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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£42.5m

Data as at 31/05/2022.

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.

Veolia3.5
Energiekontor3.4
Orange3.4
Thales Group3.2
PNE2.6
Allgeier3.2
Ipsos3.1
Jost Werke2.9
Verallia 2.7
Ariston2.4
United Internet3.4
Barco2.5
Crayon2.4
Nagarro1.8
SESA1.3
Mediobanca 3.6
AXA3.2
Banca Mediolanum3.2
Allianz3.0
Wienerberger3.0
Rexel2.7
Capgemini2.5
H+H International2.0
Dustin2.0
Ringkjoebing4.1
S IMMO2.4
Patrizia 1.9
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 (%)

Ringkjoebing4.1
Mediobanca 3.6
Veolia3.5
Energiekontor3.4
United Internet3.4
Orange3.4
Thales Group3.2
AXA3.2
Banca Mediolanum3.2
Allgeier3.2
Rest of Portfolio65.9

Source: SVM, as at 31/05/2022

Sector Exposure (%)

Financials18.0
Industrials16.6
Information Technology13.7
Communication Services11.3
Materials7.7
Real Estate5.6
Consumer Discretionary5.2
Utilities3.5
Health Care3.5

Source: SVM, as at 31/05/2022

Size Analysis (%)

Mega Cap (>€50bn)5.2
Large Cap (<€50bn)16.7
Mid Cap (<€10bn)51.9
Small Cap (<€1bn)11.3

Source: SVM, as at 31/05/2022

Geographic Analysis (%)

Germany24.3
France24.3
Italy11.4
Denmark6.1
Austria5.4
Norway4.8
Sweden3.3
Switzerland3.2
Belgium2.5

Source: SVM, as at 31/05/2022

Currency Exposure (%)

Euro67.9
Norwegian Krone4.8
Swiss Franc3.2
Danish Krone6.1
Swedish Krona3.3

Source: SVM, as at 31/05/2022

Show piebar chart

This Month's Featured Stock

Jost Werke

Jost Werke is a supplier of systems, modules and components for commercial vehicles and a market leader in fifth wheel couplings which provide the connection between truck and trailer. Last year the company made an important acquisition which diversified the business into the agriculture equipment sector. This, we believe, has helped the company to deliver excellent Q1 2022 results and stands them in good stead to weather the cyclical swings which characterise the truck market and resulted in pressure in profits when the business was less well diversified.

Another encouraging development is the great strides we have seen the company make toward improving its environmental, social and governance profile.

Joste Werke now aligns its business with seven of the UN’s Sustainable Development Goals and has some progressive targets in place to fulfil these ambitions. Not least are the commitments toward environmental improvements where the company aims to reduce its Scope 1 and 2 CO2e emissions per production hour by -50% by 2030 compared to the 2020 fiscal year. Already three production plants have switched to 100% renewable energy.

Of course, such emissions reductions only apply to in house production and not to the use of the finished goods. These Scope 3 emissions are more difficult to measure but Jost Werke assure us this will be the next stage of their strategy. In the meantime, there are a number of initiatives which are already contributing to this issue. For example, the company has introduced an automatic coupling and de-coupling system which results in not only less energy usage, but also fewer accidents as less human interaction is required.

With increased investor attention on ESG factors we believe Jost Werke’s efforts should be applauded and bring an interesting new dimension to the investment case.

Performance

Performance (%)

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FundIndex
1 month-0.20.3
2022 YTD-8.5-8.5
1 year5.6-1.2
3 years72.627.3
5 years69.831.2
Since launch*538.9226.3
Source: Lipper, as at 31/05/2022, 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
779.40p
-2.51%
Class B
900.60p
-2.51%

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

Source: State Street, as at 28/06/2022.

Commentary

European equity markets got off to a jittery start in May 2022 following a sell off in US equities, including a -4.5% fall for the technology heavy Nasdaq index into the close of trading on the last day of the month in April. This, combined with fears over the impact of potential sanctions on Russian oil and a Covid-19 fuelled lockdown in China saw markets not only falling but in Sweden a so-called “flash crash” caused a -8% fall for the OMX Index in Stockholm. While this particular incident was subsequently put down to human error, the underlying move for the equity market only served to demonstrate the continuing concerns over the Russia/Ukraine war and the impact the government measures in China were having on this all important economy. Of course, one of the most concerning impacts of these events remains that of inflation which showed signs of accelerating over the course of the month. This prompted comments from an ECB Executive Board member that despite expectations of a rate rise in the latter part of the year, the central bank may have to act earlier, even as soon as July. This increased hawkishness was unwelcome ahead of a US Federal Reserve meeting already expected to unveil an aggressive trajectory for rates there. In reality the outcome of the meeting was more positive for markets with chair Jerome Powell delivering a 50bps rise, dismissing calls for 75bps and suggesting an overall softer approach than many observers had expected. The expectation of a soft landing for the US economy allowed equites to begin to recover some lost ground. But the relief was short lived with the fears of an overall growth slowdown proving more powerful than the antidote of caution among central bankers. The month also saw the first quarter reporting season draw to a close shedding some light on the overall health of corporate Europe. While there were some examples of companies succumbing to the pressure on growth and spiralling prices these remained in the minority and confined to those with weak pricing power or direct exposures to hotspots such as China. Despite many positive outlooks the relatively good news is largely backward looking, and we look forward to the Q2 reports with more trepidation.

While some easing of the virus controls in China brought some relief the result for the both the fund and index was benign with the former falling by -0.2% and the latter rising by 0.3%. The earnings season proved relatively uneventful for the fund holdings reporting in May with one exception German real estate investor Patrizia. The company gave a disappointing outlook for 2022 citing the impact the current market turmoil has had on property transactions. This prompted the shares to fall 19% over the course of the month. While initially concerning, a subsequent meeting with the company’s new CFO highlighted the transitory nature of the issue suggesting the company is in good control of its operations and remains an excellent play in this exciting sector. The best performing stock was German truck parts supplier Jost Werke which rose by 14%. Again, the share price move was results driven with the company demonstrating an extremely resilient business model well able to tackle inflationary pressures in this difficult environment.

There were no outright buys or sells over the course of the month.

Commentary by
Hugh Cuthbert
European Investment Manager
As at 31/05/2022.

European equity markets got off to a jittery start in May 2022 following a sell off in US equities, including a -4.5% fall for the technology heavy Nasdaq index into the close of trading on the last day of the month in April. This, combined with fears over the impact of potential sanctions on Russian oil and a Covid-19 fuelled lockdown in China saw markets not only falling but in Sweden a so-called “flash crash” caused a -8% fall for the OMX Index in Stockholm. While this particular incident was subsequently put down to human error, the underlying move for the equity market only served to demonstrate the continuing concerns over the Russia/Ukraine war and the impact the government measures in China were having on this all important economy. Of course, one of the most concerning impacts of these events remains that of inflation which showed signs of accelerating over the course of the month. This prompted comments from an ECB Executive Board member that despite expectations of a rate rise in the latter part of the year, the central bank may have to act earlier, even as soon as July. This increased hawkishness was unwelcome ahead of a US Federal Reserve meeting already expected to unveil an aggressive trajectory for rates there. In reality the outcome of the meeting was more positive for markets with chair Jerome Powell delivering a 50bps rise, dismissing calls for 75bps and suggesting an overall softer approach than many observers had expected. The expectation of a soft landing for the US economy allowed equites to begin to recover some lost ground. But the relief was short lived with the fears of an overall growth slowdown proving more powerful than the antidote of caution among central bankers. The month also saw the first quarter reporting season draw to a close shedding some light on the overall health of corporate Europe. While there were some examples of companies succumbing to the pressure on growth and spiralling prices these remained in the minority and confined to those with weak pricing power or direct exposures to hotspots such as China. Despite many positive outlooks the relatively good news is largely backward looking, and we look forward to the Q2 reports with more trepidation.

While some easing of the virus controls in China brought some relief the result for the both the fund and index was benign with the former falling by -0.2% and the latter rising by 0.3%. The earnings season proved relatively uneventful for the fund holdings reporting in May with one exception German real estate investor Patrizia. The company gave a disappointing outlook for 2022 citing the impact the current market turmoil has had on property transactions. This prompted the shares to fall 19% over the course of the month. While initially concerning, a subsequent meeting with the company’s new CFO highlighted the transitory nature of the issue suggesting the company is in good control of its operations and remains an excellent play in this exciting sector. The best performing stock was German truck parts supplier Jost Werke which rose by 14%. Again, the share price move was results driven with the company demonstrating an extremely resilient business model well able to tackle inflationary pressures in this difficult environment.

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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0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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