Transcript Threadneedle PowerPoint template Revised April 2009

AROUND
European
THE
WORLD
Cazenove
IN 80
Investment
Management
MINUTES
For professional advisers only
Europe's perfect storm
 Deflationary policy environment
 Constitutional crisis
 Deleveraging environment
 Low-growth world
 Growth at risk
Perfect investment opportunity?
1
Investor confidence undermined
2011 net mutual outflows in Europe -€65bn
Source: Lipper at 31/12/11
2
Professional opinion divided
2nd LTRO spread of forecasts*
 Consensus of economists and bank
advisers fragmented
 <2.5% experts were correct on €489bn
funding
 LTRO success is deemed critical for
illiquid markets
 Deep recession avoided?
Eurozone inflation forecasts** (%)
 CPI actual between 2-3% in 2011
2.6
2.4
 Only high forecasters achieved
credibility
2.2
2
1.8
 Deflationary concerns avoided for now
1.6
1.4
1.2
1
Jan 11
Mar 11
May 11
Average
Jul 11
Sep 11
High
Nov 11
Jan 12
Low
Source: *UBS Survey at 17/02/12, **Absolute Research Strategy at 01/02/12
3
Crisis? What crisis?
4
Gross debt as a % of GDP*
Euribor-OIS spread (bps)
250
110
100
200
90
80
150
70
60
100
50
40
50
30
20
0
2011
Eurozone
2012*
UK
10
Jan 11
2013*
US
Apr 11
Jul 11
Oct 11
Jan 12
Japan
*Forecasts
 UK National debt more likely to exceed
100% GDP
 Confidence in European inter-bank
lending increasing
 Eurozone debt looks stable relative
 LTRO judged a success
 US S&P AAA credit rating unlikely to
restored in the medium term
 European currency crisis avoided for
now
Source: Thomson Datastream at February 2012, Bloomberg at 23/02/12
Eurozone GDP proportionate to media hype?
5
Eurozone countries
as a % of total GDP
Portugal,
1.9%
Finland,
2.0%
Greece,
2.5%
Austria,
3.1%
Belgium,
3.9%
SK, SL, LX,
Ireland, CY, EE &
1.7% MA, 2.0%
Germany,
26.9%
Netherlands
6.4%
Spain,
11.5%
France,
21.1%
Italy, 17.0%
PIGS (less Italy) economies 17.6% of 2011 GDP
Source: Thomson Datastream at 31/12/11
Budget deficits falling
6
Eurozone government budget deficits as a % GDP
5
0
-5
% GDP
-10
-15
-20
-25
-30
-35
2007
2008
Germany
2009
Italy
2010
Spain
 2010: universal flouting of 3% budget
deficit rule
 Austerity impacting debt
 Even Germany almost in surplus
* Forecasts
Source: Thomson Datastream at February 2012
Portugal
2011
Ireland
2012*
2013*
Greece
 2011: German economy grew by 3%
 Italy and Germany within deficit rule
Franco-German business optimism positive
7
PMIs rebounded in January
65
60
55
50
45
40
35
30
2001
2002
2003
2004
Germany-Manufacturing
2005
2006
Germany-Services
 Private sector companies only
 Historic PMI rallies precede strong equity
revisions
Source: Thomson Datastream at February 2012
2007
2008
2009
France-Manufacturing
2010
2011
2012
France-Services
 February PMI forecasts a ‘soft’ landing
in China
 Oil price risk would require a trend back
to $140
Eurozone power house resilient
Germany
 Index of investor and analyst
expectations
 6 month outlook
8
Investor confidence survey
80
150
60
100
40
50
20
0
 Largest confidence jump since 2009
-20
 Hopes of debt crisis resolution
-60
 Economy proves resilience
-80
2001
0
-50
-40
-100
-150
2002
2003
2004
2005
2006
Economic Sentiment
Bn Euro
Exports
2007
2008
2009
2010
2011
2012
Current Situation
GDP Growth vs business survey (%)
350
6
115
300
4
110
250
2
200
0
150
-2
105
100
95
100
90
-4
50
85
-6
1Q 05
2Q 05
3Q 05
4Q 05
1Q 06
2Q 06
3Q 06
4Q 06
1Q 07
2Q 07
3Q 07
4Q 07
1Q 08
2Q 08
3Q 08
4Q 08
1Q 09
2Q 09
3Q 09
4Q 09
1Q 10
2Q 10
3Q 10
4Q 10
1Q 11
2Q 11
3Q 11
4Q 11
0
Source: Bloomberg at February 2012
80
-8
75
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP YoY% (LHS)
IFO-Expectations
German export-led recovery
9
% of total exports
US
7%
Rest of
World
54%
 Strong demand from non-EU countries
 Diversified export market
Rest of
Eurozone
39%
 Weakening euro will boost
industrial exports
 Underexposed to the US market
Source: Thomson Datastream at 30/11/12
European export exposure
European Union’s 3 largest economies export
exposure
10
Eurozone’s export exposure
to the rest of the world
France
Asia, 24%
Rest of
World, 41%
UK
UK, 12%
Germany
US, 12%
0
5
Italy
Spain
10
Portugal
15
Greece
 Germany, UK and France < 20%
exposure to PIIGS exports
Source: Thomson Datastream at 31/12/11
20 %
Ireland
Africa, 6%
LATAM, 5%
 Eurozone exports well positioned for
global economic recovery
Risk of European market rally?
11
150
20
100
15
50
10
0
P/E
25
5
0
1980
Total Return YoY%
Europe vs price earnings
-50
-100
1985
1990
1995
Trend P/E (LHS)
 Price earnings a leading indicator for
increasing equity returns
Source: Thomson Datastream at 23/02/12
2000
2005
2010
Total Return YoY%
 History offers a ‘clue’ to correlated
earnings recovery to undervalued
assets
Trough to peak recoveries in European equities
12
FTSE World Europe (since inception maximum 2 year recovery periods)
550
Gfg
Gfg
Gfg
500
+121.8%
450
400
350
300
+90.7%
250
+80.8%
200
150
100
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
“If past history was all there was to the game, the richest people would be librarians” - Warren Buffett
Source: Thomson Datastream at 23/02/12
2012
Are European equities good value?
13
UK
Europe (ex-UK)
US
24.2%
14.1%
12.7%
Average P/E
9.8x
13.8x
11.8x
Market Trend P/E┼
16.2x
10.3x
17.6x
 Large international companies
trade at a premium
 Active managers need to
identify value
 Dividend records can inflate
price relative to growth
 Beware of valuation traps just
because a stock is cheap
 International demand is key.
In 2010, 41% of UK market
was owned by overseas
investors*
Combined Market Cap**
*Source: ONS at 28/02/12 **Source: Bloomberg at 23/02/12 ┼ Source: Mirabaud at 12/03/12
US recovery impact
14
6
4
2
120
0
US GDP YoY %
Index rebased at 100 at start of 1997 (log scale)
240
-2
-4
60
-6
1997
1999
2001
2003
Germany PMI Manufacturing
2005
2007
US GDP (RHS)
2009
2011
FTSE World Europe
European business and investors responding to US recovery
Source: Thomson Datastream at 23/02/12
Is the reverse yield gap back?
15
%
7
Yield
6
5
4
3
2
2006
2007
2008
Eurofirst 300 Dividend Yield
2009
2010
2011
BOFAML EMU Investment Grade Bond Redemption Yield
Low equity growth outlook increases pressure for tangible returns - DIVIDENDS
Source: Thomson Datastream at 23/02/12
2012
Low growth outlook encourages dividend opportunity
16
%
7
6
Yield
5
4
3
2
1
2006
2007
2008
Eurofirst 300
2009
FTSE All Share
2010
S&P 500
100+ European stocks with yields higher than their P/E
Source: Thomson Datastream at 23/02/12
2011
MSCI Asia ex Japan
2012
Cazenove European active weightings
17
Style Grouping
Fund %
Index
Key Stocks
Commodity Cyclicals
11.7
12.5
ENI
Consumer Cyclicals
13.8
7.0
Publicis Groupe
Financials
17.3
20.5
Allianz
Growth
4.3
10.6
Bureau Veritas
Growth Defensives
21.5
19.5
Bayer
Industrial Cyclicals
14.0
14.0
Alstom
Value Defensives
15.0
16.1
Sanofi
Underweight
Overweight
Source: Cazenove Capital Management at 31/01/12
Neutral
Cazenove European Income Fund launch
 Only 2nd European Fund launch to be
managed by Chris Rice (OBSR AA rated)
 Dual objective*
– Income (110% of the Index)
– Capital growth (index +2% net of fees
over 3 years rolling)
 Quarterly distribution
 Concentrated approach: 30-50 stocks
 European Income funds limited strong
reputational fund managers
1st May launch
*Not guaranteed
Subject to FSA approval
18
Disclaimer
19
This document is issued by Cazenove Capital Management which is the name under which Cazenove Capital Management Limited and
Cazenove Investment Fund Management Limited both authorised and regulated by the Financial Services Authority, provide investment
products and services. It is for information purposes only and does not constitute an offer to enter into any contract/agreement nor a
solicitation to buy or sell any investment or to provide any services referred to therein.
This document is solely for the use of professional intermediaries and is not for general public distribution.
The contents of this document are based upon sources of information believed to be reliable, however, save to the extent required by
applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to its accuracy or completeness,
and Cazenove Capital or connected companies, directors, officers and employees do not accept any liability or responsibility in respect of
the information or any recommendations expressed herein which, moreover, are subject to change without notice.
This document has been produced based on Cazenove Capital Management’s research and analysis and represents our house view.
Unless otherwise stated all views are those of Cazenove Capital Management. It may not be reproduced in any form without the express
permission of Cazenove Capital Management and to the extent that it is passed on, care must be taken to ensure this is in the form which
accurately reflects the information given here. Unless otherwise indicated, the source for all data is Cazenove Capital.
Past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and
an investor may not get back the amount invested and may be affected by fluctuations in markets and exchange rates.
Cazenove Capital Management is the name under which Cazenove Capital Management Limited (registered No. 3017060) and Cazenove
Investment Fund Management Limited (registered No. 2134680) each authorised and regulated by the Financial Services Authority and of
12 Moorgate London EC2R 6DA provide investment products and services.
C12009_Around the World - Cazenove European 2012 Powerpoint Presentation.ppt