011 Institutional Class: 0.80% Advisory Fees Retail Class: 1.50% Institutional Class: £100,000 Minimum investment Retail Class: £2,000 Institutional and retail, income and accumulating, GBP base currency and Share classes currency hedged share classes available Pricing and dealing 3pm CET cut-off time, market close valuation pointPlease note that the fund has been registered with the Commission de Surveillance du Secteur Financer (CSSF) in Luxembourg and may not be offered to the publicin any where the fund is not currently registered. In jurisdictions where the fund is not currently registered local private placement rules apply. The informationcontained in this slide is strictly for your internal use and must not be passed on to any third party.1 FTSE All Share ICB sectors2 Against the FTSE All Share index 29
  31. 31. Biography SIMON BRAZIER Head of UK Equities Simon Brazier is Threadneedle’s Head of UK Equities. He joined the company in 2010 and manages the Threadneedle UK Fund. Simon began his career at Schroders in 1998 and, since 2002, he was a member of the Schroder UK Specialist Equity team with responsibility for running a variety of institutional mandates as well as the Schroder UK Equity Fund. Simon holds a BA (Hons) in Economics with French from Durham University and also studied at the University of Aix-Marseille. Threadneedle start date: 2010 Industry start date: 1998PT/12/01312 30
  32. 32. Important informationFor Investment Professionals use only, not to be relied upon by private investors.Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus and the latest annual or interim reports, which can beobtained free of charge on request.Past performance is not a guide to future performance. The value of investments can fluctuate. The dealing price may include a dilution adjustment where the fundexperiences large inflows and outflows of investment. Further details are available in the Prospectus.Index returns assume reinvestment of dividends and capital gains and unlike fund returns do not reflect fees or expenses. The index is unmanaged and cannot beinvested in directly.The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted uponprior to publication and is made available here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completenesscannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.The Threadneedle UK Equity Alpha Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reducethe potential for capital growth over time. The Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investmentsdeclines or is otherwise adversely affected, it may have a pronounced effect on the Fund’s value. As such, it is aimed at the more experienced investor.The Threadneedle Monthly Extra Income Fund, Threadneedle UK Equity Income Fund, Threadneedle UK Monthly Income Fund, Threadneedle UK Growth & IncomeFund and Threadneedle Managed Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reducethe potential for capital growth over time.The Threadneedle UK Select Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investments declines or isotherwise adversely affected, it may have a pronounced effect on the Fund’s value. As such, it is aimed at the more experienced investor.The Threadneedle UK Smaller Companies Fund and Threadneedle UK Mid 250 Fund invest in smaller companies. Smaller companies can be more volatile and lessliquid than their larger counterparts.The mention of any specific shares or bonds should not be taken as a recommendation to deal.The information provided in this presentation is for the sole use of those intermediaries attending the presentation. It may not be reproduced in any form without theexpress permission of Threadneedle and to the extent that it is passed on, care must be taken to ensure that this is in a form that accurately reflects the informationpresented here.Threadneedle Investment Services Limited,60 St Mary Axe,London EC3A 8JQ, For investment professional use only.Registered no. 3701768. Not for onward distribution to, or to beAuthorised and regulated in the UK by the Financial Services Authority. Threadneedle is a brand name, and both the relied upon by, private investors.Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companiesPT/12/01312 31

×