SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
Q3 Silver Bullets
Load Up with Silver Bullets
For Q3 2010, Execution Noble Silver Bullet Buys are ABB, Aviva,
Cable & Wireless Communications, Centrica, Credit Suisse,
Finmeccanica, H&M, Lloyds Banking Group, Mitchells & Butlers,
Prysmian, Reed Elsevier, Unilever & Vodafone
Silver Bullet Sells are BBVA, Deutsche Telekom, Electrolux, Home
Retail Group, Reckitt Benckiser, Rolls Royce, RWE and Wolters
Kluwer.
Do look back in anger
Ouch, glad that quarter’s behind us. The second quarter of 2010 started with
increasing acknowledgement of a Southern European sovereign debt crisis and
ended with a shocking drop in US consumer confidence figures and had very few
bright spots in between. Against that background, the 7.7% decline in the key Pan
European benchmark index (SXXP) may not appear that bad but this hides
extreme uncertainty in terms of future momentum and sentiment as evinced by the
drying up of European equity volumes.
Bullets or duds
Nor did we cover ourselves in glory either. Our Silver Bullets portfolio declined by
5%. Sure this was better than the market but given that the portfolio was only 22%
net long, we would have hoped for better. In the second quarter we produced a
negative alpha of 3.5% which is the second poorest excess return since we
instigated Silver Bullets in Q3 2007 – albeit only the fourth time in twelve quarters
we have produced a negative alpha. Our Q2 picks certainly suffered from Greecian
contagion most directly in the case of Hellenic Telecom but also for Axa and BNP.
In hindsight Hellenic Telecom was not our most inspired pick ever and certainly
one which suffered from the choose and hold for the quarter discipline. However to
a certain extent this was counterbalanced by the increased weighting of UK
domiciled stocks where we received a significant performance boost (+1.8% in
total) from the 8% move in the £/€ rate in our € based portfolio.
Q3 2010 – Onwards and upwards
Enough reflection – let’s look forward. This quarter’s picks as ever contain a fair
mix of brand new, retained and re-invigorated calls. Aviva, Lloyds, Cable & Wireless
Communications and Prysmian are retained as Buys. Deutsche Telekom, Home and
Wolters Kluwer are rolled over from last quarter as high conviction Sells. Centrica,
Electrolux, H&M, Finmeccanica, Mitchells & Butlers, RWE and Rolls Royce are all
brand new ideas to Silver Bullets and Reckitt Benckiser makes its first appearance
on the Sell side of the list (good luck James). Overall the portfolio is 24% net long
which is roughly the average position of the portfolio since inception and for the
first time UK calls outweigh those domiciled in continental Europe.
http://www.execution-noble.com
Q3 Silver Bullet Buys
ABB 3
Aviva 5
Cable&Wireless Comms 7
Centrica 9
Credit Suisse 11
Finmeccanica 13
H&M 15
Lloyds Banking Group 17
Mitchells & Butlers 19
Prysmian 21
Reed Elsevier 23
Unilever 25
Vodafone 27
Q3 Silver Bullet Sells
BBVA 29
Deutsche Telekom 31
Electrolux 33
Home Retail Group 35
Reckitt Benckiser 37
Rolls Royce 39
RWE 41
Wolters Kluwer 43
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