Fundamental. Thinking. Worldwide. International Equity ADR Review Fourth Quarter 2018

Transcription

1 Fundamental. Thinking. Worldwide. International Equity ADR Review Fourth Quarter 2018

2 Quality-Growth Investment Philosophy As of December 31, 2018 More Profitable Lower Risk Faster Growth Profit Margin Return on Assets Return on Equity Std Dev of ROE Debt/Equity Sales Growth Earnings Growth Cash Flow Growth Harding Loevner International Equity Model MSCI All Country World ex-us 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. HARDING LOEVNER 2

3 Composite Performance Summary As of December 31, 2018 Performance (% Total Return) 3 Months 1 Year 3 Years 1 5 Years 1 10 Years 1 Since Inception 1,2 HL International Equity ADR (gross of fees) HL International Equity ADR (net of fees) MSCI All Country World ex-us Index 3, Annualized Returns; 2 Inception date: December 31, 1989 corresponds to that of the linked International Equity Composite; 3 The Benchmark Index; 4 Gross of withholding taxes; 5 Supplemental Index Up/Down Capture (trailing five years, annualized): 102 / 91 The performance returns shown are preliminary. The International Equity ADR Composite contains fully discretionary, fee-paying accounts investing in non-us equity and equity-equivalent securities and cash reserves. Securities are held in Depository Receipt (DR) form, including American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), or are otherwise traded on US exchanges. For comparison purposes the Composite return is measured against the MSCI All Country World ex-us Total Return Index. From 1999 (when the net index first became available) through December 30, 2012, the index return is presented net of foreign withholding taxes. Beginning December 31, 2012, Harding Loevner LP presents the gross version of the index to conform the benchmark s treatment of dividend withholding with that of the Composite. 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 September 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 International Equity ADR Composite has been examined for the periods January 1, 1990 through September 30, 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 International Equity ADR Composite, please contact Harding Loevner at 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.. HARDING LOEVNER 3

4 MSCI ACW ex-us Index Total Returns by Quality, Growth, and Value Rank 9 months to 9/30/18 High quality and expensive stocks outperform. Return (%) Quality Rank Quintiles Growth Rank Quintiles Value Rank Quintiles Highest Lowest -12 Fastest -12 Slowest Least Exp. Most Exp. 0 Quality Rank Quintiles 0 Growth Rank Quintiles 0 Value Rank Quintiles 4Q18 Fastest growth stocks underperform. Return (%) Highest Lowest -16 Fastest Slowest -16 Least Exp. Most Exp. Source: FactSet; Data as of December 31, Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 4

5 Total Returns for Select Indexes 0 4Q2018 Value outperforms. 4Q18 Return (%) MSCI ACW MSCI ACW xus MSCI WRLD xus MSCI US MSCI EM MSCI ACW xus Small Cap Standard Growth Value All regions negative; growth better than value except in EMs Return (%) MSCI ACW MSCI ACW xus MSCI WRLD xus MSCI US MSCI EM MSCI ACW xus Small Cap Source: MSCI, Inc. Data as of December 31, HARDING LOEVNER 5

6 Benchmark Sector/Region Returns Fourth Quarter Sector Total Return (%) Region Total Return (%) Utilities 0.6 Emerging Markets -7.4 Real Estate Cons Staples Pacific ex-japan -7.9 Comm Services -8.1 Europe ex-emu Financials Health Care MSCI ACWxUS Index MSCI ACWxUS Index Europe EMU Materials Industrials Japan Cons Discretionary Middle East HL International Equity ADR Canada Info Technology Energy HL International Equity ADR Source: FactSet; Data as of December 31, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 6

7 Performance Attribution: Composite vs Benchmark Fourth Quarter Sector Total Effect: -3.7 Selection Effect: -3.5 Allocation Effect: -0.2 Effect (%) FINA CASH STPL DSCR MATS RLST ENER UTIL INFT COMM INDU HLTH Top Five Contributors to Absolute Returns Itaú Unibanco ICICI Bank HDFC Bank Roche Daito Trust Region Total Effect: -3.7 Selection Effect: -3.7 Allocation Effect: 0.0 Effect (%) Top Five Detractors from Absolute Returns Baidu Fresenius Medical Care Sysmex Dassault Systèmes -2.0 CASH CANADA PACXJ MIDEAST XEMU OTHER¹ JAPAN EMU EMERGE TSMC Selection Effect Allocation Effect Total Effect 1 Includes companies classified in countries outside the Index. Composite : International Equity ADR Composite. Benchmark : MSCI All Country World ex-us 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 International Equity ADR 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. HARDING LOEVNER 7

8 Benchmark Sector/Region Returns Trailing 12 Months Sector Total Return (%) Region Total Return (%) Utilities -0.5 Middle East -5.2 Health Care -5.7 Energy -7.4 Pacific ex-japan Cons Staples Europe ex-emu Real Estate HL International Equity ADR Japan MSCI ACWxUS Index HL International Equity ADR Industrials Info Technology MSCI ACWxUS Index Materials Emerging Markets Financials Europe EMU Comm Services Cons Discretionary Canada Source: FactSet; Data as of December 31, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 8

9 Performance Attribution: Composite vs Benchmark Trailing 12 Months Sector Total Effect: 0.4 Selection Effect: -0.6 Allocation Effect: 1.0 Effect (%) FINA INFT DSCR STPL MATS CASH RLST UTIL INDU ENER HLTH COMM Top Five Contributors to Absolute Returns Dassault Systèmes MonotaRO CSL Limited Itaú Unibanco Shire Region Total Effect: 0.4 Selection Effect: 0.1 Allocation Effect: 0.3 Effect (%) Top Five Detractors from Absolute Returns Baidu Bayer Fanuc Fresenius Medical Care -3.0 PACXJ XEMU CASH CANADA MIDEAST EMU OTHER¹ EMERGE JAPAN BBVA Selection Effect Allocation Effect Total Effect 1 Includes companies classified in countries outside the Index. Composite : International Equity ADR Composite. Benchmark : MSCI All Country World ex-us 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 International Equity ADR 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 period. 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. Data is not annualized. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 9

10 Completed Portfolio Transactions Trailing 12 Months 1Q18 2Q18 3Q18 4Q18 Adidas FEMSA Komatsu Positions Established Daito Trust Novozymes Lonza Temenos Group Ambev Linde Yandex Positions Sold Mitsubishi Estate Garanti Bank Shire No completed sales BBA Aviation CSL Limited Daito Trust Fresenius Medical Care WPP Portfolio Turnover (5-yr avg annual): 14.1% 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 International Equity ADR Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 10

11 Portfolio Allocation Comparison December 31, 2018 vs September 30, 2018 vs December 31, 2017 Sector (%) Region (%) Financials Info Technology Industrials Health Care Cons Staples Europe EMU Europe ex-emu Emerging Markets Japan Materials Pacific ex- Japan Comm Services Energy Consumer Discretionary Real Estate Cash Middle East 1 Other¹ Canada Cash /31/2018 9/30/ /31/ /31/2018 9/30/ /31/ Includes companies classified in countries outside the Index. Sector and Region end weights are shown as supplemental information only and complement the fully compliant International Equity ADR Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 11

12 Portfolio Exposures As of December 31, 2018 Sector HL% ACWIxUS% (Under) / Over Info Technology Cash 4.5 Health Care Industrials Materials Cons Staples Comm Services Energy Financials Real Estate Utilities Cons Discretionary Geography HL% ACWIxUS% (Under) / Over Europe EMU Cash 4.5 Middle East Other Europe ex-emu Frontier Markets Pacific ex-japan Canada Emerging Markets Japan (10.0) (5.0) (10.0) (5.0) Ten Largest Holdings Total Weight 33.9% Company Country Sector Wt (%) TSMC Taiwan Info Technology 4.1 Nestlé Switzerland Cons Staples 3.8 AIA Group Hong Kong Financials 3.8 Allianz Germany Financials 3.4 Royal Dutch Shell United Kingdom Energy 3.4 Company Country Sector Wt (%) Roche Switzerland Health Care 3.3 Check Point Israel Info Technology 3.2 SAP Germany Info Technology 3.1 DBS Group Singapore Financials 2.9 Baidu China Comm Services % Active Share 1 Includes companies classified in countries outside the Index; 2 Includes countries with less-developed markets outside the Index. Source: Harding Loevner International Equity ADR Model; MSCI Inc. and S&P. Sector and region end weights are shown as supplemental information only and complement the fully compliant International Equity ADR Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 12

13 Harding Loevner Profile As of December 31, investment professionals International Equity ADR portfolio management team averages 13 years at Harding Loevner Strategy Assets Firm Assets Total Assets $58B Global 13.3B 23% International (Non-US) 28.6B 50% Emerging Markets 15.1B 26% International Small Companies 0.2B <1% Frontier Emerging Markets 0.4B 1% Research Portfolios <0.1B <1% Global Small Companies <0.1B <1% Intl Ord 61% Intl ADR 39% Data as of December 31, 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. HARDING LOEVNER 13

14 Internal AppendixOnly HARDING LOEVNER 14

15 Low Volatility Stocks Performed Best in 4Q18 Many High Quality, but few High Growth, Stocks comprise Lowest Volatility Quintile MSCI ACWIxUS 4Q18 Performance by Axioma Total Risk (Volatility) Quintiles MSCI ACWIxUS Least Volatile Stocks of above average Quality and above average Growth 100% Most Volatile Least Volatile Percent Weight 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Others Above Average Quality and Above Average in Growth Source: FactSet, Axioma; Data as of December 31, Please read the disclosures on the last page, which are an integral part of this presentation. HARDING LOEVNER 15

16 TOTAL RETURN DECOMPOSITION 2018 Growth versus previous fiscal year 2018 Returns Decomposition P/E Expansion Earngs Growth (Local) Dividends Currency Effect Total Return 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% ACWI USA ACWIxUS EM Europe Japan Source: FactSet HARDING LOEVNER 16

17 EPS ESTIMATES 2019 EPS Estimates 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 ACWI USA ACWIxUS EM Europe Japan 2018 EPS Estimates 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% ACWI USA ACWIxUS EM Europe Japan Source: FactSet HARDING LOEVNER 17

18 INTERNATIONAL VS US RELATIVE VALUATION (Equal-weighted composite of relative P/E, P/B, and P/CF multiples, ACWIxUS vs US) MSCI ACWI ex-us vs MSCI US Relative Valuation Valuation as of 12/31/2018 P/E P/B P/CF ACWIxUS Europe Japan EM US Equal Weighted Composite of relative P/E, P/B, and P/CF, ACWIxUS vs US Relative Discount of ACWIxUS vs US Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Sources: Bar chart: Bloomberg; Table: FactSet HARDING LOEVNER 18

19 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 International Equity ADR Model at December 31, 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, Investment Statistics, Benchmark Returns, Performance Attribution, Portfolio Exposures and Portfolio Transactions are shown as supplemental information only and complement the fully compliant International Equity ADR Composite GIPS Presentation, which is available on request. Alpha: a measure of risk-adjusted return. Beta: a measure of the portfolio s sensitivity to the market. R-Squared: a measure of how well a portfolio tracks the market. 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. Information Ratio: a measure of risk-adjusted return calculated by dividing the portfolio active return (i.e., portfolio returns minus benchmark return) by the standard deviation of the active return. Sharpe Ratio: the return over the risk free rate per unit of risk. Up/Down Capture: a measure of the manager s performance in up/down markets relative to the market itself. 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. 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. Turnover: calculated by dividing the lesser of Purchases or Sales by Average Capital. Active Share: the proportion of holdings by weight that differ from holdings of the benchmark index. 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. 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 International Equity ADR Composite; MSCI Inc. Source (Portfolio Exposures, Portfolio Transactions, Portfolio Allocation Comparison, Quality-Growth Characteristics [Run date: January 7, 2019]): FactSet; Harding Loevner International Equity ADR Model; MSCI Inc. Source (Investment Statistics): evestment Alliance; Harding Loevner International Equity ADR Composite, based on composite returns. 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. HARDING LOEVNER 19