Sparinvest SICAV Annual Report 2009 R.C.S. Luxembourg B 83.976

Sparinvest SICAV
Report of the Investment Manager (continued)
FIXED INCOME (continued)
2009 was a year in which high yield credit was the dominant asset class and, as the figures above indicate, it was also the year in
which our application of the value investment strategy to the high yield market proved its true potential, leading to an
outperformance of benchmark by nearly 19%. With a return of over 80.33% over 2009, Sparinvest High Yield Value bond was a top-
performer within its sector. More importantly to us as a company focused on capital preservation, we are pleased to report that as at
31 st December 2009, all investors in the High Yield Value Bonds fund were back in positive territory – regardless of the date at which
they invested. Investors in our Investment Grade fund have also had a spectacular year with returns of 45% which beat the index by
nearly 30%.
The diversification benefits of Danish Bonds were amply demonstrated by our Long Danish Bonds fund - which essentially invests in
Danish treasuries and AAA-rated Danish mortgage bonds. With interest rates in all developed economies being kept at historical lows
to fuel the recovery, the fund’s return of 5.81%, against 2.46% from the index, was very impressive. Recognition of our Danish Bond
team’s expertise came with a 2009 Morningstar award – Best Fund Management Company – Danish Fixed Income.
STRATEGIC ASSET ALLOCATION FUNDS
2009 (YTD) 5-yr annualised
Fund Benchmark Difference Fund Benchmark Difference
Procedo 21.50% 17.76% 1 3.74 0.91% 2.55% -1.64
Securus 13.57% 9.72% 2 3.85 1.79% 3.34% -1.55
1 65% MSCI World, 35% Nordea CM 6.25 Gov
2 25% MSCI World, 75% Nordea CM 2.5 Gov
The performance of the sub-funds Procedo and Securus was boosted in direct proportion to their bond exposure which was actively
managed to concentrate on companies with low-debt-to-equity and strong balance sheets. We are very pleased to report to investors
that in terms of their bond exposure, any losses sustained in the crisis of 2008 have now been fully recouped and the bond
exposure is now back in positive territory.
The equities component of the two funds performed well – although behind benchmark by about 0.6% before fees. The strategic
allocation (small cap/large cap), with the slight tilt towards small cap, boosted performance by around 3.5%. However, at the
operational level, the Value and Momentum strategies have cost around 3.7% in performance. This is because both of these
strategies are negatively loaded towards periods of recession and uncertainty and because Value has underperformed in the US
which accounts for a large proportion of the MSCI Value Index.
Our Value-strategies actually performed slightly better than their benchmark. But unsurprisingly, given the circumstances of the past
investment year, our Momentum strategies have caused a lag on performance. As classically occurs following a market rebound, April
2009 was the worst month for Momentum strategies since 1936. When markets are driven by macro factors, rather than by the
analysis of specific information at an individual stock level, mis-pricing occurs and some stocks will end up being priced far away
from fair value.
Outlook
We do not claim to know which way markets are heading. We can only observe that, despite unprecedented turbulence, they are
functioning as usual. To us this means that investment strategies based on historic evidence continue to be valid and logical. At the
time of writing the markets have begun the New Year responding positively to new M&A activity in Europe, one of the factors that we
expect to exert a positive influence over the course of 2010. In short, we remain confident of superior long-term performance from
our fund range.
Yours sincerely
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