Montreux presentation final
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Transcript of Montreux presentation final
CAZENOVE UK ABSOLUTE TARGET FUND
For professional advisers only
A leader in generating absolute returns
Steve Cordell, Fund Manager Citywire Montreux May 2012
- 1 -
Investment team – fund managers
Steve Cordell, fund manager
Joined Cazenove in 2002.
A senior member of the pan-European
equity team and manager of the
Cazenove UK Equity Absolute Return
Fund, the Cazenove Leveraged UK
Equity Fund, the Cazenove UK
Absolute Target Fund and also the
S&P AAA-rated Cazenove Pan
Europe Fund.
Joined from HSBC Asset
Management (Europe) Ltd where he
was responsible for several retail and
institutional pan-European portfolios.
Director of Cazenove Capital and has
18 years of investment experience.
Julie Dean, fund manager
Joined Cazenove in 2002.
A member of the pan-European equity
team and manager of the Morningstar
OBSR Bronze-rated Cazenove UK
Opportunities Fund and the Cazenove
UK Equity Fund.
Joined from HSBC Asset
Management (Europe) Ltd where she
was responsible for similar funds as
well as institutional portfolios.
Graduated from St Anne’s College,
Oxford University with a BA (Hons) in
Modern History. She has 19 years of
investment experience.
- 2 -
Cazenove UK Absolute Target Fund in 2011: 11.2%
Source: Lipper at 31/12/11
11.18%
-3.46%
% Percentage
2011 fund (Euro share class) volatility 7.5 / FTSE All-Share 24.8
- 3 -
Cazenove UK Absolute Target Fund (CAT)
Targeting 8-10%* per annum net of fees (No hurdle rate)
Expecting maximum two thirds UK Equity Market Volatility
UCITS UK OEIC using CFDs
Launched July 2008
Two share classes:
- P1 - AMC 1.25% plus 20% performance fee (with high watermark)
- P2 - AMC 0.75% plus 20% performance fee (with high watermark)
Minimum investment €1,000 (P1) or €500,000 (P2)
Sterling and euro (daily hedged) accumulation shares
*There is no guarantee that either the target or positive returns will be achieved
Performance since launch
- 4 -
Source: Lipper at 31/03/12
-40
-30
-20
-10
0
10
20
30
40
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
Cazenove UK Absolute Target P2 GBP 9.64% FTSE All-Share TR 25.57%
Steve Cordell
Appointment
- 5 -
Cazenove UK Absolute Target Fund: volatility since launch
Source: Lipper at 31/03/12
- 6 -
Broadly market neutral approach
10 worst market monthly drawdowns vs fund
Source: Cazenove Capital Management at 31/03/12
-5.8
-6.5
-3.2 -3.6
-6.2
-4.6
-2.3 -2.2
-6.9
-5.0
0.3
-4.2
1.3 1.0
-4.2
-1.1 -1.1 -1.0
0.1
3.8
-8
-6
-4
-2
0
2
4
6
Jan-09 Feb-09 Jun-09 Jan-10 May-10 Jun-10 Nov-10 Jul-11 Aug-11 Sep-11
FTSE All Share CAT Share Price EUR P2
Pan-European equity team
- 7 -
Chris Rice
Head of Pan-European Equities
All team members have sector research responsibilities as well as product responsibilities
Social environment and ethical (SEE) research is integrated into our mainstream investment process – in addition we have 2 SRI analysts.
UK Europe
Steve Cordell (UK Absolute)
Paul Marriage (UK Smaller Companies)
Julie Dean (UK Equity)
John Warren (UK Smaller Companies)
Matthew Hudson (Equity Income)
David Docherty (UK Equity)
Wade Pollard (UK Equity)
Charlotte Morrish (UK Equity)
Melanie Jenkins (Charity & Inst)
Chris Rice (Europe Ex UK)
Steve Cordell (Pan-Europe)
Lionel Rayon (Pan-Europe, High Alpha)
Kuldip Shergill (Pan-Europe, High Alpha)
James Sym (Europe Ex UK)
PHILOSOPHY
Business cycle – a pragmatic approach
- 9 -
Recovery Expansion Slowdown Recession
Beta dominates
Beta dominates
Beta dominates
• At turning points in the economic and stock market cycles, we would expect business cycle factors to dominate stock returns and as
such we would expect to commit more of our risk capital to beta factors.
• During trend periods (expansion/contraction) it is the difference between stocks and sectors which dominate stocks returns. As such we
would expect to commit more risk capital to alpha factors (either fundamental or valuation anomalies).
A pragmatic approach
- 10 - - 10 -
• Sector market divides are not homogenous. They do not necessarily help us
determine the behaviour of these stocks within the cycle.
• Define the correlation of stocks and allocate them to seven style groupings:
Commodity cyclicals
Growth Financials Growth defensives
Consumer cyclicals Value defensives
Industrial cyclicals
HIGH BETA LOW BETA
• Pragmatic approach combining top-down macro view with earnings based security selection
• Avoid permanent style / size bias
• Demand for products and services changes throughout the business cycle
• Operational gearing of companies impacts profitability of companies
‘A pragmatic approach is most likely to achieve
competitive and consistent returns’
Stock selection.…..variability is predictable
- 11 -
Slowdown Recession Recovery Expansion
Long
Short
Growth defensive
Growth
Value defensives
Commodity cyclicals
Interest rate sensitive
Consumer cyclicals
Industrial cyclicals
Value defensive
Growth defensive
Growth
Consumer cyclicals
Commodity cyclicals
Interest rate sensitive
Industrial cyclicals
Industrial cyclicals
Consumer cyclicals
Interest rate sensitive
Commodity cyclicals
Growth
Growth defensives
Value defensives
Commodity cyclicals
Industrial cyclicals
Growth
Consumer cyclicals
Interest rate sensitive
Growth defensives
Value defensive
Typical longs
Typical shorts
Horses for courses
31/12/99 - 12/03/03 12/03/03 - 15/06/07 15/06/07 - 03/03/09 03/03/09 - 07/07/11
Morgan Crucible Electronic & Electrical Cyclical -74% +272% -42% +74%
Bodycote Industrial Engineering Cyclical -55% +114% -26% +84%
Cookson General Industrials Cyclical -80% +98% -78% +39%
Diageo Beverages Defensive +147% -17% +40% 7%
Unilever Food Producers Defensive +178% -35% +57% 0%
Reed Elsevier Media Defensive +72% -23% +43% -4%
Stock Sector Style
Performance relative to FTSE All-Share*
- 12 -
Source: Thomson Datastream
INVESTMENT PROCESS
How we determine turning points in the business cycle
30
35
40
45
50
55
60
65
70
2000 2002 2004 2006 2008 2010
Headline Index New Orders
- 14 -
20
30
40
50
60
70
2000 2002 2004 2006 2008 2010
Headline Index New Orders
20
30
40
50
60
70
80
2000 2002 2004 2006 2008 2010
Headline Index New Orders
UK Markit manufacturing PMI US ISM manufacturing PMI
Germany Markit manufacturing PMI China manufacturing PMIs
Source: Markit & Thomson Datastream
High correlation between leading indicators and earnings revisions
- 15 -
US ISM vs S&P 500 EPS estimates S&P 500 Index vs EPS estimates
UK Manufacturing PMI vs FTSE All-Share EPS estimates FTSE All-Share Index vs EPS estimates
Source: Thomson Datastream
Stocks also correlate to leading indicators
- 16 -
Leading indicators of the cycle Industrial cyclicals follow
Source: Merrill Lynch
Portfolio construction
- 17 -
Pan-European equity strategy
meeting
Portfolio
Position sizing
Stock selection process
7 style tilts
75%
25%
Emphasis
Strength of view
Potential returns
Stock volatility
Quantitative screening
Qualitative screening
Stock opportunities analysed more in depth
Where we are?
Where we are going?
Tilts weighting to reflect our business
cycle view
Avoid permanent style / size bias
Diversified portfolio
Low correlation
Three type of trades to add value
- 18 -
Business cycle factors Security analysis
E Example Long: GlaxoSmithKline
Short: Solvay Tech
Long: Babcock
Short: Intertek
Long: Spectris
Short: Talvivaara
Business cycle trades
50 – 90%
Directional trades
20 – 50%
Trade
Range
Relative value trades
0 – 10%
- 19 -
Net / gross exposures since launch
Source: Cazenove Capital Management at 31/03/12
0
20
40
60
80
100
120
140
160
180
-15
-10
-5
0
5
10
15
20
Aug-0
8
Sep-0
8
Oct-
08
No
v-0
8
De
c-0
8
Jan-0
9
Feb
-09
Ma
r-0
9
Apr-
09
Ma
y-0
9
Jun-0
9
Jul-0
9
Aug-0
9
Sep-0
9
Oct-
09
No
v-0
9
De
c-0
9
Jan-1
0
Feb
-10
Ma
r-1
0
Apr-
10
Ma
y-1
0
Jun-1
0
Jul-1
0
Aug-1
0
Sep-1
0
Oct-
10
No
v-1
0
De
c-1
0
Jan-1
1
Feb
-11
Ma
r-1
1
Apr-
11
Ma
y-1
1
Jun-1
1
Jul-1
1
Aug-1
1
Sep-1
1
Oct-
11
No
v-1
1
De
c-1
1
Jan-1
2
Feb
-12
Ma
r-1
2
Average net exposure (beta-adjusted)(%)(lhs) Monthly Gross Exposure (rhs)
Average net exposure % Monthly gross exposure %
Cazenove UK Absolute Target Fund in 2011: 11.2%
- 20 -
Source: Lipper at 31/12/11
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
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
Cazenove UK Absolute Target P2 GBP FTSE All-Share TR
-3.46%
11.24%
% Percentage
2011 fund volatility 7.5 / FTSE All-Share 24.8
How we made our 11.2%* net return in 2011
- 21 -
Largest 10 sector impacts (bps) Longs Shorts Total
Support Services 138 83 222
Mining -3 203 200
Chemicals 18 116 134
Industrial Metals & Mining 131 131
Pharmaceuticals & Biotechnology 108 108
Electronic & Electrical Equipment 95 11 106
General Retailers -42 117 75
Life Insurance 46 22 66
Software & Computer Services 7 -89 -82
Media -150 -19 -169
Source: Cazenove Capital Management 12 months to 31/12/11
*P2 GBP Class
Longs Shorts Net
Total Estimated Contribution (bps) 488 631 1120
Risk on, risk off…
22
Source: Thomson Datastream
Commodity prices vs USD UK defensives % PER premium vs cyclicals
Macro dominates markets now
OUTLOOK
… and in the real world
- 24 -
Source: Thomson Datastream / Bloomberg
The boom and bust of America’s housing market
China money supply vs copper Prices
UK, US and Eurozone bank lending
• UK supported by QE - just
• Credit crunch in Eurozone – recession likely
• China growth/inflation balance more sustainable –
easing started
• US muddle through - at risk from European
contagion?
Can the US economy continue to surprise on the upside?
- 25 -
US corporate profits as a % GDP at an all time high US NFIB smaller companies business optimism
The global output cycle: American outperformance US economic surprise indicator
Source: Bloomberg & Thomson Datastream
Can the UK & Europe grow?
- 26 -
UK BOE QE To date, planned and consensus forecast for end-2012
German export orders
UK GDP
Source: Thomson Datastream / Bloomberg & BofA Merrill Lynch European Equity Strategy
FTSE All-Share earnings forecasts
UK GDP
Summary
- 27 -
Genuine asset diversifier
Highly liquid strategy
Macro / business cycle expertise
Low volatility, incremental returns
Utilises European equities if needed
Flexible trading approach
Risk management – UK Absolute Target
- 28 -
NICK BUCKNELL joined Cazenove in 2003. He is Head of Risk and is responsible for risk management
across equities, bonds and hedge funds. Nick is also involved in providing strategic asset allocation advice.
Prior to joining Cazenove Capital, Nick held similar positions at Newton Investment Management and Merrill
Lynch Investment Managers. Nick graduated from Exeter University with a first class degree in
Mathematical Statistics & Operational Research. Nick is a Fellow of the Institute of Actuaries and has 15
years of investment management experience.
Leverage & stock controls Independent monitoring Size, style, hedging
Max 200% gross exposure
(typical range 100 – 175%)
Max 50% net exposure (typically up to +/-25%)
Will not invest in unquoted stocks
Normal positions <5% NAV
Typically 30 – 50 holdings on each side of the
balance sheet
Daily VaR monitoring and stress testing done
in-house
Fortnightly factor analysis
Monthly analysis of realised performance
Monthly liquidity analysis
Unconstrained sector positioning
Bias to large and midcap
No automatic stop loss
Will use CFD’s
Use of futures & ETF’s
Selective investment in European markets
Can buy options or write calls
QUESTIONS
Regulatory information and risk warnings
- 30 -
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 is not a guide to future performance. The value of investments and the income from them may 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 Professional Advisers, Professional Intermediaries and non-private clients only.
The Cazenove UK Absolute Target Fund is registered for sale in the following jurisdictions: Austria, Denmark, France, Germany, Guernsey,
Ireland, Italy, Jersey, Luxembourg, The Netherlands, Singapore, Spain, Sweden, Switzerland, The United Kingdom.
Further information on the performance fee and risks of the fund can be found in the full Prospectus and Key Investor Information
document (KIID). The KIIDs are available in the following languages German, Swiss-German, Danish, Spanish, French, English, Italian,
Dutch, Swedish.