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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£32.3m

Data as at 31/10/2021.

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.

Energiekontor3.9
Veolia3.2
Thales Group2.3
PNE2.1
Roche Holdings1.8
Ipsos2.6
Verallia 2.4
Schibsted2.3
JOST Werke2.1
Aluflexpack1.8
Crayon3.4
Sesa 3.3
Hexatronic Group2.8
United Internet2.4
Aker Carbon Capture1.8
Capgemini3.6
H+H International3.3
Dustin3.2
Rexel2.4
Wienerberger2.3
Mediobanca 3.8
AXA2.9
Banca Mediolanum2.7
Allianz2.3
Ringkøbing Landbobank3.4
PATRIZIA2.1
Partners Group Holding1.9
LEG Immobilien1.4
S IMMO1.4
TotalEnergies1.1

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 (%)

Energiekontor3.9
Mediobanca 3.8
Capgemini3.6
Crayon3.4
Ringkøbing Landbobank3.4
H+H International3.3
Sesa 3.3
Dustin3.2
Veolia3.2
AXA2.9
Rest of Portfolio66.0

Source: SVM, as at 31/10/2021

Sector Exposure (%)

Industrials17.6
Financials17.0
Information Technology14.5
Materials9.8
Communication Services9.6
Real Estate4.8
Consumer Discretionary4.5
Health Care4.4
Utilities3.2
Energy1.1
Consumer Staples1.1

Source: SVM, as at 31/10/2021

Size Analysis (%)

Mega Cap (>€50bn)8.2
Large Cap (<€50bn)14.4
Mid Cap (<€10bn)51.5
Small Cap (<€1bn)13.5

Source: SVM, as at 31/10/2021

Geographic Analysis (%)

France21.6
Germany21.1
Italy11.1
Norway8.8
Sweden7.0
Denmark6.7
Switzerland5.5
Austria3.7
Netherlands1.1
Belgium0.9

Source: SVM, as at 31/10/2021

Currency Exposure (%)

Euro59.6
Norwegian Krone8.8
Swiss Franc5.5
Danish Krone6.7
Swedish Krona7.0

Source: SVM, as at 31/10/2021

Show piebar chart

This Month's Featured Stock

Veolia Environnement 

French utility Veolia Environnement recently completed a long-awaited merger with arch rival Suez to become a diversified global player in waste and water processing. Not only does the merger offer large cost cutting potential but also the enlarged group will dilute Veolia’s exposure to the French market, an issue which has likely held the shares back prior to this new corporate structure being formed. As the company relies on very large long-term contracts any further diversification is welcomed and this deal appears the perfect solution. There are, however, certain regulatory hurdles which stand in the way but this should not necessarily be viewed in a negative light as any disposals which arise are likely to be sold at a healthy price in today’s low interest rate environment. This should be welcomed as Veolia’s debt burden will be in excess of 3x net debt/EBITDA under the new structure and any move to bring this to more comfortable levels is likely to be rewarded by the market. The company has a good track record in this area.

We can see a number of clear catalysts on the horizon for Veolia which, if successfully enacted, should result in good upside for the shares. Currently priced at below 6x EV/EBITDA in the coming years the valuation appears too cheap for a utility which is exposed to many of the themes which investors currently prize highly including waste recycling and clean water provision. Not only this but Veolia offers the prospect of some growth as new contracts are won and their commodity business is highly exposed to global GDP growth.

Performance

Performance (%)

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FundIndex
1 month4.13.0
2021 YTD20.815.0
1 year52.833.2
3 years88.742.8
5 years107.161.7
Since launch*583.9248.7
Source: Lipper, as at 31/10/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202136.021.8+14.2
202021.30.2+21.1
20192.76.8-4.1
20180.62.2-1.6
201724.422.4+2.0
Source: Lipper, as at 30/09/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
938.80p
0.45%
Class B
1080.00p
0.47%

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

Source: State Street, as at 26/11/2021.

Commentary

The upcoming third quarter reporting season promises to be an insightful one as companies should shed some light on the issues of supply constraints and rising costs pressures which have troubled markets since the start of 2021. A bout of volatility in October, prompted in a large part by the oil price breaching $80 per barrel, a level not seen since late 2018, brought inflationary pressures further to the fore and further debate over the longevity of such price moves. Of the companies that did report during the month many, such as L’Oréal of France and banking giant HSBC, appeared to be weathering the storm well thanks in a large part to their dominant market positions and strong pricing power. As the reporting season progresses, we are likely to see others in less strong positions succumb to the pressures we are witnessing. Such an environment of course also increased pressure on central banks to act with the discussion appearing less about transitory inflation and more about when and how to tighten. The US remains the most likely to move first although October’s non-farm payrolls were hardly supportive of such a stance with only 194k jobs added against an expected 500k. Such numbers are perhaps more indicative of stagflation not an outcome supportive of the strong market moves we have had this year. China added to this unease reporting GDP growth below the expected 5.00% a level unthinkable in the not too distant past. Evergrande and continued government restrictions and interventions in the corporate world, point to an uncertain period for this all-important economy. In Europe, the ECB appear well aware of the risk facing markets and there is emerging evidence that any tapering in the region is likely to be accompanied by further safety measures such as extended asset purchases. This sits well with the cautious announcements we have had from Christine Lagarde following recent central bank meetings.

Both the fund and the index manged to finish the month in positive territory with the fund’s 4.1% return out-pacing 3.0% for the MSCI Europe ex UK Index. The best performing stock was Hexatronic of Sweden, the manufacturer and supplier of the equipment required to build out a fibre optic network. The business is extremely well positioned in a strongly growing market and their targeted customers are smaller players in the telecommunications market, which has allowed the company to avoid the hefty discounts demanded by the larger players. A recent acquisition for the company in the US has further boosted the attractiveness of the investment proposition. Both Energiekontor of Germany and Crayon Group of Norway also rose more than 20%. While the former, a windfarm operator and developer, has benefitted in the strong underlying demand for alternative energy sources, the latter benefitted from an October upward revision of the company’s expectations for growth for the remainder of the year. Eight out of the ten best performing stocks came from either the technology or the renewable energy sector. The worst performer was Aluflexpack a manufacturer of amongst other things coffee pods and flexible food packaging. The shares were hit by a broker down grade which pointed out the good run the shares have had year to date and the negative inflationary impact on costs the company is currently experiencing. While we would not argue against either point the long-term investment case still stands and we consider the 22% drop in the share price to be overdone. There were no outright buys or sells over the course of the month.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/10/2021.

The upcoming third quarter reporting season promises to be an insightful one as companies should shed some light on the issues of supply constraints and rising costs pressures which have troubled markets since the start of 2021. A bout of volatility in October, prompted in a large part by the oil price breaching $80 per barrel, a level not seen since late 2018, brought inflationary pressures further to the fore and further debate over the longevity of such price moves. Of the companies that did report during the month many, such as L’Oréal of France and banking giant HSBC, appeared to be weathering the storm well thanks in a large part to their dominant market positions and strong pricing power. As the reporting season progresses, we are likely to see others in less strong positions succumb to the pressures we are witnessing. Such an environment of course also increased pressure on central banks to act with the discussion appearing less about transitory inflation and more about when and how to tighten. The US remains the most likely to move first although October’s non-farm payrolls were hardly supportive of such a stance with only 194k jobs added against an expected 500k. Such numbers are perhaps more indicative of stagflation not an outcome supportive of the strong market moves we have had this year. China added to this unease reporting GDP growth below the expected 5.00% a level unthinkable in the not too distant past. Evergrande and continued government restrictions and interventions in the corporate world, point to an uncertain period for this all-important economy. In Europe, the ECB appear well aware of the risk facing markets and there is emerging evidence that any tapering in the region is likely to be accompanied by further safety measures such as extended asset purchases. This sits well with the cautious announcements we have had from Christine Lagarde following recent central bank meetings.

Both the fund and the index manged to finish the month in positive territory with the fund’s 4.1% return out-pacing 3.0% for the MSCI Europe ex UK Index. The best performing stock was Hexatronic of Sweden, the manufacturer and supplier of the equipment required to build out a fibre optic network. The business is extremely well positioned in a strongly growing market and their targeted customers are smaller players in the telecommunications market, which has allowed the company to avoid the hefty discounts demanded by the larger players. A recent acquisition for the company in the US has further boosted the attractiveness of the investment proposition. Both Energiekontor of Germany and Crayon Group of Norway also rose more than 20%. While the former, a windfarm operator and developer, has benefitted in the strong underlying demand for alternative energy sources, the latter benefitted from an October upward revision of the company’s expectations for growth for the remainder of the year. Eight out of the ten best performing stocks came from either the technology or the renewable energy sector. The worst performer was Aluflexpack a manufacturer of amongst other things coffee pods and flexible food packaging. The shares were hit by a broker down grade which pointed out the good run the shares have had year to date and the negative inflationary impact on costs the company is currently experiencing. While we would not argue against either point the long-term investment case still stands and we consider the 22% drop in the share price to be overdone. 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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Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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