2CG European Income Fund

April 2010
STRATEGY
Well how did such a small country produce such a storm?

For most of the year European markets were being pulled higher by generally better than expected
corporate results and strengthening economic news. Deutsche Bank estimate that 50% of US firms
have reported first quarter results with EPS coming in 20% above consensus. Interestingly consensus
is not being upgraded for the remainder of 2010 which means upside surprises should continue. We
believe that a similar picture has emerged in Europe.
However, the sovereign debt crisis in Greece is feeding the FT with many acres of ‘Schadenfreude’
material, so the good news gets ‘lost’. Greece does have a lot of debt and will probably default at
some point,
point but the recent EU rescue package means that contagion into other countries such as Ch l Glasse
Charles Gl
Portugal and the other European banks is less likely.

The core tension in Euroland is that, according to the Wall Street Journal, since the currency’s inception German unit labour
costs have fallen by 15% but they have risen by 10% in many of the ‘peripheral’ countries as they borrowed heavily on
abnormally low interest rates. Where do we go from here? Either the peripheral countries are in for a number of years of
very low growth, or they default on their debt. Most countries will opt for the former and salaries will have to be cut.

Our pportfolios are heavilyy biased to the core Euroland p

plus Switzerland where bond yyields have actuallyy fallen. We do have
some exposure to Iberia where our stocks are generally performing well. Mostly, our companies are doing well and will
continue to do so even if recession like conditions persist in the PIG economies. Overall we are surprised how many quality
companies can be bought on very reasonable ratings.

European financials are

underperforming their US
counterparts. We are gently
warmingg to some of them as
they are very much cheaper.
But many corporate and retail
banks still have profitability
and balance sheet problems.
Generally, we own Insurers
and Investment banks.

Airlines
A summary of our positioning
Airlines have not been the place to be for an exceedingly long 1. We remain underweight in banks.
time. The industry has suffered from many of the same attributes Although sovereign default risk is limited
as the car industry. Too many players, not enough differentiation to Greece, we see many other problems.
of their products and governments falling over themselves to
support
pp their own flagg carrier when the losses mount up.
p However,, 2. Underweight in Retail, telecoms and oil.
there appear to be some changes in the air caused by the Low growth and/or Europe centric.
consolidation of the industry, particularly in Europe (& US).
Olympic, Sabena and Alitalia went bankrupt or are mere shadows 3. Overweight in quality global franchises e.g.
of themselves, while the nine old carriers, KLM, Air France, BA , Roche, Nestle, Viscofan (sausage casings),
Iberia, Lufthansa, Swiss Air, Austrian, BMI, are combining into 3 Nutreco (animal feed), Symrise (flavours
groups. and fragrances), SES (satellite utility), &
Imperial Tobacco to mention a few of the
The upshot of all this consolidation in these “network” airlines is an bigger holdings.
improving ability off the groups to eliminate halff full
f loss making
flights from the schedules and increase the occupancy of the 4. Portfolios very strongly biased to core
profitable routes. We have a sneaking suspicion that those left Europe.
will, for once, focus on profit and produce a reasonable return for
current shareholders. Capacities will be reduced and discounts 5. Overweight Utilities in Income Fund –
will diminish. All they need now is a reasonable stabilisation electricity prices and demand on the rise
/recovery in global GDP. We own Lufthansa in the Fund.
 Performance Figures to 30/4/2010 1 Month % 6 months % 1 Year % 3 Years % Inception %
Income Reinvested From 1/11/05
INCOME Fund (Retail in £) ‐4.4 +4.9 +21.1 ‐9.2 +37.1
FTSE Europe ex UK Index in £ (total return) ‐4.0 +6.0 +28.0 ‐4.2 +27.2
Vs. other UK based Income Funds ( at 5th May) 6 of 10 4 of 10 3 of 8 1 of 2 1 of 1
(Jupiter, Newton, SWIP, Invesco, Ignis, Allianz, Neptune),
Stand life, Royal)
Discrete Year Performance 2009 2008 2007 2006 2005 (2 Nov – 31
Dec)
INCOME Fund (Institutional B in £) +17.96 ‐23.07 10.96 19.42 9.83
FTSE Europe ex UK in £ +20 09
+20.09 ‐23 99
23.99 15 72
15.72 20 13
20.13 8 69
8.69

FUND INFORMATION

Sedol Code ISIN Code TOP 10 Holdings % TOP 10 Active %

Inst A B0N17S6 IE00B0N17S69
Nestle 5.1 ZFS 3.4
Inst B B0N17T7 IE00B0N17T76
Roche 4.5 Deutsche Boerse 3.3
Retail B0N17Q4 IE00B0N17Q46 ZFS 4.2 Portucel 3.2
Bayer 3.7 Reed Elsevier 3.2
Charges Deutsche Boerse 3.6 Sodexo 3.2
Institutional A 0.75% annually Reed Elsevier 3.4 Viscofan 3.2
Retail 1.25% annually, of which 0.5% is Sodexo 3.3 SES 3.0
trail, charges are taken to capital Viscofan 3.2 Symrise 3.0
SES 3.2 Gas Nat 2.8
Dividend Dates (inc) Prices Symrise 3.2 Nutreco 2.8
13/08/09 – IA 2.85p Inst A – £1.154
IB 3.15p Inst B ‐ £1.157
R 3.22p R ‐ £1.128 Sector Weightings Fund Index Country Weightings %
%
FINANCIALS 21.3 24.4 GERMANY 22
1/02/10 – IA 0.3p CONSUMER SERVICES 17.5 5.7 FRANCE 20
IB 0.35p BASIC MATERIALS 12.3 7.7 SWITZERLAND 19
R 0.3p CONSUMER GOODS 12.2 15 NETHERLANDS 11
INDUSTRIALS 8 13.9 ITALY 0
Fund Size £28.8m UTILITIES 10.1 6.7 SPAIN 6
Yield 3.1% gross (based on last 2 divs R) HEALTHCARE 6.4 9.8 PORTUGAL 10
(no tax is deducted on distribution) TECHNOLOGY 2.4 4.2 OTHER 10
Estimated current portfolio yield 3.7% TELECOMMUNICATION 2.5 5.9 CASH 3
OIL & GAS 4.6 6.7
Administrator
CASH 2.7
HSBC Securities Services (Ireland) Limited
(1 Grand canal Sq, Grand Canal Harbour, Dublin2,
tel 0035316356000 fax 003536497525)
Performance monitored by; Hindsight, Bloomberg, Trustnet, Factset, Lipper
Structure S&P Fund Research – www.funds‐sp.com under Europe ex UK.
UCITS III OEIC with segregated liability Published Prices: www.2CG.com Our Funds ‐ Fund Details
(FSA recognised) with single pricing
Distributor status
Enquiries to:
Benchmark Carrie Gregory‐ Hood
FTSE Europe
p Ex UK in £,, dealingg dailyy in £ 2CG Limited
Limited, 1 Pudding Lane,
Lane London EC3R 8AB
Tel 0207 6238551 E‐mail Carrie@2cg.com www.2CG.com
TER Institutional A – 1.23% (2009)
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