Schroders PLC · LSE:SDR
Schroders — Non-Deal Roadshow (February 2011)
62 slides from Schroders's roadshow presentation, February 2011
Slide 1: Schroders European Equity Roadshow
Schroders European Equity Roadshow Rory Bateman - Head of European Equities Jamie Lowry – Portfolio Manager, London Daniel Lenz – Portfolio Manager, Zurich February 2011 For Professional Investors or Advisors Only
Slide 2: Agenda
Agenda – Why European Equities? Global context European specifics – Schroder funds Rory Bateman – Schroder ISF European Large Cap Jamie Lowry – Schroder ISF European Equity Alpha Daniel Lenz – Schroder ISF European Small & Mid Cap Value 2
Slide 3: Why European Equities? Global context
Why European Equities? Global context
Slide 4: Why European Equities?
Why European Equities? … Don’t miss the boat… – Increasing Emerging Market risk premia – European Equity fund flows turning? – Compelling valuation relative to other equity markets 4
Slide 5: Emerging Markets vs Europe
Emerging Markets vs Europe 2011… increasing Emerging Equity market risk premia? There is never just one cockroach… 100 90 80 70 60 50 40 30 20 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Dow Jones Total Market World Emerging Markets vs MSCI Europe Source: Thomson Datastream, Schroders, data unti
Slide 6: Developed market fund flows have turned
Developed market fund flows have turned Cumulative equity fund flows 120 $113bn Emerging Markets 70 Developed Markets Europe 20 -30 -$48bn -80 -130 -$107bn -180 1/08 7/08 1/09 7/09 1/10 7/10 1/11 Source: BofA Merrill Lynch Global Equity Strategy, EPFR Global 6
Slide 7: European Equities are 'cheap' relative to other regions
European Equities are ‘cheap’ relative to other regions Graham & Dodd P/E for MSCI Europe vs S&P 500 and MSCI Asia-Pacific ex Japan 50 45 40 35 30 25 20 15 10 5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 MSCI Europe S&P5000 MSCI Asia-Pac ex Japan “When they are cryin’, you should be buyin’ and
Slide 8: Why European Equities? European specifics
Why European Equities? European specifics
Slide 9: Why invest in Europe against the backdrop of these headlines?
Why invest in Europe against the backdrop of these headlines? 9
Slide 10: However, there are reasons to buy European Equities
However, there are reasons to buy European Equities – European growth recovery continues – Regional differences but consumer confidence improving in the core – Euro weakness provides boost to exporters – Corporate cashflow and earnings growth remains strong – Valuations attractive relative to histor
Slide 11: Austerity measures impacting unemployment, but significant divergence
Austerity measures impacting unemployment, but significant divergence Forecasted 2011 rate of unemployment (%) Change in 2011 unemployment forecast (% points) 25 EA 16, -0.4 20.2 Germany, -1.1 20 France, -0.6 Italy, -0.5 15.0 15 13.5 Netherlands, -0.8 11.1 Spain, 0.4 10.0 9.5 9.4 10 8.3 Portugal, 1.
Slide 12: Consumer confidence also diverging
Consumer confidence also diverging Consumer confidence (Stdev from mean 0) Consumer confidence (Stdev from mean 0) 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 99 00 01 02 03 04 05 06 07 08 09 10 11 12 99 00 01 02 03 04 05 06 07 08 09 10 11 Germany Sweden Austria Netherlands Italy Spain Greece Portugal S
Slide 13: Growth indicators continue to improve
Growth indicators continue to improve… … but GDP growth still behind other regions % Index 2000=100 80 115 70 110 105 60 100 50 95 40 90 30 85 20 80 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 US ISM New Orders(LHS) German IFO (RHS) Source: Thomson Datastream. As at December 2010 13
Slide 14: Corporates are in good health
Corporates are in good health Earnings continue to recover and cash flow generation is high European trailing EPS versus 20 year trend (MSCI Europe) Trend of real EPS: 5.9% p.a Index (January 2001 =100) 300 Trend growth of real EPS: 5.9% pa. 250 200 -29.8% 150 100 50 91 93 95 97 99 01 03 05 07 09 11
Slide 15: Equities cheap relative to history
Equities cheap relative to history Graham & Dodd PE MSCI Europe (vs. 30 year historical average) 40 35 30 25 20 15 10 5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Source: Thomson Datastream, Schroders, data until 31 December 2010 15
Slide 16: Why European Equities? Conclusions
Why European Equities? Conclusions – Global context: Expect rotation – Core Europe performing well – Compelling valuation relative to history, other equity markets and other asset classes Key message: Don’t miss the boat!! 16
Slide 17: Schroder ISF European Large Cap
Schroder ISF* European Large Cap Fund Manager : Rory Bateman *Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation
Slide 18: European Equity team structure
European Equity team structure Head of European Equity Rory Bateman Specialist Fund Managers Team Fund Managers Leon Howard-Spink Paul Griffin Rory Bateman Sonja Laud Martin Skanberg Riitta Hujanen Jamie Lowry Ian Kelly* 10 European Equity Sector Analysts* Chris Taylor – European Equity Product Mana
Slide 19: Assets under management
Assets under management 4% 6% Team Strategy (Rory Bateman, Martin Skanberg) €3,267m Team 45% Europe ex UK 6% Value Strategy (Riitta Hujanen) €286m Yield Strategy (Sonja Laud, Ian Kelly) €459m Euro Alpha Strategy (Jamie Lowry) €459m Special Situations/Alpha Plus Strategy (Leon Howard-Spink, Paul Grif
Slide 20: Schroder ISF European Large Cap
Schroder ISF European Large Cap Q2 2008 – Team restructuring – Enhanced investment process - Entrepreneurial idea generation - Focus on what matters - Highly incentivised compensation structure - Team debate enhances analysis – Dynamic portfolio management 20
Slide 21: Investment Philosophy
Investment Philosophy Schroder ISF European Large Cap Philosophy – We believe through detailed fundamental analysis we are able to identify the most important drivers of a business. By asking ourselves where we differ from the market either financially or operationally we are able to articulate our
Slide 22: How?
How? Schroder ISF European Large Cap Stock selection Entrepreneurial, highly incentivised analyst team with an average of 11 years investment experience Years Experience Years Experience Justin Bisseker 17 (13) Neil Sargent 19 (3) Amy Chamberlain 18 (3) Sam Twidale 7 (1) Ian Kelly 4 (4) Michael Butl
Slide 23: Fund performance: Consistent
Fund performance: Consistent Schroder ISF European Large Cap Period since process enhancement (30/06/2008) 8% 6% – The enhanced investment process is working 4% – Nearly 10.7% of relative outperformance over 30 months 2% 0% – Increased motivation and accountability of New process analyst resource co
Slide 24: Consistent delivery in different market environments
Consistent delivery in different market environments Schroder ISF European Large Cap 120 – The Fund has outperformed through different +2.6% +4.6% +3.1% market environments 110 relative relative relative 100 – 17th percentile* over the period since Rory Bateman took over 90 – Top decile* risk adjust
Slide 25: Performance analysis – 30th June 2008 to 31st December 2010
Performance analysis – 30th June 2008 to 31st December 2010 Schroder ISF European Large Cap Objective Delivery 3.0% p.a. 4.1% p.a.* 2/3 stock selection 67% stock selection 1/3 asset allocation 33% asset allocation Information ratio: 0.87* *Source: Morningstar. Date in EUR for ‘I’ class shares. Infor
Slide 26: The future
The future Schroder ISF European Large Cap – Maintain energy, hunger and entrepreneurial flair – Maintain consistency of performance achieving top quartile status – Grow existing Fund and launch new Schroder ISF European Equity Focus 26
Slide 27: Proposed new product launch
Proposed new product launch Schroder ISF European Equity Focus – Fund manager - Rory Bateman – 35 best ideas – Unconstrained high alpha Fund – > 5% target return; target top decile performance over 3 years 27
Slide 28: Current positioning
Dec 10 Nov 10 Oct 10 Sep 10 Aug 10 Jul 10 Jun 10 No. of holdings May 10 Apr 10 Mar 10 Feb 10 Jan 10 Dec 09 Nov 09 Oct 09 Sep 09 Aug 09 80 75 70 65 60 55 Dec 10 Nov 10 Oct 10 Schroder ISF European Large Cap Sep 10 Entrepreneurial idea generation Aug 10 Jul 10 Jun 10 Current positioning Source: PRISM,
Slide 29: Still finding value in growing markets
Still finding value in growing markets Schroder ISF European Large Cap …in growing core European countries also in emerging markets – Overweight Core Europe – Underweight Italy, Portugal, Greece France 5.9% 2009 Netherlands 1.8% Developed Market Sales Germany 0.4% Greece -0.4% 2009 Portugal -0.4% Em
Slide 30: Growth vs Value
Growth vs Value Our entrepreneurial fundamental research is increasingly highlighting value stocks as an opportunity Performance of value and growth relative to Performance of value relative to growth over MSCI Europe over the last 3 years the last 30 years 31 November 2006 =1 31 December 1979 =1 %
Slide 31: Current active loads on individual stocks
Current active loads on individual stocks Schroder ISF European Large Cap Top 10 positive load differences at 31.12.10* Sector Country Load difference (%) Unilever Consumer Staples UK 2.7 Ssab Materials Sweden 2.3 Fresenius Health Care Germany 2.2 BG Group Energy UK 2.2 GEA Group Industrials Germany
Slide 32: Key takeaways
Key takeaways Schroder ISF European Large Cap – We believe European Equities offer substantial upside – Schroder ISF Large Cap: demonstrable top quartile performance in different market environments – Energised team process, highly incentivised to deliver alpha for our clients Don’t miss the boat!!
Slide 33: Schroder ISF European Equity Alpha
Schroder ISF* European Equity Alpha Fund Manager : Jamie Lowry *Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation
Slide 34: Investment philosophy
Investment philosophy – Markets are frequently inefficient Our job is to take advantage of ‘mis-pricings’ – Valuation is the best determinant of future returns Investment success over an extended period of time requires discipline over the price paid – Risk management is intrinsic to our investment
Slide 35: Investment philosophy
Investment philosophy – Markets are frequently inefficient Our job is to take advantage of ‘mis-pricings’ – Valuation is the best determinant of future returns Investment success over an extended period of time requires discipline over the price paid – Risk management is intrinsic to our investment
Slide 36: Valuation is the best determinant of future returns
Valuation is the best determinant of future returns Which Company Would You Rather Own? Prior 10 years Emerging Next 10 years 10 year average EPS Growth market Payout Ratio EPS Growth ROE Rate exposure Rate Company A 30% 30% 50% 0% 20% Company B 5% 5% 0% 75% 5% It Depends on the Valuation!!! 36
Slide 37: Valuation is the best determinant of future returns
Valuation is the best determinant of future returns Which Company Would You Rather Own? Prior 10 years Emerging Next 10 years 10 year PE EPS Growth markets Payout Ratio EPS Growth average ROE MULTIPLE Rate exposure Rate Company A 30% 30% 50% 0% 20% 10X Company B 5% 5% 0% 75% 5% 5X Which company woul
Slide 38: Valuation is the best determinant of future returns
Valuation is the best determinant of future returns Which Company Would You Rather Own? Exit PER Multiple Company A: Annual Return ~ 20% Payout Ratio % IRR 5 10 15 20 0% 12% 20% 25% 29% 25% 15% 23% 28% 32% 50% 18% 26% 31% 35% 75% 20% 29% 34% 38% 100% 23% 32% 37% 41% Company B: Annual Return ~ 21% Ex
Slide 39: Valuation in Action – BP's Oil Spill Nightmare
Valuation in Action!! – BP’s Oil Spill Nightmare – Deepwater Horizon Oil Spill (April 2010) caused significant impairment to BP’s intrinsic value. – BUT, Market Value fell further than Intrinsic Value – Valuation compelling below £4 per share BP (Current Market Cap: $150bn) (£) 7.0 6.5 6.0 5.5 5.0 S
Slide 40: Valuation is the best determinant of future returns
Valuation is the best determinant of future returns 10 Year annualised total returns by starting G&D PE 10yr annualised real returns - US market (1881 – 2010) % 14 12 11.3% 10 8 7.6% 5.9% 6 4 2.6% 2 0.5% 0 5-10 5-10 10-15 10-15 15-20 15-20 20-25 20-25 25-30 25-30 Graham & Dodd PE Source: Societe Gen
Slide 41: Investors paid the wrong price for equities 10 years ago
Investors paid the wrong price for equities 10 years ago Irrespective of the good fundamentals Graham & Dodd P/E MSCI Europe1 European equity market2 PE x % 40 12 35 10 30 8 25 6 20 4 15 10 2 5 0 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 5-10 10-15 15-20 20-25 25-30 Price is what you pay, Val
Slide 42: What can we expect from the next 10 years?
What can we expect from the next 10 years? What are we being asked to pay today? Graham & Dodd P/E MSCI Europe1 European equity market2 PE x % 40 12 35 10 30 8 25 6 20 4 15 10 2 5 0 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 5-10 10-15 15-20 20-25 25-30 Price is what you pay, Value is what you
Slide 43: European Equity outlook
European Equity outlook But What About the Growth?!! Graham & Dodd PE Regional Valuations Regional GDP growth forecasts (CAGR) 50 2010-2015 45 Europe 2.0% 40 35 US 2.2% 30 Asia Pacific ex. Japan 5.7% 25 20 Source: IMF, Schroders, data until 30 April 2010. GDP at constant prices. 15 10 5 80 82 84 86
Slide 44: European Equity outlook
European Equity outlook High GDP growth does NOT equal high equity returns Expectations of high GDP growth drive valuations to higher levels High valuation levels do not provide a margin of safety against disappointment Superior equity returns are often found where expectations are at their lowest A
Slide 45: Schroder ISF European Small & Mid Cap Value
Schroder ISF* European Small & Mid Cap Value Fund Manager : Daniel Lenz *Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation
Slide 46: Product Summary
Product Summary Schroder ISF European Small & Mid Cap Value – Small & Mid Cap Value – Traditional investment approach – Focusing on value and quality – Well diversified portfolio – Long term oriented, unconstrained from benchmark – Experienced fund management team, strong long term track record 46
Slide 47: Why Small & Mid Cap?
Why Small & Mid Cap? #4 Schroders
Slide 48: Performance of Small vs Large Cap
48 10,000,000 1,000,000 100,000 10,000 1,000 100 10 01.06.1926 In the US1 2 Source: Bloomberg 01.06.1931 01.06.1936 01.06.1941 01.06.1946 Small 01.06.1951 1 Source: Kenneth R. French Data Library 01.06.1956 01.06.1961 01.06.1966 01.06.1971 01.06.1976 01.06.1981 01.06.1986 01.06.1991 Large 01.06.1996
Slide 49: Why Value?
Why Value? #4 Schroders
Slide 50: Performance of Value vs Growth
Performance of Value vs Growth Value vs. Growth in the US1 Value vs. Growth in Europe2 100,000,000 2.3 15.0% p.a. 2.1 10,000,000 1.9 1,000,000 11.8% p.a. 9.4% p.a. 1.7 100,000 8.7% p.a. 1.5 10,000 1.3 1.1 1,000 0.9 100 0.7 10 0.5 1979 1981 1983 1984 1986 1987 1989 1991 1992 1994 1995 1997 1998 2000
Slide 51: What is value for us?
What is value for us? #4 Schroders
Slide 52: Value: Our Investment philosophy
Value: Our Investment philosophy Quality Business Balance sheet Management CONSERVATION Value VALUE QUALITY OF VALUE Shareholder value creation per share Dividend Yield Multiples Traditional and long standing investment principles 52
Slide 53: Rosenbauer
Rosenbauer Manufacturer of fire fighting vehicles Price in EUR 45 40 35 30 25 20 Rosenbauer 15 10 5 0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Quality Value Business only global manufacturer Equity value per share +18% (10 years pa) Balance sheet no LT-debt, no goodwill Dividend Yield
Slide 54: Sixt
Sixt Rental and leasing of cars and trucks Price in EUR 40 35 30 25 20 15 Sixt 10 5 0 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Quality Value Business Leading European player Equity value per share +11.3% (10 years pa) Balance sheet not leveraged Dividend Yield 1.7% Management excellen
Slide 55: Who is responsible for this product?
Who is responsible for this product?
Slide 56: Team with long term experience
Team with long term experience Caspar Benz Daniel Lenz 31 years experience 12 years experience Fund manager supported by experienced analyst team 56
Slide 57: What is the result?
What is the result? #4 Schroders
Slide 58: Fund performance
Fund performance Schroder European Small & Mid Cap Value (Swiss-domiciled fund) Periods to 31 December 2010 Since inception Performance in EUR % 2010 1 year 3 years 5 years p.a.* Schroder European Small & Mid Cap Value 33.6 33.6 27.3 72.6 17.4 DJ STOXX 200 Mid Cap TR (Europe) 22.7 22.7 -4.1 18.3 9.4
Slide 59: Fund performance
Fund performance Schroder European Small & Mid Cap Value (Swiss-domiciled fund) 300 17.4% p.a. 250 200 9.4% p.a. 150 Schroder European Small & Mid Cap Value Fund DJ Stoxx 200 Mid TR 100 50 Nov-03 Nov-05 Nov-06 Nov-07 Nov-09 Nov-10 Nov-04 Nov-08 May-04 May-05 May-06 May-07 May-08 May-10 May-09 Except
Slide 60: Risk return analysis
Risk return analysis Schroder European Small & Mid Cap Value (Swiss-domiciled fund) Annualised Return (%) 12 Schroder European Small & Mid Cap Value 10 8 Montanaro European Smaller Companies 6 Franklin European Small-Mid Cap Growth 4 Henderson HF Pan European Smaller 2 0 Fidelity Funds European Smal
Slide 61: Our two European Small & Mid Cap Value Funds
Our two European Small & Mid Cap Value Funds Facts & figures Schroder European Small & Mid Cap Value Fund SISF European Small & Mid Cap Value Fund (SRIFSME SW) (SESMVAA LX for A class) Date of inception 1 November 2003 30 November 2010 Legal form Institutional Investment Fund under Swiss Law SISF Fu
Slide 62: Important information
Important information Risk warnings: Investments in equities are subject to market risk and, potentially, to currency exchange rate risk. This fund may use financial derivative instruments as a part of the investment process. This may increase the fund’s price volatility by amplifying market events.