Management Report 2017: Dorval Convictions Category: Mixed fund (category BCE) Management objective: The management objective is to outperform the reference indicator (composed of 50% by EONIA capitalized and of 50% by EUROSTOXX 50 NR (EUR) calculated net dividends reinvested since the 1st January 2013) over an investment horizon of 3 years minimum, by a flexible allocation between equity markets and fixed income. The fund is managed in a totally discretionary way. Reference indicator: The Subscriber’s attention is drawn to the fact that the portfolio makeup may significantly depart from its reference indicator. Risk Profile: In a general way, the net asset value is susceptible to experiencing high volatility due to the composition of its portfolio. Nevertheless, the management’s strategic objective is to maintain a global level of volatility on average below that of equity markets. It is reminded that the makeup of a portfolio can significantly depart from its reference index and that the fund is managed in a totally discretionary way: the performance of the mutual fund can thus be significantly superior or inferior to its reference index. Net assets under management of the fund on 29/12/2017: EUR 615 118 465.83 -
Net asset value Share R on 29/12/2017: EUR 164.89 Number of shares R: 2 175 791.546
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Net asset value Share I on 30/12/2017: EUR 1,788.02 Number of shares I: 136 237.181
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Net asset value Share M (created the 30/12/2016) on 29/12/2017: EUR 118.29 Number of shares M: 79 170.2057
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Net asset value Share N (created the 13/12/2017) on 29/12/2017: EUR 100.45 Number of shares N: 33 625
Valuation: daily
1/ Economic and financial context After years of often exaggerated depression relating to world growth, the return to economic prosperity is confirmed. World GDP grew by close to 4% in 2017. In the Eurozone, since the end of the summer of 2016, anticipated growth has been revised upwards nearly every month. It reached levels superior to 2%, a level hardly anybody dared to hope for. In 2017 fear of anti-European political parties’ strength was lifted after the French presidential elections and the arrival of Emmanuel Macron. The formation of new governments in Italy and Germany has not represented a risk of rupture in the zone. The European indices then progressed by 11.8% until the beginning of May. Thereafter the quick appreciation of the Euro against the Dollar (the Dollar has gone from 1.05 in April to 1.20 in September), which wasn’t anticipated by the investors even as the Fed hiked US interest rates, has weighed on indices (-7.5% for the EuroStoxx50 between 5 May and 29 August) composed mainly of multinational exporters sensitive to exchange rates. After the summer, the company releases reassured investors on the continued growth in Europe, the EUR/USD exchange rate stopped its progression, the “verbal” American/North Korean conflict did not degenerate, and the anticipations of tax reforms in the United States were promising. The indices then regained their previous highs, to end the year at +9.2% for the EuroStoxx50 net dividends reinvested. American indices have reached historical records, with performances of +31.5% for Nasdaq and +19.4% for the S&P500 in 2017. Economic growth, full employment and inflation have comforted the central bank in their rates increases. Donald Trump’s economic policy favoring a re-industrialization and tax reforms has been an element of support. However, the unabated technological leadership of the United States is the driving force of the economy and comforts the giants (FANG) but also enables the emergence of new ventures in diverse sectors (Tesla, Netflix…). In the emerging countries, the situation has also been favorable in Brazil and Russia. Growth in China has slowed only moderately, and no OECD country is today in recession. Raw materials have also globally appreciated (oil, steel, copper…) which benefitted these countries.
2/ Investment policies: 2017 demonstrated Dorval Convictions’ capacity to be very flexible and reactive when the markets become strongly asymmetric. At the beginning of 2017, the fund was rather actively invested (at more than 80%) due to expectations of growth acceleration in the Eurozone and upwards results revisions. It followed that the exposure was reduced opportunistically during the summer notably during August at the end of the European companies’ summer earnings season which sustained the market, but which could not counter the negative impact of geopolitical tensions surrounding North Korea. On another note, the Euro strength in particular versus the Dollar has weighed on profit expectations of the most export-orientated listed companies. The fund secured its tactical position by bringing its exposure level to 37 % after excellent performances at the end of August. In September with the release of good economic data as much in the United States as in Europe, the managers reinforced their positions in the more cyclical values linked to raw materials and also in the sector related to construction for an exposure rate which rose to 75 % at the end of September. Over the 4th quarter, the fund has reduced its exposure to 46 % in a contrarian stance notably in October and taken profits on a certain number of mid-capitalization stocks after their beautiful run. Dorval Convictions ends the year with an exposure of 46% in equities to adapt to the asymmetry of the stock markets. Indeed, world growth remains on target, and the main concerns for 2018 thus relate to an eventual upsurge in inflation and the evolution of interest rates, as well as valuation levels of financial assets after many years of increase. The managers of Dorval Convictions maintain a positive outlook on the markets. However, the emergence of asymmetry on the markets, linked to high valuation levels, encourages them to exert more prudence in their asset allocation.
Dorval Convictions progressed by +13.8% (Share R) and +14.6% (Share I) on the year 2017, in line with the reference indicator at +4.4% and +9.2% for the EuroStoxx50 net dividends reinvested.
3/ Statistical performance of the fund on 29 December 2017 Numbers cited relate to past years. Past performances are not a reliable indicator of future performances. *Indicator: 50% EONIA capitalized, 50% EUROSTOXX 50 DNR Performance net of management fees
Performance DC – Share M
Performance DC Share M
1m
3m
6m
1 year
Ytd
Since 29/12/16
1,60%
0,00%
4,50%
18,30%
18,30%
18,30%
Performance DC - Share N: According to article 314-13 of the AMF general regulation, it is not possible to show performances on periods less than 12 month.
Specific Provisions :
Classification
Mixed fund (category BCE)
Management Objective
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Reference indicator
50% of the EONIA Capitalization Index 7 D (Bloomberg Code: OISEONIA) and 50% of the Euro Stoxx 50 index NR (EUR) (Bloomberg Code: SX5T) calculated with net dividends reinvested (from the 1st January 2013).
The management objective consists in outperforming the reference indicator (composed of 50% by EONIA Capitalization Index 7 D (Bloomberg Code: OISEONIA) and of 50% by the EURO STOXX 50 NR (EUR) calculated net dividends reinvested) (Bloomberg Code: SX5T)) over an investment horizon of 3 years minimum, by a flexible allocation between equity and interest rate markets. The fund is managed in an entirely discretionary way.
Reminder concerning these references: •
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Investment strategy
EONIA (Euro Overnight Index Average) Capitalization Index 7 D (Code Bloomberg: OISEONIA), the rate calculated daily by the ECB resulting from the weighted average of transactions on a day to day basis realized between the most active banks in the Eurozone. It represents the Eurozone risk-free rate. Euro Stoxx 50 NR (EUR): index consisting of the 50 most representative listed securities of the Eurozone stock market, amongst the largest market capitalizations. It is calculated net dividends reinvested. (Bloomberg Code: SX5T)
The investment strategy is the discretionary management of French and foreign diversified securities allocation.
More precisely, it consists of:
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Asset mix
Actively managed asset allocation, allocated between the equity markets and fixed income: this is realized by tactical and strategic allocation depending on an economic scenario, of market valuation and portfolio risk control. This asset allocation is defined by the fund’s management team after a 4-step process: determine the French and European equities exposure rate; identify the investment themes; allocate capital according to capitalization size; individual selection of companies. Selection of equities or equity securities (small, mid- or large capitalizations), depending on the convictions of the DORVAL Asset Management managers/analysts specialist teams. This investment process promotes a thematic, stock picking approach (researching companies that are undervalued or overlooked by the markets). To this effect, the managers attach particular importance to individual stock valuation, based on discounted future cash-flows and on stock market comparisons (yields, price/earnings ratios). The balance of the portfolio is invested in money market funds and fixed income products, to limit the risk of capital loss and to reduce the overall volatility of the portfolio. It is reminded that the specific bond and credit market segments allocation is not the ultimate purpose of the management objective.
The target allocation is 50% equities and 50% fixed income products but can vary as market conditions change and opportunities present themselves to the manager. Equities or equity securities: The fund’s exposure to equity markets can range from 0 to 100%.
Characteristics of the equities or equity securities held: -
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Securities traded on regulated markets Equities issued almost exclusively by European companies Non-European company equities, including those of the emerging countries, of Eastern Europe, Latin America, and Asia, will be held as a secondary strategy and up to a maximum of 10% of total asset. The shares of companies listed in a different currency than the Euro will be held up to a maximum of 40% of total asset. Shares belonging to all economic sectors Shares of small, mid- and large capitalizations The shares purchased by the mutual fund are not necessarily included in the reference index.
Debt securities and money market instruments: The fund’s fixed income market exposure can range from 0 to 100%.
Characteristics of fixed income products held by the fund: -
Bonds or tradable debt securities Securities issued by states or public institutions Securities with a minimum BBB- rating (Standard & Poors or equivalent rating) The portfolio's sensitivity to securities held may change within a range of 0 to 6. The mutual fund can hold convertible bonds
Shares or units in other UCIs: The fund can be invested from 0 to 10% in UCIs for management purposes or the remuneration of cash.
The investment in UCIs managed by Dorval Asset Management is authorized.
Characteristics of the UCI units held: -
European UCITS or AIFs open to non-professional client base.
Derivative instruments: The UCITS may participate in financial futures and options.
Type of markets in which the Fund operates: -
Organized and regulated Markets.
Types of risks covered: -
Equity risk Interest rate risk Foreign exchange risk
Type of interventions : -
Hedging and exposure
Type of instruments : -
Futures Options
Derivative strategy to achieve investment objective: -
exposure or hedge (equity, interest rates) hedging of market segment: geographical zone, capitalization type
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Derivative instruments can be used up to a maximum of 100% of the portfolio.
The mutual fund will not make use of Total Return Swap. Securities with embedded derivatives: Types of risks covered: - equity risk Type of operations: - exposure or hedging to fulfill the investment objective Type of instruments: - Warrants or equivalent traded on regulated markets - Convertible bonds traded on regulated markets Strategy of using embedded derivatives: - Hedging of a sub-fund or security: geographical zone, business sector, specific security… Deposits: These operations can be used, within the limit provided by regulation for the remuneration of cash depending on their level of remuneration compared to other money market instruments. Cash borrowings: Nill
Securities lending and borrowing: Nill
Pension operations: Nill Transactions for the temporary purchase and sale of securities: Nill
Risk profile
The portfolio is exposed to the following risk factors:
The net asset value may experience a high level of volatility due to the portfolio makeup. Nevertheless, the management strategy objective is to maintain a global volatility level which is on average below that of the equity markets. Please note that the portfolio makeup can move away noticeably from its reference index and that the Fund is managed on a fully discretionary basis: the performance of the fund can thus be noticeably higher or lower than that of its reference index. Risk of Capital loss: The fund is not guaranteed nor protected. Investors may not get back their capital in full. Risk linked to discretionary management: The discretionary management style rests on expectations of different markets’ evolutions (equity, fixed income products). There exists a risk that the UCITS may not be invested at all times in the best-performing markets. The holder may experience a risk of lower performance compared to its reference index or of capital loss.
Equity risk: The net asset value of the fund may decline as a result of an equity market decline. The portfolio is exposed to the evolution risk of the share price. Investments may include small and mid-capitalizations stocks. The volume of these shares listed on the stock exchange is reduced. The market moves are therefore more pronounced, to the upside as well as to the downside, and the shares move faster than large market capitalizations. As a result, the net asset value of the fund may exhibit similar behavior. Interest rate risk: The portfolio is exposed to the evolution of bond prices, themselves linked to a rise in interest rates. This risk is measured by sensitivity which assesses the elasticity of bond prices to the evolution of interest rates. The level of exposure to fixed income markets is comprised between 0% and 100% of total assets. If interest rates rise, the net asset value of funds may fall. The fixed income instruments will be short-term securities, thus displaying a lesser degree of interest rate risk. Credit risk: The portfolio is exposed to a risk of default or of downgrading of an issuers’ credit rating. A downgrading of these credit ratings could provoke a more significant deterioration in bond prices than that of comparable government bonds. The risk is constrained by the fact that the securities held are issued by states or public institutions, of A or higher rating, and at a minimum of BBB- rating. The Fund can nevertheless hold convertible bonds. It is reminded that the specific bond and credit markets asset allocations do not constitute the finality of the management objective. The fixed income products share of the portfolio is held to limit the portfolio’s global volatility. Foreign Exchange risk: It refers to the risk of a fall in the securities versus the portfolio currency of reference: the Euro.
The holder residing in the Eurozone may have to bear the foreign exchange risk which may trim up to 40% of the portfolio value. Investment risk in emerging markets: The fund can invest up to 10% of its assets in emerging market equities, in Eastern Europe, Latin America and Asia. The attention of investors is called to the fact that the operations and oversight of the above markets can deviate from the standards prevailing on the large international market places.
Guarantee or protection
Nill (neither the repayment of capital nor a level of performance is guaranteed)
Legal information: Past performances are not indicative of future results
Turnover fee and intermediation charge: The detailed reporting relating to the intermediation charges provided for in article 314-82 of the general regulations of the French financial markets authority (Autorité des Marchés Financiers) can be found at the following web address: www.fa.olisnet.com ;
[email protected]
Management policy with regards to the voting rights: In accordance with articles, 314-100 to 314-102 of the general regulations of the French financial markets authority (Autorité des Marchés Financiers), the information regarding the voting policy and its detailed reporting can be found on the website of the investment management company and/or at the registered office.
Selection and evaluation procedure of intermediaries and counterparties:
The main criteria identified for the selection and the evaluation of intermediaries and counterparties are: -
The intermediation cost The quality of the execution (capacity of best execution in accordance with current regulations) - The quality of administrative processing (sending of confirmations, back office quality…) - The quality of the sales follow-up: quality of the follow-up carried out by the person responsible for the account working with the intermediary and the relevance of his/her operations. Other criteria may be added for the purpose of improving the assessment conducted.
It is worth noting that the criteria of financial analysis are to be taken into account autonomously in accordance with the article 314-75-1 of the general regulations of the French financial markets authority (Autorité des Marchés Financiers).
Dorval Asset Management establishes each year a ranking of its intermediaries and counterparties as a function of the criteria defined above.
Information relative to the calculation methods of overall risk: The overall risk on financial contracts is determined using the commitment method.
Information on social criteria, environmental criteria, governance quality (art. L. 533-22-1 et D. 533-16-1 CMF): The investment policy does not integrate into a systematic and simultaneous method the criteria linked to the Environment, to Social issues and Governance quality (E.S.G). However, beyond traditional financial measures, we strive to take into account in the analysis of the securities we invest in individual Governance, Environmental and Social criteria.
SFTR Regulation: Not applicable
Compensation: The remuneration policy is designed in accordance with the provisions relatives to the remuneration set in the European Parliament and European council directives 2001/61/EU from 8 June 2011 (hereinafter the «AIFM Directive») and 2014/91/EU of the European Parliament and the European Council from 23 July 2014 (hereinafter the « Directive UCITS V »), applicable to the fund managers sector. In accordance with applicable regulations, the Investment Management Company Dorval Asset Management has a remuneration policy established on a lasting base. Dorval Asset Management has put in place a variable remuneration system, deferred over three years, applied to the « Regulated personnel » in compliance with the existing regulatory regime. The Compliance and Internal Control Officer (RCCI) and the management set and formalize annually the «regulated» personnel list, namely the co-workers regarded as «risk takers» in accordance to French market authority (AMF) indications.
Compensation principles in operation at Dorval Asset Management The global remuneration of the Dorval Asset Management employees is composed of the following elements: -
The fixed salary The variable individual remuneration The collective variable remuneration (incentive scheme and profit sharing)
Dorval Asset Management regularly compares the remunerations of its co-workers in the market in all their components. It ensures their competitiveness and the equilibrium of their structure. The company notably audits the fix component of the remuneration so that it represents a sufficient share of the global compensation. Each co-worker benefits from all or part of these different components, as a function of his/her responsibilities, of his/her competencies and his/her performance. It is stated that the possible variable remunerations do not constitute a vested right. The remuneration modalities are established in compliance with the provisions of the applicable regulation and take account of the general principles that guide the Natixis Investment Managers regarding remuneration policy.
Applicable Rules to the variable share of the remuneration of the members of the « Regulated personnel » For the members of the « Regulated personnel » and conditionally upon achievement of the assignment threshold, the applicable system to their variable share of remuneration is the following: -
A meaningful of the variable share of remuneration is disbursed in a deferred way; The deferment of the disbursement of the variable share of remuneration is fixed at a minimum of three years; The deferred portion of the variable share of remuneration is definitively acquired by the coworker only on the date of its effective disbursement and cannot be cashed by the co-worker before the said disbursement.
The co-workers for which the variable remuneration is superior or equal to the threshold determined beforehand will be granted the other share of this remuneration in financial instruments linked to the performance of the fund. The variable remuneration package is put forward each year by the Dorval Asset Management senior managers; it is after that submitted to the remuneration committee and the Dorval Asset Management board of directors. Dorval Asset Management reviews the general principles of this policy annually and evaluates the compliance of this policy. This control and review are documented.
Compensation paid for the last financial year
The total remuneration for the fiscal year, broken down regarding fixed and variable payments, paid by the management company to its personnel, and the number of beneficiaries:
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Fixed remunerations 2017* : EUR 1 900 071 Variable remunerations awarded to 2017: EUR 1 155 000 Staff concerned: 19 co-workers
*Fixed remunerations calculated prorata temporis 2017
The aggregate amount of remuneration, broken down between the senior executives and the members of the personnel of the management company whose activities have a significant impact on the risk profile of the management company and/or of the portfolios:
Total remuneration awarded from 2017: EUR 3 055 071 of which: ▪ ▪
Senior executives: EUR 1 693 227 Members of personnel: EUR 1 361 844
Events in progress during current fiscal year: The 13/12/2017, creation of a new share N(C) (Code ISIN: FR0013299187) earmarked for the investors having a specific remuneration agreement with their distributor or their portfolio manager.
