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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£40.3m

Data as at 31/12/2021.

Fund Manager

Hugh Cuthbert
European Investment Manager
15
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.

Allgeier5.0
Ipsos3.0
Verallia 2.7
Aluflexpack1.7
Schibsted1.4
Veolia3.4
Thales Group3.0
Energiekontor2.8
Roche Holdings2.6
PNE1.7
United Internet3.5
SESA2.7
Crayon2.5
Barco1.9
Nagarro1.5
Capgemini3.1
Dustin2.9
Rexel2.5
H+H International2.4
Wienerberger2.3
Banca Mediolanum3.4
Allianz3.3
AXA3.2
Mediobanca 3.0
Patrizia 3.1
Ringkjoebing2.9
S IMMO2.3
LEG Immobilien1.9
Partners Group Holding1.5
TotalEnergies0.9

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

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 (%)

Allgeier5.0
United Internet3.5
Veolia3.4
Banca Mediolanum3.4
Allianz3.3
AXA3.2
Capgemini3.1
Patrizia 3.1
Thales Group3.0
Ipsos3.0
Rest of Portfolio66.1

Source: SVM, as at 31/12/2021

Sector Exposure (%)

Financials17.2
Information Technology16.6
Industrials13.6
Communication Services10.5
Materials9.2
Real Estate7.3
Health Care5.3
Consumer Discretionary4.1
Utilities3.4
Energy0.9
Consumer Staples0.9

Source: SVM, as at 31/12/2021

Size Analysis (%)

Mega Cap (>€50bn)10.1
Large Cap (<€50bn)14.5
Mid Cap (<€10bn)49.7
Small Cap (<€1bn)14.7

Source: SVM, as at 31/12/2021

Geographic Analysis (%)

Germany25.2
France23.4
Italy10.2
Norway6.2
Switzerland5.8
Sweden5.4
Denmark5.3
Austria4.6
Belgium1.9
Netherlands0.9

Source: SVM, as at 31/12/2021

Currency Exposure (%)

Euro66.3
Norwegian Krone6.2
Swiss Franc5.8
Danish Krone5.3
Swedish Krona5.4

Source: SVM, as at 31/12/2021

Show piebar chart

This Month's Featured Stock

Pirelli

With forecasted 2023 price earnings and EV/EBITDA ratios of 10.6x and 7.6x respectively, Italian tyre manufacturer Pirelli offers a global brand at a rock bottom price. The discount, however, is not totally unjustified. The industry in which the company operates is cyclical and is regularly impacted by a volatile cost base.

While we would not argue against such observations the reality is not as clear cut. The overall tyre market is indeed highly susceptible to the gyrations in both the new and second hand car markets but Pirelli is far from a generic representation of the underlying market. Over recent years the focus has been on a shift away from the low-end value market toward the high end and homologations with world beating brands such as Ferrari, McLaren and Lamborghini. Not only does this reduce the cyclicality but it also allows for increased pricing power resulting in better margins and a dampener for any cyclicality. This, of course, also means that management have the levers to combat raw material price pressure.

The answer to the low valuation therefore can perhaps be attributed to the company’s balance sheet which does remain more highly geared than many of its peers. While this remains an on-going risk, it is one that is well recognised by management and a rigorous cost cutting programme combined with a recovery in end markets results in a clear path for a substantial improvement.

While the nature of the industry means Pirelli is unlikely to ever gain a valuation premium to the market, we believe today’s levels are simply too low for a company with this heritage and industrial position.

Performance

Performance (%)

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FundIndex
1 month3.83.9
2021 YTD23.417.6
1 year23.417.6
3 years102.454.0
5 years110.063.4
Since launch*598.4256.4
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202123.417.6+5.8
202037.78.2+29.5
201919.221.0-1.8
2018-12.0-9.1-2.9
201717.916.8+1.1
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
904.20p
0.22%
Class B
1041.00p
0.19%

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

Source: State Street, as at 14/01/2022.

Commentary

A flurry of central bank meetings in mid-December 2021, including those of the UK, the US and Europe, promised some clarity concerning the trajectory for interest rates and stimulus packages in the coming quarters and years. A hefty US inflation reading of over 6% for November helped focus attention on the tightening that loomed. The Bank of England unexpectedly increased rates while the ECB and the Federal Reserve spoke of a cautious and gradual approach. In summary, there was nothing to suggest in any of the commentaries that the on-going recovery would be put at risk by over-zealous policy moves. The continued spread of the Omicron variant has presented a greater threat to economic growth globally, with daily reported cases reaching new highs in many countries. As ever, the threat for markets was the action governments were likely to take in order to combat this resurgence and the impact this in turn would have on the ability for companies to do business. While equity market volatility did increase, it became clear that the impact was likely to be short-term resulting in a healthy 3.94% increase for the MSCI Europe ex UK Index in December.

Germany heralded the end of an era as Chancellor Angela Merkel left office. Her 16 years in power have been characterized by stability and economic success despite some difficult events during her tenure, not least the financial crisis of 2008 and the threat this posed to the European Union. It is perhaps comforting then, that her successor Olaf Scholz, along with his traffic light coalition, are seen as a safe choice offering a degree of continuity from the Merkel reign.

The fund rose 3.83% in December. The best contributor to performance was German IT services company Allgeier. This long-term holding for the fund has in recent years built a portfolio of companies with a broad range of expertise culminating in the recent spin-out of digital services specialist Nagarro. This move was extremely profitable for shareholders and a recent acquisition suggests the company may be at the start of repeating this process hence the close to 50% increase for the shares over the course of the month. The worst performer was Schibsted of Norway. While the medium term prospects for the company look good, in the short term the company’s online marketplaces including Finn and Blocket have been hit by the lack of transactions in the automotive market. There were no outright buys or sells over the course of the month.

2021 has been a good year for equity markets which offered one of the few alternatives to stubbornly low bond yields. It is fair to expect decent growth in 2022 as economies return to normal following the damage inflicted by the pandemic, resultant lockdowns and government restrictions. Perhaps the greatest threat to this scenario is inflation. Supply shortages, elevated energy costs and, to a certain extent, base effects from the pandemic can all be pointed to as temporary in nature but the duration of the pressure on corporate and personal finances can still prove more permanent as wage and price increases spiral. Central banks have the wherewithal to combat such a scenario but this may be at the cost of equity market performance so a note of caution should be sounded for the months ahead.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/12/2021.

A flurry of central bank meetings in mid-December 2021, including those of the UK, the US and Europe, promised some clarity concerning the trajectory for interest rates and stimulus packages in the coming quarters and years. A hefty US inflation reading of over 6% for November helped focus attention on the tightening that loomed. The Bank of England unexpectedly increased rates while the ECB and the Federal Reserve spoke of a cautious and gradual approach. In summary, there was nothing to suggest in any of the commentaries that the on-going recovery would be put at risk by over-zealous policy moves. The continued spread of the Omicron variant has presented a greater threat to economic growth globally, with daily reported cases reaching new highs in many countries. As ever, the threat for markets was the action governments were likely to take in order to combat this resurgence and the impact this in turn would have on the ability for companies to do business. While equity market volatility did increase, it became clear that the impact was likely to be short-term resulting in a healthy 3.94% increase for the MSCI Europe ex UK Index in December.

Germany heralded the end of an era as Chancellor Angela Merkel left office. Her 16 years in power have been characterized by stability and economic success despite some difficult events during her tenure, not least the financial crisis of 2008 and the threat this posed to the European Union. It is perhaps comforting then, that her successor Olaf Scholz, along with his traffic light coalition, are seen as a safe choice offering a degree of continuity from the Merkel reign.

The fund rose 3.83% in December. The best contributor to performance was German IT services company Allgeier. This long-term holding for the fund has in recent years built a portfolio of companies with a broad range of expertise culminating in the recent spin-out of digital services specialist Nagarro. This move was extremely profitable for shareholders and a recent acquisition suggests the company may be at the start of repeating this process hence the close to 50% increase for the shares over the course of the month. The worst performer was Schibsted of Norway. While the medium term prospects for the company look good, in the short term the company’s online marketplaces including Finn and Blocket have been hit by the lack of transactions in the automotive market. There were no outright buys or sells over the course of the month.

2021 has been a good year for equity markets which offered one of the few alternatives to stubbornly low bond yields. It is fair to expect decent growth in 2022 as economies return to normal following the damage inflicted by the pandemic, resultant lockdowns and government restrictions. Perhaps the greatest threat to this scenario is inflation. Supply shortages, elevated energy costs and, to a certain extent, base effects from the pandemic can all be pointed to as temporary in nature but the duration of the pressure on corporate and personal finances can still prove more permanent as wage and price increases spiral. Central banks have the wherewithal to combat such a scenario but this may be at the cost of equity market performance so a note of caution should be sounded for the months ahead.

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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