schroders standard template · 34.9% 1.6% 3.4% 11.2% 48.9% assets under management source:...

Rory Bateman - Head of European Equity

Nicholette MacDonald-Brown – European Equity Fund Manager

For professional investors only. This material is not suitable for retail clients *Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation

Schroders European Equity Capabilities

Zurich, April 23rd 2013

Contents

1. Introduction

2. Schroder ISF European Total Return

- Investment process

- Fund positioning and performance

- Market view

- Appendix

European Equity capabilities | April 2013 1

Introduction

European Equity team structure

Includes 2 Global Analysts who have full global coverage for their sectors, but a significant impact on European equity portfolios

Source: Schroders as at March 2013

Head of European Equity

Rory Bateman

Specialist Fund Managers

Leon Howard-Spink Paul Griffin

Nicholette MacDonald-Brown

Jamie Lowry

Sonja Laud

Ian Kelly

9 European Equity Analysts*

James Dawson – European Equity Product Manager

Team Fund Managers

Rory Bateman

Martin Skanberg


Years with

Schroders

Years’

experience

Primary

universe Sector

Justin Bisseker 15 20 Europe Banks

Michael Butler 2 2 Europe Industrials, Autos & Parts

Amy Chamberlain 6 21 Europe Consumer Retail, Staples & Luxury

Goods

Neil Sargent 6 22 Europe Utilities, Energy

Stephen Shields <1 <1 Europe Building Materials and General Retail

Sam Twidale 3 9 Europe Materials, Insurance

John Coyle 10 18 Global Energy

John Bowler 10 18 Global Healthcare

Roberta Zeno 5 5 Italy / Quant N/A

Average years 6 13

Compensation directly linked to performance

Nine European Equity

Analysts organised on

a sectoral basis

Internal continuity

and training

External hires enhance

experience and depth

of team

Commercial focus

European Equity analysts

Source: Schroders. As at April 2013.


34.9%

1.6%

3.4%

11.2%

48.9%

Assets under management

Source: Schroders. As at 31 December 2012.

Total assets managed by European Equity team €9,209 million

Team

Team Strategy (Rory Bateman, Martin Skanberg)

€4,498m

Italian Strategy and Total Return Strategy

(Nicholette MacDonald-Brown) €148m

Yield Strategy (Sonja Laud, Ian Kelly) €1,031m

Alpha Strategy (Jamie Lowry) €314m

Special Situations/Alpha Plus Strategy

(Leon Howard-Spink, Paul Griffin) €3,218m

Europe ex UK

Euro

Pan


Large Cap European Equity Product Range


Luxembourg-

domiciled

Schroder ISF range TEAM UNCONSTRAINED VALUE / YIELD TOTAL RETURN

Pan Europe European Large Cap

(Rory Bateman)

European Special Situations

(Leon Howard-Spink)

European Equity Focus

(Rory Bateman)

European Equity Alpha (Jamie Lowry)

European Equity Yield /

European Dividend Maximiser (Ian Kelly)

European Total Return

(Nicholette MacDonald-Brown)

Euro EURO Equity

(Martin Skanberg) X X X

Fund performance relative to peers ‘Flagship’ European Equity products

Source: Morningstar.

Periods to 31st March 2013 – quartile rankings


Core 1 year 3 years p.a. 5 years

Schroder ISF EURO Equity Q2 Q1 Q2

Schroder ISF European Large Cap Q3 Q2 Q1

Schroder ISF European Special Situations Q1 Q1 Q1

Schroder ISF European Total Return

Investment process



How do we create a low volatility equity fund?

Source: Schroders. As at 31st March 2013. *Ex post annualised volatility based on ‘C’ class shares bid to bid, net of fees.

Stock Selection What is not priced in? Portfolio Construction Contribution to volatility

A Low volatility European Equity Fund

49 Stocks, 71% Exposure, 9% Volatility*

Equity Portfolio

40 – 60 stocks

Tactical Global Financial Stress Index Structural Proprietary Valuation Indicator PM Judgement Macro and political backdrop

Market Exposure

30 – 90%

Step 1

Step 2

Result

Schroder ISF European Total Return Step 1: Stock selection. The questions we are trying to answer

How does the company make money?

What are the key drivers for the company’s operational performance?

Do we have a different opinion to the market?

Growth prospects, operational leverage, returns to shareholders, potential for change

Why are we different from the market?

What can we observe between company reports to validate or challenge our thesis?

What is the catalyst for the market to change its mind?

What is the road map to our target price?

Where could we be wrong?

Downside target price. What would make us change our mind?


Bi-weekly team debate

Analysts distribute research note and model

24 hrs ahead

Standardised output enables easy cross-

sector comparisons

Benefits

Consistency - are analysts underlying

assumptions consistent across the portfolio?

Perspective – cross sector involvement

means analysts hear peers view about

customers, suppliers and competitors

Focus – your peers are your toughest

audience, team performance is crucial

Schroder ISF European Total Return Step 1: Stock selection. The wisdom of crowds


Schroder ISF European Total Return Step 1: Stock selection. Brenntag


Distributing chemicals


Yes, the market underestimates Brenntag’s ability to drive

sales density through their existing network boosting sales

and margins


In-depth analysis of the company


On-going strong results

Bolt on acquisitions


Significant fall in global IP

Acquisition which is too expensive, or poorly managed


Picture sourced from Brenntag

Source: Schroders. As at 29 March 2013

Schroder ISF European Total Return Step 1: Stock selection. Sandvik


Manufactures equipment and consumables for a range of

industries


Yes, the market underestimates new management’s ability

to drive restructuring and margin expansion


In-depth analysis of the company


Better than expected results


Mining capex cuts hit all areas of spend, replacement and

brownfield as well as new projects


Picture sourced from ClipArt

Source: Schroders. As at 29 March 2013

Top 10 contributors to volatility: 29th March 2013

Schroder ISF European Total Return Equity book construction

Source: Schroders, As at 29th March 2013. *Figure shows the % contribution to total predicted volatility.

Stock Sector Country % Volatility* % NAV

Weir Group Industrials UK 5.6 2.5

BNP Paribas Financials France 5.0 2.4

Bayer Healthcare Germany 4.8 3.3

DNB Financials Norway 4.6 2.7

Daimler Cons Disc Germany 4.4 2.3

Sandvik Industrials Sweden 4.2 2.0

GEA Industrials Germany 3.6 1.9

ING Financials Netherland 3.6 1.6

Xstrata Materials UK 3.5 1.8

Arkema Materials France 3.5 1.7


Equity market cap split

Over €10 bn 60.1%

€3bn to €10 bn 38.3%

Less than €3 bn 1.6%


Step 2: Market View. How big are the risks to market performance?

1 Source: Bank of America Merrill Lynch. Bloomberg ticker: GFSI Index 2 The composite valuation indicator is a proprietary tool based on a number of common valuation metrics for the equity market, both relative to its own history and relative to other

asset classes

Quantitative indicators combined with qualitative inputs used to formulate market view

Composite valuation indicator2

BofAML Global Financial Stress Index1

Market view: positive

No further action required

Market view: negative

Reduce market risk in portfolio


40

60

80

100

120

140

160

180

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12

GFSI (LHS) MSCI Europe (RHS)

Standard Deviation MSCI Europe rebased to 100 Jan 2005

40

60

80

100

120

140

160

180

-5.00-4.00-3.00-2.00-1.000.001.002.003.00

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12

Composite Valuation Indicator (LHS) MSCI Europe (RHS)

MSCI Europe rebased to 100 Jan 2005 Standard Deviation

Risk Index

Skew Index

Flow Index

Global Financial Stress Index

Schroder ISF European Total Return Are there short term risks to market performance?

BofAML Global Financial Stress Index1

Are different asset classes pricing in different probabilities of risks and returns?

How do we quantify the “size” of the stress we feel?

What are market participants prepared to pay for protection against extreme events?

How are people positioned?

1Source: Bank of America Merrill Lynch. Bloomberg ticker: GFSI Index


Standard Deviation MSCI Europe rebased to 100 Jan 2008

Schroder ISF European Total Return What is the current level of stress in the market and how is it changing?

Source: Bank of America Merrill Lynch. Bloomberg ticker: GFSI. As at 5th April 2013.


40

60

80

100

120

140

160

180

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Ja

n 0

8

Mrz

08

Ma

i 0

8

Ju

l 08

Sep

08

Nov 0

8

Ja

n 0

9

Mrz

09

Ma

i 0

9

Ju

l 09

Sep

09

Nov 0

9

Ja

n 1

0

Mrz

10

Ma

i 1

0

Ju

l 10

Sep

10

Nov 1

0

Ja

n 1

1

Mrz

11

Ma

i 1

1

Ju

l 11

Sep

11

Nov 1

1

Ja

n 1

2

Mrz

12

Ma

i 1

2

Ju

l 12

Sep

12

Nov 1

2

Ja

n 1

3

Mrz

13

GFSI WoW Change (LHS) GFSI (LHS) MSCI Europe (RHS)


Are there long term risks to market performance?

Schroders’ Proprietary Composite Valuation Indicator1

Valuation is one of the core determinants of long term market returns

Our index was created using intuitive fundamental data combined with statistical analysis. The

index is a blend of yield factors (earnings, dividend and government bond) and equity valuation

metrics (Price/Book, Price/Sales, Price/Cash flow)

Is the market expensive and more likely to trend down? Or the reverse?

1 The composite valuation indicator is a proprietary tool based on a number of common valuation metrics for the equity market, both relative to its own history and relative to other

asset classes


Schroder ISF European Total Return Valuation Indicators moving towards neutral

19 European Equity capabilities | April 2013

The composite valuation indicator is a proprietary tool based on a number of common valuation metrics for the equity market, both relative to its own history and relative to other

asset classes. Source: Factset, Bloomberg. As at 5th April 2013.

Standard Deviation MSCI Europe Index rebased to 100 Jan 2010

70

75

80

85

90

95

100

105

110

115

120

125

130

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Ja

n 1

0

Apr

10

Ju

l 10

Okt 1

0

Ja

n 1

1

Apr

11

Ju

l 11

Okt 1

1

Ja

n 1

2

Apr

12

Ju

l 12

Okt 1

2

Ja

n 1

3

Apr

13

CVI (LHS) CVI multiples (LHS) CVI yield (LHS) MSCI Europe (RHS)

EXPENSIVE

CHEAP

Schroder ISF European Total Return Significant rerating across countries

Source: Factset, Bloomberg. As at 22nd March 2013.


-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

Dez 0

5

Mrz

06

Ju

n 0

6

Sep

06

Dez 0

6

Mrz

07

Ju

n 0

7

Sep

07

Dez 0

7

Mrz

08

Ju

n 0

8

Sep

08

Dez 0

8

Mrz

09

Ju

n 0

9

Sep

09

Dez 0

9

Mrz

10

Ju

n 1

0

Sep

10

Dez 1

0

Mrz

11

Ju

n 1

1

Sep

11

Dez 1

1

Mrz

12

Ju

n 1

2

Sep

12

Dez 1

2

European Italy Germany France UK Spain US

Standard Deviation

EXPENSIVE

CHEAP

Multiples

Schroder ISF European Total Return A multiple alone is not enough – what are the underlying growth assumptions?

Do underlying earnings expectations make sense, both in terms of year over year change and absolute level?

Are the risks to the upside or downside?

Source Morgan Stanley European Equity Strategy Gallery, April 2013


Schroder ISF European Total Return Summary

Builds on an excellent stock picking track record in European Equities and combines it with a

portfolio manager with multi asset experience

A consistently applied and robust investment process has been extended from stock selection to

include market risk

Flexible pragmatic approach with no inherent style bias

Sophisticated in-house portfolio construction tool SMART allows portfolio risk to be regularly

reviewed. All asset classes are dealt with in one place

European Total Return is large cap focused and therefore genuinely scalable

Transparency, daily liquidity and a simple flat fee structure with the reassurance of operating

under the Schroders and UCITS III umbrellas


Fund positioning and performance

Fund Performance Since 7th March 2012, fund inception, to COB 29th March 2013

Source: Bloomberg, Schroders. As at 29th March 2013. Fund returns based on ‘C’ class shares bid to bid, net of fees. Returns for ‘Equity portion’ are based on FactSe t attribution

data. *Inception of the portfolio was 7th March 2012


Since

inception (%)*

Fund +10.3

Benchmark +16.3

Relative -6.0

Ex- post annualised volatility

Fund 8.5

Benchmark 14.1

Fund Max Drawdown -6.3

Bmk Max Drawdown -12.8

Average net exposure 68.2

Participation 63.2

Equity Portion +20.5

Equity Relative +4.2

49%

60%

63%

90

95

100

105

110

115

120

Mrz 12 Mai 12 Jul 12 Sep 12 Nov 12 Jan 13 Mrz 13

Schroder ISF European Total Return (rebased to 100) MSCI Europe (rebased to 100)

-40%

-20%

0%

20%

40%

60%

80%

100%

Mrz 12 Apr 12 Mai 12 Jun 12 Jul 12 Aug 12 Sep 12 Okt 12 Nov 12 Jan 13 Feb 13 Mrz 13

Short Cash Net

.

Fund Positioning and Exposure Since 7th March 2012, fund inception, to COB 29th March 2013


% NAV

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar

Long Equity 77.5 76.2 68.6 69.8 80.0 89.2 90.8 92.8 94.8 95.5 96.1 94.8 95.1

Cash 21.6 23.0 30.1 29.8 19.2 9.7 6.7 6.2 4.5 3.5 2.9 3.6 3.2

Other 0.9 0.8 1.3 0.4 0.8 1.1 2.5 1.0 0.7 1.0 1.0 1.6 1.7

Net

Exposure 67.9 69.5 61.7 64.6 69.1 70.7 58.0* 74.4 81.0 77.5 81.6 77.5 70.8

Source: Factset, Schroders. As at 29th March 2013. *Average net exposure in September was 66.9%.

.

% Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Since

inception*

Fund +1.7 +0.7 -4.0 +1.2 +4.1 -0.1 +1.1 +0.1 +1.1 -0.5 +1.9 +2.1 +0.7 +10.3

Benchmark +1.4 -1.7 -6.1 +5.2 +4.2 +2.0 +0.9 +0.7 +2.2 +1.4 +2.8 +1.0 +1.6 +16.3

Relative +0.3 +2.4 +2.1 -4.0 -0.1 -2.1 +0.2 -0.6 -1.1 -1.9 -0.9 +1.1 -0.9 -6.0

Contribution to return

Equity book +2.3 0.0 -5.0 +2.8 +3.9 +1.2 +1.8 +1.1 +2.2 +0.4 +2.9 +2.3 +0.2 +16.8

Overlay -0.3 +0.8 +1.2 -1.1 +0.2 -1.1 -0.4 -1.0 -1.0 -0.4 -1.1 +0.6 +0.3 -3.7

Other (fees &

timing) -0.3 -0.1 -0.2 -0.5 0.0 -0.2 -0.3 0.0 -0.1 -0.5 +0.1 -0.8 +0.2 -2.8

Equity

Equity portion +3.0 0.0 -6.6 +4.1 +5.3 +1.6 +1.9 +1.3 +2.4 +0.5 +3.1 +2.4 +0.2 +20.5

Equity relative +1.6 +1.7 -0.5 -1.1 +1.1 -0.4 +1.0 +0.6 +0.2 -0.9 +0.3 +0.3 -1.4 +4.2

Exposure

Net exposure 67.9 69.5 61.7 64.6 69.1 70.7 58.0** 74.4 81.0 77.5 81.6 77.5 70.8 68.2***

Participation 121.4 -41.2 67.2 23.1 97.6 -5.0 125.3 12.3 50.0 -35.7 67.9 210.0 43.8 63.2

Fund Performance Since 7th March 2012, fund inception, to COB 29th March 2013

Source: Bloomberg, Schroders. As at 29th March 2013. Fund returns based on ‘C’ class shares bid to bid, net of fees. Contributions to return and returns for ‘equity portion’ are

based on FactSet attribution data. *Inception of the portfolio was 7th March 2012. **Average net exposure in September was 66.9%. ***Average net exposure. The timing impact

relates to the fact that the Fund prices at 15:00 CET and the benchmark returns are close of business.


0.0%

0.0%

-3.7%

0.0%

-5.0%

-0.7%

0.0%

-7.8%

-5.6%

-1.0%

1.8 %

2.7 %

3.2 %

3.4 %

4.9 %

5.8 %

10.7 %

20.3 %

20.5 %

21.7 %

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Portugal

Norway

Spain

Sweden

Italy

Netherlands

Switzerland

France

Germany

UK

-2.0%

-1.6%

-2.7%

-1.1%

-1.8%

-1.7%

-2.3%

-5.7%

-2.8%

-2.8%

1.1%

4.2%

5.5%

5.7%

6.1%

8.8%

9.7%

11.1%

18.4%

24.5%

-15%-10% -5% 0% 5% 10% 15% 20% 25%

Utilities

Telecommunication Services

Energy

Information Technology

Consumer Staples

Materials

Healthcare

Financials

Consumer Discretionary

Industrials

Overlay Exposure Equity Exposure

Fund Positioning 29th March 2013


Source: Factset, Schroders. As at 29th March 2013

0.0%

0.0%

-24.4%

0.0%

0.0%

70.8%

119.5%

1.7%

3.2%

95.1%

-100% -50% 0% 50% 100% 150%

Net exposure

Gross exposure

Options / Futures

Cash

Long Equity

Trading Activity Since Inception


Source: Schroders, based on largest trades placed between 7/03/2012 – 29/3/2013.

Stock Sector Country

BHP Billiton Materials UK

Carnival Cons Disc UK

Christian Dior Cons Disc France

Deutsche Telekom Telecoms Germany

Dufry Cons Disc Switzerland

GDF Suez Utilities France

GEA Group Industrials Germany

Hexagon Info Tech Sweden

Julius Baer Financials Switzerland

Legrand Industrials France

Pirelli Cons Disc Italy

PPR Cons Disc France

Richemont Cons Disc Switzerland

Safran Industrials France

Snam Utilities Italy

Syngenta Materials Switzerland

Xstrata Materials UK

Ziggo Telecoms Netherlands

New Buys Sell Outs

Stock Sector Country

Admiral Financials UK

Air Liquide Materials UK

BG Group Energy UK

Burberry Cons Disc UK

Deutsche Telekom Telecoms Germany

GDF Suez Utilities France

Hays Industrials UK

MAN SE Industrials Germany

Swedish Match Cons Stap Sweden

Symrise Materials Germany

Vallourec Industrials France

Vinci Industrials France

Xstrata Materials UK

Performance attribution Since Inception to 29th March 2013

Source: Schroders/Factset. As at 29 March 2013. Notes: Order is by absolute contribution to fund performance.

Currency: Euros. Based on average weights over the period

Stock Returns Absolute

Contribution

Relative

Contribution

Virgin Media +103.1% +1.9% +1.4%

Amadeus IT +55.0% +1.3% +0.8%

Kabel Deutschland +63.1% +1.2% +0.8%

Bayer +54.3% +1.2% +0.5%

Unilever +39.7% +0.9% +0.3%

Top 5 positive contributors Top 5 negative contributors

Stock Returns Absolute

Contribution

Relative

Contribution

Burberry -6.8% -0.4% -0.5%

Vallourec -22.2% -0.4% -0.3%

BG Group -23.0% -0.4% -0.1%

Swedish Match -12.2% -0.2% -0.5%

ING +15.7% -0.2% -0.3%


Overlay Detail Change in overlay since launch

Source: Schroders.

Overlay 07 March 2012 % Net 31 December 2012 % Net 31 March 2013 % Net

Options FTSE MIB Put -3.1 DAX Put -6.4 EURO STOXX 50 Put -4.0

CAC 40 Put -3.0 FTSE MIB Put -5.1 CAC 40 Put -2.9

DAX Put -2.7 CAC 40 Put -3.2 DAX Put -2.1

EURO STOXX 50 Put -2.6 S&P 500 Put -3.0 FTSE MIB Put -1.5

EURO STOXX 50 Put -0.3

Futures CAC 40 Future -3.2

IBEX 35 Future -3.0

FTSE MIB Future -3.0

EURO STOXX 50 Future -1.9

DAX Future -1.8

FTSE 100 Future -1.0

Total -11.4 -18.0 -24.4


31

Source: Schroders. As at 29th March 2013.

Months

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Average time to option expiry (months)

European Equity capabilities | April 2013

Overlay Detail Options expiry extended in time as number of near term catalysts has decreased

Market View

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Ju

n 1

2

Ju

l 12

Aug

12

Sep

12

Okt 1

2

Nov 1

2

Dez 1

2

Ja

n 1

3

Feb 1

3

Mrz

13

Eurozone GDP 2014f US GDP 2014f Italy GDP 2014f

Let’s start with the negatives…….Macro Growth remains elusive

33

Source: Bloomberg. As at 29th March 2013.

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Dez 1

1

Ja

n 1

2

Feb 1

2

Mrz

12

Apr

12

Ma

i 1

2

Ju

n 1

2

Ju

l 12

Aug

12

Sep

12

Okt 1

2

Nov 1

2

Dez 1

2

Ja

n 1

3

Feb 1

3

Mrz

13

Eurozone GDP 2013f US GDP 2013f Italy GDP 2013f


Survey data has been soft and that trend looks set to continue

34

Source: Bloomberg. As at 29th March 2013.


35

Peripheral funding rates are still painful

Interest rates on loans to non-financial corporates by country


Source: Reuters EcowinPro, BNP Pairbas.

Earnings momentum remains negative


Source: Merrill Lynch, BNP Paribas.

Near term valuations are neutral at best

Source: Factset, Bloomberg. As at 22nd April 2013.


-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Dez 0

7

Mrz

08

Ju

n 0

8

Sep

08

Dez 0

8

Mrz

09

Ju

n 0

9

Sep

09

Dez 0

9

Mrz

10

Ju

n 1

0

Sep

10

Dez 1

0

Mrz

11

Ju

n 1

1

Sep

11

Dez 1

1

Mrz

12

Ju

n 1

2

Sep

12

Dez 1

2

European Italy Germany France UK Spain US

Standard Deviation

EXPENSIVE

CHEAP

Multiples

BUT……. Austerity is starting to work


The gap between the haves and have nots is narrowing

-6.12

-3.52

-1.89

-1.36

-1.12

0.31

5.36

8.55

9.21

11.73

-15 -10 -5 0 5 10 15

Greece Spain Portugal Ireland Italy

Germany France Belgium Austria Finland

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

De

z 9

7

De

z 9

8

De

z 9

9

De

z 0

0

De

z 0

1

De

z 0

2

De

z 0

3

De

z 0

4

De

z 0

5

De

z 0

6

De

z 0

7

De

z 0

8

De

z 0

9

De

z 1

0

De

z 1

1

De

z 1

2

Avg surplus countries (DE, NL, AT, FL)

Avg deficit countries (PIIGS)

Average current account balances in key areas Change (%) in current account balance 2007-12

Source: Bloomberg. As at 31st December 2012.


The disparity in labour costs is shrinking

Unit labour costs and nominal compensation per employee,

% chg

In 2012, the German union IG Metall bargained the highest

wage increase in 20 years

Jeremy Steins (Fed) feared bubble in credit markets – not yet


Source – Morgan Stanley US Fixed Income Strategy Insight.

Near term US rate hikes seem unlikely


US Inflation backdrop looks benign

Source: Torsten Slok Deutsche Bank Monthly Chart Book. April 2013.

US growth looks set to remain strong


Is the US capex cycle only just starting?



Impact of a housing recovery is only just beginning to be felt


Why do we spend so much time worrying about European growth?

Non European earnings are becoming increasingly important

44

Aggregate revenues in EUR for 460 listed European non-financial companies by reported destination of sales (from reported accounts), extrapolated for 2013-15.

Source: Redburn, April 2013



Annualised return from buying equities after GDP growth is ranked from lowest to highest 20%

12.0%

6.3% 6.8% 6.9%6.0%

0

5

10

15

Lowest Low Middle High Highest

1900-2005

%

Source: Dimson, Marsh & Staunton (ABN Amro/LBS); 53 countries maximum, only 17 countries have data over the entire sample period.

High GDP growth does NOT equal high equity returns

Graham & Dodd P/E for MSCI Europe vs S&P 500 and MSCI Asia-Pacific ex Japan

5

10

15

20

25

30

35

40

45

50

55

83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

MSCI Europe S&P500 MSCI Asia-Pac ex Japan

Source: UBS. Data as at 02 April 2013.


Valuation – which remains extreme

Long term equity returns are about:


And expectations, which look low

0

5

10

15

20

25

Mar 88 Mar 91 Mar 94 Mar 97 Mar 00 Mar 03 Mar 06 Mar 09 Mar 12

20

40

60

80

100

120

MSCI EMU 12m Fwd EPS (lhs) MSCI US 12m Fwd EPS (rhs)

Source: Thomson Reuters Datastream. As at 11 March 2013.

And are gradually improving in “cyclical “ sectors


Source: Thomson Reuters Datasteam. As at 29th March 2013.

90

95

100

105

110

115

120

125

Sep 12 Nov 12 Jan 13 Mrz 13

Consumer Staples Health Care Financials Materials

Performance, 30 Sep = 100


Source: BOFA Merrill Lynch Global Quantitative Strategy, MSCI.

It should be a good time to generate alpha

The wall of money seeking yield continues to grow

50

Source: Thomson Reuters Datastream, J.P.Morgan Cazenove. As at 5th April 2013.

75

80

85

90

95

100

Aug

11

Okt 1

1

Dez 1

1

Feb 1

2

Apr

12

Ju

n 1

2

Aug

12

Okt 1

2

Dez 1

2

Feb 1

3

JPY/USD spot rate


Japan reflation focus Average monthly Japanese purchase of foreign bonds (JPY bn/month)

Appendix

70

80

90

100

110

120

130

140

30

. N

ov 1

1

31

. D

ez 1

1

31

. Jan 1

2

29

. F

eb

12

31

. M

rz 1

2

30

. A

pr

12

31

. M

ai 1

2

30

. Jun 1

2

31

. Jul 12

31

. A

ug 1

2

30

. S

ep 1

2

31

. O

kt 12

30

. N

ov 1

2

31

. D

ez 1

2

31

. Jan 1

3

28

. F

eb

13

31

. M

rz 1

3

Italy Spain Germany France

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

07

. M

rz 1

2

23

. M

rz 1

2

13

. A

pr

12

04

. M

ai 1

2

25

. M

ai 1

2

15

. Jun 1

2

06

. Jul 12

27

. Jul 12

17

. A

ug 1

2

07

. S

ep 1

2

28

. S

ep 1

2

19

. O

kt 12

09

. N

ov 1

2

30

. N

ov 1

2

28

. D

ez 1

2

18

. Jan 1

3

08

. F

eb

13

01

. M

rz 1

3

22

. M

rz 1

3

Germany France Italy

Spain United States United Kingdom

Other

Schroder ISF European Total Return Example 1: Relative performance


Source: Thomson Reuters Datastream, Schroders. As at 31st December 2012.

% weight Performance, 30 Nov = 100

At launch DAX, CAC and MIB were evenly weighted: partly a function of all these markets having rallied

post LTROs.

Fund Launch

Date

“Whatever it

takes”

LTRO1

LTRO2

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

09.

Mrz

12

30.

Mrz

12

20.

Ap

r 1

2

11.

Mai 1

2

01.

Jun

12

22.

Jun

12

13. Jul 12

03.

Au

g 1

2

24.

Au

g 1

2

14.

Se

p 1

2

05.

Okt 1

2

26.

Okt 1

2

16.

No

v 1

2

07. D

ez 1

2

28.

De

z 1

2

18.

Jan

13

08.

Fe

b 1

3

01.

Mrz

13

22.

Mrz

13

Italy Germany. France Spain

EXPENSIVE

CHEAP

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

07

. M

rz 1

2

23

. M

rz 1

2

13

. A

pr

12

04

. M

ai 1

2

25

. M

ai 1

2

15

. Jun 1

2

06

. Jul 12

27

. Jul 12

17

. A

ug 1

2

07

. S

ep 1

2

28

. S

ep 1

2

19

. O

kt 12

09

. N

ov 1

2

30

. N

ov 1

2

28

. D

ez 1

2

18

. Jan 1

3

08

. F

eb

13

01

. M

rz 1

3

22

. M

rz 1

3



Other

Schroder ISF European Total Return Example 2: Relative valuation between countries


Source: Factset, Bloomberg. As at 31st March 2013.

% weight

DAX became our biggest short position. The market attached to it higher multiples relative to its European

peers due to Germany being perceived as relatively safer.

Std deviation

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

0

10

20

30

40

50

60

70

80

09

. M

rz 1

2

16

. M

rz 1

2

23

. M

rz 1

2

30

. M

rz 1

2

05

. A

pr

12

13

. A

pr

12

20

. A

pr

12

27

. A

pr

12

04

. M

ai 1

2

11

. M

ai 1

2

18

. M

ai 1

2

25

. M

ai 1

2

01

. Jun 1

2

08

. Jun 1

2

15

. Jun 1

2

22

. Jun 1

2

29

. Jun 1

2

06

. Jul 12

13

. Jul 12

20

. Jul 12

27

. Jul 12

03

. A

ug 1

2

10

. A

ug 1

2

17

. A

ug 1

2

24

. A

ug 1

2

31

. A

ug 1

2

07

. S

ep 1

2

14

. S

ep 1

2

21

. S

ep 1

2

28

. S

ep 1

2

05

. O

kt 12

12

. O

kt 12

19

. O

kt 12

26

. O

kt 12

02

. N

ov 1

2

09

. N

ov 1

2

16

. N

ov 1

2

23

. N

ov 1

2

30

. N

ov 1

2

07

. D

ez 1

2

14

. D

ez 1

2

21

. D

ez 1

2

28

. D

ez 1

2

ATM impl vol percentile - 1 year (lhs) Germany CVI - multiples (rhs)

Expensive valuation and high volatility

Schroder ISF European Total Return Example 3: Relative valuation between options and outright shorts

54

Source: Factset, Bloomberg. As at 31st March 2013.

Higher valuation levels provided a cushion to the risk of being squeezed out of an outright short position,

while option richness made volatility unattractive

Std deviation Percentile

Put reverse trade on


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

07

. M

rz 1

2

23

. M

rz 1

2

13

. A

pr

12

04

. M

ai 1

2

25

. M

ai 1

2

15

. Jun 1

2

06

. Jul 12

27

. Jul 12

17

. A

ug 1

2

07

. S

ep 1

2

28

. S

ep 1

2

19

. O

kt 12

09

. N

ov 1

2

30

. N

ov 1

2

28

. D

ez 1

2

18

. Jan 1

3

08

. F

eb

13

01

. M

rz 1

3

22

. M

rz 1

3



Other

10

20

30

40

50

60

70

80

90

31

. D

ez 0

7

30

. Jun 0

8

31

. D

ez 0

8

30

. Jun 0

9

31

. D

ez 0

9

30

. Jun 1

0

31

. D

ez 1

0

30

. Jun 1

1

31

. D

ez 1

1

30

. Jun 1

2

31

. D

ez 1

2

VIX

Schroder ISF European Total Return Example 4: Cheap implied volatility due to political catalyst


Source: Bloomberg, Schroders. As at 31st March 2013.

% weight

Initiated a short position in the S&P 500 as the VIX hit a 5 year low, meaning that volatility was very cheap by

historical standards

5 Year low

Schroder ISF European Total Return Example 5: Near term catalyst

56

Source: Factset, Bloomberg. As at 15th March.

Extended valuation combined with the Italian elections provided an attractive back drop


-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

28

-Dez-2

012

04

-Jan

-201

3

11

-Jan

-201

3

18

-Jan

-201

3

25

-Jan

-201

3

01

-Fe

b-2

01

3

08

-Fe

b-2

01

3

15

-Fe

b-2

01

3

22

-Fe

b-2

01

3

01

-Mrz

-20

13

08

-Mrz

-20

13

15

-Mrz

-20

13

0

5

10

15

20

25

30

35

3 mth ATM implied volatility FTSEMIB (LHS) Italy CVI (RHS)

Elections

0

200

400

600

800

1000

1200

12000

13000

14000

15000

16000

17000

18000

19000

31

. D

ez 1

2

07

. Jan 1

3

14

. Jan 1

3

21

. Jan 1

3

28

. Jan 1

3

04

. F

eb

13

11

. F

eb

13

18

. F

eb

13

25

. F

eb

13

04

. M

rz 1

3

11

. M

rz 1

3

FTSEMIB Index (LHS) FTSEMIB 3/13 P16500 Index (RHS)

Bought

Reduced

Bought

Reduced

Elections

Percentile Std deviation Price Price

Schroder ISF European Total Return Bank of America Merrill Lynch Global Financial Stress Index

Source: BofA Merrill Lynch Global Financial Stress Index “Launching GFSI” 19th November 2010


Five asset classes and 40 sub components

Schroder ISF European Total Return Would the indicators have helped?

Buy/sell signals back tested

We created two model portfolios which could invest in two assets only: cash and the MSCI Europe

We increased or decreased our allocation to cash based solely on each indicators buy or sell signals

Source: Schroders, MSCI. As at April 2012

MSCI Europe rebased to 100 Jan 2000


40

50

60

70

80

90

100

110

120

Ja

n 0

0

Aug

00

Mrz

01

Okt 0

1

Ma

i 0

2

De

z 0

2

Ju

l 03

Feb 0

4

Sep

04

Apr

05

No

v 0

5

Ju

n 0

6

Ja

n 0

7

Aug

07

Mrz

08

Okt 0

8

Ma

i 0

9

Dez 0

9

Ju

l 10

Feb 1

1

Sep

11

Apr

12

Signal Portfolio CVI MSCI EUROPE Signal Portfolio GFSI

Fund positioning

29th March 2013

Source: Schroders. As at 29th March 2013.

%

Country Portfolio net MSCI Europe Relative

UK 20.7 34.3 -13.6

Germany 14.7 13.1 +1.6

France 12.5 14.0 -1.5

Switzerland 10.7 14.3 -3.6

Netherlands 5.0 4.3 +0.7

Sweden 3.4 5.1 -1.7

Norway 2.7 1.4 +1.3

Portugal 1.8 0.3 +1.5

Ireland 0.0 0.4 -0.4

Finland 0.0 1.2 -1.2

Italy -0.1 3.0 -3.1

Belgium -0.2 1.9 -2.2

Spain -0.5 4.3 -4.8

TOTAL 70.8 100.0 -29.2

%

Sector Portfolio net MSCI Europe Relative

Industrials 21.7 11.4 +10.3

Cons Disc 15.6 9.1 +6.5

Health Care 7.5 12.7 -5.2

Materials 7.0 8.8 -1.8

Financials 5.5 20.0 -14.5

Info Tech 4.7 3.1 +1.6

Cons Staples 4.3 15.6 -11.3

Energy 2.8 9.9 -7.1

Telecoms 2.6 5.5 -2.9

Utilities -1.0 4.0 -5.0

TOTAL 70.8 100.0 -29.2


.

%

YTD Since

inception*

Fund 5.12 4.78

Benchmark 5.69 6.76

Relative -0.56 -1.98

Equity portion 8.44 9.02

Equity relative 2.75 2.26

Average net

exposure 76% 69%

Participation 90% 71%

Model Portfolio Performance Since model inception on 31st October 2011 to COB 6th March

-250

-200

-150

-100

-50

0

50

100

150

200

250

85

90

95

100

105

110

115

31. O

kt 1

1

07. N

ov 1

1

14. N

ov 1

1

21. N

ov 1

1

28. N

ov 1

1

05. D

ez 1

1

12. D

ez 1

1

19. D

ez 1

1

26. D

ez 1

1

02. Ja

n 1

2

09. Ja

n 1

2

16. Ja

n 1

2

23. Ja

n 1

2

30. Ja

n 1

2

06

. F

eb

12

13

. F

eb

12

20

. F

eb

12

27

. F

eb

12

05. M

rz 1

2

Equity performance relative to MSCI Europe (RHS)

MSCI Europe

Model performance


Source: Schroders. *Inception of the model portfolio was 31st October 2011.

Performance rebased as at 31st of October 2011 Cumulative relative performance (bps)

Model Portfolio Net Exposure Since model inception on 31st October 2011 to COB 6th March


Source: Schroders.

Net Exposure MSCI Europe Rebased to 31st Oct 2011

70

75

80

85

90

95

100

105

110

115

120

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31.

Okt 1

1

03.

Nov 1

1

08.

Nov 1

1

11.

Nov 1

1

16.

Nov 1

1

21.

No

v 1

1

24.

Nov 1

1

29.

Nov 1

1

02.

Dez 1

1

07.

Dez 1

1

12.

Dez 1

1

15.

Dez 1

1

20.

Dez 1

1

23.

Dez 1

1

29.

Dez 1

1

03.

Jan

12

06.

Jan

12

11.

Jan

12

16.

Jan

12

19.

Jan

12

24.

Jan

12

27.

Jan

12

01.

Fe

b 1

2

06.

Fe

b 1

2

09.

Fe

b 1

2

14.

Fe

b 1

2

17.

Fe

b 1

2

22.

Fe

b 1

2

27.

Fe

b 1

2

01.

Mrz

12

06.

Mrz

12

Net Exposure (LHS) MSCI Europe (RHS)

Commonality Select European Equity products

Source: PRISM. Comparisons are shown excluding cash as at 29th March 2013. Commonality is defined as number of stocks held in both portfolios as a proportion of the total.


Schroder ISF European Large Cap

Schroder ISF European Special Situations

Schroder European Fund

X

24%

47%

X

18% X

X

47%

32%

46%

Sc

hro

der

ISF

Eu

rop

ea

n T

ota

l

Retu

rn

Sc

hro

der

ISF

Eu

rop

ea

n L

arg

e

Cap

Sc

hro

der

ISF

Eu

rop

ea

n S

pec

ial

Sit

uati

on

s

Sc

hro

der

Eu

rop

ea

n

Fu

nd


European style performance

63

Source: Schroders.

Factor rotation – quality outperforming again

Highlighted cells denote outperformance vs the market as well as Q5

Performance to 05 April 2013 1 Month 3 Mths 6 Mths

FTSE Europe -2.1% 0.1% 6.2%

STYLE Q1 Factor performance Qtl 1 Qtl 5 Q1-Q5 Qtl 1 Qtl 5 Q1-Q5 Qtl 1 Qtl 5 Q1-Q5

DY -1.4% -4.5% 3.1% 0.3% -1.7% 2.0% 4.8% 8.7% -4.0%

P/S -3.3% -0.9% -2.4% -5.0% 3.6% -8.6% 3.9% 5.4% -1.5%

P/B -5.5% -0.3% -5.2% -5.9% 2.7% -8.7% 3.8% 6.5% -2.6%

VALUE EV/EBITDA -2.2% -2.7% 0.5% -1.9% 0.6% -2.5% 4.4% 6.1% -1.7%

Earnings Yield -3.4% -3.2% -0.1% 0.8% -4.4% 5.2% 7.9% 3.5% 4.4%

FCF Yield -1.5% -0.9% -0.6% 1.0% -1.3% 2.3% 8.5% 4.4% 4.1%

IBES FY1 PE -3.7% -2.9% -0.7% -1.5% -2.0% 0.6% 3.3% 5.4% -2.1%

IBES FY2 PE -3.6% -1.2% -2.4% -4.8% 0.3% -5.1% 3.7% 3.5% 0.2%

IBES 3m % chg EPS est -2.9% -3.6% 0.7% 3.3% -6.2% 9.5% 10.0% 2.6% 7.3%

EARNINGS IBES 3m % chg FY2 EPS est -2.3% -4.8% 2.5% 2.4% -5.8% 8.2% 11.3% 0.3% 10.9%

MOMENTUM IBES EPS revisions ratio -1.3% -2.8% 1.5% 2.1% -2.9% 5.0% 6.9% 3.5% 3.5%

IBES FY2 EPS revisions ratio -0.7% -3.3% 2.6% 1.7% -0.5% 2.3% 7.7% 3.1% 4.6%

PRICE 30-90 MAV -3.1% -2.9% -0.2% -3.4% -1.9% -1.5% 3.1% 3.9% -0.7%

MOMENTUM 50-200 MAV -3.9% -1.0% -2.9% -3.7% -0.1% -3.5% 8.4% 2.6% 5.8%

ROE -0.6% -5.3% 4.7% 2.0% -4.3% 6.3% 5.9% 7.2% -1.2%

QUALITY ROA -1.1% -3.8% 2.8% 2.2% -2.6% 4.8% 6.7% 6.6% 0.1%

Debt/Eq -1.1% -2.8% 1.6% 1.5% 0.6% 0.9% 7.3% 6.3% 1.0%

1 yr sales growth -2.4% -2.1% -0.3% -1.6% 0.2% -1.9% 5.4% 8.8% -3.5%

3 yrs sales growth -3.5% -1.4% -2.1% -2.8% 2.9% -5.7% 4.7% 9.9% -5.2%

GROWTH IBES cons sales LTG -2.9% -2.4% -0.5% 0.5% -1.9% 2.4% 8.3% 2.6% 5.7%

IBES cons EPS LTG -2.5% -1.7% -0.8% 1.9% -3.1% 5.0% 9.9% 4.2% 5.7%


The views and opinions contained herein are those of Rory Bateman and Nicholette MacDonald-Brown, and may not

necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

Risk warnings: Investments in equities are subject to market risk and, potentially, to currency exchange rate risk. This fund may

use financial derivative instruments as a part of the investment process. This may increase the fund’s price volatility by amplifying

market events.

Important Information: This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares

of Schroder International Selection Fund (the “Company”). Nothing in this presentation should be construed as advice and is therefore

not a recommendation to buy or sell shares.

Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual

report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder

Investment Management (Luxembourg) S.A.

An investment in the Company entails risks, which are fully described in the prospectus.

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as

rise and investors may not get the amount originally invested.

Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose

without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the

presentation shall have no liability in connection with the third party data. The Prospectus and/or www.schroders.com contains

additional disclaimers which apply to the third party data.

Source for ratings: S&P, as at 31 March 2013.

This presentation is issued by Schroder Investment Management Limited, 31, Gresham Street, EC2V 7QA, who is authorised and

regulated by the Financial Services Authority. For your security, all telephone calls are recorded

Important information


schroders standard template · 34.9% 1.6% 3.4% 11.2% 48.9% assets under management source:...

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