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Swmcef dec 2013_ucits_fund


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Swmcef dec 2013_ucits_fund

  1. 1. December 2013 Newsletter
  2. 2. THE SWMC EUROPEAN FUND UCITS Dublin based December 2013 Newsletter FUND MANAGER PERFORMANCE Stuart Mitchell Founder and investment manager Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2013 5.69 2.69 0.17 1.71 4.81 (3.31) 6.77 (1.29) 6.39 5.50 (1.11) 2012 4.29 5.58 0.53 3.89 1.05 2.48 (0.11) 1.00 (2.32) (5.77) Dec Dec 1.37 YTD Index YTD 32.88 19.99 18.77 3.81 1.01 15.94 (2.21) (1.42) (3.60) 0.62 Since inception 2011 48.52 43.40 NOTES Source: JOHIM 31/12/13. Please note that all performance shown is net of fees. All performance and risk characteristics shown are for the primary EUR class unless otherwise stated. Performance versus the FTSE World Europe Index 150 ABOUT THIS CHART This chart demonstrates the cumulative performance of the SWMC European Fund since inception versus the FTSE World Europe Index performance over the same period. SWMC European Fund Stuart established S. W. Mitchell Capital in March 2005. Previously he was a principal, director and Head of Specialist Equities at J O Hambro Investment Management (JOHIM). Stuart set up and managed a long-short European fund, The Charlemagne Fund, and launched and managed the JOHIM European Fund. Before then Stuart was a director at Morgan Grenfell Asset Management where he was Head of European Equities with responsibility for $27bn of assets and managed the Morgan Grenfell European Fund. Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the OPM programme from the Harvard Business School. FTSE World Europe 115 NOTES Source: JOHIM 31/12/13. Please note that all performance shown is net of fees. 80 Oct ‘11 Dec ‘11 Feb ‘12 Apr ‘12 Jun ‘12 Aug ‘12 Oct ‘12 Dec ‘12 Feb ‘13 Apr ‘13 Jun ‘13 Aug ‘13 Oct ‘13 Dec ‘13 Top ten long positions as at 31 December 2013 FUND FACTS Launch date 1 November 2011 Country Ocado UK 4.9 Lloyds Banking UK 4.2 3 France Telecom France 4.2 4 Mediaset Italy 4.0 5 Sacyr Vallehermoso Spain Holding Amadeus IT Spain 3.8 7 Eurofins Scientific France 3.7 BNP Paribas France 3.5 9 Intesa Sanpaolo Italy 3.4 10 EDF France ABOUT THIS CHART 3.9 6 8 The Fund’s investment objective is to generate absolute returns for investors, primarily by investing both long and short in European equities. Company 1 2 FUND STRATEGY Position 3.4 This chart shows the top ten holdings of the fund as a percentage of the fund NAV. NOTES Source: JOHIM 31/12/13. Subscriptions/redemptions Daily Minimum subscription Retail class A: £10,000, $10,000, CHF10,000 or €10,000 Institutional class B: £1,000,000, $1,000,000, CHF1,000,000 or €1,000,000 Management fee Retail 1.5%. Institutional 1% Domicile Dublin, Ireland Prime broker Goldman Sachs Administrator Citi, Ireland Auditor Grant Thornton Reporting fund status Yes The SWMC European Fund | December 2013 Please see full disclaimer on page 5 P2
  3. 3. THE SWMC EUROPEAN FUND December 2013 Newsletter UCITS Dublin based COMMENTARY The overall European macro-economic backdrop remains much stronger than many believe. Our firm belief is that the Eurozone economies are both fiscally stronger, and more business competitive, than their Anglo-Saxon counterparts. We outperformed the market in December. We purchased a new position in Shell. We have been intrigued by the group for some time. The share appears to be trading at a significant 21% discount to restated net asset value. It also seems that up to 30% of the business is tied up in unproductive assets (Woodside, pipelines etc). Some 10% of capital expenditure, furthermore, is focused on projects with a break-even level above current oil or gas prices (US shale and ‘future opportunities’). The appointment of Ben van Beurden as CEO could herald a change to a more shareholder friendly strategy. As head of chemicals at Shell, he successfully managed to both reduce capital expenditure and increase profitability in his division. The recent news that the company has decided not to pursue the GTL plant in Louisiana is encouraging. We also cut our investment in Accor with the appointment of the new CEO and significant change in strategy. We remain very optimistic on the outlook for European equities. Our numerous company visits over the past month continue to attest to accelerating economic recovery spanning from the UK, where the housing market continues to improve sharply, right down to Spain where business confidence has reached the highest level in more than 6 years. Our company meetings in the Poland and Czech Republic also revealed signs of economic recovery driven by a resurgent Germany. For the first time in many years, furthermore, we are starting to see business managers talk of increased capital expenditure, job hires and even M&A. The SWMC European Fund | December 2013 Please see full disclaimer on page 5 We believe that the greatest investment opportunities remain in the more domestically orientated companies areas of the market. As we have written previously, many of the best quality international growth stocks are now just too expensive, especially considering a possible slow-down in emerging market demand. Many domestic European companies, on the other hand, are trading at discounts to their American equivalents in excess of 50 percent. The overall European macro-economic backdrop remains much stronger than many believe. Our firm belief is that the Eurozone economies are both fiscally stronger, and more business competitive, than their Anglo-Saxon counterparts. One need only look at the modest growth in overall Eurozone government debt over the crisis, or at the German trade account surplus, to appreciate the strength of the region relative to the US and UK. The main challenge, of course, remains the trying circumstances facing Europe’s periphery. We have always argued that the ‘will’ in Europe to make the Euro project work would ease the process of necessary austerity and reform. We have been very impressed by how well the most challenged countries have managed both to meet Troika targets, as well as to undergo wholesale economic reform. More importantly, it is evident that the Spanish economy is beginning to recover, and surprisingly rapidly too. Critically, buyers for distressed property assets are beginning to appear in some numbers, especially on Spain’s coast. With deposit funding getting cheaper and lending now more correctly priced, the banking system is clearly moving back towards health. More domestically orientated companies now constitute over half of the portfolio. Most notably, companies from the periphery of Europe now represent 21% of our positions. On a recovery basis, for example, the Italian media group Mediaset represents great value. The same holds true for our holdings in Intesa Sanpaolo, Banco Popular and Sacyr. Banks make up 22% of the long book. We still believe that the market has failed to appreciate the benefits of a rapid recovery in financial margins coupled with draconian cost cutting and easing regulatory pressures. We have focused on the strongest retail banking franchises such as Lloyds and BNP where we believe that returns should rather rapidly return to pre-crisis levels. More cyclical companies, including Taylor Wimpey, Michael Page and Air France represent a further 40% of our positions. Finally, our favourite growth companies, such as Ocado, SAP and Swatch constitute just under half our investments. Stuart Mitchell Founder and Investment Manager P3
  4. 4. THE SWMC EUROPEAN FUND UCITS Dublin based December 2013 Newsletter FUND STRUCTURE as at 31 December 2013 Portfolio construction Country equity exposure as a % of NAV % Number of positions Top 10 positions as a % of NAV Gross invested position as a % of NAV Cash and cash instruments as a % of NAV December 2013 33 38.9 95.3 4.7 November 2013 32 41.1 97.6 2.4 42.1 100.0 NOTES Please note that cash instruments may include but not be limited to Government Bonds. This is to comply with UCITS regulations. Sector exposure as a % of NAV Market capitalisation as a % of NAV % 27.4 Spain 12.8 Italy 7.4 7.2 Switzerland — UK 5.1 Netherlands 33 33.6 Germany October 2013 France 1.8 Risk characteristics % Financials 20.3 Less than €3bn Industrials 20.2 Less than €5bn 15.8 Consumer services 16.7 Less than €10bn 7.8 Consumer goods The SWMC European Fund 17.4 13.6 Less than €20bn 19.0 Healthcare 6.0 Less than €50bn 14.6 Technology 5.6 Less than €100bn 20.8 Telecommunications 4.2 Utilities 3.4 Oil & gas 2.9 Basic materials Max up-month FTSE World Europe 6.77% 5.32% Max down-month (5.77%) (6.01%) Annualised volatility 2.4 The SWMC European Fund | December 2013 Please see full disclaimer on page 5 11.11% 9.44% Correlation 0.88 — α 0.13 — β 1.01 — Sharpe ratio 1.75 — Information ratio 0.35 — P4
  5. 5. THE SWMC EUROPEAN FUND UCITS Dublin based December 2013 Newsletter CONTACT US ALL ENQUIRIES Susannah de Jager S. W. Mitchell Capital LLP Princes House, 38 Jermyn Street London SW1Y 6DN EXISTING CLIENTS Michaela Craven-Smith E. E. T. +44 (0)20 7290 4512 T. +44 (0)20 7290 3580 S. W. MITCHELL CAPITAL Visit our website This manager’s report is a confidential communication issued by S. W. Mitchell Capital LLP to the general partner, limited partners, directors and shareholders of SWMC European Fund and S. W. Mitchell PLC (together, the “Funds”) and is for information only. Any investment in the Funds must be made on the basis of the Funds’ private placement memorandum and not on the basis of this newsletter. Investors in the Funds are limited partners or shareholders of the Funds but not clients of S. W. Mitchell Capital LLP. No person receiving a copy of this newsletter may copy it for transmission to another person. This document has been prepared from sources which are believed to be accurate, however in producing it S. W. Mitchell Capital LLP may have relied on information obtained from third parties and accepts no liability for the accuracy or completeness of such information. It is the responsibility of every person reading this document to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. The Funds are not recognised collective investment schemes for the purposes of the U.K. Financial Services and Markets Act 20000. The promotion of the Funds and the distribution of this document in the United Kingdom are accordingly restricted by law. Most of the protections provided by the U.K. regulatory system, and compensation under the U.K. Financial Services Compensation Scheme will not be available. The Funds’ securities are not, and will not be registered under the U.S. Securities Act of 1933, amended, or qualified under any applicable state securities statutes. The Funds are not, and will not be registered as investment companies under the U.S. Investment Company Act of 1940, as amended. Past performance should not be seen as an indication of future performance and will not necessarily be repeated. The value of investments and the income from them may fall as well as rise and is not guaranteed. The investor may not get back the original amount invested. Changes in rates or exchange may cause the value of investments to fluctuate. S. W. Mitchell Capital LLP is a Limited Liability Partnership registered in England No. OC312953. Registered address 38 Jermyn Street, London SW1Y 6DN. Regulated and authorised in the UK by the Financial Conduct Authority. The SWMC European Fund | December 2013 P5 Designed and produced by DISCLAIMER