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Thursday, 10th of February 2011

Threadneedles Hotel - London INVESTMENT STRATEGY 2011

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Making the difference in 2011‌ Christina PERRI Head of Institutional Development UK & US

INVESTMENT STRATEGY 2011

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“Financière de l’Echiquier” in figures

Established in

1991

4.8 billion euros under management 100% independent 20% of assets held from international investors 80 employees 100% of Mutual Funds rated following extra-financial criteria

21 investment professionals

INVESTMENT STRATEGY 2011

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Core products and performance Data as of 31 December 2010 Investment Universe

2009

Agressor

“Carte Blanche”

48.3%

+28.2%

 Still appealing growth stories  Focused on value stocks

Echiquier Major

European Large Caps

38.4%

+26.6%

 Outperformance of leaders  Capital expenditure returns

Echiquier Agenor

European SMID Caps

56.4%

+36,3%

 German export dynamics  New consumption trends

Echiquier Global

Global Large Caps

Echiquier Patrimoine

Conservative diversified

8.3%

+2.6%

 Resisting market volatility

Echiquier Oblig

Euro Corporate bonds

20.2%

+3,5%

 Higher yield than risk free rate

Arty

Diversified Absolute Return

21.7%

+7.6%

 Manager freedom to seek highest yield in a companies capital structure

Source: FDE Database. * Echiquier Global: date of inception 16/04/2010

-

2010

Latest news and description

+*

 Consumer champions  Infrastructure development

INVESTMENT STRATEGY 2011

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Fund themes and markets… Marc CRAQUELIN CIO

INVESTMENT STRATEGY 2011

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A final glimpse at 2010

INVESTMENT STRATEGY 2011

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2008 and 2009 post binary performances, while 2010 is varied‌ +36.3% Gold (Oz)

+29.1% +28.2%

German stock (DAX)

Chinese stocks (Shanghai Composite)

-17.4% -20.9%

Greek 10-year bonds

Brazilian stocks (BOVESPA)

-3.3% 22,3% -14.3% 15,0%

Spanish stocks (IBEX)

Oil (barrel)

+12.8% +1%

French stocks (CAC 40)

Agressor

+16.1% +15.1%

American stocks (S&P 500)

Echiquier Agenor

Natural gas

-30.8%

Past performances are not systematic indicators of future performances and do not remain constant over time.

Data as of 31/12/2010. Performances in foreign currency. Source: Bloomberg

INVESTMENT STRATEGY 2011

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2010: Stocks post highly varied performance… Variances in Europe’s key stock market indexes in 2010

+18%

+29%

+21%

+36%

-3%

+9% +6% +3%

-3%

-10%

Data as of 31/12/2010. Source : Bloomberg

-17%

+16%

-2% -13%

+16%

-36%

INVESTMENT STRATEGY 2011

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2010: Performance varies markedly by focus area‌ (1/2) Growth Vs Value 120

MSCI Growth (Europe)

MSCI Value (Europe)

+15.5% 115

110

105

+0.5%

100

95

-1%

90

85

Data as of 31/12/2010. Source: Bloomberg

INVESTMENT STRATEGY 2011

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2010: Performance varies markedly by focus area (2/2) Eurostoxx 600: Domestic exposure Vs Global exposure

Comparative performance of the 200 companies most exposed to their domestic market and the 200 most global companies 160 150

+ 57%

140 130 120

Domestic “crash� 110 100 90 80

- 26%

70 60

Data as of 31/12/2010. Source : Bloomberg, Cheuvreux.

INVESTMENT STRATEGY 2011

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Implementation in our funds: Agressor Sector overweighting / underweighting for Agressor against its index (SBF 250) Industry

13%

Consumer discretionary

9%

Construction

4%

Consumer staples

3%

Technology

2%

Telecommunications Health

-4%

-4%

Infrastructure

-4%

Energy

-9%

Financial services

-11% -15%

-10%

-5%

0%

5%

10%

15%

Agressor Top 3 in 2010 + 96%

Data as of 31/12/2010. Sources : Bloomberg, Base de données Financière de l’Echiquier.

+94%

+93%

INVESTMENT STRATEGY 2011

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Outlook at dawn of 2011…

INVESTMENT STRATEGY 2011

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An unsynchronized world… Differing policies

The United States invades the market with cash  “Quantitative Easing 2”: $600 bn  Maintains “ultra-low” rates  Fiscal stimulus

Europe tightens its belt  Ireland: Cuts minimum hourly wage by €1 taking it to €7.65  Portugal: Raises VAT by 2 points taking it to 23%  Spain: Privatises, discontinue “checks for the jobless”

The People’s Republic of China cools down the game…  Raises interest rates for one-year Treasury bonds  Increases equity ratios for banks  Worries over hike in prices of food and commodities INVESTMENT STRATEGY 2011

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Our convictions in 2010, our hints for 2011…

In 2010, we believed in…

Global growth A “top exporter” Germany Varied performance in the € zone Resurgence of mergers and acquisitions Business yield money The interest-rate risk overestimated Value …but did not believe in…

The utilities sector Financial securities

INVESTMENT STRATEGY 2011

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2011: “Same player shoot again?”

Support factor

Short term rates

Long term rates

Quantita tive Easing

Real estate

Gov’t liabilit ies

Commoditi es foreign currency

Adaptation of companies

Restocking and investment

2010

--

-

2011

-

--

-

x

M&A and releveraging

Stock valuations

Technical factors

Flows (stock allocations)



 





x

 

 

/

-

INVESTMENT STRATEGY 2011



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Long rates: The slope builds a shield against unrest Support factor

2011

Short term rates

Long term rates

Quantita tive Easing

Real estate

-

Gov’t liabilities

Commodities foreign currency

Adaptation of companies

Restocking and investment

M&A and releveraging

Stock valuations

--

-

x

x

 

 

Comparison of US government stocks and bonds market volatility First sovereign crisis: All markets affected

Data as of 31/12/2010. Source : Bloomberg.

Second sovereign crisis: “Overreaction ”of Government bonds

Technical factors

/

Flows (stock allocations)

-



Evolution of French 10-year rate compared with 3 month Euribor 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% Average 1,0% 0,5% 0,0% -0,5% -1,0% -1,5% -2,0% -2,5% -3,0% -3,5% -4,0% -4,5% -5,0% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

INVESTMENT STRATEGY 2011

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Company performances create room for projects… Support factor

2011

Short term rates

Long term rates

Quantita tive Easing

Real estate

-

Gov’t liabilities

Commodities foreign currency

Adaptation of companies

Restocking and investment

M&A and releveraging

Stock valuations

--

-

x

x

 

 

Financial leverage (net debt/equity) drops…

Data as of 31/12/2010. Source: UBS.

Technical factors

/

-

Flows (stock allocations)



… while Free Cash Flow (billion €) grows

INVESTMENT STRATEGY 2011

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M&A and releveraging: Transactions are yet to happen… Support factor

2011

Short term rates

Long term rates

Quantita tive Easing

Real estate

-

Gov’t liabilities

Commodities foreign currency

Adaptation of companies

Restocking and investment

M&A and releveraging

Stock valuations

--

-

x

x

 

 

Technical factors

/

-

Europe's volume in 4Q rolling bn€ Eurostoxx 600

400



1 400

350

1 200

300

1 000

250

800

200

?

150

600 400

100

200

50 0 Dec-99

Flows (stock allocations)

Dec-00

Dec-01

Data as of 31/12/2010. Source: Bloomberg

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

0 Dec-10

INVESTMENT STRATEGY 2011

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Stock valuations: European market remains attractive Support factor

2011

Short term rates

Long term rates

Quantita tive Easing

Real estate

-

Gov’t liabilities

Commodities foreign currency

Adaptation of companies

Restocking and investment

M&A and releveraging

Stock valuations

--

-

x

x

 

 

Technical factors

/

Flows (stock allocations)

-



Stock valuations remain low

Did you know?

Eurostoxx €50 in 2010:

3,0

P/Book Europe without finacials (Eurostoxx 600) P/Book Eurostoxx 50 Euro Zone

2,5

-6%

2,0 1,5

European stocks Earnings per share growth in 2010:

+35%

1,0 0,5 0,0 2002

Data as of 31/12/2010. Sources: Bloomberg, “Les Cahiers verts de l’économie”, Goldman Sachs, Datastream.

2003

2004

2005

2006

2007

2008

2009

2010

INVESTMENT STRATEGY 2011

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Technical factors and fund flows Support factor

2011

Short term rates

Long term rates

Quantita tive Easing

Real estate

-

Gov’t liabilities

Commodities foreign currency

Adaptation of companies

Restocking and investment

M&A and releveraging

Stock valuations

--

-

x

x

 

 

US stock market volatility 80

Technical factors

/

-

Flows (stock allocations)



European equity funds flow overview VIX

70

1000

500

60 0

50 40

-500

30 -1000

20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Data at 31/12/2010. Sources: Bloomberg, Europerformance.

-1500

-2000

INVESTMENT STRATEGY 2011

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2011: A year of turnover…

INVESTMENT STRATEGY 2011

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SRI: A “must” for all funds! Think ahead of new regulations and invest in the “best in class”

Change of regulations in 2013 towards an inevitable rise in tonne of CO2

Investing in the “best in class”

Price of tonne of CO2 in €

Worst case scenario: €30

Best case scenario: €20

Quotas 2008-2012

Data as of 31/12/2010. Source: Bloomberg.

Quotas 2013-2020

 Paper: The lowest “T Co2/ T per” ratio produced in the sector  Electricity: One of the lowest carbon factors, namely an average of 130 Kg Co2/MWH Vs 346 kg Co2/ MWH

 World leader in wind energy  100% renewable energy  P/Book 2010 <1

INVESTMENT STRATEGY 2011

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Growth driven by emerging countries: the luxury sector is not alone… Share of consumption of United States and emerging countries in global consumption (in “PPP”)

34%

29%

USA

23%

27%

EMERGING COUNTRIES

USA

Situation in 1990  60% of turnover in emerging countries (including 10% in China)  PEs post16x in 2011 (vs 20x for LVMH)

Data as of 31/12/2010. Sources: Les Cahiers verts de l’Economie, Bloomberg, Financière de l’Echiquier.

EMERGING COUNTRIES

Situation in 2010  48% of turnover in emerging countries (HERMÈS 32%)  PEs post 17x in 2011

INVESTMENT STRATEGY 2011

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Europe tightens its belt… who benefits? A example of outsourcing public services

The United Kingdom…

Impact

Source: Financière de l’Echiquier database.

Outsourced public services…

to the benefit of private players 

Management of information portal

Management of recruitment, payroll and training for Britain’s national statistics and economic studies institute (equivalent of French “INSEE”)

Resumption of management of nuclear site reliability and safety

Work with NHS on integration and responsiveness in the hospital environment

health

system

20% to 30% in savings for the government

INVESTMENT STRATEGY 2011

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Rates rise… who benefits? Examples of impact of rising rates on two sectors

One sector…

Life insurance

Incentive solutions

Source: Financière de l’Echiquier database.

benefits from the movement...   

Rebuilding the profit margin Widening gap between guaranteed returns and returns on assets (rise in “ROE”) Guaranteed rates are not expected to grow

 

¼ of results derive from financial investments Returns derive from the level of risk-free rates

for which players?

INVESTMENT STRATEGY 2011

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Italy is not one of the “PIGS”… Companies are not countries

Italy’s deficit close to Germany’s…

Attractive stock values…

For niche leaders

Public deficit: IMF forecasts for 2011 in % of GDP

Italy: Cheap growth

Italy : -4,3%

Gremany: -3,7%

 A global specialist in railway signals  Urban transportation and high-speed trains are witnessing rapid global expansion

 An unbeatable brand: Ray Ban  60% of turnover in the USA

Data as of 31/12/2010. Sources: FMI, Financière de l’Echiquier database.

INVESTMENT STRATEGY 2011

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Growth stock and others… CAC 40: Growth stock vs other listed stock 110,00

Après la dispersion…

+3,8%

Growth stocks

100,00

The return of “value”

All other stocks Others WITHOUT banking

90,00

80,00

 2010 P/Book : 0.9x  2010 ROE: 12%  An upcoming player in reinsurance

70,00

-37,3%

60,00

-38,4% 50,00

40,00 Dec-07 Mar-08

Jun-08

Sep-08

Data as of 31/12/2010. Source: Bloomberg.

Dec-08 Mar-09

Jun-09

Sep-09

Dec-09 Mar-10

Jun-10

Sep-10

 2010 sales on turnover: 1.1x  2010 return: 6.8%  Diversified media/telecoms portfolio with higher intrinsic value than market capitalization

Dec-10

INVESTMENT STRATEGY 2011


 European stocks  All capitalisations  All strategies

Agressor in 2010 Changing and competitive

Large caps Mid caps Small caps “Value” GARP

Damien Lanternier Portfolio Manager

Growth

Adrien Dumas Analyst

Agressor since inception: 1220.6% SBF 250 since inception: 149.5%

2010 performance

+28.2% EV/Sales 2010

1.2

P/E

17

Dividend yield (%)

2.1

Average capitalisation (in million €) Stocks in portfolio

6 043 55

Total assets (in million €)

1 018

Past performances are not systematic indicators of future performance, and do not remain constant over time. Performances are calculated based on net reinvested coupons . However, the performance of the benchmark indicators does not take into account income items.

Data as of 31/12/10. Sources: Europerformance, Financière de l’Echiquier database

INVESTMENT STRATEGY 2011

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Agressor: 2011 strategy

All roads lead to valuations

Operates differently in emerging countries

• Growing company: valued at 0.9x equity • Huge optimisation effort underway and leverage of future margins

• A must have player in a consolidated market • The strategic and industrial optimisation plans shall be fruitful

• Outsourcing of services shall become a major trend in the emerging countries • A group working over the last five years to develop its platforms for growth

• Recruitment becomes a key function in business development • The best economic model to take advantage of this trend

The “PIIGS”

Data as of 31/12/10. Sources: Financière de l’Echiquier database.

40% of turnover achieved in Asia with growth of more than 20% The “Vespa Girls” will invade Asia

• 50% of turnover achieved in Latin America • Security is a fast-growing business where reputation is a barrier to newcomers

INVESTMENT STRATEGY 2011

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Agressor: key takeaways

A fund with no constraints Opportunism and mobility to take advantage of market dispersion Majority shareholder, alignment of interests for sustainable performance The value of things: patience pays

INVESTMENT STRATEGY 2011

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 European stocks  Large caps  Growth at reasonable price

Echiquier Major in 2010 European “Leaders”

Large caps Mid caps Small caps “Value” GARP

Frédéric Plisson Portfolio Manager

Vincent Fourcaut Senior Analyst

Growth

Jean-Charles Belvo Analyst

2010 performance

Echiquier Major since inception: 52.2% DJ Stoxx 600 since inception: 4.9%

Past performances are not systematic indicators of future performances, and do not remain constant over time

+26.6% EV/Sales 2010

1,9

P/E

20

Dividend yield (%)

2,0

Average capitalisation (in million €)

15 690

Stocks in portfolio Past performances are not systematic indicators of future performance, and do not remain constant over time. Performances are calculated based on net reinvested coupons . However, the performance of the benchmark indicators does not take into account income items.

Data as of 31/12/10. Sources Europerformance, Financière de l’Echiquier database.

50

Total assets (in million €) INVESTMENT STRATEGY 2011

816 31


Echiquier Major: 2011 strategy

• A global player in education (80% profits) • An acquisition strategy designed to conquer the planet

• An indispensable player in the outsourcing of administrative services in the UK • A market expanding under the pressure of public deficits

• •

2nd largest outdoor advertising specialist… … that was able to seize opportunities in two of its big countries (Germany and the UK)

Data as of 31/12/10. Sources: Financière de l’Echiquier database.

• A poorly identified growth stock status • A natural consolidator on its chemicals distribution market

• 48% turnover in emerging countries • A “Smart Growth” profile becoming increasingly visible

• Europe’s leader in sanitary facilities... • … that sped up its investments (+50%) and its sales force during the crisis

Poorly assessed growth

Smart models gain momentum

Winners of the crisis

INVESTMENT STRATEGY 2011

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Echiquier Major: key takeaways

Leaders are the true winners of the crisis

Benefits from global growth Valuations have remained reasonable for top quality companies The best SRI ratings

INVESTMENT STRATEGY 2011

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 Diversified  European equity  Euro corporate bonds

Arty in 2010 Yield and flexibility

36%

Olivier de Berranger Portfolio Manager

Bonds 50-100%

Equity 0-50%

Performance 2010

Arty since inception : 21,3% Composite index* : 1,5%

+7,6% Modified Duration

4,44

Bond yield (%)

4,91

Equity yield (%)

4,70

Average Capitalization(M€) * 75% Eonia, 25% EuroStoxx 600

25 075

Number of stocks in portfolio

Total assets (M€)

39

79,3

Past performances are not systematic indicators of future performance, and do not remain constant over time. Performances are calculated based on net reinvested coupons . However, the performance of the benchmark indicators does not take into account income items.

Data as of 31/12/10. Sources : Europerformance, Financière de l’Echiquier’s data base.

INVESTMENT STRATEGY 2011

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Arty : Strategy 2011 Equity: Yield in a low interest rate environment

Bonds: Attractive rates re-emerging

Exposure to equities is reinforced

Data as of 31/12/10. Sources : Base de données Financière de l’Echiquier.

• • •

Yield : 4,0% Distribution rate : 69% A gem : Clearstream (40% of sales, 45% margin)

• • •

Yield : 3,5% Distribution rate : 62% Leader of consumer staples in emerging countries (50% of sales)

ARCELORMITTAL 2016 : 4,7%

CONTINENTAL 2017 : 6,8%

Evolution of equity weight in 2010 • • • •

2008 : Monetary year 2009 : The year of Investment Grade bonds 2010 : The year of high yield bonds 2011 : The year of equity ?

INVESTMENT STRATEGY 2011

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Arty: key takeaways

Allocation flexibility: - cautious with high yield - equity exposure reinforced

Yield creates outperformance in long term

Relative value company liabilities: equity, bonds and cash

INVESTMENT STRATEGY 2011

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 European stocks  Small and Mid caps  Growth at reasonable price

Echiquier Agenor in 2010 European Splendid Businesses

Large caps Mid caps Small caps Value GARP

Armand de Coussergues Portfolio Manager

Growth

Sonia Fasolo Analyst

Echiquier Agenor since inception 103.1% FTSE GSCE since inception: 57.5%

2010 performance

+36.3% EV/Sales 2010

1.5

P/E

20.4

Dividend yield (%)

1.9

Average capitalisation (in million €) Stocks in portfolio

1 126 51

Total assets (in million €)

673

Past performances are not systematic indicators of future performance, and do not remain constant over time. Performances are calculated based on net reinvested coupons . However, the performance of the benchmark indicators does not take into account income items.

Data as of 31/12/10. Sources: Europerformance, Financière de l’Echiquier database.

INVESTMENT STRATEGY 2011

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Echiquier Agenor: 2011 strategy Economic recovery: the best is yet to come

Concentration: “Mid caps” go on the offensive Germany maintains its momentum Italy is not a “PIGS”

Data as of 31/12/2010. Source: Financière de l’Echiquier database.

• Europe’s No. 2 in professional lighting • Following a major restructuring process, the company will benefit from a rebounding market in 2011

• Leader in farming equipment via its subsidiary, Khun • The market will rebound in 2011 together with Bucher’s profit margins

• The consolidator of a segmented and growing sector: Call centres • A know-how recognised for acquisitions and a solid track record for action

• Leader in equipment for the production of medication derived from biotechnology • Substantial and visible growth

• A major player in production of high-end glasses (Dior, Gucci, Armani) • Very high potential for growth in emerging countries

Germany's equivalent to Franch company IPSOS that specialises in marketing surveys Substantial and visible cash flows to help consolidate its sector

• •

A typical case of a company exporting capital goods of German origin The investment cycle for the sector will resume in 2011

• A global specialist in railway signals • Urban transportation and highspeed trains are witnessing rapid expansion globally

INVESTMENT STRATEGY 2011

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Echiquier Agenor: key takeaways

Rapidly expanding areas in 2011, led by: Germany, Italy and M&A

The “best” amongst Europe’s growing mid caps Over the last 10 years, Europe’s mid caps have displayed stronger growth and outperformed large caps.

INVESTMENT STRATEGY 2011

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 International stocks  Large caps  GARP

Echiquier Global in 2010 Stock-picking’s new frontier

Large caps Mid caps Small caps Value GARP

Pierre Puybasset Portfolio Manager

Growth

Gilles Constantini Analyst

Net Asset Value Europe

United States 37%

€116.27

32%

Emerging countries 31%

EV/Sales 2010

3,2

P/E

22

Dividend yield (%)

1,5

Average capitalisation (in million €)

* Fund established on 16 April 2010. Data as of 31/12/10. Sources: Europerformance, Financière de l’Echiquier database.

33 992

Stocks in portfolio

44

Total assets (in million €)

36

INVESTMENT STRATEGY 2011

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Echiquier Global: 2011 strategy

Growth of middle classes

The concentrators

• Leader of the brewery industry in emerging countries • Concentration on growing consumption zones

• World leader in sports apparel • A very quick deployment on new markets

• World leader in “offshore” equipment • 200 acquisitions achieved in 12 years

• World leader in generic drugs production • Target: Double sales in 5 five years, including half by acquisitions

The 12th fiveyear plan

Intraemerging country trade

Data as of 31/12/10. Sources: Financière de l’Echiquier database.

An unbeatable conglomerate in electrical infrastructure Close to 20% sales in China

• China’s leader in coal production • Record-high organic and external growth, sustained by Chinese government

• Chinese specialist in electric turbines • 30% of orders outside China

Russian company is world leader in primary aluminium production Beneficiary of exportation to China

INVESTMENT STRATEGY 2011

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Echiquier Global: key takeaways

The foremost leaders on the planet…

to outperform global growth…

with a sound geographical balance.

INVESTMENT STRATEGY 2011

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The entrepreneur always searches for change,

responds to it, and exploits it as an opportunity.” Peter Drucker

INVESTMENT STRATEGY 2011

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The other “Financière de l’Echiquier” Reconciling finance and responsibility • Since 2004, active financial support for: • Social entrepreneurs • Training and education • Initiatives by employees In 2010, the “Maison Echiquier” hosted and supported 5 female students. www.fondation-echiquier.fr

• A blog to share our social and environmental initiatives : • Integration of extra-financial analysis (SRI) in our management approach • Our corporate initiatives: carbon balance, recycling, PRI...

www.planete-echiquier.fr

Promoting knowledge • Exchange program between analysts and a “sister” management company based in Salt Lake City • Training for employees: Columbia, INSEAD, HEC, CFA... • Training for investment professionals

• A retreat with discussions with leading speakers: • Dominique de Villepin, Michel Rocard, François-Henri Pinault, Denis Kessler, Luc Ferry, Dominique Moïsi, Eric Zemmour, Fons Trompenaars, Daniel Cohen, Marc de Scitivaux, Pascal Chaigneau… www.universite-echiquier.fr

INVESTMENT STRATEGY 2011

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This document is designed for investment professionals only and cannot be considered as a contract. The information contained herein are drawn from the best sources in our possession. References to listed stocks are made for illustrative purposes only and shall in no case whatsoever be considered as guidelines for investment. Previous performances are not systematic indicators of future performances, and do not remain constant over time. Finally, the tax treatment deriving from investment of Mutual Fund stocks or shares depends on the situation of each investor. It therefore advisable to consult your tax adviser. For further information on the Funds presented herein, kindly refer to the simplified brochure readily available at the management company by calling +33 â&#x20AC;&#x201C; (0)1.47.23.90.90 or your usual contact person. All the Funds presented herein are accredited in France. Agressor, Echiquier Major, Echiquier Agenor, all French Mutual Funds, are authorised to operate in Germany, Belgium, Spain, Italy, Netherlands and Switzerland. Echiquier Global, also a French Mutual Fund is accredited in Germany, Belgium, Spain and Italy. Echiquier Patrimoine, a French Mutual Fund is authorised to operate in Germany, Spain, Italy and Netherlands. ARTY, a French Mutual Fund is accredited in Germany and Italy. Echiquier SĂŠlection, a French Mutual Fund is authorised to operate in Italy. All of these Funds are equally accessible through life insurance contracts in Luxemburg and Belgium duly licensed to provide these services.

INVESTMENT STRATEGY 2011

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Investment Strategy 2011