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At a glance
Index
HSBC Smaller Co ex UK
Launch date
Nov 1997
Fund size
£944.1m
Fund currency
GBP
OEICs
Fund Managers
Dave Dudding
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European Smaller Companies Fund
Threadneedle European Smaller Companies Fund aims to limit volatiltiy and diversify risk by employing a disciplined investment process to build a portfolio of typically 80-100 stocks. Managed since 2002 by Dave Dudding, the Fund has an outstanding track record over both the long and shorter term and offers investors access to a diversified portfolio of under-researched smaller company stocks.
Graph as at 12 noon: 31st March 2012
Key selling points
- Dedicated European smaller cap portfolio of typically 80-100 stocks.
- The portfolio invests in stocks outside of the top 225 FTSE World Europe ex UK universe which are typically under researched.
- The Fund utilises a clear and disciplined investment process that aims to limit volatility whilst diversifying by investment opportunity to create a diversified product with meaningful holdings in selected stocks.
- Well resourced investment team - Dave is supported by 22-strong team of UK and continental European portfolio managers who operate within Threadneedle's wider team of more than 120 investment professionals
- Comprehensive European equity range - differing objectives and risk profiles, from core funds to more concentrated high alpha and specialised smaller company funds, our range of European equity funds provide options for investors with differing risk appetites.
Why invest in European equities?
- The global economy is in recovery mode, allowing European companies in a range of industries to benefit from improving demand.
- Having cut costs aggressively during the downturn, many companies are now feeling the benefit of operational gearing into the recovery.
- The market is trading at an attractive valuation relative to history and to other assets such as bonds.
- Corporate results have generally been better than expected.
- Cash flows are healthy and balance sheets are strong, yet cash balances are earning little. This suggests that earnings enhancing M&A activity is likely to be a feature.
- The divergence between the strong and the weak countries will increase but some of the prosperity from stronger countries such as Germany, with an increasingly robust GDP from well balanced expansion, will trickle down to the other countries.
Why small caps?
- Price-to-earnings of small caps trading below long term average.
- Price-to-book still at material discount despite strong anticipated margin recovery.
- Small caps appear better value than large caps.
Ratings logos
| Fund manager | David Dudding |
| Launch Date | November 1997 |
| Index | HSBC Smaller Co ex UK |
| IMA Sector | Europe Smaller Companies |
| Annual management charge | 1.50% |
| Minimum investment | Initial: £2,000 Subsequent: £1,000 |
| Fund codes | |
| ISIN | GB0001531424 |
| Sedol | 153142 |
| MEDIX | ADESGC |
Communication is key
Idea generation
A clear understanding of the macroeconomic and thematic background is a vital starting point for building the portfolio. These insights are gained from numerous sources including Threadneedles's regular economic outlook meeting and investment themes meeting where a culture of challenge and debate ensures only the best ideas make it into a portfolio. Views from external economists and strategists help highlight those areas of the market likely to be a good source of stock opportunities. These top-down inputs serve to educate and guide what is predominantly a bottom-up, stock-picking process.
Stock analysis
This top-down approach is combined with over 300 company meetings where we can understand how a business may develop over the medium-term. The manager uses a variety of analysis to assess the stocks including valuation tools, financial analysis and Porter's Five Forces to ensure he targets quality companies with robust balance sheets and pricing power achieved through strong market positioning.
Portfolio construction and risk management
Once the stock ideas have been thoroughly debated the fund manager is responsible for constructing a balanced portfolio, aware of the need to generate alpha from different directions balancing one stock with another.
The portfolio is then monitored constantly by an independent risk team - a process aided by daily risk reports - to ensure that it is structured correctly and that any risks are known, are directionally desirable and are managed.
The rigor that underpins the process allows the team to invest with real conviction.
- Dave Dudding
David Dudding, CFA joined Threadneedle in 1999 as an analyst. He manages the Threadneedle European Select Fund and the Threadneedle European Smaller Companies Fund. David previously worked for John Swire and Sons in Hong Kong and for Investors Chronicle as a financial journalist. He holds a Modern History degree and a European Politics Masters degree from Oxford University. He is also a member of the CFA Institute and the UK Society of Investment Professionals (UKSIP).
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