A global approach to capturing the growth potential of emerging markets.

Transcription

1 FOR PROFESSIONAL INVESTORS ONLY IPE - Iceland 2 October 2018 Steven Smith, CFA Investment Director A global approach to capturing the growth potential of emerging markets. Multiple Perspectives. One Approach. SM

2 Emerging market equities have been a volatile but high-return asset class MSCI EM was up 78% during the last EM rally, but the index is prone to long flat periods and sharp downturns 1400 Emerging markets % return 9.2% MSCI EM CAGR since % return Dec 90 Dec 93 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11 Dec 14 Dec 17 Past results are not a guarantee of future results. For illustrative purposes only. Investors cannot invest directly in an index. Data to 31 August Returns in US$ terms. Chart rebased to 100 on 31 December CAGR: compound annual growth rate. Source: Thomson Reuters Datastream 1. MSCI Emerging Markets Index with gross dividends reinvested. Capital Group EU.01 CR EU.07.CR EM.WHY WM

3 Why consider investing in emerging markets? Structural factors Emerging markets are key drivers of global growth, accounting for 40% of the world s GDP and contributing 70% to global GDP growth 1 But accounting for only 12% of the global equity market Attractive demographic profile Rising disposable income and middle class expansion Potential for structural improvements in: productivity governance and regulatory framework Cyclical factors Emerging market equities have offered superior long-term earnings growth at 16% vs. 14% for developed markets 2 But are trading at a 27% discount relative to developed market peers Some EM currencies remain undervalued Certain EMs have current account surpluses and lower levels of government debt than developed markets Past results are not a guarantee of future results. Emerging markets are volatile and may suffer from liquidity problems. The information provided is not intended to be comprehensive or to provide advice. Data to 31 August Emerging markets (EM): MSCI Emerging Markets Index. Developed markets (DM): MSCI World Index. 1. International Monetary Fund: World Economic Outlook Database, April 2018 edition 2. Long-term earnings growth rate is calculated using consensus estimates provided for the next 3-5 years. Source: Thomson Reuters Datastream Capital Group EU.01 CR EU.07.CR EM.WHY WM

4 Why take a global approach to EM equity investing? Capital Group EU.07.CR

5 Problems defining emerging markets and companies MSCI vs. FTSE vs. IMF Changing definitions, criteria and universe constituents Country of domicile vs. economic exposure Significant exposure to state-owned enterprises IMF: International Monetary Fund Capital Group EU.07.CR

6 The EM index is highly concentrated in Asia and by sectors Asia is 75% of total Rest of Asia 7% Brazil 6% LatAm ex Brazil 5% IT and Financials are 54% of the index Telecoms 4% Utilities 2% Commodities 15% Korea 14% Taiwan 12% Asia = 75% of MSCI EM Index Russia 3% Europe ex Russia 3% South Africa 6% Middle East 2% IT ex China 15% China IT 13% Total IT & Financials = 54% of MSCI EM Index Industrials 5% Healthcare 3% Consumer 17% India 9% China 33% 99% of MSCI EM IT stocks are domiciled in Asia 46% of MSCI EM IT stocks are domiciled in China Financials 26% 5 largest companies make up nearly 20% of MSCI EM Index Figures may not total 100 due to rounding. Data as at 30 June LatAm: Latin America. Source: FactSet MSCI Emerging Markets Index broken down by sector and country. Consumer includes consumer discretionary and consumer staples; financials includes real estate; commodities includes energy and materials. Capital Group EU.01.CR EM.WHY EU.07.CR EM

7 EM stock markets remain underdeveloped relative to the size of their economies Which limits equity investors exposure to economic growth Selected developed market countries Selected emerging market countries sample 200 (%) % % 102% 80 74% 60 54% % 27% 18% 18% 17% 14% 13% 12% 7% 0 Switzerland United States United Kingdom Japan Korea Germany Thailand Brazil India Emerging Markets Mexico China Indonesia Turkey This is mainly because of state-owned enterprises, private capital and multinationals Data as available as at 31 December Chart shows market capitalisation as a % of nominal gross domestic product. Sources: FactSet, International Monetary Fund (IMF) The emerging market index referenced is the MSCI Emerging Markets Index. Capital Group EU.01 CR EU.07.CR NWF _573 EM.WHY WM

8 A domicile-agnostic approach to emerging markets is one way to access a broader opportunity set Potential benefits of emerging market companies Potential benefits of developed market multinationals Domestic market-focused, offering direct exposure to growth areas Experienced management with knowledge of local markets Can provide access to heavily regulated domestic industries Leading global positions in other emerging markets Examples: Alibaba HDFC Hypera Pharma + Globally recognised brands that can benefit from increasing wealth in developing economies Access to emerging market growth in areas not represented by local companies Securities trade in structurally deeper and more liquid markets Higher levels of corporate governance Examples: Alphabet Nestlé Novartis Examples shown for illustrative purposes only. This information has been provided solely for informational purposes and is not an offer, or solicitation of an offer, or a recommendation to buy or sell any security or instrument listed herein. Capital Group EU.07.CR NWF _

9 A traditional EM approach could result in missed opportunities The investment opportunity in emerging markets is greater than just the locally-domiciled companies The leading companies in these respective industries globally are still mostly domiciled in developed markets IT sector Financials sector Consumer sector Healthcare sector Commodities sector 28% 26% 26% 44% 45% 34% 35% 31% 31% 25% 36% 34% 39% 71% 45% 72% 74% 74% 56% 55% 66% 65% 69% 69% 75% 64% 66% 61% 29% 55% Developed markets revenue exposure Emerging markets revenue exposure This information has been provided solely for informational purposes and is not an offer, or solicitation of an offer, or a recommendation to buy or sell any security or instrument listed herein. The selection of companies is based on market capitalisation within the MSCI World Index and is for illustrative purposes only. Dara as at 31 March Source: MSCI Capital Group EU.07.CR

10 Taking a global approach to EM equity investing could prove more defensive in down markets Excess return of a global MSCI EM 1 approach to EM investing Past results are not a guarantee of future results. For illustrative purposes only. EM: emerging markets. Returns in US$ terms. 1. MSCI Emerging Markets Index with net dividends reinvested. Source: MSCI 2. The results shown are for the Capital Group New World Composite before fees and expenses. The impact of fees on returns may vary depending on the investor and share class. Please contact your local Capital Group representative for more details. The composite is asset-weighted based on initial weights and monthly returns. Source: Capital Group This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. Capital Group EU.07.CR

11 And this is evidenced by a low down capture ratio Rolling 3-year downside capture 1 Time period: 30 June 2008 to 30 June 2018 Example of a global approach to EM investing 2 Past results are not a guarantee of future results. For illustrative purposes only Returns in US$ terms. 1. Rolling 3-year downside capture vs. MSCI Emerging Markets Index with net dividends reinvested. Source: MSCI 2. The results shown are for the Capital Group New World Composite before fees and expenses and in US$ terms. The impact of fees on returns may vary depending on the investor and share class. Please contact your local Capital Group representative for more details. The composite is asset-weighted based on initial weights and monthly returns. Source: Capital Group This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. Capital Group EU.07.CR

12 Providing a bridge between global and emerging market equities Looking beyond traditional boundaries to capture the growth potential of developing economies Return vs. volatility for the lifetime of the strategy ending 30 June 2018 Annualised return (%) Example of a global approach to EM investing 1 (EM & DM) Blended universe 3 MSCI EM MSCI ACWI New World participates in some of the world s most dynamic developing economies while seeking to reduce the impact of the ups and downs of their stock market Annualised volatility (%) Past results are not a guarantee of future results. For illustrative purposes only EM: emerging markets. DM: developed markets. Data as at 30 June 2018 in US$ terms. 1. The results shown for the Capital Group New World Composite are asset-weighted and based on initial weights and monthly results. The figures used are before fees. The impact of fees on returns may vary depending on the investor and share class. Please contact your local Capital Group representative for more details. Source: Capital Group 2. MSCI Emerging Markets Index with net dividends reinvested. Prior to 31 December 2000, MSCI Emerging Markets Index with gross dividends reinvested. Source: MSCI 3. 60% MSCI All Country World Index (ACWI) and 40% MSCI Emerging Markets Index. MSCI All Country World Index (ACWI): Represented by MSCI All Country World Index with gross dividends reinvested until 31 December 2000, followed by MSCI All Country World Index (ACWI) with net dividends reinvested. MSCI Emerging Markets Index: Represented by MSCI Emerging Markets Index with gross dividends reinvested until 31 December 2000, followed by MSCI Emerging Markets Index with net dividends reinvested. Source: MSCI 4. MSCI All Country World Index (ACWI) with net dividends reinvested. Prior to 31 December 2000, MSCI All Country World Index with gross dividends reinvested. Source: MSCI This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. Capital Group EU.07.CR NWF _

13 Potential benefits of a global approach to EM investing Less focus on indices to define the investment universe Emphasis on economic exposure of companies Global approach to emerging market (EM) investing: i. Overcomes problem of universe definition ii. Avoids portfolio concentration among countries and sectors iii. Helps capture greater breadth and depth of growth opportunities in emerging world iv. Could lead to a less volatile, more resilient investment portfolio in down markets Past results are not a guarantee of future results. Capital Group EU.07.CR

14 Appendix Capital Group EU.07.CR

15 Meeting participants Steven Smith is an investment specialist at Capital Group. He has 15 years of investment industry experience and has been with Capital Group for 11 years. Prior to joining Capital, Steven was a member of the U.K. equity portfolio management team at UBS Global Asset Management. He holds a first-class honours degree in business management with Spanish from Royal Holloway, University of London. He also holds the Chartered Financial Analyst designation. Steven is based in London. Feike Goudsmit is managing director for institutional, Benelux, Northern Europe and the Middle East at Capital Group. As a relationship manager, he is responsible for covering the institutional client base in those three regions. He has 30 years of industry experience and has been with Capital Group for three years. Prior to joining Capital, he was executive director and country head, Benelux, at Threadneedle Investments in Amsterdam. Before that, he was managing director and head of equity sales at Rabo Securities; executive director, deputy head of equities and vice president for ABN Amro Bank; and was assistant director at ING Barings. He holds a bachelor s degree in business administration from European University in Antwerp, Belgium. Thomas van Onna is a business development associate at Capital Group. He has five years of industry experience and joined Capital Group in Prior to joining Capital, Thomas worked as a credit analyst at Rabobank. Before that, he was an intern at Juno Investment Partners. He holds a master degree in finance from Tilburg University, business administration from VU University Amsterdam and international economic studies from Maastricht University. He holds a bachelor's degree in international business from Maastricht University. Thomas is based in Amsterdam. As at 31 December Source: Capital Group Capital Group EU.07.CR

16 Capital Group: a pioneer in emerging markets Thirty years ago, the World Bank invited us to create the world s first emerging markets equity fund 1986 Capital makes its first investment in Korea, Thailand, Philippines and Malaysia 1987 Our first investment in Taiwan, Argentina, Brazil and Mexico 1992 First investment in China 1993 First investment in India 1996 First investment in Russia 2008 Mumbai office opens 2009 Beijing office opens $50bn Assets under management in emerging marketfocused strategies 1980s 1990s 2000s 2010s 1986 Emerging Markets Growth Fund Emerging Markets Equities 1990 Begin investing In emerging market debt 1992 Emerging Markets Private Equity New World strategy 2007 Emerging Markets Total Opportunities strategy Knowledge gained through decades of experience leads to a deeper understanding of the unique complexities inherent in emerging markets. All data as at 31 December The Capital Group companies manage equities through three investment divisions that make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups. Source: Capital Group 1. Emerging Markets Growth Fund is a US-domiciled open-end interval fund generally offered to institutional investors and other qualified purchasers in the US by Capital International, Inc. The American Funds are not registered for sale outside of the United States. 2. Available only to qualified purchasers. Capital Group EU.07.CR EU_LDO_

17 Composite information in US$ New World Annual composite Annual Annualised 3 yr Annualised 3 yr Annual Number of Assets in Total GIPS gross benchmark composite standard benchmark standard composite portfolios composite Firm assets return return deviation deviation dispersion in composite (millions) (millions) Year % % % % % ,720 1,564, , , ,408 1,180, ,568 1,228, ,467 1,084, ,409 1,144, ,947 1,336, ,626 1,395, ,996 1,389, ,017 1,477,471 Past results are not a guarantee of future results. The accompanying disclosures to the Composite Information are an integral part of the presentation. Capital Group EU.07.CR

18 Composite information in US$ New World Compliance The Capital Group Companies ("Capital Group") claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Capital Group has been independently verified by Deloitte & Touche, LLP for the periods 1 January 2008 to 31 December The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. Firm definition The "Firm" is defined as Capital Group and includes all portfolios, excluding Capital International Private Equity Funds ("CIPEF"), managed within its subsidiaries and divisions. The Firm manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups. Composite The composite consists of all discretionary portfolios that are managed to the global capital appreciation strategy, with a focus on exposure to emerging economies. The strategy seeks to provide long-term capital appreciation. Portfolios included in the composite primarily invest in securities of issuers based in "qualified developing countries", as well as in equity securities of issuers based in the developed world with significant assets or revenues attributable to exposure to developing countries. These portfolios also invest in bond offering exposure to developing countries. Composite inception date is 1 July Composite creation date is 31 March Index Index represents the MSCI MSCI AC World Index. Index results are net of withholdings taxes on dividends, interest and capital gains. Indices were obtained from published sources and have not been examined by an independent accounting firm. Exchange rates For periods prior to 1 January 2011, the Firm's portfolios may use the Reuters Closing Spot Rates taken at 4:00 p.m. London time or the Reuters Spot Rates taken at 11:00 a.m. Pacific time as sources for exchange rates. The majority of composite benchmarks, published by index providers, use the Reuters Closing Spot Rates taken at 4:00 p.m. London time as source for exchange rates. In addition, the Firm uses the WM Closing Spot Rates taken at 4:00 p.m. to convert composites and benchmarks from base currency into any other reporting currency. Presentation of results and fees Composite results reflect the reinvestment of dividends, interest and other earnings. Results are net of withholding taxes on dividends, interest and capital gains. Actual withholding tax rates vary according to the country of denomination and tax status of each portfolio. Composite gross results are presented before management fees but after all trading expenses. The composite may include portfolios with gross results that reflect the deduction of certain administrative fees. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. Past performance does not guarantee future results. The starting annual management fee rate for an investment from an institutional investor in New World is 0.875%. Other fee rates may apply depending on the investment vehicle, size of investment and investor profile. Annual composite dispersion The composite dispersion measure presented is the asset-weighted standard deviation. This is a measurement of internal dispersion that represents the distribution of individual portfolio returns around the asset-weighted mean. Portfolios are only included in each dispersion calculation if they are present in the composite for the entire period. The asset-weighted standard deviation dispersion measure is included for full calendar years except where the composite contains five portfolios or less for the full year. Standard deviation The annualized three-year standard deviation measures the variability of the returns over the preceding 36- month period. Standard deviation is not presented for periods where 36 monthly composite returns are not available. Number of portfolios Periods that end with five portfolios or less are not presented. Valuation The Firm's valuation policy, although in accordance with the GIPS Valuation Principles, may allow for some differences among portfolios within the composite based upon whether a given portfolio adjusts the values of certain non-u.s. securities based on certain U.S. market movements. General A complete list and description of firm composites and policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. GIPS is a trademark owned by CFA Institute. This material is designed for use solely by Qualified Purchasers, institutional investors and consultants. It may not be disseminated to or used by individual plan participants or retail investors. Capital Group EU.07.CR

19 Regulatory information Capital International Management Company Sàrl (CIMC) Registered office: 37A avenue J.F. Kennedy L-1855 Luxembourg Telephone Facsimile capitalgroup.com Registered in Luxembourg, number: R.C. B Copyright All rights reserved. Risk factors you should consider before investing: This material is not intended to provide investment advice or be considered a personal recommendation. The value of shares and income from them can go down as well as up and you may lose some or all of your initial investment. Past results are not a guide to future results. If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Depending on the strategy, risks may be associated with investing in emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems. This material, issued by Capital International Management Company Sàrl ( CIMC ), 37A avenue J.F. Kennedy, L-1855 Luxembourg, is distributed for information purposes only. CIMC is regulated by the Commission de Surveillance du Secteur Financier ( CSSF Financial Regulator of Luxembourg) and is a subsidiary of the Capital Group Companies, Inc. (Capital Group). This communication is intended for professional investors only and should not be relied upon by retail investors. While Capital Group uses reasonable efforts to obtain information from sources which it believes to be reliable, Capital Group makes no representation or warranty as to the accuracy, reliability or completeness of the information. This communication is not intended to be comprehensive or to provide investment, tax or other advice. Capital Group CIL_SEG. EU.07.CR _