Standard Life Investments - The Case for European Equity Income March 2015
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
This communication is intended for investment professionals only and must not be relied on by anyone else.
Standard Life Investments
The Case for European Equity Income
March 2015
European Equity Income
Will James – Investment Director
Responsibilities Responsible for managing the European Equity Income Fund and for analysis
of the Chemicals, IT Hardware, Banks sectors.
Relevant Experience 8 years investment experience at Standard Life Investments, 13 years
experience in the industry.
Professional Qualifications MA, IMC, Securities Institute Diploma, CFA charterholder
Europe still only at 2010 profit levels
European Profit Cycles – Real & Re-based to 100 at last cycles trough
300
2003-09 - steepened by leverage
280
260
240
220 We are here
1993-03
200
180
2011 1973-81
160
140 2013
120 1983-93
100
0 12 24 36 48 60 72 84 96 108 120
Source: Standard Life Investments, UBS, February 2015 3
Headwinds turning into tailwinds
Trade weighted Euro drag
15%
Currency headwind
10%
5%
0%
-5%
-10%
Currency tailwind
-15%
Q1 1999
Q1 2000
Q1 2001
Q1 2002
Q1 2003
Q1 2004
Q1 2005
Q1 2006
Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
60 European earnings surprises vs MSCI Euro Index 1800
50
1600
40 net beats
30 1400
20
1200
10
0 1000
(10)
800
(20) net misses
company count market cap weighted MSCI Europe (RHS)
(30) 600
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Source: Thomson Datastream, UBS European Equity Strategy 4Real yield GAP between European dividend yield &
10 year Bund yield
%
6
Europe div yield
5
4
3
90% of peak GAP
2 in crisis
1 Europe real bond yield
(1)
(2)
Feb-04
Feb-97
Feb-98
Feb-99
Feb-00
Feb-01
Feb-02
Feb-03
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Source: Standard Life Investments, UBS, February 2015 5Yields today versus their 30 year history
6
Equities Corp Bonds Government Bonds Money Markets
5
4
3
2
1
0
European div yield US div yield A € corp bond AA € corp bond German 10y Bund US 10yr bond German 3m US 3m rates
yield yield yield FIBOR
Current (%) 10-year average
30 year (%)
average (%)
Source: Standard Life Investments, UBS, February 2015 6Dividends are a key driver of equity total returns
Real equity total returns (annualised) 1970 - 2013
8.0
6.2 4.1
5.6
6.0 5.3
5.0 4.9
3.6
4.0
2.0
0.0
-2.0
-4.0
UK US France Germany Australia Canada Japan
Dividend Yield Dividend growth Multiple expansion Total annualised returns
Sources: SG Cross Asset Research 7Dividends have been volatile
40
MSCI Europe ex UK YoY DPS Growth (%) 5YA
30
20
10
0
-10
-20
-30
-40
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: Standard Life Investments, 31 December 2014 8Portfolio Construction
Dividend analysis e.g. Balance sheet Dividend policy Earnings volatility Cash cover Dividend history
High Dividend Dividend Growth Dividend Upgrade
Premium and Dividend growth at Dividend paying
Dividend characteristics sustainable a premium to the capacity
dividend yield market significantly
mispriced
Portfolio allocation ~50% ~35% ~15%
Dividend yield range 3.6 to 9.5% 1.9 to 3.6% 2.5 to 6.5%
Dividend growth ~0 to 10% ~10 to 30% n/a
Turnover guideline ~50% ~20% ~100%
Source: Standard Life Investments 9Sector exposures
Sector Weights Overweight/Underweight Positions
Financials
4%3% Industrials
4% Industrials
5% 24% Health Care
6% Consumer Staples
Telecomm
Telecommunication Services Services
8%
Consumer Discretionary
Financials
Information Technology
9% 23%
Materials
Information
15% Energy Technology
Utilities
Energy
Top 10 Active Positions %
Ryanair 3.15 Health Care
Zurich Insurance 2.30
Utilities
Danske Bank 2.18
Endesa 2.03
Materials
Swedish Match 2.00
Consumer
Sampo Oyj 1.92 Staples
SES SA FDR 1.84 Consumer
Svenska Handelsbanken 1.80 Discretionary
Atlas Copco 1.71 -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14%
Swedbank 1.69
Source: Standard Life Investments, 31January 2015 10Income Profile Since Launch
European Equity Income Fund
End Month Dividend Payments Yield profile since launch
7
JUL OCT JAN APR
6 7.0%*
5.0%
5 annualised
dividend yield
Dividend yield at launch
4
3
+31.8%
2 cumulative
dividend yield
1
0
2009
2010
2011
2012
2013
2014
* Annualised dividend growth
Dividend paid quarterly; ex dividend dates: 31 May, 31 August, 30 November, 28 February 2013
Based on investment in institutional income units at launch (03 April 2009 to 31 December 2014)
Sources: Standard Life Investments, Bloomberg, 31 December 2014
Attractive income generation 11Attractive Total Return Profile
120 SLI European Equity Income FTSE W Eur x UK
100 +99.1
80
60
+70.9
40
20
0
-20 Period beta
0.82
8 40
Benchmark return %
Relative return %
4 20
0 0
-4 -20
-8 -40
Q3 '09 Q4 Q1 '10 Q2 Q3 Q4 Q1 '11 Q2 Q3 Q4 Q1 '12 Q2 Q3 Q4 Q1 '13 Q2 Q3 Q4 Q1 '14 Q2 Q3 Q4
Relative return, rising market Relative return, falling market Benchmark return (right hand axis)
Fund launch date was 03 April 2009
Upper chart reflects full monthly returns only – 30 April 2009 to 31 December 2014
Lower chart reflects full quarterly returns only – 30 June 2009 to 31 December 2014
Source: Standard Life Investments (total returns, gross of fees, in GBP), 31 December 2014 12European Equity Income
Providing premium and sustainable level of income plus some capital appreciation
• Target yield of 115% of index** with a quarterly Annualised since inception*
payout policy
Total Return 13.4%
Estimated portfolio yield ~4.0% (gross)
Dividend Yield 5.0%***
• Capital is a key consideration both in up and down Dividend Growth 7.0%
markets
Volatility (fund) 14.7
• Portfolio construction is a key differentiator
Volatility (index) 17.4
* From 01 May 2009
** FTSE World Europe ex UK Index (3.3% FY1 gross, 31 December 2014)
*** Net of withholding tax
Fund Inception date: 03 April 2009
Sources: Standard Life Investments & Financial Express, 31 December 2014 13Appendices
Fund Analytics
European Equity FTSE World Europe ex
Income Fund UK
Predicted Tracking Error 3.24 -
P/E 16.7 17.8
EV / EBITDA 11.7x 12.3x
12 Month Forward Yield 3.9% 3.1%
Forecast Earnings Growth 10.1% 12.4%
Forecast Dividend Growth 10.3% 9.6%
Dividend Cover 2.5 2.4
Return on Equity 19.3% 15.0%
Debt / Equity Ratio 44.2% 37.1%
* 1 year growth calculations derived from 2015 and 2016 fiscal year estimates from Bloomberg, based on current fund and index weightings
Source: Northfield, 31 January 2015 15A through cycle approach
Company Life Cycle
Start Up Emerging Established Maturity Decline
Growth Growth
HIGH
Market value
Revenue / Earnings
Value
GROWTH
UPGRADE
Time
Source: Standard Life Investments
Leveraging Focus on Change 16Correios de Portugal
High Dividend
What is Changing?
• Growing financial services business
benefitting from company brand
• Integration of mail and parcel
infrastructures leading to a more efficient
network
What Expectations are Priced in? Dividend Angle
• Market is not reflecting sustainability of the • Company view themselves as a dividend
dividend stock and will pay close to 100%
• Market does not appreciate the competitive earnings out as a dividend
advantage they have in financial services • Dividend growth expected to be above
• Integration of mail and parcel network will peers from an already high 5.5% yield
lead to better margins than expected
17Endesa
High dividend
What is Changing?
• Disposal leaves Endesa a Spanish
domestic utility
• Regulatory environment now more stable
• Renewed commitment to shareholder
returns
• Liquidity event opportunity
What Expectations are Priced in? Dividend Angle
• Market underappreciating renewed • FY14 Results: new dividend policy implies
commitment to prudent capital allocation potential for 5.8% yield vs 4.7% for
integrated peers'
• >10% discount to peer group unjustified
18Endesa Performance
Endesa - Total Return FTSE W EUROPE EX UK £ - Total Return FTSE WORLD EX UK UTILITIES £ - Total Return
135
130
25%
Percentage Return
125
120
115
110
105 4%
100 0.5%
95
90
Source: Standard Life Investments, Datastream, 24 February 2015 19Coloplast
Dividend Growth
What is Changing?
• Ongoing efficiency gains within European
business
• Capacity to invest and expand in
emerging markets and US
• Balance sheet strength and cash flow
optionality
What Expectations are Priced in? Dividend Angle
• Market underappreciating the strength of • Dec 2012: Market underappreciating
the franchise and the options for growth managements commitment to returning
and cash return excess cash to shareholders
• Market fading growth more aggressively • Oct 2014: Company in a position to grow
than was merited dividend (3%) over next 3 years at CAGR
of 10-15%
20Coloplast Performance
Coloplast - Total Return FTSE W EUROPE EX UK £ - Total Return FTSE W EUR EX UK H/C EQ & SVS £ - Total Return
240
220
109%
Percentage Return
200
180
160
140 37%
28%
120
100
80
Source: Standard Life Investments, Datastream, 24 February 2015 21Nokia
Dividend Upgrade
What is Changing?
• Disposal of device business to Microsoft
• Cost discipline in networks business and
a value over volume strategy
• Potential monetisation of patent portfolio
What Expectations are Priced in? Dividend Angle
• Networks business to remain structurally • Reinstatement of dividend likely with
lower than the competition with no potential for further capital return
appreciation of upside from the
• Convertible an attractive way to capture
monetisation of patent portfolio
the income opportunity (all in yield of 10%
• No benefit being given for strong balance at purchase)
sheet and potential for cash returns
22Harnessing the Benefit of Convertibles
Nokia 5% 2017
140 NOKIA - TOT RETURN IND (~£ )
FTSE W EUROPE EX UK £ - TOT RETURN IND (~£ ) 34%
FTSE W EUR EX UK TCH H/W & EQ $ - TOT RETURN IND (~£ )
130
Percentage Return
120
6%
110
6%
100
90
80
Mar 14
Nov 13
Dec 13
Jan 14
May 14
Jul 14
Jun 14
Aug 14
Sep 14
Feb 14
Apr 14
Oct 13
Source: Standard Life Investments, Datastream, 30 September 2014 23Sell Discipline
Seadrill
What is Changing?
• Lack of contract announcements
• Oil majors focus on capex discipline
• Expectation of day rates coming under
pressure in the rig market
What Expectations are Priced in? Dividend Angle
• Market expecting cycle to continue in
line with previous 3 years • 15% yield suggested uncertainty around
• Overconfidence in ability of Seadrill to 0
sustainability of the dividend
fill new capacity into 2015
24Sell Discipline Source: Standard Life Investments, Datastream, 05 March 2010 to 30 November 2014 25
Performance Attribution
12 months to 31 December 2014
Top Stock Contributors Bottom Stock Contributors
Relative Relative
Category Contribution Category Contribution
Position Position
% %
% %
Coloplast Growth 2.3 +0.7 Kinnevik Inv Ab Growth 2.2 -0.6
Symrise Ag Growth 1.6 +0.5 Rtl Group High 1.7 -0.4
Ryanair Upgrade 2.2 +0.4 Statoil Asa High 1.2 -0.4
Ses Sa High 1.8 +0.3 Bilfinger Se High 0.4 -0.3
Nokia Oyj Upgrade 1.3 +0.3 Adidas Ag Growth 0.6 -0.3
Top Sector Level Contributors Bottom Sector Level Contributors
Health Care Equipment & Services 1.1 +0.7 Personal Goods -2.6 -0.6
Chemicals -1.9 +0.5 Support Services 2.4 -0.6
Banks -6.2 +0.4 Financial Services 3.6 -0.5
Oil Equipment, Services & Distribution -0.8 +0.4 Oil & Gas Producers 0.1 -0.3
Industrial Engineering -0.7 +0.3 Aerospace & Defense 0.5 -0.3
Source: Standard Life Investments, 31 December 2014 26European Equity Income Fund
Performance to 31 December 2014
1 month 3 months 6 months 1 Year 2 Years 3 Years 4 Years 5 Years
Returns
% % % % % %. % %
SLI European Equity Income** -2.43 2.58 0.39 1.28 25.23 53.71 38.36 54.96
IMA Europe ex UK -2.93 1.20 -2.18 -0.94 24.95 48.72 25.57 36.34
Quartile Rankings 2 1 1 1 3 2 1 1
1 Month % 3 Months % 6 Months % Since inception*
Continental European Equity Income Fund -0.30 2.28 3.35 8.04
FTSE Europe ex UK -2.25 -0.12 0.21 5.54
Relative Return 1.95 2.40 3.14 2.50
* SICAV launched on 10 March 2014
** Source: Financial Express, weekly data points used, all figures cumulative. Institutional Inc share class vs IMA Europe ex UK, 31 December 2014
Source: Standard Life Investments, gross performance with arithmetic returns to 31 December 2014 (€)
Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary
information to the Mutual Funds Europe GIPS® composite report, which is enclosed in the Appendix for your reference 27Country exposures
Country Weights Overweight/Underweight Positions
Switzerland
Germany
1%
2% France
Switzerland
1% Sweden
2%
3% 16% Germany
Finland
3% France
Spain
5% Sweden Denmark
Finland Italy
8% Spain Ireland
15% Netherlands
Denmark
Italy Norway
Belgium
9% Ireland
Austria
Netherlands
Portugal
Norway United Kingdom
13%
10% Belgium Hungary
Austria Czech Republic
11%
Portugal Greece
Poland
Turkey
-15% -10% -5% 0% 5% 10% 15%
Source: Standard Life Investments, 31 January 2015 28SICAV European Equity Income Fund:
Share class Information
Sub Fund Shareclass Acc / Inc Currency ISIN AMC OCFs
D acc EUR Acc EUR LU0995141834 0.75% 0.96%
D inc EUR Inc EUR LU0995141917 0.75% 0.96%
D acc unhedged
Acc GBP LU0995142055 0.75% 0.95%
GBP
Continental European
Equity Income Fund
D inc unhedged GBP Inc GBP LU0995142139 0.75% 0.95%
D acc hedged GBP Acc GBP LU0997950695 0.75% 0.96%
D inc hedged GBP Inc GBP LU0997950778 0.75% 0.96%
Ex Dividend dates for the fund are; 31 Mar, 30 June, 30 Sept, 31 Dec
Source: Standard Life Investments 29European Equity Team
Years at
Years of
Standard
Sector coverage Country investment
Life
experience
Investments
Stan Pearson (Head of European
Telecom, Media - 30 9
Equities)
Kay Eyre Construction & Building Materials, Food Producers Italy 29 19
Household Goods, Oil Producers and Exploration, Personal Goods, Beverages, General
Susan Tarry France 25 25
Retail
Tony Hood Industrial Engineering, Aerospace & Defence, Oil Services UK 20 20
Will James Chemicals, IT Hardware, Banks Austria & Eastern Europe 13 8
Industrial Transportation, Pharmaceuticals, Support Services, Electronic & Electrical
Ross Mathison Greece & Switzerland 6 5
Equipment
Software & Computer, Services, Healthcare, Forestry & Paper, General Financials,
Sarah Norris Germany 3 3
Industrial Metals
Stuart Brown Food & Drug Retailers, Utilities Iberia 1 1
Jonathan Fearon Banks, Travel & Leisure Benelux 13Mutual Funds European Equity Income
Composite Name Mutual Funds European Equity Income
Creation Date 01-05-2009
Firm Standard Life Investments
Currency GBP
Report End Date 31-12-2013
Composite Group Mutual Funds
Benchmark Morningstar UT - Europe ex UK
Anlzd Return Anlzd Return 3 Year Anzld StdDev 3 Year Anzld StdDev % of Firm Number of
Dispersion Market Value Total Firm Assets
(Composite) (Benchmark) (Composite) (Benchmark) Assets Portfolios
Dec 2004 NA NA NA NA NA NA NA NA NA
Dec 2005 NA NA NA NA NA NA NA NA NA
Dec 2006 NA NA NA NA NA NA NA NA NA
Dec 2007 NA NA NA NA NA NA NA NA NA
Dec 2008 NA NA NA NA NA NA NA NA NA
Dec 2009 24.25 25.85 NA NA NA 163,019,112 127,011,600,000 0.13 1
Dec 2010 11.65 8.41 NA NA NA 444,432,477 131,730,800,000 0.34 1
Dec 2011 -7.88 -15.64 NA NA NA 616,973,899 123,331,600,000 0.50 1
Dec 2012 22.21 19.20 15.70 18.35 NA 1,073,178,262 133,922,900,000 0.80 1
Dec 2013 25.34 26.11 13.08 15.95 NA 1,897,587,641 149,971,000,000 1.27 1
Firm Disclosures
A complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance
calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in
market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time
Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and MyFolio products where NAV performance is used. Prior to this NAV performance was used for all products.
Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Standard Life Investments 'The Firm' consists of all fee-paying funds
managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments
(USA) Limited and Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the
performance record of the new firm Standard Life Investments. The new firm was created on 01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has
prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by PricewaterhouseCoopers LLP for the periods 1996 to 2013. The verification report is
available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are
designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation
Composite Disclosures
Derivatives may be used for efficient portfolio management purposes
Includes part period return for 2009 from 01/05
The composite includes funds that invest in primarily in high yielding European equities and equity type investments. A significant proportion may be invested in fixed interest securities and is benchmarked against Morningstar
UT Europe ex UK sector
The standard annual fee applicable to this composite is 0.75%, but individual fees are negotiated on an account basis
31The information shown relates to the past. Past performance is not a guide to the future. The value of investment can go down as well as up.
For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of please refer to the full prospectus
which can be found on www.standardlifeinvestments.com
Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by Standard
Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by
applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any
liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors,
endorses or promotes the fund or product to which Third Party Data relates.
**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated
companies (whether direct or indirect) from time to time."
Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL.
Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority.
Calls may be monitored and/or recorded to protect both you and us and help with our training.
www.standardlifeinvestments.com
© 2015 Standard Life, images reproduced under licence
32You can also read
