Baring Asset Management Limited155 Bishopsgate, London EC2M 3XY
Authorised and regulated by the Financial Services Authority
Tel: +44 (0)20-7628 6000Fax: +44 (0)20-7638 7928
www.barings.com
INVESTMENT EXCELLENCE IN EUROPEAN EQUITIES
James Buckley
Europe – economic overview
Interest rates have begun to rise
Eastern Europe provides a boost
Unemployment rates are declining
Domestic demand is picking up
Business sentiment has plateaued
2.22.1CPI
2.02.2Industrial Production
7.67.5Unemployment Rate (%)
1.92.0GDP
2007200720072007
October ‘06 ForecastsOctober ‘06 ForecastsJanuary ‘07 ForecastsJanuary ‘07 Forecastsyoyyoy
Economic growth forecasts have been upgraded
Source: Consensus Economics Inc, January 2007
Pan European M&A – Here to stay€
billion
0
100
200
300
400
500
600
1999 2000 2001 2002 2003 2004 2005 2006 2007
Pending
Shares
Cash
Source: Citigroup Investment Research and Datastream, Jan 2007
M&A Activity has been a key theme in the last year
Growth theme in Peripheral Europe intact
Economic growth in the euro zone has improved
Peripheral euro zone economies are even more attractive
0
1
2
3
4
5
6
2005 2006 2007
Real
GD
P G
row
th (
%)
Eurozone I reland Greece
Source: Consensus Forecast December 11th, 2006
Traditional InvestingPerformance by country is not linked to index weight
Source: MSCI Europe in € at 29 December 2006
Index Weight (%) 12m Return (%)
0
10
20
30
Spain
Portugal
Ireland
Norway
Sweden
Denmark
Austria
Germany
Belgium
Greece
Europe ex UK
France
Italy
Netherlands
Finland
Switzerland
Traditional InvestingSector performance doesn’t help either
Source: MSCI Europe in € at 29 December 2006
Index Weight (%) 12m Return (%)
0
5
10
15
20
25
30
35
Utilities
Materials
Industrials
Financials
ConsumerDiscretionary
ConsumerStaples
TelecommunicationServices
Energy
Health Care
InformationTechnology
Stock picking is the only tool left
Opportunity for active managers to benefit from market inefficiencies
Four Key MeasuresFour Key Measures
VALUATIONVALUATIONMANAGEMENTMANAGEMENTGROWTHGROWTHVALUE VALUE CREATIONCREATION
Clear, credible strategyClear, credible strategy
Company cultureCompany culture
Corporate governanceCorporate governance
Demonstrable track recordDemonstrable track record
Acquisitions and disposalsAcquisitions and disposals
Pace and durationPace and duration
Competitive positionCompetitive position
Opportunities for real Opportunities for real growthgrowth
Quality of earningsQuality of earnings
Culture of innovationCulture of innovation
Cashflow returnsCashflow returns
Improving returnsImproving returns
Economic value addedEconomic value added
Capital allocationCapital allocation
Balance sheet structureBalance sheet structure
EV/EBITDA*EV/EBITDA*
Price/cash flowPrice/cash flow
Price/earningsPrice/earnings
Asset undervaluationAsset undervaluation
Sector/market/cross Sector/market/cross border comparisonborder comparison
*Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortisation
Investment ProcessFundamental Research – strong idea generation
Research augmented by regular contact with target companies
Unrecognised growthUnrecognised growth Credible managementCredible management Enhanced shareholder valueEnhanced shareholder value Favourable risk / rewardFavourable risk / reward
Buy & Sell Disciplines
We buy when we identify:We buy when we identify:
Earnings growth prospects Earnings growth prospects better than consensus better than consensus estimatesestimates
Undervaluation, based on Undervaluation, based on comprehensive comprehensive understanding of corporate understanding of corporate strategy, fundamentals and strategy, fundamentals and peer comparablespeer comparables
Catalysts that will lead to the Catalysts that will lead to the stock being re-rated within a stock being re-rated within a defined time framedefined time frame
A disciplined approach to investment
Triggers for a sell:Triggers for a sell:
Stock achieves absolute Stock achieves absolute valuation targetvaluation target
We detect deterioration in We detect deterioration in fundamental outlookfundamental outlook
Changes in Changes in strategic/economic overlaystrategic/economic overlay
Best and worst performing Best and worst performing stocks reviewstocks review
Baring Europa Fund Portfolio Characteristics as at 31th January 2007
Fund Size (USD million) 382.1
Number of holdings in portfolio 58
Large-cap eur>5bn+ (%) 59.72
Mid-cap eur2-5bn (%) 13.48
Small Cap eur<2bn (%) 23.27
Tracking Error 4.05
Source: Baring Asset Management, data as 31/01/2007
Top 10 current overweight stocks*Top 10 current overweight stocks*
%
HSBC Holdings PLC -2.35
BP PLC -2.33
GlaxoSmithKline -1.74
Vodafone Group -1.72
Total S.A. -1.65
Nestle S.A -1.65
Novartis AG -1.50
Royal Bank of Scotland -1.43
Royal Dutch Shell PLC -1.42
Banco Santander Central -1.27
%
Autonomy Corp. PLC 1.80
Standard Chartered PLC 1.80
CGG Veritas 1.76
Tullow Oil PLC 1.76
Ryanair Holdings PLC 1.76
Puma AG 1.75
Shire PLC 1.75
BK of Cyprus 1.74
D. Carnegie & Co. AB 1.73
Hexagon AB 1.72
Source: Baring Asset Management as at 31/01/07* Relative to MSCI Europe index
Top 10 current underweight stocks*Top 10 current underweight stocks*
Baring Europa Top 10 holdings
For Comparative Purposes Only
Baring Europa FundPerformance as at 31st January 2007
36.4
23.9
17.821.2
16.8
26.9
1 Year 3 Years* 5 Years*
Fund % Index %
1st 1st 1st Quartile
49/23626/3017/367Rank
An Offshore Fund recognised under the Laws of the UK, managed by Baring International Fund Managers (Ireland) Limited and marketed by Baring Asset Management Limited (Authorised and regulated by the Financial Services Authority). * Annualised Returns. Index is MSCI Europe.
** Micropal, UK Registered Investment Funds Equity Europe ex UKReference to the index is for comparative purposes only.
Source: Baring Asset Management, Standard & Poor’s. (bid to bid, in sterling, with net income reinvested).
Important Information
This document is issued by Baring Asset Management Limited and in jurisdictions other than the UK it is provided by its investment advisory affiliates. It has been produced for, and is intended for receipt by, professional investors/advisers and must not be relied on by any other category of recipient.
The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance is not a guide to future performance. Quoted yields are not guaranteed. We reasonably believe that the information contained herein from 3rd party sources, as quoted, is accurate as at the date of publication. This document must not be relied on for purposes of any investment decisions. This document may include forward-looking statements which are based on our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. The information in this document does not constitute investment, tax, legal or other advice or recommendation or, an offer to sell or an invitation to apply for any product or service of Baring Asset Management.
Research Material
Baring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime.
Complied (London): 14th February 2007
