Performance Review 2005Florence Bannelier: "As background information to performance of the HSBC GIF Euroland Equity Smaller Companies fund in 2005, it is important to note the fund was managed against an MSCI Europe Small Cap index. During this time Florence Bannelier, stationed in Paris with the French based team, managed the fund through a team approach, involving the small cap teams from the UK and Germany. It wasn’t until 2006 that Florence Bannelier assumed full management of the portfolio without the intervention of the other offices. Managing the idiosyncratic UK small cap market no longer made sense. Therefore the benchmark was changed at end June 2006 to a Small Cap Euro benchmark.
As for performance in 2005, the fund tracked the Europe Small Cap index quite consistently until November 2005. Then it underperformed the index in the last two months of the year because the fund was underweight the UK market which surged relative to the rest of the European market."
Performance Review 2006
Florence Bannelier: "In 2006 the supportive market environment favoured our strong thematic growth approach. Returns accelerated over the period, particularly in the fourth quarter of 2006. The main driver was a strong overweight position in cyclical stocks which were the most to benefit from high economic growth. A few key themes added value, notably development of international trade; infrastructure investment; in China; dredging and civil engineering all around the world; economic growth of Eastern Europe; Healthcare and ageing of the population; and scarcity of natural resources."
Performance Review 2007
Florence Bannelier: "In 2007, the strategy performed in line with the index. The negatives were the decline in oil prices in the beginning of the year which affected stocks tied to that sector. There was also a sell-off at the end of the year, which affected the high liquid stocks which the fund tends to hold."
Performance Review 2008
Florence Bannelier: "In 2008 the fund outperformed significantly in the first half of the year. After the Lehman bankruptcy, and the surge of redemptions across small cap funds, we lost back some of the outperformance because the most liquid securities were sold first while the very small cap companies were simply not sellable due to lack of volumes, thus keeping their prices relatively intact."
Performance Review 2009
Florence Bannelier: "In 2009 the fund underperformed during the initial rally starting in March because the lowest quality cyclicals and smallest market caps achieved the best performance. In the second half of the year the rally extended to the higher quality growth companies and the fund ended the year as the best performing fund in its peer group."
Performance Review 2010 - Year-to-Date
Florence Bannelier: "So far this year, contribution from stock selection was strong and sector exposure slightly negative.
The cost reduction plan including offshoring production to Asia boosted Wartsila; big Singaporean contract boosted Boskalis; turnaround in semis industry positive for Infineon, and steel price hikes good for Outokumpu. Contribution from stock selection was strong and sector exposure slightly negative. Underweight Banks and Utilities & OW Industrials was positive.
Wacker in specialty chemicals declined on slowdown in solar panel demand; Bank of Cyprus dragged down by Greek concerns. Underweight Consumer Staples and Consumer Discretionary was negative."
Performance Review since 2005
Florence Bannelier: "The performance of the strategy has been strong over the last 5 years with a slight underperformance of the benchmark in 2007. Our strategy clearly has a cyclical growth bias, this means it performs best in an expansionary global economy driven by GDP and credit growth and improving to strong corporate earnings growth. The strategy tends to favour sectors and niches that benefit from global trade and emerging market growth such as capital goods and specialized industries covering infrastructure, transportation, telecommunications, materials, and engineering. A lot of these niches are fragmented industries where consolidation through M&A is greater than average. The year 2006, for example, was a great year for our strategy. At the same time, we have the flexibility to steer the portfolio towards defensive stocks when market conditions become difficult and will willingly use cash up to 15% of the portfolio for this purpose."
Investment Process and Strategy – How does the Fund Manager Invest?
HSBC GIF Euroland Equity Smaller Companies seeks long-term capital growth through a diversified portfolio of investments in securities of smaller,less-established companies of any Euroland country (euro zone). HSBC GIF Euroland Equity Smaller Companies invests in Euro stocks with a market capitalisation between 200 million and 3 billion euros (at the time of purchase), on the basis of their appreciation potential.
Our conviction is that the Euro Small Caps investment universe is relatively inefficient, thus presenting opportunities to achieve excess risk-adjusted returns. We believe that companies offering internally generated growth at compelling valuations will provide superior shareholder returns over time. Our success in producing out-performance relies on our ability to analyse company growth profiles to assess their sustainability.
Our style is characterised as a bottom-up stock selection guided by thematic factors with a key focus on 1) higher than average sustainable growth rates 2) free cash flow yields and 3) minimum standards in terms of balance sheet quality.