Schroders PLC · LSE:SDR
Schroders — Investor Presentation (November 2010)
43 slides from Schroders's investor presentation, Nov 25, 2010
Slide 1: Schroder International Selection Fund EURO Equity
Schroder International Selection Fund* EURO Equity Martin Skanberg European Equity Fund Manager 25 November 2010 For Professional Investors or Advisors Only *Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation
Slide 2: Contents
Contents 1. Team 2 2. Process and delivery 8 3. Portfolio positioning 21 4. Performance 27 5. Market outlook 32 6. Appendix 40
Slide 3: Team
Team iy, Schroders
Slide 4: Martin Skanberg
Martin Skanberg CV European Equities, Fund Manager Martin is a fund manager for the core European Equity portfolios and the Schroder ISF EURO Equity. Joined Schroders in 2004 having worked previously at American Express Asset Management as a senior investment analyst responsible for Industrials and
Slide 5: Martin Skanberg
Martin Skanberg 16 years in fund management 6 years at Schroders 4 years as fund manager of Schroder Institutional European Fund (Core Europe ex-UK strategy) Periods to 19 November 2010 Performance in GBP % YTD 1 year 2 years p.a. 3 years p.a. 4 years p.a. Schroder Institutional European Fund +5.7 +
Slide 6: Process and delivery
Process and delivery Schroder ISF EURO Equity – Committed team approach Bottom-up idea generation from broad skill base – Firm research focus Growth and valuation thoroughly considered – Inflection point thesis Identify distinct change and determine how we are different from the market (Growth, Marg
Slide 7: European analysts
European analysts Years with Years’ Primary Sector Schroders experience universe 10 Europe Analysts organised on a sectoral basis Justin Bisseker 13 17 Europe ex UK Banks Amy Chamberlain 3 18 Europe ex UK Consumer Retail, Staples & Luxury Goods Internal continuity and training Ian Kelly* 4 4 Europe
Slide 8: Portfolio objectives and implications
Portfolio objectives and implications Schroder ISF EURO Equity – To outperform the MSCI EMU (TR) benchmark by 4% gross of fees – Tracking error 4% - 6% – Maintain active risk controls and maximise information ratio Focus on Large Cap opportunities minimise small & mid cap risks Stock and sector allo
Slide 9: Process and delivery
Process and delivery iy, Schroders
Slide 10: Investment philosophy
Investment philosophy Aim – To outperform the MSCI EMU Net TR by 4% per annum (gross of fees) on a rolling 3 year basis* 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
Slide 11: Investment process
Investment process Stage I Stage II Stage III Portfolio Proprietary Team Construction Fundamental Debate & Risk Research Management – Idea generation: “Thesis” – Integral team driven process – FM and analyst interaction – Focus and consistency – Cross-sector expertise – Conviction / ideas – Improve
Slide 12: Stage I: Proprietary fundamental research
Stage I: Proprietary fundamental research Schroders research note – Investment thesis: “Where do we differ from the market” – contrarian and pragmatic thought process, entrepreneurial flair – Key drivers: “How will our thesis impact the finances of the business” – Valuation: Flexible approach – Over
Slide 13: Stage I: Proprietary fundamental research
Stage I: Proprietary fundamental research What are we looking for? – Our Investment Thesis identifies opportunities where the market is underestimating a company’s: GROWTH PROFITABILITY RETURNS – Intensive research focuses on the Key Drivers which ultimately drive our forecasts – Typically our best
Slide 14: Stage I: Stock example GEA Group
Stage I: Proprietary fundamental research Stock example: GEA Group – Analyst graded 2 – GEA is a German engineering group focusing on process engineering and mechanical equipment. Its core activities are process applications and components for the food & beverage, chemical and petrochemical industri
Slide 15: Stage II: Team debate
Stage II: Team debate – Twice weekly team debate – Analyst distribution research note and model 24 hrs ahead – All PMs and analysts actively participate – Each required to submit question ahead of meeting Benefits – Enhances decision making process of individual analysts – Consistency of research ou
Slide 16: Stage II: Stock example Michelin
Stage II: Team debate Stock example: Michelin – Analyst graded 2 – Michelin manufactures and sells tyres for a variety of vehicles, publishes maps and guides, and offers digital products and services. Michelin relative to MSCI EMU How did the team debate add value? 140 – Tyre purchases are a consume
Slide 17: Stage III: Portfolio construction and risk management
Stage III: Portfolio construction and risk management PMs Portfolio construction – PMs and individual analysts discuss individual stock positioning Guidelines – Concentrate portfolio weights in stocks graded ‘1’ and ‘2’ P/F – ‘4’ grades not-owned Positioning PMs discuss thematic and top-down positio
Slide 18: Stage III: Stock example Heineken
Stage III: Portfolio construction and risk management Stock example: Heineken – Analyst graded 1 – Heineken is one of the world's largest brewers with 8% market share of global beer volumes. The Group is most heavily exposed to mature markets deriving about 60% of its operating profit from Western E
Slide 19: Stage III: Sell discipline
Stage III: Portfolio construction and risk management Sell discipline – A robust sell discipline is fundamental to our process. The constant re-appraisal of our positions ensures we do not suffer from THESIS DRIFT. We sell a position primarily for the following reasons: – The investment thesis is re
Slide 20: Stage III: PRISM risk tool and guidelines
Stage III: Portfolio construction and risk management – PRISM ensures that unintended bets are not taken in the portfolio – PRISM is a proprietary risk tool which measures multiple risk factors, including style analysis – Independent monitoring of the portfolio by the product manager Investment Guid
Slide 21: Fundamental bottom up process
Fundamental bottom up process Schroder ISF EURO Equity Entrepreneurial idea generation 70% 70 65 60% 60 50% 55 40% 50 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10
Slide 22: Portfolio positioning
Portfolio positioning iy, Schroders
Slide 23: Recent Activity
Recent Activity Schroder ISF EURO Equity Recent buys Recent sells Reasons Vallourec / Michelin / GEA / Prysmian / Siemens Undervalued Profitability in Industrials MAN / MTU Aero Accor / Bulgari / L’Oreal / Undervalued Growth and Returns in Consumer Unibail / Unicredit / Allianz Edenred / Sampo Cycli
Slide 24: Portfolio characteristics
Portfolio characteristics Risk is concentrated at the stock level Portfolio characteristics Stock concentration – Ex post tracking error: 4.9%* – Beta: 1.00 Number of holdings 54 Top 10 holdings 33% – Active Money (top 10 positive): 23.0% Top 20 holdings 56% – Active Share: 67.8% Active Risk Decompo
Slide 25: Sector allocation: Fund vs Index
Sector allocation: Fund vs Index (%)* Schroder ISF EURO Equity Fund and index positions Relative position Industrials Industrials 3.7% Materials Materials 2.6% Con Staples Con Staples 1.6% Con Disc Con Disc 1.4% Info Tech Info Tech 1.4% Health Care Health Care 0.2% Energy Energy -0.2% Telecoms Telec
Slide 26: Country allocation: Fund vs Index
Country allocation: Fund vs Index (%)* Schroder ISF EURO Equity Fund and Index Positions Relative Position Germany Germany 6.1% Netherlands Netherlands 3.8% Belgium Belgium 2.5% Portugal Portugal 0.5% Ireland Ireland -0.8% Greece Greece -1.0% Austria Austria -1.1% Finland Finland -1.4% Spain Spain -
Slide 27: Current active loads on individual stocks
Current active loads on individual stocks Schroder ISF EURO Equity Top 10 positive load differences at 19.11.10* Top 10 negative load differences at 19.11.10* Load difference (%) Load difference (%) Fresenius 2.8 BASF -2.2 ING 2.7 Bayer -2.0 BNP Paribas 2.6 Siemens -1.9 Michelin 2.5 Santander -1.8 V
Slide 28: Performance
Performance iy, Schroders
Slide 29: Fund performance
Fund performance Schroder ISF EURO Equity Periods to 19 November 2010 Performance in EUR % YTD 1 year 3 years p.a. 5 years p.a. Schroder ISF EURO Equity +1.1 +3.3 -8.9 -1.1 MSCI EMU Net TR +2.9 +6.2 -9.3 -0.1 Relative -1.8 -2.9 +0.4 -1.0 Source: Morningstar. Based on A class shares, bid to bid, net
Slide 30: Performance attribution: 12 months to 19 November 2010
Performance attribution: 12 months to 19 November 2010 Schroder ISF EURO Equity Sector contributors Fund weight (%) Index weight (%) Stock selection (%) Sector allocation (%) Total (%) Consumer Discretionary 9.4 10.3 -0.3 -0.2 -0.5 Consumer Staples 9.4 9.3 0.5 -0.3 +0.2 Energy 7.2 7.7 0.1 0.0 +0.1 F
Slide 31: Performance attribution: top contributors
Performance attribution: 12 months to 19 November 2010 Schroder ISF EURO Equity Top 10 positive contributors Top 10 negative contributors Stock Position Returns Contribution Stock Position Returns Contribution Volkswagen Overweight +72.1% +0.9% LVMH Underweight +66.6% -0.5% Bureau Veritas Overweight
Slide 32: Conclusions
Conclusions – Highly incentivised: Our investment professionals are paid directly according to the attribution they generate in the live flagship portfolio – Team ownership: We all own the flagship portfolio through our team driven investment process and our personal involvement in influencing the s
Slide 33: Market outlook
Market outlook iy, Schroders
Slide 34: Growth indicators continue to improve
Growth indicators continue to improve % Index 2000 = 100 80 110 70 105 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 October 2010 33
Slide 35: Consumer confidence diverging
Consumer confidence diverging, reflecting state of public finances Normalised consumer confidence 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 G
Slide 36: Corporate earnings are recovering
Corporate earnings are recovering European trailing EPS versus 20 year trend (MSCI Europe) Trend of real EPS: 5.9% p.a Index (November1990 =100) 300 Trend growth of real EPS: 5.9% pa. 250 200 -26% 150 100 50 90 92 94 96 98 00 02 04 06 08 10 Real EPS Trend of real EPS Source: Schroders, Thomson Datas
Slide 37: European Equities are cheap relative to history
European Equities are 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 29 October 2010 36
Slide 38: European Equities are cheap relative to bonds
European Equities are cheap relative to bonds 15.0% Current Average Equity Yield 6.6% 5.8% 12.0% Corporate Yield 4.2% 5.3% Bund Yield 2.5% 4.3% 9.0% 6.0% 3.0% 0.0% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Bofa Merril Lynch EMU Corporates BBB yield 10 yrs Bund yield MSCI Europe earnings yield Source
Slide 39: Cyclicals are no longer 'cheap'
Cyclicals are no longer ‘cheap’… 12 months forward P/E relatives vs their 15 year range for sectors in Europe DEFENSIVES CYCLICALS 300 250 200 150 100 50 0 Fo Co In Fo P& HC Te Ut Oi Ch Ba du il i l& od od lec ns sic H em ar tie st tru G e Re om Ga & ria s ica Re oo cti Be ta l s s ls so G ds on il
Slide 40: Conclusion
Conclusion – The natural slowdown is behind us – we do not expect a double dip – Corporate earnings should remain resilient – Corporate reinvestment opportunities and M&A resurgence – Valuations remain attractive, relative to history, other asset classes and other equity markets – Our portfolios are
Slide 41: Appendix
Appendix iy, Schroders
Slide 42: European Equity team structure
European Equity team structure Head of European Equity Rory Bateman Core Fund Managers Specialist Fund Managers and Assistants Rory Bateman Leon Howard-Spink Paul Griffin Martin Skanberg Sonja Schemmann Riitta Hujanen Jamie Lowry Ian Kelly* 10 European Equity Sector Analysts* Chris Taylor – European
Slide 43: Important information
Important information The views and opinions contained herein are those of Martin Skanberg, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds Risk warnings: Investments in equities are subject to market risk and, potentially, to cur