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SVM Continental Europe Fund

SVM Continental Europe Fund

Continental Europe from the path less taken

The fund, managed by Hugh Cuthbert, aims to achieve long term growth by investing in European companies. Hugh seeks to profit from identifying businesses under-researched by other analysts. This fund can invest in businesses of any size.

SVM Continental Europe Fund

Continental Europe from the path less taken

The fund, managed by Hugh Cuthbert, aims to achieve long term growth by investing in European companies. Hugh seeks to profit from identifying businesses under-researched by other analysts. This fund can invest in businesses of any size.

Overview

Fund Objective

The aim of the Fund is to achieve medium to long-term capital growth from a tightly controlled list of European stocks and other permitted securities. The Fund aims to outperform the FTSE World Europe ex UK Index.

Approach

Continental Europe has 27 different stock markets. Our fund, which can invest right across the market capitalisation spectrum, is perfectly positioned to take advantage of the host of investment opportunities that this presents. At the top end of these markets, valuations can often, though not always, already reflect companies’ prospects. Further down the market cap spectrum, there are a multitude of companies with little or no analyst research coverage and it’s here we consistently find strong potential for valuation anomalies.

We aim to find companies for your portfolio that are “hidden gems” – undiscovered companies with a strong earnings profile. These companies will often be in transition, for example managerial changes, restructuring, or an evolving cost base or product. We take a private equity-style approach to analysing their intrinsic value and their prospects for long-term earnings growth.

Investing in these undiscovered opportunities, you will own a portfolio that is different to most other European equity funds, and will perform differently too. The fund is designed to access specific growth opportunities in Europe while diversifying your European equity exposure away from mainstream investments and indices.

You can invest with confidence in our independent thinking and in a fund that has the ability to reach the lower echelons of European stock markets to capitalise on undiscovered opportunities for your portfolio.

Fund Details

Launch Date20 March 2000
BenchmarkFTSE World Europe ex UK Index
IA SectorEurope ex UK
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£14.1m

Data as at 31/03/2020.

Fund Managers

Hugh Cuthbert
European Investment Manager
14
Years at SVM
25
Industry Experience

Hugh is lead manager of SVM Continental Europe Fund and co manager of SVM All Europe SRI Fund.

Prior to joining SVM, he spent five years with Kempen Capital Management where he was responsible for the management of pan European equities.

Academic Qualifications:
BA Public Administration

Professional Qualifications:

ASIP

Alasdair Birch
European Investment Analyst
8
Years at SVM
11
Industry Experience

Alasdair joined SVM from BNP Paribas Investment Partners UK where he was a portfolio manager within the European Mid and Small Cap team. Alasdair assists in analysis of European companies providing analytical resource to both the European and Global Equity teams.

Academic Qualifications:
BSc (Hons) Physics & Astronomy

Professional Qualifications:

CFA

Portfolio

Risk Baskets

To help understand the overall balance of the portfolio, stocks are allocated to one of eight risk groups: defensive, cyclical, stable financial, unstable financial, consumer cyclical, oil & gas, mining and finally technology. Most of these groups are self explanatory but financials deserve some clarity. All financials are inherently unstable, but in the main, Lloyd’s underwriters and General Insurers take less balance sheet risk, so are relatively more stable than Banks or Life Assurers.

Seeing the portfolio broken down into these categories allows an understanding of how aggressive or defensive the overall portfolio is, and where risk is being taken.

Orange4.4
Thales Group3.8
Energiekontor3.3
Roche Holdings2.8
Veolia2.0
Patrizia 6.5
LEG Immobilien2.6
Ringkøbing Landbobank2.5
S IMMO2.1
Partners Group Holding1.9
United Internet4
SESA4
Crayon3
Scout242
Barco2
Allgeier5.0
Aluflexpack2.6
Schibsted2.3
Pirelli1.8
Jost Werke1.7
AXA4.8
Mediobanca 2.2
Capgemini2.2
H+H International1.9
Dustin1.6
va-Q-tec1.2
Total2.3
Royal Dutch Shell Plc1.2

There are no holdings in this category

There are no holdings in this category

There are no holdings in this category

Portfolio Structure

As an unconstrained fund we invest in our highest conviction ideas irrespective of market capitalisation, country or sector. As a consequence The SVM Continental Europe Fund portfolio will vary considerably from the benchmark index and from other funds that are in the same IMA sector.

Top 10 Holdings (%)

Patrizia 6.5
Allgeier5.0
AXA4.8
Orange4.4
United Internet4.3
SESA4.1
Thales Group3.8
Crayon3.5
Energiekontor3.3
Roche Holdings2.8
Rest of Portfolio57.7

Source: SVM, as at 31/03/2020

Sector Exposure (%)

Oil & Gas3.5
Industrials12.4
Consumer Goods3.6
Health Care5.5
Consumer Services5.6
Telecommunications4.4
Utilities5.2
Financials24.5
Technology22.7

Source: SVM, as at 31/03/2020

Size Analysis (%)

Mega Cap (>€50bn)7.4
Large Cap (<€50bn)17.0
Mid Cap (<€10bn)35.0
Small Cap (<€1bn)28.0

Source: SVM, as at 31/03/2020

Geographic Analysis (%)

Other3.7
Germany28.6
France19.3
Italy9.5
Switzerland8.4
Norway7.4
Sweden4.8
Denmark4.4
Netherlands1.2

Source: SVM, as at 31/03/2020

Currency Exposure (%)

Euro62.3
Norwegian Krone7.4
Swiss Franc8.4
Danish Krone4.4
Swedish Krona4.8

Source: SVM, as at 31/03/2020

Show piebar chart

This Month's Featured Stock

Crayon

The speed and scale of the COVID-19 pandemic onset has had immediate but heterogeneous impacts on the European corporate landscape, presenting an unusual set of risks and opportunities. Companies that will thrive must make the difficult balance between prioritising near-term financial health, and investing to take advantage of weakened competition and/or accelerating trends.

One relatively new fund holding that we believe is in a sweet spot is Crayon, a Norwegian listed software and cloud asset manager, reseller and consultant. Crayon provides tools and services that help a wide range of customers manage and optimise their IT spending on a category that is rapidly growing in size and complexity, business software. As the shift to cloud computing accelerates, the number of vendors and products has multiplied, resulting in many more company departments becoming involved in IT procurement. Crayon is providing specialised sector knowledge to optimise this expenditure, while also providing an important route to market for many of the large-scale vendors. Notably, it has become the first non-U.S. reseller to be granted access to the North American market by Microsoft.

Having achieved very good success in its home Nordic markets, Crayon is now present in 23 countries and covers 80 percent of its addressable market. It is already seeing traction, but we believe the combined benefits of the investment payoffs and increased scale are not adequately reflected in today’s market price.

Performance

Performance (%)

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FundIndex
1 month-11.9-12.2
2020 YTD-18.5-18.8
1 year-8.8-9.1
3 years-3.0-4.0
5 years20.616.9
Since launch*234.9133.2
Source: Lipper, as at 31/03/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2020-8.8-9.1+0.3
2019-2.8-1.0-1.8
20189.35.8+3.5
201720.924.5-3.6
20162.9-1.4+4.3
Source: Lipper, as at 31/03/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
496.00p
0.81%
Class B
564.30p
0.82%

SVM funds are priced every working day at 12 noon UK time and prices are updated here shortly afterwards.

Source: State Street, as at 22/05/2020.

Commentary

It would be a futile exercise to attempt to explain the impact of the global pandemic on capital markets, as no one can be unaware of the seriousness of the situation and the all too obvious economic implications of government attempts to slow the spread of the disease. The fall in the FTSE World Europe ex UK Index of -11.4% during March alone and the  -17.5% decline year to date tells us all we need to know. Perhaps more useful for fund holders is the actions we have taken as this crisis has developed and the positioning we are taking for the coming months.

As we stated at the end of last month our cash position has been elevated not only to protect the fund against the worst excesses of the sell off but also to ensure we have the fire power to take advantage of valuation anomalies which are bound to arise when stock markets experience such liquidity driven volatility. We had already sold two of our four holdings in the banking sector, ING of the Netherlands and BNP of France. Despite good franchises and currently low loan losses the outlook is clearly going to deteriorate for both these institutions over the coming months. In both cases this would be an expected development in a normal economic cycle, but, as the duration of this current crisis is impossible to forecast, we could not be confident in both banks’ capital levels hence our divestment. We continue to hold Mediobanca of Italy and Ringkoebing Landbobank of Denmark. Unlike ING and BNP both these banks are some of the best capitalized in Europe and well equipped to weather a number of months of complete shutdown. We have been in close contact with both teams of management as the crisis has developed and will continue to do so over the coming months. We also divested from transport operator Stef of France and car hire operator Sixt of Germany. Stef has a robust business model as a refrigerated truck operator and is likely to do well as the pandemic continues. This, however, was reflected in the share price performance and, as one of our most illiquid stocks, we chose to sell. Sixt on the other hand will be badly hurt by lockdowns and travel bans so we sold the stock in the early part of the month before the worst of the rout.

Our focus since these initial sales has been to stress test our remaining holdings from two specific perspectives. First and foremost, has been balance sheet strength. As many companies over the coming months will see high double-digit declines in sales it is imperative that all holdings in the portfolio have balance sheets robust enough to cope with such falls. Secondly, we have scrutinized business models seeking to ensure that either business can continue in the face of lockdown, or for those more severely impacted, there will be a strong rebound once the environment improves. Finally, we are ensuring the portfolio is well diversified with a broad range of stocks with differing sensitivities to the uncertain economic outlook. This has all been achieved by constant company contact to ensure we are as up to date as we can be in this fast-moving environment.

With little in the way of clarity as to how long and how much more serious this pandemic will be it is imperative we keep a balanced portfolio. We continue to hold a number of stocks where the business model will be suffering at this moment in time, but we will continue to do so provided we are confident in their financial strength as such holdings will help us when markets recover. This is balanced by a number of stocks where the business model remains relatively robust and able to weather the current crisis protecting us from the worse excesses of the sell-off. Cash will be redeployed as and when opportunities arise.

Commentary by
Hugh Cuthbert
European Investment Manager
Alasdair Birch
European Investment Analyst
As at 31/03/2020.

It would be a futile exercise to attempt to explain the impact of the global pandemic on capital markets, as no one can be unaware of the seriousness of the situation and the all too obvious economic implications of government attempts to slow the spread of the disease. The fall in the FTSE World Europe ex UK Index of -11.4% during March alone and the  -17.5% decline year to date tells us all we need to know. Perhaps more useful for fund holders is the actions we have taken as this crisis has developed and the positioning we are taking for the coming months.

As we stated at the end of last month our cash position has been elevated not only to protect the fund against the worst excesses of the sell off but also to ensure we have the fire power to take advantage of valuation anomalies which are bound to arise when stock markets experience such liquidity driven volatility. We had already sold two of our four holdings in the banking sector, ING of the Netherlands and BNP of France. Despite good franchises and currently low loan losses the outlook is clearly going to deteriorate for both these institutions over the coming months. In both cases this would be an expected development in a normal economic cycle, but, as the duration of this current crisis is impossible to forecast, we could not be confident in both banks’ capital levels hence our divestment. We continue to hold Mediobanca of Italy and Ringkoebing Landbobank of Denmark. Unlike ING and BNP both these banks are some of the best capitalized in Europe and well equipped to weather a number of months of complete shutdown. We have been in close contact with both teams of management as the crisis has developed and will continue to do so over the coming months. We also divested from transport operator Stef of France and car hire operator Sixt of Germany. Stef has a robust business model as a refrigerated truck operator and is likely to do well as the pandemic continues. This, however, was reflected in the share price performance and, as one of our most illiquid stocks, we chose to sell. Sixt on the other hand will be badly hurt by lockdowns and travel bans so we sold the stock in the early part of the month before the worst of the rout.

Our focus since these initial sales has been to stress test our remaining holdings from two specific perspectives. First and foremost, has been balance sheet strength. As many companies over the coming months will see high double-digit declines in sales it is imperative that all holdings in the portfolio have balance sheets robust enough to cope with such falls. Secondly, we have scrutinized business models seeking to ensure that either business can continue in the face of lockdown, or for those more severely impacted, there will be a strong rebound once the environment improves. Finally, we are ensuring the portfolio is well diversified with a broad range of stocks with differing sensitivities to the uncertain economic outlook. This has all been achieved by constant company contact to ensure we are as up to date as we can be in this fast-moving environment.

With little in the way of clarity as to how long and how much more serious this pandemic will be it is imperative we keep a balanced portfolio. We continue to hold a number of stocks where the business model will be suffering at this moment in time, but we will continue to do so provided we are confident in their financial strength as such holdings will help us when markets recover. This is balanced by a number of stocks where the business model remains relatively robust and able to weather the current crisis protecting us from the worse excesses of the sell-off. Cash will be redeployed as and when opportunities arise.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

Availability

The fund is a sub-fund within the SVM ICVC Fund, a UK domiciled Open Ended Investment Company, with UCITS status. The Funds are regulated by the UK Financial Conduct Authority.

Dealing into the fund is available daily. Deals are accepted on a forward pricing basis, with 24 hours notice. SVM employs International Financial Data Services (IFDS Group) as third party administrator and transfer agent to our funds.

How to Invest
You can invest directly with us or through a wide variety of third party wraps, supermarkets and life companies.

For each fund in the SVM ICVC range we offer a B share class which is our lowest priced clean share class.

Share class availability via third parties varies depending on their model.

Dealing - Funds
0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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