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Fund Manager Focus - December 2011

Regina Parhammer-Voglhuber, Volksbank Investments - Vienna

Volksbank Investments is the Austrian Volksbanks' asset manager and also operates throughout Austria as an independent partner for other banks, financial services providers, asset managers and institutional customers. In addition to its core Austrian market, Volksbank Investments also markets its products in many Eastern European countries. They have an active investment policy for equity investments, targeting long-term above average returns. They actively manage a Global Dividend Fund and a US fund. Shares are selected based on a fundamental process that differs from conventional top-down and bottom-up approaches. The purpose of the process is to invest in fundamentally promising and favorably rated industries and single shares with a value bias.

Regina Parhammer-Voglhuber joined Volksbank Investments in 2003 from Vienna University of Economics and Business. She is a member of the global equity team. Today with eight years experience she is responsible for the US equity fund and the global high dividend stocks fund (~ 40% invested in US equities).

How much money does Volksbank manage?

"€8 billion ($10.4bn) in total assets under management". Equity represents around 25% of the value of all our retail investment funds."

What's your investment style?

"It depends on the portfolio. If we are talking about the dividend fund it is a clear value style with a dividend focus. If we talk about the America portfolio – it is a blend style. I could do both – value and growth. The approach is a fundamental one so I look closely at valuations of single sectors and stocks."

Do you use any screens?

"We have an internal model which is a combination of fundamental screens and fundamental valuation modeling and a small part technical. We screen for price-multiples and cash-flow multiples."

Typically how many US positions will you hold, average market cap, what's your average position size and what is the value of your largest position?

"For the America portfolio – it is between 80-100 single stocks, most of them being US names and only very few Canadian names. The dividend portfolio is a global portfolio and usually holds about 40% US so currently I hold about 40 names. The average market cap in America portfolio is around $60 billion at the moment but I could go much smaller in terms of market cap as well. The market cap decision is a question of the stage in the business cycle. Late cycle there is a clear focus on large caps. For the dividend portfolio my focus is on large caps so around $50 billion gives a good indication of average size."

What is the value of your largest position?

"I don't take single positions more than 5% in the portfolio."

What is your average holding period?

"The average holding period for the America fund is 6-12 months. For the dividend portfolio it is a bit longer: 9 to 15 months. So I focus on long term investment ideas."

What's your active share? (how much will you bet against the index?)

"It could be pretty far away from the benchmark. Currently it is about 30% active weight."

Is there anything you won't invest in (e.g. defense, tobacco etc)?

"Not for the two portfolios I am managing. We have sustainability portfolios in our product mix as well and for these portfolios there are, of course, strict regulations on which sectors are not investable. Defense or tobacco would be obvious examples for restricted sectors."

Any sector constraints?

"For the dividend portfolio we obviously would be unlikely to invest in sectors with low or no dividend yield. Biotech stocks would be an example. For the America portfolio there are no sector constraints."

Market cap constraints?

"For the America Fund I could invest in a $100 million company as long as it has a certain liquidity which means I like to be able to sell my position within one trading day."

What do you think currently about the US market?

"In comparison to Europe, I like the US better. I am pretty curious to see how the discussion regarding debt structure and potential further economic stimuli is developing as we approach the Presidential election in November 2012. It will be interesting to see where the two parties are going to focus during the election. The US, as well as Europe, needs to make strong savings and make strong efforts to reduce the debt burden and this is going to be tough. So in the longer term I am concerned regarding government cuts in the healthcare sector as well as on further reductions in defense spending."

Favored sectors?

"I like US technology in general although I am underweight as the market was correcting. The US is doing a great job on the technology side. The tech sector has lots of companies with technological advantages. I think the sector is pretty healthy. Short term I prefer low beta sectors."

Least favorite sector?

"Healthcare and defense in the long term - if we talk about 2012 and the election coming up. At the moment I am overweight utilities and telcos and underweight IT. As discussed earlier, I think the sector is healthy but it's a question of beta and in correcting markets you want to be low beta."

Favored stocks?

"My top five holdings in the America portfolio are: Apple – I still like the stock, AT&T, Verizon, Exxon Mobil and IBM so it's large caps with resurgent dividends. I've got a defensive bias at the moment: large caps and lots of dividend payers to provide a buffer in correcting markets.

Apple – I like the idea and how they position their products. I like the lifestyle aspect of their products and I think there is still growth in the name. They have lots of cash so I expect them to announce a dividend payment at any time. AT&T and Verizon have very defensive characteristics including good dividends and as well a dominant market position. For IBM and Exxon the same is true in their sector."

Largest five holdings in your dividend fund?

"Philip Morris, Deutsche Telekom, Elisa Oyj and Belgacom, telecom companies in Germany, Finland and Belgium, respectively, and Bilfinger Berger (a German industrial services group). Holdings are dependent to some extent upon asset allocation. At the moment I have about 40% of my fund allocated to the US."

Do you have a target price in mind when you buy a stock?

"I look at valuations, I don't like stretched valuations so we are not talking about target prices. If the stock gets too expensive compared to the peer group and sector average then that would be the trigger to sell or think about selling it. It also depends on the technical pattern. So it's a combination of factors which leads to a sell."

Can you invest in Canadian companies?

"Yes but I usually have just one or two names in the portfolio. The US is the clear focus."

Are SRI considerations important?

"At the moment I don't have any restrictions regarding SRI considerations. Volksbank Investments has other portfolios with a clear focus on sustainability in its product mix. Typically we don´t vote proxies on our international equity holdings."

How do you know if you want to meet a company?

"The added value of meeting a company does not depend on current valuation of the stock. It's important to get to know the business model, to talk about certain risks for the company, to talk about things you cannot see in their balance sheet or their P&L. I like to meet companies which potentially could be added to my portfolio. So to a degree it is also a question of market cap as well. I wouldn't meet a company with a market cap of $50 million, for example, as I couldn't invest."

How important is it to meet management?

"It is important. If it's a first time meeting with a company it is absolutely alright for me to talk to the IR person. If it's a follow up, it's important to talk to the management (i.e. CEO or CFO)."

Any US names who stand out in terms of IR?

"For the US market, most of the companies do a really good job. Most of them have good websites; have annual reports that are easily found in PDF, if you want to be put on a mailing list, you can be. This is true for most companies in an international environment."

How many companies do you see a year? How many in Vienna?

"I attend at least 3 – 4 conferences a year so I see quite a lot of companies. I travel to conferences in Europe and the US but I don't see many US companies in Vienna. They usually visit London, Zurich and often Frankfurt but rarely Vienna. So maybe 10 US companies this year have visited Vienna."

What would you say to US companies considering visiting Vienna?

"I think it's a great idea as the investment community is always happy to welcome US companies and appreciates if the companies are visiting Vienna. I see great interest within the community to meet with management. So I think it's absolutely worth it for both sides."

Is Volksbank Investment (and the Austrian institutions more generally) benefiting yet from increased share ownership among Eastern Europeans?

"It's early stage at the moment. The average personal income in the Eastern countries is still pretty low. There are some really rich people but the middle class is rather small. But this is starting to change: people now have bank accounts, they are starting to have insurance policies and their next step is to hold asset management products in their accounts as well."

What is your outlook for the US market in 2012?

"I think it's going to be an interesting year. We have interesting topics regarding public debt and we have the presidential election ahead of us. Usually the election year is a good year for stocks. In 2011 we've seen a sharp correction in the stock market so I think 2012 can be a good equity year all in all."

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