swmcef dec 2013_ucits_fund
TRANSCRIPT
December 2013 Newsletter
PERFORMANCE
NOTESSource: 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.
This chart demonstrates the cumulative performance of the SWMC European Fund since inception versus the FTSE World Europe Index performance over the same period.
NOTESSource: JOHIM 31/12/13. Please note that all performance shown is net of fees.
ABOUT THIS CHART
THE SWMC EUROPEAN FUND
December 2013 Newsletter
UCITSDublin based
The SWMC European Fund | December 2013 P2Please see full disclaimer on page 5
Top ten long positionsas at 31 December 2013
This chart shows the top ten holdings of the fund as a percentage of the fund NAV.
NOTESSource: JOHIM 31/12/13.
ABOUT THIS CHARTPosition Company Country Holding
1 Ocado UK 4.9
2 Lloyds Banking UK 4.2
3 France Telecom France 4.2
4 Mediaset Italy 4.0
5 Sacyr Vallehermoso Spain 3.9
6 Amadeus IT Spain 3.8
7 Eurofins Scientific France 3.7
8 BNP Paribas France 3.5
9 Intesa Sanpaolo Italy 3.4
10 EDF France 3.4
Performance versus the FTSE World Europe Index
150
Aug ‘12 Oct ‘12 Dec ‘12 Apr ‘13 Jun ‘13 Aug ‘13 Oct ‘13 Dec ‘13Feb ‘13Jun ‘12Apr ‘12Feb ‘12Dec ‘11Oct ‘11
115
80
FTSE World Europe
SWMC European Fund
FUND MANAGER
Stuart MitchellFounder and investment manager
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.
FUND STRATEGY
The Fund’s investment objective is to generate absolute returns for investors, primarily by investing both long and short in European equities.
FUND FACTS
Launch date 1 November 2011
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
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Index YTD
2013 5.69 2.69 0.17 1.71 4.81 (3.31) 6.77 (1.29) 6.39 5.50 (1.11) 32.88 19.99
2012 4.29 5.58 0.53 (2.32) (5.77) 3.89 1.05 2.48 (0.11) 1.00 3.81 1.01 15.94 18.77
2011 (2.21) (1.42) (3.60) 0.62
Since inception 48.52 43.40
Dec 1.37
COMMENTARY
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
THE SWMC EUROPEAN FUNDDecember 2013 Newsletter
UCITSDublin based
The SWMC European Fund | December 2013 P3Please see full disclaimer on page 5
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.
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.
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.
THE SWMC EUROPEAN FUNDDecember 2013 Newsletter
UCITSDublin based
The SWMC European Fund | December 2013 P4Please see full disclaimer on page 5
FUND STRUCTURE as at 31 December 2013
Portfolio construction Country equity exposure as a % of NAV
Sector exposure as a % of NAV Market capitalisation as a % of NAV Risk characteristics
%
Less than €3bn 17.4
Less than €5bn 15.8
Less than €10bn 7.8
Less than €20bn 19.0
Less than €50bn 14.6
Less than €100bn 20.8
%
Financials 20.3
Industrials 20.2
Consumer services 16.7
Consumer goods 13.6
Healthcare 6.0
Technology 5.6
Telecommunications 4.2
Utilities 3.4
Oil & gas 2.9
Basic materials 2.4
Number of positions
Top 10 positions
as a % of NAVGross invested
position as a % of NAVCash 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
October 2013 33 42.1 100.0 —
%
France 33.6
UK 27.4
Spain 12.8
Italy 7.4
Germany 7.2
Switzerland 5.1
Netherlands 1.8
NOTESPlease note that cash instruments may include but not be limited to Government Bonds. This is to comply with UCITS regulations.
The SWMC European Fund
FTSE World Europe
Max up-month 6.77% 5.32%
Max down-month (5.77%) (6.01%)
Annualised volatility 11.11% 9.44%
Correlation 0.88 —
α 0.13 —
β 1.01 —
Sharpe ratio 1.75 —
Information ratio 0.35 —
CONTACT US
Visit our websiteswmitchellcapital.com
S. W. MITCHELL CAPITAL
S. W. Mitchell Capital LLP Princes House, 38 Jermyn Street London SW1Y 6DN
EXISTING CLIENTS
Michaela Craven-Smith
T. +44 (0)20 7290 3580
ALL ENQUIRIES
Susannah de Jager
T. +44 (0)20 7290 4512
THE SWMC EUROPEAN FUNDDecember 2013 Newsletter
UCITSDublin based
The SWMC European Fund | December 2013 P5
DISCLAIMER
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.
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