Post on 21-Dec-2015
Threadneedle Investments
Threadneedle European Smaller Companies Fund
February 2006
2
Agenda
• Threadneedle Investments
• Threadneedle European Smaller Companies Fund
• Investment Process
• Key Buys and Sells
• Quantitative Information
• Appendices
Threadneedle Investments
4
• Over 120 London based investment professionals
• Average investment experience of whole investment team over 14 years; excellent staff retention
Threadneedle Investments Investment Team
Source: Threadneedle InvestmentsAs at December 2005
Chief Executive OfficerSimon Davies
Robert StirlingHead of Fixed
Interest & Treasury(29)
Chief Investment Officer Sarah Arkle
Michael TaylorHead of Equities &
Head of UK(24)
Cormac WeldonHead of US
Ed GauntHead of Japan
Vanessa DoneganHead of Asia
Dominic RossiHead of
International &Global Equities
(20)
Danny BurtonCindy Larke
Dealing & Stocklending
Malcolm KempHead of
Quantitative and Risk Analysis
(6)
Alex LyleHead of
Managed Funds (12)
William DaviesHead of Europe ex
UK
Julian ThompsonHead of
Emerging Markets
5
William DaviesExecutive Director
Head of European Equities
William DaviesExecutive Director
Head of European Equities
Darrell O’DeaExecutive Director
Fund Manager
Darrell O’DeaExecutive Director
Fund Manager
Paul DoyleExecutive Director
Smaller Companies & Banks
Paul DoyleExecutive Director
Smaller Companies & Banks
Dominic BakerExecutive DirectorTelecoms & Autos
Dominic BakerExecutive DirectorTelecoms & Autos
David Dudding, CFAExecutive Director
Smaller Companies & Healthcare
David Dudding, CFAExecutive Director
Smaller Companies & Healthcare
Danny BurtonExecutive Director
Senior Dealer
Danny BurtonExecutive Director
Senior Dealer
Nick HawkesSmaller Company Dealer
Nick HawkesSmaller Company Dealer
Philip Dicken, CFAFund Manager
Smaller Companies
Philip Dicken, CFAFund Manager
Smaller Companies
Philip CliffFund Manager
Support Services, Technology
Philip CliffFund Manager
Support Services, Technology
Sunita GoklaneyAnalyst
Pharmaceuticals and Media
Sunita GoklaneyAnalyst
Pharmaceuticals and Media
Rob JonesFund Manager
Insurance, Food & Drug Retailers
Rob JonesFund Manager
Insurance, Food & Drug Retailers
Source: Threadneedle Investments As at 30th December 2005
Threadneedle Investments European Equities Team
Julie ThomasAnalyst
European Banks
Julie ThomasAnalyst
European Banks
• Team of 31, of whom 20 conduct
Pan-European research
• 12 dedicated investment
professionals, 3 of whom committed
to small cap
• Over €10.5 billion under
management
Threadneedle European Smaller Companies Fund
7
Philosophy
“Seeks long-term growth of capital through active investment in small high quality and rapidly growing companies through the identification of under-researched, under-valued and niche opportunities, using rigorous selection criteria.”
Objectives
“To achieve above average returns over a market cycle with managed risk versus appropriate index.”
Threadneedle European Smaller Cos FundPhilosophy and Objectives
8
Prohibited from investing in Top 225 of FTSE World Europe ex UK Index Equates to a free float of approx €3.0 bn
No minimum market value restriction Liquidity prevents many investments in companies
below €100m market value
Threadneedle European Smaller Cos Fund Investable Market
Max
Min
Valuations
9
New products and services Sub-contracting phenomena Geographical widening of franchises
Privatisation/Outsourcing Technology - Media - Telecoms Restructuring Management Changes Demographics
Responsive to industry and country factors
Threadneedle European Smaller Cos Fund Opportunity Drivers
Growth Factors
Change Factors
Valuations
Investment Process
11
Eligible Universe of500-1,000 companies
4,000 companies Outside FTSE Top 225
Portfolio of 80-100names
Over 500 company visits per annum
Opportunity Sources
Selection Criteria
• Large cap managers
• Large cap themes
• Small cap team
• Strong franchises
• Revenue growth
• High visibility of revenues
• Under researched
• Regional and local brokers
• IPO’s
• Quantitative screening
• Valuation screens (EV/EBITDA, P/E, P/CF, etc)
• Margin and cash-flow trend
• Adequate disclosure
• Management interests aligned with those of shareholders
Investment process Screening
12
Ideas drive investment decisions
Research-driven, bottom-up approach
Stock selection focuses on individual company prospects
Investment opportunities derived from growth and change
Country and sector weightings result from stock selection process
Strict valuation disciplines
Decision making is bottom-up
Investment Process Stock Selection
13
Margin trends
ROCE
Competition
Management/strategy changes
Sector outlook
Deterioration in risk/reward profiles
Over € 2-3 billion free-float
Wider ‘sell-side’ coverage
Management reduces share holdings
Opportunistic capital increases
Business Dynamics
Valuation Changes
Sentiment Factors
Investment Process Sell Disciplines
14
Small caps have a history of long term outperformance
Currently valued at a premium, therefore short term outperformance unlikely
Bottom up approach essential
Consistency of fund and team
Consistency of pragmatic approach
Strong resources and team based methodology
Long term approach
Market
Fund
Threadneedle European Smaller Cos Fund
Investment Process Outlook
Key Buys and Sells
16
5 years Performance
Stock performance versus Index
The naming of any specific shares should not be taken as a recommendation to deal.
Neopost
Source: DatastreamAs at 4th January 2006
Held Pre 2001
• World #2 in franking machines
• 61% of sales are recurring ie: maintenance and consumables
• Consistent margin increases
• Diversified geographically
• Sales driven by decertification programmes, not global GDP
2001 2002 2003 2004 200520
30
40
50
60
70
80
90
100
110
NEOPOST(692552/WIEXUKE)
17
2 years Performance
Stock performance versus Index
April Group
The naming of any specific shares should not be taken as a recommendation to deal.
• French insurance products broker/distributor
• Main markets are health and life insurance
• Only 2% market share in health insurance in France
• Benefiting from reduction in state spending
• Very little underwriting exposure
• Earnings expected to grow by 18% CAGR 05-07e
Bought July 2004
J F M A M J J A S O N D J F M A M J J A S O N D10
15
20
25
30
35
40
APRIL GROUP(879966/WIEXUKE)
Source: DatastreamAs at 4th January 2006
18
2 years Performance
Stock performance versus Index
Lindt & Sprungli
The naming of any specific shares should not be taken as a recommendation to deal.
Bought May 2004
• Global leader in luxury chocolates
• Long term market growth 6 – 7%
• 14% growth in the US, an under penetrated market
• Excellent management team
J F M A M J J A S O N D J F M A M J J A S O N D800
1000
1200
1400
1600
1800
2000
2200
2400
LINDT&SPRUNGLI 'P'(936420/WIEXUKE)
Source: DatastreamAs at 4th January 2006
19
2 years Performance
Stock performance versus Index
Takkt
The naming of any specific shares should not be taken as a recommendation to deal.
BoughtFebruary 2004
• Leading catalogue-based B2B mail order company
• Over 100,000 product lines, specialising in office, safety and warehouse equipment
• Low price pressure due to infrequent ordering, lack of price transparency and low average order value
• High barriers to entry due to brands, supplier network and long period to breakeven in a new market
• Attracted by cheap valuation, exposure to cyclical upswing and combination of cashflow and growth
J F M A M J J A S O N D J F M A M J J A S O N D5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
TAKKT(273293/WIEXUKE)
Source: DatastreamAs at 4th January 2006
20
2 years Performance
Stock performance versus Index
Celesio
The naming of any specific shares should not be taken as a recommendation to deal.
Bought April 2004
• Europe’s biggest pharmacy retailer and wholesaler
• Big beneficiary of generic drug penetration as margins are higher in generics
• German wholesale margins recovering as competition diminishes
• Potential for enormous upside if Germany allows retail pharmacy consolidation
• Cash generative, good management, cheap
J F M A M J J A S O N D J F M A M J J A S O N D35
40
45
50
55
60
65
70
75
80
CELESIO(951741/WIEXUKE)
Source: DatastreamAs at 4th January 2006
21
Stock performance versus Index
Wincor Nixdorf
The naming of any specific shares should not be taken as a recommendation to deal.
J F M A M J J A S O N D J F M A M J J A S O N D30
40
50
60
70
80
90
100
WINCOR NIXDORF(28990K/WIEXUKE)
2 years Performance
Bought May 2004
• Leading manufacturer of banking and retail systems
– ATM’s
– Electronic points-of-sale
• Services represent >40% of sales, giving good visibility
• Highly cash generative and to pay a 2.4% dividend yield
• Earnings CAGR of 14% (04 – 07e)
• Highly regarded management team
Source: DatastreamAs at 4th January 2006
22
Rafako
Stock performance versus Index
1 years Performance
J F M A M J J A S O N D10
12
14
16
18
20
22
RAFAKO(142290/WIEXUKE)
• Polish engineer active in boiler manufacture
• Record order book driven by energy sector investments
• Bought due to clearly cheap valuation
• However, shares quickly reached our target price
BoughtNovember 2005
Sold December 2005/ January 2006
The naming of any specific shares should not be taken as a recommendation to deal.
Source: DatastreamAs at 4th January 2006
23
Vivacon
Stock performance versus Index
1 years Performance
J F M A M J J A S O N D5
10
15
20
25
30
35
VIVACON(14907P/WIEXUKE)
• Hybrid financial company in German real estate
• Bought after positive meeting
• Shares rose significantly
• Do not believe business model deserves a high multiple valuation
BoughtAugust 2005
Sold December 2005
The naming of any specific shares should not be taken as a recommendation to deal.
Source: DatastreamAs at 4th January 2006
24
Carrere Group
Stock performance versus Index
12 years Performance
J F M A M J J A S O N D13
14
15
16
17
18
19
20
21
CARRERE GROUP(259207/WIEXUKE)
• Media company in TV production
• Increasing sales of back catalogue
• Bought in placing
• Clear undervaluation was corrected
• High visibility of earnings undermined by
– Poor meeting with management
– Weak explanation of IFRS changes
BoughtJune 2005
Sold November 2005
The naming of any specific shares should not be taken as a recommendation to deal.
Source: DatastreamAs at 4th January 2006
25
5 years Performance
Stock performance versus Index
Colruyt
The naming of any specific shares should not be taken as a recommendation to deal.
Bought October 2002
Sold June 2005
• Belgium’s third largest food retailer
• Rating became too expensive, both on absolute basis and vs peers
• Uncertainty caused by management changes
• Risk of price war, subsequently proved correct
• Unsatisfactory meeting with company
2001 2002 2003 2004 200520
40
60
80
100
120
140
160
180
200
COLRUYT(950997/WIEXUKE)
Source: DatastreamAs at 4th January 2006
26
2 years Performance
Stock performance versus Index
Mayr Melnhof
The naming of any specific shares should not be taken as a recommendation to deal.
Bought May 2004
Sold February 2005• Austrian carton board and cartons
manufacturer
• World leader in recycled cardboard
• Sold due to increased European competition and reduction in capacity utilisation
• Also, attempts to increase prices failed and resulted in some loss of market share
J F M A M J J A S O N D J F M A M J J A S O N D80
90
100
110
120
130
140
MAYR-MELNHOF KARTON(142344/WIEXUKE)
Source: DatastreamAs at 4th January 2006
27
2 years Performance
Stock performance versus Index
Credito Emiliano
The naming of any specific shares should not be taken as a recommendation to deal.
BoughtMay 2004
Sold May 2005
• Mid sized bank in more affluent north of Italy
• Bought on cheap valuation
• Unconsolidated market and founder’s death triggered M&A speculation
• Sold due to high valuation and macro environment concerns
J F M A M J J A S O N D J F M A M J J A S O N D5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
CREDITO EMILIANO(945849/WIEXUKE)
Source: DatastreamAs at 4th January 2006
Quantitative Information
29
Quantitative Information Top 10 Holdings
Company Business Weighting %
Aarhuskarlshamns Speciality Fats 2.7
Grafton Units Builders’ Merchant 2.4
Bergman & Beving Distributor of Industrial Equipment 2.2
Takkt Business Catalogues 2.1
Imerys Minerals 2.1
Acta Holdings Independent Financial Advisor 2.1
Subsea 7 Oil Services 2.1
Grenkeleasing Small ticket leasing 2.1
April Group Insurance Broker 2.1
Rhon-Klinikum Hospital Operator 2.0
TOTAL TOP 10
21.9
The naming of any specific shares should not be taken as a recommendation to deal.
Source: Threadneedle InvestmentsAs at 31ST December 2005
30
Quantitative Information Sector Weightings
2,3 0,0
Portfolio Index*
in % in %
* HSBC Smaller Cos ex UK IndexSource: Threadneedle Investments, as at 31st December 2005
Unclassified 4.4 0.0
Oil & Gas 4.1 4.4
Basic Materials 7.5 7.9
Industrials 41.9 28.4
Consumer Goods 7.9 10.8
Health Care 10.8 6.3
Consumer Services 4.2 14.4
Telecommunications 0.0 1.3
Utilities 2.7 1.1
Financials 12.8 18.6
Technology 4.6 6.8
Total 100.0 100.0
Cash -0.9 0.0
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Quantitative Information Risk Constraints
Creates a disciplined investment process
Limits Volatility
Diversifies by opportunity
Encourages Creativity
2%
3%
50
6
8
Maximum holding (cost) in any stock
Maximum holding (market) in any stock
Minimum number of stocks
Minimum number of sectors
Minimum number of country positions
32
Quantitative Information Risk Statistics
Returns are shown annualised.Source: Threadneedle, Thomson Financial Datastream and S&P. All data is shown on a total return basis in EUR. Fund returns are shown on a Bid-Bid basis, with Gross Income re-invested but net of AMC.As at 31st December 2005
1.000.820.49R-Squared(-v- FT Europe [ex UK] Index)
7.12%11.06%16.65%Return per annum (%)
FT World Europe ex UK Total Return
Index
HSBC Smaller Europe ex UK UK
Price Index
Threadneedle European Smaller Companies Fund
Inception to end December 2005
33
Quantitative Information Performance
Consistent outperformance
Cumulative Performance Europe ex-UK
Threadneedle European Select Fund Percentile Ranking** Median Fund*
Threadneedle European Fund
Percentile Ranking** Median Fund*
Threadneedle European Smaller Cos Fund
Percentile Ranking** Median Fund*
Threadneedle Pan European Accelerando Fund Percentile Ranking** Median Fund*
* Median Sample – German Universe** Percentile Rankings range from 0% (top performing fund) to 100% (bottom performing fund)Source: S&P WorkstationSector: European Select Growth, European Growth & Pan European Growth - Offshore Territories : Equity Europe ex UK & Equity Europe combined, European Sm Cos - Offshore Territories : Europe Smaller Cos. & Smllr Companies Europe ex UK combined,Performance data is quoted in Euros (prev. DM), on a Nav-to-Nav basis with gross income reinvested. (Data for periods greater than 1yr is cumulative.)As at 31st December 2005
1 Year
26.9%
2925.1%
27.1%
2625.1%
36.2%
3833.9%
32.8%7
251%
3 Years
63.3%
3456.2%
64.4%
3256.2%
131.4%15
106.9%
5 Years
-4.3%
23-15.2%
-0.4% 16
-15.2%
44.9%6
-0.1%
7 Years
50.4%
1011.0%
51.7%9
11.0%
182.6%4
90.1%
10 Years
318.2%
3146.2%
261. 8%10
146.2%
Appendix
35
David Dudding CFA graduated from Wadham College, Oxford University, in 1993 with a degree in Modern History (First Class). He then spent three years working for a British conglomerate in Hong Kong.
Upon his return to the United Kingdom, he worked as a financial journalist with a leading magazine for private investors, before returning to Oxford, gaining a Masters degree in European Politics.
He joined Threadneedle Asset Management in September 1999 and worked on the European team as the Smaller Companies Equity Analyst before taking over the Threadneedle Smaller Companies Fund on 1st September 2002.
He is a regular member of the CFA Institute and is a member of the UK Society of Investment Professionals (UKSIP).
Biographies
Philip Dicken CFA joined the European Equities team at Threadneedle in 2004 and was appointed deputy Fund Manager to the European Smaller Companies fund in July 2004. He graduated with a Master of Mechanical Engineering with French degree (First Class) from the University of Bristol in 1997.
Philip worked in Corporate Finance / M&A with Merrill Lynch, then covered UK and European mid and small caps for five years with Active Value, a corporate governance / activist fund management group.
He is a regular member of the CFA Institute and is a member of the UK Society of Investment Professionals (UKSIP)
36
Threadneedle European Smaller Cos Growth FundPortfolio Index*
* HSBC Smaller Cos ex UK IndexSource: Threadneedle Investments, as at 31st December 2005
Quantitative Information Country Weightings
Within the context of Growth and Change, Country Boundaries are less relevant
Portfolio Index
Austria 4.0 3.0Belguim 0.2 3.2Denmark 2.2 5.1Finland 4.8 6.6France 15.9 12.5Germany 19.7 13.6Greece 5.4 4.6Hungary 0.5 0.0Iceland 0.3 0.0Ireland 5.7 2.7Italy 4.0 11.5Luxembourg 0.0 0.4Netherlands 5.9 7.6Norway 6.3 5.8Portugal 0.4 0.7Spain 3.6 5.6Sweden 8.5 9.6Switzerland 11.9 7.7Turkey 1.1 0.0
in %
0
5
10
15
20
25
Au
stri
a
Be
lgu
im
De
nm
ark
Fin
lan
d
Fra
nce
Ge
rma
ny
Gre
ece
Hu
ng
ary
Ice
lan
d
Ire
lan
d
Italy
Lu
xem
bo
urg
Ne
the
rla
nd
s
No
rwa
y
Po
rtu
ga
l
Sp
ain
Sw
ed
en
Sw
itze
rla
nd
Tu
rke
y
37
Threadneedle European FundThreadneedle European
Select FundThreadneedle European
Smaller Cos Fund
The naming of any specific shares should not be taken as a recommendation to deal.
Size € 1,099.3m Size € 1,682.4m Size € 985.1mNo. Holdings 84 No. Holdings 59 No. Holdings 126
Top 10 Holdings Top 10 Holdings Top 10 HoldingsUBS 3.8 UBS 4.9 Aarhuskarlshamns 2.7Total EUR10 3.6 E. ON AG 4.0 Grafton 2.4Novartis 3.6 ENI EUR1 3.9 Bergman & Beving 2.2Allianz 3.2 Novartis 3.8 Takkt 2.1ENI EUR1 3 Total EUR10 3.5 Imerys 2.1Roche Holdings 2.8 Unicredito 3.3 Acta Holding 2.1Nestle SA 2.7 Roche Holding 3.1 Subsea 7 2.1Sanofi Aventis 2.5 2.9 Grenkeleasing 2.1Axa EUR2.29 2.2 Allianz 2.8 April Group 2.1Credit Suisse 2.1 Air Liquide 2.8 Rhon-Klinikum 2.0
Threadneedle’s European Equity FundsFund Outline 1
Source: Threadneedle InvestmentsAs at 31st December 2005
38
Important Information
For Investment profession use only
(not for onward distribution to, or tobe relied upon by private investors)
Past performance is not a guide to future returns. The value of investments and any income from them is not guaranteed and may fall as well as rise and the investor may not get back the original investment. Exchange rate movements could increase or decrease the value of underlying investments/holdings. The dealing price of the funds may include a dilution adjustment, further details are available in the Prospectus.Threadneedle Investment Funds ICVC (“TIF”) is an open-ended investment company (OEIC) with variable capital and limited liability incorporated in England and Wales under registered No. IC000002 and authorised by the Financial Services Authority (FSA) with effect from 18. June 1997. TIF complies with the UCITS Directive 85/611/ EEC (as amended by directives 2001/107/EC and 2001/108/EC).TIF is structured as an umbrella company, in that different funds may be established from time to time by Threadneedle Investment Services Limited with the approval of the FSA and the agreement of the Depositary (J.P. Morgan Trustee and Depositary Company Limited). The assets of each fund will be treated as separate from those of every other fund and will be invested in accordance with the investment objective and investment policy applicable to that fund. The investment manager is Threadneedle Asset Management Limited.References in this document to any fund do not constitute an offer or invitation to subscribe to shares in such a fund. We recommend you get detailed information before the purchase of shares. Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus as well as the annual or interim report. Copies can be obtained free of charge on request from your financial adviser or our paying agents in Germany: JP Morgan AG, Junghofstr. 14, D-60311 Frankfurt, Tel.: +49- (0)69-7124 4207, and Austria: RZB (Raiffeisen Zentralbank Österreich AG), Am Stadtpark 9, A-1030 Wien, Tel.: +43-(0)1-71707 1730.The naming of any specific shares should not be taken as a recommendation to deal and anyone considering purchasing the securities mentioned should consult a stockbroker or financial adviser. The research and analysis included in this document has been produced by Threadneedle for its own investment management activities; it might have been acted upon prior to publication and is made available here only incidentally. In some instances the information contained in this publication, other than statements of fact, was obtained from external sources believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.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 the express permission of Threadneedle and to the extent that it is passed on care must be taken to ensure that this is in a form which accurately reflects the information presented here.The Select and Smaller Companies Funds are more actively managed and have more concentrated portfolios. They can, therefore, carry more risk. As such, they are aimed at the more experienced investor.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 be invested in directly.
Threadneedle Portfolio Services LimitedRegistered in England and Wales, No. 285988.Registered Office: 60 St Mary Axe, London EC3A 8JQ.Authorised and regulated in the UK by the Financial Services Authority.Threadneedle Investments is a brand name, and both the Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companies.The Threadneedle Investment Funds ICVC are registered for public offer in Austria and Germany.