Global Equity. Third Quarter 2018 Review

Transcription

1 Global Equity Third Quarter 2018 Review

2 COMPOSITE PERFORMANCE SUMMARY As of September 30, 2018 Performance (% Total Return) 1 Annualized Returns; 2 Inception date: November 30, 1989; 3 The Benchmark Index; 4 Gross of withholding taxes 3 MONTHS YTD 1 YEAR 3 YEARS 1 5 YEARS 1 10 YEARS 1 SINCE INCEPTION 1,2 HL GLOBAL EQUITY (gross of fees) HL GLOBAL EQUITY (net of fees) MSCI ALL COUNTRY WORLD INDEX 3, The performance returns shown are preliminary. The Global Equity Composite contains fully discretionary, fee-paying accounts investing in US and non-us equity and equity-equivalent securities and cash reserves, and is measured against the MSCI All Country World Total Return Index (Gross) for comparison purposes. Harding Loevner LP is an investment adviser registered with the Securities and Exchange Commission. Harding Loevner is an affiliate of Affiliated Managers Group, Inc. (NYSE: AMG), an investment holding company with stakes in a diverse group of boutique firms. Harding Loevner claims compliance with the Global Investment Performance Standards (GIPS ). Harding Loevner has been independently verified for the period November 1, 1989 through June 30, Verification assesses whether (1) the firm has complied with all composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policy and procedures are designed to calculate and present performance in compliance with GIPS standards. The Global Equity Composite has been examined for the periods December 1, 1989 through June 30, The verification and performance examination reports are available upon request. Performance data quoted represents past performance; past performance does not guarantee future results. Returns are presented both gross and net of management fees and include the reinvestment of all income. Net returns are calculated using actual fees. The US dollar is the currency used to express performance. For complete information on the construction and historical record of the Global Equity Composite, please contact Harding Loevner at (908) or visit The firm maintains a complete list and description of composites, which is available upon request. Please read the disclosures on the last page, which are an integral part of this presentation. 2

3 A PORTFOLIO OF HIGH-QUALITY, GROWING COMPANIES As of September 30, 2018 Higher Quality Faster Growth More Profitable Lower Risk Percent Profit Margin Return on Assets Return on Equity Debt/Equity Std Dev of ROE Trailing 5-YR Sales Growth Trailing 5-YR Earnings Growth Trailing 5-YR Cash Flow Growth Trailing 5-YR Dividend Growth HL Global Equity MSCI ACW Index Source: FactSet. Growth and volatility metrics are based on five-year historical data; the other ratios are based on the most recent annual data. All metrics and ratios are presented as weighted medians. Please read the disclosures on the last page, which are an integral part of this presentation. 3

4 BENCHMARK SECTOR/REGION RETURNS Third Quarter Sector Total Return (%) Region Total Return (%) HLTH 11.0 US 7.5 INFT INDU MIDEAST 5.2 TCOM 5.1 MSCI ACW INDEX 4.4 MSCI ACW INDEX 4.4 JAPAN 3.8 HL GLOBAL COMPOSITE 3.2 HL GLOBAL COMPOSITE 3.2 DSCR 3.1 ENER 2.6 XEMU 1.8 FINA 2.6 CANADA 1.0 STPL 2.2 EMU 0.0 UTIL MATS PACXJ -0.5 RLST -1.4 EMERGE Source: FactSet; Data as of September 30, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. 4

5 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK Third Quarter Effect (%) Sector Total Effect: -1.2 Selection Effect: -1.9 Allocation Effect: 0.7 TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS LONZA GROUP -1.0 APPLE MONOTARO -2.0 INDU STPL MATS RLST UTIL TCOM CASH HLTH FINA ENER DSCR INFT Selection Effect Allocation Effect Total Effect VERISK AMAZON.COM Region Total Effect: -1.2 Selection Effect: -0.3 Allocation Effect: -0.9 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS NASPERS IPG PHOTONICS Effect (%) AAC TECHNOLOGIES FACEBOOK SYSMEX -2.0 XEMU JAPAN PACXJ MIDEAST CANADA EMU CASH EMERGE US Composite : Global Equity Composite. Benchmark : MSCI All Country World Index. Past performance does not guarantee future results. Sector and Region Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation. The portfolio holdings identified above do not represent all of the securities held in the portfolio. It should not be assumed that investment in the securities identified has been or will be profitable. The following information is available upon request: (1) information describing the methodology of the contribution data and (2) a list showing the weight and contribution of all holdings during the quarter. Contribution is the contribution to overall performance over the period. Contributors and detractors exclude cash and securities in the Composite not held in the Model Portfolio. Quarterly data is not annualized. Please read the disclosures on the last page, which are an integral part of this presentation. 5

6 BENCHMARK SECTOR/REGION RETURNS Year to Date Sector Total Return (%) Region Total Return (%) INFT 13.9 MIDEAST 10.7 HLTH ENER US 10.6 DSCR 7.4 HL GLOBAL COMPOSITE 7.3 HL GLOBAL COMPOSITE 7.3 MSCI ACW INDEX 4.3 MSCI ACW INDEX 4.3 JAPAN 1.9 INDU 1.9 UTIL 1.2 XEMU -1.2 MATS -2.7 CANADA -1.7 RLST -3.3 PACXJ -2.5 STPL FINA EMU -2.5 TCOM -4.4 EMERGE Source: FactSet; Data as of September 30, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. 6

7 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK Year to Date Effect (%) Sector Total Effect: 3.0 Selection Effect: 1.7 Allocation Effect: 1.3 TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS LONZA GROUP -1.0 WUXI BIOLOGICS AMAZON.COM -2.0 HLTH FINA MATS STPL INDU TCOM RLST DSCR UTIL CASH ENER INFT MASTERCARD MONOTARO Selection Effect Allocation Effect Total Effect Region Total Effect: 3.0 Selection Effect: 4.3 Allocation Effect: -1.3 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS AAC TECHNOLOGIES NASPERS Effect (%) STANDARD CHARTERED IPG PHOTONICS INTRUM JUSTITIA -2.0 JAPAN XEMU EMERGE EMU PACXJ CANADA US MIDEAST CASH Composite : Global Equity Composite. Benchmark : MSCI All Country World Index. Past performance does not guarantee future results. Sector and Region Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation. The portfolio holdings identified above do not represent all of the securities held in the portfolio. It should not be assumed that investment in the securities identified has been or will be profitable. The following information is available upon request: (1) information describing the methodology of the contribution data and (2) a list showing the weight and contribution of all holdings during the quarter. Contribution is the contribution to overall performance over the period. Contributors and detractors exclude cash and securities in the Composite not held in the Model Portfolio. Quarterly data is not annualized. Please read the disclosures on the last page, which are an integral part of this presentation. 7

8 COMPLETED PORTFOLIO TRANSACTIONS Trailing 12 Months 4Q2017 1Q2018 2Q2018 3Q2018 AAC TECHNOLOGIES ALIBABA COGNEX DISNEY PARK24 Positions Established INTRUM JUSTITIA WUXI BIOLOGICS NASPERS SAMSUNG ELECTRONICS STANDARD CHARTERED NO NEW PURCHASES Positions Sold COGNEX SINO BIOPHARMACEUTICAL TENCENT GARANTI BANK SHIRE NO COMPLETE SALES SIGNATURE BANK STARBUCKS Portfolio Turnover (5-yr avg annual): 22.2% The portfolio is actively managed therefore holdings shown may not be current. The portfolio holdings identified above do not represent all of the securities held in the portfolio. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of portfolio holdings for the past year, contact Harding Loevner. Holdings are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 8

9 PORTFOLIO ALLOCATION COMPARISON September 30, 2018 vs September 30, 2017 Sector (%) Region (%) INFT US HLTH EMERGE INDU XEMU DSCR FINA MATS STPL EMU JAPAN PACXJ ENER MIDEAST CASH CASH /30/2018 9/30/ /30/2018 9/30/2017 Sector and Region end weights are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 9

10 PORTFOLIO PROFILE END WEIGHTS As of September 30, 2018 SECTOR HL % ACWI % (UNDER)/OVER HLTH INDU MATS CASH 2.1 INFT DSCR STPL TCOM RLST UTIL ENER FINA (16.0) (8.0) REGION HL % ACWI% (UNDER)/OVER XEMU EMERGE EMU JAPAN CASH 2.1 MIDEAST FRONTIER PACXJ CANADA US (16.0) (8.0) Ten Largest Holdings Total Weight 26.2% COMPANY COUNTRY SECTOR WT (%) PAYPAL US INFT 3.5 LONZA GROUP SWITZERLAND HLTH 3.3 ROPER US INDU 3.0 AIA GROUP HONG KONG FINA 2.5 FIRST REPUBLIC BANK US FINA 2.5 COMPANY COUNTRY SECTOR WT (%) BOOKING HOLDINGS US DSCR 2.4 VERISK US INDU 2.4 SYMRISE GERMANY MATS 2.4 NASPERS SOUTH AFRICA DSCR 2.3 MASTERCARD US INFT % Active Share 1 Includes countries with less-developed markets outside the Index. Source: Harding Loevner Global Equity Model; MSCI Inc. and S&P. Sector and region end weights, holdings, and active share are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 10

11 FIRM PROFILE September 30, investment professionals Global Equity portfolio management team averages 14 years at Harding Loevner OUR GLOBAL EQUITY STRATEGIES OUR GLOBAL CLIENTELE <1% 1% 22% 26% 51% Global Equity International (non-us) Emerging Markets Frontier Emerging Markets 76% 10% 2% 4% <1% 8% Asia Pacific Canada Europe Latin America & Caribbean Middle East & Africa International Small Companies United States Total AUM $67B Data as of September 30, Total AUM includes all the assets under management and is presented as supplemental information. Please read the disclosures on the last page, which are an integral part of this presentation. 11

12 12 SUPPLEMENTAL INFORMATION

13 TOTAL RETURNS FOR SELECT INDEXES 3Q2018 Growth tops value in DM; Value +900 bps in EM. 3Q2018 Return (%) MSCI ACW MSCI ACW xus MSCI WRLD MSCI WRLD xus MSCI US MSCI EM MSCI FEM MSCI ACW xus Small Cap 2018YTD Growth stocks persist outside of EM. 2018YTD Return (%) Standard Growth Value MSCI ACW MSCI ACW xus MSCI WRLD MSCI WRLD Source: MSCI, Inc. Data as of September 30, xus MSCI US MSCI EM MSCI FEM MSCI ACW xus Small Cap 13

14 MSCI GICS SECTOR REVISIONS TO BE IMPLEMENTED IN DECEMBER 2018 MSCI ACW Index Weights Current vs New GICS Sector HL Global Portfolio Relative Weights: Current vs New GICS Sector Telecom Communication Info Tech Cons Disc Current Relative Weight Pro-Forma Relative Weight Telecom Services Communication Services Information Technology Consumer Discretionary Current Pro-Forma Source: MSCI Inc., Factset; Data as of September 30,

15 AFTER REVERSAL IN 2018, 2019 EARNINGS GROWTH OUTLOOK IS SIMILAR 2017 EPS Growth Consensus Estimate 2018 EPS Growth Consensus Estimate 2019 EPS Growth Consensus Estimate 30% 29% 30.0% 30% 25% 27% 25.0% 25% 22% 20% 20.0% 20% 15% 15.0% 15% 10% 5% 12% 10.0% 5.0% 7% 6% 10% 5% 11% 10% 9% 0% Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec % Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 0% Jun-18 Sep-18 USA ACWI ex-us EM Source: MSCI Inc., FactSet; Data as of September 30,

16 US WEIGHT IN GLOBAL Global Portfolio weight in the US vs the Index The portfolio s relative US exposure has fallen with non-us valuations International vs US Relative Valuations and HL Global Relative US Exposure 100% Relative Valuation ACWI ex-us vs US Average Relative Valuation Relative Valuation 90% 80% 70% 60% 50% Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 20% HL Global Relative Weight in US Relative Weight 10% 0% -10% -20% Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Source: Harding Loevner Global Equity Model, MSCI Inc. and S&P. Valuation is the equal-weighted composite of relative P/E, P/B, and P/CF multiples, MSCI ACW ex-us Index vs MSCI USA Index.. 16

17 EM WEIGHT IN GLOBAL Global Portfolio weight in the US vs the Index The portfolio s relative EM exposure has risen as EM valuations have fallen EM vs US Relative Valuations and HL Global Relative EM Exposure 110% Relative Valuation EM vs US LT Average Valuation Relative Valuation 100% 90% 80% 70% 60% 50% Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 12% HL Global Relative Weight in EM 8% Relative Weight 4% 0% -4% -8% Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Source: Harding Loevner Global Equity Model, MSCI Inc. and S&P. Valuation is the equal-weighted composite of relative P/E, P/B, and P/CF multiples, MSCI EM Index vs MSCI USA Index.. 17

18 MULTIPLE CONTRACTION & CURRENCY WEAKNESS HIT NON-US MARKETS YTD 2018 Region US$ Return Decomposition as of September 30, % P/E Expansion YTD Change in 2018 EPS Estimate (In Local Currency) Dividends Currency Effect ( Local / US$) Total Return (In US$) 1.4% 10.0% 2.0% 2.1% 5.0% 0.0% -5.0% 5.9% -1.9% -1.6% 10.2% -1.1% 2.7% 2.2% 2.4% -4.1% -3.4% -1.5% -3.3% -5.0% 3.1% 1.6% -3.3% -3.2% 6.9% -5.8% -0.8% -10.0% ACWI USA ACWIxUS EM Europe Japan 2018e EPS Growth (in Local Currency) as of September 30, % 10.0% 0.0% 22.2% 15.1% 9.3% 12.4% 8.4% 10.6% ACWI USA ACWIxUS EM Europe Japan Source: MSCI Inc., FactSet; Data as of September 30,

19 CHINA IT VS US IT Growth of MSCI China IT Index (in USD) vs. MSCI US IT Index (in USD) Index Level (US$, Base 100) MSCI China IT MSCI US IT 75 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Relative Index Levels: MSCI China IT Index (in USD) vs. MSCI US IT Index (in USD) 1.6 MSCI China IT Relative to MSCI US IT Relative Level Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Source: Bloomberg; MSCI, Inc.; Data as of September 30,

20 DISCLOSURES The information provided in this Presentation should not be considered a recommendation to purchase or sell a particular security. Unless otherwise stated, non-performance based criteria have been used to select the securities listed. The portfolio is actively managed therefore securities shown may not be current. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner. A complete list of holdings for the Global Equity Model at September 30, 2018 is available on request. Investing in stocks entails the risks of market volatility. The value of all types of stocks may increase or decrease over varying time periods. To the extent the investments depicted herein represent international securities, you should be aware that there may be additional risks associated with international investing, including foreign economic, political, monetary and/or legal factors, changing currency exchange rates, foreign taxes, and differences in financial and accounting standards. Quality-Growth Characteristics, Benchmark Returns, Performance Attribution, Portfolio Profile and Portfolio Transactions are shown as supplemental information only and complement the fully compliant Global Equity Composite GIPS Presentation, which is available on request. Profit Margin: relationship of gross profits to net sales. Return on Assets: net income for past 12 months divided by total assets. Return on Equity: the net income divided by total common equity outstanding, expressed as a percent. Debt/Equity Ratio: total long-term debt divided by total shareholder s equity. Standard Deviation: the statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. Sales Per Share: the total revenue earned per share over a 12-month period, net of returns, allowances, and discounts. Earnings Per Share: portion of a company s profit allocated to each outstanding share of common stock. Cash Flow: a measure of the cash generating capability of a company calculated by adding non-cash charges (e.g. depreciation) and interest expense to pretax income. Dividend Per Share: a total dividends per share paid during the previous fiscal year. Price/Earnings Ratio: the ratio of a firms closing stock price and its trailing 12 months earnings per share. Price/Book Ratio: the ratio of a firms closing stock price and its fiscal year end book value per share. Price/Cash Flow Ratio: the ratio of a firms closing stock price and its fiscal year end cash flow per share. Up/Down Capture: a measure of the manager s performance in up/down markets relative to the market itself. Active Share: the proportion of holdings by weight that differ from holdings of the benchmark index. Bond Yield: the bond interest rate as a percentage of the current price of the bond. The MSCI All Country World Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. The Index consists of 47 developed and emerging market countries. The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The Index consists of 23 developed market countries. The MSCI All Country World ex-us Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US. The Index consists of 46 developed and emerging market countries. The MSCI USA Index is designed to measure the performance of the large and mid cap segments of the US market. With 637 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US. The MSCI China Index seeks to measure the performance of the Chinese equity market. It is a capitalizationweighted index that aims to capture 85% of the publicly available total market capitalization. You cannot invest directly in these Indexes. Harding Loevner s Quality, Growth, and Value rankings are proprietary measures determined using objective data. Quality rankings are based on the stability, trend, and level of profitability, as well as balance sheet strength. Growth rankings are based on historical growth of earnings, sales, and assets, as well as expected changes in earnings and profitability. Value rankings are based on several valuation measures, including price ratios. The Composite and Attribution returns may show discrepancies due to the different data sources for these returns. Composite performance is preliminary and obtained from Harding Loevner s accounting system and Attribution returns are obtained from the FactSet portfolio analysis system. Please note returns from FactSet are not audited for GIPS compliance and are for reference only. Source (Benchmark Performance, Performance Attribution, Contributors and Detractors): FactSet, Harding Loevner Global Equity Composite; MSCI Inc. Source (Portfolio Profile, Portfolio Transactions, Historical End Weights, Quality-Growth Characteristics [Run date: October 3, 2018]): FactSet; Harding Loevner Global Equity Model; MSCI Inc. MSCI Inc. and S&P do not make any express or implied warranties or representations and shall have no liability whatsoever with respect to any GICS data contained herein. FactSet Fundamentals, Copyright 2018 FactSet Research Systems, Inc. All rights reserved. 20