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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£19.3m

Data as at 31/10/2020.

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
12
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.

Energiekontor5.7
Sedana Medical2.9
PNE2.7
Roche Holdings2.7
Veolia1.9
Allgeier3.6
Schibsted3.2
Aluflexpack3.2
Jost Werke2.4
Nacon2.2
SESA4.9
United Internet4.0
Crayon3.9
Lime Technologies2.9
Barco1.2
Ringkøbing Landbobank3.6
Patrizia 3.0
LEG Immobilien2.2
Hypoport2.1
Partners Group Holding1.7
Capgemini3.2
H+H International2.9
Dustin2.6
va-Q-tec2.2
Mediobanca 2.6
AXA2.0
Total1.2

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 IA sector.

Top 10 Holdings (%)

Energiekontor5.7
SESA4.9
United Internet4.0
Crayon3.9
Ringkøbing Landbobank3.6
Allgeier3.6
Schibsted3.2
Aluflexpack3.2
Capgemini3.2
Patrizia 3.0
Rest of Portfolio61.8

Source: SVM, as at 31/10/2020

Sector Exposure (%)

Technology22.4
Financials18.0
Industrials10.6
Utilities10.3
Consumer Services7.8
Consumer Goods7.5
Health Care7.0
Telecommunications1.3
Oil & Gas1.2

Source: SVM, as at 31/10/2020

Size Analysis (%)

Mega Cap (>€50bn)5.4
Large Cap (<€50bn)10.9
Mid Cap (<€10bn)33.0
Small Cap (<€1bn)37.1

Source: SVM, as at 31/10/2020

Geographic Analysis (%)

Other0.8
Germany28.0
France12.9
Norway9.1
Switzerland9.1
Italy8.9
Sweden8.4
Denmark6.4
Netherlands1.5
Belgium1.2

Source: SVM, as at 31/10/2020

Currency Exposure (%)

Euro53.3
Norwegian Krone9.1
Swiss Franc9.1
Danish Krone6.4
Swedish Krona8.4

Source: SVM, as at 31/10/2020

Show piebar chart

This Month's Featured Stock

Aluflexpack

Although perhaps only emerging gradually, larger consumer goods companies in Europe are facing some significant challenges. This has been driven by changes in consumer habits, the lowering of barriers to entry to new brands and environmental and social challenges that are being revealed across their complex supply chains.

That said, there are attractive parts to the portfolios of some of these larger entities, and we have found interesting smaller companies that possess much purer exposures to these niches, of which Swiss packaging producer Aluflexpack is one. Aluflex benefits from focusing on aluminium-based high value-added packaging, especially for premium products such as Ferrero Rocher chocolates and coffee capsules. Aluminium has several advantages over other materials when it comes to food packaging: endless recyclability without degradation in quality, impermeability, inertness, as well as being light weight and strong. This makes for a wide range of applications where both the environmental and economic cost/benefit can be very favourable versus alternatives, for example in pet care, pharmaceutical and dairy products.

In terms of comparison, putting all this together results in revenue growth of low double digits, versus large consumer goods companies in the low single digits. While Aluflex does have slightly lower margins, we expect that gap to narrow significantly. Yet Nestle is valued at around 16.5x EV/EBITDA (’21) vs. under 10x for Aluflex. With one of Aluflex’s key customers recently announcing plans for increased coffee capsule capacity, we believe it still pays to go off the beaten track in European equity markets.

Performance

Performance (%)

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FundIndex
1 month-7.4-6.1
2020 YTD8.9-6.6
1 year15.7-4.2
3 years14.50.8
5 years58.844.8
Since launch*347.5164.2
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202021.30.4+20.9
20192.76.4-3.7
20180.62.0-1.4
201724.422.7+1.7
201612.721.1-8.4
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
658.80p
-1.01%
Class B
752.30p
-1.00%

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

Source: State Street, as at 27/11/2020.

Commentary

Following the previous month’s lacklustre performance, European equities began the final quarter of 2020 in a buoyant mood. With the promise of a Covid-19 vaccine on the horizon and a third quarter earnings season set to demonstrate a continuing corporate recovery, equities appeared well placed to benefit from the ample liquidity on offer from governments and central banks desperate to offset the worst impacts of the virus. But the optimistic mood did not last for long as the number of Covid-19 cases accelerated in many European countries and the threat of national lockdowns loomed once more. Restrictions were tightened in a host of nations including Germany, France and Italy, as well as Spain, where both a state of emergency and curfew were imposed.

The economic fall-out from these moves was plain for all to see particularly following the damage inflicted by similar lockdowns earlier in the year, a fact confirmed by the ECB who, at their month end conference, warned of the economic damage being done and all but committed to further supportive stimulus packages. Unfortunately, the US was unable to provide such comforting words with no agreement being made on their own fiscal stimulus package. With the presidential election looming it will now be down to the winning candidate to ensure these measures are in place. With Joe Biden topping the polls a “blue wave scenario” appeared to be edging closer, although the impact of Donald Trump’s brush with Covid-19 is difficult to gauge. In the UK Brexit negotiations appeared to falter, then restart, making this another event with a range of possible market moving outcomes. Despite some encouraging Q3 updates, as well as some notable disasters such as German software giant SAP’s downgrading of their mid-term guidance, this wasn’t enough to help the equity market with the FTSE World Europe ex UK index falling by -6.1%.

The fund underperformed the index with a fall of -7.4%. The worst performing stock was Barco of Belgium. We had kept a hold of this stock despite its exposure to the cinema industry and the obvious impact lockdown would have on revenues for this division. Clearly a further tightening on social gatherings will impact this business, but the share price fall was further exacerbated by the company’s healthcare division which also disappointed as general healthcare spend was diverted to help combat the virus. Barco has a very strong net cash position and will clearly be a strong recovery candidate once the current situation eases so we have held on to the small holding we have. Patrizia of Germany also had a double digit fall as the company’s exposure to commercial property fell under scrutiny. We will further assess this situation with the upcoming earnings announcement which should help demonstrate the robustness of the company’s business model. Several of our IT exposed names also performed poorly as profits were taken on the year’s winners. There were no outright buys or sells over the course of the month.

Company earnings have been broadly positive in Europe, but the bar has been set low. For 2021 the outlook is still far from clear and will depend heavily on the course of the virus and any potential success with a vaccine. With the US elections out of the way and a likely resolution on Brexit there is cause for optimism as ample liquidity and support from governments and central banks should make equities the go to asset class when Covid-19 either runs its course or a vaccination is indeed found.

Commentary by
Hugh Cuthbert
European Investment Manager
Alasdair Birch
European Investment Analyst
As at 31/10/2020.

Following the previous month’s lacklustre performance, European equities began the final quarter of 2020 in a buoyant mood. With the promise of a Covid-19 vaccine on the horizon and a third quarter earnings season set to demonstrate a continuing corporate recovery, equities appeared well placed to benefit from the ample liquidity on offer from governments and central banks desperate to offset the worst impacts of the virus. But the optimistic mood did not last for long as the number of Covid-19 cases accelerated in many European countries and the threat of national lockdowns loomed once more. Restrictions were tightened in a host of nations including Germany, France and Italy, as well as Spain, where both a state of emergency and curfew were imposed.

The economic fall-out from these moves was plain for all to see particularly following the damage inflicted by similar lockdowns earlier in the year, a fact confirmed by the ECB who, at their month end conference, warned of the economic damage being done and all but committed to further supportive stimulus packages. Unfortunately, the US was unable to provide such comforting words with no agreement being made on their own fiscal stimulus package. With the presidential election looming it will now be down to the winning candidate to ensure these measures are in place. With Joe Biden topping the polls a “blue wave scenario” appeared to be edging closer, although the impact of Donald Trump’s brush with Covid-19 is difficult to gauge. In the UK Brexit negotiations appeared to falter, then restart, making this another event with a range of possible market moving outcomes. Despite some encouraging Q3 updates, as well as some notable disasters such as German software giant SAP’s downgrading of their mid-term guidance, this wasn’t enough to help the equity market with the FTSE World Europe ex UK index falling by -6.1%.

The fund underperformed the index with a fall of -7.4%. The worst performing stock was Barco of Belgium. We had kept a hold of this stock despite its exposure to the cinema industry and the obvious impact lockdown would have on revenues for this division. Clearly a further tightening on social gatherings will impact this business, but the share price fall was further exacerbated by the company’s healthcare division which also disappointed as general healthcare spend was diverted to help combat the virus. Barco has a very strong net cash position and will clearly be a strong recovery candidate once the current situation eases so we have held on to the small holding we have. Patrizia of Germany also had a double digit fall as the company’s exposure to commercial property fell under scrutiny. We will further assess this situation with the upcoming earnings announcement which should help demonstrate the robustness of the company’s business model. Several of our IT exposed names also performed poorly as profits were taken on the year’s winners. There were no outright buys or sells over the course of the month.

Company earnings have been broadly positive in Europe, but the bar has been set low. For 2021 the outlook is still far from clear and will depend heavily on the course of the virus and any potential success with a vaccine. With the US elections out of the way and a likely resolution on Brexit there is cause for optimism as ample liquidity and support from governments and central banks should make equities the go to asset class when Covid-19 either runs its course or a vaccination is indeed found.

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.

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0800 0199 110

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0800 0199 440

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