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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 objective of the Fund is to achieve capital growth over the long term (5 years or more) and it aims to outperform the MSCI Europe ex UK Index. The Fund will identify investment opportunities in undervalued companies in European equity markets which will not necessarily be prominent in mainstream indices. The Fund will invest at least 80% in equities and equity related instruments dealt in or traded on European Eligible Securities Markets. The Fund may invest in other permitted securities.

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
BenchmarkMSCI Europe ex UK Index
IA SectorEurope ex UK
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£27.0m

Data as at 31/05/2021.

Fund Manager

Hugh Cuthbert
European Investment Manager
15
Years at SVM
26
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

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.

Jost Werke2.9
Aluflexpack2.7
Verallia 2.5
Schibsted2.4
Pirelli2.2
United Internet3.1
SESA3.0
Hexatronic Group2.7
Crayon2.5
Nagarro2.3
Mediobanca 4.4
AXA3.2
Banca Mediolanum3.0
BNP Paribas2.6
Allianz2.4
Thales Group2.9
Energiekontor2.3
PNE2.3
Veolia2.1
Roche Holdings1.9
Capgemini3.4
Dustin3.3
H+H International3.1
Wienerberger2.4
Ringkøbing Landbobank3.1
Patrizia 2.5
Partners Group Holding1.9
S IMMO1.8
LEG Immobilien1.6
Total1.2

There are no holdings in this category

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 (%)

Mediobanca 4.4
Capgemini3.4
Dustin3.3
AXA3.2
H+H International3.1
Ringkøbing Landbobank3.1
United Internet3.1
SESA3.0
Banca Mediolanum3.0
Thales Group2.9
Rest of Portfolio67.5

Source: SVM, as at 31/05/2021

Sector Exposure (%)

Financials20.5
Industrials15.1
Information Technology13.6
Materials10.8
Communication Services10.6
Consumer Discretionary7.0
Real Estate5.8
Health Care3.0
Utilities2.1
Consumer Staples1.7
Energy1.2

Source: SVM, as at 31/05/2021

Size Analysis (%)

Mega Cap (>€50bn)8.1
Large Cap (<€50bn)16.6
Mid Cap (<€10bn)46.9
Small Cap (<€1bn)19.8

Source: SVM, as at 31/05/2021

Geographic Analysis (%)

Other1.3
France22.7
Germany20.4
Italy12.6
Norway8.5
Sweden7.2
Switzerland6.5
Denmark6.3
Austria4.2
Netherlands1.7

Source: SVM, as at 31/05/2021

Currency Exposure (%)

Euro62.9
Norwegian Krone8.5
Swiss Franc6.5
Danish Krone6.3
Swedish Krona7.2

Source: SVM, as at 31/05/2021

Show piebar chart

This Month's Featured Stock

H+H International

Denmark based H+H International is a buildings materials supplier whose main focus is the production and sale of aerated concrete blocks primarily to the residential new build segment. With more than 1,500 employees the company has 29 factories in northern and central Europe with a capacity of almost 4 million cubic meters.

The company operates in what is considered by many to be a cyclical industry resulting in potentially wild swings in both revenues and profitability. This perception means the shares are very cheap trading on only 11x 2022 earnings and offering a yield of almost 4%.

While the cyclical badge may still be appropriate we believe the company’s management have taken some important steps which help limit the impact on profitability when sales should falter. First, a round of cost-cutting and rationalisation measures have made the operations considerably leaner than in previous years. Secondly, and perhaps most importantly, the whole industry has consolidated with the leading players boasting combined market shares well in excess of 50% in the most important markets. This has allowed for a more disciplined pricing environment which is the key variable when combatting any potential revenue decline. This was witnessed in 2020 with Covid-19 prompting a 6% decline in sales but at the same time the company managed to keep gross profit margins flat. Should this performance continue, the cyclicality badge should be shed and the shares are likely to re-rate accordingly.

Performance

Performance (%)

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FundIndex
1 month0.11.7
2021 YTD6.99.0
1 year54.226.4
3 years55.731.4
5 years108.780.0
Since launch*504.7233.0
Source: Lipper, as at 31/05/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202171.234.4+36.8
2020-8.8-7.5-1.3
2019-2.83.1-5.9
20189.33.7+5.6
201720.928.4-7.5
Source: Lipper, as at 31/03/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
813.30p
0.98%
Class B
932.60p
0.97%

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

Source: State Street, as at 14/06/2021.

Commentary

The 1.7% rise in the MSCI Europe ex UK index for the month of May 2021 was the result of a hard-fought battle between hope of renewed economic vigour as economies reopen post Covid-19 lockdowns and the ever-present threat of the impact this may have on prices as companies scramble to restock to meet the renewed demand. At the same time, fears lingered of a resurgence in the virus particularly in Asia where many nations are nowhere near the levels of progress made in vaccination rollouts as seen in the Northern hemisphere. India in particular was a cause for concern with the variant there potentially considerably more transmissible than those seen before. But optimism prevailed, and with inflation still viewed as transitory in nature rather than a deep-rooted affair, the overall environment for equities remained positive. Europe appeared to be making progress on several fronts. Despite the vaccine roll out getting off to a shaky start considerable progress was made over the course of the month and there were clear indications of the impact this was having. In Italy, the national curfew began to be phased out while in France outdoor eating for restaurants was once more permitted. The ECB, while noting the “remarkable exuberance” of financial markets, gave little indication that their recent largesse would be reigned in any time soon. Meanwhile, better than expected macro-economic news such as retail sales and employment numbers indicated a recovery firmly on track.

The fund lagged the index with an increase of 0.1%. With oil, materials and travel stocks leading the market over the course of the month our lack of exposure to these areas of the market was always going to mean a lag in performance. While the short-term outperformance from the likes of basic materials and other re-opening trades is a logical move, just like the situation with inflation, the sustainability of such performance is more difficult to gauge. Year on year growth rates are of course spectacular, but for such a rally to continue shares, which in many cases are trading at all time highs, will need the support of similarly record beating earnings. This is far from a certainty and as a result we will not be chasing many of the beneficiaries of this bounce.

Corporate earnings’ reports for the first quarter of the year are now almost fully complete and the results can be judged as almost overwhelmingly positive. However, it should be noted that in many cases expectations were rebased over the course of 2020 leaving a relatively low bar over which to hurdle. The portfolio’s holdings followed a similar pattern with very little in terms of bad news to report over the course of May. Those stocks which did underperform such as software supplier Crayon of Norway and packaging company Aluflexpack have reported highly encouraging results and company prospects remain good but are not viewed as beneficiaries of the re-opening trade hence the share price performance. There were no outright buys or sells over the course of the month.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/05/2021.

The 1.7% rise in the MSCI Europe ex UK index for the month of May 2021 was the result of a hard-fought battle between hope of renewed economic vigour as economies reopen post Covid-19 lockdowns and the ever-present threat of the impact this may have on prices as companies scramble to restock to meet the renewed demand. At the same time, fears lingered of a resurgence in the virus particularly in Asia where many nations are nowhere near the levels of progress made in vaccination rollouts as seen in the Northern hemisphere. India in particular was a cause for concern with the variant there potentially considerably more transmissible than those seen before. But optimism prevailed, and with inflation still viewed as transitory in nature rather than a deep-rooted affair, the overall environment for equities remained positive. Europe appeared to be making progress on several fronts. Despite the vaccine roll out getting off to a shaky start considerable progress was made over the course of the month and there were clear indications of the impact this was having. In Italy, the national curfew began to be phased out while in France outdoor eating for restaurants was once more permitted. The ECB, while noting the “remarkable exuberance” of financial markets, gave little indication that their recent largesse would be reigned in any time soon. Meanwhile, better than expected macro-economic news such as retail sales and employment numbers indicated a recovery firmly on track.

The fund lagged the index with an increase of 0.1%. With oil, materials and travel stocks leading the market over the course of the month our lack of exposure to these areas of the market was always going to mean a lag in performance. While the short-term outperformance from the likes of basic materials and other re-opening trades is a logical move, just like the situation with inflation, the sustainability of such performance is more difficult to gauge. Year on year growth rates are of course spectacular, but for such a rally to continue shares, which in many cases are trading at all time highs, will need the support of similarly record beating earnings. This is far from a certainty and as a result we will not be chasing many of the beneficiaries of this bounce.

Corporate earnings’ reports for the first quarter of the year are now almost fully complete and the results can be judged as almost overwhelmingly positive. However, it should be noted that in many cases expectations were rebased over the course of 2020 leaving a relatively low bar over which to hurdle. The portfolio’s holdings followed a similar pattern with very little in terms of bad news to report over the course of May. Those stocks which did underperform such as software supplier Crayon of Norway and packaging company Aluflexpack have reported highly encouraging results and company prospects remain good but are not viewed as beneficiaries of the re-opening trade hence the share price performance. There were no outright buys or sells over the course of the month.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

If you would like a copy of any historic factsheets please email info@svmonline.co.uk

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 SS&C Financial Services International Limited and SS&C Financial Services Europe Limited 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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0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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