Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>UK Industrials maintain top Sector weight. Real Estate and Consumer Discretionary underweights fund Technology overweight.</li>
<li>Investment Managers Industry group hits record exposure. REITs largely unloved by UK Small/Midcap funds.</li>
<li>Future plc remains the most widely held company. XPS Pensions and Foresight Group Holdings are the top overweights. B&amp;M, Weir Group and Rightmove lead the underweights.</li>
</ul>


UK Industrials maintain top Sector weight. Real Estate and Consumer Discretionary underweights fund Technology overweight.
Investment Managers Industry group hits record exposure. REITs largely unloved by UK Small/Midcap funds.
Future plc remains the most widely held company. XPS Pensions and Foresight Group Holdings are the top overweights. B&amp;M, Weir Group and Rightmove lead the underweights.


European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Brookfield intends to launch an all-cash voluntary and conditional (50%+1) offer for underperforming, leveraged and Belgium-portfolio concentrated <a href="https://www.smartkarma.com/entities/befimmo-sa" target="_blank" data-smartkarma-citation="entities:21316:1" rel="noopener">Befimmo SA (BEFB BB)</a> at a 52% premium, 0.82x P/Fwd BV and 21.3x equity value/FFOe.</li>
<li>The offer represents a 21% discount to EPRA NTA (€60.32/share), large in comparison with other recent deals in the European space (in line with EPRA NTA).</li>
<li>Considering the share price underperformance, shareholders are likely to take the cash. Gross spread is -0.1%. Trading volume has been rather high over the last sessions.</li>
</ul>


Brookfield intends to launch an all-cash voluntary and conditional (50%+1) offer for underperforming, leveraged and Belgium-portfolio concentrated Befimmo SA (BEFB BB) at a 52% premium, 0.82x P/Fwd BV and 21.3x equity value/FFOe.
The offer represents a 21% discount to EPRA NTA (€60.32/share), large in comparison with other recent deals in the European space (in line with EPRA NTA).
Considering the share price underperformance, shareholders are likely to take the cash. Gross spread is -0.1%. Trading volume has been rather high over the last sessions.


Brookfield/Befimmo: Recommended (Cheap) Cash Offer

<a href="https://www.smartkarma.com/entities/hammerson-plc" target="_blank" data-smartkarma-citation="entities:21974:1" rel="noopener">Hammerson PLC (HMSO LN)</a> announced on 6 August a fully covered highly dilutive <a href="https://www.hammersontransaction.com/system/files/2020/launch-announcement.pdf" target="_blank" rel="noopener">rights issue</a> combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.
<ul>
<li>Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.</li>
<li>Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.</li>
<li>Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).</li>
</ul>
The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed <a href="https://www.smartkarma.com/entities/british-land-co-plc-the" target="_blank" data-smartkarma-citation="entities:21839:1" rel="noopener">British Land Co (BLND LN)</a> by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.

Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.
Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.
Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).

The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed British Land Co (BLND LN) by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

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Thematic (Sector/Industry)

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

Equity Bottom-Up

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.    

British Land (BLND:LN): Retail in Reverse

United Kingdom

British Land Company plc invests, both directly and through joint ventures, in income-producing and freehold commercial properties in order to maximize their growth and potential.  The Company trades, finances, and develops property. Their portfolio consists of offices, retail superstores, shopping centers, leisure, industrial, and distribution spaces.

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British Land Co (BLND LN)

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