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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 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£23.7m

Data as at 31/01/2021.

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.

Nagarro4.1
United Internet3.8
Crayon3.7
Lime Technologies2.8
SESA2.7
Energiekontor3.6
Sedana Medical3.1
PNE2.8
Thales Group2.6
Roche Holdings2.2
Aluflexpack3.5
Jost Werke2.5
Pirelli2.3
Schibsted2.2
Nacon2.0
Ringkøbing Landbobank3.2
Patrizia 3.1
LEG Immobilien1.8
Partners Group Holding1.8
S IMMO1.7
Mediobanca 3.9
AXA2.5
Banca Mediolanum2.5
BNP Paribas1.7
Allianz1.7
Capgemini3.1
Dustin2.9
H+H International2.7
Total1.3

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 (%)

Nagarro4.1
Mediobanca 3.9
United Internet3.8
Crayon3.7
Energiekontor3.6
Aluflexpack3.5
Ringkøbing Landbobank3.2
Patrizia 3.1
Sedana Medical3.1
Capgemini3.1
Rest of Portfolio64.9

Source: SVM, as at 31/01/2021

Sector Exposure (%)

Technology25.8
Financials25.2
Industrials9.9
Consumer Goods8.8
Utilities8.5
Health Care6.6
Consumer Services4.4
Oil & Gas1.3
Telecommunications1.1

Source: SVM, as at 31/01/2021

Size Analysis (%)

Mega Cap (>€50bn)6.6
Large Cap (<€50bn)16.7
Mid Cap (<€10bn)34.9
Small Cap (<€1bn)33.5

Source: SVM, as at 31/01/2021

Geographic Analysis (%)

Other1.7
Germany26.1
France16.3
Italy11.3
Sweden11.0
Switzerland8.8
Norway7.5
Denmark5.9
Netherlands1.9
Belgium1.1

Source: SVM, as at 31/01/2021

Currency Exposure (%)

Euro58.6
Norwegian Krone7.5
Swiss Franc8.8
Danish Krone5.9
Swedish Krona11.0

Source: SVM, as at 31/01/2021

Show piebar chart

This Month's Featured Stock

Nacon

Nacon is a French domiciled developer of video games as well as a designer and manufacturer of gaming accessories, with a particular focus on controllers for consoles, where the company seeks licensing opportunities from OEM’s such as Sony and Microsoft. While an obvious beneficiary of the Covid-19 lockdown inspired growth the industry is currently witnessing, we can also see numerous alternative reasons for this company to deliver market beating growth over the coming years accompanied at the same time by a strong leverage in operating profitability.

Unusually, it is the age of the company’s products that provides perhaps the greatest opportunity for growth. Despite operating in an industry which prides itself on launching ever more sophisticated games, at huge costs and as often as possible, Nacon relies more heavily on regenerating existing products and supporting a strong back catalogue. The vintage of the portfolio has meant that the penetration of digital products is considerably lower than the market average. As the company channels new sales through this channel this not only increases the overall revenue base but has a substantial impact on gross margins as the need for a physical product is no more.

The result is a company that delivers growth which is comparable to, or even better than, the peer group but at a considerably lower risk than many of the competition as it does not rely on the vast investments required for a regular blockbuster launch.

With strong growth expected for the years to come and a relatively low multiple in comparison to many of its peers we believe Nacon remains a very interesting investment opportunity.

Performance

Performance (%)

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FundIndex
1 month-3.8-2.2
2021 YTD-3.8-2.2
1 year32.77.5
3 years35.215.1
5 years95.767.9
Since launch*444.3198.7
Source: Lipper, as at 31/01/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202037.78.2+29.5
201919.221.0-1.8
2018-12.0-9.1-2.9
201717.916.8+1.1
201613.819.7-5.9
Source: Lipper, as at 31/12/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
770.70p
-0.66%
Class B
881.70p
-0.66%

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

Source: State Street, as at 05/03/2021.

Commentary

European equity markets began 2021 in an enthusiastic mood returning the best initial 5 day trading return since 2009. The pattern was the same as that seen in the back end of 2020 with the double promise of further stimulus measures, to offset the damage done by the pandemic, combining with an economic resurgence as vaccine programmes allow economies to re-open. Such optimism, however, required the ability to look through short-term bad news particularly as far as new Covid-19 infections were concerned. In many ways the beginning of the rebound was possibly further away as new strains of the virus and increasing rates of infection prompted countries such as Germany, Italy and the UK to announce further restrictions. As this reality dawned on market participants and as politicians discussed ever-extending periods of lockdown, including Germany’s Angela Merkel who suggested lockdown easing would not begin before Easter, the rally fizzled out with the MSCI Europe ex UK Index closing the period down -2.2%. The gloom was further underlined by the ECB whose president, Christine Lagarde warned of the very real possibility of the Eurozone heading toward a double-dip recession. Further political shenanigans in Italy also didn’t help a somewhat fragile Europe still recoiling from the final resolution of Brexit.

In the US, the situation should have been clearer with Joe Biden firmly ensconced in the White House and, thanks to the run-off elections, also in control of Congress. But his majority is slim evidenced by the threat of him already having to water down his close to $2 trillion pandemic response package. News also started to emerge out of the US of stock market volatility prompted by the actions of day traders attempting to squeeze hedge fund short books. The phenomenon soon also spread to Europe adding an edge of uncertainty to what were already fragile market conditions.

In terms of corporate reporting the first month of the year is always a quiet one as firms close their books on the preceding year and prepare for the annual reporting season. As a result, the moves seen in the fund, which fell by -3.8% had little to do with underlying fundamentals and more to do with the sector moves prompted by the relentless news-flow. The worst performing stock was IT services company Nagarro which fell by more than 18%. The firm has recently been spun out of parent company Allgeier whose shares had a tremendous run into the event. Nagarro’s fall is likely down to both profit taking and a change in the company’s share register as shareholders adjust to the newly formed companies. Despite the market’s fall, several companies saw good double-digit returns including two Swedish listings Dustin and Hexatronic. While the former has an August accounting year end and so is one of the few to report in January what were very good results, the latter is benefitting from a resurgence in demand for its fibre optic products and services. There were no outright purchases or sales in the period, however we did halve our position in what was our largest holding - German wind farm operator Energiekontor - in order to book some profits after a very good run for the shares.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/01/2021.

European equity markets began 2021 in an enthusiastic mood returning the best initial 5 day trading return since 2009. The pattern was the same as that seen in the back end of 2020 with the double promise of further stimulus measures, to offset the damage done by the pandemic, combining with an economic resurgence as vaccine programmes allow economies to re-open. Such optimism, however, required the ability to look through short-term bad news particularly as far as new Covid-19 infections were concerned. In many ways the beginning of the rebound was possibly further away as new strains of the virus and increasing rates of infection prompted countries such as Germany, Italy and the UK to announce further restrictions. As this reality dawned on market participants and as politicians discussed ever-extending periods of lockdown, including Germany’s Angela Merkel who suggested lockdown easing would not begin before Easter, the rally fizzled out with the MSCI Europe ex UK Index closing the period down -2.2%. The gloom was further underlined by the ECB whose president, Christine Lagarde warned of the very real possibility of the Eurozone heading toward a double-dip recession. Further political shenanigans in Italy also didn’t help a somewhat fragile Europe still recoiling from the final resolution of Brexit.

In the US, the situation should have been clearer with Joe Biden firmly ensconced in the White House and, thanks to the run-off elections, also in control of Congress. But his majority is slim evidenced by the threat of him already having to water down his close to $2 trillion pandemic response package. News also started to emerge out of the US of stock market volatility prompted by the actions of day traders attempting to squeeze hedge fund short books. The phenomenon soon also spread to Europe adding an edge of uncertainty to what were already fragile market conditions.

In terms of corporate reporting the first month of the year is always a quiet one as firms close their books on the preceding year and prepare for the annual reporting season. As a result, the moves seen in the fund, which fell by -3.8% had little to do with underlying fundamentals and more to do with the sector moves prompted by the relentless news-flow. The worst performing stock was IT services company Nagarro which fell by more than 18%. The firm has recently been spun out of parent company Allgeier whose shares had a tremendous run into the event. Nagarro’s fall is likely down to both profit taking and a change in the company’s share register as shareholders adjust to the newly formed companies. Despite the market’s fall, several companies saw good double-digit returns including two Swedish listings Dustin and Hexatronic. While the former has an August accounting year end and so is one of the few to report in January what were very good results, the latter is benefitting from a resurgence in demand for its fibre optic products and services. There were no outright purchases or sales in the period, however we did halve our position in what was our largest holding - German wind farm operator Energiekontor - in order to book some profits after a very good run for the shares.

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.

Dealing - Funds
0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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