In May, the European portfolio has performed very well with an absolute performance of 0.8% meaning that it outperformed the benchmark of 5.23% with a much lower volatility. This result comes from a defensive positioning from a sectorial and stock selection point of view. More precisely, the positions taken on sectors such as health care, finance and utilities were the main contributors to this outperformance

Our approach, based on risk reduction, allows us to have a balanced portfolio in terms of capitalization and less subject to violent variation of the market. Our selection is mainly based on volatility at a stock level while keeping solvency criteria in order to control entirely our risk.

Our portfolio currently includes 100 titles mainly on defensive sectors such as consumer staples, telecoms and utilities. Moreover, we remain very under-exposed to energy, materials and industrials. Despite this very defensive positioning, we remain invested on financial companies through a low volatility stock selection.

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In a tumultuous month for Europe and European equity markets, the Euro Equities Fund outperformed, falling -4.01% against a benchmark return of -7.05%. Indecisive elections in Greece and a growing sense of frustration with austerity measures across Europe brought renewed focus to the issues the Eurozone is facing and triggered market falls.

The fund performance was helped by our holdings in stable, globally exposed companies with flavour and fragrance company Symrise in positive territory for the month along with other holdings such as lens maker Essilor and cosmetics company L'Oreal. Portfolio activity was limited although we did take the decision to exit BBVA and Mapfre given concerns that the Spanish government's policy measures may undermine the companies' own solid fundamentals. We introduced elevator maker Kone in place of these names, attracted by its stable base of recurring service revenues and strong position in a consolidated global market.

More important for us than the strong one month performance is the longer term picture. We continue to focus on our long term, buy and hold approach to investment, a focus that is reflected in pleasing longer term outperformance despite the travails within Europe.

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In May, all existing TOBAM-AM League strategies (Global, Euro and Europe equities) significantly outperformed their benchmarks while drastically reducing risk across the board, which is exactly what they are designed to do. As a result, all 3 strategies made it to the top 4 for each of their respective investment universes.

In particular, the Global equities mandate achieved a No. 1 ranking: the strategy outperformed its benchmark by more than 500bps, returning +3.10% for the month, compared to -2.23% for the benchmark. In the meantime, volatility was reduced by 15%. Europe and Euro TOBAM-AmLeague strategies reduced risk even further, with volatility reductions averaging 40% (respectively -37% and -41% in May).

For any given universe, TOBAM’s Anti-Benchmark objective is to maximize diversification. TOBAM’s systematic, patented approach aims to build a truly risk-neutral portfolio that avoids the concentrations embedded in market cap-weighted benchmarks and contains no style, size or other biases.

Interestingly, not only do market cap-weighted indices currently display high risk concentrations in general, but global, euro and emerging markets equities, indeed some of the main benchmarks, all now show a similar bias towards financials! This indicates that market cap-weighted benchmarks are poorly diversified, and that they are poor diversifiers amongst themselves.

Going forward, Anti-Benchmark portfolios will continue to focus on a single goal: maximizing diversification.

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The mandate managed to generate a positive performance during the month of may, thanks to its prudent approach and to its international diversification.

Currency exposure, especially US Dollar, allowed to protect the performance during the month.

We will keep our defensive stance as we wait for the next European summit and for a credible roadmap.

Current allocation emphasizes on US equities and corporate bonds ; exposure to European sovereign debt is almost zero.

In May the Invesco Europe Equity Flexible Mandate outperformed the benchmark by 250 basis points. The equity weight was reduced to a level around 105%. The positive outperformance was dominated by our stock selection while the equity overweight had a negative impact of approximately 60 basis points. We slightly overweight European equities because we believe that European equity markets are attractively valued. While risk aversion has recently increased we still believe the current macroeconomic environment is favorable for a positive development of European equity markets going forward.

Stock selection and sector positioning contributed around 310 basis points to the performance of the portfolio. The fund is invested to approximately 95% into the Invesco Europe Equity Fully Invested mandate. In this part we are combining a minimum variance approach with an active stock selection expertise to generate an attractive risk-return profile from investments in European equities. Active performance is generated through a quantitative bottom-up investment process based on four concepts: Earnings Momentum, Price Trend, Management Action and Relative Value.

Currently our top sectors are consumer staples, healthcare, industrials, consumer discretionary and telecommunication. These five sectors make up about 80% of the portfolio. Our biggest underweights in comparison to the benchmark are financials, materials and energy. Although we clearly favor certain sectors, our portfolio is quite diversified in terms of single stocks. Each single position will have a maximum weight of approximately 2%. Today we hold about 25 names with a maximum weight of 2%. In total we hold around 65 names in our portfolio.

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In May, the CCR Euro Equity Flexible mandate outperformed its benchmark by 288 basis points. The net equity exposure was around 60% during the month with a gross exposure of approximatively 75% equity, 25% in cash and 15% short Euro Stoxx 50 futures.

While the macro economic numbers are deteriorating around the world, the risks of an economic recession resurfaced: on one side China continues to be debated when surveys underline the scale of economic slowdown, on the other, the United States, an area that has resisted the better in this crisis begins to see its statistics falter on the waterfront employment and industrial production. As for the European situation, it is deteriorating day after day since Athens was unable to find an alliance of government after the parliamentary elections and the fourth Bankia Spanish bank whose capital requirements are of approximately 19 billion Euro have destabilized the european market.

It is for these reasons we have covered the portfolio at the minimum of equity exposure and we have kept a large cash pile.

Stock selection contributed positively to the portfolio's performance. We invested opportunisticly by selecting companies whose growth profiles seem attractive and fundamentaly solid.

Also, our performance in May is first based on a sector allocation with a strong underweight in financials. Even if the equity part has been impacted negatively by our exposure to oil services companies and some stocks as Generali, Eutelsat or JC Decaux, other stocks have confirmed their defensive status, such as Symrise, Kerry, Nutreco and CSM in the ingredients sector. But also Fresenius, Biomerieux and UCB in health care or Telenet in Telecom.

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