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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.

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£29.3m

Data as at 30/09/2021.

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.

Ipsos3.0
Aluflexpack2.7
Jost Werke2.6
Schibsted2.6
Verallia 2.5
Energiekontor3.2
Veolia3.0
Thales Group2.7
PNE2.1
Roche Holdings2.1
SESA3.6
Crayon3.0
United Internet3.0
Aker Carbon Capture2.2
Nagarro2.1
Capgemini3.8
H+H International3.4
Dustin2.8
Rexel2.8
Wienerberger2.8
Mediobanca 4.1
Banca Mediolanum3.0
AXA3.0
Allianz2.6
Ringkøbing Landbobank3.4
Partners Group Holding2.1
Patrizia 2.0
LEG Immobilien1.6
S IMMO1.5
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 (%)

Mediobanca 4.1
Capgemini3.8
SESA3.6
Ringkøbing Landbobank3.4
H+H International3.4
Energiekontor3.2
Crayon3.0
Veolia3.0
Banca Mediolanum3.0
United Internet3.0
Rest of Portfolio66.5

Source: SVM, as at 31/08/2021

Sector Exposure (%)

Financials18.1
Industrials17.7
Information Technology15.3
Materials11.4
Communication Services11.4
Real Estate5.1
Health Care5.1
Consumer Discretionary4.6
Utilities3.0
Consumer Staples1.4
Energy1.1

Source: SVM, as at 31/08/2021

Size Analysis (%)

Mega Cap (>€50bn)8.7
Large Cap (<€50bn)15.8
Mid Cap (<€10bn)51.0
Small Cap (<€1bn)18.5

Source: SVM, as at 31/08/2021

Geographic Analysis (%)

Other1.1
France23.1
Germany22.6
Italy12.1
Norway9.4
Switzerland6.8
Denmark6.8
Sweden6.5
Austria4.3
Netherlands1.4

Source: SVM, as at 31/08/2021

Currency Exposure (%)

Euro64.6
Norwegian Krone9.4
Swiss Franc6.8
Danish Krone6.8
Swedish Krona6.5

Source: SVM, as at 31/08/2021

Show piebar chart

This Month's Featured Stock

Orange

Like so many other incumbent telecoms companies Orange’s stock market performance has been lack-lustre. Management have singularly failed on the opportunity to capitalise on their position as the providers of the infrastructure that has enabled the data revolution we have witnessed over the past few decades. Rather than seizing this opportunity and offering innovative products and services these companies have left this opportunity to the US giants and instead focussed on a downward spiral of price wars in a vain attempt to gain market share. This strategy has left Orange languishing with a low market valuation and an unenviable market position.

While attracted to the value the shares currently represent, with an eye watering dividend in excess of 7%, we also believe we are starting to see a renewed strategy from the company, which, although late, could turnaround the fortunes of this telecom giant.

Gone are the days of meeting competition with dramatic offers and price cuts with the focus now on quality of service and the premium pricing that attracts. A strategic international expansion also means the company is exposed to some areas of strong growth, unusual in a now largely mature industry.

The French state’s large shareholding in Orange means it is unlikely to ever be the most innovative of companies but at least we are seeing some signs of an emergence from many years of slumber, and with the valuation as low as it is, it shouldn’t take much for the shares to perform accordingly.

Performance

Performance (%)

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FundIndex
1 month6.42.8
2021 YTD18.715.8
1 year41.127.0
3 years69.834.4
5 years118.671.7
Since launch*572.0253.7
Source: Lipper, as at 31/08/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202148.722.6+26.1
20203.40.6+2.8
20192.58.2-5.7
20184.02.7+1.3
201727.929.0-1.1
Source: Lipper, as at 30/06/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
871.00p
1.21%
Class B
1001.00p
1.17%

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

Source: State Street, as at 15/10/2021.

Commentary

Equities continued to surge in August 2021 buoyed by a first half reporting season which confirmed the on-going strength of the recovery in European corporate earnings. With many companies beating market expectations, and the underlying growth by and large faster than the rise in share prices, the jury is still out as to when markets will peak. As central banks still reticent over when to begin reducing stimulus packages, or even increase interest rates, the asset class is still likely to remain in favour for some time longer. Despite much speculation in the run up to the Jackson Hole Economic Policy Symposium in the US, including some distinctly hawkish comments from some Federal Reserve members, the eventual outcome suggested that, although the US is likely to be the first to move, the pace and cautiousness is unlikely to provoke a storm similar to that seen with the now infamous taper tantrums of 2013.

On the last day of August markets had a further wobble as European Central Governing Council member Robert Holzmann said that the strength of economic recovery merited the scaling back of some emergency bond purchases. Little of what the ECB have said and done in recent months would suggest this will happen in the short term, and certainly not without a similar degree of caution as we are likely to see in the US.

The continuing supply chain bottlenecks and component shortages that corporate Europe is currently experiencing are perhaps a  more pressing concern than the pronouncements of central banks as this not only hurts company earnings, but can also result in more sustainable inflation than many currently expect. The situation appears to be exacerbated by personnel shortages in many sectors particularly where the Covid-19 delta variant is virulent and impacting the ability to work. On the last day of the month the Eurozone August CPI estimate came in at 3.0% year on year, considerably above the average of analysts’ forecasts, only adding further weight to this concern.

A further curb on the market enthusiasm came in the shape of the Chinese Government which appeared to double down on the regulatory announcements made in the previous month concerning private education provision. This time the focus was on “common prosperity” and the “spiritual opium” of online gaming which hit, amongst others, the luxury heavy French market home of companies such as LVMH and Kering who boast strong sales to the top end of the Chinese population in terms of spending power both at home and abroad.

The MSCI Europe ex UK Index posted a return of 2.8% while the fund rose by 6.4%. The largest contribution to performance came from Swedish cable and components manufacturer and supplier Hexatronic. The company posted results well above market expectations with revenues rising by 54% in the second quarter. Aker Carbon Capture also rose strongly with the shares up by more than 17%.  The company bolstered its balance sheet during the course of the month by way of a rights issue which will allow it to roll out its unique technology at an even faster pace than we were originally expecting. Despite the potential short-term dilution such a move makes, this is more than offset in the long term by the value of the market share the company is likely to gain with the increased financial resources. The insurance sector was also in focus with France’s Axa posting a pleasing set of results. Allianz of Germany on the other hand warned that it was likely to take a hit from a probe in the US in to the way it had managed some client money. Thankfully the company has a very strong balance sheet which appears to be able to weather a worst-case scenario as far as this issue is concerned. There were no outright buys or sells over the course of the month.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/08/2021.

Equities continued to surge in August 2021 buoyed by a first half reporting season which confirmed the on-going strength of the recovery in European corporate earnings. With many companies beating market expectations, and the underlying growth by and large faster than the rise in share prices, the jury is still out as to when markets will peak. As central banks still reticent over when to begin reducing stimulus packages, or even increase interest rates, the asset class is still likely to remain in favour for some time longer. Despite much speculation in the run up to the Jackson Hole Economic Policy Symposium in the US, including some distinctly hawkish comments from some Federal Reserve members, the eventual outcome suggested that, although the US is likely to be the first to move, the pace and cautiousness is unlikely to provoke a storm similar to that seen with the now infamous taper tantrums of 2013.

On the last day of August markets had a further wobble as European Central Governing Council member Robert Holzmann said that the strength of economic recovery merited the scaling back of some emergency bond purchases. Little of what the ECB have said and done in recent months would suggest this will happen in the short term, and certainly not without a similar degree of caution as we are likely to see in the US.

The continuing supply chain bottlenecks and component shortages that corporate Europe is currently experiencing are perhaps a  more pressing concern than the pronouncements of central banks as this not only hurts company earnings, but can also result in more sustainable inflation than many currently expect. The situation appears to be exacerbated by personnel shortages in many sectors particularly where the Covid-19 delta variant is virulent and impacting the ability to work. On the last day of the month the Eurozone August CPI estimate came in at 3.0% year on year, considerably above the average of analysts’ forecasts, only adding further weight to this concern.

A further curb on the market enthusiasm came in the shape of the Chinese Government which appeared to double down on the regulatory announcements made in the previous month concerning private education provision. This time the focus was on “common prosperity” and the “spiritual opium” of online gaming which hit, amongst others, the luxury heavy French market home of companies such as LVMH and Kering who boast strong sales to the top end of the Chinese population in terms of spending power both at home and abroad.

The MSCI Europe ex UK Index posted a return of 2.8% while the fund rose by 6.4%. The largest contribution to performance came from Swedish cable and components manufacturer and supplier Hexatronic. The company posted results well above market expectations with revenues rising by 54% in the second quarter. Aker Carbon Capture also rose strongly with the shares up by more than 17%.  The company bolstered its balance sheet during the course of the month by way of a rights issue which will allow it to roll out its unique technology at an even faster pace than we were originally expecting. Despite the potential short-term dilution such a move makes, this is more than offset in the long term by the value of the market share the company is likely to gain with the increased financial resources. The insurance sector was also in focus with France’s Axa posting a pleasing set of results. Allianz of Germany on the other hand warned that it was likely to take a hit from a probe in the US in to the way it had managed some client money. Thankfully the company has a very strong balance sheet which appears to be able to weather a worst-case scenario as far as this issue is concerned. 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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