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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£48.9m

Data as at 31/07/2022.

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.

Thales Group3.9
Veolia3.7
Roche Holdings3.7
Orange3.3
Energiekontor3.2
Ipsos3.3
Allgeier3.2
Jost Werke3.0
Verallia 2.2
Ariston1.6
Barco3.0
Crayon2.8
United Internet2.8
Reply2.1
SESA1.2
AXA4.0
Allianz3.6
Mediobanca 3.2
Banca Mediolanum2.4
Capgemini3.3
Wienerberger2.3
Smurfit Kappa Group2.2
Rexel2.0
H+H International1.6
Ringkjoebing4.3
S IMMO2.0
Patrizia 1.6
LEG Immobilien1.1
Partners Group Holding0.9

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 (%)

Ringkjoebing4.3
AXA4.0
Thales Group3.9
Veolia3.7
Roche Holdings3.7
Allianz3.6
Capgemini3.3
Orange3.3
Ipsos3.3
Allgeier3.2
Rest of Portfolio63.8

Source: SVM, as at 31/07/2022

Sector Exposure (%)

Financials18.3
Industrials16.4
Information Technology15.7
Communication Services10.6
Materials8.3
Real Estate4.7
Health Care4.6
Consumer Discretionary3.8
Utilities3.7

Source: SVM, as at 31/07/2022

Size Analysis (%)

Mega Cap (>€50bn)7.3
Large Cap (<€50bn)19.0
Mid Cap (<€10bn)49.6
Small Cap (<€1bn)10.2

Source: SVM, as at 31/07/2022

Geographic Analysis (%)

France25.6
Germany21.6
Italy11.2
Denmark5.9
Norway4.9
Switzerland4.5
Austria4.3
Belgium3.0
Sweden2.9
Ireland2.2

Source: SVM, as at 31/07/2022

Currency Exposure (%)

Euro67.9
Norwegian Krone4.9
Swiss Franc4.5
Danish Krone5.9
Swedish Krona2.9

Source: SVM, as at 31/07/2022

Show piebar chart

This Month's Featured Stock

Smurfit Kappa

Smurfit Kappa produces paper-based packaging from its 34 paper and board mills. The company offers a sustainable alternative to plastic-based solutions and has a very credible approach to the environmental impact of its operations. 75% of raw materials used in the production process are recycled with the remainder sourced from Chain of Custody suppliers helping to ensure Smurfit Kappa’s corporate responsibility aspirations are reflected in the materials they source. The company has a wide range of impressive ESG targets including a reduction in CO2 intensity of -55% by 2030 and net zero by 2050. All this is in the process of being validated by science-based targets in order to be aligned with the Paris Agreement of 2015.

The company’s shares have performed poorly this year driven down by fears that cost inflation will erode profitability and curb demand from struggling customers. The second quarter results demonstrate great resilience as far as both these issues are concerned. Not only have the recent moves in energy prices been compensated for in their entirety, there has also been an over-compensation resulting in increasing as opposed to decreasing margins. At the same time, competitors with higher cost bases than Smurfit Kappa have chosen to take downtime rather than continuing to produce. This has resulted in buoyant demand for Smurfit Kappa’s products through market share gains thus protecting the company from any softening market trends.

Trading at only just over 5x 2023 EBITDA the shares offer attractive exposure to a sustainable secular growth market.

Performance

Performance (%)

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FundIndex
1 month5.25.2
2022 YTD-12.0-10.4
1 year-2.7-6.5
3 years52.814.9
5 years62.628.0
Since launch*514.6219.2
Source: Lipper, as at 31/07/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2022-3.2-9.8+6.6
202148.722.6+26.1
20203.40.6+2.8
20192.58.2-5.7
20184.02.7+1.3
Source: Lipper, as at 30/06/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
825.40p
1.38%
Class B
954.80p
1.37%

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

Source: State Street, as at 16/08/2022.

Commentary

In their June 2022 meeting the ECB promised to deliver a “fragmentation tool” to counter any disparate economic developments, and subsequent sovereign debt turmoil within the confines of the Eurozone. It took only to July to produce the conditions where such a tool would be required. As is so often the case it was Italy that was the focus of concern as prime minister Mario Draghi tendered his resignation, following a refusal from his coalition partners to continue to back his reform agenda. Initially President Mattarella refused to accept the offer but he eventually capitulated, triggering snap elections to be held in September. This heralds a period of uncertainty and an almost obligatory widening of Italian debt spreads. With the far-right Brothers of Italy party faring well in polls, Italy once again is adding to the long list of woes which Europe currently faces. Not least of those woes was the continued threat to gas supplies prompted by Russia’s, seemingly construed, problems with the Nord Stream 1 pipeline. In a frantic attempt to plan for any further reduction in supply, European countries agreed to a 15% cut in energy usage for the winter months. While heartening to see such action being taken, the spectre of a complete halt of the Russian gas supply still loomed. This, accompanied by a continued rise in inflationary pressure and surging interest rates, with the Federal reserve increasing by 75bps and the ECB 50bps, could understandably have been damaging to equity markets, but this wasn’t to be the case with the MSCI Europe ex UK Index increasing by a healthy 5.2%. With the bad news perhaps already discounted the upcoming second quarter earnings reporting season will shed more light on the impact these events will have over the coming months and give some clarity over what to expect for the remainder of the year. From what we have seen so far many are able to deal with the underlying price and supply chain pressures backing the move we saw in the market over the course of the month.

The fund performed inline with the index at 5.2%. Our two holdings in renewable energy providers, Energiekontor and PNE performed well, bolstered by more conventional energy supplies being threatened by the Ukraine war. The overall sector also got a boost as the Inflation Reduction Act which should provide $369 billion in support for energy transition technologies appears, at month end, to be on track to pass the US Congress. Belgium audio-visual technology supplier Barco also performed well as first half results exceeded the markets expectations. On the downside French telecommunications giant Orange performed poorly on the back of Q2 results. While some viewed the numbers as disappointing, we were heartened by the underlying free cashflow development which forms the basis of our investment thesis. We sold our holding in German IT services company Nagarro and bought a new holding in Irish packaging producer Smurfit Kappa. We see more upside in the latter as the company is demonstrating a clear ability to overcome logistics difficulties and cost pressures, and with the shares having fallen substantially this year, there is now meaningful upside in the shares.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/07/2022.

In their June 2022 meeting the ECB promised to deliver a “fragmentation tool” to counter any disparate economic developments, and subsequent sovereign debt turmoil within the confines of the Eurozone. It took only to July to produce the conditions where such a tool would be required. As is so often the case it was Italy that was the focus of concern as prime minister Mario Draghi tendered his resignation, following a refusal from his coalition partners to continue to back his reform agenda. Initially President Mattarella refused to accept the offer but he eventually capitulated, triggering snap elections to be held in September. This heralds a period of uncertainty and an almost obligatory widening of Italian debt spreads. With the far-right Brothers of Italy party faring well in polls, Italy once again is adding to the long list of woes which Europe currently faces. Not least of those woes was the continued threat to gas supplies prompted by Russia’s, seemingly construed, problems with the Nord Stream 1 pipeline. In a frantic attempt to plan for any further reduction in supply, European countries agreed to a 15% cut in energy usage for the winter months. While heartening to see such action being taken, the spectre of a complete halt of the Russian gas supply still loomed. This, accompanied by a continued rise in inflationary pressure and surging interest rates, with the Federal reserve increasing by 75bps and the ECB 50bps, could understandably have been damaging to equity markets, but this wasn’t to be the case with the MSCI Europe ex UK Index increasing by a healthy 5.2%. With the bad news perhaps already discounted the upcoming second quarter earnings reporting season will shed more light on the impact these events will have over the coming months and give some clarity over what to expect for the remainder of the year. From what we have seen so far many are able to deal with the underlying price and supply chain pressures backing the move we saw in the market over the course of the month.

The fund performed inline with the index at 5.2%. Our two holdings in renewable energy providers, Energiekontor and PNE performed well, bolstered by more conventional energy supplies being threatened by the Ukraine war. The overall sector also got a boost as the Inflation Reduction Act which should provide $369 billion in support for energy transition technologies appears, at month end, to be on track to pass the US Congress. Belgium audio-visual technology supplier Barco also performed well as first half results exceeded the markets expectations. On the downside French telecommunications giant Orange performed poorly on the back of Q2 results. While some viewed the numbers as disappointing, we were heartened by the underlying free cashflow development which forms the basis of our investment thesis. We sold our holding in German IT services company Nagarro and bought a new holding in Irish packaging producer Smurfit Kappa. We see more upside in the latter as the company is demonstrating a clear ability to overcome logistics difficulties and cost pressures, and with the shares having fallen substantially this year, there is now meaningful upside in the shares.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

Insights

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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