US Equities Scenario and strategy Romina Graiver International Equity Investments Vienna - March 2006
Transcript
Slide 1
US Equities Scenario and strategy Romina Graiver International
Equity Investments Vienna - March 2006
Slide 2
2 Recent developments in the USA (1) A few recent indicators
could raise concerns about the economy > The first estimate of
4Q GDP growth (1.1%) is below our expectations It is difficult to
assess the respective impact of the various factors Hurricanes, oil
prices, rising interest rates, etc > Companies quarterly
earnings involved a few disappointments Negative surprises
apparently slightly more numerous than in prior quarters
Competitive pressures and higher costs obviously take a toll
However negative surprises remain below 20% despite stock option
bias > but most indicators point to optimism for the foreseeable
future Confidence gives no sign of erosion ISM, employment,
consumer confidence all remain strong Production, inventories and
capacity utilization are rather good
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3 Recent developments in the USA (2) Most indicators point to
optimism for the foreseeable future
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4 The other factors > Energy prices Impact of past rises
largely discounted Uncertainties about the future mainly due to
speculation seasonal factors should play favorably investment
likely to restore capacity > Foreign economies Signs of a
broader-based recovery Japanese consumption improving gradually
Euro zone also showing improvements > Political risk Continuing
tensions worldwide recent results of Palestinian elections
consequences of cartoons in the European press Irans resumption of
nuclear program Globally OK
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5 Situation in the main sectors Consumer Discretionary
Contrasted in softlines retail, technical rebound in auto sales
Consumer Staples Still few opportunities Energy Earnings at record
highs, but future trends less appealing Finance Attractive results
in IB, too much risk in lending-related businesses Healthcare Focus
back on new products in pharmaceuticals, but still prefering
services Industrials Rail transportation benefiting from
fuel-efficiency and strong economy Technology Aggressive
competition in semi and hardware Materials Continuing our selective
stance due to cyclical reasons A global interpretation of our model
s bottom-up messages
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6 US Core Growth - Reminder: Investment philosophy In highly
efficient markets, structuring intuition to eliminate emotion, and
thus focus on what really makes the difference, is key to achieving
superior performance results A consistent approach, involving a
reasonable use of computer processing in those areas where it is
more effective than human judgment, will help achieve this
objective In highly efficient markets, structuring intuition to
eliminate emotion, and thus focus on what really makes the
difference, is key to achieving superior performance results A
consistent approach, involving a reasonable use of computer
processing in those areas where it is more effective than human
judgment, will help achieve this objective We believe in research,
pragmatism and discipline
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7 US Core Growth - Reminder: Process overview A structured,
disciplined process based on extensive research Investment Universe
Quantitative processing (Model) Actual Portfolios Buy and Sell
lists + Portfolio construction guidelines Judgmental overlay
(Analyst + Fund Manager) Implementation / Execution (Traders) Fund
management (Short decision cycle) Model development / upgrade
(Long-term research cycle) 3-5 year cycles Model Portfolio
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8 US Core Growth - Reminder: Model s contribution The computer
identifies opportunities from a huge mass of fast-changing data
Dynamic Growth family Static Growth family Valuation family
Diffusion of earnings estimates revisions Expected LT growth rate
of Book Value Growth-adjusted P/E with notoriety coefficient
Industry-adjusted Price / Earnings ratio Earnings surprise analysis
Weighted combination All stocks in the universe ranked in order of
fundamental attractiveness Sell if rank falls in bottom 30% Buy
from top 5% Max. sect. overweight : +10% Hold 50 stocks at all
times Weight all stocks equally Recompose monthly Implementation
rules Revised ranking (marginal adjustments for earnings surprise)
SELL listBUY list Current Portfolio Investment Universe (500+
companies selected for their investibility)
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9 US Core Growth - Investment style Adjusting to market
environments, but always with a growth bias Compared
characteristics of a typical share
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10 US Core Growth - Portfolio characteristics Truly active
strategy driven by bottom-up stock selection Industry breakdown
(Portfolio vs S&P 500)
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11 US Core Growth Strategy April to June 2005: list of
portfolio changes Sells Buys Harley Davidson (inventories,
disappointing guidance for 2005) Affiliated Computer Services
(deteriorating sales, profit warning for FY 06) Tyco (profit taking
as sales and cash flow slow down) Cognos (impact of slowing number
of large deals on EPS) Morgan Stanley (tough environment +
destabilized management) US Steel (trends in US demand, high costs
in Europe) Lehman (strength in M&A, mkt share gains,
diversification ) Hilton (pick-up in margins on strong business
bookings) Motorola (refocused business and new handset product
line) Cisco Systems (strong existing business + new growth areas)
Federated Department Stores (May acquisition combined w/ strong
consumption) Invitrogen (integrating acquisitions into strong
product platform)
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12 US Core Growth Strategy July to September 2005: list of
portfolio changes Sells Buys Avaya (profit taking on rebound + high
risk of bad news) Fedex (impact of fuel prices on margins) Harman
International (exposure to EUR/USD exchange rate) Mercury
Interactive (poor guidance + poor visibility on restruct. costs)
Citigroup (mgt issues, weak in trading and credit card) Dell
(slower top line growth + limits to bus. model) Allegheny (improved
cost structure, specialization, demand) Oracle (installed base in
database segment, sales force) Paychex (3-pillar growth strategy,
enhanced staff management) Target (strong image, client focus,
strategy to drive traffic) W.W.Grainger (growth strategy despite
conservative bal. sheet mgt) Hewlett Packard (turnaround strategy
proving fruitful under new mgt)
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13 US Core Growth Strategy October 2005 to January 2006: list
of portfolio changes Sells Buys Ivax (take-over by non-US company)
Apollo Group (slowing enrolment trends) Invitrogen (disappointing
sales in bio-production area) Wellpoint (profit taking as slower
membership growth) Bed Bath and Beyond (competitive pressures and
market share issues) Exxon Mobil (diversified exposure to oil
businesses, refining capa.) Medtronic (innovation, new products,
competitive landscape) Merrill Lynch (exposure to Private Banking,
product line expansion) Abercrombie & Fitch (brand momentum,
pricing power, geog. expansion) Canadian National Railway
(investments and cost control in favorable economy)
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14 US Core Growth - Portfolio list Well-known blue chips and
more original ideas identified by the model Consumer Discretionary
Abercrombie & Fitch Coach Federated Dept Stores Hilton Hotels
Lowe s Nordstrom Staples Target Yum! Brands Consumer Staples -
Financials Allstate Bank of America Capital One Financial Everest
Re Goldman Sachs Lehman Merrill Lynch Moodys Healthcare Aetna Amgen
Caremark Express Scripts Genzyme Gilead Sciences Medtronic United
Health Group Industrials Canadian National Railway Cendant Grainger
(W.W.) JetBlue Airways L-3 Communication Norfolk Southern United
Technologies Information Technology Accenture Apple Computers
Autodesk Cisco Systems Hewlett Packard Intel Jabil Circuit Motorola
Nvidia Oracle Paychex Western Digital Telecom Services Sprint
Nextel Utilities - Materials Allegheny Technologies Dow Chemical
Energy BJ Services Exxon Mobil XTO Energy
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15 US Core Growth - Institutional track-record (gross of fees)
Consistent outperformance was achieved in both bull and bear
markets (*) (*) Please read important information at the end of the
present document. Past performance is no guarantee of future
performance. The value of any investment may go up as well as down
Sources BNP PAM, Standard & Poors
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16 US Core Growth - Performance history (gross of fees)
Consistent outperformance was achieved in both bull and bear
markets (*) Annual returns - US Core Growth vs S&P 500 (*)
Please read important information at the end of the present
document. Past performance is no guarantee of future performance.
The value of any investment may go up as well as down Sources BNP
PAM, Standard & Poors
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17 US Core Growth - Open-ended fund track-record (net of fees)
Parvest USA: the same strategy packaged as a Luxembourg Sicav (*)
(*) Please read important information at the end of the present
document. Past performance is no guarantee of future performance.
The value of any investment may go up as well as down Sources BNP
PAM, Standard & Poors