SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 <strong>SKANDIA</strong> US VALUE FUND INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011 Skandia US Value Fund – Hotchkis and Wiley Capital Management, LLC Below is a report from the Investment Adviser of the Skandia US Value Fund for 2011. The Skandia US Value Fund was launched on 17 April 2002 with a starting Net Asset Value per share of USD 10.00. Investment Adviser’s Commentary The Skandia US Value Fund underperformed its benchmark, the Russell 1000 Value Index, in 2011. The fund returned -6.47%, while the benchmark index recorded a total return of 0.39% over the period.* During the first quarter, stock selection in information technology, utilities, and healthcare detracted from relative performance, as did the underweight in energy. The largest individual detractors for the quarter were Hewlett-Packard, General Motors, and Microsoft. Positive stock selection in financials and telecommunications contributed to relative performance for the quarter. The largest individual contributors for the quarter were Lockheed Martin, ConocoPhillips, and Royal Dutch Shell. In the second quarter, an overweight in low-valued stocks and an underweight in non-cyclical stocks were major performance detractors in the quarter. Stock selection in financials also had a negative impact. The largest individual detractors were Hewlett- Packard, Genworth Financial, and Gap. Positive stock selection in energy, materials and industrials were the primary contributors to performance for the quarter. The largest individual contributors were Novartis, Magna International, and CVS Caremark. In the third quarter the Skandia US Value Fund marginally outperformed the benchmark Russell 1000 Value Index. Beneficial stock selection in the energy, telecoms, and healthcare sectors was the largest contributor to returns for the quarter. An overweight in utilities and an underweight in materials also proved advantageous. The main detractor from performance was having an overweight in stocks with low valuations. The portfolio‟s underweight in three of the four non cyclical sectors (healthcare, staples, and telecoms) also detracted from performance slightly. Stock selection in financials and technology was another negative factor for performance. In the last quarter the portfolio underperformed the Russell 1000 Value Index over the quarter. An overweight position in low P/E stocks hurt performance as this group considerably underperformed the market. Also hurting performance was stock selection in technology and financials. The position in banks weighed on performance as concerns regarding sovereign debt exposure and continued economic weakness pressured the stocks. Positive stock selection in energy, materials, and telecommunications was the largest contributor to returns. Source: Hotchkis & Wiley Capital Management, LLC as at 31 December 2011. * Performance figures refer to Class A1 shares and are sourced from Morningstar. Calculation basis: bid to bid, net of fees, gross income reinvested in fund base currency (US Dollars). References to benchmarks are for illustrative purposes only and are not intended to imply a performance objective. There is no guarantee that the Skandia US Value Fund will outperform this benchmark. 28
Skandia Global Funds plc Annual Report and Audited Financial Statements for the year ended 31 December 2011 <strong>SKANDIA</strong> EUROPEAN EQUITY FUND INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011 Skandia European Equity Fund – Goldman Sachs Asset Management International Below is a report from the Investment Adviser of the Skandia European Equity Fund for 2011. The Skandia European Equity Fund was launched on 13 September 2000 with a starting Net Asset Value per share of EUR 1.00. Investment Adviser’s Commentary During 2011, the Skandia European Equity Fund returned -12.03% underperforming it‟s benchmark, the MSCI Europe GR Index, that produced a return of -7.51% over the same period.* Strong stock selection within the consumer staples and energy sectors were the primary drivers of performance during the first quarter, while the Investment Adviser‟s positioning in the healthcare and industrials sectors detracted from relative performance. As mentioned above, the consumer staples sector was the weakest performing sector in the first quarter of 2011,underperforming the European market by almost 5%. Investors were concerned about rising input costs and whether companies in the sector would be able to pass the costs on in a weak consumer environment. There was also an element of profit taking that weighed on returns, as many companies in the consumer staples sector performed well in 2010. While the portfolio had an overall underweight to the sector over the quarter, consumer staples was the top alpha contributor in the portfolio. The portfolio was well-positioned with holdings in companies such as Swiss-based bakery company Aryzta and Irish food company Kerry Group. Aryzta, which also produces animal feed and fertilizer, led returns after revealing a strong recovery in organic growth in the company‟s fiscal half year results. The Investment Adviser believes there is scope for continued growth driven by recovering demand for Aryzta‟s products after the downturn, as well as the synergies and international growth opportunities from acquisitions in 2010. Within the energy sector, GSAM‟s position in Italian energy company ENI contributed to returns. In their view, the company's production growth target is conservative and they believes that the market is underestimating growth in the company's oil and gas business. The Investment Adviser believe the company's production profile is more attractive compared to its peers. While the healthcare sector experienced marginal weakness in the market this quarter, GSAM‟s holdings in the sector detracted from returns due to positions in hearing and wireless systems company Sonova and pharmaceutical company Swedish Orphan Biovitrum. The Investment Adviser initiated a position in Swiss-based Sonova as they believed the company was well positioned to benefit from demographic trends of growing aging populations and its position as a leader in the hearing aid industry, based on the company‟s product range and technology. In March, Sonova‟s share price fell sharply after it issued a profits warning. Factors leading to the warning included a product recall, a slower-than-expected development in a new product range, and generally poor development of the core underlying hearing aid operations. Following subsequent conversations with senior management, GSAM decided to sell out of their position as they felt the valuation of the stock did not reflect two aspects; a significant deterioration in management credibility and a lack of near-term visibility in the operating environment for Sonova. Their holdings in the industrials sector also detracted from returns over the quarter. Within the sector, French aerospace company Safran was a detractor. The Investment Adviser continues to like this company and added to our position following the share price fall as they believe that Safran, which provides spare parts and after-sales service for aircraft engines, is well placed to benefit from the upswing in the spare parts cycle. During the second quarter, strong stock selection within the consumer discretionary and information technology sectors were the primary alpha drivers during the quarter, whilst the fund‟s positioning in the industrials and telecommunication services sectors detracted from relative performance. The consumer discretionary sector made gains over the quarter, leaving behind concerns about disruptions to the supply chain caused by the Japanese earthquake in March. The fund was overweight the sector over the quarter and its holdings in companies such as German automobile company Volkswagen and cable operator Kabel Deutschland contributed to returns. Volkswagen performed well as fears over supply disruptions caused by the disaster in Japan dissipated and the company released better-than-expected Q1 results in April. Within information technology, Swedish communications company Ericsson, the world‟s largest telecommunications network equipment maker, outperformed after posting stronger-than-expected Q1 results driven by solid demand for wireless technology. The Investment Adviser, GSAM, expects sales to remain strong as telecommunications network operators upgrade and add capacity to accommodate increasing mobile broadband usage. The top contributor in the second quarter was French aerospace and defence company Safran, which has performed well in 2011. The stock continues to do well on the back of a strengthening US Dollar, which is beneficial to Safran as the company‟s revenue base is in US Dollars whilst its costs are reported in Euro. Safran‟s share price was further boosted by a weak oil price which GSAM believes may improve airline profitability. 29
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SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

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