The fund invests exclusively in European Small and Mid Caps – Clear value approach on partnership basis – Investment philosophy already proven in the Netherlands.
The Dutch investment company Delta Lloyd Asset Management is from today offering the Delta Lloyd L European Participation Fund (ISIN LU0408576568) in Germany. The new shares fund invests exclusively in small and medium-sized companies in Europe.
The main selection criteria are a significant undervaluation of the shares, in combination with high dividends that have been generated through a strong cash flow from an established and stable business model. The fund is building on the success of two Dutch funds, the Delta Lloyd Europees Deelnemingen fund and the Delta Deelnemingen fund.
Four-pillar investment philosophy with strict value approach
The first pillar represents the selection of exclusively small to medium-sized businesses with great potential and a strong financial footing. Attention is particularly focussed on undervalued firms and “hidden champions” that have a strong market position in their sector, as well as stable and sustainable growth.
In addition, the management should play a part in the company and focus on further developing their area of business to offer their customers real added value. Whether the company’s key skills can be transferred to related business areas or other countries is also a consideration in the evaluation process. These types of business are also attractive prospects for take over.
Creating added value as a partner
The second pillar is the acquisition of at least five percent of shares in the company. In this case, Delta Lloyd sees itself as a part-owner with a long-term investment, available to take part in discussions on strategic decisions and interested in creating sustainable added value.
With a relatively high proportion of shares, Delta Lloyd also has access to the people responsible and to the most important production sites. Furthermore, as a significant investor, Delta Lloyd would have the right to take part in any negotiations in the case of a take over.
The third pillar involves regular visits to the company by the fund manager. The fund manager has an open discussion with the management to get a clear picture of the company’s vision and strategy, to learn about its strongest products, where its competitive advantage lies, and where real added value is generated.
Portfolio limited to 35 companies
The fourth pillar is the limiting of the fund portfolio to a maximum of 35 companies. In spite of this relatively low number of companies, the fact that shares are spread over a variety of industries and countries ensures that the portfolio is adequately diversified.
A small portfolio means that the fund also enjoys greater profit from the positive development of individual shares. In addition, the fund only includes companies that the portfolio manager really knows well, that are significantly undervalued, and where there is therefore a large margin of safety below the real value.
“We ultimately select our investments based on four principles: We want to create growth in the businesses together with our partners, we take an active part in business decisions, place great value on research and invest only in companies that we know in detail and whose products we understand,” says Angus Steel, senior portfolio manager of the Delta Lloyd L European Participation fund. “Our target audience for the fund is entrepreneurial investors looking for long-term capital growth and who follow the same value-add and partnership-based investment approach as the existing participation funds”, continues Steel.
Proven investment style and an experienced team
The Delta Lloyd L European Participation fund is made up of companies from both Deelnemingen funds, where the proportion of Dutch companies is still limited to 25 percent. The new fund will be managed by the experienced Deelnemingen funds investment team.
The team includes Alex Otto, CIO of Delta Lloyd Asset Management, Jack Jonk, head of equities, Angus Steel, Senior Portfolio Manager, and Arnoud Krom, portfolio manager. These four experts also form the investment committee which decides which companies the fund invests in.
Each member of the team has had years of investment experience. They currently successfully manage €700 million in the funds, as well as a further €2 billion for the parent company, the Dutch insurer Delta Lloyd Group, using the same investment approach.
Since it was issued in August 2000, the Delta Lloyd Deelnemingen fund has recorded an average annual performance of 10%, while for example the MSCI Europe Small Cap fell 0.2% over the same period. The Delta Lloyd Deelnemingen fund was also given the S&P Cash Fund Award for the Dutch share funds category in 2005 and 2006, as well as recently receiving an AA rating. In 2005 the fund received the FD Morningstar Award in the same category, as the best investment fund on the Dutch market.
A three-stage investment process
The Delta Lloyd L European Participation Fund’s investment process consists of three stages: First of all, ideas go through an internal screening process on a monthly basis. This includes 50 to 60 companies. Finally around 20 possible candidates are selected for more in-depth analysis and various valuation models are used. The results give the team one or two companies that could suit the portfolio.
The next step is to visit the company, to get to know the management as well as its strategy, and to check the valuation. As the final step, a detailed investment scenario is compiled. This is then presented to the investment committee which will ultimately decide, based on the data that has been gathered, whether the company should be included in the fund.
Strict risk management
All companies in the fund undergo ongoing risk controls. There is a clear divide according to country and industry. No single stock makes up more than 10% of the portfolio. The entire exchange rate risk for the fund is also limited to a maximum of 10%. Through regular contact with the company, the fund manager can keep their valuation model and investment case always up to date. The team discuss the latest portfolio developments at monthly meetings.
Strict sales discipline
All investments are subject to strict sales discipline. The decision as to whether a stock should be sold is based on various factors. As a rule, shares in a company are held for at least five years. However, this timescale can be reduced if the company has achieved its actual market price, whether through an increase in share value or a take over. Furthermore, differing views on business strategy between the investment team and the company’s management, or overweighting of a stock in the portfolio can lead to sale.
Management fee
At 1.25% annually, the management fee is low compared to the market rate. If the fund achieves a return of more than 10%, a 15% performance fee is applied on the amount generated over this threshold. Any losses from the previous year are also offset (one-year high water mark).
Read more about Delta Lloyd Asset Management and Delta Lloyd funds at: www.deltalloydassetmanagement.de
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For further information:
Martina Fassbender
Telephone: 0611 773 25 71
E-mail: martina.fassbender@deltalloyd.de
Notes to editors:
About Delta Lloyd Asset Management
Delta Lloyd Asset Management (DLAM) is the independent asset manager within the Delta Lloyd Group, one of the leading providers of financial services in the Netherlands. As well as the Delta Lloyd public funds, the investment company also manages investment mandates for the Delta Lloyd Group and external institutional investors. Its many years of experience also benefit the German market, where the company offers innovative and proven investment funds with a successful “boutique” approach. With assets of €43.5 billion (as at 30 June 2009) under management for internal and external customers, DLAM is the fifth-largest asset manager in the Netherlands.
DLAM follows a long-term investment approach with three priorities: bonds, thematic funds and participation funds which invest in undervalued European small and mid caps on a partnership basis. In this way, DLAM has found its niche and sets trends, instead of following them.
DLAM is represented on the German market with the Delta Lloyd L Bond Euro fund and the Delta Lloyd L Water & Climate fund, as well as seven other SICAV funds including the Delta Lloyd L New Energy fund. Marketing in Germany is carried out by Delta Lloyd Asset Management Vertriebs GmbH whose managing director is Rik Verhoeven.