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US Equities
Scenario and strategy
Romina Graiver
International Equity Investments
Vienna - March 2006
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
•
•
2
Confidence gives no sign of erosion
•
ISM, employment, consumer confidence all remain strong
Production, inventories and capacity utilization are rather good
3
60.0
130.0
5.5%
120.0
2.0%
5.0%
110.0
100.0
1.0%
90.0
0.0%
80.0
-1.0%
Dec-05
6.0%
Jun-05
140.0
Dec-04
150.0
6.5%
Jun-04
7.0%
Dec-03
Consumer Confidence
Jun-03
Jun-00
Jun-03
Dec-02
Jun-02
Dec-01
Jun-01
Dec-00
Jun-04
Dec-04
Jun-05
Dec-05
Jun-04
Dec-04
Jun-05
Dec-05
Dec-03
Jun-03
Wholesale Inventories
Dec-03
0.5%
Dec-02
1.0%
0.0%
Dec-02
0.5%
Jun-02
1.5%
4.0%
Jun-02
2.0%
1.0%
Jun-01
1.5%
6.0%
Dec-01
8.0%
Jun-00
Industrial Production
Dec-00
70.0%
Jun-99
72.0%
20.0
Dec-99
30.0
Dec-99
Dec-98
40.0
Jun-99
Dec-98
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
Dec-02
Jun-02
Dec-01
Jun-01
Dec-00
Jun-00
Dec-99
Jun-99
Dec-98
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
50.0
Dec-01
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
Jun-02
Dec-02
82.0%
Jun-01
Jun-02
ISM Non-manufacturing
Dec-00
-1.5%
Dec-02
Jun-01
Dec-01
60.0
Jun-00
-1.0%
-2.0%
Jun-01
70.0
Dec-99
-1.5%
-8.0%
Dec-01
Jun-00
Dec-00
84.0%
Jun-99
-6.0%
Dec-00
Dec-99
80.0
Dec-98
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
3.0%
Jun-02
3.5%
Dec-02
Unemployment Rate
Jun-01
-0.5%
Jun-00
Durable Goods Orders ex-transp.
Dec-01
4.0%
Jun-00
0.0%
-1.0%
Dec-99
Jun-99
Dec-98
ISM Manufacturing (NAPM)
Dec-00
4.5%
Dec-99
-4.0%
-9
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-2.0%
-0.5%
Jun-99
2.0%
Jun-99
Dec-98
70.0
65.0
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
Dec-98
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Recent developments in the USA (2)
Most indicators point to optimism for the foreseeable future
Capacity Utilisation
80.0%
78.0%
76.0%
74.0%
Personal Spending
4.0%
3.0%
70.0
-2.0%
The other factors
Globally OK
> 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
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Signs of a broader-based recovery
•
•
Japanese consumption improving gradually
Euro zone also showing improvements
> Political risk
•
4
Continuing tensions worldwide
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•
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recent results of Palestinian elections
consequences of cartoons in the European press
Iran’s resumption of nuclear program
Situation in the main sectors
A global interpretation of our model ’s bottom-up messages
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•
•
•
•
•
•
•
5
Consumer Discretionary
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Contrasted in softlines retail, technical rebound in auto sales
Consumer Staples
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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
US Core Growth - Reminder: Investment philosophy
We believe in research, pragmatism and discipline
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
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US Core Growth - Reminder: Process overview
A structured, disciplined process based on extensive research
Fund management
(Short decision cycle)
Model development / upgrade
(Long-term research cycle)
Investment Universe
Quantitative processing (Model)
Buy and Sell lists
+ Portfolio construction guidelines
Judgmental overlay
(Analyst + Fund Manager)
Model Portfolio
Implementation / Execution (Traders)
Actual Portfolios
7
3-5 year cycles
US Core Growth - Reminder: Model ’s contribution
The computer identifies opportunities from a huge mass of fast-changing data
Investment Universe (500+ companies selected for their investibility)
Dynamic Growth
family
Static Growth family
Valuation family
Weighted combination
Current Portfolio
All stocks in the universe
ranked in order
of fundamental attractiveness
Revised ranking
(marginal adjustments
for earnings surprise)
BUY list
8
Implementation rules
• 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
SELL list
US Core Growth - Investment style
Adjusting to market environments, but always with a growth bias
Compared characteristics of a typical share
Average expected long-term
earnings growth
15.20
12.52
(non-weighted, % p.a.)
Median revision of EPS consensus
for current calendar year
( %, over last mth, ex- unchanged forecasts)
0.38
0.17
Price / Earnings ratio
based on next 12 month earnings
16.34
14.87
(aggregate calculation)
3.34
Price / Book Value ratio
(aggregate calculation)
2.89
44.32
Average market capitalization
(non-weighted, USD bn)
Jan. 31, 2006
23.90
US Core Growth
Sources: Ex-Share (market data), Compustat (financial data), IBES (earnings forecasts)
9
Calculations : BNP PAM
S&P 500
US Core Growth - Portfolio characteristics
Truly active strategy driven by bottom-up stock selection
24
.0
Industry breakdown (Portfolio vs S&P 500)
16
.0
14
.0
10
.3
10
.1
10
.2
15.00
10
.8
13
.2
16
.0
16
.0
20.00
18
.0
20
.3
25.00
3.
3
0.
0
2.
0
3.
0
4.
0
0.
0
5.00
2.
9
6.
0
10.00
Jan. 31, 2006
US Core Growth
Sources: Ex-Share (market data), Compustat (financial data), IBES (earnings forecasts)
Calculations : BNP PAM
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0.00
S&P 500
US Core Growth Strategy
April to June 2005: list of portfolio changes
Sells
Buys
Harley Davidson
Lehman
(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)
11
(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)
US Core Growth Strategy
July to September 2005: list of portfolio changes
Sells
Buys
Avaya
Allegheny
(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
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
(slower top line growth + limits to bus. model)
12
(improved cost structure, specialization, demand)
(turnaround strategy proving fruitful under new mgt)
US Core Growth Strategy
October 2005 to January 2006: list of portfolio changes
Sells
Buys
Ivax
Exxon Mobil
(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)
13
(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)
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
Financials
Allstate
Bank of America
Capital One Financial
Everest Re
Goldman Sachs
Lehman
Merrill Lynch
Moody’s
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
Energy
BJ Services
Exxon Mobil
XTO Energy
Consumer Staples
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Dec. 31, 2005
Information Technology
Accenture
Apple Computers
Autodesk
Cisco Systems
Hewlett Packard
Intel
Jabil Circuit
Motorola
Nvidia
Oracle
Paychex
Western Digital
Materials
Allegheny Technologies
Dow Chemical
Telecom Services
Sprint Nextel
Utilities
-
US Core Growth - Institutional track-record (gross of fees)
Consistent outperformance was achieved in both bull and bear markets (*)
PERFORMANCE
RISK
Cumulative
One Mth
31/12/05
31/01/06
US CORE GROWTH TRACK RECORD (v )
S&P 500 (NR) >12/98>S&P 500 (RI) (v)
GROSS USD
4.02 %
2.62 %
T hree Mth
31/10/05
31/01/06
10.75 %
6.41 %
Annualized
Year to
date
One Year
31/12/05
31/01/06
31/01/05
31/01/06
4.02 %
2.62 %
T wo Years T hree Years
31/01/04
31/01/06
20.92 %
9.77 %
MONTHLY PERFORMANCE
Mont hlyannualized
31/01/03
31/01/06
13.32 %
7.65 %
22.06 %
15.75 %
Volati lity
31/12/95
31/01/06
trac king
error
Info.
Rati o
31/12/95 - 31/01/06
13.27 %
8.91 %
19.33 %
15.53 %
7.50 %
0.58
CUMULATIVE PERFORMANCE
400
US CORE GROWTH TRACK RECORD (v)
US CORE GROWTH TRACK RECORD (v)
S& P 500 (NR) >12/98>S &P 500 (RI) (v)
S& P 500 (NR) >12/98>S &P 500 (RI) (v)
7.5
350
5.0
300
2.5
250
0.0
200
-2. 5
150
100
-5. 0
50
10/04
11/04
12/04
1/05
2/05
3/05
4/05
5/05
6/05
7/05
8/05
9/05
10/05
11/05
12/05
1/06
'95
'96
'97
'98
'99
'00
'01
'02
Sources BNP PAM, Standard & Poor’s
(*) 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
15
'03
'04
'05
US Core Growth - Performance history (gross of fees)
Consistent outperformance was achieved in both bull and bear markets (*)
.0
28
.6
20
10
.8
20
.2
10
3
4.
.4
-9
2
2.
1
-
-2
6.
5
-20
-6
.4
0.
0
0
12
.8
.6
28
20
.6
.0
23
.4
33
28
.1
30
.3
39
.9
Return (%)
40
39
.6
Annual returns - US Core Growth vs S&P 500
Dec. 31, 2005
5
2.
2
-
-40
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
US Core Growth
S&P 500 Index (NR)
Sources BNP PAM, Standard & Poor’s
(*) 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
16
US Core Growth - Open-ended fund track-record (net of fees)
Parvest USA: the same strategy packaged as a Luxembourg Sicav (*)
PERFORMANCE
RISK
Cumulative
One Mth
30/12/05
31/01/06
PARVEST USA
S&P 500 (NR) >12/98>S&P 500 (RI) (v)
NET USD
3.83 %
2.62 %
T hree Mth
31/10/05
31/01/06
10.09 %
6.41 %
Annualized
Year to
date
One Year
30/12/05
31/01/06
31/01/05
31/01/06
3.83 %
2.62 %
T wo Years T hree Years
30/01/04
31/01/06
18.38 %
9.77 %
MONTHLY PERFORMANCE
Mont hlyannualized
31/01/03
31/01/06
10.66 %
7.64 %
19.61 %
16.25 %
Volati lity
29/12/95
31/01/06
trac king
error
Info.
Rati o
29/12/95 - 31/01/06
10.42 %
8.90 %
18.19 %
14.99 %
7.15 %
0.21
CUMULATIVE PERFORMANCE
300
PA RV EST US A
S& P 500 (NR) >12/98>S &P 500 (RI) (v)
PA RV EST US A
S& P 500 (NR) >12/98>S &P 500 (RI) (v)
7.5
250
5.0
2.5
200
0.0
150
-2. 5
100
-5. 0
-7. 5
10/04
11/04
12/04
1/05
2/05
3/05
4/05
5/05
6/05
7/05
8/05
9/05
10/05
11/05
12/05
1/06
'95
'96
'97
'98
'99
'00
'01
'02
Sources BNP PAM, Standard & Poor’s
(*) 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
17
'03
'04
'05