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SISF EURO Equity Alpha 0307
Representing Schroders:
Angelo Manca
Schroder Investment Management Ltd31 Gresham Street, London, EC2V 7QAAuthorised and Regulated by the Financial Services Authority
April 2007
A Presentation on Schroder ISF EURO Equity Alpha* Capabilities
*Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation
For Professional Investors Only
1
SISF EURO Equity Alpha 0307
Schroder ISF EURO Equity Alpha: Characteristics
Performance Aim: first decile on a rolling 3 year basis
Index: MSCI EMU (TR)
Geographies: Eurozone, Switzerland, Scandinavia, Eastern Europe
Non-Euro < 20% of portfolio
Approx 100% currency hedged (into Euro)
Max stock over(under) weight: 10%
Max sector over(under) weight: 15%
Usual UCITS III rules apply
Fund Manager: Angelo Manca
Tracking error range: < 10%
Number of stocks: 30 - 50
Launched: 23 March 2007
Product
2
SISF EURO Equity Alpha 0307
Why should I invest in Schroder ISF EURO Equity Alpha?
Schroder ISF Italian Equity strong performance, even more so when risk adjusted
Same investment approach as in Schroder ISF Italian Equity
Performance is driven by business understanding and logic, not local expertise
Downside protection/ amplified exposure to equities long term upside
“Value with a catalyst” investment philosophy
Stock universe enlarged to about 1,500 stocks, versus about 200 in ItalyEuro + selected areas offer far wider investment opportunities
Better leverage of Schroders resources and brainpower
Schroder ISF EURO Equity Alpha
“Value with a catalyst” + geographies + concentration, hypothesis driven screening
Differentiated product within Schroders range
3
SISF EURO Equity Alpha 0307
95
100
105
110
115
120
125
130
135
140
145
150
Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07
Schroder ISF Italian Eq Italian MIBTEL
Performance (Euro’s%)
Schroder ISF Italian Equity
Fund Performance since Takeover
Performance based on ‘C’ Class shares
Source: S&P Micropal, bid to bid, performance for 01/12/05 to 29/03/07
December 2005 through to 29th March 2007 vs. Italian Mibtel
Key performance contributors:
Coin
Jolly Hotels
Gemina
Banca Italease
Aeroporto di Firenze
Sirti
Underweight in Telecom Italia
4
SISF EURO Equity Alpha 0307
Italian Equity Risk Adjusted Performance
Fund manager track record
Schroder ISF Italian Equity *
Return**
*Class A**Total return Dec 30 2005- Dec 29 2006. All returns adjusted for dividends*** Calculated on daily data**** Calculated on weekly data***** Calculated on monthly dataSource: Schroders, Bloomberg
33.0%
0.59Beta***
0.35Sharpe ratio****
33.5%
1.12
0.31
23.6%
1
Fidelity Italy Fund
MIBTEL (benchmark)
Schroder ISF Italian Equity was number 2 in 2006…
…for 50bps!
HOWEVER, it had much less exposure to market direction
Sharpe ratio only measure volatility…
… not reliance on market direction
0.86Beta**** 1.12 1
1.03Beta***** 1.48 1
(methodological note: in a steady bull market, outperforming funds’ realised Beta increases with time intervals)
Plain return ranking
2 1
Deep industry analysis and search for industrial catalysts have allowed us to deliver superior adjusted returns.
0.76Sharpe ratio*****
0.55
5
SISF EURO Equity Alpha 0307
Performance Attribution: Since Takeover
Source: Schroders, Wilshire Atlas
Currency: EURO
Where has performance come from?
Performance from 1st December 2005 to 29th March 2007The conviction over(under)weight positions we talked to you about in recent months have delivered strong outperformance
We expect continuing strong outperformance from them throughout 2007
Jolly Hotels
Banca Italease
Gruppo Coin
Gemina
Telecom Italia
Acea
ENI
Toro Assicurazioni
Bca Pop Di Verona
Telecom Italia
Return ContributionStock Position
Overweight
Overweight
Overweight
Overweight
Underweight
Overweight
Underweight
Overweight
Overweight
Underweight
+4.05
+3.35
+1.90
+1.75
+1.52
+1.05
+0.87
+0.70
+0.64
+0.60
210.0%
175.6%
70.8%
67.7%
-3.5%
68.1%
10.4%
56.1%
43.8%
-0.1%
Since Takeover: Top 10 positive stock contributors Since Takeover: Top 10 negative stock contributors
Management EC
Autostrade Merid
Dada
Intesa Sanpaolo
Immob Lombarda
Ifil
Capitalia
Guala Closures
Akzo Nobel
Finmeccanica
Overweight
Overweight
Overweight
Underweight
Overweight
Zero Weight
Underweight
Overweight
Overweight
Zero Weight
-1.17
-0.66
-0.59
-0.49
-0.45
-0.42
-0.37
-0.34
-0.27
-0.24
-12.0%
-6.4%
24.9%
47.5%
9.3%
111.8%
47.2%
26.8%
-1.5%
50.9%
Return ContributionStock Position
6
SISF EURO Equity Alpha 0307
Value with a catalyst investment style
No sector rotation/macro bets
Pure stock picking investing
Valuation and in-depth business research are key
European universe will allow to focus on catalysts
Early event situations
No “hedge fund crowded” investments
Looking for poorly researched companies
Looking for undervalued/unseen discontinuities in underlying businesses, regulation, industry, etc etc
Looking for changes in corporate structure
Looking for anomalies in companies valuation/market obsessions
Fairly valuing companies prospects
Follow conviction investment themes
Key advantages
Transformation in company P&L, hence value creation
Downside protection, as whatever markets do, P&L is transformed
No value traps
Concentration, effort intensity and efficiency
Investment Philosophy
Hypothesis driven screeningPrinciples
Activism
7
SISF EURO Equity Alpha 0307
*Relative to MSCI EMU
As at 28 March 2007
Source: Schroders, MSCI
Sector Allocation
0% 5% 10% 15% 20% 25% 30% 35%
Cash
Telecoms
Materials
Info Tech
Utilities
Financials
Con Staples
Energy
Industrials
Health Care
Con Disc
Fund Index
Fund vs index (%)*
1.5%
-7.2%
-6.3%
-5.2%
-4.9%
-2.4%
-1.9%
0.0%
0.8%
6.0%
19.6%
-15% -10% -5% 0% 5% 10% 15% 20% 25%
Cash
Telecoms
Materials
Info Tech
Utilities
Financials
Con Staples
Energy
Industrials
Health Care
Con Disc
Over/underw eight
Fund and Index Positions Relative Position
Schroder ISF EURO Equity Alpha
8
SISF EURO Equity Alpha 0307
Current Active Loads on Individual Stocks
Telefonica
Nokia
Siemens
Sanofi-Aventis
BBVA
BNP Parabis
E.On
Daimler Chrysler
Axa
Societe Generale
-2.2
-2.0
-2.0
-1.9
-1.9
-1.9
-1.9
-1.7
-1.6
-1.4
Load difference
Jolly Hotels
ANF
Flo
Fielmann
Gemina
Anglo Irish Bank
Carrefour
Amplifon
Inditex
Allianz
9.6
4.3
4.0
3.9
3.1
3.0
3.0
3.0
2.3
2.1
Top 10 Positive Load Differences at 28.03.07
Source: Schroders
Load difference Top 10 Negative Load Differences at 28.03.07
Schroder ISF EURO Equity Alpha
9
SISF EURO Equity Alpha 0307
2
3
4
5
6
Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Jan-07 Mar-07
Gruppo Coin
Source: Thomson Financial Datastream
Gruppo Coin– Totally forgotten company
–Underperforming dept stores business
–New shareholders / management
–Rock solid asset base
–Bought at EUR 2.9 average (with in mind fair value EUR 5.5)
–Selling discipline: sold a fourth at EUR 4.8, another fourth at EUR5.27
Stock Examples
Gruppo CoinDec 2005-March 2007 stock price charts
€
10
SISF EURO Equity Alpha 0307
0
5
10
15
20
25
30
Sep-05 Dec-05 Apr-06 Jul-06 Nov-06 Mar-07
Jolly Hotels
Source: Thomson Financial Datastream
Jolly Hotels
Jolly Hotels: the time has come (overweight)
Undermanaged for years
Real estate: make it work or sell
EUR580m owned real estate
All disposals made at higher prices
New top management
Fair value in the EUR25 area (indeed bid at EUR25)
Stock Examples
11
SISF EURO Equity Alpha 0307
1.4
1.8
2.2
2.6
3.0
3.4
3.8
Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07
GEMINA
Source: Thomson Financial Datastream
Gemina
Gemina: precious assets (overweight)
Impressive asset base
Unique airport with no constraint, passenger to grow by 50% in 6 years
Secular traffic growth as final destination
Global demographics to support traffic
Unexploited real estate development
Current sector reorganisation is an opportunity to increase efficiency/asset utilisation
Stock Examples
12
SISF EURO Equity Alpha 0307
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
Dec-05 Mar-06 Jul-06 Nov-06 Mar-07
FIELMANN
Source: Thomson Financial Datastream
Fielmann
Stock Examples
Dec 2005-March 2007 stock price charts
Fielmann
–Optical retailer: attractive sector
–Dominant position in Germany
–Unexploited pricing power
–Expanding abroad
–Favourable demographics
–Favourable industry trends
–Bought during September sell-off
€
13
SISF EURO Equity Alpha 0307
19.0
20.0
21.0
22.0
23.0
24.0
25.0
Dec-05 Mar-06 Jul-06 Nov-06 Mar-07
AUTOSTRADESource: Thomson Financial Datastream
Autostrade
Stock Examples: Intellectual Discipline- How We Manage Mistakes
Dec 2005-March 2007 stock price charts
Autostrade
- For once lured in a ‘popular, crowded trade’
- Bought 7000,000 shares on Apr 24-25 2006 around EUR 24
- Why we bought? We thought it was a wise diversification, in Abertis valuable assets (especially Airports), forming a global infrastructure giant able to compete on every tender in the world.
- Deeper analysis revealed that maybe a catalyst was there, but not value:
- Sell side analysts using unreasonably low WACC, assuming unreasonable traffic growth on Italian motorways
- No real advantage in being a “global bidder”: competition is on cost of debt, there is no edge vs Macquarie and the likes
- Sold it on May 23-26 2006 around EUR 22.8 (-5%)
- Since then Autostrade underperformed the market by 19%
€
14
SISF EURO Equity Alpha 0307
Key European investment themes
Optical retailers consolidation
Elevators manufacturers expansion
Global wealth’s flight to performance
“Media disintermediation”
Gaming opportunity
European markets structure, available assets
Global market trends, building business for the future
Huge assets available throughout Europe
Buy content and online content aggregator, sell physical distribution platforms
Italian + emerging countries
Portfolio implications
Fielmann, Luxottica
Schindler
Non traditional asset managers
No telecom stocks, no media, but Endemol!
Looking at European Equities
Current evidence Analysis
Lottomatica, Intralot
15
SISF EURO Equity Alpha 0307
Key European investment themes (continued)
Global mobility
Society polarization
Population ageing
Restructuring, change in management
Capacity constraint asset vs airlines
Fragmented luxury markets
Nursing homes, hearing aid industry structure and dynamics
Often spectacular at retailers
Portfolio implications
Orpea, Fresenius, CIR, Phonak, Amplifon, William Demant
Coin, Etam Developpement, Wolford
Current evidence Analysis
Looking at European Equities
Yachting
Rome, Vienna
16
SISF EURO Equity Alpha 0307
Key differences versus current Schroder ISF range
Eurozone only
Schroder ISF EURO Equity
Differentiated product within Schroders range
Schroder ISF European Special Situations
Schroder ISF EURO Equity Alpha
Geographies
Eurozone + Scandinavia, Switzerland, Eastern Europe (up to 20%)
Pan Europe
Style Value with a catalyst/pre-event situations
Flexible – no inherent style bias
Concentration 30-50 stocks
Flexible – no inherent style bias
50-100 stocks 50-70 stocks
Performance AimsTo outperform the MSCI EMU by 3% p.a (net of fees) over rolling 3 year periods
To outperform the MSCI Europe, and to be first decileamongst the peer group over a rolling 3 year period
To outperform the MSCI Europe, and to be first decileamongst the peer group over a rolling 3 year period
18
SISF EURO Equity Alpha 0307
Angelo Manca
— Masters in Financial Markets and Institutions-Bocconi University
— Career started at McKinsey in Italy in Mar 2000
— Investment career started in Mar 2001: Julius Baer Brokerage Italy, equity analysts, covering Italian Telecoms and diversified portfolios of medium/small cap companies
— In Aug 2004 joined Redbrick Capital Management in Boston, where he was responsible for company research and trading of positions in European equity markets
— Joined Schroders in September 2005
Angelo Manca
European Equity Fund Manager
European Equity Team
19
SISF EURO Equity Alpha 0307
Investment TeamsSignificant European investment resources
Denis Clough 23Olaf Siedler 22Gary Clarke 13Leon Howard-Spink 10James Squire 7Angelo Manca 6
Ken LambdenHead of Equities
Rosemary Banyard 25Andrew Brough 20Andrew Lynch 8Iain McNaught 7Gillian De Candole 6
17 European Analysts and Associates*
Large Cap Team Small Cap Team
Years’ Experience Years’ Experience
Chris Taylor 18 years’ experienceProduct Manager
European Team
Note: Team Heads are highlighted in bold. Numbers relate to years of investment experience *17 analysts includes 6 dedicated to Europe ex UK, 8 dedicated to the UK and 3 covering global sectors
20
SISF EURO Equity Alpha 0307
Important informationThis 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.
In accordance with the current prospectus, other than for the Schroder ISF Global Property Securities fund, the Company will seek UK distributor status for all distribution A and C shares.
An investment in the Company entails risks, which are fully described in the prospectus.
Past performance is not a guide to future performance and may not be repeated. Investors may not get back the full amount invested, as prices of shares and the income from them may fall as well as rise. Third party data is owned by the applicable third party identified above and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party's specific disclaimers are set forth in the Important Information section at www.schroders.lu
Exchange rate changes may cause the value of any overseas investments to rise or fall.
Schroders has expressed its own views and opinions in this presentation and these may change.
The fund referred to in this presentation may be in or out of scope of the European Union Directive 2003/48/EC (Taxation of Savings Income in the Form of Interest Payments), as implemented in Luxembourg Law.
This presentation is issued by Schroder Investment Management (Luxembourg) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg.For your security, all telephone calls are recorded. R.C.S. Luxembourg: B 37.799