This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person. Introduction to GAM Non-Directional Equity 29-30 November 2012 Matt Lamb Head of Institutional and Fund Distribution (UK) This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person.
Transcript
This document is confidential and intended solely for the use of the person to whom it is given or sent
and may not be reproduced, copied or given, in whole or in part, to any other person.
Introduction to GAM Non-Directional Equity 29-30 November 2012
Matt Lamb Head of Institutional and Fund Distribution (UK)
This document is confidential and intended solely for the use of the person to whom it is given or sent
and may not be reproduced, copied or given, in whole or in part, to any other person.
2
Non-Directional Equity
● Non-directional equity team with EUR 694.4m under management, based in Switzerland
● Formerly Arkos Capital SA, which became part of GAM Group AG in July 2012*
● A consistent approach, based on fundamental analysis and a bottom-up approach to stock selection
● Core team of seven long-standing and highly experienced investment professionals
● Managing a range of low volatility, liquid and transparent absolute return funds, both offshore and UCITS
● Significant portion of teams’ liquid assets invested in the funds
Applying a solid and consistent investment approach since 2002
Source: GAM as at 31 Oct 2012.
* For your information 74.95% of the capital of, and voting rights in, GAM Investment Management Lugano SA (formerly Arkos Capital SA) are owned by GAM Group AG, Zurich, which is a directly held
100% subsidiary of GAM Holding AG. The remaining 25.05% are currently still owned by the senior investment management of GAM IM Lugano . However, agreements have been closed with the
management of GAM IM Lugano for the future purchase of this remaining 25.05% by GAM Group AG.
3
Developed Europe Description
GAM Talentum Europe Long/Short1 L/S equity non directional offshore fund, beta neutral, vol. lower than 6%.
Gross exposure 120 – 180%
GAM Talentum Enhanced Europe Long/Short2 L/S equity non directional offshore fund, beta neutral, vol. lower than 12%.
Gross exposure 240 – 360%
World Invest Absolute Return L/S equity UCITS fund, beta between 0 and 0.5 a target vol of 8%.
Gross exposure 140 – 210%
Emerging Markets Description
GAM Talentum Emerging Long/Short3 L/S equity offshore fund, beta between 0 and 0.5, target vol of 12%.
Gross exposure 150 – 210%
World Invest Absolute Emerging L/S equity UCITS fund, beta between 0 and 0.5, target vol of 8%.
Gross exposure 100 – 140%
Financials Description
World Invest Absolute Financials L/S equity UCITS fund, beta between 0 and 0.5, target vol of 8%.
Gross exposure 100 – 150%
Convertibles Description
World Invest Absolute Strategy Convertible Bonds UCITS fund
Source: GAM
1. Formerly known as Talentum Activedge. 2. Formerly known as Talentum Enhanced. 3. Formerly known as Talentum Emerging Alpha Fund.
Range of strategies
4
GAM Talentum Enhanced Europe Long/Short - A EUR Performance from 30 Nov 2004 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Thomson Reuters, Bloomberg
Beta for Period
0.08 GAM Talentum Enhanced Europe Long/Short
- A EUR – 18 months rolling beta v.
FTSE Eurotop 100 Index in EUR
5
Annual Performance Annualised
Performance
for Period %
GAM Talentum Enhanced Europe Long/Short - A EUR Returns from 30 Nov 2004 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM, Thomson Reuters
GAM Talentum Emerging Long/Short - A EUR Performance from 1 Feb 2007 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Bloomberg 6
Beta for Period
GAM Talentum Emerging Long/Short - A EUR
- 18 months rolling beta v. MSCI Emerging
Markets Index (GAM hedged) in EUR
0.06
Annual Performance Annualised Performance for Period %
GAM Talentum Emerging Long/Short - A EUR Returns from 1 Feb 2007 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM 7
This document is confidential and intended solely for the use of the person to whom it is given or sent
and may not be reproduced, copied or given, in whole or in part, to any other person.
Generating returns from non-directional long/short equity investing
Gianmarco Mondani
Chief Investment Officer
Non-Directional Equity
Overview of investment performance
Performance
Developed Europe YTD % SI % SI % pa Inception Date Volatility (SI) Fund Size EUR m
GAM Talentum Europe Long/Short – A EUR 8.5 81.9 6.0 23 Jul 2002 4.2 39.9
GAM Talentum Enhanced Europe Long/Short – A EUR 18.7 123.4 10.7 30 Nov 2004 9.3 140.7
World Invest Absolute Return – C EUR1 10.6 75.8 6.1 7 Apr 2003 5.4 181.5
Emerging Markets2
GAM Talentum Emerging Long/Short – A EUR 13.0 63.5 8.9 1 Feb 2007 6.8 53.6
World Invest Absolute Emerging – C EUR 7.3 22.3 6.3 10 Jul 2009 5.2 59.6
Financials
World Invest Absolute Financials – C EUR 6.3 4.9 1.9 7 May 2010 5.7 16.9
Convertibles
World Invest Absolute Strategy – C EUR 11.1 9.5 1.9 2 Jan 2008 9.2 115.1
Other 87.23
Total AuM 694.4
9 Source: GAM. Fund sizes may not sum exactly due to rounding. 1. Prior to 2009 World Invest Absolute Return was not a sophisticated UCITS fund, performance before that time may not be an accurate
guide as the fund was shorting futures rather than individual stocks, whilst also retaining a net long exposure by mandate. For a more accurate guide to performance prior to 2009 a comparison with GAM
Talentum Europe Long/Short is advised. 2. Up to Dec 2011 GAM Talentum Emerging Long/Short and World Invest Absolute Emerging were run pari-passu. As of Dec GAM Talentum Emerging Long/Short
has 1.5x the gross exposure of World Invest Absolute Emerging. 3. Includes Long Only Fund (EUR4.2m) and Managed Accounts (EUR83.0m).
Past performance is not indicative of future performance. Performance is provided net of fees.
As at 31 Oct 2012
Investment philosophy
● We believe that current stock prices reflect all available market information and this is also reflected in analysts’
consensus on earnings expectations
● Therefore, in order to make money we need to anticipate changes:
We buy a stock if we believe that it will beat analysts’ expectations
We sell a stock if we believe that it will miss analysts’ expectations
10
Our edge lies in our ability to identify stocks that will surprise by exceeding or falling short of analysts’ expectations
11
Changes in earnings expectations Earnings expectations – Developed Europe
Source: BoAML, MSCI. Data for period 31 Dec 1992 to 31 Oct 2012.
● The blue line shows the relative
performance of a portfolio of
stocks acquired on a monthly
basis that in the previous 3
months have experienced the
best positive revisions
● The orange line shows the
relative performance of a
portfolio of stocks acquired on
a monthly basis that in the
previous 3 months have
experienced the worst negative
revisions
Stocks with earnings upgrades outperforming
the underlying MSCI Europe index
Stocks with earnings downgrades underperforming
the underlying MSCI Europe index
12
Changes in earnings expectations Earnings expectations – Emerging Markets
Source: BofA Merrill Lynch. Data shown for the period 31 Dec 1992 to 31 Oct 2012.
Stocks with earnings upgrades outperforming
the underlying GEM Index
Stocks with earnings downgrades underperforming
the underlying GEM Index
● The blue line shows the relative
performance of a portfolio of
stocks acquired on a monthly
basis that in the previous 3
months have experienced the
best positive revisions
● The orange line shows the
relative performance of a
portfolio of stocks acquired on
a monthly basis that in the
previous 3 months have
experienced the worst negative
revisions
Investment approach
● Historical evidence shows that earnings’ revisions work best if supported by valuation and price momentum
● If the valuation is supportive we can have a bigger weighting
– Cheaper (more expensive) companies tend to appreciate (depreciate)
more on earnings revision than those that are more expensive (cheaper)
● If price momentum is supportive we have a higher degree of confidence
– We buy on strength, we sell on weakness
● Our fundamental, alpha-generating investment approach has driven every investment decision since 2002
● Quantitative tools are used exclusively to identify investment ideas and for risk management purposes
13
A stock selection approach based on bottom-up, fundamental analysis
Investment process
14
Overview
Risk management
Investment guidelines and internal rules
1
Idea generation
Quant screen
(StarMine)
Targeted consensus
screen
Company meetings
2
Stock selection
Fundamental analysis
Company contacts
3
Portfolio construction
and management
Pre-trade risk analysis
Sizing of positions
Portfolio robustness continuous assessment
Qualitative conditioning overlay
Idea generation
Provides percentile ranking of
stocks based on changes in
EPS, EBITDA and revenue
estimates
15
Provides percentile ranking of
stocks based on recent 6-12
months price performance
Quantitative screening – StarMine
…are candidates for long or short
positions based on revisions
Valuation Price
momentum
…appear to be relatively cheap or
expensive…
… and have momentum
for next year.
Earnings + +
Determines
which stocks…
Provides reasonable stock
valuation based on blend of P/E,
P/B, P/CF, dividend yield
EV/Sales and EV/EBITDA
Component
Features
Benefits Earnings revisions
are serially correlated
Identifies potential to make
further gains when valuation is
supportive
Allows us to buy on strength
and sell on weakness
Idea generation
● Constant focus on the consequence of “changes”
● Communication with brokers concentrating only on
1 The target gross exposure was raised to 150-210% on 1 Dec 2011.
This document is confidential and intended solely for the use of the person to whom it is given or sent
and may not be reproduced, copied or given, in whole or in part, to any other person.
Performance and analysis
28
GAM Talentum Europe Long/Short - A EUR Performance from 23 Jul 2002 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Thomson Reuters, Bloomberg
Beta for Period
GAM Talentum Europe Long/Short - A EUR –
18 months rolling beta v.
FTSE Eurotop 100 Index in EUR
0.01
29
Annual Performance Annualised
Performance
for Period %
GAM Talentum Europe Long/Short - A EUR Returns from 23 Jul 2002 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM, Thomson Reuters
30
GAM Talentum Enhanced Europe Long/Short - A EUR Performance from 30 Nov 2004 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Thomson Reuters, Bloomberg
Beta for Period
0.08 GAM Talentum Enhanced Europe Long/Short
- A EUR – 18 months rolling beta v.
FTSE Eurotop 100 Index in EUR
31
Annual Performance Annualised
Performance
for Period %
GAM Talentum Enhanced Europe Long/Short - A EUR Returns from 30 Nov 2004 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM, Thomson Reuters
32
World Invest Absolute Return - C EUR Performance from 7 Apr 2003 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Thomson Reuters, Bloomberg
1. From inception of the strategy in Apr 2003 to Nov 2008,
the mandate was to have a low volatility product with a
modest beta (target beta of 0.3).
Beta for Period
World Invest Absolute Return –
C EUR - 18 months rolling beta
v. FTSE Eurotop 100 Index in EUR1
0.16
33
Annual Performance Annualised
Performance
for Period %
World Invest Absolute Return - C EUR Returns from 7 Apr 2003 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM, Thomson Reuters
GAM Talentum Emerging Long/Short - A EUR Performance from 1 Feb 2007 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Bloomberg 34
Beta for Period
GAM Talentum Emerging Long/Short - A EUR
- 18 months rolling beta v. MSCI Emerging
Markets Index (GAM hedged) in EUR
0.06
Annual Performance Annualised Performance for Period %
GAM Talentum Emerging Long/Short - A EUR Returns from 1 Feb 2007 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM 35
World Invest Absolute Emerging - C EUR Performance from 10 Jul 2009 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Funds do not have the security of capital which is characteristic of a bank deposit.
Source: GAM, Bloomberg 36
Beta for Period
0.07
World Invest Absolute Emerging - C EUR - 18
months rolling beta v. MSCI Emerging Markets
Index (GAM hedged) in EUR
Annual Performance Annualised Performance for Period %
World Invest Absolute Emerging - C EUR Returns from 10 Jul 2009 (inception) to 31 Oct 2012
Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of
their calculation are available on request.
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM 37
This document is confidential and intended solely for the use of the person to whom it is given or sent
and may not be reproduced, copied or given, in whole or in part, to any other person.
Appendix
Stock selection
Determine which companies are likely to beat/miss analysts’ expectations on a 12-month view
1. Analyse stocks that quantitative and qualitative screening suggests are most likely to experience
positive (negative) revisions
2. Select those most likely to produce further positive (negative) surprises and trigger further
changes in estimates
3. Compare sell-side research, check assumptions directly with management and challenge
consensus view
In-depth analysis of influential factors based on P&L, balance sheet and cash flow analysis
Stocks for potential inclusion in portfolio
39
Fundamental analysis
Approach
Goal
Factors
Results
Stock selection
40
Fundamental in-depth analysis enables team to form medium-term view
P&L
Revenues:
Quantity by price by currency plus
acquisitions minus disposals
Gross margin:
Measure of value added, mostly
variable costs
Goodwill depreciation
Operating margin:
Influenced by fixed costs, prices
Interest costs:
Leverage can be good but it is a
fixed cost
Associates (a separate company)
and minorities (one way to fool you)
Dividends:
Are they sustainable?
Cash Flow
EBITDA – interest – tax – capex:
Can the company support its
growth?
Working capital:
Must grow no more than sales, can
make a company bankrupt or reduce
its competitiveness
If negative:
Can the balance sheet take it? Who
is paying for this?
Balance Sheet
Debt levels:
What is appropriate?
Provisions:
What are the future cash costs?
Goodwill:
Impairment test - can it cause equity
ratios to stretch?
Qualitative conditioning overlay
● Earnings revisions have the upper hand unless there is market turmoil
– Eg economic turning points or periods of unusual market behaviour (eg extreme short-term volatility)
● Qualitative conditioning overlay seeks to protect our approach from pressure it can experience at such times through
● This ongoing process is based on the analysis of macroeconomic indicators
– Such as ECRI, US ISM, EU PMI, Baltic Dry Index etc
● Reduces gross portfolio exposure and exposure to the most sensitive sectors during periods of turmoil
41
Active management of portfolio level volatility and make portfolio more robust during market turmoil
Macroeconomic
assessment
Impact at sector/
industry level
Impact at
stock level
Impact of decisions at portfolio level
Provides portfolio
robustness during brief
periods when earnings
revisions are not a good
indicators of future price
movements
Portfolio construction and management
42
Build and maintain portfolios that:
1. Hold only companies satisfying our fundamental analysis criteria
2. Are in line with the qualitative conditioning process
3. Are consistently robust and liquid in accordance with investment guidelines
● Invest team constructs portfolio from bottom up using pre-trade risk analysis for each position
● Size trades according to our level of conviction, volatility and liquidity
● Maintain diversification through
– Abiding by clear maximum exposure rules for each stock
– Single stock exposures never greater than 3 days’ trading volume
– Daily controls of exposure to market as per mandate
– Actively managing correlations between positions
● No specific country exposure (ex Emerging Markets strategies) or sector limits
● No automatic lock-in of profits
● Dynamic stop-loss policy; not automatic one
Low beta, well-diversified portfolio with strict risk controls
Bottom-up approach featuring strict discipline and ongoing monitoring
Result:
Approach
Goal
Limits
and
rules
Results
Risk management
43
Structure
Maintain risk proactively at each stage of the investment process
(idea generation, portfolio construction and portfolio management)
● Robust risk management framework built around and integrated with investment approach
● Set of risk management tools utilised by investment team as part of ex-ante analysis
● Correlation management to avoid unwanted bets (adjusted Beta and t-Stat)
● Stress test analysis
● Liquidity/volume
● Volatility
● Long, short, gross and net exposure
● Proprietary (style) indicator of short-term overbought or oversold stocks
Goal
Maintain risk proactively at each stage of the investment process
Pre-trade
risk controls
Risk management function
● Risk manager has independent supervisory function and operates at arms’ length
● Monitors adherence to:
– Investment guidelines
– Internal investment rules
– Restrictions and risk limits
● Initiates appropriate corrective actions in case of any transgression
● In addition to the pre-trade risk analysis, the risk manager performs regular checks on:
– Capacity limits
– Sector and geographical exposure
– Consistency between what quantitative data suggest and existing portfolio (comparison of portfolio longs and
shorts versus what quantitative indicators tell us about each position)
– Dynamic stop/loss analysis
– Performance attribution
44
Risk management
45
Factors correlation beta t-stat
EUR-USD X-RATE -0.071 -0.070 -2.197
EUR-CHF X-RATE -0.009 -0.066 -0.325
GBP-EUR X-RATE 0.147 0.095 2.149
GOLD SPOT $/OZ -0.149 -0.042 -2.201
DJ UBS INDUST METALS -0.020 -0.028 -1.925
FTSE EUROTOP 100 INDEX 0.253 0.000 0.000
CAC 40 INDEX 0.127 -0.016 -1.339
MILAN MIB40 INDEX -0.062 -0.029 -3.465
DAX INDEX 0.244 0.001 0.088
FTSE 100 INDEX 0.314 0.018 0.941
IBEX 35 INDEX -0.124 -0.031 -3.946
SWISS MARKET INDEX 0.348 0.039 1.632
NASDAQ 100 STOCK INDX 0.155 0.000 0.009
S&P 500 INDEX 0.205 0.007 0.351
BLP European Consumer Cyclical 0.305 0.013 0.997
BLP European Consumer Non-Cyclical 0.483 0.085 3.547
DJ EURO STOXX LARGE P = 0.126 -0.018 -1.396
DJ EURO STOXX SMALL P = 0.134 -0.015 -1.132
DJ STOXX TMI VALUE P = 0.122 -0.024 -1.517
DJ = STXX TMI GRWTH P = 0.337 0.019 1.209
US 10Y BOND -0.179 -0.043 -0.672
S&P EUROPE 350 ENERGY IX 0.196 -0.006 -0.381
S&P EU 350 CON STAPLE IX 0.490 0.087 3.958
S&P EU 350 TELECM SV IDX 0.027 -0.037 -2.123
Correlation management
We want to ensure that the
portfolio performance only reflects
calculated bets.
Source: GAM as at 31 Oct 2012.
Factors correlation beta t-stat
S&P EU 350 CONS DISCT IX 0.324 0.017 1.251
S&P EU 350 UTILITIES IDX -0.016 -0.043 -2.749
S&P EU 350 MATERIALS IDX 0.201 -0.004 -0.335
S&P EU 350 FINANCIALS IX 0.090 -0.019 -1.743
S&P EU 350 HEALTHCARE IX 0.393 0.055 2.437
S&P EU 350 INFO TECH IDX 0.374 0.026 2.051
S&P EU 350 INDUST INDEX 0.193 -0.006 -0.467
CYC-NCYC 0.067 -0.020 -1.111
LARGE-SMALL -0.012 -0.031 -0.858
VALUE-GROWTH -0.482 -0.206 -6.895
EURO-BUND -0.084 0.029 0.758
VIX -0.185 -0.002 -0.656
VSTOXX -0.149 0.001 0.444
US BREAK EVEN INFL RATE 10YR 0.065 0.089 0.771
EUR-JPY X-RATE 0.112 -0.007 -0.263
JAPANESE JPY SPOT 0.277 0.100 2.403
RUSSELL 2000 0.159 0.001 0.084
WTI Crude Oil 0.169 0.006 0.602
DEFENSIVE vs AGGRESSIVE 0.008 0.040 1.455
EUR-SEK X-RATE 0.060 0.033 0.887
SWEDISH MARKET INDEX 0.223 0.003 0.221
MSCI Emerging Free 0.241 0.014 0.797
Dax-Ibex spread 0.381 0.062 5.948
We use a proprietary risk management tool that
measures the current portfolio’s correlation to a
wide variety of factors.
46
Example of one long investment – BIC From end of Aug 2007 to end of Aug 2012
Source: Bloomberg (as of end of August).
References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
Stock examples
Company background
● Leading consumer staple company with leading positions in lighters, shavers and stationary
● Growing presence in emerging markets
● 20% margin helped by 37% margin in lighters
● Strong net cash position (400m)
Position history
● Analysts were expecting no growth in 2012 EBIT vs 350m in 2011
● But BIC has growth opportunities in all divisions. Simply assuming some 10m help from currency and 10m growth
(5%) in lighters where they are rapidly internationalising, one could see positive revisions
We added to the stock in December 2011
● After very strong q1 and q2 organic growth (10% and 6%) in consumer, consensus upgraded estimates. But still,
factoring in that the APP division losses have been erased, consensus implies almost no growth in 2H and in 2013
where the special 11m bonus to employees won’t recur. We expect more than 400m EBIT
● Valuation was only 12 times PE despite more than 10% of market cap in cash. After a big rise (30% YTD) it still
trades on 12 times PE adjusted for cash
We are still long the stock
47
Long example – BIC
References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
48
Example of one short investment – Vallourec From 31 Aug 2007 to 24 Aug 2012
Source: Bloomberg (as of end of August).
References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
Stock examples
Company background
● Leading stainless steel tube manufacturer
● We saw big capacity additions in the industry in the period to 2014 bringing prices down
● Vallourec had already profit warned due to problems in ramping up their new Brazilian and US facility
Position history
● Consensus was assuming growth in EBITDA from 1.1bn pre Brazilian losses despite no evidence of any improvement in
Brazilian operations, lack of additional room to increase volumes and pricing offset by raw materials. We expected a decline
● Valuation was expensive as the apparently cheap PE (10 times) on consensus earnings was offset by a premium to book value
We shorted Vallourec in August 2011 (price 57 euro)
● Through several profit warnings in the 1H of 2012 Vallourec admitted to its problems,
to which the falling iron ore prices were added
● Estimates reached our level of some 830m EBITDA in 2012 in mid May after an additional profit warning
We closed the short at a price of 32 euro
49
Short example – Vallourec
References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
50
Monthly performance
GAM Talentum Europe Long/Short - A EUR
% return Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
Past performance is not indicative of future performance. Performance is provided net of fees.
55
Exposure – Long and Short Exposure – Gross and Net
GAM Talentum Europe Long/Short - A EUR Exposure history as at 31 Oct 2012
Allocations and holdings are subject to change.
Source: GAM
56
Exposure – Long and Short Exposure – Gross and Net
GAM Talentum Enhanced Europe Long/Short Exposure history as at 31 Oct 2012
Allocations and holdings are subject to change.
Source: GAM
57
Exposure – Long and Short Exposure – Gross and Net
World Invest Absolute Return Exposure history as at 31 Oct 2012
Allocations and holdings are subject to change.
Source: GAM
Exposure – Long and Short Exposure – Gross and Net
GAM Talentum Emerging Long/Short Exposure history as at 31 Oct 2012
Allocations and holdings are subject to change.
Source: GAM 58
Exposure – Long and Short Exposure – Gross and Net
World Invest Absolute Emerging Exposure history as at 31 Oct 2012
Allocations and holdings are subject to change.
Source: GAM 59
Gianmarco Mondani
Chief Investment Officer
Gianmarco Mondani is the Chief Investment Officer of the non-directional equity team, and co-
manages developed Europe long and long/short equity funds. In addition to his role as Chief
Investment Officer, Gianmarco is the Chief Executive Officer as well as a Founding Partner of
GAM Investment Management Lugano SA (formerly Arkos Capital SA). He joined GAM following
its acquisition of the equity hedge specialist in July 2012. Prior to establishing Arkos in January
2007, Gianmarco launched and co-managed the current World Invest and Talentum offering at
Banca Arner in Lugano. Before this, he was an assistant director and portfolio manager within the
European investment team at Martin Currie Investment Management Limited in Edinburgh.
Gianmarco holds an MA in Investment Analysis from Sterling University, United Kingdom, and a
BA (cum laude) in Economics and Business Studies from Genoa University, Italy. He is based in
Lugano, Switzerland.
60
Roberto Cantaluppi
Senior Fund Manager
Roberto Cantaluppi is a Senior Fund Manager in the non-directional equity team, and co-
manages developed Europe long and long/short equity and global financials long/short equity
funds. He joined GAM following its acquisition of the equity hedge specialist, GAM Investment
Management Lugano SA (formerly Arkos Capital SA), in July 2012. Prior to joining Arkos in
August 2007, Roberto held several posts at Allianz Asset Management, including three years
as head of the sector analyst team and eight years as fund manager at RAS Asset
Management SGR (a wholly owned subsidiary of Allianz). Previously, he was an analyst for
San Paolo IMI in Italy, and an analyst at Mediosim in Italy. Roberto holds an MA and a BA
(cum laude) in Economics from Bocconi University, Italy, and a certificate from the Italian
Association of Financial Analysts. He is based in Lugano, Switzerland.
61
Paolo Longinotti
Fund Manager
Paolo Longinotti is a Fund Manager in the non-directional equity team, and co-manages
developed Europe long and long/short equity funds. Paolo joined GAM following its acquisition
of the equity hedge specialist, GAM Investment Management Lugano SA (formerly Arkos
Capital SA), in July 2012. He joined Arkos in June 2011. Paolo began his career in finance in
1998 where he worked as an equity analyst and fund manager for Italian investment houses
including Eurizon Capital SGR, Fidentiis Equities and Banca Generali. Paolo holds a BA in
Economics and Business Administration from Università Cattolica del Sacro Cuore, Italy. He is
based in Lugano, Switzerland.
62
63
Enrico Camera
Senior Fund Manager
Enrico Camera is a Senior Fund Manager in the non-directional equity team, and co-manages
emerging markets long/short equity funds. He joined GAM following its acquisition of the equity
hedge specialist, GAM Investment Management Lugano SA (formerly Arkos Capital SA), in July
2012. Prior to joining Arkos in February 2007, Enrico was a fund manager at Banca Arner, and prior
to this, was head of global emerging markets and a portfolio manager at Aureo Gestioni SGR. Before
that he was at Epta Fund, Italy as part of the institutional client sales team. Enrico holds a BSc (cum
laude) in Economics from Verona University, Italy, and is a CFA charterholder. He is based in
Lugano, Switzerland.
64
Iain Cartmill
Fund Manager
Iain Cartmill is a Fund Manager in the non-directional equity team, and co-manages emerging
markets long/short equity funds. He joined GAM following its acquisition of the equity hedge
specialist, GAM Investment Management Lugano SA (formerly Arkos Capital SA), in July 2012.
Prior to joining Arkos in November 2007, Iain was a director at AIG private Bank in Zurich
where he worked in equity research and portfolio management covering European and
emerging market stocks. Prior to that, he was at a number of different investment banks based
in London, including Deutsche Bank, Bankers Trust, Morgan Stanley and Robert Fleming. He
began his career as an analyst at ANZ Banking Group in Australia. Iain holds a BA in
Economics from the University of Queensland, Australia, a BBus (Hons) in Finance from
Queensland University of Technology, Australia, and is a CFA charterholder. He is based in
Lugano, Switzerland.
65
Aldo Meroni
Research Analyst
Aldo Meroni is a Research Analyst in the non-directional equity team. He joined GAM following
its acquisition of the equity hedge specialist, GAM Investment Management Lugano SA
(formerly Arkos Capital SA), in July 2012. He focuses on researching emerging markets. Prior
to joining Arkos in December 2011, Aldo was a quantitative equity analyst at CFO Sim S.p.A.,
a family office in Italy, where he created and developed a quantitative stock screening model.
Aldo holds an MSc (cum laude) and a BSc (cum laude) in Finance from Bocconi University,
Italy. He is based in Lugano, Switzerland.
Nico Cacciabue
Director
Nico Cacciabue is a Director – Investments in the non-directional equity team. He joined GAM
following its acquisition of the equity hedge specialist, GAM Investment Management Lugano
SA (formerly Arkos Capital SA), in July 2012. He focuses on portfolio research and
management across all strategies managed by the non-directional equity team, and is
responsible for the communication of the investment process and portfolio positioning of these
mandates. Prior to joining Arkos in April 2012, Nico worked as a distribution banker at Credit
Suisse in both London and Zurich where he was responsible for the distribution of alternative
investments to institutional clients in Europe. Before that, he was an investment analyst for four
years for the World Invest and Talentum offerings since their inception at Banca Arner, and
previously an investment analyst at two hedge fund companies based in London. Nico holds a
Postgraduate Diploma in Investment Management from SDA Bocconi in Milan, an MSc in
Business and Environmental Technology from Imperial College (University of London) and a
BEng (first class honours) in Special Environmental Engineering from Brunel University
(Erasmus Associate of the Politecnico di Milano). He is based in Lugano, Switzerland.
66
GAM Investment Management Lugano SA
67 Source: GAM as at 31 Oct 2012.
Board of Directors
General Management
Gianmarco Mondani (CEO/CIO)
Tristan Brenner (COO)
External Auditor
KPMG
Risk Management
Fabio Trancanelli
Compliance
Tristan Brenner
Product Support & Operations
Tristan Brenner
Execution
(2)
Middle Office
(3)
HR, IT, Accounting Outsourced to GAM (Schweiz) AG
& GAM (UK) Limited
Asset Management
Gianmarco Mondani
Roberto Cantaluppi
Enrico Camera
Jonathan Stanford
Paolo Longinotti
Iain Cartmill
Davide Marchesin
Aldo Meroni
Nico Cacciabue
Additional fund information
68
Developed Europe Prime Brokers/ Custodians Administrator Auditor
GAM Talentum Europe Long/Short Merrill Lynch, Morgan Stanley Citibank Europe PwC
GAM Talentum Enhanced Europe Long/Short Merrill Lynch, Morgan Stanley Citibank Europe PwC
World Invest Absolute Return SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young
Emerging Markets
GAM Talentum Emerging Long/Short Merrill Lynch, Morgan Stanley Citibank Europe PwC
World Invest Absolute Emerging State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young
Financials
World Invest Absolute Financials SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young
Convertibles
World Invest Absolute Strategy SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young
Source: GAM
History of the team
2002 Launch of Talentum Activedge –
European non-directional Hedge Fund
2003 Launch of World Invest Absolute Return - European
Equity L/S fund (UCITS)
2004 Launch of Talentum Enhanced – 2 times levered
version of European non-directional Hedge Fund
2007 Spin-off of fund management activities and
incorporation of Arkos Capital SA. Launch of offshore
Emerging Markets Equity L/S Hedge Fund
69
2008 Launch of World Invest Absolute Strategy –
Convertible Bonds Fund (UCITS)
2009 Launch of World Invest Absolute Emerging –
Emerging Markets Equity L/S fund (UCITS)
2010 Launch of World Invest Absolute Financials –
Global Financials Equity L/S fund (UCITS)
2012 Arkos Capital SA acquired by GAM Group AG*
and in October became GAM Investment
Management Lugano SA, with investment team
and approach remaining unchanged
69 For your information, GAM Group AG, a wholly owned subsidiary of GAM Holding AG, completed the acquisition of 74.95% of GAM Investment Management Lugano SA on 31 July 2012 and closed
agreements with the management of GAM IM Lugano for the future purchase of the remaining 25.05%.
NOTE: Funds may not be registered for sale in all jurisdictions. This is not an invitation to invest in the named funds.
GAM’s acquisition of Arkos Capital*
● GAM and Arkos shared a unique cultural fit
– GAM’s culture is based on allowing each investment team to follow its own investment philosophy and
● The funds continued to be managed by the same team and their approach remained unchanged
● The team are free from non-investment tasks and distractions, able to concentrate even more on alpha generation
● GAM’s broad investor base offers asset diversification and enhances the long-term stability of the business
● The long-term pay out structure ensures that the team will continue to be engaged with the same dedication and
incentive as an actual shareholder for at least seven years
70
Transaction benefits
Source: GAM
* For your information, GAM Group AG, a wholly owned subsidiary of GAM Holding AG, completed the acquisition of 74.95% of GAM Investment Management Lugano SA on 31 July 2012 and closed
agreements with the management of GAM IM Lugano SA for the future purchase of the remaining 25.05%.
Disclaimer
Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV-to-NAV basis).
GAM Group AG, a wholly owned subsidiary of GAM Holding AG, is a majority shareholder of GAM Investment Management Lugano SA (formerly Arkos Capital SA).
GAM has not independently verified the information from other sources and no assurance can be given as to whether such information is accurate, true or complete and
GAM makes no warranty, expressed or implied, regarding such information. Whilst every effort has been made to ensure the accuracy of the financial information herein,
you should note that some of the information may be based on unaudited or otherwise unverified information.
This material is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, in whole or in
part, to any other person. It is aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge and financial
sophistication to understand and bear the risks associated with the investments described herein. Nothing contained herein constitutes investment, legal, tax or
other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation to subscribe and is by way of information only. This document may
not be used as sales literature with members of the public.
None of the shares or units (‘Shares’) of the products mentioned herein have been registered under the US Securities Act of 1933, as amended (the ‘Securities Act’), and
none of the products are registered under the US Investment Company Act of 1940, as amended (the ‘Company Act’). Accordingly, unless an exemption is available such
Shares may not be offered, sold or distributed in the US or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company
Act, such Shares may be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering. In addition, certain
products may be closed to all US investors.
Some of the products mentioned herein may not be registered for public sale in all jurisdictions. Therefore, no public marketing must be carried out for them. Shares in GAM
products are not available for sale in any state or jurisdiction in which such sale would be prohibited and are not aimed at persons in those jurisdictions and in those cases
where the law prohibits this type of information from being provided. Investors in such Shares will not be eligible for the specific investor protection given under the Swiss
Collective Investment Schemes Act, the German Investment Act or the Austrian Collective Investments Schemes Act, in contrast to investors in products that are regulated
under said acts. The funds mentioned herein are not authorized or registered for public sale in Asia Pacific. Therefore, no public marketing must be carried out for them in
Asia Pacific. In Hong Kong, this material is restricted to professional investors (as defined in the Securities and Futures Ordinance (Cap 571)) only. In other countries in Asia
Pacific, this material should only be distributed in accordance with the applicable laws in the relevant jurisdiction. Subscriptions to the Talentum funds mentioned herein will
only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the funds. Talentum fund documents are available at: GAM Investment
Management Lugano SA, Via Marconi 1, CH-6900 Lugano, Switzerland.
The World Invest funds mentioned herein are sub-funds of a Luxembourg-based umbrella SICAV World Invest and are registered for sale in Germany, Italy, Luxembourg,
Norway and Switzerland. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the fund. Copies of the fund’s
prospectus, key investor information documents (KIID) and financial statements can be obtained free of charge from Casa4Funds SA, 41, Boulevard Royal, L-2449
Luxembourg and from its representative in Switzerland GAM Anlagefonds AG, Klausstrasse 10, CH-8034 Zurich. Paying Agent in Switzerland is State Street Bank GmbH,
Zurich Branch, Beethovenstrasse 19, CH-8027 Zurich. Shares are not available for sale in any state or jurisdiction in which such sale would be prohibited.
In Japan, the products mentioned herein shall not be disclosed publicly pursuant to the Financial Instruments and Exchange Law (the ‘FIEL’) nor registered for public sale or
private placement pursuant to the Law on Investment Trusts and Investment Companies. Therefore, none of the Shares of the products may be solicited in Japan or to
residents in Japan. This material is intended for circulation to professional, institutional and/or qualified investors only. Any person in receipt of this material is not allowed to
distribute it to residents in Japan nor communicate to residents in Japan about the products mentioned herein.
71
Disclaimer
The views expressed herein are those of the manager at the time and are subject to changes. The price of Shares may go down as well as up and the price will depend
on fluctuations in financial markets outside GAM’s control, as a result an investor may not get back the amount invested. Past performance is not indicative of
future performance. References to any security or company are not a recommendation to buy or sell any security and are for information purposes only. Prices quoted refer
to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time. Holdings and allocations are subject to change.
Typical portfolio characteristics and target objectives are subject to change. The objectives are based on certain assumptions (including, among other things, objectives of
underlying funds and strategies, and historic performance) and market, economic and other conditions that may change and have a material impact on future results. Thus,
there can be no assurance that these objectives will be realised. Objectives set over an investing cycle. Investment objectives do not represent a prediction of returns,
volatility or a promise to deliver any particular investment goal. Actual performance and volatility may be greater or less than these objectives. Investment and performance
objectives are subject to change. There is no guarantee that forecasts will be realised. Where funds are mentioned, complete fund information is contained in the relevant
prospectus or scheme particulars. Copies of the funds’ prospectuses, scheme particulars, financial statements and constitutional documents can be obtained free of charge
from GAM upon request in the UK, from GAM Fund Management Limited, George’s Court, 54–62 Townsend Street, Dublin 2, Ireland.
Important information about hedge funds: Hedge fund strategies are speculative and are not suitable for all investors. GAM hedge fund products are only available to
investors who are comfortable with the substantial risks associated with investing in hedge funds. An investment in hedge fund strategies includes the risks inherent in an
investment in securities, as well as specific risks associated with limited liquidity, the use of leverage, short sales, options, futures, derivative instruments, investment in
overseas securities, ‘junk’ bonds and illiquid investments. Investors should recognise that they will bear asset-based fees and expenses at the fund of hedge fund level, and
indirectly, fees, expenses and performance-based compensation of the investment funds in which these funds of hedge funds invest.
Hedge fund strategies may be leveraged and the volatility of the price of their interests may be great. The investment funds in which the fund of hedge fund strategies invest
can be highly illiquid, are not required to provide periodic reporting or valuation information to investors and may involve complex tax strategies. The use of leverage may
cause an underlying portfolio to liquidate positions when it may not be advantageous to do so in order to satisfy its obligations or to meet segregation requirements.
Leverage, including borrowing, may cause an underlying portfolio to be more volatile than if the underlying portfolio had not been leveraged.
Communication of gross only performance figures must be on a one-on-one basis, private and of a confidential nature. They may not be disseminated to the public in any
print, electronic or other medium, to include a web-site or any database of general circulation. The following disclosures must be provided in writing when communicating
gross only performance figures: (i) performance figures do not reflect the deduction of investment advisory fees; (ii) returns will be reduced by investment advisory fees and
any other expenses that may be incurred in the management of an account; (iii) the investment advisory fees are described in the prospectus for the fund; and (iv) a
representative example that shows the effect an investment advisory fee, compounded over a period of years, could have on the total value of a client’s portfolio. As an
example of the effect of investment advisory fees on the total value of an account, a three year compound return of 8.83% before the deduction of investment advisory fees
would be 7.74% after deduction of investment advisory fees of 1.00% accrued monthly and payable quarterly.
In the United Kingdom, this material has been issued and approved by GAM London Limited, 12 St James’s Place, London SW1A 1NX, authorised and regulated by the
Financial Services Authority. The funds mentioned herein are not regulated under the Financial Services and Markets Act 2000, consequently no protection is provided by
the UK regulatory system. Moreover benefits available under the UK Financial Services Compensation Scheme do not apply.
In Switzerland, this material has been issued and approved by GAM Anlagefonds AG, Klausstrasse 10, CH-8034 Zurich.
