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For financial advisers only The case for investing in smaller companies Small companies provide big opportunities Smaller companies are under-researched despite their proven ability to broadly outperform their larger peers. They remain overlooked, and investors who choose this dynamic asset class have the potential to continue to be rewarded into the future. Smaller companies superior performance 350% 300% 250% 200% 150% 100% 50% 0% -50% MSCI World Small Cap Index [302.78%] Although marginally more volatile than their larger counterparts, since the start of the century global smaller companies have delivered superior returns to larger companies. The case for investing in smaller companies 17 y MSCI World Index [84.05%} Source: FE Analytics, 31 December 1999 to 31 March 2017 02/12 20 16 ar nu Ja nu ar y 20 14 Ja Ja nu ar y 20 12 Ja nu ar y 20 10 Ja nu ar y 20 08 Ja nu ar y 20 06 Ja nu ar y 20 04 Ja nu ar y 20 02 20 y ar nu Ja Ja nu ar y 20 00 -100% The investment process Standard Life Investments aim to identify positive drivers of change within a company that have not yet been identified by the wider market. With a focus on finding high quality, profitable businesses with significant growth potential, the smaller companies team seek to identify tomorrow’s larger companies today. What do the team look for in a smaller company? The experience of the smaller companies team is that companies with potential for high returns typically exhibit organic expansion and operate in growth sectors. They look for companies that have ¬ high quality business models ¬ elevated levels of recurring revenue ¬ strong cashflow How are the stocks chosen? In the search for companies with long-term sustainable growth prospects, the smaller companies investment team are supported by their stock screening tool. The tool is used to track a group of factors that have been shown to enhance stock performance. These include: Getting to know the companies The smaller companies team place face-toface meetings at the core of their investment process, allowing them to perform in-depth qualitative analysis, which provides a number of benefits: 1) They allow the team to cross-check the accuracy of their investment rationale. This could mean scrutinising company forecasts or verifying assessments based on the stock screening tool with company management. 2) They allow the team to assess the strength and repeatability of a company’s business model. Factors such as recurring revenue, barriers to entry, price flexibility and market share are all important considerations. ¬ measures of price and earnings momentum ¬ valuation ¬ earnings growth ¬ cashflow ¬ balance-sheet strength This process enables the team to create a manageable list of companies on which they can focus their research capabilities in order to identify high-quality companies with the potential to outperform. “ The smaller companies team seek to identify tomorrow’s larger companies today.” The case for investing in smaller companies 03/12 Why invest in smaller companies? 1 Small companies provide big opportunities Smaller companies have the ability to deliver strong earnings regardless of what is happening in the wider economy, and have risk-adjusted returns that are superior to those of large companies. Risk-adjusted returns measure the return of an investment compared with its volatility. Smaller companies generate greater returns for a given amount of risk than larger companies. Risk adjusted returns by region (January 2001 to December 2016) Larger companies Smaller companies % return per % unit of risk 0.6 0.5 0.4 0.3 0.2 0.1 0 USA Europe ex UK UK Japan Pacific ex Japan Emerging Markets Source: Standard Life Investments, 01 January 2001 to 31 December 2016 2 3 04/12 Opportunities to add value Smaller companies are an under-researched asset class, which opens up opportunities for the smaller companies team to find compelling investment ideas that others have yet to discover. Room to grow Smaller companies tend to be undervalued relative to their growth prospects and have potential for substantial returns that are more difficult to achieve from companies perceived to be fully grown. The case for investing in smaller companies Why Standard Life for smaller companies? Standard Life Investments is a leading asset manager with an expanding global reach. Their wide range of investment solutions is backed by their distinctive investment philosophy, disciplined risk management and commitment to a culture of investment excellence. 1 2 3 Flexibility in your investment options With three funds investing across different markets, the Standard Life smaller companies funds offer greater flexibility and meaningful diversification to our clients. The resource capabilities of a leading asset manager The smaller companies team have an exceptional reputation within the industry and a proven track record in smaller companies investing. At the heart of their success is over 1700 investment professionals and support staff working for Standard Life Investments around the world. They thoroughly research and analyse each company before they add it to any fund. They constantly look ahead to anticipate change so they can deliver the best rewards for investors. A robust, repeatable and proven investment process Standard Life Investments combine the use of their stock screening tool with in-depth qualitative analysis by the smaller companies investment team. This has resulted in the funds’ strong performance record to date. The investment process, and an emphasis on quality, provides a solid grounding that allows the funds to perform consistently in the medium-long term. The case for investing in smaller companies 05/12 Standard Life Global Smaller Companies Fund The Standard Life Global Smaller Companies Fund aims to provide long term growth by investing predominantly in the shares of smaller companies listed on the global stock markets. The fund typically holds a concentrated portfolio of stocks and is actively managed by Standard Life Investments. Fund Manager Alan Rowsell Launch Date 14 Oct 2013 Fund Size €26.1m Underlying Fund Size £495.8m Base Currency EUR AMC 1.55% Source: Standard Life Investments, 31 March 2017 Performance from 14 October 2013 to 31 March 2017 60% 45% 30% 15% 0% 20 17 M ar ch Oc to be r2 01 6 20 16 M ar ch Oc to be r2 01 5 20 15 M ar ch Oc to be r2 01 4 20 14 M ar ch Oc to be r2 01 3 -15% Source: Standard Life Investments, 14 October 2013 to 31 March 2017. Net of annual management charge. Performance based in Euro. Performance to 31 March 2017 3 Months 6 Months 1 Year 3 Years Since Launch 7.3% 10.7% 21.0% 12.9% p.a. 13.1% p.a. Source: Standard Life Investments, 31 March 2017. Net of annual management charge. Performance based in Euro. 06/12 The case for investing in smaller companies Stock Spotlight - Sunny Optical Technology Sunny Optical Technology, a Hong-Kong listed manufacturer of camera modules and vehicle lenses, has performed extremely strongly in 2016 and into the start of 2017, with the share price more than doubling year-on-year by the end of March 2017. They continue to benefit from the shift to dual camera handsets and are the world leader in the growing market for vehicle lenses. Top Five Holdings 1. Sunny Optical Technology A Chinese optical instrument and lens manufacturer 2. Cognex Corporation A US manufacturer of machine vision systems used in automated manufacturing 3. Fever-Tree A UK producer of premium drink mixers 4. Start Today A Japanese E-commerce business 5. HEICO A US aerospace, industrial, defense and electronics company Source: Standard Life Investments, 31 March 2017 Fund Composition by Sector Industrials 23.7% Information Technology 21.4% Consumer Discretionary 16.4% Financials 11.9% Consumer Staples 10.5% Health Care 8.6% Energy 2.8% Real Estate 2.4% Available Cash 2.3% Source: Standard Life Investments, 31 March 2017 Fund Composition by Country USA 44.5% Japan 11.8% UK 11.2% Germany 5.8% Italy 5.5% China 5.2% Taiwan 3.6% France 2.5% Cash and Other 2.3% Ireland 1.7% Netherlands 1.5% Mexico 1.4% Australia 1.3% Sweden 1% Austria 0.7% Source: Standard Life Investments, 31 March 2017 The case for investing in smaller companies 07/12 Standard Life European Smaller Companies Fund The Standard Life European Smaller Companies Fund aims to provide long term growth by investing predominantly in the shares of smaller companies listed on European stock markets, including the UK. The fund is actively managed by Standard Life Investments, who will select stocks to try to take advantage of opportunities they have identified. Fund Manager Andrew Paisley Launch Date 8 Aug 2007 Fund Size €112.5m Underlying Fund Size €426.7m Base Currency EUR AMC 1.50% Source: Standard Life Investments, 31 March 2017 Performance from 8 August 2007 to 31 March 2017 150.00% 112.50% 75.00% 37.50% 0% -37.50% Au gu st 20 16 M ar ch 20 17 Au gu st 20 15 Au gu st 20 14 Au gu st 20 13 Au gu st 20 12 Au gu st 20 11 Au gu st 20 10 Au gu st 20 09 Au gu st 20 08 Au gu st 20 07 -75.00% Source: Standard Life Investments, 08 August 2007 to 31 March 2017. Net of annual management charge. Performance based in Euro. Performance to 31 March 2017 3 Months 6 Months 1 Year 3 Years 5 Years Since Launch 6.3% 5.0% 6.3% 10.6% p.a. 16.7% p.a. 9.2% p.a. Source: Standard Life Investments, 31 March 2017. Net of annual management charge. Performance based in Euro. 08/12 The case for investing in smaller companies Stock Spotlight - Fever-Tree Fever-Tree is a producer of premium drink mixers who continue to hit new highs as gin and tonic consumption increases. In 2016 the UK alone drank 1.12bn gin and tonics, with gin breaking the £1bn sales mark for the first time ever (Source: Wine and Spirit Trade Association). Britain remains Fever-Tree’s largest market, although the company has expanded into 65 countries. Top Five Holdings 1. Fever-Tree A UK producer of premium drink mixers 2. Nemetschek A German vendor of software for architects, engineers and the construction industry 3. Kesko A Finnish retailing conglomerate 4. Intrum Justitia A Swedish credit management services group 5. Borregaard A Norwegian biorefinery that manufactures products based on the different components in wood Source: Standard Life Investments, 31 March 2017 Fund Composition by Sector Industrials 40.6% Materials 12.8% Consumer Discretionary 11.8% Consumer Staples 11.4% Information Technology 8.7% Real Estate 6.2% Cash and Other 3.6% Health Care 3.5% Financials 1.4% Source: Standard Life Investments, 31 March 2017 Fund Composition by Country United Kingdom 32.8% Germany 20.1% France 9.7% Netherlands 5.7% Switzerland 5.1% Finland 4.5% Sweden 4.3% Cash & Other 3.6% Ireland 3.6% Norway 3.4% Italy 3.2% Spain 2% Denmark 1.1% Austria 0.9% Source: Standard Life Investments, 31 March 2017 The case for investing in smaller companies 09/12 Standard Life UK Smaller Companies Fund The Standard Life UK Smaller Companies Fund aims to provide long term growth by investing mainly in the shares of smaller companies listed on the UK stock market. The fund is actively managed by Standard Life Investments. Fund Manager Harry Nimmo Launch Date 1 Apr 2005 Fund Size €70.2m Underlying Fund Size £1259.0m Base Currency EUR AMC 1.30% Source: Standard Life Investments, 31 March 2017 Performance from 1 April 2005 to 31 March 2017 400% 300% 200% 100% 0% Ap ril 20 16 M ar ch 20 17 Ap ril 20 15 Ap ril 20 14 Ap ril 20 13 Ap ril 20 12 Ap ril 20 11 Ap ril 20 10 Ap ril 20 09 Ap ril 20 08 Ap ril 20 07 Ap ril 20 06 Ap ril 20 05 -100% Source: Standard Life Investments, 01 April 2005 to 31 March 2017. Net of annual management charge. Performance based in Euro. Performance to 31 March 2017 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Launch 7.5% 10.6% 6.5% 8.4% p.a. 14.5% p.a. 7.8% p.a. 12.1% p.a. Source: Standard Life Investments, 31 March 2017. Net of annual management charge. Performance based in Euro. 10/12 The case for investing in smaller companies Stock Spotlight - JD Sports Fashion JD Sports Fashion is an athleisure retailer benefiting from societal shifts towards healthy living and growth in casual sports fashion. The company has seen substantial success in the UK and is bringing a strong presence to the international market. Exclusive product ranges from brands such as Adidas and Nike have led to a differentiated edge versus competitors. JD Sports is a strong example of the benefits of momentum in smaller companies. Top Five Holdings 1. Sanne A provider of fund and corporate administration services 2. First Derivatives A provider of products and consulting services to finance, technology and energy institutions 3. JD Sports Fashion A sports fashion and footwear retailer 4. Dechra Pharmaceuticals A manufacturer of veterinary pharmaceuticals and products 5. NMC Healthcare A UK listed private healthcare provider operating in the United Arab Emirates Source: Standard Life Investments, 31 March 2017 Fund Composition by Sector Industrials 24.8% Consumer Goods 12.9% Health Care 10.8% Consumer Services 19.3% Telecommunications 5.5% Financials 12.9% Technology 12.1% Cash and Other 1.7% Source: Standard Life Investments, 31 March 2017 The value of your clients’ investment may go down as well as up and may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance. The case for investing in smaller companies 11/12 Pensions Savings Investments Find out more (01) 639 7900 [email protected] Mon-Fri, 9am to 5pm. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary. www.brokerzone.ie facebook.com/StandardLifeIreland youtube.com/StandardLifeIreland Standard Life Assurance Limited is authorised by the Prudential Regulation Authority in the UK and is regulated by the Central Bank of Ireland for conduct of business rules. Standard Life Assurance Limited is registered in Dublin, Ireland (905495) at 90 St Stephen’s Green, Dublin 2 and Edinburgh, Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary. CFISC V01 0617 ©2017 Standard Life