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SVM World Equity Fund

SVM World Equity Fund

Unwavering focus on risk/reward

The fund, managed by Neil Veitch, aims to achieve long term growth by investing in businesses worldwide where Neil believes the current valuation offers an opportunity. His valuation driven approach ensures he finds the right businesses to invest in, at the right price and also knows the right time to sell.

WATCH: Our Investment Process | World Equity

SVM World Equity Fund

Unwavering focus on risk/reward

WATCH: Our Investment Process | World Equity

The fund, managed by Neil Veitch, aims to achieve long term growth by investing in businesses worldwide where Neil believes the current valuation offers an opportunity. His valuation driven approach ensures he finds the right businesses to invest in, at the right price and also knows the right time to sell.

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 ACWI IMI. The Fund will identify investment opportunities in companies globally whose future growth is not reflected in current market expectations. The Fund will invest at least 80% in global equities and other equity related instruments. The Fund may invest in other permitted securities.

Approach

With a vast array of companies to choose from, successful investing in global equities depends on a good understanding of what makes a good investment. We aim to find strong companies that we can buy at an attractive price.

We focus on the factors that will move companies’ share price such as sales patterns, margins and cash flow. However, we do not simply invest for growth – nor for current value. We invest on the basis of the value of growth. We want to find strong companies for your portfolio whose future growth is not reflected in current market expectations. We believe these companies have an attractive positive bias in their risk-reward profile which makes them potentially rewarding investments in your portfolio.

Investing in this fund, you will be buying a concentrated portfolio of companies of any size with strong, undervalued long-term prospects. You can invest with confidence in our ability to find these companies, based on our long history of comprehensive company analysis and financial modelling, and our understanding of what’s changing in companies and their industries.

Fund Details

Launch Date1 December 2010
BenchmarkMSCI ACWI IMI Index
IA SectorGlobal
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£22.6m

Data as at 31/12/2021.

Fund Manager

Neil Veitch
Global & UK Investment Director
15
Years at SVM
25
Industry Experience

Neil joined SVM in 2006 to manage the SVM UK Opportunities Fund. He is also lead manager of the SVM World Equity Fund and co manager of the SVM All Europe SRI Fund.

Prior to joining SVM, Neil was responsible for UK mid & small cap investments at Dutch merchant bank, Kempen Capital Management, where he also managed pan European mandates.

Academic Qualifications:
BA (Hons) Economics
MSc Investment Management

Professional Qualifications:

CFA

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.

Microsoft8.6
Alphabet8.2
Micron Technology5.4
Synthomer4.4
Alpha FMC4.2
Hitachi3.9
Entain5.6
Norcros2.8
Ryanair 2.6
Uniphar5.4
Drax Group1.9
Smith & Nephew1.8
Jadestone Energy3.1
Energean1.4
Savannah Energy1.2
Prudential2.4
Jackson Financial0.1

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

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 World Equity Fund portfolio will vary considerably from the benchmark index and from other funds that are in the same IA sector.

Top 10 Holdings (%)

Microsoft8.6
Alphabet8.2
Entain5.6
Micron Technology5.4
Uniphar5.4
MagnaChip Semiconductor5.1
Apple4.6
SK Hynix4.5
ON Semiconducto4.4
Synthomer4.4
Rest of Portfolio43.7

Source: SVM, as at 31/12/2021

Sector Exposure (%)

Information Technology36.5
Industrials15.4
Health Care10.7
Consumer Discretionary9.4
Materials9.1
Communication Services8.2
Energy6.5
Financials2.5
Utilities1.9

Source: SVM, as at 31/12/2021

Size Analysis (%)

Mega Cap (>£50bn)31.3
Large Cap (<£50bn)18.2
Mid Cap (<£10bn)27.2
Small Cap (<£1bn)23.4

Source: SVM, as at 31/12/2021

Geographic Analysis (%)

North America39.4
United Kingdom39.2
Europe (excluding UK)11.0
Asia Pacific (excluding Japan)5.1
Japan5.5

Source: SVM, as at 31/12/2021

Currency Exposure (%)

Euro11.0
Sterling39.4
US Dollar39.5
Japanese Yen5.5
Others5.1

Source: SVM, as at 31/12/2021

Show piebar chart

This Month's Featured Stock

Synthomer

Synthomer is a diversified chemicals company.  The group manufactures speciality polymers for a wide range of industries.

As mentioned in the fund commentary, Synthomer was impacted during the month by a broker note raising concerns about the outlook for the synthetic rubber glove market. Synthomer is a global leader in the manufacture of nitrile butadiene reflex (NBR), the key raw material used in the production of nitrile rubber gloves.  This industry has been in structural growth for many years, driven by increasing global hygiene standards and the substitution of traditional rubber gloves, which are not suitable for those with latex allergies. A Covid-induced spike in demand led to surge in unit margins, helping Synthomer achieve super-normal margins over the past 18 months.  This will inevitably normalise over the upcoming year, an outcome that is widely anticipated, but we believe that the longer-term growth characteristics of the industry remain unchanged.

These Covid-related benefits have distorted Synthomer’s earnings profile. Consensus analyst estimates now expect operating profits in 2022 to be c.25% below those achieved in 2021. Lazier investors who rely heavily on earnings momentum as a screen will take a negative view on the stock.  In our opinion, this is a mistake.  The additional cash generated over the past 18 months has allowed management to accelerate the group’s M&A strategy.  November’s acquisition of Eastman’s Adhesive Resins helps diversify Synthomer from both a geographic and end-market perspective.

Trading on an estimated 2022 PE of c.8x, we believe Synthomer is significantly undervalued. The business has been transformed in recent years to become a truly global chemicals company exposed to a range of industries with attractive demand profiles.  Having attracted private equity interest in the past, it would be no surprise if it is in the crosshairs again as public markets fail to appreciate the business’ intrinsic value.

Performance

Performance (%)

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FundIndex
1 month4.01.4
2021 YTD26.717.7
1 year26.717.7
3 years89.065.4
5 years85.777.8
Since launch*269.8210.3
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 01/12/2010.
FundIndexDifference
202126.717.7+9.0
202014.215.3-1.1
201930.621.9+8.7
2018-12.9-5.7-7.2
201712.814.0-1.2
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
470.80p
0.09%
Class B
530.70p
0.08%

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

Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting in place restrictions and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and made new all-time highs. The fund returned 4.0% versus the MSCI World Index that returned 1.6%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclicals. Travel related stocks bounced strongly as confidence grew that the worst of any Covid disruption was behind us. Ryanair and Menzies rose. Jadestone Energy jumped as the company announced it had achieved its year-end production target. Sentiment towards the shares was boosted further by the passing of legislation in New Zealand that will likely facilitate the completion of the much-delayed acquisition of assets from OMV.

Savannah Energy gained as the shares restarted trading post the announcement that it was acquiring a package of upstream and midstream assets in Chad and Cameroon from Exxon and Petronas. The transaction more than doubles the group’s reserves and generates significant cashflow at prevailing energy prices, enabling a quick paydown of the associated debt. The tail-risks of operating in Africa are material but the upside is significant, and the deal highlights the opportunities for smaller energy companies as the ‘majors’ navigate the energy transition. Energy demand will continue to grow and, barring the emergence of a new scalable resource such as nuclear fusion, hydrocarbons will remain an integral part of the solution for the foreseeable future.  Micron climbed after results came in ahead of expectations and management expressed confidence in the outlook for memory pricing.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated the company is more diversified than it has been in the past and the valuation attractive.

Commentary by
Neil Veitch
Global & UK Investment Director
As at 31/12/2021.

Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting in place restrictions and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and made new all-time highs. The fund returned 4.0% versus the MSCI World Index that returned 1.6%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclicals. Travel related stocks bounced strongly as confidence grew that the worst of any Covid disruption was behind us. Ryanair and Menzies rose. Jadestone Energy jumped as the company announced it had achieved its year-end production target. Sentiment towards the shares was boosted further by the passing of legislation in New Zealand that will likely facilitate the completion of the much-delayed acquisition of assets from OMV.

Savannah Energy gained as the shares restarted trading post the announcement that it was acquiring a package of upstream and midstream assets in Chad and Cameroon from Exxon and Petronas. The transaction more than doubles the group’s reserves and generates significant cashflow at prevailing energy prices, enabling a quick paydown of the associated debt. The tail-risks of operating in Africa are material but the upside is significant, and the deal highlights the opportunities for smaller energy companies as the ‘majors’ navigate the energy transition. Energy demand will continue to grow and, barring the emergence of a new scalable resource such as nuclear fusion, hydrocarbons will remain an integral part of the solution for the foreseeable future.  Micron climbed after results came in ahead of expectations and management expressed confidence in the outlook for memory pricing.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated the company is more diversified than it has been in the past and the valuation attractive.

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.

Dealing - Funds
0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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