2. THE SWMC
EUROPEAN FUND
UCITS
Dublin based
December 2013 Newsletter
FUND MANAGER
PERFORMANCE
Stuart Mitchell
Founder and investment manager
Year
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
2013
5.69
2.69
0.17
1.71
4.81
(3.31)
6.77
(1.29)
6.39
5.50
(1.11)
2012
4.29
5.58
0.53
3.89
1.05
2.48
(0.11)
1.00
(2.32) (5.77)
Dec
Dec
1.37
YTD
Index YTD
32.88
19.99
18.77
3.81
1.01
15.94
(2.21)
(1.42)
(3.60)
0.62
Since inception
2011
48.52
43.40
NOTES
Source: JOHIM 31/12/13. Please note that all performance shown is net of fees.
All performance and risk characteristics shown are for the primary EUR class unless otherwise stated.
Performance versus the FTSE World Europe Index
150
ABOUT THIS CHART
This chart demonstrates
the cumulative
performance of the
SWMC European Fund
since inception versus
the FTSE World Europe
Index performance over
the same period.
SWMC European Fund
Stuart established S. W. Mitchell Capital in March
2005. Previously he was a principal, director
and Head of Specialist Equities at J O Hambro
Investment Management (JOHIM). Stuart set
up and managed a long-short European fund,
The Charlemagne Fund, and launched and
managed the JOHIM European Fund.
Before then Stuart was a director at Morgan
Grenfell Asset Management where he was
Head of European Equities with responsibility
for $27bn of assets and managed the Morgan
Grenfell European Fund. Stuart was born in
Scotland and educated at Fettes College and
St. Andrews University where he read Medieval
History. He is also a graduate of the OPM
programme from the Harvard Business School.
FTSE World Europe
115
NOTES
Source: JOHIM 31/12/13.
Please note that all
performance shown
is net of fees.
80
Oct ‘11 Dec ‘11 Feb ‘12 Apr ‘12 Jun ‘12 Aug ‘12 Oct ‘12 Dec ‘12 Feb ‘13 Apr ‘13 Jun ‘13 Aug ‘13 Oct ‘13 Dec ‘13
Top ten long positions
as at 31 December 2013
FUND FACTS
Launch date 1 November 2011
Country
Ocado
UK
4.9
Lloyds Banking
UK
4.2
3
France Telecom
France
4.2
4
Mediaset
Italy
4.0
5
Sacyr Vallehermoso
Spain
Holding
Amadeus IT
Spain
3.8
7
Eurofins Scientific
France
3.7
BNP Paribas
France
3.5
9
Intesa Sanpaolo
Italy
3.4
10
EDF
France
ABOUT THIS CHART
3.9
6
8
The Fund’s investment objective is to
generate absolute returns for investors,
primarily by investing both long and short
in European equities.
Company
1
2
FUND STRATEGY
Position
3.4
This chart shows the top
ten holdings of the fund
as a percentage of the
fund NAV.
NOTES
Source: JOHIM 31/12/13.
Subscriptions/redemptions Daily
Minimum subscription Retail class A: £10,000,
$10,000, CHF10,000 or €10,000
Institutional class B: £1,000,000, $1,000,000,
CHF1,000,000 or €1,000,000
Management fee Retail 1.5%. Institutional 1%
Domicile Dublin, Ireland
Prime broker Goldman Sachs
Administrator Citi, Ireland
Auditor Grant Thornton
Reporting fund status Yes
The SWMC European Fund | December 2013
Please see full disclaimer on page 5
P2
3. THE SWMC
EUROPEAN FUND
December 2013 Newsletter
UCITS
Dublin based
COMMENTARY
The overall European macro-economic backdrop remains much stronger
than many believe. Our firm belief is that the Eurozone economies are
both fiscally stronger, and more business competitive, than their
Anglo-Saxon counterparts.
We outperformed the market in December.
We purchased a new position in Shell. We have been
intrigued by the group for some time. The share
appears to be trading at a significant 21% discount
to restated net asset value. It also seems that up to
30% of the business is tied up in unproductive assets
(Woodside, pipelines etc). Some 10% of capital
expenditure, furthermore, is focused on projects with
a break-even level above current oil or gas prices
(US shale and ‘future opportunities’). The appointment
of Ben van Beurden as CEO could herald a change
to a more shareholder friendly strategy. As head of
chemicals at Shell, he successfully managed to both
reduce capital expenditure and increase profitability
in his division. The recent news that the company has
decided not to pursue the GTL plant in Louisiana is
encouraging.
We also cut our investment in Accor with the
appointment of the new CEO and significant change
in strategy.
We remain very optimistic on the outlook for European
equities.
Our numerous company visits over the past month
continue to attest to accelerating economic recovery
spanning from the UK, where the housing market
continues to improve sharply, right down to Spain
where business confidence has reached the highest
level in more than 6 years. Our company meetings in
the Poland and Czech Republic also revealed signs of
economic recovery driven by a resurgent Germany.
For the first time in many years, furthermore, we are
starting to see business managers talk of increased
capital expenditure, job hires and even M&A.
The SWMC European Fund | December 2013
Please see full disclaimer on page 5
We believe that the greatest investment opportunities
remain in the more domestically orientated companies
areas of the market. As we have written previously,
many of the best quality international growth stocks
are now just too expensive, especially considering a
possible slow-down in emerging market demand. Many
domestic European companies, on the other hand, are
trading at discounts to their American equivalents in
excess of 50 percent.
The overall European macro-economic backdrop
remains much stronger than many believe. Our firm
belief is that the Eurozone economies are both fiscally
stronger, and more business competitive, than their
Anglo-Saxon counterparts. One need only look at the
modest growth in overall Eurozone government debt
over the crisis, or at the German trade account surplus,
to appreciate the strength of the region relative to the
US and UK.
The main challenge, of course, remains the trying
circumstances facing Europe’s periphery. We have
always argued that the ‘will’ in Europe to make the
Euro project work would ease the process of necessary
austerity and reform. We have been very impressed by
how well the most challenged countries have managed
both to meet Troika targets, as well as to undergo
wholesale economic reform. More importantly, it is
evident that the Spanish economy is beginning to
recover, and surprisingly rapidly too. Critically, buyers
for distressed property assets are beginning to appear
in some numbers, especially on Spain’s coast.
With deposit funding getting cheaper and lending now
more correctly priced, the banking system is clearly
moving back towards health.
More domestically orientated companies now
constitute over half of the portfolio.
Most notably, companies from the periphery of Europe
now represent 21% of our positions. On a recovery
basis, for example, the Italian media group Mediaset
represents great value. The same holds true for our
holdings in Intesa Sanpaolo, Banco Popular and Sacyr.
Banks make up 22% of the long book. We still believe
that the market has failed to appreciate the benefits
of a rapid recovery in financial margins coupled with
draconian cost cutting and easing regulatory pressures.
We have focused on the strongest retail banking
franchises such as Lloyds and BNP where we believe
that returns should rather rapidly return to pre-crisis
levels.
More cyclical companies, including Taylor Wimpey,
Michael Page and Air France represent a further 40%
of our positions.
Finally, our favourite growth companies, such as
Ocado, SAP and Swatch constitute just under half our
investments.
Stuart Mitchell
Founder and Investment Manager
P3
4. THE SWMC
EUROPEAN FUND
UCITS
Dublin based
December 2013 Newsletter
FUND STRUCTURE as at 31 December 2013
Portfolio construction
Country equity exposure as a % of NAV
%
Number of positions
Top 10 positions
as a % of NAV
Gross invested
position as a % of NAV
Cash and cash instruments
as a % of NAV
December 2013
33
38.9
95.3
4.7
November 2013
32
41.1
97.6
2.4
42.1
100.0
NOTES
Please note that cash instruments may include but not be limited to Government Bonds. This is to comply with UCITS regulations.
Sector exposure as a % of NAV
Market capitalisation as a % of NAV
%
27.4
Spain
12.8
Italy
7.4
7.2
Switzerland
—
UK
5.1
Netherlands
33
33.6
Germany
October 2013
France
1.8
Risk characteristics
%
Financials
20.3
Less than €3bn
Industrials
20.2
Less than €5bn
15.8
Consumer services
16.7
Less than €10bn
7.8
Consumer goods
The SWMC
European Fund
17.4
13.6
Less than €20bn
19.0
Healthcare
6.0
Less than €50bn
14.6
Technology
5.6
Less than €100bn
20.8
Telecommunications
4.2
Utilities
3.4
Oil & gas
2.9
Basic materials
Max up-month
FTSE World
Europe
6.77%
5.32%
Max down-month
(5.77%)
(6.01%)
Annualised volatility
2.4
The SWMC European Fund | December 2013
Please see full disclaimer on page 5
11.11%
9.44%
Correlation
0.88
—
α
0.13
—
β
1.01
—
Sharpe ratio
1.75
—
Information ratio
0.35
—
P4
5. THE SWMC
EUROPEAN FUND
UCITS
Dublin based
December 2013 Newsletter
CONTACT US
ALL ENQUIRIES
Susannah de Jager
S. W. Mitchell Capital LLP
Princes House, 38 Jermyn Street
London SW1Y 6DN
EXISTING CLIENTS
Michaela Craven-Smith
E. susannah@swmitchellcapital.com
E. michaela@swmitchellcapital.com
T. +44 (0)20 7290 4512
T. +44 (0)20 7290 3580
S. W. MITCHELL CAPITAL
Visit our website
swmitchellcapital.com
This manager’s report is a confidential communication issued by S. W. Mitchell Capital LLP to the general partner, limited partners, directors and shareholders of SWMC European Fund and
S. W. Mitchell PLC (together, the “Funds”) and is for information only. Any investment in the Funds must be made on the basis of the Funds’ private placement memorandum and not on the basis of this
newsletter. Investors in the Funds are limited partners or shareholders of the Funds but not clients of S. W. Mitchell Capital LLP. No person receiving a copy of this newsletter may copy it for transmission
to another person. This document has been prepared from sources which are believed to be accurate, however in producing it S. W. Mitchell Capital LLP may have relied on information obtained from
third parties and accepts no liability for the accuracy or completeness of such information. It is the responsibility of every person reading this document to satisfy himself as to the full observance of the
laws of any relevant country, including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. The Funds are not
recognised collective investment schemes for the purposes of the U.K. Financial Services and Markets Act 20000. The promotion of the Funds and the distribution of this document in the United Kingdom
are accordingly restricted by law. Most of the protections provided by the U.K. regulatory system, and compensation under the U.K. Financial Services Compensation Scheme will not be available. The
Funds’ securities are not, and will not be registered under the U.S. Securities Act of 1933, amended, or qualified under any applicable state securities statutes. The Funds are not, and will not be registered
as investment companies under the U.S. Investment Company Act of 1940, as amended.
Past performance should not be seen as an indication of future performance and will not necessarily be repeated. The value of investments and the income from them may fall as well as rise and is not
guaranteed. The investor may not get back the original amount invested. Changes in rates or exchange may cause the value of investments to fluctuate.
S. W. Mitchell Capital LLP is a Limited Liability Partnership registered in England No. OC312953. Registered address 38 Jermyn Street, London SW1Y 6DN. Regulated and authorised in the UK by the
Financial Conduct Authority.
The SWMC European Fund | December 2013
P5
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