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January 2013
AXA Framlington Europe ex UK Fundg p
Europe – Moving from a vicious circle to a virtuous circle?to a virtuous circle?
Mark Hargraves – Fund Manager
This communication is for professional advisers only and must not be reliedupon by retail clients. Circulation must be restricted accordingly.
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Introduction to AXA Framlingtong
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European – Core Investment Team
European sector specialistsMark Hargraves Continental EuropeFund Manager
Consumer
Marie Chaperon7 yrs’ experience
Olivier Eugène12 yrs’ experience
Energy Materials
Hervé Mangin13 yrs’ experience
17 years’ experience in asset management Joined AXA Framlington in 2000 as fund manager and became
Head of the Continental European team in 2001 Previously worked for Abbey National, Hambros Fund
Management and United Friendly Asset Management BSc (Hons) Geography Masters in Finance from London
Utilities/HealthcareTech/Business Services
Chrysoula Zervoudakis Pan EuropeanFund Manager 25 years’ experience in asset management Joined AXA Framlington and started managing French and Pan
BSc (Hons) Geography. Masters in Finance from London Business School. Associate member of CFA institute of UK
Financials
Khiem Lé13 yrs’ experience
Guillaume Robiolle15 yrs’ experience
Joined AXA Framlington and started managing French and Pan–European funds in 2004
Previously Associate Partner in the European equities management team at Invesco
BSc (Hons) Economics and MBA from Manchester Business School
VincentVinatier13 yrs’ experience
Telecoms
Bruno Grandsard11 yrs’ experience
ChrysoulaZervoudakis25 yrs’ experience
IndustrialsGilles Guibout EurozoneFund Manager 16 years’ experience in asset management Joined AXA IM in 2006, and is responsible for AXA Framlington
Eurozone Equity Franchise Europe OpportunitiesEurozone Equity Franchise, Europe Opportunities 1995-2006 San Paolo Asset Management – Fund Manager
European Equities Institut Supérieur de Gestion (1995) and graduated in Economics
and Italian from the University of Paris X-Nanterre. Member of the Société Française des Analystes Financiers
Source: AXA IM as at 31/10/2012. Years relate to investment experience.
2 16332
AXA Framlington Europe ex UK FundPerformance – 5 years to 30/11/2012
120AXA Framlington European R Inc (MF) FTSE World Europe ex UK TR EUR (IN)
90
100
110AXA Framlington European R Inc (MF) FTSE World Europe ex UK TR EUR (IN)
60
70
80
50Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12
1 year 3 years 5 years 10 years
Quartile ranking 1 1 1 1
3 16332
Source: AXA IM & Lipper, Bid to Bid, Net Income, Net Fees in GBP as at 30/11/2012. Comparative benchmark: FTSE World Europe ex UK. Past performance is not a guide to future returns.
AXA Framlington Core European Equity StrategiesKey attributes
Core style Consistent profile in alpha delivery in both Bull and Bear phases Growth oriented philosophy focusing on companies with high
ROIC
Long term investor mindset
Low turnover - average holding period between 3 and 5 years
In depth knowledge of companies built over a significant period p g p g p
High active share Fundamental stock picking
Conviction based approach not driven by benchmark
Core strategies with consistent and regular outperformance through various cycles
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Step 1. Corporate Lifecycle AnalysisFocusing on companies with high ROIC
Proven Success Mature Resurgent SuccessFuture Success
ROICtime
ROIC < 0 Investment Phase Building the franchise
Sustainable and High ROIC Sales and profits growth Improving market share through competitive
ROIC converging to cost of capital
Competition business model at
Resurgent growth in ROIC & Earnings
Restructuring Phase: asset sales/new g High EPS growth advantage & innovation
Leadership in growing markets Pricing power Internationalisation
risk Commoditisation market share
losses Low revenue and profit growth
business mix Management Change Improved perception of company and
industry growth trends
Investing in the most attractive stages of a company corporate lifecycle
Source: AXA IM – For illustration purposes only
5 16332
Europe - Economic and market perspectivesp p p
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Europe – 2008-2012 … not pretty …
Quarterly NNM (€bn) over 5 years European
2
4
Quarterly NNM (€bn) over 5 years ‐ European domiciled actively managed cross‐border funds
‐4
‐2
0
‐10
‐8
‐6
0
10
%
Relative Performance of MSCI Europe Ex UK to MSCI Worldfrom 31/12/07 to 31/12/12
‐16
‐14
‐12
Q4 2007 Q3 2008 Q2 2009 Q1 2010 Q4 2010 Q3 2011 Q2 2012
Equities Euroland Equities Europe
-20%
-30
-20
-10
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
MSCI Europe ex UK TR EurosMSCI World TR euros
7 16332
Source: Left-hand chart: AXA IM as at 30/09/2012. Right-hand chart: Lipper as at 31/12/2012.
Europe – Moving from a vicious circle to a virtuous circle?
Tail riskreduction
StructuralF d fl Structural reformFund flows
Valuation
8 16332
Europe – What a difference a few months can make
FT Person of the Year:Mario DraghiMario Draghi
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What about fundamentals? Issues being addressed …. slowly …
Current account deficits
(2)
Fiscal crisisUnit labour costs
(1)(3)Cumulative Annual Government Deficit as % of GDP
(2008 2012)
(1)
(2008-2012)
2008 2012 %ch
Banking crisis
(4)2008 2012 %ch
Loans €10.8tn €11.4tn +5%
Total assets €28.4tn €27.2tn -4%
Tangible equity €543bn €968bn +87%
10 16332
Source: (1) Thomson Reuters Datastream as at 04/01/2013. (2) Societe Generale as at 14/11/2012. (3) Deutsche Bank, OECD as at 07/12/2012. (4) KBW, December 2012.
It has been a painful process …
Italy GDP (1) Spain GDP (2) Unemployment (3)
11 16332
Source: (1) (2) Deutsche Bank, OECD as at 07/12/2012 . (3) Thomson Reuters Datastream as at 04/01/2013. Photos: Reuters, January 2013.
Europe – Unable to reform? Not true …
Early1990’s
Late1990’s
20081990 s 1990 s
“Sick man of Europe”
“Bad bank” Fiscal reforms
Supply side reformHartz reforms
Pension reformWage cuts
Fiscal reform
-2000
0
2000
4000
-10000
-8000
-6000
-4000
-120002003 2004 2005 2006 2007 2008 2009 2010 2011
12 16332
Source: Sweden: Societe Generale as at 14/11/2012. Germany: Thomson Reuters Datastream as at 04/01/2013. Ireland: Central Statistics Office as at December 2012.
Upside potential is huge
Impact on GDP per capita of a broad set of reforms in selected countries
“Never let a good crisisgo to waste”
R h E l%
Rahm EmanuelChief of Staff to President Obama
November 2008
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Source: Societe Generale as at 14/11/2012.
Implications for equity investors
LONGER TERM
Europe is cheap in relative terms and “investible” again
Low growth, low interest rates here to stay
Supporting long duration quality stocks … a new “Nifty 50”?
Reduction in tail risk opens selective value opportunities … eg European financials
TACTICAL CONSIDERATIONS
Risk on/risk off will remain a feature
Risk on growth disappointment remains
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Balancing macro vs micro
Spanish retail sales – ouch! Inditex share price – what crisis?
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Source: Bloomberg as at 03/01/2013.
European equities in 4 charts
Return on equity %European valuation premium/discount relative to USA %
-20
-10
0
10
10
12
14
16
18
20
-50
-40
-30
75 80 85 90 95 00 05 10
Sector Neutral Premium / Discount %Premium / Discount %
0
2
4
6
8
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
012e
013e
014e
75 80 85 90 95 00 05 10
80
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 20 20 20
10
Free cash flow yield %Net debt to equity %
30
40
50
60
70
2
0
2
4
6
8
0
10
20
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
e20
13e
2014
e -8
-6
-4
-2
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
e20
13e
2014
e
16 16332
Source: MSCI, Morgan Stanley Research as at 28/12/2012.
AXA Framlington European Fund(Europe ex UK strategy)(Europe ex UK strategy)
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AXA Framlington European FundStrong risk adjusted returns attributes
Ex-ante tracking error**Risk and return summary*
1 year(ann) %
3 years(ann) %
5 years(ann) %
Performance - net 27.77 7.98 1.81
3
3.5
4
vs B
ench
mar
k
Comparative benchmark 13.80 2.27 -0.62
Excess returns 13.97 5.71 2.42
Tracking error - 6.31 6.41 2
2.5
3
te B
eta
of P
ortfo
lio
Predicted Tracking Error
Volatility - 18.18 23.64
Benchmark volatility - 18.87 23.85
Information ratio - 0.90 0.38
1.5Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
Ex a
nt
Time Period
Low ex-ante tracking-error ranging 2-5%
Low Turnover reflecting our long term investment philosophy and “investor” mindset
2011 2010 2009
Annual returnover (%) 38.74 43.25 56.17
*Source AXA IM as at 30/11/2012. Comparative benchmark: FTSE World Europe ex UK. ** Northfield/AXA-IM/FactSet as at 30/11/2012. NB: Past performance is not a guide to future returns.
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AXA Framlington European Fund – Style Overview (1/2)
Value Growth Other6
2.9
1.7
2.7 3.0
1.50 9
2.1
4.3
2
4
-1.3-0.8
0.20.9
-0.4 -0.4 -0.1
-2
0
-2.5
-5.3
-2.2
-3.4
-6
-4
o A E y
Book to
Price
Div
idend
Yie
ld
Earn
ings
Yie
ld
Fre
e C
ash
flow
Yie
ld
Sale
s to
Price
EB
ITD
Ato
Price
RO
E
Inco
me
to S
ale
s
3 Y
ear
Sale
sG
row
th(H
isto
ric)
12M
Sale
sG
row
th(F
orw
ard
)
3 Y
ear
EP
SG
row
th(H
isto
ric)
12M
EP
SG
row
th(F
orw
ard
)
FY
1 E
arn
ings
Re
visio
ns
Mark
et C
ap
Short
Term
Mom
entu
m(3
m)
Mediu
m T
erm
Mom
entu
m(1
2m
)
De
bt/E
quity
Fore
ign
Sale
s
The Style Chart shows a series of standardised scores (Weighted Welch’s T-Tests) comparing the fund and comparative benchmark exposures to each of the factors. These are used to highlight areas where the fund and comparative benchmark are statistically significantly different. Generally speaking, a reading of +/- 2 is considered significant and +/- 3 very significant. Higher numbers are expected when the investment universe is small. In the chart, price ratios (e.g. P/E) are inverted into yields for these tilts so that high scores indicate high Value exposure across all Value factors, for consistency of interpretation.
19 16332
Source: Northfield & AXA IM as at 30/11/2012
AXA Framlington European Fund – Style Overview (2/2)
Fund BmkBmk Data
Coverage %Fund Data
Coverage %Price to Book 1.5 1.3 92.6Dividend Yield % 2.5 3.7 99.9Price to Earnings 14.4 13.0 95.2Price to Free Cash Flow 8.5 9.1 88.4Price to Sales 1 0 0 8 98 5
100.097.690.8
86.3
98 9Price to Sales 1.0 0.8 98.5
Price to EBITDA 7.8 5.2 79.4ROE % 18.5 14.4 95.5Income to Sales % 11.2 9.5 97.23 Year Sales Grow th % (Historic) 5.2 2.5 98.3
98.9
77.893.598.998.4
12M Sales Grow th % (Forw ard) 5.9 4.2 99.23 Year EPS Grow th % (Historic) 14.1 10.3 84.812M EPS Grow th % (Forw ard) 10.1 9.8 94.1FY1 Earnings Revision Ratio -2.9 -8.1 100.0Market Cap (British Pounds in millions) 34,528 36,490 100.0100.0
99.3100.0
99.082.1
Short Term Momentum (3m) % 6.3 4.3 100.0Medium Term Momentum (12m) % 17.3 8.0 99.8Debt/Equity % 99.0 106.4 92.9Foreign Sales % 69.1 69.5 99.1
99.498.490.8100.0
The table above displays the weighted average scores for these factors and weighted harmonic averages for price ratios. In the table, P/Es (not yields) are used for ease of interpretation.
20 16332
Source: Northfield & AXA IM as at 30/11/2012.
Appendix – Portfolio characteristicspp
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AXA Framlington European Fund Geographic and Sector breakdowns
Geographic breakdown (%) Sector breakdown (%)
AUSTRIA
BELGIUM
CYPRUS
DENMARK
Energy
Materials
DENMARK
FINLAND
FRANCE
GERMANY
GREECE
Industrials
ConsumerDiscretionary
ConsumerGREECE
IRELAND
ITALY
LUXEMBOURG
NETHERLANDS
Staples
Healthcare
FinancialsNETHERLANDS
NORWAY
PORTUGAL
SPAIN
SWEDEN
InformationTechnology
TelecomServices
Strategy Comparative benchmark
0 5 10 15 20 25 30
SWEDEN
SWITZERLAND
0 5 10 15 20 25
Utilities
gy p
Source AXA IM as at 30/11/2012. Comparative benchmark: MSCI Europe ex UK..
22 16332
AXA Framlington European FundTop 10 holdings and market cap breakdown
Market cap breakdown (%)*Top 10 Holdings Fund %
Comparativebenchmark %
Difference%
93.1
94 3Large Cap
Top 10 Holdings Fund % benchmark % %
Nestle S.A. 4.2 4.8 -0.6
Novo Nordisk A/S 3.5 1.4 2.1
4.8
94.3
5.7
MediumCap
Roche Holding AG 3.5 3.1 0.4
BNP Paribas S.A. 3.3 1.2 2.1
Societe Generale 2 7 0 6 2 2
0.0
0.0Small Cap
Fund
Comparative benchmark
Societe Generale 2.7 0.6 2.2
Allianz SE 2.6 1.3 1.3
Anheuser-Busch InBev 2.4 1.6 0.8
0 20 40 60 80 100Total S.A. 2.2 2.4 -0.1
ING Groep N.V. 2.2 0.8 1.4
Industria de Diseno Textil S A 2 1 0 7 1 4Large Cap => 3bn EUR
Mid Cap 0.5bn EUR – 3bn EUR
Small Cap < 0.5bn EUR
Industria de Diseno Textil S.A. 2.1 0.7 1.4
TOTAL 28.7 17.6 11.1
Source AXA IM as at 30/11/2012. Comparative benchmark: MSCI Europe ex UK. Past performance is not a guide to future returns.*Remaining assets held in cash.
23 16332
AXA Framlington European Fund Top 10 overweight and underweight
Fund Comparative
benchmark Difference Fund Comparative
benchmark DifferenceTop 10 overweight positions weight % weight % % Top 10 underweight positions weight % weight % %
Societe Generale 2.7 0.6 2.2 Sanofi S.A. -- 2.3 -2.3
Novo Nordisk A/S 3.5 1.4 2.1 Siemens AG -- 1.9 -1.9
BNP Paribas S.A. 3.3 1.2 2.1 Novartis AG 1.4 3.1 -1.7
Bureau Veritas S.A. 1.7 0.1 1.6 Banco Santander S.A. -- 1.7 -1.7
Fresenius Medical Care AG & Co. KG 1.8 0.3 1.5 ENI S.p.A. -- 1.3 -1.3
Royal Dutch Shell PLC 1.5 -- 1.5 UBS AG -- 1.3 -1.3
Industria de Diseno Textil S.A. 2.1 0.7 1.4 Telefonica S.A. -- 1.2 -1.2
ING Groep N.V. 2.2 0.8 1.4 Banco Bilbao Vizcaya Argentaria -- 1.0 -1.0
Chr. Hansen Holding A/S 1.4 -- 1.4 Daimler AG -- 1.0 -1.0
Allianz SE 2.6 1.3 1.3 ABB Ltd. -- 0.9 -0.9
TOTAL 22.8 6.4 16.5 TOTAL 1.4 15.7 -14.3TOTAL 22.8 6.4 16.5 TOTAL 1.4 15.7 14.3
Source AXA IM as at 30/11/2012. Comparative benchmark: MSCI Europe ex UK.
24 16332
AXA Framlington European FundSector and stock attributions – 2012 (to end November)
Sector attribution (%) Stock attribution (%)
Top 10 attributors
Portfolio stock
return %
Total effect
%Societe Generale 29.56 0.65Industria de Diseno Textil S.A. 65.53 0.64T l f i S A 0 64 0 57
0.0
0.0
ConsumerDiscretionary
ConsumerStaples
Telefonica S.A. -0.64 0.57Novo Nordisk A/S 36.07 0.54Bureau Veritas S.A. 50.45 0.52Continental AG 74.79 0.47Gemalto N.V. 84.01 0.46BNP Paribas S A 13 65 0 40
0.0
0.0
-0.1
Energy
Financials
HealthcareBNP Paribas S.A. 13.65 0.40Essilor International S.A. 33.86 0.39Anheuser-Busch InBev 41.61 0.35
Portfolio stock
Total effect
0.0
0.0
0.0
Industrials
InformationTechnology
Materials
Sector allocation
Stock selection
Bottom 10 attributors return % %Royal Dutch Shell PLC (CL A) -6.67 -0.48Fresenius Medical Care AG & Co. KGaA -1.17 -0.30Deutsche Bank AG -11.29 -0.19Sanofi S.A. 0.00 -0.18UBS AG 4 81 0 16
-0.1
0.0
0 0
TelecomServices
Utilities
Cash UBS AG -4.81 -0.16Munich Reinsurance Company 0.00 -0.15Banco Bilbao Vizcaya Argentaria S.A. -15.45 -0.13Swiss Re AG 0.00 -0.12ASML Holding N.V. 0.00 -0.12Michelin 0.00 -0.11
0.0
-0.2
-4 1 6 11
Cash
Total
25 16332
Source AXA IM and FactSet as at 30/11/2012. Comparative benchmark: MSCI Europe ex UK. NB: Past performance is not a guide to future returns.
Michelin 0.00 0.11
Important notice
This communication is intended for Investment Professional use only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited.
This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions.
This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein.
Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own purposes and may have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon it. Information in this document may be updated from time to time and may vary from previous or future published versions of this document.
Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. The price of units and the income from them can go down as well as up and investors may not get back the amount originally invested. An initial charge is usually made when you purchase units. Your investment should be for the
di t l t i t i ll 5 10 Ch i h t ill ff t th l f t t i t tmedium to long term i.e. typically 5-10 years. Changes in exchange rates will affect the value of trust investments overseas.
AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised and regulated by the Financial Services Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, LondonEC1A 7NX. Telephone calls may be recorded for quality assurance purposes.
26 16332