2CG European Capital Growth Fund

May 2010
STRATEGY
May worked in our favour. We rocketed up the league tables by being very underweight banks and the
great Euro
E crisis
i i largely
l l passedd us by
b as we fell
f ll by
b much
h less
l than
h the
h market.
k W admit
We d i that
h there
h
are serious tensions in the Euro and the Germans are not helping by (correctly) stating that by buying
up Greek government debt the ECB is merely bailing out (largely French and to a lesser extent
German) European banks.

It will take some time for the Euro to sort itself out and we are not bulls on the PIIGS economies.
However, we are reassured that the nasty medicine of spending cuts is being taken and assuming there
is not a wave of civil unrest we think that the media hype will gradually die down. What will we be left
with? A German export orientated economy – was ever thus - and a subdued periphery which we are
treating with caution but not ignoring and we have just bought two stocks in this region, as detailed
below. As an aside, Viscofan in Spain has actually been one of our best shares. Christopher Garsten
BBVA
Some of our best stocks at 2CG have been bought a
bit early. Banks are tricky at the best of times and
never more than now.

Most of the research we have seen on BBVA has

focused on the poor state of the Spanish economy,
which is true. First of all, Spain and Portugal is only
34% of BBVA’s revenues, with the rest being in
either Mexico at 26%, South America at 18% and
the southern USA at 12%. The balance is capital
markets.

Source: BBVA Presentation We believe that they will avoid the biggest disasters
in Spain
S as its asset quality is better due to
intentional market share loss during the credit boom
years. Overall we have never seen the shares
looking so cheap.

LOTTOMATICA

This is one of the global lottery operators. The lottery market is split between the leader Lottomatica (Italy), Intralot (Greece),
andd other
h smallll players
l i Canada
in C d for
f example. l M
Many off the
h national
i l lotteries
l i are run domestically
d i ll on a one off ff basis.
b i
Lottomatica bought the US leader GTech some years ago but thanks to heavy competition, particularly from Intralot, the market
value of Lottomatica is now less than the acquired value of GTech. At a meeting in Milan in late May the CEO of Lottomatica
indicated that the overly heavy competition for renewed licences in the US may be over. Given the 6% yield, the room for
margins to expand over the coming years and the more pressing need for governments and states to raise money from
lotteries, life may well get better for the operators.

AND JUST TO FINISH

We are not alone in thinking that the market is cheap. We note with interest that Crispin Odey thinks that shares look cheap
against bonds and property. He continues that at a recent conference in Milan less than 10 per cent of attendees had more
than 20 per cent of their money in shares. Presumably he was not attending a bond conference!

Also ratings have been crunched. The FTSE Europe ex UK is trading

at around 10 times next year’s level, well below its 30 year average of
around 14.5 times. This would not be the first time European markets
would
ld have
h sold
ld off
ff only
l to
t rally
ll sharply
h l later.
l t E i
Earnings are generally
ll
OK, as the chart on the right shows.

In our humble opinion this is not the time to buy absolute return funds
but we will allow you to buy a bit of Asia, if you must.
Performance Figures to 31/5/2010 1 Month 6 months 1 Year 3 Years 5 Years Inception
Income Reinvested (%) from
06/04/01

CAPITAL GROWTH Fund (Retail in €) (%) ‐3.0 +9.5 +22.6 ‐22.5 +25.3 +20.3

FTSE Europe ex UK Index in € (% total return) ‐5.4 +2.0 +18.9 ‐31.3 +12.3 +5.3
S&P (Europe ex UK Offshore)* 8 of 144 13 of 143 23 of140 10 of 125 12 of 108 10 of 82

Quartile 1 1 1 1 1 1

Discrete Year 2009 2008 2007 2006 2005 2004 2003 2002 Inception –
Performance (%) end 2001
Capital Growth Fund 34.1 ‐39.5 4.3 23.7 31.5 12.7 21.5 ‐30.9 ‐ 6.0
(I tit ti l in
(Institutional i €)
FTSE Europe ex UK in € 30.7 ‐ 42.3 6.2 21.7 27.9 13.3 20.0 ‐31.5 ‐ 4.7
FUND INFORMATION
TOP 10 Holdings % TOP 10 Active %
Sedol Code
Institutional 3‐025‐044 Roche 5.2 MTU 3.7
Retail 3‐025‐033 Nestle 5.1 Viscofan 3.7
MTU 3.8 Swedish Match 3.6
ISIN Code Viscofan 3.7 Barry Callebaut 3.3
Institutional IE0030250447 Swedish Match 3.7 BATS 3.2
Retail IE0030250330 Barry Callebaut 3.3 SES 3.0
SES 3.2 Imperial Tobacco 2.9
BATS 3.2 Symrise 2.7
Charges Carrefour 3.0 Deutsche Boerse 2.7
Institutional 0.75% annually Deutsche Boerse 3.0 Thales 2.5
R t il 1.25%
Retail 1 25% annually,
ll off which
hi h 0
0.5%
5% iis
trail, charges are taken to Income
Sector Weightings Fund Index Country Weightings %
Dividend Dates Prices %
31 Jan 08 1.89c Inst: €1.207 FINANCIALS 16.5 24.4 SWITZERLAND 25
13 Aug 08 3.14c Retail: €1.178 INDUSTRIALS 18.3 13.9 GERMANY 21
1 Feb 10 0.93c CONSUMER GOODS 24.5 15.0 NETHERLANDS 14
HEALTHCARE 7.5 9.8 FRANCE 13
Fund Size BASIC MATERIALS 9.3 7.7 ITALY 2
€11.8m CONSUMER SERVICES 17.8 5.7 SPAIN 6
OIL & GAS 1.8 6.7 SWEDEN 4
TECHNOLOGY 0.0 4.2 OTHER 14
Administrator
UTILITIES 2.2 6.7 CASH 2
HSBC Securities Services (Ireland) Limited TELECOMMUNICATION 0.0 5.9
(1 Grand Canal Sq, Grand Canal Harbour, Dublin2, tel
CASH 2.1
0035316356000, fax 0035336497525)

Structure Performance monitored by; Hindsight, Bloomberg, Trustnet, Factset, Lipper

UCITS III OEIC with segregated liability (FSA S&P Fund Research – www.funds‐sp.com under Europe ex UK.
recognised) with single pricing Distributor Published Prices: www.2CG.com Our Funds – Fund Details
status

Benchmark Enquiries to:

FTSE Europe Ex UK in Euros, dealing daily in € Carrie Gregory‐ Hood
2CG Limited
Limited, 1 Pudding Lane,
Lane London EC3R 8AB
TER Institutional ‐ 1.62% (2009) Tel 0207 6238551 E‐mail Carrie@2cg.com www.2CG.com

This document is issued by 2CG Limited, which is authorized and regulated by the Financial Services Authority in its conduct of investment business. Past
performance is not necessarily a guide to future performance as market conditions constantly change. Changes in exchange rates will affect the value of OEIC
overseas investments. The price of units and income from them can go down as well as up and investors may not get back the amount originally invested.
Stock market investments should be considered as medium to long term, that is, over five years. 2CG Limited does not offer investment advice or make any
recommendations regarding investment, we only introduce clients to 2CG Funds plc. 2CG Limited is registered in England No. 4028469, registered office 1
Pudding Lane, London, EC3R 8AB