Emerging Markets Navigating Rough Seas

Transcription

1 Asset Management Quality Growth Boutique Emerging Markets Navigating Rough Seas Jin Zhang, CFA Portfolio Manager Douglas Bennett Client Portfolio Manager October 2018 For institutional investors only / not for public viewing or distribution

2 Revisiting Risk Biggest Risks? VUCA (U.S. military term for the post-cold War) Volatility Complexity Uncertainty Ambiguity VUCA is a constant when investing in today s world Building resilient portfolios = outperforming with less risk 2

3 Building Resilient Portfolios Benefit for Long Term Investors: Outperformance with Less Risk Clarity of Process Emerging Markets Equity Year Performance 10 Year Standard Deviation Vontobel Emerging Markets Equity MSCI Emerging Markets As of September 30, Based on the Emerging Markets Equity representative portfolio (net) compared to the MSCI Emerging Markets Index ND. The basis upon which the representative portfolio was selected is that the portfolio is the oldest and most representative account. All returns are annualized and displayed in USD. Past performance is not indicative of future results. Source: Vontobel. 3

4 Quality Growth Boutique: Time Tested Investing for the Long Term For institutional investors only / not for public viewing or distribution 1984 Vontobel Quality Growth Boutique is Founded 1992 Inception of Emerging Markets Equity $34.2b Assets Under Management 6 Investment Strategies 67 Employees 31 investment professionals 23 Years average experience of investment professionals Global Equity Emerging Markets Equity International Equity U.S. Equity European Equity Asia Pacific Equity As of September 30,

5 Quality Growth Performance Since Inception in 1992 For institutional investors only / not for public viewing or distribution Vontobel Emerging Markets Equity vs. MSCI EM Index (Growth of $10k) 120, ,000 80,000 $86,877 60,000 $61,184 40,000 20, Vontobel EME (Net) MSCI Emerging Markets (Total Return Net Dividend) As of September 30, Based on the Emerging Markets Equity representative portfolio (net) compared to the MSCI Emerging Markets Index ND. Past performance is not a reliable indicator of current or future performance. Source: Vontobel and FactSet 5

6 EPS Growth Rate Quality Growth Investment Approach Consistency of Performance For institutional investors only / not for public viewing or distribution Vontobel Seeks Consistent Earnings Growth Emerging Markets EPS Growth vs Benchmark* 40% Consistent Earnings Growth Can Compound Faster Emerging Markets Cumulative EPS Growth** $400 30% 20% 10% $300 $200 0% $100-10% $ Vontobel EME MSCI EM Vontobel EME MSCI EM Aim to generate investment results as consistent and predictable as the earnings of the underlying companies *The growth rates are calculated as a weighted average of the full year s EPS progression for the companies held in the portfolio and benchmark as of calendar year end excluding outliers. The outliers for the portfolio exclude the top and bottom 5% of companies from the calculation based on overall EPS growth. These figures are calculated in local currency and ex-cash. In materials prepared prior to August 1, 2018, the outliers for the portfolio excluded top and bottom 1% of companies from the calculation based on overall EPS growth. The outliers for the benchmark have not changed and continues to exclude the top and bottom 12.5% of companies from the calculation. **The graph represents the cumulative growth of $100 based on earnings growth. Emerging Markets Equity representative account versus MSCI Emerging Markets Index. The basis upon which the representative portfolio was selected is that the portfolio is the oldest and most representative account. Past performance is not indicative of future results. For full disclosure and for further information regarding comparison to an index, see end of the presentation. Source: FactSet. 6

7 What is a Quality Growth Business? 7

8 For institutional investors only / not for public viewing or distribution A Quality Business: HDFC Bank vs. Competitor ,500 2,000 1,500 1, HDFC Bank Limited - EPS - LTM (Left) HDFC Bank Limited - Price State Bank of India - EPS - LTM (Left) State Bank of India - Price The company may or may not represent a position in the portfolio. This is not a recommendation to purchase or sell, but merely an illustrated example. The reader should not assume that an investment in any securities identified was or will be profitable. Past performance is not indicative of future results. Source: FactSet 8

9 QG Fundamentals Earnings Stability and Predictability For institutional investors only / not for public viewing or distribution 10-Year Operating Margin Stable Operating Margin Volatility 35% 30% 25% 20% 15% 10% 5% 0% Vontobel EME MSCI EM Based on year end figures. Based on the Emerging Markets Equity representative portfolio. Past performance is not indicative of future results. Source: FactSet, Vontobel. 9

10 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 For institutional investors only / not for public viewing or distribution QG Fundamentals Quality Companies tend to have Consistently Higher ROEs ROE 40% 35% 30% 25% 20% 15% 10% 5% 0% Vontobel EME MSCI EM As of June 30, Based on the Emerging Markets Equity representative portfolio. Past performance is not indicative of future results. Source: MSCI, FactSet 10

11 Emerging Markets Equity Portfolio Characteristics As of 9/30/2018 CHARACTERISTICS VONTOBEL EM 1 MSCI EM 3 Capitalization (US$ bn), weighted average Capitalization (US$ bn), weighted median P/E - Forecast 12-month, weighted harmonic average Dividend Yield (%) Yr Historical EPS Growth (%) Return on Equity, weighted average (%) RISK STATISTICS (5 YEAR) VONTOBEL EM 2 MSCI EM 3 Annualized Alpha 1.8 Beta Sharpe Ratio Annualized Standard Deviation TOP 10 HOLDINGS 4 % OF PORTFOLIO Taiwan Semiconductor Manufacturing Co., Ltd. 5.4 HDFC Bank Limited 4.8 Alibaba Group Holding Ltd. 4.4 Ambev SA 3.9 Fomento Economico Mexicano SAB de CV 3.8 Tata Consultancy Services Limited 3.7 Unilever NV 3.7 Tencent Holdings Ltd. 3.6 Heineken NV 2.8 PT Telekomunikasi Indonesia, Tbk 2.7 Top 10 Holdings of Portfolio: 39.0% Annual Portfolio Turnover ending 3Q 2018: 36.1% 1 Based on a representative portfolio and shown as supplemental information to the composite presentation. Other accounts contained in the composite could have materially different statistics. The basis upon which the representative portfolio was selected is that the portfolio is the oldest and most representative account. 2 Based on gross performance of the Emerging Markets Equity Composite. The composite s gross rates of return are presented before the deduction of investment management fees, other investment-related fees, and after the deduction of foreign withholding taxes, brokerage commissions and transaction costs. An investor s actual return will be reduced by investment advisory fees. 3 Based on the MSCI Emerging Markets Index (Total Return Net Dividends). 4 The top 10 holdings are based on a representative portfolio, and are shown as supplemental information to the Emerging Markets Equity Composite presentation. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.. Past performance is not indicative of future results. For full disclosure and for further information regarding comparison to an index, see end of the presentation. Please refer to the end of this presentation for a table of the gross and net returns for this composite. Source: FactSet. 11

12 Environmental, Social, Governance and Regulation (ESGR) Philosophy Sustainability requires a balance between stakeholders (shareholders, employees, customers and community). We recognize weak ESGR standards can boost short term returns, but at the cost of a less certain future. Governance Regulatory Environmental & Social Solid governance is key to sustaining a powerful business. Companies invest in employees, future business assets, and related stakeholders, while still growing profitably. Regulatory changes are some of the greatest macro risks. New regulation is often the consequence of social pushback. Management must navigate dynamic legal environments. We have little or no exposure to extractive industries. We expect companies to treat stakeholders with respect. QG Team: 15 equity analysts who incorporate ESGR risks into forecasts and analysis + 3 investigative analysts 12

13 Which is a Better Investment? ROE Entry PE Exit PE Average Company 10% 12x 12x High Quality Company 20% 20x 12x 13

14 High Quality Has a Premium, but it Pays to Pay Up Businesses that are highly profitable will generally compound capital more quickly. EARNINGS AVERAGE CO. 10% ROE HIGH QUALITY CO. 20% ROE Year 0 $100 $100 Year 1 $110 $120 Year 2 $121 $144 Year 3 $133 $173 Year 4 $146 $207 Year 5 $161 $249 Year 6 $177 $299 Year 7 $195 $358 Year 8 $214 $430 Year 9 $236 $516 Year 10 $259 $619 AVERAGE CO. HIGH QUALITY CO. Current Earnings Power $100 $100 Beginning Multiple Current Valuation/Capitalization $1,200 $2,000 % of Earning Reinvested 100% 100% Returns on Retained Earnings (ROE) 10% 20% Cumulative Dividends $0 $0 Year 10 Earnings Power $259 $619 Year 10 Multiple Year 10 Valuation/Capitalization $3,108 $7,428 Total IRR 10% 14% Multiple on Original Investment The companies may or may not represent a position in our portfolio. This is not a recommendation to purchase or sell, but merely an illustrated example. Past performance is not indicative of future results. Source: Vontobel 14

15 Valuation Price is what you pay Value is what you get Assumptions EPS growth estimate 8% p.a. (vs. 12% p.a. for past 5 years) Terminal multiple 15x (10.5x-18.6x historical range; 15.1x currently) Discount rate 6% Discount ~30% Vontobel EPS estimate Terminal multiple on year 5 earnings estimate Current Price Vontobel Fundamental Business Value (PV+PV Div) 15x Discount Year 0 Year 1 Year 5 FV PV PV Div Legend: FV = Future Value / PV = Present Value / Div = Dividends For illustrative purposes to demonstrate the process 15

16 Emerging Markets Equity Sector Allocation As of 9/30/2018 SECTOR ALLOCATION PORTFOLIO WEIGHT* BENCHMARK WEIGHT DIFFERENCE** Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities Cash & Cash Equivalents Total 100% 100% * Based on a representative portfolio and shown as supplemental information to the composite presentation. Other accounts contained in the composite could have materially different statistics. The basis upon which the representative portfolio was selected is that the portfolio is the oldest and most representative account. ** Allocation differences between the Emerging Markets Equity Representative Account and the MSCI Emerging Markets Index. Source: FactSet, Northern Trust. 16

17 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Growth of $10,000 For institutional investors only / not for public viewing or distribution Emerging Markets Equity Staples have Historically Provided Downside Protection 200, , ,000 Start Date End Date 03/ /2001 Start Date End Date 10/ / , , ,000 80,000 EME Rep Cons Staples: % MSCI EM: % EME Composite Net: % EME Rep Cons Staples: % MSCI EM: % EME Composite Net: % Start Date End Date 08/ /2016 EME Rep Cons Staples: -9.98% MSCI EM: % EME Composite Net: % 60,000 40,000 20,000 0 EME Composite (net) MSCI EM ND (GD prior to 2001) EM Rep - Cons Staples Based on the Vontobel Emerging Markets Equity representative portfolio (consumer staples sector) and the Emerging Markets Equity Composite versus the MSCI EM Index (Total Return Net Dividends). The graph represents the cumulative growth of $10,000. Past performance is not indicative of future results. For full disclosure and for further information regarding comparison to an index, see end of this presentation. Please refer to the end of this presentation for a table of the gross and net returns for this composite. Source: FactSet 17

18 Examples of Quality Consumer Staples Businesses in our Portfolio The company may or may not represent a position in the portfolio. This is not a recommendation to purchase or sell, but merely an illustrated example. The reader should not assume that an investment in any securities identified was or will be profitable. 18

19 Summary 19

20 Why Vontobel Quality Growth? Our objective is to invest in a concentrated portfolio of stocks that is designed to provide strong returns over a market cycle with considerably less business risk than the market. Capital Growth Losing Less in Down Markets Outperformance Over Full Market Cycle Seeks high-quality businesses trading at a sensible price Strives to offer capital protection in declining markets Aims to deliver superior returns over a full market cycle, relative to benchmark There is no assurance that the investment objective will be achieved or maintained. 20

21 Performance & Portfolio Characteristics As of For institutional investors only / not for public viewing or distribution Upside/Downside Capture: 10 Years 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 82.35% Upside US$ Net 74.71% Downside *Upside capture ratio explains how well a portfolio performs in one-month time periods where the benchmark s returns are greater than zero, while downside capture ratio explains how well a portfolio performs in one-month time periods where the benchmark s returns are less than zero. Capture ratio is annualized. The composite s gross rates of return are presented before the deduction of investment management fees, other investment-related fees, and after the deduction of foreign withholding taxes, brokerage commissions and transaction costs. An investor s actual return will be reduced by investment advisory fees. The composite s net rates of return are presented after the deduction of investment management fees, brokerage commissions, transaction costs, other investment-related fees and foreign withholding taxes. Past performance is not indicative of future results. For full disclosure and for further information regarding comparison to an index, see end of the presentation. Please refer to the end of this presentation for a table of the gross and net returns for this composite. Source: Northern Trust, FactSet. 21

22 Questions 22

23 Appendix Disclaimer The index comparisons in this presentation are provided for informational purposes only and should not be used as the basis for making an investment decision. Further, the performance of the composite and the Index may not be comparable. There are significant differences between the composite and the indices referenced, including, but not limited to, risk profile, liquidity, volatility and asset composition. Please note that an investor cannot invest directly in an index. Investments discussed in the presentation is based on a representative portfolio and there is no assurance that Vontobel will make any investments with the same or similar characteristics as the representative portfolio presented. The representative portfolio is presented for discussion purposes only and is not a reliable indicator of the performance or investment profile of the composite. Any projections contained in this presentation are based on a variety of estimates and assumptions. There can be no assurance that the assumptions made in connection with the projections will prove accurate, and actual results may differ materially. The inclusion of projections should not be regarded as an indication that Vontobel considers the projections to be a reliable prediction of future events and projections should not be relied upon as such. This disclaimer applies to this presentation and the oral or written comments of any person presenting it. The inclusion in the composite of the performance of wrap accounts and private client assets could result in a material difference in the performance returns. There can be no assurance that investment objectives will be achieved. Clients must be prepared to bear risk of a total loss of their investment. Due to a varying frequency of the fees being paid and associated compounding effects, the actual difference between gross and net returns may differ from the stated annual fee. For example, on an account with a 0.50% fee, continuous monthly gross performance of 1.50% and the fees being deducted monthly, the compounding effect will result in an annual gross return of 19.56% and a net return of 18.97%. Thus, a $10,000 initial investment would grow to approximately $14,295 gross of fees, versus $14,155 net of fees, over a two-year period. Effective January 2016, the net-of-fees rates of return are calculated based on the fee schedule. All net returns that were previously calculated on a cash basis are linked to the returns being calculated under the new methodology, reflecting daily accrual of fees.vontobel s investment advisory fees are futher described in Form ADV Part 2A. Vontobel Asset Management, Inc. ( Vontobel ) is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, in the USA. Registration as an Investment Advisor with the U.S. Securities and Exchange Commission does not imply a certain level of skill or expertise. Vontobel is exempt from the requirements to hold an Australian Financial Services License under the Corporations Act in respect of the financial services it provides to Australian wholesale clients under ASIC Class Order CO 03/1100. Vontobel is regulated by the US Securities and Exchange Commission under US laws, which differ from Australian laws. All information provided in this presentation is as of the latest month, unless otherwise noted Vontobel Asset Management, Inc. All Rights Reserved. 23

24 Appendix Emerging Markets Equity Composite TOTAL RETURN 1 COMPOSITE CHARACTERISTICS AT END OF PERIOD EXTERNAL STANDARD DEVIATION 3 Period Gross of Fee Composite Net of Fee Composite MSCI EM ND # Accts Internal Dispersion 2 Market Value (US$ million) % Firm Assets Gross of Fee Composite Net of Fee Composite MSCI EM ND % 35.22% 37.28% % 20,517 53% 12.04% 12.06% 15.35% % 1.80% 11.19% % 16,083 49% 13.21% 13.20% 16.07% % -8.70% % % 26,770 56% 13.52% 13.52% 14.06% % 5.85% -2.19% % 26,533 56% 14.09% 14.09% 15.00% % -5.75% -2.27% % 23,493 54% 16.41% 16.41% 19.03% % 20.91% 18.63% % 19,646 55% 17.06% 17.07% 21.49% % -2.77% % % 8,682 43% 19.05% 19.04% 25.76% % 29.42% 19.20% % 4,877 42% 25.69% 25.70% 32.59% % 53.36% 79.02% % 2,098 27% 26.42% 26.40% 32.35% % % % % % 25.58% 25.55% 28.68% 1 Total returns are expressed in USD. 2 The measure of internal dispersion presented is an asset-weighted standard deviation based on gross of fee returns, and is calculated if the composite contains greater than five portfolios for the full year year annualized standard deviation based on monthly returns. Source: Vontobel. 24

25 Appendix Performance Disclosure Notes: 1. Vontobel Asset Management, Inc. ( Vontobel ) is an investment advisory firm registered with the Securities and Exchange Commission, under the Investment Advisers Act of 1940, as amended, and a subsidiary of Vontobel Holding AG, Zurich, Switzerland. For GIPS purposes, the firm is defined as all institutional accounts at Vontobel, excluding wrap accounts and private client assets managed in previous years. 2. Vontobel claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Vontobel has been independently verified for the periods from January 1, 2001 through December 31, 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. The Emerging Markets Equity composite has been examined for the periods from January 1, 1994 through December 31, The verification and performance examination reports are available upon request. 4. The Emerging Markets Equity Composite includes all discretionary accounts that invest mainly in equity securities of issuers located in emerging market countries in Asia, Latin America, Africa and Europe. The minimum account size for this composite is $1 million. 5. The composite was created on October 31, The firm maintains a complete list and description of composites, which is available upon request. 6. The U.S. Dollar is the currency used to express performance. Policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request. 7. Results of the composite are shown compared to the Morgan Stanley Capital International Emerging Markets Index (the MSCI Emerging Markets Index ), an unmanaged index based on share prices of a select group of global emerging market stocks that are available to global investors. The benchmark is used for comparative purposes only and generally reflects the risk or investment style of the investments in the composite. The index is a free float-adjusted market capitalization index of approximately 830 stocks that is designed to measure equity market performance in 24 emerging markets countries. The index is calculated on a total return basis with net dividends reinvested. It reflects withholding taxes, but not fees and other investment expenses, and is expressed in U.S. Dollars. Investments made by Vontobel for the portfolios it manages according to respective strategies may differ significantly in terms of security holdings, industry weightings and asset allocation from those of the MSCI Emerging Markets Index. The index has not been examined by an independent verifier. On January 1, 2015, the benchmark was retroactively changed from the MSCI Emerging Markets Index GD (with gross dividends reinvested) to the MSCI Emerging Markets Index ND (with net dividends reinvested). The benchmark was changed to provide a closer representative comparison versus the composite with respect to the way withholding taxes are captured. 8. Net composite performance is presented after the deduction of foreign withholding taxes. Capital gains, dividends and interest income received may be subject to withholding taxes imposed by the country of origin and such taxes may not be recoverable. 9. Returns include the effect of foreign currency exchange rates. Returns are presented gross and net of management fees and include the reinvestment of all income. The gross rates of return are presented before the deduction of investment management fees and other investment-related fees, and after the deduction of foreign withholding taxes, brokerage commissions and transaction costs. The net rates of return are presented after the deduction of investment management fees, brokerage commissions, transaction costs, other investment-related fees, foreign withholding taxes and bundled fees. Such investment management fees are actual fees. Effective January 2016, the net returns reflect daily accruing of fees based on each account s fee schedule. Prior to 2016, the net returns were calculated using actual fees recorded on a cash basis. Starting in 2012, the net rates of return are also reflective of performance fees. Previously, the net returns did not contain any performance-based fee components. Derivatives in the form of forward foreign currency contracts were used in managing client portfolios for opportunistic currency hedging until October The standard annual management fees charged by Vontobel for the Composite are: 0.95% on the first $100 million, 0.85% over $100 million. Certain accounts may have higher management fees than the standard fee schedule and performance-based fees may be charged. Investment advisory fees are further described in Part 2 of its Form ADV. 11.As of March 7, 2016, Mr. Matthew Benkendorf took over the management of the Vontobel Emerging Markets Equity Strategy. There are no changes to the composite strategy as a result of the management change. 12.Past performance is not indicative of future results. 25