S&W Revera UK Dynamic Fund A focused, UK, Special Situations Fund Caveat Venditor Movers & Shakers February’s portfolio return proved disappointing. A number of our investments reported annual results. In each case the underlying This was in spite of positive figures and comments business performance was positive but was often met with a lacklustre share price from those investments which reported during the response. We know from experience that markets can be dismissive of business month (of which more below). We do not own any fundamentals in the short-term but this will ultimately correct. mining stocks and the strong run in miners proved a British Aerospace settled its long running disputes with the SFO and the US DoJ. Its February 2010 drag on performance. We adhere to our long stand- results showed continued profit progress, a 10% dividend increase, further increase ing belief that commodity prices are exhibiting all in net cash and the announcement of a £500m share buyback program. We acknowl- the signs of a speculative bubble. Markets continue edge that there is uncertainty over UK defence budgets but only 20% of BAE’s busi- Top Twenty Investments to monitor the on going EU discussions over Greece’s ness is exposed to the MoD. BAE bid for Babcock in 2006 and will be monitoring the fiscal position, although there are increasing signs Babcock/VT situation closely. Reckitt Benckiser again demonstrated the strength of Top 20 Holdings Sector % of a compromise in the offing. Domestically the its brand portfolio with strong cash generation, moving from £1bn of debt to net cash. Thorntons General Retailers 5.3 spectre of a hung parliament is proving a distrac- There were further gross margin improvements reflecting Reckitt’s pricing power Lloyds Banking Group Banks 4.9 tion and providing vast copy for amateur psepholo- and the final dividend was increased by 19%. gists. Those of certain vintage know that what really Lloyds Banking reported acceptable figures in the context of the upheavals of 2009. Morgan Crucible Electronics 4.7 counts is the arc of Peter Snow’s swingometer. In common with its quoted peers it pointed to an easing in the rate of impairments Reckitt Benckiser Health 4.6 New investments comprised Babcock and Game but suffered in comparison by not providing a clearer roadmap to recovery. Third Restaurant Group Leisure & Hotels 4.5 Group. Our purchase of Babcock was to replace quarter figures from British Land painted a picture of a strong recovery in prime VT Group. We believe that VT’s pursuit of Mouchel property valuations. Morgan Crucible’s figures allayed concerns over a rights issue Kewill Systems Software & Comp Servs 4.5 Group was ill considered. Following a meeting with to reduce its debt. Trading conditions are continuing to improve. Morgan remains Spirent Communications Info Hardware 4.3 Babcock’s management we elected to switch from an investment which should be capable of generating significantly higher earnings Legal & General Life Assurance 4.2 VT into Babcock. We did not anticipate Babcock as the global economy normalises. William Hill finals were solid with improved subsequently tabling a bid for VT. Given Babcock’s performance from on line compensating for slight weakness in its retail activities. BG Group Oil & Gas 4.2 unique assets we would not rule out further parties Results from the oil majors benefitted from a recovery in the oil price. Dividends do BAE Systems Aerospace & Defence 4.2 entering the bidding process. Game Group, a High not appear under threat. Interim results from Thorntons were very well received and Total for top 10 45.4 St retailer of gaming software, has a cash rich bal- led to a round of full year upgrades. William Hill Leisure & Hotels 4.1 ance sheet and we believe will benefit from the in- Share price weakness was occasioned by investor sentiment rather than any corpo- troduction of new consoles later in the year. We con- rate news. Fears of sovereign defaults depressed Life Assurers and Resolution fol- Astrazeneca Pharmaceuticals 4.1 sider this a good entry point as retailers are so out of lowed suit. UK retailers were unloved which drove Game Group lower. Despite the Next General Retailers 3.9 favour with investors. stockmarket rise, Brewin Dolphin was hit by poor sentiment towards financial stocks. Carluccio’s Leisure & Hotels 3.8 Portfolio cash continues to reduce and we remain Babcock’s fall was the easiest to rationalise as investors considered the terms of its buyers of cash generative businesses where we be- prospective bid for VT Group. We don’t believe that Babcock will overpay to gain De La Rue Support Services 3.8 lieve that short term market sentiment is obscuring control of VT- on the right terms there is very clear logic in the combined grouping. British Land Real Estate 3.7 their fundamental long-term value. Babcock Intl Support Services 3.7 Rolling Performance Discrete Performance Brewin Dolphin Speciality Financials 3.7 1 month 3 months 6 months 1 year launch FTSE AllShare BP plc Oil & Gas 3.6 Launch- Dec 2008- since launch Dec 2008 Dec 2009 Retail (0.6)% 1.3% 2.5% 44.5% 23.5% 16.5% Game Group General Retailers 3.5 Retail (6.0)% 32.9% - Institutional (0.6)% 1.3% - - (3.5)% 2.4% Total for top 20 83.4 Institutional - - - Founder (0.6)% 1.3% 2.6% 44.7% 7.3% 5.3% Other equity holdings (3) 9.3 Founder (18.5)% 33.1% - FTSE AllShare 2.4% 2.3% 7.7% 40.9% - - Bonds and net liquidity 7.3 TOTAL 100.0 NAV and Indices priced at midday. Source: Smith & Williamson Fund Administration Ltd. FTSE AllShare Launch priced at close of day. Launch Dates: Retail Shares 7 Oct 2008; Institutional Shares 17 September 2009; Founder Shares 26 September 2008. Fine Canvas Market Analysis Risk Factors Investors are demonstrating a willingness to shrug off bad Key Parameter Outcome Signal • This OEIC is designed as a medium to long term invest- news. Fears over the Greek fiscal crisis appear to be receding ment, for example at least five years. FT All-Share PE Ratio 16.68 and may be remembered as much for German opportunism • The value of any investment in this fund is not guaran- - ‘ We’ll buy Kefalonia if that would help’ -than its economic Real Bond/Equity Yield (0.17) teed and can go down as well as up. Investors may not get impact. The corporate reporting season has offered bears little back capital originally invested. Earnings revisions Positive to bolster their case. We remain firmly of the view that the foun- • The OEIC’s portfolio is likely to be more concentrated dations for a bull market are in place. Equity valuations, certain Appetite for new equity Neutral than other investment funds and therefore may be more sectors excepted, are attractive - in part because of the back- risky than more diversified portfolios. 3mth market direction* 3.3% drop of negative comment. To use a seasonal metaphor, better • There can be no guarantee that the investment objec- to buy before the garden is in full bloom. Relative to bonds MARKET PHASE DECISION: Bull Phase tives of the OEIC will be met. equities appear well priced, not least as managements of fi- • There will be times when this OEIC’s performance will nancially strong businesses view dividend growth as a means *trailing 3mth movement of FTSE AllShare Index be unlike that of any stock market index which may or may of enhancing shareholder value. Ultimately market valuations Indices at end of day. not be advantageous to investors. and equity returns will be determined by earnings and thus far earnings forecasts for 2010 are improving. If forecasts are met Fund Manager Revera Asset Management Limited (“Revera”) is a limited company incorporated in Scotland with registered number SC255433. Revera is then equities are unquestionably cheap. Stephen Grant authorised and regulated by the Financial Services Authority. Revera’s Investors are demonstrating greater selectivity in the IPO mar- Investment Director registered office is at 8a Rutland Square, Edinburgh EH1 2AS. S&W Revera ket with a reluctance to simply refinance business currently UK Dynamic Fund is a sub-fund of S&W Revera Fund, which is an open- ended investment company with variable capital (ICVC) incorporated in sitting on private equity books. For businesses which require Normally disclaimers appear at the England & Wales, with registration number IC000692 and authorised by the additional capital to further growth ambitions the reception Financial Services Authority (FSA) with effect from 12 August 2008. has been more positive. For stockpickers this provides an ideal end - I’ll begin with mine. Blame The information in this factsheet does not constitute an offer or invitation canvas from which to generate strong returns. my father. As a child he took me for the sale or purchase of any units or shares in S&W Revera UK Dynamic to watch a football team that no- Fund, in any jurisdiction, is not intended to form the basis of any investment decision and does not constitute or contain any recommendation by Revera, one else followed. Consequently, its shareholders, directors, employees, agents or advisers. the idea of going with the crowd No representation or warranty (express or implied) is given as to, the Key Facts or trend has been alien to me. In almost 25 years of investment man- adequacy, accuracy or completeness of the information and opinions contained in, the factsheet materials. Structure - UCITS OEIC The information in this factsheet is intended only for those who are agement experience, I’ve learned considered, or would reasonably be considered, professional customers or to temper my contrarian instincts. eligible counterparties as defined by the Markets in Financial Instruments ACD - Smith & Williamson Fund Administration Ltd Sometimes the crowd is right and Directive (MiFID), and are ordinarily resident in the United Kingdom. Any person who is unsure of their likely client classification must seek there is nothing to be gained by independent financial advice before acting on any information contained in Price - Retail (Sedol B3BSKK3) 87.617 pence adopting a contrarian stance for the this factsheet. Persons resident in countries other than the UK should consult Institutional (Sedol B3BSKL4) 87.684 pence sake of it. their professional advisers as to whether they require any governmental or Founder (Sedol B3BSKJ2) 87.714 pence other consents in order to enable them to invest in any product or service described in this factsheet. As an investor I want to own a portfolio of businesses which It is a condition of receipt of this factsheet that it must not be distributed Annual Charge - Retail Shares 1.5% have sustainable and durable earnings, not ones that happen onwards to a third party. - Institutional Shares 1.3% to be in vogue. In order to make an objective assessment of Unless expressly stated otherwise, the source of all factual information is Revera. what I believe a business is worth I track its cash generation. I Any prospective investor is recommended to seek his own independent Initial Charge - Retail Shares up to 5% believe that the most reliable means of assessing a business’s legal, tax and financial advice. The value of any investment in S&W Revera - Institutional Shares 0% long term performance is to monitor how much money it puts in UK Dynamic Fund will not be guaranteed, and an investor may not get back the bank each year. It is a more objective measure of a compa- all the money he/she invested. Minimum Investment - Retail Shares £1,000 ny’s capacity to generate shareholder wealth than either earn- - Institutional Shares £100,000 ings or management rhetoric. Profitable investment opportuni- ties arise most often when the prevailing view proves to be ill All Share Classes are Accumulation Shares founded. Having a clear understanding of a company’s value remains the best means of deciding when it is right to invest Dealing Line 0207 131 4951 against the flow.