Smead US Value UCITS Fund - Smead Capital Management · Crescent Letter to Shareholders, May 29,...

Opinions expressed are those of Smead Capital Management, are subject to change, are not guaranteed, and should not be considered recommendations to buy or sell any security.

© 2016 Smead Capital Management (SCM), All Rights Reserved.www.smeadcap.com/UCITS

Institutional Investor Use Only

3rd Quarter 2016 Webcast

Smead US Value UCITS Fund


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Today’s Agenda

Performance, Characteristics and Top 10 HoldingsCole Smead, CFA, Portfolio Manager

Featured Stock: Express Scripts (ESRX)Tony A. Scherrer, CFA, Portfolio Manager

The 70-20-10 RuleBill Smead, Lead Portfolio Manager


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Quarter-End PerformanceAverage Annualized Total Returns (%) as of 30/9/2016

Gross Expense Ratio 1.15%

Investors should carefully read the prospectus, the key investor information document and all other relevant documentation before investing in the Fund. Performance data quoted represents past performance realized within Pareturn – Smead US Value Fund (the Absorbed Sub-Fund), whose assets and liabilities have been transferred to the Sub-Fund with effect 22 February 2016; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Currency fluctuations may have a negative impact on the value of an investment in the Fund. Net performance results are calculated after management fees and certain operational costs, commissions, fees and other charges that could have a negative impact on performance. The performance figures given are a measure of the change in net asset value of the Fund which are net of all Fund fees and expenses but do not take into account taxes or charges.

Quarter 1 Year

SinceInception

(29/11/2013)

Smead US Value UCITS Fund I USD ACC 3.32% 3.53% 5.45%

Russell 1000 Value Index 3.48% 16.20% 7.60%

S&P 500 Index 3.85% 15.43% 8.94%


Past performance does not guarantee future results.4

Smead Value FundKey Facts and Characteristics as of 30/9/2016


Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. 5

Smead Value FundTop Ten Holdings as of 30/9/2016

4.1%

4.4%

4.5%

4.8%

5.2%

5.3%

5.4%

5.6%

6.4%

6.7%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

Wells Fargo & Co.

Bank of America Corp.

Tegna Inc.

American Express Co.

JPMorgan Chase & Co.

Aflac Inc.

eBay Inc.

Berkshire Hathaway Inc. B

NVR Inc.

Amgen Inc.

Percentage of Fund


> New positions:– Alaska Air Group, Inc. (ALK)– Express Scripts (ESRX)– Lennar Corporation (LEN)– Scripps Networks Interactive, Inc. (SNI)

> Adds to position weightings:– Walt Disney Co. (DIS)

> Trims to position weightings:– Cabelas Inc. (CAB)– Gannett Co. Inc. (GCI)– News Corp. - A (NWSA)

> Sells: – Gilead Sciences, Inc. (GILD)

Current and future holdings are subject to change at any time and are not recommendations to buy or sell any security. 6

Portfolio Additions / DeletionsThird Quarter 2016


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Today’s Agenda


Featured Stock: Express ScriptsTony A. Scherrer, CFA, Portfolio Manager


CFA is a registered trademark owned by the CFA Institute.


Past performance is no guarantee of future results. Current and future holdings are subject to change at any time and are not recommendations to buy or sell any security. 8

The 70-20-10 Rule

Our Eight Criteria

1. Meets an economic need

2. Strong competitive advantage (wide moats or barriers to entry)

3. Long history of profitability and strong operating metrics

4. Generates high levels of free cash flow

5. Available at a low price in relation to intrinsic value

Favored, but not required

Required over entire holding period

May also relate to timing/portfolio weighting

For companies that don’t meet one of these, we believe our required criteria will ultimately correct or overwhelm.

6. Management’s history of shareholder friendliness

7. Strong balance sheet

8. Strong insider ownership(preferably with recent purchases)


Past performance is no guarantee of future results. Source: Express Scripts deck 3/15/2016 – Barclays Healthcare Conference9

The 70-20-10 RuleExpress Scripts: meets an economic need


Past performance is no guarantee of future results. Source: Express Scripts deck 3/15/2016 – Barclays Healthcare Conference. Y axis represents number of specialty drugs.10

The 70-20-10 RuleExpress Scripts: strong competitive advantage


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The 70-20-10 RuleExpress Scripts: long history of profitability & operating metrics

Past performance is no guarantee of future results. Source: Bloomberg

Ebitda (in $) Per Claim Processed

Data for the period 6/30/2011-6/30/2016


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The 70-20-10 RuleExpress Scripts: high levels of free cash flow

Past performance is no guarantee of future results. Source: Express Scripts deck 3/15/2016 – Barclays Healthcare Conference; Bloomberg. M&A: Mergers and acquisitions.


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The 70-20-10 RuleExpress Scripts: low price in relation to intrinsic value

Past performance is no guarantee of future results. Source: ThomsonReuters Baseline. X axis represents calendar years. Y axis represents Forward P/E Range and Price to Cash Flow Range, respectively.


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The 70-20-10 RuleExpress Scripts: history of shareholder friendliness

Past performance is no guarantee of future results. Source: Bloomberg


Past performance is no guarantee of future results. Source: Express Scripts deck 3/15/2016 – Barclays Healthcare Conference; Bloomberg15

The 70-20-10 RuleExpress Scripts: strong balance sheet


Past performance is no guarantee of future results. Source: Factset, Bloomberg. GARP: Growth at a Reasonable Price.16

The 70-20-10 RuleExpress Scripts: insider ownership


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Today’s Agenda




Opinions expressed are those of Smead Capital Management, are subject to change, are not guaranteed, and should not be considered recommendations to buy or sell any security.

© 2016 Smead Capital Management (SCM), All Rights Reserved.www.smeadcap.com/UCITS


Presented by:Lead Portfolio Manager Bill Smead

The 70-20-10 Rule


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Today’s Agenda

Drivers of Stock Performance

Where Are We Now?

Where Are We Going?


Past performance is no guarantee of future results.20

The 70-20-10 RuleDrivers of Stock Performance

The 70-20-10 Rule

Part 1: Performance drivers in the next 12 months

Part 2: Performance drivers over the next 10 years


Past performance is no guarantee of future results. Source: Standard & Poors; dates 1/1/1926 – 12/31/201521


Short-Run Unpredictability


Past performance is no guarantee of future results. Source: Bloomberg22


Example: Amgen


Past performance is no guarantee of future results. For illustrative purposes only. 23


Psychological Cycles in the Stock Market




The Well-Known Fact? Bank Misery


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High Turnover Increases Trading Costs: Financial Analysts Journal

Past performance is no guarantee of future results. Source: Financial Analyst Journal Jan/Feb 2013 “Shedding Light on “Invisible” Costs: Trading Costs and Mutual Fund Performance”, by Roger Edelen, Richard Evans, and Gregory Kadlec. A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market.


Past performance is no guarantee of future results. Source: http://taxfoundation.org/article/high-burden-state-and-federal-capital-gains-tax-rates-united-states. Organization for Economic Cooperation and Development (OECD).26


High Long-Term Capital Gains Rates

As of 12/31/2015

http://taxfoundation.org/article/high-burden-state-and-federal-capital-gains-tax-rates-united-states


Past performance is no guarantee of future results. Source: https://www.advisorperspectives.com/dshort/updates/2016/10/03/a-perspective-on-secular-bull-and-bear-markets. X axis represents calendar year, Y axis represents the S&P Composite.27


Part 2 of the 70-20-10 Rule: Waiting is the Hardest Part

https://www.advisorperspectives.com/dshort/updates/2016/10/03/a-perspective-on-secular-bull-and-bear-markets


Past performance is no guarantee of future results. Source: Seth Klarman at the 2010 CFA Institute annual conference; FPA Crescent Letter to Shareholders, May 29, 200928


Part 2 of the 70-20-10 Rule in Words

“I believe superior long-term performance is a function of a manager’s willingness to accept periods of short-term underperformance. This requires the fortitude and willingness to allow one’s business to shrink while deploying an unpopular strategy.”

—Robert Rodriguez, May 29, 2009 Letter to Shareholders

“We have great clients. Having great clients is the real key to investment success. It is probably more important than any other

factor in enabling a manager to take a long-term time frame when the world is putting so much pressure on short-term results.”

—Seth Klarman, Baupost Group


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Today’s Agenda


Where Are We Now?

Where Are We Going?


Past performance is no guarantee of future results. Source: Fundstrat. As of 9/2/2015.30

The 70-20-10 RuleWhere Are We Now?

Households have only bought Bonds since 2007


Past performance is no guarantee of future results. Source: Fundstrat; 1/1/1956 through 6/30/2016. HH – Households, MF – Mutual Fund, ETF – Exchange Traded Fund.31


The Public is Running Scared


Past performance is no guarantee of future results. Date range: 12/31/1976 – 12/31/2015 Source: http://www.marketwatch.com/story/dear-hedge-funds-index-funds-didnt-cause-your-lousy-performance-2016-01-27/print32


Follow the Money


Past performance is no guarantee of future results. Source: ThomsonReuters Baseline, Smead Capital Management33


The Index by Quintile as of 8/1/2016


Past performance is no guarantee of future results. Source: http://www.wsj.com/articles/popular-investments-are-ripefor-a-fall-147216162034


The Safety Trade (chart as of 7/30/2016)

http://www.wsj.com/articles/popular-investments-are-ripefor-a-fall-1472161620


Past performance is no guarantee of future results. Source: Barclays. EM – Emerging Markets, DM – Developed Markets. 9/26/2016. De-anchoring inflation is the idea that the Federal Reserve would seek to get inflation to a certain percentage going forward. 35


Peak-Interest in Geo-political Developments


Past performance is no guarantee of future results. Source: Bloomberg. Y axis – left: Dividend 12 Month Yield, Y axis – right: P/E Ratio.36


Equities Sought as Bond-Proxies

As of 8/31/2016


Past performance is no guarantee of future results. Source: Yardeni.com37


Utilities & Telecommunications Lead the Way in 2016


Past performance is no guarantee of future results. Source: Fundstrat 1/1/1995 to 06/30/201638


Growth now Stretched to 20-year Highs


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Today’s Agenda


Where Are We Now?

Where Are We Going?



The 70-20-10 Rule

“I fear for the future of our society based on the frivolity of today's youth.”

—Hesiod, 9 B.C.

Where Are We Going?


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The 70-20-10 RuleWhere Are We Going?

Past performance is no guarantee of future results. Source: ISI Group as of 7/31/2016. Y axis represents percentage of U.S. Population. Blue line represents houses for sale per U.S. Population. Shaded areas represent recession periods. Black line represents 3-Mo. Average as of July 2016.

Housing Supply Shortage


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Past performance is no guarantee of future results. Source: BofA Merrill Lynch “Tracking the U.S. Consumer, September 16, 2016

A Decade and a Half of Demographics Ahead


Past performance is no guarantee of future results. Source: Fundstrat; data as of 6/30/201643

The 70-20-10 Rule

Consumers Ending a de-leveraging Cycle

Where Are We Going?


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Past performance is no guarantee of future results. Source: U.S. Census Bureau; data as of 6/30/2016

Median Household Income Surged Largest Increase on Record


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Past performance is no guarantee of future results. Source: MorganStanley Investment Perspectives

Demographics Drive Secular Growth


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Past performance is no guarantee of future results. Source: July 10, 2016 http://www.wsj.com/articles/youth-optimism-powers-u-s-economy-1468178608. Y axis – consumer confidence index by age, three month moving average.

Widening Confidence Among the Young

As of 7/10/2016

http://www.wsj.com/articles/youth-optimism-powers-u-s-economy-1468178608


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Past performance is no guarantee of future results. Source: http://www.calculatedriskblog.com/2016/09/lawler-renter-share-of-single-family.html. As of 12/31/2015.

Peak in “Renter Nation”?

http://www.calculatedriskblog.com/2016/09/lawler-renter-share-of-single-family.html


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Past performance is no guarantee of future results. Source: S&P Dow Jones indexes. As of 12/31/2014.

Corporate Balance Sheets are Healthy


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Past performance is no guarantee of future results. Source: Bank of America 10-Q

Interest Rates


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Past performance is no guarantee of future results. Source: http://www.mediapost.com/publications/article/281016/tv-dominates-millennials-video-time.html

Myth’s to be Revealed: Where to watch Videos


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Today’s Agenda


Where Are We Now?

Where Are We Going?


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Today’s Agenda





Beta: A measure of return volatility.

Book Value: A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill.

Cap-Weighted Turnover: Portfolio turnover that is computed by taking the total market value change in a portfolio/index and dividing that by the index/portfolio's total market value.

Capital expenditure or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.

Cash Flow: A revenue or expense stream that changes a cash account over a given period.

CDS Spread: The buyer of the protection in a credit default swap pays a premium to the seller, and this premium is called the CDS spread.

Correlation: A measure of relationship between two mathematical variables or measured data values.

Debt/Equity: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.

Debt/Total Capital: A company's debt-to-capital ratio or D/C ratio is the ratio of its total debt to its total capital, its debt and equity combined.

Dividend Yield: The dividend per share expressed as a percentage of the share price.

Dow Jones 30: This is the Dow Jones Industrial Average which is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. It is one of the most widely used stock market indicators.

Earnings per Share (EPS): A company's profit divided by its number of common outstanding shares.

Earnings Volatility: A measure of earnings consistency.

EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance.

ETF: A mutual fund that is traded on a stock exchange.

FANG stocks include Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG).

Free Cash flow: measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.

Gross Domestic Product (GDP) is the broadest quantitative measure of a nation's total economic activity.

Intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.

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Definitions


DefinitionsLeverage: The relationship of debt to equity.

Mutual Fund Portfolio Turnover: A measure of the trading activity in the fund's portfolio of investments. In other words, how often securities are bought and sold.

Net cash is a company's total cash minus total liabilities when discussing financial statements.

Operating Cash Flow (OCF): A measure of the amount of cash generated by a company's normal business operations.

Price to Cash Flow (P/CF): The price/cash flow ratio is a ratio used to compare a company's market value to its cash flow. It is calculated by dividing the company's market cap by the company's operating cash flow in the most recent fiscal year (or the most recent four fiscal quarters); or, equivalently, divide the per-share stock price by the per-share operating cash flow.

Price to sales ratio (P/S): is a tool for calculating a stock's valuation relative to other companies, calculated by dividing a stock's current price by itsrevenue per share.

Price/Book (P/B): the ratio of a firm’s closing stock price & its fiscal year end book value/share.

Price/Earnings (P/E): the ratio of a firm’s closing stock price & its trailing 12 months’ earnings/share.

Profit Margin: The ratio of net income to net sales of a company expressed as a percentage.

Russell 2000 Index: The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.

S&P 500 Growth Index: Each stock of the S&P 500 Index is categorized as being either value or growth companies based on its price-to-book ratio and growth estimates. The S&P 500 Value Index contains those securities with higher price-to-book ratios and growth estimates.

S&P 500 Index: A market-value weighted index consisting of 500 stocks chosen for market size, liquidity, and industry group representation.

S&P 500 Turnover: Capitalization weighted turnover is calculated by adding the market value of company additions, company deletions, share issuances, share repurchases, special dividends, quarterly share and investable weight factor changes in the index during the year, divided by 2 and then divided by the average market value of the index over the year. From 2009 inclusive the turnover calculation is slightly changed. All remains as was described above only the calculation is done on a daily basis and summed for the period. The average of close and adjusted close market cap for the day immediately preceding the market capitalization change date is used in the denominator to calculate that day's turnover.

S&P 500 Value Index: Each stock of the S&P 500 Index is categorized as being either value or growth companies based on its price-to-book ratio and growth estimates. The S&P 500 Value Index contains those securities with lower price-to-book ratios and growth estimates.

Sharpe Ratio: A measure of the excess return (or Risk Premium) per unit of risk in an investment asset.

Standard Deviation: The statistical measure of variance from the mean representing the dispersion of data (distance) from the mean.

Trading Costs: The amount of brokerage commissions paid for buying and selling securities.

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The information contained herein represents the opinion of Smead Capital Management and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

This does not constitute the solicitation of an offer to purchase or subscribe for any investment, financial instrument or service in any jurisdiction where such a solicitation of an offer is unlawful. The Fund is only available for investment by non-US citizens who are not residents of the US. The Fund is not offered for sale or sold in the US, its territories or possessions. The Fund is not registered for sale to the public in all jurisdictions. The information contained herein has not been reviewed in light of your personal circumstances.Subscriptions will only be received and shares issued on the basis of the current prospectus for the Fund, the most recent financial reports and the simplified prospectus. Smead Capital Management is the investment manager of the Smead US Value UCITS Fund.

Smead Funds - Smead US Value UCITS Fund, incorporated on December 4, 2015, is a UCITS organized as an investment company with variable capital, with one Sub-Fund (Société d’investissement à capital variable, “SICAV”) under the laws of Luxembourg, and is regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) which is the Luxembourg supervisory authority. Further information about the Sub-Fund, including copies of its prospectus, the last annual reports and any subsequent half yearly reports can be obtained free of charge, in English, at the registered office of the Fund, Central Administrator, the Custodian Bank, the Fund distributors or online at www.smeadcap.com. These agreements may be amended by mutual agreement of the parties involved. Luxembourg taxation regime may have an impact on the personal tax position of the investors. Depending on your own country of residence, this might have an impact on your investment. For further details you should consult a tax adviser. Duff & Phelps (Luxembourg) Management Company S.à r.l. was appointed as Management Company of the Fund with effect 4 December 2015 and may be held liable solely on the basis of any statement contained in this document that is misleading, inaccurate or inconsistent with the relevant parts of the prospectus for the Fund. Smead Capital Management is the Delegated manager of this Sub-Fund. This Fund is authorized in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier. Duff & Phelps (Luxembourg) Management Company S.àr.l. is authorized in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier.

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes.Russell® is a trademark of Russell Investment Group.

The information contained within this document has not been reviewed in light of your personal circumstances.

Information provided does not constitute investment advice and no investment decisions should be made based on any information provided. Information reflects the views of Smead Capital Management as of a particular time. Such views are subject to change without notice. Information regarding holdings, allocations and other allocations are for illustrative purposes only and may not be representative of current or future investments or allocations. This information is not a recommendation to purchase or sell a security or follow any strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results may vary from any statements or forecasts. While Smead Capital Management has used reasonable efforts to obtain information from reliable sources, no representations or warranties are made as to the accuracy, reliability or completeness of third-party information presented in this material. This material is not to be duplicated or recreated without prior written consent of Smead Capital Management.

Disclosures

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Smead US Value UCITS Fund - Smead Capital Management · Crescent Letter to Shareholders, May 29,...

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