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Tailored for investment professionals this site provides information on our products, strategies and services. Please remember capital is at risk and past performance is not a guide to the future.

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Strategy Focus:
Investec European Equity

By: Ken Hsia, Strategy Leader
Europe’s global winners and domestic champions are riding the region’s economic rebound

The Strategy aims to provide an attractive level of growth by investing in European companies or companies which carry out a large proportion of their business activities in Europe

A ‘best ideas’ European equity strategy

When Ken Hsia took the reins of our European Equity Strategy five years ago, he set about transforming it into a best ideas strategy to seek out European companies with the strongest growth prospects. He has increased the active share from 71% to an 85%-90% range today, reducing the overlap with the MSCI benchmark to as little as 10%.

He also expanded the investable universe to include small and mid-caps, as well as UK equities. Our 4Factor investment approach works best in larger universes where more inefficiency can be found.


Figure 1: Active shares range, Investment Universe


The changes reaped early rewards. While the old strategy benefited from the early risk-on bounce of Mr Draghi’s economy-saving promise, the Strategy delivered even greater outperformance in Ken’s first year.


Fundamentals, not politics

Politics have generated plenty of heat over the last five years, but the links to company revenues and profits are tenuous at best. The team remains focused on selecting 55-60 of Europe’s best-performing companies, in an adaptable portfolio built from the bottom up using a disciplined process.

The Strategy seeks out three types of European companies: two to invest in, and one to avoid unless the right circumstances exist. ‘Global winners’ and ‘Europe-exposed’ each make up 40-50% of the portfolio. ‘Challenged industries’ tend to be more cyclical, one-off opportunities.

Global winners are European companies with strong products or services that appeal around the world, while European exposed stocks have a more domestic focus. Our 4Factor focus can sometimes uncover investment ideas in challenged industries that exhibit improving fundamentals and price momentum that other investors overlook.


Why Europe? Why now?

  • We investing in companies and not countries: Europe is home to many world leading companies
  • We believe economic conditions in Europe have improved and there is considerable scope for profit margins to grow as the economy recovers
  • A weaker euro should support corporate earnings and benefit exports
  • Company balance sheets have strengthened, creating opportunities
  • European share prices are at historic lows versus the US
  • European company valuations are at the middle of their historic levels
  • Although we believe the main issues with Brexit are largely political, some sectors will experience headwinds. However, other sectors stand to benefit

Adaptability, best ideas

Running an adaptable portfolio of best ideas selected from a larger universe of stocks using his disciplined investment approach has helped Ken Hsia deliver a greater level of outperformance since November 2012*. Annualised investor returns of 17.5% comfortably outstrip the 10.3% offered by the MSCI Europe NR index**.


Figure 2: The Strategy has delivered outperformance over time


Past performance should not be taken as a guide to the future, losses may be made. Data is not audited.
Source: Investec Asset Management, dates to 31 March 2017, gross of all management fees, in EUR.
The investment objective of the strategy was amended in November 2012 to include the UK.
** Inception date 29 December 2006 (This is when the Investec 4Factor Equities team started managing the Strategy, prior to this date the Strategy was managed by a third party)
*** Comparative index change from MSCI Eur ex UK NR to MSCI Europe NR on 30 November 2012. The MSCI Europe Index is a free float-adjusted market capitalisation weighted index that is designed to measure the equity market performance of the developed markets in Europe. Maintained by Morgan Stanley Capital International.


Strategy highlights

  • Invests in high quality European companies with attractive valuations
  • High conviction risk-aware portfolio of up to 70 European stocks*
  • Employs our rigorous and consistent 4Factor bottom-up investment process
  • Provides an adaptable portfolio which is style, size and benchmark agnostic
  • 83% active share and 41% currently invested in small to medium size companies**
  • Track record of high outperformance


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If you have any questions or would like more information on the topic please contact us.

Important Information
The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. The economic and market views presented herein reflect Investec Asset Management’s (‘Investec’) judgment as at the date shown and are subject to change without notice. The value of investments, and any income generated from them, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets invested in.

There is no guarantee that views and opinions expressed will be correct, and Investec’s intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Investec has prepared this communication based on internally developed data, public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Investec’s internal data may not be audited. Any decision to invest in securities or strategies described herein should be made after reviewing the prospectus and conducting such investigation as an investor deems necessary and consulting its own legal, accounting and tax advisors in order to make an independent determination of suitability and consequences of such an investment. This material does not purport to be a complete summary of all the risks associated with this Strategy. A description of risks associated with this Strategy can be found in the Prospectus or other disclosure document for the fund or Strategy. Copies of such documents are available free of charge upon request. Investec does not provide legal or tax advice. Prospective investors should consult their tax advisors before making tax-related investment decisions.

Investment Team
There is no assurance that the persons referenced herein will continue to be involved with investing for this Strategy or Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Strategy or the Fund at any time without notice.

Investment Process
Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.

Performance Target
The target is based on Manager’s good faith estimate of the likelihood of the performance of the asset class under current market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual performance of investments and the Fund or Strategy overall may be adversely affected by a variety of factors, beyond the manager’s control, such as, political and socio-economic events, adverse changes in the interest rate environment, changes to investment expenses, and a lack of suitable investment opportunities. Accordingly, Performance Targets may be expected to change over time and may differ from previous reports.

Specific Portfolio Names
References to particular investment or strategies are for illustrative purposes only. Unless stated otherwise, the specific companies listed or discussed are included as representative of the Strategy or Strategies. Such references are not a complete list and other positions, strategies, or vehicles may experience results which differ, perhaps materially, from those presented herein due to different investment objectives, guidelines or market conditions. The securities or investment products mentioned in this document may not have been registered in any jurisdiction. More information is available upon request.

Indices
Indices are shown for illustrative purposes only, are unmanaged and do not take into account market conditions or the costs associated with investing. Further, the manager’s strategy may deploy investment techniques and instruments not used to generate Index performance. For this reason, the performance of the manager and the Indices are not directly comparable.

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