EdRAM Selecting Value Stock Guelfi 26 02 14 ENGacties.trends.knack.be/acties/trends/seminars/2014/FundSummit/... · EDMOND DE ROTHSCHILD I ASSET MANAGEMENT 12 Qualitative Analysis

ASSET MANAGEMENT

Selecting Value stock

VALERIE GUELFIFund Manager International Equities

Edmond de Rothschild Asset Management

EDMOND DE ROTHSCHILD I ASSET MANAGEMENT 2

Contents

I. Executive summary

II. Investment team

III. Investment process

IV. Portfolio structure

V. Performance

VI. Risk control


Contents


II. Investment team



V. Performance

VI. Risk control


Edmond de Rothschild Global Value: Competitive Edge

PotentialUnique Stock-picking

Contrarian investment approach, away from fads and conventions

Uncompromising selection of value stocks and deep value stocks with high potential for appreciation

Well-known expertisein value / deep value management

Source: Edmond de Rothschild Asset Management. Istockphoto


Investment Philosophy

� A truly « Value » approach aiming at benefiting from Equity markets inefficiencies

Investment Style

Relative Value

Minimum 70% of assets are invested in discounted companies

Deep Value

Maximum 30% of the portfolio is invested in Deep Value stocks with high potential for appreciation (P/B <1)

70% 30%

The data shown refers to past years and it is not a reliable indicator of future results.


Contents


II. Investment team



V. Performance

VI. Risk control


Experienced international equity specialists

� Stock-picking expertise in International Equities

� Portfolio managers with an average of 10 years’ industry experience

� Dual expertise in terms of in-depth in-house fundamental analysis and investment management

� The support of equity specialist in every geographical zone


Experienced international equity specialists

� The international managers benefit from the expertise of specialized teams on every geographical zone

� The selection of Japanese securities is based on the expertise of our partner Sumitomo Mitsui Asset Management

European Equities(Large / Mid Caps)

Emerging equities and commodities

US andInternational

Equities


Contents


II. Investment team



V. Performance

VI. Risk control


Investment Process

Investment Process overview


Operational research universe definition

1 – Multi-criteria Quantitative filter :

� Market capitalizations: excluding companies with a market capitalization below USD 500 mln,� Liquidity: min. USD 5 mln daily trading volume,� Turnover: min USD 1 bn� Debt level: EBIT > 3 x Interest Expense

3 – Strongest convictions of the other equity teams� The fund managers benefit from EdRAM capabilities : 30 Portfolio Managers, each one specialized in a

specific area and/or sector

2 - Idea generation => attractive Value Stocks identification via a multifactor screening

� Valuation ratios (P/E, forward P/E, EV/EBITDA, Price/Cash-Flow, Price/Sales, P/B, etc.)

� Operation ratios (sales, expected revenues and earnings growth, net debt/EBITDA, net debt/shareholders equity, EBIT/total interest expense)

� Other indicators (dividend yield, 12 month momentum, Short interest)

2 – Deep value opportunities stock assessment through a two-fold screening:

� A first filter to identify stocks whose P/B <1

� Then, a second filter based on the net debt / total assets ratio

Relative Value Deep Value


Qualitative Analysis

� In-depth fundamental analysis:

Focus Criteria Methodology

Business model� Quality and soundness of the company’s strategy� Financial health� Underlying markets

� Publications� Company visits� Brokers research

Market and sector characteristics

� Barriers to entry� Market and sector trends� Competitive environment� Legal and regulatory environment

� Interaction with other investment teams (notably equity teams)

� Sell-side analysts� Third party research� Other companies within the sector/cross channel

check

Political, country and currency risks

� Independence of central banks� Currency policy/pegging� GDP, PMI, fiscal deficit, etc.

� Interactions with other investment teams (notably fixed income and asset allocation specialists)

� World Bank publications

Financial and valuation analysis

� Financial analysis:Debt levels and structure, sales and profit growth,evolution of net income, quality of earnings, cash flowanalysis & generation, matching of cap. ex. vs cash flows� Valuation analysis:P/E, P/B, EV/Ebitda, DCF, Sum-Of-Parts

� In-depth analysis of financial statements� Valuation models: DCF, multiples, sum-of-the-

parts, etc.

Management� Quality of management� Corporate governance

� Meeting with the management� On-site visits


Risk Reward Ratio approach

(Target Price – Current Price)

(Current Price – Floor price)

A high R.R.R is positive indicatorRisk Reward Ratio(R.R.R) =

0

5

10

15

20

25

30

35

40

45

Target Price

Floor Price

The weight of each holding is based on the combination of :- Fund Managers

conviction - Its R.R.R.



Portfolio Construction (2/2)

Main guidelines

� Each stock held in portfolio meets 2 criteria:

� It posts a significant appreciation potential (i.e. High R.R.R)

� It suits to diversification guidelines (country / sector / holding)

Short list : 120 stocks

Sector Allocation: max 30% per sector

Geographical allocation: +/- 20% versus MSCI WORLD

Best R.R.R (Risk Reward Ratio)

Investment limit by holding: � Deep Value : 2% maximum� Relative Value : 5% maximum

Portfolio40 – 60 holdings


Portfolio monitoring

� A robust portfolio monitoring performed by the investment team on a daily basis

Portfolio40 – 60holdings

BOTTOM-UP

� Liquidity Risk

� Business related Risk

� Financial Risk

ENHANCED BOTTOM-UP

� Political / country risk

� FX risk

PASSIVE TOP-DOWN

� Sector diversification

� Country Allocation


Sell discipline

� Relative Value

A stock’s absolute performance (purchase price compared to current price) and its relative performance (in the fund’s case, change in sector discount) are permanently monitored to assess whether it should be reduced or sold outright

� Deep value

deep value stocks bought for the portfolio are expected to return 50% over a two to three year horizon. When the target price is reached, the investment case is reassessed and the position is generally sold.

Depreciation of a stock held in the portfolio by more than 15% leads to review of the investment case



Contents


II. Investment team



V. Performance

VI. Risk control


Thematic breakdown in the portfolio

Themes Stocks

Healthcare spending Merck, Roche, Medtronic, Bayer, N ovartis

Healthcare reform Aetna, Unitedhealth, Express Scripts

Property market normalization Owens Corning, Masco, Ax iall, Wolesley, Stanley Black&Decker, Suntrust, Zion

Energy & industrial revolution Baker Hughes, Whiting , Vallourec, Nexans

Commercial aerospace Allegheny, Meggit, Boeing

Global auto cycle Ford, Faurecia

Recovery in IT spending Cisco, AsusTek, Nokia, Netapp , EMC

Improving credit quality Citigroup, CIT , BBVA

Regulatory changes Telecom Italia, RWE

Under valued assets Melia Hotels, Abengoa, Air France, Vivendi

The data shown refers to past years and it is not a reliable indicator of future results - Source : Edmond de Rothschild Asset Management, data at 31-01-2014


Sector allocation versus MSCI WORLD

Source : Edmond de Rothschild Asset Management, données au 31-01-2014, , Les performances passées ne préjugent pas des performances futures qui peuvent varier dans le temps.

0,2%

-7,7%

-1,2%

-7,3%

5,4%

7,4%

-0,2%

0,2%

-0,6% -1,2%

5,0%

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Ser

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Country Allocation & Main Holdings

Source : Edmond de Rothschild Asset Management, data as of 31-01-2014, The data shown refers to past years and it is not a reliable indicator of future results.

Country Allocation Main Holdings

Stock % of ptf

1 Citigroup Inc 3,1%

2 MERCK & CO 2,8%

3 Roche Holding AG 2,5%

4 Macy's Inc 2,2%

5 Express Scripts Inc 2,1%

Total 12,7%

5,0%

2,2%

4,3%

8,5%

15,2%

14,7%

50,0%

Cash

Japan

Asia Ex-Japan

Europe Ex-Euro

France

Euro Ex-France

North America


Contents


II. Investment team



V. Performance

VI. Risk control


Edmond de Rothschild Global Value (I)(data as at 31-01-2014)

Performance data 1 year 3 years 5 years Inception*

EdR Global Value (I) 25,4% 26,3% 139,2% 64,8%

MSCI World (NR) 16,8% 32,7% 101,9% 41,3%

Indicators(52 weeks)

Fund Benchmark

Volatility 12,4% 11,0%

Sharpe Ratio 2,0 1,5

Information Ratio 2,2

Tracking Error 3,8

The figures referred to in that document are related to the past. Past figures are not reliable indicators of future results. Source : Edmond de Rothschild Asset Management, data as of 31-01-2014.* Inception date: 09/06/2008. The Morningstar

ratings are not market rankings and cannot be interpreted as recommendations to buy, sell or hold the shares or units of the above mentioned Fund. The references to market rankings or awards of these funds are not a reliable indicator of the

future results of the Fund or of the Management Company.

Key features:

� AuM: EUR 194m

� Morningstar Rating:

� Morningstar Rankingo 1 year: 1st decileo 3 years: 2nd quartileo 5 years: 1st decile

+23,5%

Performance data 2009 2010 2011 2012 2013 YTD

EdR Global Value (I) 51,1% 15,9% -14,1% 14,8% 32,9% -1,1%

MSCI World (NR) 25,9% 19,5% -2,4% 14,0% 21,2% -1,6%

5060708090

100110120130140150160170 EdR Global Value (I)

MSCI World (NR)


Edmond de Rothschild Global Value (A)(data as at 31-01-2014)

Performance data 1 year 3 years 5 years Inception*

EdR Global Value (A) 24,4% 23,0% 129,1% 56,8%

MSCI World (NR) 16,8% 32,7% 101,9% 41,3%

Indicators(52 weeks)

Fund Benchmark

Volatility 12,4% 11,0%

Sharpe Ratio 1,9 1,5

Information Ratio 1,9

Tracking Error 3,8

Key features:

� AuM: EUR 194m

� Morningstar Rating:

� Morningstar Rankingo 1 year: 1st decileo 3 years: 3rd quartileo 5 years: 1st decile

+15,5%

The figures referred to in that document are related to the past. Past figures are not reliable indicators of future results. Source : Edmond de Rothschild Asset Management, data as of 31-01-2014.* Inception date: 09/06/2008. The Morningstar

ratings are not market rankings and cannot be interpreted as recommendations to buy, sell or hold the shares or units of the above mentioned Fund. The references to market rankings or awards of these funds are not a reliable indicator of the

future results of the Fund or of the Management Company.

Performance data 2009 2010 2011 2012 2013 YTD

EdR Global Value (A) 49,9% 14,9% -14,8% 13,8% 31,8% -1,2%

MSCI World (NR) 25,9% 19,5% -2,4% 14,0% 21,2% -1,6%

5060708090

100110120130140150160170

EdR Global Value (A)

MSCI World (NR)


Contents


II. Investment team



V. Performance

VI. Risk control


Fully integrated and permanent risk control

� An independent Risk Control department

� Oversight & Control of market risks and liquidity, operational risk management and counterparty risks

� Performance analysis

� Permanent investment risk and liquidity oversight of our portfolios

� Simcorp Dimension : an integrated information system

Highly customised risk management for

each portfolio

Access to information in real time for both Managers

and Risk Control

Permanent control of Edmond de Rothschild

Asset Management activity

A unique reference tool shared by all business lines and affiliates with no data loss


Dimension: highly customisable integrated information system

� Analysis, order processing and system monitoring

� Pre-validation of NAV

� Pre and post-trade limit controls

� Client reporting

� Positions, transactions, corporate actions reconciliation with the fund custodian and administrator

� Market, liquidity and issuer risk calculation

� Performance calculation and analysis

Risk Management Performance analysisOrder ManagementPortfolio Management

Settlement Accounting Fund accounting Reporting

Dimension

developped by Simcorp


Terms & Conditions

Amf classification International Equities

Benchmark MSCI World

NAV frequency Daily

Entry fee 4,50% max.

Redemption charges None

Share A Share B Share E Share I Share

Isin code FR0010616201 FR0010781385 FR0010781393 FR0010617423

Bloomberg Ticker LCFSLRA FP Equity LCFSLRB FP Equity LCFSLRE FP Equity LCFSLRI FP Equity

Currency EUR USD EUR EUR

Currency hedging none none none none

Dividend policy accumulation accumulation accumulation accumulation

Management fees 2,00% 2,00% 2,40% 1,00%

Performance commission 15 % per year of the outperformance compared with the benchmark

Subscribers All subscribers All subscribers All subscribers Legal entities

Minimum subscription 1 share 1 share 1 share 500 000 EUR

Inception date 09/06/2008 06/08/2009 06/08/2009 09/06/2008

Share R Share

Isin code FR0010705137

Bloomberg Ticker LCFSLRR FP Equity

Currency EUR

Currency hedging none

Dividend policy accumulation

Management fees 1,15%

Performance commission none

Subscribers Legal entities

Minimum subscription 500 000 EUR

Inception date 12/01/2009


Global Valuations : no evident sign of excesses

Global Equities Price to book over time

Source: Barclays, Bloomberg

Global Equities Price to earnings over time


Potential risks (1/2)

The risks described below and in the next slide are not exhaustive. It is the responsibility of each investor to analyze the risk associated with such an investment and to form his/her own opinion.

Risk of capital loss:� The UCITS does not guarantee or protect the capital invested; investors may therefore not get back the full amount of their initial capital

invested even if they hold their units for the recommended investment period.

Discretionary management risk:� The discretionary management style is based on expectations of the performance of different markets (equities, bonds). However, there

is a risk that the Fund may not be invested in the best-performing values at all times.

Equity risk:� The value of a stock may change depending on factors specific to the issuer but also on exogenous, political or economic factors.� The FCP may be exposed to the equity markets either via direct investments in equities and/or via financial contracts and/or UCITS.

Fluctuations of the equity markets may lead to substantial variations in the net assets which may have a negative impact on theperformance of the FCP.

� Fund performance will depend on companies picked by the investment company.

Emerging Markets risk:� The fund will be exposed to emerging countries or may invest in financial instruments traded on the emerging markets. In addition to the

specific risks per issuer, exogenous risks exist, particularly in those markets. Operation and supervision conditions in emerging marketsmay deviate from the standards that prevail on the major international stock exchanges.


Potential risks (2/2)

30

Interest rate risk:� By holding debt securities and money market instruments, funds are exposed to changes in interest rates. This risk is defined as a rise

on interest rates causes a decline in bonds valuation and therefore a fall in of the fund’s NAV.

Credit risk:� The main risk is that of the issuer defaulting on payment, failing to pay the interest and/or repay the capital. Credit risk also relates to the

downgrading of an issuer. Investors’ attention is drawn to the fact that the FCP’s net asset value may drop in the event of a total lossbeing recorded on an operation following a counterparty default. The presence of corporate bonds in the portfolio – either directly orthrough UCITS – exposes the FCP to the effects of changes in credit quality.

Currency risk:� The capital may be exposed to foreign exchange risk when the securities or investments it is composed of are denominated in a

currency other than that of the FCP.� Currency risk is the risk of a reduction in the net asset value of the FCP when an investment is made in a currency other than the euro

and such currency depreciates against the euro on the currency market.

Risk associated with engagement in financial contracts and counterparty risk:� The risk related to engagement in financial contracts resulting from the use of financial instruments may induce a decrease in UCITS

assets higher than market on which the fund is invested.� These financial contracts may be OTC with one or more counterparties which might not be able to fulfill their commitment under these

contracts. This is a counterparty risk which can result in a decrease of the fund’s NAV.


Disclaimer

Written on 12/02/2014. This is a non-binding document from Edmond de Rothschild Asset Management Benelux - Avenue Louise 480 - 1050 Brussels -

N°0808.499.156.

This document has been prepared exclusively for information purposes.

This marketing document is exclusively for use by professional clients in the Netherlands, Belgium and Luxembourg and is not for use by non-professional clients or retail

clients. Please do not redistribute. A copy of this document for use by non-professional or retail clients can be obtained on request. This document does not represent a

public offer of the previously cited funds in the countries mentioned. The data, comments and analyses in this bulletin reflect the opinion of Edmond de Rothschild with

respect to the markets and their trends, regulation and tax issues, on the basis of its own expertise, economic analyses and information currently known to it. However, they

shall not under any circumstances be construed as comprising any sort of undertaking or guarantee whatsoever on the part of Edmond de Rothschild Asset Management. In

no event shall Edmond de Rothschild Asset Management assume responsibility for any decision to invest, to disinvest or to maintain a position on the basis of these

comments or analyses. It is the responsibility of each and every investor to obtain the various regulatory prospectuses for each fund or financial product prior to making any

investment and to analyse the risk incurred and establish his or her own opinion, independent of the Edmond de Rothschild Asset Management, and where necessary, to

take specialist advice regarding such questions, and especially in order to determine the relevance of such investment to his or her own financial situation. This document is

designed exclusively for institutional or professional investors as understood in the Belgian law of July 20 2004 relating to certain forms of collective management of

investment portfolios. This document is also exclusively designed for investors other than consumers as understood in the Belgian law of July 14 1991 on commercial trading

and on information and consumer protection. Past performance and volatility is not a reliable indication of future performance and volatility and is not constant over time. The

funds’ investment polices do not intend to replicate the index. Consequently their performance may differ from that of the index. The prospectuses and key information

documents of these Funds domiciled in France are available on request and on our website (www.edram.be) or for the UCITS which may be publicly offered in Belgium with

CACEIS Belgium, Avenue du Port 86C bte 320, 1000 Brussels - Belgium - Tel: 02/209.26.40 - Fax: 02/209.26.98 - RPM Brussels: 0460 019 728. Any particular tax treatment

may depend on the individual situation of a client and may be changed in the future.

Edmond de Rothschild Asset Management Benelux

IT Tower - Avenue Louise, 480 – B 1050 Brussels

E-mail : [email protected] - www.edram.be

N°0808.499.156 – Branch of Edmond de Rothschild Asset Management SA

RCS of Paris (France) n°332 652 536

Edmond de Rothschild Asset Management - 47 rue du Faubourg Saint-Honoré – 75401 Paris Cedex 08 – Tél. +33 (0)1 40 17 25 25 – Fax +33 (0)1 40 17 23 67

Société anonyme – Numéro d’agrément AMF GP 04000015 - 332 652 536 R.C.S. Paris - E-mail : [email protected] – www.edram.be

Documents

EdRAM Selecting Value Stock Guelfi 26 02 14 ENGacties.trends.knack.be/acties/trends/seminars/2014/FundSummit/... · EDMOND DE ROTHSCHILD I ASSET MANAGEMENT 12 Qualitative Analysis