Nigel Bolton, Fund Manager, "BGF European Focus Fund" (02.03.2011): "We monitor a range of economic and market indicators and look to understand the macro environment and how it relates to our bottom up fundamental research. Recently, we have been focusing on global growth, inflation, emerging market slowdown, China, growth trends within Europe (core vs. periphery), European credit spreads as well as looking to understand the European political situation and longer term implications for European markets. To help monitor economic data we have a weekly pack which contains a concise summary of many economic indicators such as industrial production, consumer data etc, we also benefit from BlackRock’s global insights and expertise across asset classes and geographies."
Alexander Darwall, Fund Manager, "Jupiter JGF European Growth Fund" (28.02.2011): "Different investors tend to favour different valuation metrics according to the whims of fashion and the position in the economic cycle. For example, in a growth phase, where cashflow is little more than a promise, metrics such as EV/EBITDA (anticipated earnings) multiples are popular whereas, in the depth of a recession, a cautious measure such as price to book (assets) may be favoured by nervous investors. In the current market, generally favoured metrics include: strong, profitable sales growth that delivers rising cash flows, strong balance sheets and attractive price/earnings multiples."
Frédéric Plisson, Fund Manager, "Echiquier Major" (01.02.2011): "Global growth is back this year and, in a world that should continue to grow, the companies comprising the Echiquier Major fund are in a good position to see their turnover rise by more than 6% in 2011. Companies such as DANONE and L’OREAL are taking full advantage of the worldwide growth. In Echiquier Major, I only invest in leading companies, and many of these global leaders are in Europe. European markets therefore represent a preferred asset class."
Michael Clements, Fund Manager, "Franklin European Growth A (acc) EUR" (02.03.2011): "Investor optimism that imbued much of January fell dramatically after protests erupted in Egypt during the last days of the month. Implications of instability spreading in the Middle East and possible threats to crude oil supply pressured emerging market stocks as some investors rushed out of what they perceived as a riskier landscape. In Europe, with the possibility of bailouts for Portugal and Spain lingering in the background, European leaders considered taking broader measures against contagion risks of the widening debt crisis by increasing the size and flexibility of their rescue fund. Such talks lifted European stock markets—which as a whole represented the top-performing region this month—and markets in highly indebted Greece, Spain and Hungary delivered some of the best returns partly due to successful government bond auctions. Spain, under international pressure, accelerated restructuring and partial nationalization of its struggling savings banks. For the overall eurozone, manufacturing production rose to a nine-month high, but inflation unexpectedly appeared on the European Central Bank’s (ECB’s) radar as consumer prices rose beyond the bank’s target and at their fastest pace in more than two years."
Anas Chakra, Fund Manager, "FAST - Europe A-Euro" (02.03.2011): "European equities outperformed their developed market counterparts in January, following a number of months of underperformance. The sovereign debt crisis was again the key driver of investment sentiment and returns. Risk appetite was boosted by speculation that European policymakers would step up measures to ease the crisis, although belief in an imminent definitive solution proved to be premature. Spain and Portugal`s successful bond auctions provided support and led to significant outperformance by the financials sector."
e-fundresearch: "Please describe your investment process briefly."
Nigel Bolton, Fund Manager, "BGF European Focus Fund" (02.03.2011): "The Fund has a disciplined and repeatable investment process, outlined below, which combines a structured research framework with sophisticated portfolio construction techniques. The Fund uses screening tools with a focus on valuation and earnings momentum to identify ideas for further in-depth research as well as to challenge existing portfolio holdings. In addition, inputs from team analysts, company meetings, external brokers and data providers are valuable sources of idea generation. The majority of time is spent on in-depth company analysis, and the fundamental research is a key source of alpha generation. The Fund has a structured efficient research process with a dedicated research co-ordinator to ensure research is prioritised and focused on the most promising and timely investment ideas. As part of the research process a proprietary research template is produced for each stock containing a price target and rating. The Fund benefits from BlackRock’s risk management tools and the extensive experience and input from the Risk and Quant Analytics (RQA) team. The risk management and portfolio construction look to ensure that maximize high alpha returns for an appropriate level of risk.
Blackrock has a leading edge in risk analytics and this combined with the extensive a strong advantage to the investment management."
Alexander Darwall, Fund Manager, "Jupiter JGF European Growth Fund" (28.02.2011): "In my opinion, these metrics by themselves are of limited use. More important is the discovery of businesses that have a unique product or service which gives them strong growth prospects, not only in their local markets but internationally. The fact that they are successful on the global stage means they are less likely to be affected by domestic issues.
I have a clear model for the type of businesses I consider to be long term winners: they are providers of specialist products or services often protected by intellectual property rights; they command oligopolistic positions in areas of long-term structural growth. Thus they have little need to weaken their balance sheets by taking on extra debt in order to supercharge pedestrian earnings. They have highly competent management teams, are not dependent on currency fluctuations, do not operate in regulated areas and are not part-owned by the French government.
It may seem like an abnegation of duty but I have no opinion about the direction of equity markets for the next 6-12 months. The effect of quantitative easing by the US alone appears enough to inflate asset prices globally, e.g. assets related to commodity prices have already responded. What I do expect over the next 6-12 months is for the companies in my Fund to continue to deliver good business performance - a characteristic of winners.
At the moment we are operating in an artificial environment. Capital markets have been distorted by ultra low interest rates as the global authorities try to support Western consumption and avoid the sharp contraction in credit that we would have otherwise seen after the collapse of the global property bubble in 2008. Many companies are accumulating cash on their balance sheets and appear to be in good condition, but they remain reluctant to invest because of the current high degree of uncertainty in the West.
In such an environment I continue to look for companies with long-term structural growth opportunities, especially where these can be found in areas experiencing strong economic growth. The fact that the companies I invest in have performed so strongly during the credit crisis is in my view a testament to the validity of this approach."
Frédéric Plisson, Fund Manager, "Echiquier Major" (01.02.2011): "I do pure stock picking and I identify leading European companies with the best growth potential and reasonable valuations. I also give great importance to management quality. What is unique in the method used at Financière de l’Echiquier is that we systematically meet with all the companies we invest in so we can forge a veritable investment conviction. This means more than 1,000 visits to the field each year for the 22 members of the management team. For Echiquier Major, I only invest in companies whose dominant position means they have better management, better margins and, at the end of the day, growing market shares."
Michael Clements, Fund Manager, "Franklin European Growth A (acc) EUR" (02.03.2011): "Clements, who took over the reins of the fund on 1st October 2010 commented; “We often agree with the market sentiment on the short term outlook but one of the hallmarks of a high quality company is that in times of economic crisis they get stronger rather than weaker. Where we differ is that often we see such occasions as opportunities to build positions in quality companies which in better times would be much more expensive and which ultimately, we believe, will create a lot of value for our investors.”
Looking at the top 10 holdings within the Fund, Clements added; “An example of our willingness to be contrarian is our investment in Jumbo, the leading Greek retailer of toys and baby products. Clearly the Greek consumer is under pressure but we believe that in time, Jumbo´s earnings will recover and growth will resume. In the meantime we are protected by the low valuation, a balance sheet with little net debt and a strong business model which will continue to generate free cashflow.”
For us, we focus on minimising risk in the portfolio by seeking to understanding our companies in depth and asking ourselves the basic question "what if something goes wrong?"
The Franklin European Growth Fund benefits from being able to concentrate its investments on those securities which the team think have a strong, sustainable franchise to grow their cashflow over time.
The team invests with a five year investment horizon in mind which allows them to look through the economic noise to find companies that are currently being overlooked and undervalued by the market because of short term pressure on their earnings."
Anas Chakra, Fund Manager, "FAST - Europe A-Euro" (02.03.2011): "FAST Europe Fund uses flexible, long and short extensions around a core European equity portfolio to achieve a net equity exposure of around 90-110% in normal market conditions. It uses equity derivatives to short unattractive stocks and to add additional long exposure to preferred securities. The availability of long and short ideas at any one time determines the exact net equity exposure of the portfolio. FAST Europe is all about stock-picking. Even though I look at macro conditions, it is only to make sure that I am prudently positioned in the portfolio. The result is not your typical active extension product. FAST Europe has a more flexible market exposure around a normal range of 90-110% and is not forced to short. Long and short positions are a function only of where I have greatest absolute conviction."
Question 3
e-fundresearch: "Which over- and underweights do you currently hold?"
Nigel Bolton, Fund Manager, "BGF European Focus Fund" (02.03.2011): "Currently the BGF European Focus fund is overweight in consumer discretionary, predominately through media, industrials and materials. The Fund is underweight in telecoms, healthcare and financials."
Alexander Darwall, Fund Manager, "Jupiter JGF European Growth Fund" (28.02.2011): "The Fund is currently overweight Consumer Services, Technology and Healthcare compared to the Fund’s benchmark, the FTSE World Europe (inc UK) Index. The Fund is underweight Financials, Oil & Gas and Telecommunications sectors. The Fund is positioned to aim to benefit from companies that are exposed to global growth, particularly in fast-growing economies such as Brazil, India and China, and that have strong balance sheets, productivity-enhancing and cost-saving products and services that are attractive."
Frédéric Plisson, Fund Manager, "Echiquier Major" (01.02.2011): "At Financière de l’Echiquier, we never construct our portfolios in relation to an index. We only use convictions. The Echiquier Major fund is an equally-weighted fund with about fifty holdings. Winning strategies are favoured and especially activities that have strong barriers to entry and creators of new markets. The industrial sector, consumer services and consumer goods each represent more than 20% of our portfolio. Echiquier Major is hardly present in sectors where there is no size premium such as commodities, financial institutions, telecom operators and utilities. These choices explain our excellent performance."
Michael Clements, Fund Manager, "Franklin European Growth A (acc) EUR" (02.03.2011): "Übergewichtung: Industrie (Industriegüter, Gewerbliche Dienste und Betriebsstoffe)
Nicht Basis-Konsumgüter: Groß und Einzelhandel, Verbraucherdienste, Medien
Leichte Übergewichtung bei Basis-Konsumgüter
Untergewichtung: Financials, Energie, Gesundheitswesen
Keine Unternehmen aus Sektor Rohstoffe, Telekom, Versorgungsbetriebe."
Anas Chakra, Fund Manager, "FAST - Europe A-Euro" (02.03.2011): "I increased our exposure to the financial sector during January, moving from a large underweight to a small overweight position. I initiated positions in two European stock exchanges which we felt were attractively valued particularly now the regulatory headwinds have eased and the competitive landscape has improved. I also initiated positions in two banking stocks whose exposure to sovereign debt was more than reflected in valuations in our view. A number of our holdings in the IT sector performed strongly, with particular strength from business software name SAP. We also benefited from limited exposure to miners. The sector experiences selling pressure due to concerns over fiscal tightening in China."
Question 4
e-fundresearch: "Please comment on the performance and risk parameters of your fund in the current year as well as over the past 3 and 5 years."
Nigel Bolton, Fund Manager, "BGF European Focus Fund" (02.03.2011): "Since Nigel Bolton took over the Fund effective 1st March 2008, the Fund has delivered strong performance relative to its benchmark and ranks in the top decile of the European peer group over 3 and 5 years. The Fund targets a barra ex-ante risk range of 4-7% and has been within this range since Nigel has been managing the fund. The current the active risk of the Fund is at the lower end of the risk range with an active risk of just over 4%. The Fund adheres to strict portfolio construction guidelines and benefits from BlackRock’s leading edge risk analytics. The portfolio construction and risk management aims to draw from the extensive in depth company research conducted by team and sector analysts and follows three risk parameters below to ensure that portfolio risk is appropriately diversified, deliberate and scaled.
• Maximise stock specific risk
• Minimise unintended risks no ‘blind spots’
• Maintain a diverse range of position."
Alexander Darwall, Fund Manager, "Jupiter JGF European Growth Fund" (28.02.2011): "For the current year to 31 January 2011, the Fund has returned -0.5% in euro terms compared to 1.9% for its benchmark, the FTSE World Europe Index.
One, three and five year table to 31 January 2011
The Fund is not managed against specific risk objectives. The Manager is aware of the tracking error and volatility of the Fund; however, the Fund will bear little resemblance to the benchmark.
Jupiter firmly believes its fund managers should be responsible for managing their own performance and risk, as befits Jupiter’s corporate style. This freedom requires us to have a comprehensive monitoring process in place to spot any warning signs of underperformance, potentially unjustifiable risk, or an unsuitable style for a particular fund. To ensure this process is both proactive and rigorous, our independent portfolio analysis team use both ex-post and ex-ante measures, results of which are readily available to the fund managers."
Frédéric Plisson, Fund Manager, "Echiquier Major" (01.02.2011): "The investment strategy for the Echiquier Major fund has been offering remarkable performance in 2010 : +26.6% (vs. +8.6% for DJSTOXX 600). This is not surprising since, over the long term, leaders resist crises the best. They can consolidate their position and continue to invest thanks to their equity. They widen the gap further with their weakened competitors and even buy out some of them. Crises such as those that we have just gone through reveal these exceptional models like PEARSON or GEBERIT and Echiquier Major’s choices have paid off because the fund is sporting +25.6 % at 3 years (vs. -9 % for DJSTOXX 600) and + 26.6% at 5 years (vs. -12.2% for DJSTOXX 600)."
Michael Clements, Fund Manager, "Franklin European Growth A (acc) EUR" (02.03.2011): "January 2011:
Stock selection within the health care sector contributed most to relative performance for the month. Additionally, maintaining a zero weighting in the materials sector benefited relative returns. In contrast, stock selection in the financials, energy and industrials sectors negatively impacted results, as did an overweighting and stock selection in the consumer discretionary sector.
Within the industrials sector, a position in Prysmian S.p.A., an Italy-based company engaged in the production of cables for diverse applications in the energy and telecommunications industries, was the top contributor during the month. Its shares rose after the company announced advancements in the pending purchase of a Dutch competitor.
Elsewhere, the fund benefited from a zero weighting in the materials sector as rising commodity prices were overshadowed by market anxiety, pressuring returns among metals and mining stocks. Similarly, a lack of exposure to pharmaceutical companies proved favorable as negative sentiment surrounding the industry weakened performance.
In contrast, a position in De La Rue PLC, the world´s largest commercial security printer and papermaker, weighed on returns within the industrials sector. Its shares fell after shareholders and management rejected a bid by a rival firm as too low given the consistency of the business over the last 100-plus years and the firm’s leading market position in an industry with very high barriers to entry. We remain confident in the company’s fundamentals, which include its unique role as one of only two independent companies worldwide (in addition to central banks) able to make paper on which bank notes and other secure documents are printed. A position in Rotork PLC, a UK-based maker of industrial valve controls for the oil refining, chemical and water industries, also weighed on results.
In the consumer discretionary sector, a position in carpet retailer Carpetright PLC further weighed on results. We remain encouraged about the long-term prospects for this UK-based company even in the face of challenging anemic domestic economic growth. A position in funeral company Dignity PLC also hurt returns in the consumer discretionary sector. A position in UK-based property advisory company Savills PLC was a notable detractor in the financials sector.
On a regional level, an underweighting of Switzerland, stock selection in Italy and a zero weighting in Norway had a positive effect on relative fund returns. On the other hand, stock selection in the UK, France and Austria negatively impacted results, as did a zero weighting in Spain and an overweighting of Ireland."
Question 5
e-fundresearch: "Do you expect rising inflation over the next 6-12 months and does this impact your stock selection?"
Nigel Bolton, Fund Manager, "BGF European Focus Fund" (02.03.2011): "We have been concerned on the inflation outlook for the last 18 months due to the expansion in global monetary policy, lower interest rates and quantitative easing. We are currently focusing our research on companies which have strong pricing power and can maintain margins as we think a rise in inflation could lead to some disappointments in companies and sector which do not have strong pricing power."
Alexander Darwall, Fund Manager, "Jupiter JGF European Growth Fund" (28.02.2011): "The rate of inflation is likely to rise this year as a result of external price shocks coming from oil and foodstuffs, as a consequence of mild economic recovery and governments keen to reduce their real debt burdens. In this environment, stock markets should benefit, as rising inflation tends to favour equities. That said, measures of core inflation in Europe, the US and the UK remain weak. There are no obvious signs of wage inflation.
The current increase in inflation is largely “cost-push” as companies try to pass on the rising cost of raw materials to their customers. In contrast, the companies I tend to invest in are less exposed to rising raw material costs in the way that food manufacturers or energy utilities are exposed. Instead, they make use of patents, technology and growing demand for their products to drive profitability.
Rather than inflation, I would say the main risks in 2011 are as follows. The two key drivers of global economic activity are the US and China. If the former continues to recover and the latter continues to grow then growth in Europe will be reasonable. The main risk, therefore, is that growth in either of these two countries falters. I have above average exposure to both regions. This apart, any further ructions in the sovereign debt markets could upset financial markets - but that is different from the factors that drive corporate profitability."
Frédéric Plisson, Fund Manager, "Echiquier Major" (01.02.2011): "There is a real risk of inflation, notably for raw materials. This rise in raw materials prices will have an impact on the cost base for some of the companies we have invested in. This phenomenon is not new, although it is of greater extent today than in the past. The question we should ask is therefore: can these companies pass on these raw materials price increases in their prices? Recent contacts with from MICHELIN, CONTINENTAL and HEINEKEN have been reassuring from this point of view. And, if the market drops due to these inflationary phenomena, we will see this as an opportunity to reinforce our positions on companies with pricing power."
Michael Clements, Fund Manager, "Franklin European Growth A (acc) EUR" (02.03.2011): "Through our bottom-up process and focus on downside risk, we continue to find opportunities in both the consumer discretionary and industrials sectors."
All Date per 22.02.2011:
