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CG European Income Fund: Strategy
CG European Income Fund: Strategy
May 2010
STRATEGY
May worked in our favour. We moved up the league tables by being very underweight banks and the
great Euro
E crisis
i i passes us while
hil we fell
f ll by
b much
h less
l than
h the
h market.
k W admit
We d i that
h there
h are
serious tensions in the Euro and the Germans are not helping by (correctly) stating that by buying up
Greek government debt the ECB is merely bailing out (largely French and to a lesser extent German)
European banks.
It will take some time for the Euro to sort itself out and we are not bulls on the PIIGS economies.
However, we are reassured that the nasty medicine of spending cuts is being taken and assuming there
is not a wave of civil unrest we think that the media hype will gradually die down. What will we be left
with? A German export orientated economy – was ever thus - and a subdued periphery which we are
treating with caution but not ignoring and we have just bought two stocks in this region, as detailed Charles Glasse
below. As an aside, Viscofan in Spain has actually been one of our best shares.
BBVA
Some of our best stocks at 2CG have been bought a
bit early. Banks are tricky at the best of times and
never more than now.
Source: BBVA Presentation We believe that they will avoid the biggest disasters
in Spain
S as its asset quality is better due to
intentional market share loss during the credit boom
years. Overall we have never seen the shares
looking so cheap.
LOTTOMATICA
This is one of the global lottery operators. The lottery market is split between the leader Lottomatica (Italy), Intralot (Greece),
andd other
h smallll players
l i Canada
in C d for
f example. l M
Many off the
h national
i l lotteries
l i are run domestically
d i ll on a one off ff basis.
b i
Lottomatica bought the US leader GTech some years ago but thanks to heavy competition, particularly from Intralot, the market
value of Lottomatica is now less than the acquired value of GTech. At a meeting in Milan in late May the CEO of Lottomatica
indicated that the overly heavy competition for renewed licences in the US may be over. Given the 6% yield, the room for
margins to expand over the coming years and the more pressing need for governments and states to raise money from
lotteries, life may well get better for the operators.
We are not alone in thinking that the market is cheap. We note with interest that Crispin Odey thinks that shares look cheap
against bonds and property. He continues that at a recent conference in Milan less than 10 per cent of attendees had more
than 20 per cent of their money in shares. Presumably he was not attending a bond conference!
In our humble opinion this is not the time to buy absolute return funds
but we will allow you to buy a bit of Asia, if you must.
Performance Figures to 31/5/2010 1 Month % 6 months % 1 Year % 3 Years % Inception %
Income Reinvested From 1/11/05
INCOME Fund (Retail in £) ‐6.4 ‐2.5 +12.9 ‐16.6 +19.1
FTSE Europe ex UK Index in £ (total return) ‐8.1 ‐5.8 +14.4 ‐14.7 +26.1
Vs. other UK based Income Funds ( at 28th May) 1 of 10 5 of 10 2 of 9 2 of 4 1 of 1
(Jupiter, Newton, IP, SWIP, Ignis, Allianz, Neptune, Stand life, Royal)
Quartile 1 2 1 2 1
Discrete Year Performance (in %) 2010 to 2009 2008 2007 2006 2005 (2 Nov
date – 31 Dec)
INCOME Fund (Institutional B in £) ‐6.1 +18.0 ‐23.1 11.0 19.4 9.8
FTSE Europe ex UK in £ ‐8.2 +20.1 ‐24.0 15.7 20.1 8.7
FUND INFORMATION