Threadneedle Investments Threadneedle European Smaller

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Threadneedle Investments
Threadneedle European
Smaller Companies Fund
February 2006
Agenda
• Threadneedle Investments
• Threadneedle European Smaller Companies Fund
• Investment Process
• Key Buys and Sells
• Quantitative Information
• Appendices
2
Threadneedle Investments
Threadneedle Investments
Investment Team
Chief Executive Officer
Simon Davies
Chief Investment Officer
Sarah Arkle
Robert Stirling
Head of Fixed
Interest & Treasury
(29)
Julian Thompson
Head of
Emerging Markets
Cormac Weldon
Head of US
Dominic Rossi
Head of
International &
Global Equities
(20)
Ed Gaunt
Head of Japan
• Over 120 London based investment
professionals
• Average investment experience of whole
investment team over 14 years;
excellent staff retention
Malcolm Kemp
Head of
Quantitative and
Risk Analysis
(6)
Michael Taylor
Head of Equities &
Head of UK
(24)
Alex Lyle
Head of
Managed Funds
(12)
Vanessa Donegan
Head of Asia
William Davies
Head of Europe ex
UK
Danny Burton
Cindy Larke
Dealing &
Stocklending
Source: Threadneedle Investments
As at December 2005
4
Threadneedle Investments
European Equities Team
William Davies
Executive Director
Head of European Equities
Paul Doyle
Executive Director
Smaller Companies & Banks
Darrell O’Dea
Executive Director
Fund Manager
Dominic Baker
Executive Director
Telecoms & Autos
Philip Cliff
Fund Manager
Support Services, Technology
David Dudding, CFA
Executive Director
Smaller Companies & Healthcare
Philip Dicken, CFA
Fund Manager
Smaller Companies
Rob Jones
Fund Manager
Insurance, Food & Drug Retailers
Sunita Goklaney
Analyst
Pharmaceuticals and Media
Julie Thomas
Analyst
European Banks
Danny Burton
Executive Director
Senior Dealer
Nick Hawkes
Smaller Company Dealer
Source: Threadneedle Investments
As at 30th December 2005
5
•
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
Threadneedle European Smaller Cos Fund
Philosophy and Objectives
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.”
7
Threadneedle European Smaller Cos Fund
Investable Market
Max
 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
Min
 Liquidity prevents many investments in companies
below €100m market value
Valuations
8
Threadneedle European Smaller Cos Fund
Opportunity Drivers
Growth Factors
 New products and services
 Sub-contracting phenomena
 Geographical widening of franchises
Change Factors





Valuations
Privatisation/Outsourcing
Technology - Media - Telecoms
Restructuring
Management Changes
Demographics
 Responsive to industry and country factors
9
Investment Process
Investment process
Screening
Opportunity Sources
• Large cap managers
• Large cap themes
4,000 companies
Outside FTSE Top 225
• Small cap team
• Regional and local brokers
• IPO’s
• Quantitative screening
Selection Criteria
• Strong franchises
• Revenue growth
Eligible Universe of
500-1,000 companies
• Valuation screens
(EV/EBITDA, P/E, P/CF, etc)
• Margin and cash-flow trend
• High visibility of revenues
• Adequate disclosure
• Under researched
• Management interests aligned
with those of shareholders
Portfolio of 80-100
names
Over 500 company visits per annum
11
Investment Process
Stock Selection
 Ideas drive investment decisions
 Research-driven, bottom-up approach
Decision making
is bottom-up
 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
12
Investment Process
Sell Disciplines
 Margin trends
Business Dynamics
 ROCE
 Competition
 Management/strategy changes
 Sector outlook
Valuation Changes
 Deterioration in risk/reward profiles
 Over € 2-3 billion free-float
 Wider ‘sell-side’ coverage
Sentiment Factors
 Management reduces share holdings
 Opportunistic capital increases
13
Investment Process
Outlook
 Small caps have a history of long term
outperformance
Market
 Currently valued at a premium, therefore short term
outperformance unlikely
 Bottom up approach essential
Fund
 Consistency of fund and team
Threadneedle
European Smaller Cos
Fund
 Consistency of pragmatic approach
 Strong resources and team based methodology
 Long term approach
14
Key Buys and Sells
Neopost
Stock performance versus Index
5 years Performance
110
•
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
100
90
80
Held Pre 2001
70
60
50
40
30
20
2001
NEOPOST
(692552/WIEXUKE)
2002
2003
2004
2005
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
16
April Group
Stock performance versus Index
2 years Performance
40
•
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
35
30
Bought July 2004
25
20
15
10
J F M A M
APRIL GROUP
(879966/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
17
Lindt & Sprungli
Stock performance versus Index
2 years Performance
2400
2200
2000
1800
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
1600
1400
1200
1000
800
J F M A M
LINDT&SPRUNGLI 'P'
(936420/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
18
Takkt
Stock performance versus Index
2 years Performance
10.00
•
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
9.50
9.00
8.50
Bought
February 2004
8.00
7.50
7.00
6.50
6.00
5.50
J F M A M
TAKKT
(273293/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
19
Celesio
Stock performance versus Index
2 years Performance
•
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
80
75
70
65
60
55
Bought
April 2004
50
45
40
35
J F M A M
CELESIO
(951741/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
20
Wincor Nixdorf
Stock performance versus Index
•
2 years Performance
100
Leading manufacturer of banking and retail
systems
90
– ATM’s
80
– Electronic points-of-sale
70
60
Bought
May 2004
•
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
50
40
30
J F M A M
WINCOR NIXDORF
(28990K/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
21
Rafako
Stock performance versus Index
1 years Performance
Sold
December 2005/
January 2006
22
20
Bought
November 2005
18
16
14
12
10
J
F
RAFAKO
(142290/WIEXUKE)
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
22
•
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
Vivacon
Stock performance versus Index
1 years Performance
Sold December 2005
35
30
Bought
August 2005
25
20
15
10
5
J
F
VIVACON
(14907P/WIEXUKE)
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
23
•
Hybrid financial company in German real
estate
•
Bought after positive meeting
•
Shares rose significantly
•
Do not believe business model deserves a
high multiple valuation
Carrere Group
Stock performance versus Index
12 years Performance
21
Sold November 2005
Bought
June 2005
20
19
18
•
Media company in TV production
•
Increasing sales of back catalogue
•
Bought in placing
•
Clear undervaluation was corrected
•
High visibility of earnings undermined by
17
16
– Poor meeting with management
15
– Weak explanation of IFRS changes
14
13
J
F
CARRERE GROUP
(259207/WIEXUKE)
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
24
Colruyt
Stock performance versus Index
5 years Performance
200
180
•
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
160
140
120
100
Sold
June 2005
80
60
40
Bought October 2002
20
2001
COLRUYT
(950997/WIEXUKE)
2002
2003
2004
2005
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
25
Mayr Melnhof
Stock performance versus Index
2 years Performance
140
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
130
120
Bought May 2004
110
100
90
80
J F M A M J
MAYR-MELNHOF KARTON
(142344/WIEXUKE)
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
26
Credito Emiliano
Stock performance versus Index
2 years Performance
Sold May 2005
10.00
9.50
9.00
•
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
8.50
8.00
7.50
Bought
May 2004
7.00
6.50
6.00
5.50
5.00
J F M A M
CREDITO EMILIANO
(945849/WIEXUKE)
J
J
A
S
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
The naming of any specific shares should not be taken as
a recommendation to deal.
Source: Datastream
As at 4th January 2006
27
Quantitative Information
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
April Group
Small ticket leasing
Insurance Broker
2.1
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 Investments
As at 31ST December 2005
29
Quantitative Information
Sector Weightings
Portfolio
in2,3
%
Index*
in %
0,0
Unclassified
4.4
0.0
Oil & Gas
4.1
4.4
Basic Materials
7.5
7.9
41.9
28.4
7.9
10.8
10.8
6.3
Consumer Services
4.2
14.4
Telecommunications
0.0
1.3
Utilities
2.7
1.1
12.8
18.6
4.6
-0.9
100.0
6.8
0.0
100.0
Industrials
Consumer Goods
Health Care
Financials
Technology
Cash
Total
* HSBC Smaller Cos ex UK Index
Source: Threadneedle Investments, as at 31st December 2005
30
Quantitative Information
Risk Constraints
Maximum holding (cost) in any stock
2%
Maximum holding (market) in any stock
3%
Minimum number of stocks
50
Minimum number of sectors
6
Minimum number of country positions
8
Creates a disciplined investment process
Limits Volatility
Diversifies by opportunity
Encourages Creativity
31
Quantitative Information
Risk Statistics
Threadneedle
European Smaller
Companies Fund
HSBC Smaller
Europe ex UK UK
Price Index
FT World Europe ex
UK Total Return
Index
Return per annum (%)
16.65%
11.06%
7.12%
R-Squared
(-v- FT Europe [ex UK]
Index)
0.49
0.82
1.00
Inception to end
December 2005
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 BidBid basis, with Gross Income re-invested but net of AMC.
As at 31st December 2005
32
Quantitative Information
Performance
Cumulative Performance Europe ex-UK
1 Year
3 Years
5 Years
7 Years
10 Years
Threadneedle European Select Fund
Percentile Ranking**
Median Fund*
26.9%
29
25.1%
63.3%
34
56.2%
-4.3%
23
-15.2%
50.4%
10
11.0%
318.2%
3
146.2%
Threadneedle European Fund
Percentile Ranking**
Median Fund*
27.1%
26
25.1%
64.4%
32
56.2%
-0.4%
16
-15.2%
51.7%
9
11.0%
261. 8%
10
146.2%
Threadneedle European Smaller Cos Fund
Percentile Ranking**
Median Fund*
36.2%
38
33.9%
131.4%
15
106.9%
44.9%
6
-0.1%
182.6%
4
90.1%
Threadneedle Pan European Accelerando Fund
Percentile Ranking**
Median Fund*
32.8%
7
251%
Consistent outperformance
* 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
33
Appendix
Biographies
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).
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)
35
Quantitative Information
Country Weightings
Within the context of Growth and Change, Country Boundaries are less relevant
in %
25
Portfolio
Index
20
15
10
5
* HSBC Smaller Cos ex UK Index
Source: Threadneedle Investments, as at 31st December 2005
36
Turkey
Switzerland
Sweden
Spain
Portugal
Norway
Netherlands
Luxembourg
Italy
Ireland
Iceland
Hungary
Greece
Germany
France
0
Finland
3.0
3.2
5.1
6.6
12.5
13.6
4.6
0.0
0.0
2.7
11.5
0.4
7.6
5.8
0.7
5.6
9.6
7.7
0.0
Denmark
4.0
0.2
2.2
4.8
15.9
19.7
5.4
0.5
0.3
5.7
4.0
0.0
5.9
6.3
0.4
3.6
8.5
11.9
1.1
Belguim
Austria
Belguim
Denmark
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
Turkey
Threadneedle European Smaller Cos Growth Fund
Index*
Austria
Portfolio
Threadneedle’s European Equity Funds
Fund Outline 1
Threadneedle European Fund
Size
No. Holdings
Top 10 Holdings
UBS
Total EUR10
Novartis
Allianz
ENI EUR1
Roche Holdings
Nestle SA
Sanofi Aventis
Axa EUR2.29
Credit Suisse
Source: Threadneedle Investments
As at 31st December 2005
€ 1,099.3m
84
3.8
3.6
3.6
3.2
3
2.8
2.7
2.5
2.2
2.1
Threadneedle European
Select Fund
€ 1,682.4m
59
Size
No. Holdings
Top 10 Holdings
UBS
E. ON AG
ENI EUR1
Novartis
Total EUR10
Unicredito
Roche Holding
Allianz
Air Liquide
4.9
4.0
3.9
3.8
3.5
3.3
3.1
2.9
2.8
2.8
The naming of any specific shares should not be taken as
a recommendation to deal.
37
Threadneedle European
Smaller Cos Fund
Size
No. Holdings
Top 10 Holdings
Aarhuskarlshamns
Grafton
Bergman & Beving
Takkt
Imerys
Acta Holding
Subsea 7
Grenkeleasing
April Group
Rhon-Klinikum
€ 985.1m
126
2.7
2.4
2.2
2.1
2.1
2.1
2.1
2.1
2.1
2.0
Important Information
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 Limited
Registered 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.
38
For Investment
profession use only
(not for onward distribution to, or to
be relied upon by private investors)
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