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Authorised and regulated by the Financial Conduct Authority, reference 710908 | Company number 9505284
ValuFolio – January 2018 Investors were in risk-seeking mood in January. This can of course be
seen from the jump that global equity markets made in a single month
(5.4% measured by MSCI World LC, and even 5.7% for the U.S. market). This
is also revealed by the kind of stocks and sectors that drove the market.
Globally, the best and worst performing stocks were for the most part
Contentious Franchises. We call these companies whose franchise is
either under threat by competitors, or is seen in danger by investors in
aggregate. Investors either decided to back such names as Cisco, Gilead or
Next, all fighting to preserve or consolidate their franchise, or to express
doubts about such names as Pandora, following a disappointing earnings
release. This battle ground is indicative, we think, of a higher risk appetite,
and consequently more stable companies (e.g. Roche) are left behind.
More defensive sectors such as Utilities or Telecom. Services
underperformed as a result. This prevented eROC Global Sector 30, which
is defensively positioned, to follow the more diversified market, despite a
credible increase of 4% in the month.
In Europe, investors were seeking a clear cyclical and financial
exposure. Financials, Materials, Industrials and Energy were the top
performing sectors. These sectors generate, typically, a low rent (the ratio
of free cash flow to net economic assets) and have hardly any franchise (a
rent above the cost of capital). They would generally not be considered by
our strategies, which explain why we lagged the market here.
Across the board, our strategies benefitted from the bids of Keurig on
Dr Pepper, which was part of the US strategies, and of Melrose
Industries on GKN plc, which featured in the European ones. It is not
unusual to see a convergence of opinions between our Intrinsic Value
models and boardroom activity, in that the former are attempting precisely
to replicate the decision-making process of industrial investors for capital
allocation. What is interesting is to witness two such events in a month. It is
possible that 2018 will witness more corporate activity, usually a late cycle
signal.
7th February 2018
Pascal Costantini (+44) 203 058 2931 | Joakim Darras (+44) 203 058 2933 | Janet Lear (+44) 203 058 2934 | Diarmid Ogilvy (+44) 203 058 2932
ValuFolio | 2
Contents
VALUANALYSIS EQUITY STRATEGIES ........................................................................................................................................................... 3
INVESTORS WERE LOOKING FOR RISK AT THE START OF 2018 .................................................................................................................. 4
GLOBAL TRENDS SEEN IN EARLY 2018 ............................................................................................................................................................................... 4
STOCK PICKS AND PERFORMANCE ..................................................................................................................................................................................... 5
REGIONAL PERFORMANCE AND TRENDS ............................................................................................................................................................................. 6
STRATEGIES FACTSHEETS.............................................................................................................................................................................. 8
VALUFOCUS ..................................................................................................................................................................................................................... 8
EROC GLOBAL SECTOR 30 ............................................................................................................................................................................................... 9
EROC GLOBAL 90 ......................................................................................................................................................................................................... 10
EROC GLOBAL S 60 ....................................................................................................................................................................................................... 11
EROC USA 60 .............................................................................................................................................................................................................. 12
EROC USA S 40............................................................................................................................................................................................................ 13
EROC EUROPE 50 .......................................................................................................................................................................................................... 14
EROC EUROPE S 30 ....................................................................................................................................................................................................... 15
GLOSSARY.................................................................................................................................................................................................... 17
DISCLAIMER ................................................................................................................................................................................................. 18
ValuFolio | 3
ValuAnalysis Equity Strategies
ValuAnalysis uses its proprietary “eROC” models (economic Return on Capital) to value and select stocks in order to build
strategies and portfolios for institutional investors. All strategies below are based on our approach to Franchise and Intrinsic
value, a detailed exposé of which can be found on our website, The Theory and Practice of Franchise and Intrinsic Value Analysis.
Strategy
Name
Live
Since Region Description Page ValuFocus 12-Jun-17 Global The reference portfolio is constructed from 3 lists of stocks: Core Franchises (franchises with little dispute from competitors or from
investors and an economic rent of 10%-20%), Emerging Franchises (franchises stemming from an unusual business model, a genuine new
sector or an old industry reinventing itself) and Contentious Franchises (franchises under threat with a higher risk / reward proposition).
These three sub-portfolios are given a weighting depending on ValuAnalysis' view of their relative potential and these views are outlined
in the ValuFocus research reports.
8
eROC Global Sector
30
30-Dec-16 Global The reference portfolio is composed of 30 liquid & large cap worldwide stocks selected and weighted equally on a quarterly basis. The
selection is the result of a two-pronged analysis: an initial fundamental valuation appraisal ranks all industry sectors by their median
valuation. The 3 industry sectors with the lowest valuations are kept, represented by the 10 most "reasonably priced" stocks within these
sectors. In case less than 10 stocks are below the sector median, additional stocks with the lowest valuation outside these sectors are
also included.
9
eROC Global 90 08-Apr-16 Global The reference portfolio is composed of 90 liquid & large cap US stocks selected and weighted equally on a quarterly basis. Stocks
exhibiting a sustainable “economic franchise” with a strong "shareholder pay-out ratio" at a "reasonable price" are selected.
10
eROC Global S 60 08-Apr-16 Global The reference portfolio is composed of 60 liquid & large cap worldwide stocks selected and weighted equally on a monthly basis. The
selection is the result of a two-pronged analysis: an initial fundamental valuation appraisal followed by a financial risk analysis. First, 90
stocks exhibiting a sustainable “economic franchise” with a strong "shareholder pay-out ratio" at a "reasonable price" are pre-selected.
Thereafter, a “safety net approach” (hence the letter S in the name) excludes the 30 more volatile and least stable stocks according to
advanced risk metrics.
11
eROC USA 60 22-Sep-17 USA The reference portfolio is composed of 60 liquid & large cap US stocks selected and weighted equally on a quarterly basis. Stocks
exhibiting a sustainable “economic franchise” at a "reasonable price" are selected.
12
eROC USA S 40 22-Sep-17 USA The reference portfolio is composed of 40 liquid & large cap US stocks selected and weighted equally on a monthly basis. The selection
is the result of a two-pronged analysis: an initial fundamental valuation appraisal followed by a financial risk analysis. First, 60 stocks
exhibiting a sustainable “economic franchise” at a "reasonable price" are pre-selected. Thereafter, a “safety net approach” (hence the
letter S in the name) excludes the 20 more volatile and least stable stocks according to advanced risk metrics.
13
eROC Europe 50 22-Sep-17 Europe The reference portfolio is composed of 50 liquid & large cap European stocks selected and weighted equally on a quarterly basis. Stocks
exhibiting a sustainable “economic franchise” at a "reasonable price" are selected.
14
eROC Europe S 30 22-Sep-17 Europe The reference portfolio is composed of 30 liquid & large cap European stocks selected and weighted equally on a monthly basis. The
selection is the result of a two-pronged analysis: an initial fundamental valuation appraisal followed by a financial risk analysis. First, 50
stocks exhibiting a sustainable “economic franchise” at a "reasonable price" are pre-selected. Thereafter, a “safety net approach” (hence
the letter S in the name) excludes the 20 more volatile and least stable stocks according to advanced risk metrics.
15
ValuFolio | 4
Investors Were Looking for Risk at the Start of 2018
We have the benefit of writing this comment a few days after the end of January, thus knowing of the global retreat of
equity markets in early February. But followers of the VA reports will know that our models have been showing various
signs of scepticism of late, notably struggling to select enough US stocks matching our value criteria, or indeed to select
sectors other than the utility-like kind (e.g. Utilities, Telecom. Services). Global equity markets, measured by MSCI World
Large Cap, went up 5.4% in January 2018. This is not far, give or take, from the long-term annual real return of equity
capital (which, depending on the measures, is between 6 and 7%) and, as such, rather over enthusiastic. We have no idea
of the severity of the correction to come, if at all, but we are firmer on the idea that there is now a lack of value in global
equities that demands a price adjustment.
Global Trends Seen in early 2018
Our main global strategy, eROC Global 90, was able to follow and
even beat MSCI World LC in January, with a jump of 6.1%, versus
a benchmark advance of 5.4%. It is always pleasing to do better
than the benchmark but we do not read too much into this
monthly performance, and certainly not a trend. eROC Global 90,
or indeed its risk controlled brethren, eROC Global S 60, are not
designed to take on the level of risk that would allow the
outperformance of the rising market. This serves merely as a
reminder that strategies can randomly depart from their expected
behaviour, in our view, for better, as the case here, or for worse.
Defensive Sectors Underperform
The froth in the market can be seen in the performance of eROC
Global Sector 30, which went up a creditable 3.4% this month, but
trailed the diversified market. As a reminder, in Q4 2017, this
strategy spectacularly departed from its long-standing investment
in the Global I.T. sector, in which it had been invested since 2010.
As noted in the previous month’s commentary, we read this move
as a lack of value in the higher growth areas, rather than as a
distrust in the fundamental drivers of Technology sector, which
we think are still attractive. But this move has not paid off yet;
Utilities, Telecom. Services and Consumer Discretionary (the three
sectors selected by the strategy) did not do enough to match the
diversified market.
Investors Seek Cyclical and Low Rent Exposure
Another sign of risk-seeking is given by the analysis of the market
drivers in the month. In Europe, for instance, Financials, Materials,
Industrials and Energy were the top performing sectors. This
suggests a marked preference for a cyclical exposure from
investors. We note as well that all these sectors have a low
economic rent, and hardly a franchise on our definition (economic
rent, or the ratio of free cash flow to net assets, above the cost of
capital). Most of these sectors or stocks would be ignored by our
strategies.
ValuFolio | 5
Stock Picks and Performance
Active Selection
ValuFocus is the only “actively managed” selection, a list of ca. 30
global companies with an identifiable economic franchise, which
we classify either as “core”, “contentious” or “emerging”. The three
categories are weighted differently, with the largest weight usually
given to core. The portfolio has a low turnover (revisited
approximately four times a year).
ValuFocus went up 4% in January. The analysis of the top and
bottom stock contributors (see page 8) shows that all the best
positive contributors belonged to the Contentious Franchise
category. We call Contentious Franchise a company with an
economic franchise (the ability to sustain a free cash flow rent
above the cost of capital) put under threat from competing forces,
or under question by the market. This is perhaps a sign, among
others, that investors are seeking more exposure to controversial
investments. We had noted in the previous month’s report that
Contentious Franchises offered the best risk reward ratio, and it
seems that investors are keen to exploit this ratio further and
want to increase their exposure towards these types of stocks.
We control the risk of ValuFocus by weighting Contentious
Franchises at a lower weight than, for instance, Core Franchises
(20% vs 60%), which explains why the strategy, despite a
significant advance, did not manage to keep up with the market.
Incidentally, among the bottom contributors we find Roche,
Kimberly-Clark and Nestlé, three Core Franchises, or more stable
and predictable propositions, which investors rather sold than
bought, maybe because their risk profile was not interesting
enough, or maybe because they did not offer enough value.
Systematic Selection – Contribution to Total Return Analysis
The individual strategy sheets (see page 9 onwards) give the five
best and worst contributors to total return (CTR) on a monthly
basis. The following table gives the top two best and worst
contributors for selected systematic strategies.
MONTHLY CONTRIBUTION TO TOTAL RETURN, BEST AND WORST, SELECTED STRATEGIES
Best two CTR % Worst two CTR %
ValuFocus
Gilead, Inc. 1.13% Pandora A/S -1.04%
Cisco, Inc. 0.67% Roche AG -0.21%
eROC Global Sector 30
Frontier Com. 0.68% Pandora A/S -0.45%
Gilead, Inc. 0.56% Signet Jewellers ltd -0.21%
eROC Global 90
GKN plc 0.44% Capita plc -0.59%
Seagate tech. plc 0.35% Pandora A/S -0.15%
eROC USA 60
Seagate tech. plc 0.53% Juniper Net., Inc. -0.14%
Dr Pepper Snapple, Inc. 0.39% Signet Jewellers ltd -0.11%
eROC Europe 50
GKN plc 0.70% Pandora A/S -0.32%
Next plc 0.30% Shire plc -0.27%
(VALUANALYSIS)
The table above illustrates the following trends:
ValuFolio | 6
More corporate bids emerge
Our strategies have benefitted from two high profile corporate
bids this month, one from Keurig on Dr Pepper, and one from
Melrose Industries on GKN plc, the British engineering group. It is
not unusual to see a convergence of opinions on the value of a
firm between our Intrinsic Value models and corporate
boardrooms. In fact, we believe that intrinsic value models
replicate the way an industrial investor thinks and makes
decisions on capital allocation.
But two bids in a month remains unusual and probably indicates
that we are likely to see more such corporate activity in 2018.
Corporate mergers and take-overs are usually a late-cycle
phenomenon, and companies will be keen to take advantage of
(currently) low interest rates to gear up their balance sheets to
acquire the assets they want. We can only hope that we will be
able to identify good value targets in the coming months.
Contentious Franchises dominate the debate
This month, both “best contributors” and “worst contributors” lists
are made of either special situations (e.g. the two bids on Dr
Pepper and GKN) or Contentious Franchises. In that last case,
investors either decided to back and bid up well-known names
(Gilead, Cisco, Next are all among the best contributors) or
expressed more doubts following disappointed results (Pandora),
which made the shares underperform.
The fact that investors were clearly more focused on either
supporting a contested franchise or contesting a potential one is
indicative of the same risk-seeking behaviour that we mentioned
earlier. Core Franchises, with the notable exception of Roche, do
not feature on the best and worst list, an indication that they were
not part of the issue for investors, maybe perceived as not offering
enough of an expected return, despite their lower risk profile.
Regional Performance and Trends
U.S. Market
The U.S. market was, again, a major driver behind global equity
markets, with a 5.7% jump (MSCI USA) in January. Our strategies
are not designed to seek a broad market exposure and risk,
especially not in strongly rising markets. We were nevertheless
able to beat this jump in large part due to the Dr Pepper bid, which
benefitted the eROC USA 60 and 40 (risk-controlled version).
European Market
Europe was a less buoyant market, with an advance of 1.5% only
(MSCI Europe). eROC Europe 50 followed with a lag, up 0.9%,
despite the benefit of the GKN bid. The risk-controlled version was
marginally down (0.4%), suffering from the cyclical rotation that
investors imposed on the market. We note that Imperial Brands,
Roche and Véolia, all parts of the European strategies but
weighing on their performance, are all stable cash generators,
precisely the kind of stocks that were not in favour in January.
ValuFolio | 7
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ValuFolio | 8
Live since : 12-Jun-17 Strategy inception : 12-Jun-17
Benchmark : MSCI World LC (USD)
Selection method : Active
Stock weighting : Discretionary
Rebalancing frequency : Discretionary
Style : Long Only
Available as : Calculated by VA
Region : Global
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return VA FOCUS 4.0% 12.6% 16.2% 4.0% 19.0% n/a n/a n/a n/a
MSCI World LC 5.4% 9.1% 13.9% 5.4% 16.5% n/a n/a n/a n/a
Excess Return -1.5% 3.6% 2.4% -1.5% 2.5% n/a n/a n/a n/a
Risk Larg. Drawdown VA FOCUS -1.2% -1.3% -2.5% -1.2% -3.8% n/a n/a n/a n/a
MSCI World LC -1.5% -1.5% -2.0% -1.5% -2.0% n/a n/a n/a n/a
Volatility VA FOCUS 7.7% 7.6% 7.1% 7.7% 7.7% n/a n/a n/a n/a
MSCI World LC 7.0% 5.8% 5.6% 7.0% 5.8% n/a n/a n/a n/a
Ratio Ret / Vol VA FOCUS 51% 166% 227% 51% 246% n/a n/a n/a n/a
MSCI World LC 78% 155% 246% 78% 286% n/a n/a n/a n/a
The portfolio is constructed from 3 lists of stocks: Core Franchises
(franchises with little dispute from competitors or from investors
and an economic rent of 10%-20%), Emerging Franchises
(franchises stemming from an unusual business model, a genuine
new sector or an old industry reinventing itself) and Contentious
Franchises (franchises under threat with a higher risk / reward
proposition). These three sub-portfolios are given a weight
depending on ValuAnalysis' view of their relative potential. These
views are outlined in the ValuFocus research reports.
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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From: 12-Jun-17 to: 31-Jan-18 (daily)
ValuFocus
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30% 40%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Gilead Sciences Inc. 1.13 hold
Cisco Systems, Inc. 0.67 hold
McKesson Corporation 0.64 hold
Wal-Mart Stores Inc. 0.59 hold
Kone Oyj 0.42 hold
Bottom 5 Contributors CTR (%) Status
Pandora A/S -1.04 hold
Roche Holding AG -0.21 hold
Apple Inc. -0.07 hold
Kimberly-Clark Corporation -0.07 hold
Nestlé S.A. 0.00 hold
Strategy live date Strategy live date
ValuFolio | 9
Live since : 30-Dec-16 Strategy inception : 10-Jan-06
Benchmark : MSCI World LC (USD)
Selection method : Systematic (Value)
Stock weighting : Equal
Rebalancing frequency : Quarterly
Style : Long Only
Available as : Calculated by VA
Region : Global
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return ESEC 30 3.4% 8.3% 10.4% 3.4% 31.0% 28.0% 16.7% 19.4% 14.9%
MSCI World LC 5.4% 9.1% 13.9% 5.4% 26.2% 26.1% 11.9% 11.6% 6.3%
Excess Return -2.0% -0.7% -3.5% -2.0% 4.8% 1.9% 4.8% 7.8% 8.7%
Risk Larg. Drawdown ESEC 30 -1.7% -1.7% -3.1% -1.7% -3.1% -3.1% -24.4% -24.4% -50.7%
MSCI World LC -1.5% -1.5% -2.0% -1.5% -2.0% -2.0% -17.6% -17.6% -54.6%
Volatility ESEC 30 9.7% 8.8% 8.1% 9.7% 7.9% 7.8% 14.9% 13.6% 19.3%
MSCI World LC 7.0% 5.8% 5.6% 7.0% 5.9% 5.9% 11.1% 10.6% 17.5%
Ratio Ret / Vol ESEC 30 35% 95% 127% 35% 395% 358% 112% 142% 77%
MSCI World LC 78% 155% 246% 78% 442% 439% 107% 110% 36%
The reference portfolio is composed of 30 liquid & large cap
worldwide stocks selected and weighted equally on a quarterly
basis. The selection is the result of a two-pronged analysis: an
initial fundamental valuation appraisal ranks all industry sectors by
their median valuation.
The 3 industry sectors with the lowest valuations are kept,
represented by the 10 most "reasonably priced" stocks within
these sectors. In case less than 10 stocks are below the sector
median, additional stocks with the lowest valuation outside these
sectors are also included.
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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From: 29-Jan-10 to: 31-Jan-18 (daily)
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From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC Global Sector 30
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30% 40%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Frontier Communications Corporation0.68 hold
Gilead Sciences Inc. 0.56 hold
Target Corp. 0.51 hold
Discovery Communications, Inc. 0.38 hold
Ralph Lauren Corporation 0.35 hold
Bottom 5 Contributors CTR (%) Status
Pandora A/S -0.45 hold
Signet Jewelers Limited -0.21 hold
Red Eléctrica Corporación S A. -0.16 hold
Persimmon plc -0.14 hold
National Grid plc -0.12 hold
Strategy live date Strategy live date
ValuFolio | 10
Live since : 08-Apr-16 Strategy inception : 10-Jan-06
Benchmark : MSCI World LC (USD)
Selection method : Systematic (Franchise, Value, Dividends)
Stock weighting : Equal
Rebalancing frequency : Quarterly
Style : Long Only
Available as : Independently calculated by S&P
Region : Global
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EGL 90 6.1% 9.3% 15.3% 6.1% 20.7% 25.3% 13.0% 15.5% 12.2%
MSCI World LC 5.4% 9.1% 13.9% 5.4% 20.6% 26.1% 11.9% 11.6% 6.3%
Excess Return 0.6% 0.2% 1.4% 0.6% 0.1% -0.8% 1.1% 3.9% 6.0%
Risk Larg. Drawdown EGL 90 -1.3% -1.6% -2.5% -1.3% -7.9% -2.5% -17.5% -17.5% -45.1%
MSCI World LC -1.5% -1.5% -2.0% -1.5% -7.1% -2.0% -17.6% -17.6% -54.6%
Volatility EGL 90 8.3% 7.2% 6.6% 8.3% 9.6% 6.7% 11.9% 11.3% 17.0%
MSCI World LC 7.0% 5.8% 5.6% 7.0% 8.5% 5.9% 11.1% 10.6% 17.5%
Ratio Ret / Vol EGL 90 73% 129% 230% 73% 215% 375% 109% 137% 72%
MSCI World LC 78% 155% 246% 78% 244% 439% 107% 110% 36%
The reference portfolio is composed of 90 liquid & large cap US
stocks selected and weighted equally on a quarterly basis. Stocks
exhibiting a sustainable “economic franchise” with a strong
"shareholder payout ratio" at a "reasonable price" are selected.
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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From: 29-Jan-10 to: 31-Jan-18 (daily)
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From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC Global 90
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
GKN plc 0.44 hold
Seagate Technology plc 0.35 hold
Frontier Communications Corporation0.23 hold
Next Plc 0.21 hold
Johnson Matthey Plc 0.20 hold
Bottom 5 Contributors CTR (%) Status
Capita plc -0.59 hold
Pandora A/S -0.15 hold
Burberry Group plc -0.09 hold
Barratt Developments plc -0.06 hold
Imperial Brands PLC -0.05 hold
Strategy live date Strategy live date
ValuFolio | 11
Live since : 08-Apr-16 Strategy inception : 10-Jan-06
Benchmark : MSCI World LC (USD)
Selection method : Systematic (Franchise, Value, Dividends, Risk)
Stock weighting : Equal
Rebalancing frequency : Monthly
Style : Long Only
Available as : Calculated by VA
Region : Global
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EGL S60 5.9% 9.2% 15.4% 5.9% 17.1% 23.0% 12.3% 16.1% 11.8%
MSCI World LC 5.4% 9.1% 13.9% 5.4% 20.6% 26.1% 11.9% 11.6% 6.3%
Excess Return 0.4% 0.2% 1.6% 0.4% -3.5% -3.0% 0.5% 4.5% 5.6%
Risk Larg. Drawdown EGL S60 -1.2% -1.6% -1.9% -1.2% -6.8% -2.6% -14.1% -14.1% -40.9%
MSCI World LC -1.5% -1.5% -2.0% -1.5% -7.1% -2.0% -17.6% -17.6% -54.6%
Volatility EGL S60 7.4% 6.5% 6.1% 7.4% 8.7% 6.2% 10.9% 10.4% 14.8%
MSCI World LC 7.0% 5.8% 5.6% 7.0% 8.5% 5.9% 11.1% 10.6% 17.5%
Ratio Ret / Vol EGL S60 79% 142% 255% 79% 197% 369% 113% 155% 80%
MSCI World LC 78% 155% 246% 78% 244% 439% 107% 110% 36%
The reference portfolio is composed of 60 liquid & large cap
worldwide stocks selected and weighted equally on a monthly
basis. The selection is the result of a two-pronged analysis: an
initial fundamental valuation appraisal followed by a financial risk
analysis.
First, 90 stocks exhibiting a sustainable “economic franchise” with
a strong "shareholder payout ratio" at a "reasonable price" are pre-
selected. Thereafter, a “safety net approach” (hence the letter S in
the name) excludes the 30 more volatile and least stable stocks
according to advanced risk metrics
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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From: 29-Jan-10 to: 31-Jan-18 (daily)
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01/2010 06/2011 10/2012 03/2014 07/2015 12/2016
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Date EGL S60 Vs MSCI WORLD LC
From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC Global S 60
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Johnson Matthey Plc 0.29 hold
Anhui Conch Cement Co. Ltd. 0.28 hold
Gilead Sciences Inc. 0.27 hold
Target Corp. 0.27 hold
Maxim Integrated Products, Inc. 0.27 hold
Bottom 5 Contributors CTR (%) Status
Imperial Brands PLC -0.07 hold
Kimberly-Clark Corporation -0.05 hold
Roche Holding AG -0.05 hold
British American Tobacco p.l.c. -0.05 just bought
Campbell Soup Company -0.05 hold
Strategy live date Strategy live date
ValuFolio | 12
Live since : 22-Sep-17 Strategy inception : 10-Jan-06
Benchmark : MSCI USA (USD)
Selection method : Systematic (Franchise, Value)
Stock weighting : Equal
Rebalancing frequency : At least Quarterly
Style : Long Only
Available as : Calculated by VA
Region : USA
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EUS 60 7.4% 16.1% 19.3% 7.4% 18.1% 25.9% 13.4% 17.5% 14.3%
MSCI USA 5.7% 10.0% 15.0% 5.7% 13.2% 25.5% 13.8% 15.1% 9.1%
Excess Return 1.7% 6.1% 4.3% 1.7% 4.9% 0.3% -0.4% 2.5% 5.2%
Risk Larg. Drawdown EUS 60 -1.4% -1.4% -3.7% -1.4% -1.8% -5.3% -19.9% -19.9% -47.9%
MSCI USA -1.7% -1.7% -2.2% -1.7% -1.7% -2.6% -14.2% -14.2% -51.7%
Volatility EUS 60 11.0% 9.6% 9.2% 11.0% 8.9% 9.0% 13.9% 13.0% 20.4%
MSCI USA 8.9% 7.0% 7.0% 8.9% 6.4% 7.0% 12.2% 12.0% 20.4%
Ratio Ret / Vol EUS 60 67% 168% 210% 67% 204% 286% 96% 135% 70%
MSCI USA 64% 142% 214% 64% 206% 366% 113% 126% 45%
The reference portfolio is composed of 60 liquid & large cap US
stocks selected and weighted equally on a quarterly basis. Stocks
exhibiting a sustainable “economic franchise” at a "reasonable
price" are selected.
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
500
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1500
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4000
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DateEUS 60 MSCI USA Index
From: 29-Jan-10 to: 31-Jan-18 (daily)
500
750
1000
1250
1500
1750
2000
01/2010 06/2011 10/2012 03/2014 07/2015 12/2016
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Date EUS 60 Vs MSCI USA Index
From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC USA 60
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30% 40%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Seagate Technology plc 0.53 hold
Dr Pepper Snapple Group, Inc. 0.39 hold
Fluor Corporation 0.30 hold
Cardinal Health, Inc. 0.28 hold
Gilead Sciences Inc. 0.28 hold
Bottom 5 Contributors CTR (%) Status
Juniper Networks, Inc. -0.14 hold
Signet Jewelers Limited -0.11 hold
Kimberly-Clark Corporation -0.05 hold
Campbell Soup Company -0.05 hold
MEDNAX, Inc. -0.02 hold
Strategy live date Strategy live date
ValuFolio | 13
Invested since : 22-Sep-17 Strategy inception : 10-Jan-06
Benchmark : MSCI USA (USD)
Selection method : Systematic (Franchise, Value, Risk)
Stock weighting : Equal
Rebalancing frequency : Monthly
Style : Long Only
Available as : Tracker
Region : USA
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EUS S40 7.3% 12.5% 18.0% 7.3% 14.5% 25.2% 13.0% 17.2% 14.1%
MSCI USA 5.7% 10.0% 15.0% 5.7% 13.2% 25.5% 13.8% 15.1% 9.1%
Excess Return 1.6% 2.5% 3.0% 1.6% 1.2% -0.3% -0.8% 2.2% 5.0%
Risk Larg. Drawdown EUS S40 -1.2% -1.2% -2.3% -1.2% -2.0% -2.9% -14.0% -14.0% -40.5%
MSCI USA -1.7% -1.7% -2.2% -1.7% -1.7% -2.6% -14.2% -14.2% -51.7%
Volatility EUS S40 10.5% 8.8% 8.4% 10.5% 8.1% 8.2% 12.5% 11.9% 17.7%
MSCI USA 8.9% 7.0% 7.0% 8.9% 6.4% 7.0% 12.2% 12.0% 20.4%
Ratio Ret / Vol EUS S40 70% 142% 213% 70% 179% 306% 104% 145% 80%
MSCI USA 64% 142% 214% 64% 206% 366% 113% 126% 45%
The reference portfolio is composed of 40 liquid & large cap US
stocks selected and weighted equally on a monthly basis. The
selection is the result of a two-pronged analysis: an initial
fundamental valuation appraisal followed by a financial risk
analysis.
First, 60 stocks exhibiting a sustainable “economic franchise” at a
"reasonable price" are pre-selected. Thereafter, a “safety net
approach” (hence the letter S in the name) excludes the 20 more
volatile and least stable stocks according to advanced risk metrics
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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1500
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3000
3500
4000
01/2010 06/2011 10/2012 03/2014 07/2015 12/2016P
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DateEUS S40 MSCI USA Index
From: 29-Jan-10 to: 31-Jan-18 (daily)
500
750
1000
1250
1500
1750
2000
01/2010 06/2011 10/2012 03/2014 07/2015 12/2016
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Date EUS S40 Vs MSCI USA Index
From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC USA S 40
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30% 40%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Dr Pepper Snapple Group, Inc. 0.58 hold
Gilead Sciences Inc. 0.41 hold
Target Corp. 0.40 hold
Maxim Integrated Products, Inc. 0.40 hold
HCA Healthcare, Inc. 0.36 hold
Bottom 5 Contributors CTR (%) Status
Juniper Networks, Inc. -0.21 hold
Kimberly-Clark Corporation -0.08 hold
Campbell Soup Company -0.07 hold
Apple Inc. -0.02 hold
Johnson & Johnson -0.02 hold
Strategy live date Strategy live date
ValuFolio | 14
Live since : 22-Sep-17 Strategy inception : 10-Jan-06
Benchmark : MSCI Europe (EUR)
Selection method : Systematic (Franchise, Value)
Stock weighting : Equal
Rebalancing frequency : At least Quarterly
Style : Long Only
Available as : Calculated by VA
Region : Europe
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EEU 50 0.9% 0.3% 6.3% 0.9% 3.8% 11.1% 7.7% 13.2% 10.6%
MSCI Europe 1.5% 0.3% 5.7% 1.5% 3.7% 12.6% 5.1% 9.1% 4.8%
Excess Return -0.6% 0.0% 0.7% -0.6% 0.1% -1.5% 2.6% 4.1% 5.8%
Risk Larg. Drawdown EEU 50 -1.7% -4.6% -4.6% -1.7% -4.6% -9.0% -17.6% -17.6% -42.7%
MSCI Europe -1.5% -3.6% -3.6% -1.5% -3.6% -5.8% -25.9% -25.9% -51.5%
Volatility EEU 50 9.2% 9.4% 9.3% 9.2% 9.0% 9.8% 16.1% 15.1% 19.8%
MSCI Europe 7.6% 7.7% 8.1% 7.6% 7.5% 8.9% 17.1% 15.9% 21.3%
Ratio Ret / Vol EEU 50 10% 3% 68% 10% 42% 113% 48% 88% 54%
MSCI Europe 19% 3% 70% 19% 49% 141% 30% 57% 23%
The reference portfolio is composed of 50 liquid & large cap
European stocks selected and weighted equally on a quarterly
basis. Stocks exhibiting a sustainable “economic franchise” at a
"reasonable price" are selected.
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
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DateEEU 50 MSCI Europe (EUR)
From: 29-Jan-10 to: 31-Jan-18 (daily)
500
750
1000
1250
1500
1750
2000
01/2010 06/2011 10/2012 03/2014 07/2015 12/2016
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Date EEU 50 Vs MSCI Europe (EUR)
From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC Europe 50
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
GKN plc 0.70 hold
Next Plc 0.30 hold
Johnson Matthey Plc 0.28 hold
Randstad Holding NV 0.22 hold
Sandvik AB 0.17 hold
Bottom 5 Contributors CTR (%) Status
Pandora A/S -0.32 hold
Shire plc -0.27 hold
Burberry Group plc -0.22 hold
Barratt Developments plc -0.17 hold
Red Eléctrica Corporación S A. -0.16 hold
Strategy live date Strategy live date
ValuFolio | 15
Invested since : 22-Sep-17 Strategy inception : 10-Jan-06
Benchmark : MSCI Europe (EUR)
Selection method : Systematic (Franchise, Value, Risk)
Stock weighting : Equal
Rebalancing frequency : Monthly
Style : Long Only
Available as : Tracker
Region : Europe
1 m 3 m 6 m YTD Live 1 Y 3 Y 5 Y 10 Y
Return EEU S30 -0.4% -1.7% 3.9% -0.4% 1.6% 9.7% 6.8% 13.0% 11.0%
MSCI Europe 1.5% 0.3% 5.7% 1.5% 3.7% 12.6% 5.1% 9.1% 4.8%
Excess Return -1.8% -1.9% -1.7% -1.8% -2.1% -2.9% 1.7% 3.8% 6.2%
Risk Larg. Drawdown EEU S30 -2.5% -3.6% -3.6% -2.5% -3.6% -8.8% -14.8% -14.8% -32.7%
MSCI Europe -1.5% -3.6% -3.6% -1.5% -3.6% -5.8% -25.9% -25.9% -51.5%
Volatility EEU S30 10.2% 9.0% 9.1% 10.2% 8.8% 9.7% 15.8% 14.5% 16.9%
MSCI Europe 7.6% 7.7% 8.1% 7.6% 7.5% 8.9% 17.1% 15.9% 21.3%
Ratio Ret / Vol EEU S30 -3% -19% 43% -3% 18% 100% 43% 89% 65%
MSCI Europe 19% 3% 70% 19% 49% 141% 30% 57% 23%
The reference portfolio is composed of 30 liquid & large cap
European stocks selected and weighted equally on a monthly basis.
The selection is the result of a two-pronged analysis: an initial
fundamental valuation appraisal followed by a financial risk
analysis.
First, 50 stocks exhibiting a sustainable “economic franchise” at a
"reasonable price" are pre-selected. Thereafter, a “safety net
approach” (hence the letter S in the name) excludes the 20 more
volatile and least stable stocks according to advanced risk metrics
Source: ValuAnalysis. Assumes reinvestment of dividends net of withholding taxes. Gross of fees or transaction costs. Proforma back testing up to the LIVE date. Live thereafter.
500
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DateEEU S30 MSCI Europe (EUR)
From: 29-Jan-10 to: 31-Jan-18 (daily)
500
750
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1250
1500
1750
2000
01/2010 06/2011 10/2012 03/2014 07/2015 12/2016
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Date EEU S30 Vs MSCI Europe (EUR)
From: 29-Jan-10 to: 31-Jan-18 (daily)
eROC Europe S 30
Strategy Description Cumulative Performance (daily) Relative Performance (daily)
Historical Top & Bottom 5 Contributors in the monthSector Split
Annualised<1 y0% 10% 20% 30%
Cons. Disc.
Cons. Staples
Energy
Financ/Real…
Healthcare
Industrials
IT
Materials
Telecom.
Utilities
January 2018
Top 5 Contributors CTR (%) Status
Fresenius SE & Co KGaA 0.26 hold
Continental Aktiengesellschaft 0.25 hold
Telenor ASA 0.18 hold
Atlas Copco AB 0.16 hold
Adecco S.A. 0.13 hold
Bottom 5 Contributors CTR (%) Status
Burberry Group plc -0.36 hold
Red Eléctrica Corporación S A. -0.27 hold
Imperial Brands PLC -0.24 hold
Roche Holding AG -0.20 hold
Veolia Environnement S.A. -0.16 hold
Strategy live date Strategy live date
ValuFolio | 16
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ValuVest | 17
GLOSSARY
Competitive Advantage Period (CAP) The period during which a firm can generate a return (see Rent) above the cost of capital.
Economic Profits Cash profits or Free Cash Flow minus the notional cost of capital.
Excess Return The level of return above the cost of capital.
Fade The rate of normalisation of the competitive position of the firm, defined as its level of Rent and
growth rate. By construction, an excess return cannot be assumed to be perpetual, and the market
always assumes an eventual normalisation towards the cost of capital.
Franchise Value One of the three sources of value, defined as the net present value of a firm’s sustainable level of
Economic Profits over its Competitive Advantage Period.
Gross economic Capital (GeC) The sum of all operating capital used by the firm pre-depreciation, including all tangible assets,
capitalised intangible assets and operating leases, Other Long Term Assets (OLTA) and concession
assets.
Growth Value One of the three sources of value, defined as the residual of: Market Value minus Replacement
Value and Franchise Value.
Intrinsic Value The sustainable value of a firm, defined as Replacement Value plus Franchise Value.
Net economic Capital (NeC) The depreciated value of GeC, according to the principles of economic depreciation.
Net Free Cash Flow Gross cash flow minus all capital spending.
Operating Free Cash Flow Gross cash flow minus maintenance capital spending.
Rent or Rent Yield The ratio of FCF over Net economic Capital. We refer to it as “asset yield” or “cash return” as well.
Replacement Value One of the three sources of value, equal to Net economic Capital.
Residual Income Model A valuation framework defining the price of an asset as the net (depreciated) value of this
asset plus the net present value of its sustainable level of economic profits.
ValuFolio | 18
DISCLAIMER
This document is provided by ValuAnalysis Limited, which is authorised and regulated by the Financial Conduct Authority (firm reference
number 710908). This document is only permitted for individuals or firms who would fall within the definition of a professional client as
defined by the Financial Conduct Authority’s rules.
This document does not provide personal recommendation based on your individual circumstances. By making this information available
to you, ValuAnalysis is not advising you or making any recommendation. Investments carry risk, including the risk that you will not recover
the sum that you invested.
The views expressed in this document are as of the published date and based on information available at the time. ValuAnalysis does
not assume any duty to update any of the information contained in this document.
By viewing this document, you confirm that you have read and accepted this disclaimer.
CONFLICTS OF INTEREST
In taking all appropriate steps to prevent, manage and/or mitigate the possibility of conflicts of interest, ValuAnalysis’ employees are
subject to internal organisational and administrative arrangements in relation to the management of inside information, handling of
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standards. These internal organisational and administrative arrangements are considered appropriate and proportion in light of the
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As at the time of writing, ValuAnalysis does not perform services for any issuer mentioned in this report. Notwithstanding, ValuAnalysis
may, to the extent permitted by law, perform services for, solicit business from, or otherwise be interested in the investments, directly
or indirectly, of any issuer mentioned in this report.
ValuAnalysis prohibits its analysts, professionals reporting to analysts and members of their households from making personal
transactions in any issuer in the analyst's area of coverage for a period of 10 days before and after the publication of research pertaining
to the issuer. ValuAnalysis prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,
director, advisory board member or employee of any company in the analyst's area of coverage.
ValuFolio | 19
ValuAnalysis has no agreements with issuers with respect to dissemination of recommendations. Analysts do not, nor will they, receive
direct or indirect compensation in exchange for expressing any of the views or the specific recommendation contained in this report.
Analysts are paid in part based on the overall profitability of ValuAnalysis.
In line with the European Union’s Market Abuse Regulation, ValuAnalysis provides quarterly statistics on the overall ratio of "Buy”, “Hold”
and “Sell” in ValuAnalysis recommendations in financial instruments and the proportion of issuers corresponding to each of those
categories to which such person has supplied material services of investment firms over the previous 12 months. These are as follows:
“Buy”, “Hold” and “Sell” recommendations Investment services provided to these issuers in previous 12 months
Recommendation Number % of total Number % of total
Buy 27 82 0 0
Hold 0 0 0 0
Sell 6 18 0 0
The above table covers the period 26th October to 7th February 2018. This disclosure is reviewed and updated on a quarterly basis. Last
updated 7th February 2018.
VALUFOLIO
For more information:
Pascal Costantini
Founding Partner
The Clubhouse, 8 St. James's Square
London SW1Y 4JU
(+44) 203 058 2931
Joakim Darras
Founding Partner
The Clubhouse, 8 St. James's Square
London SW1Y 4JU
(+44) 20 3058 2933
Janet Lear
Partner
The Clubhouse, 8 St. James's Square
London SW1Y 4JU
(+44) 203 058 2934
Diarmid Ogilvy
Founding Partner
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(+44) 203 058 2932
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