SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

Skandia Global Funds plc
Annual Report and Audited Financial Statements for the year ended 31 December 2011
SKANDIA US ALL CAP VALUE FUND
INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011
Skandia US All Cap Value Fund – GAMCO Asset Management, Inc.
Investment Adviser’s Commentary (continued)
National Fuel Gas - a diversified natural gas and pipeline utility with a rapidly growing exploration and production business. The
E&P segment, or Seneca Resources, operates in California, the Gulf of Mexico and most importantly, Appalachia, which is
commonly referred to as the company‟s “Marcellus” acreage. On September 23, 2010, NFG announced that it had hired an adviser to
explore joint venture opportunities in the Marcellus. Potential joint ventures will likely exclude mineral rights to the Utica shale,
which lies beneath the Marcellus and could potentially prove to be as abundant as the Marcellus.
In the second quarter of 2011, the main detractors from performance included:
Janus - a publicly owned asset management holding company with approximately $167.7 billion in assets under management.
GAMCO Asset Management, Inc sees improving management and operating stability due to new CEO Richard Weil. On a three-year
basis, the percentage of Janus equity mutual funds in the top two Lipper quartiles was 80%. The stock trades at an attractive valuation.
Bank of New York Mellon Corp. - a global financial services company with over $1 trillion of assets under management and $22.4
trillion of assets under custody and administration. The company is the global leader in asset servicing and benefits from cross selling
additional services to existing customers. It has the largest market share in six of its nine largest businesses, including the #1 global
Corporate Trust business and over 50% market share in the US for broker-dealer services. The company‟s leadership position and
strong operating track record should fuel continued global growth as it takes advantage of recent dislocations in the financial markets.
GAMCO believes the company, along with other well capitalized financial firms, will raise its dividend in 2011.
Navistar International - manufactures and sells commercial and military trucks, buses, diesel engines, recreational vehicles (RVs),
and chassis, as well as provides service parts for trucks and trailers. GAMCO was encouraged by Navistar‟s positive tone and bias
towards the high end of its FY11 guidance range. GAMCO continues to believe Navistar is best leveraged to what it sees as a 3-4 year
recovery in North American commercial trucking and believes its shares are undervalued.
Ford Motor Co. - the third-largest manufacturer of light vehicles in the US (by sales). GAMCO believes the company‟s shares are
attractively valued, particularly as Ford‟s revived product portfolio has enabled retail share gains as the North American automotive
market has recovered over the past two years. Further, Ford will be a major beneficiary of global automotive growth, as global light
vehicle sales are expected to rise to approximately 88 million units in 2015 from 72 million today. GAMCO expects the company to
continue its strong performance, led by CEO Alan Mulally, whose strategic vision helped the company restructure its balance sheet
and cost structure while remaining committed to product development.
CNH Global - manufactures and distributes agricultural and construction equipment worldwide under the Case and New Holland
brands. GAMCO believes CNH remains a major benefactor of global infrastructure growth and continued secular increase in demand
for food. Notably, CNH expects the world demand for agricultural equipment to rise 4.5% per year through 2014 to a total of $123
billion, driven by growth in emerging economies and rising global population. Finally, GAMCO believes Fiat‟s plan to spin-off Iveco
and CNH into a separate entity named Fiat Industrial by the end of the year will continue to serve as a catalyst for CNH.
On the positive side, the main contributors were:
Viacom Inc. - a pure play content company that owns a global stable of cable networks. The company has benefited from a cyclical
rebound in advertising, an improvement in its viewership, and a shift in audience from broadcast networks to cable. Paramount has
posted a series of box office successes with franchises such as Star Trek, Iron Man, and Transformers. The company announced that it
will use its substantial free cash flow generation to resume its share repurchase program.
Sprint Corp. - operates the third-largest wireless carrier in the US. GAMCO believes that Sprint‟s operational turnaround will
continue to gain momentum throughout 2011 and the company could become a buyout target (in the medium- to long-term) for cable
companies in order to stay competitive on the multi-service bundle front in an environment where consumers increasingly look to
access content on their mobile devices. A bid from Verizon Wireless is also possible, but GAMCO thinks this is less likely, as VZW
will also benefit significantly (as a strong #2) from more rational pricing, could use the AT&T/T-Mobile approval as a “cover” for
smaller transactions (e.g. U.S. Cellular or MetroPCS), and will likely be more focused on trying to buy out the minority interest in
Verizon Wireless from Vodafone rather than pursuing a challenging integration project.
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