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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.

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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£41.4m

Data as at 30/04/2022.

Fund Manager

Hugh Cuthbert
European Investment Manager
16
Years at SVM
27
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.

Energiekontor3.5
Thales Group3.5
Veolia3.3
Orange3.3
Roche Holdings2.5
Allgeier3.7
Ipsos3.2
Jost Werke2.3
Ariston2.3
Verallia 2.3
Mediobanca 3.7
AXA3.5
Allianz3.3
Banca Mediolanum3.0
United Internet3.4
SESA2.1
Barco2.0
Crayon1.8
Nagarro1.4
Capgemini2.7
Wienerberger2.7
Rexel2.7
H+H International2.2
Dustin1.9
Ringkjoebing4.2
Patrizia 2.8
S IMMO2.4
LEG Immobilien1.4
Partners Group Holding1.0

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

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 (%)

Ringkjoebing4.2
Allgeier3.7
Mediobanca 3.7
Energiekontor3.5
Thales Group3.5
AXA3.5
United Internet3.4
Allianz3.3
Veolia3.3
Orange3.3
Rest of Portfolio64.4

Source: SVM, as at 30/04/2022

Sector Exposure (%)

Financials18.8
Industrials16.1
Information Technology13.9
Communication Services11.5
Materials7.1
Real Estate6.6
Consumer Discretionary5.0
Health Care3.8
Utilities3.3

Source: SVM, as at 30/04/2022

Size Analysis (%)

Mega Cap (>€50bn)9.3
Large Cap (<€50bn)13.8
Mid Cap (<€10bn)49.2
Small Cap (<€1bn)13.8

Source: SVM, as at 30/04/2022

Geographic Analysis (%)

Germany25.1
France24.5
Italy12.0
Denmark6.4
Austria5.1
Norway4.2
Switzerland3.5
Sweden3.3
Belgium2.0

Source: SVM, as at 30/04/2022

Currency Exposure (%)

Euro68.7
Norwegian Krone4.2
Swiss Franc3.5
Danish Krone6.4
Swedish Krona3.3

Source: SVM, as at 30/04/2022

Show piebar chart

This Month's Featured Stock

Ringkjoebing Landbobank 

Ringkjoebing Landbobank is a regional Danish bank operating through a network of branches throughout West Jutland in Denmark. Attracting deposits and issuing loans and mortgages primarily within the confines of this territory, the bank has managed to consistently grow its earnings while many of its peers have struggled. Part of the secret of this success is the focus on “niches” which target specific areas of growth and have recently included the wind turbine market as well as financing the operating activities of medical practitioners. Such an approach allows the bank to avoid the generic end of the loan market where bad debts can be more prevalent, a good example being the agriculture market in Demark where the exposure to pig farming makes for a highly volatile and cyclical market. Here Ringkjoebing’s exposure is low and certainly well below the proportionate level which could be expected in relation to the size of the bank’s balance sheet.

While the bank has largely relied on organic growth, a rare acquisition was made in 2018 of Nordjyske Bank whose operations span neighbouring North Jutland. The acquisition provided enormous scope for synergies but, in the first instance, resulted in a spike in the cost-to-income ratio to 43.3%. Stringent management actions have resulted in this now falling to a sector leading level of 33.6%, not far from Ringkjoebing’s standalone level of 32.8% posted prior to the acquisition.

The shares of such an innovative and efficient institution do not come cheap but we believe we are likely to see good overall returns as the bank is highly capitalised allowing for a regular dividend while at the same time returning a highly impressive 18% return on equity.

Performance

Performance (%)

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FundIndex
1 month-2.4-1.7
2022 YTD-8.4-8.8
1 year5.90.1
3 years71.524.6
5 years80.537.8
Since launch*540.0225.2
Source: Lipper, as at 30/04/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202214.46.3+8.1
202171.234.4+36.8
2020-8.8-7.5-1.3
2019-2.83.1-5.9
20189.33.7+5.6
Source: Lipper, as at 31/03/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
816.00p
1.23%
Class B
942.20p
1.22%

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

Source: State Street, as at 16/05/2022.

Commentary

April 2022 saw both bond and equity markets negatively impacted by the threat of overly hawkish central banks tipping their respective economies into recession. The most vocal was the US Federal Reserve where the scene was set for a series of rate increases of at least 50bps resulting in a near term base rate in excess of 3%. This is in the midst of a situation where economies are already threatened by the war in Ukraine, continued supply shortages and disruption, as well as a Covid-19 inspired lockdown in much of China. Little wonder markets were rattled. In Europe the pre-Easter meeting of the ECB presented a more timid approach to the problem with the commentary promising only “gradual” rate hikes and only then “some time after” the end of the net asset purchase programme. When asked for a definition of “some time” Christine Lagarde replied it could range from weeks to months, so clearly the watch, wait and see mode remains with little in the way of any major policy shift. March inflation in the Eurozone hit 7.5% y-o-y and with the ECB’s baseline and adverse forecasts at 5.1% and 5.9% respectively, there is the possibility they are becoming woefully behind the curve with this more relaxed approach in comparison to their US counterparts.

Europe also experienced one of its regular existential moments in April in the guise of the French presidential elections. While Marine Le Pen offered a toned-down manifesto with, for example, “Frexit”, at least temporarily, off the table. There was no doubt as far as the equity market was concerned that Macron was the business-friendly candidate. The first round resulted in a Macron win but not a particularly convincing one, so the French market underperformed before the second round. Again, Macron was victorious, but his winning margin was half that he delivered the last time he met Le Pen in a second round in 2017. This will make for interesting parliamentary elections in June.

The price of oil and gas spiked mid-way through the month as the Russian/Ukraine conflict showed no signs of abating and President Putin continued his insistence for payment in rubles. While European governments debated a variety of strategies it was clear that, for gas, in particular gas bound for Germany, there would be no severing of links in the near term unless done through Russian initiative. An EU ban on Russian coal imports was proposed to take effect in August 2022. A worrying halt to gas exports from Russia to Poland was made at month end suggesting we have not seen the last of the upward pressure on the price of hydrocarbons.

The MSCI Europe ex UK Index ended the month down  -1.7% while the fund lagged, down  -2.4%. There was a strong divergence between the best and worst performing stocks with 4 positive double digit returns and 5 double digit negative returns. Sedana Medical was the worst performing stock falling over 40%. This was prompted by the company’s announcement of Q1 results where management pushed back their financial targets by 12 months. The reaction appears overdone as the investment case is not based on short term financial results, instead the focus is on the successful approval and roll-out of its life saving products. IT distributor Dustin of Sweden also disappointed with their announcement of earnings. Here the issue was gross margins, which fell to 13.7% from 16.1% in the prior year. We have subsequently met with the CEO who has confirmed that the fall was a result of product mix and, while difficult to time any recovery, the underlying business is still very much on track with healthy underlying revenue growth. The best performer was glass container manufacturer Verallia. Here the company surprised on the upside with its Q1 report demonstrating very strong growth and resilient profits particularly when considering the massive year on year increase in energy costs. There were no outright buys or sells over the course of the month.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 30/04/2022.

April 2022 saw both bond and equity markets negatively impacted by the threat of overly hawkish central banks tipping their respective economies into recession. The most vocal was the US Federal Reserve where the scene was set for a series of rate increases of at least 50bps resulting in a near term base rate in excess of 3%. This is in the midst of a situation where economies are already threatened by the war in Ukraine, continued supply shortages and disruption, as well as a Covid-19 inspired lockdown in much of China. Little wonder markets were rattled. In Europe the pre-Easter meeting of the ECB presented a more timid approach to the problem with the commentary promising only “gradual” rate hikes and only then “some time after” the end of the net asset purchase programme. When asked for a definition of “some time” Christine Lagarde replied it could range from weeks to months, so clearly the watch, wait and see mode remains with little in the way of any major policy shift. March inflation in the Eurozone hit 7.5% y-o-y and with the ECB’s baseline and adverse forecasts at 5.1% and 5.9% respectively, there is the possibility they are becoming woefully behind the curve with this more relaxed approach in comparison to their US counterparts.

Europe also experienced one of its regular existential moments in April in the guise of the French presidential elections. While Marine Le Pen offered a toned-down manifesto with, for example, “Frexit”, at least temporarily, off the table. There was no doubt as far as the equity market was concerned that Macron was the business-friendly candidate. The first round resulted in a Macron win but not a particularly convincing one, so the French market underperformed before the second round. Again, Macron was victorious, but his winning margin was half that he delivered the last time he met Le Pen in a second round in 2017. This will make for interesting parliamentary elections in June.

The price of oil and gas spiked mid-way through the month as the Russian/Ukraine conflict showed no signs of abating and President Putin continued his insistence for payment in rubles. While European governments debated a variety of strategies it was clear that, for gas, in particular gas bound for Germany, there would be no severing of links in the near term unless done through Russian initiative. An EU ban on Russian coal imports was proposed to take effect in August 2022. A worrying halt to gas exports from Russia to Poland was made at month end suggesting we have not seen the last of the upward pressure on the price of hydrocarbons.

The MSCI Europe ex UK Index ended the month down  -1.7% while the fund lagged, down  -2.4%. There was a strong divergence between the best and worst performing stocks with 4 positive double digit returns and 5 double digit negative returns. Sedana Medical was the worst performing stock falling over 40%. This was prompted by the company’s announcement of Q1 results where management pushed back their financial targets by 12 months. The reaction appears overdone as the investment case is not based on short term financial results, instead the focus is on the successful approval and roll-out of its life saving products. IT distributor Dustin of Sweden also disappointed with their announcement of earnings. Here the issue was gross margins, which fell to 13.7% from 16.1% in the prior year. We have subsequently met with the CEO who has confirmed that the fall was a result of product mix and, while difficult to time any recovery, the underlying business is still very much on track with healthy underlying revenue growth. The best performer was glass container manufacturer Verallia. Here the company surprised on the upside with its Q1 report demonstrating very strong growth and resilient profits particularly when considering the massive year on year increase in energy costs. 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

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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Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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