Templeton Non-US Equity. Imperial County Employees' Retirement System. February SEATTLE LOS ANGELES

Transcription

1 Templeton Non-US Equity Imperial County Employees' Retirement System February 14 SEATTLE LOS ANGELES

2 MANAGER OVERVIEW Firm Ownership Firm Name Product Name Product Total AUM ($mm) Inception Date Portfolio Mgrs/Dual Role PMs Research Analysts/Analysts Avg Yrs Exp: PMs Avg Yrs Exp: Analysts Templeton Non-US Equity Publicly traded, subsidiary of Franklin Resources Inc. Franklin Resources, Inc. Templeton Non-U.S. Equity $43,5 7/31/ Benchmark: Style Anlysis: MSCI EAFE (Top/Mid/Small, Growth/Value) Data Source: Evestment Alliance Monthly Database, Morningstar Non-US Blend Universe Fees: Unless otherwise indicated, all performance calculations are based on net of fees returns

3 PORTFOLIO CHARACTERISTICS Templeton Non-US Equity % Holdings In 1 Largest Stocks 18.% Annual Turnover 16% Cash 4.1% Current Dividend Yield.6% Current P/E 15. Current P/B Year ROE 14.% Portfolio Holdings 84 Wgtd. Avg. Mkt. Cap $61,146 Median Mkt. Cap $6, Max Position Size 5% Max Sector Exposure --- % Emerging Markets ( Curr ) 6.7% % Emerging Markets ( Max Allow ) 5% 3

4 PERFORMANCE SUMMARY AS OF 1/13 Templeton Non-US Equity MF 4 MSCI EAFE Index Alpha (5yr).1. Beta (5yr) R-Squared (5yr) Sharpe Ratio (5yr).6.6 Treynor Ratio (5yr) Std Dev (5yr) Tracking Error (5yr) 3.9. Information Ratio (5yr). -- Max Drawdown Return (5yr) Calmar Ratio (5yr).5.5 Excess Ann. Return (5yr).. Significance Level (5yr) Performance To Date 1 Year Year Year Year Since Inception Calendar Year Return Estimated Performance Attribution Country Selection N/A -- Stock Selection 1% -- Sector Selection N/A -- Factor Tilts / Other N/A -- Currency Selection N/A --

5 PERFORMANCE EVALUATION 14 Capture Ratio, Jan-4 to Dec-13 Style Map, Jan-9 to Dec-13 Up Mkt Capture Ratio, % Small-Large 1-1 EAFE Large ValueEAFE Large Growth EAFE Mid Value EAFE Mid Growth EAFE Small ValueEAFE Small Growth Down Mkt Capture Ratio, % Value-Growth 5

6 PERFORMANCE TO DATE AS OF 1/13 Total Annualized Return, % year 3 year 5 year 7 year 1 year 1 year 3 year 5 year 7 year 1 year

7 EXCESS PERFORMANCE TO DATE AS OF 1/13 Excess Annualized Return, % year 3 year 5 year 7 year 1 year 1 year 3 year 5 year 7 year 1 year

8 ANNUAL PERFORMANCE Total Annualized Return, %

9 ROLLING PERFORMANCE 4 36 Month Rolling Annualized Return Total Annualized Return, % Jan-4 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec Month Rolling Annualized Excess Return Excess Annualized Return, % 4 - Jan-4 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec-13 9

10 PEER GROUP RANKING 36 Month Rolling Performance Total Return Rank, % Jan-4 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec-13 Calendar Year Performance Ranking Total Return Rank, % Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec-13 1

11 PERFORMANCE STATISTICS Month Rolling Risk 36 Month Rolling Information Ratio Annualiuzed StdDev, % Information Ratio Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13-3 Jan 4 Dec 5 Dec 7 Dec 9 Dec 11 Dec Month Rolling Tracking Error 3 36 Month Rolling Sharpe Ratio(g) Annualized Tracking Error, % 5 Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 Sharpe Ratio(g) Jan 4 Dec 5 Dec 7 Dec 9 Dec 11 Dec 13 11

12 PERFORMANCE STATISTICS Max Drawdown Return, Jan-11 to Dec-13 Max Drawdown Return, Jul-94 to Dec-13 Max Drawdown Return, % Max Drawdown Return, % Month Rolling Alpha, Jan-4 to Dec Month Rolling Beta, Jan-4 to Dec Alpha, % 3 1 Beta Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13. Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 1

13 RISK VS. RETURN 15 Performance vs. Risk, Jan-11 to Dec-13 5 Performance vs. Risk, Jan-9 to Dec-13 Total Annualized Return, % Total Annualized Return, % Standard Deviation % Standard Deviation % 8 Performance vs. Risk, Jan-7 to Dec Performance vs. Risk, Jan-4 to Dec-13 Total Annualized Return, % Total Annualized Return, % Standard Deviation % Standard Deviation % 13

14 PERFORMANCE EFFICIENCY Excess Annualized Return, % Excess Return vs. Tracking Error, Jan-11 to Dec Excess Annualized Return, % Excess Return vs. Tracking Error, Jan-9 to Dec Tracking Error % Tracking Error % Excess Annualized Return, % Excess Return vs. Tracking Error, Jan-7 to Dec Excess Annualized Return, % Excess Return vs. Tracking Error, Jan-4 to Dec Tracking Error % Tracking Error % 14

15 UP & DOWN MARKET ANALYSIS Down Mkt Capture Ratio, % 36 Month Rolling Down Mkt Capture Ratio Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec Down Mkt Alpha Down Mkt Beta Down Market Performance, Jul-94 to Dec Up Mkt Capture Ratio, % Month Rolling Up Mkt Capture Ratio Up Market Performance, Jul-94 to Dec-13 Up Mkt Alpha Up Mkt Beta 1 1. Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 15

16 FACTOR ANALYSIS: Excess Benchmark Return, % Calendar Year Excess Return vs. Benchmark Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec Month Rolling Excess Returns, Jun-95 to Dec Excess Return, % Regression Based Asset Style Allocation EAFE Large Value EAFE Large Growth EAFE Mid Value EAFE Mid Growth EAFE Small Value EAFE Small Growth Weight, % Jan-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec-13 USD, 36-month trailing window; exp. weighted 36 Month Rolling R-Squared Style R-Squared Predicted Style R-Squared Benchmark R-Squared Excess Return, % R-Squared, % Benchmark Return, % 75 Jan-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-1 Dec-13 16

17 ECONOMIC FACTOR ANALYSIS Momentum (AQR) Excess Correlation, Jan-4 to Dec Month Rolling Excess Correlation, Jan-4 to Dec-13 Momentum (AQR) Nominal Major Currencies US Dollar DJ UBS Commodity Excess Correlation Nominal Major Currencies US Dollar DJ UBS Commodity -1. US BLS CPI US BLS CPI Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero) 17

18 GEOGRAPHICAL FACTOR ANALYSIS Excess Correlation, Jan-4 to Dec Month Rolling Excess Correlation, Jan-4 to Dec-13 North America Emerging Markets.11.1 North America Emerging Markets Pacific -. Pacific Europe Europe -1. Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero) 18

19 SECTORS FACTOR ANALYSIS Excess Correlation, Jan-4 to Dec-13 MSCI EAFE/Cons Disc -.1 MSCI EAFE/Cons Staples -. MSCI EAFE/Energy -.1 MSCI EAFE/Fincl -. MSCI EAFE/HC MSCI EAFE/Cons Disc MSCI EAFE/Cons Staples MSCI EAFE/Energy MSCI EAFE/Fincl Month Rolling Excess Correlation, Jan-4 to Dec-13 MSCI EAFE/HC Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero) 19

20 SECTOR FACTOR ANALYSIS Excess Correlation, Jan-4 to Dec-13 MSCI EAFE/Industrials -.4 MSCI EAFE/Information Tech -.7 MSCI EAFE/Materials -.3 MSCI EAFE/Telecom Svc.5 MSCI EAFE/Utilities Month Rolling Excess Correlation, Jan-4 to Dec-13 MSCI EAFE/Industrials MSCI EAFE/Information Tech MSCI EAFE/Materials MSCI EAFE/Telecom Svc MSCI EAFE/Utilities Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero)

21 CURRENCY FACTOR ANALYSIS Excess Correlation, Jan-4 to Dec Month Rolling Excess Correlation, Jan-4 to Dec-13 Euro Euro UK Pound Sterling -.9 UK Pound Sterling Australian Dollar Australian Dollar Canadian Dollar Canadian Dollar Swiss Franc Swiss Franc Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero) 1

22 CURRECY FACTOR ANALYSIS Excess Correlation, Jul-94 to Dec Month Rolling Excess Correlation, Jan-4 to Dec-13 Japanese Yen -.33 Swedish Krona -.13 Norwegian Krone -.4 Hong Kong Dollar -.6 Chinese Yuan Renminbi Japanese Yen Swedish Krona Norwegian Krone Hong Kong Dollar Chinese Yuan Renminbi Jan-4 Dec-5 Dec-7 Dec-9 Dec-11 Dec-13 * Correlation coefficients greater than.3 or lower than -.3 can be considered statistically significant (different than zero)

23 GLOSSARY OF TERMS Alpha (a): The excess return of a portfolio after adjusting for market risk. This excess return is attributable to the selection skill of the portfolio manager. Alpha is calculated as: Portfolio Excess Return (Beta x Excess Market Return). Annualized Return: Converts the Total Return to an annual basis for comparison purposes. Periods shorter than one year are not annualized. Barclays Capital Bonds Index: Measures the performance of various bonds sectors including (but not limited to): Government, Corporate Bonds (Credit), High-Yield Bonds ( Junk Bonds ), Mortgage backed securities, and Municipal bonds. Benchmark: Investment index used as a standard by which to measure the relative performance of an overall portfolio or an individual money manager. Appropriate benchmarks are selected based on their similarity to a portfolio or to the style of the individual money manager being measured. For example, a large cap core equity manager would be appropriately measured against the S&P 5 index. Alternatively, a fixed income core manager might be measured against the Barclays Capital Aggregate Bond index. Benchmark R-squared: Measures how well the Benchmark return series fits the manager's return series. The higher the Benchmark R-squared, the more appropriate the benchmark is for the manager. Beta (b): A measure of systematic, or market risk; the part of risk in a portfolio or security that is attributable to general market movements. Beta is calculated by dividing the covariance of a security by the variance of the market. Book-to-Market: The ratio of book value per share to market price per share. Growth managers typically have low book-to-market ratios while value managers typically have high book-to-market ratios. Calmar Ratio - The Calmar Ratio is a risk/return ratio that calculates return on a downside risk adjusted basis. Similar to other efficiency ratios it balances return in the numerator per unit risk in the denominator. In this case risk is characterized by the Maximum Drawdown. Capture Ratio: A statistical measure of an investment manager's overall performance in up or down markets. The capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen/fallen. The capture ratio is calculated by dividing the manager's returns by the returns of the index during the up/down market, and multiplying that factor by 1. Commingled Fund: A fund consisting of assets from several accounts that are blended together. Investors in a commingled fund investment benefit from economies of scale, which allow for lower trading costs per dollar investment, diversification and professional money management Correlation Coefficient (r): A measure of the relative movement of returns of one security or asset class relative to another over time. A correlation of 1 means the returns of two securities move in lock step, a correlation of 1 means the returns of two securities move in the exact opposite direction over time. Correlation is used as a measure to help maximize the benefits of diversification when constructing an investment portfolio. DJ UBS Commodity Index: A broadly diversified index that allows investors to track commodity futures price returns. Hurst Exponent: quantifies the relative tendency of a time series either to regress the mean. A value H in the range.5 < H < 1 indicates a time series with long-term positive autocorrelation, meaning a high value in the series will probably be followed by another high value. A value in the range < H <.5 indicates a time series with long-term switching between high and low values in adjacent pairs, meaning that a single high value will probably be followed by a low value. A value of H=.5 can indicate a completely uncorrelated series. Excess Correlation: Correlation of the excess returns (above the benchmark). Index: A passively managed portfolio of securities that remains constant from one period to the next. Indexes are used to gauge the performance of sectors of the market or the market as a whole. In addition, indexes are used as a benchmark for measuring the performance of investment managers. 3

24 GLOSSARY OF TERMS (Continued) Information Ratio: A measure of a manager's ability to earn excess return without incurring additional risk. Information ratio is calculated as: alpha divided by tracking error. Kurtosis (excess returns)- Kurtosis describes whether the series distribution is peaked or flat and how thick the tails are as compared to a normal distribution. Positive kurtosis indicates a relatively peaked distribution near the mean and tends to decline rapidly and have fat tails. Negative kurtosis indicates a relatively flat distribution near the mean. Long Term Reversal Factor: Risk premium associated with buying past losers and selling past winners (five year time horizon). Low Volatilty: Risk premium generated by picking low volatility stocks, measured by the MSCI USA Minimum Volatility Index. Momentum Factor: Risk premium associated with buying past winners and selling past losers. : The Morgan Stanley Capital International Europe Australia and Far East (MSCI EAFE) Index is a value-weighted index composed of equity securities traded in the countries that give the index its name. This index is a typical benchmark for international equity managers as well as the basis for many international equity index funds. MSCI Regional Indexes: Fee float-adjusted market capitalization weighted indexes that are designed to measure the equity market performance of various regions, including (but not limited to): North America, Emerging Markets, Pacific, and Europe. Mutual Fund: Pools of money that are managed by an investment company. They offer investors a variety of goals depending on the fund and its investment charter. For example, some funds seek to generate income on a regular basis; others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Mutual funds are investment companies regulated by the Investment Company Act of 194. Nominal Major Currencies US Dollar Index: A weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index, which is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. The index weights, which change over time, are derived from U.S. export shares and from U.S. and foreign import shares. Portfolio Turnover: The percentage of a portfolio that is sold and replaced (turned over) during a given time period. Low portfolio turnover is indicative of a buy and hold strategy while high portfolio turnover implies a more active form of management. Predicted Style R-squared: Measures how well the manager's predicted style fits the manager's return series. Adding many unnecessary indices will not improve the Predicted Style R-Squared. The methodology essentially predicts the manager's style at each point in time without the data at that point with the rationale being that if the style estimates obtained so far are good, then they can be used to predict the style at the estimation point. Price-to-Earnings Ratio: Also called the earnings multiplier, it is calculated by dividing the price of a company's stock into earnings per share. Growth managers typically hold stocks with high price-to-earnings ratios whereas value managers hold stocks with low price-to-earnings ratios. Regression Based Asset Allocation / Asset Loading: Represents the exposure period of an investment product (called a Manager, Fund, or Index in Stylus) to various explanatory variables. It is also referred to as Style Indices or Asset Classes. These Indices can be interpreted as the Manager Betas or risk factors at a given point in time. Return: A measure of the appreciation or depreciation in the price of an investment over a given time period. This is usually expressed as a percentage and may be annualized over a number of years or represent a single period. In addition, this percentage may be expressed gross or net of adjustments, such as dividends or fees. Risk Premium: An expected return in excess of the risk-free rate. The premium provides compensation for the assumption of risk. 4

25 GLOSSARY OF TERMS (Continued) Risk-Free Rate: The rate of interest that one can earn on an investment with no default risk. It is generally assumed to be the interest rate on a 91 day T-Bill. R-Squared: Also called the coefficient of determination, it measures the amount of variation in one variable explained by variations in another. In the case of investments, the term is used to explain the amount of variation in a security or portfolio explained by movements in the market or the portfolio's benchmark. Russell Index: A value-weighted small-cap stock index composed of the securities with the lowest market capitalization in the Russell 3 index. This is one of the most common benchmarks for small-cap equity managers and is compiled by the Frank Russell Company. Russell 6 style map: Combination of 6 Russell Indices to identify a manager investment style in terms of size/value/growth factors. Russell Mid-Cap Index: A value-weighted index composed of the 8 smallest companies by market capitalization in the Russell 1 index. This index is compiled by the Frank Russell Company and is used as a benchmark for mid-cap portfolios. S&P 5 Index: A value-weighted index compiled by Standard and Poor's that is comprised of 5 of the largest companies traded on the NYSE and NASDAQ exchanges. This is the most common proxy for the equity market as a whole and is the typical benchmark for large-cap portfolios. Sector Indices:The S&P North American Sector Indices provide investors with a suite of equity benchmarks that represent U.S. traded securities across seven broadly defined economic sectors: Consumer, Cyclical, Financial Services, Health Care, Natural Resources, Technology, and Utilities. S&P Indices uses GICS to determine a company's sector classification. Each index is modified-capitalization weighted, which is where a stock's weight is capped at a level determined on a sector basis. Selection return: The difference between the Manager and the Manager's Style Return. Sharpe Ratio: A measure of portfolio efficiency. The Sharpe Ratio indicates excess portfolio return for each unit of risk associated with achieving the excess return. The higher the Sharpe Ratio, the more efficient the portfolio. Sharpe ratio is calculated as: Portfolio Excess Return / Portfolio Standard Deviation. Short Term Reversal Factor: Risk premium associated with buying past losers and selling past winners (two month time horizon). Significance Level (Excess Returns) - The Significance Level of a test is the probability that the test statistic will reject the null hypothesis when the hypothesis is true. Significance is a property of the distribution of a test statistic, not of any particular draw of the statistic. Size Factor: Risk premium associated with buying small companies. Skewness (Excess Returns)- Skewness describes the degree of asymmetry of a distribution around its mean. A distribution is said to be symmetric if has the same shape to both the left and right of the mean. A perfectly symmetrical distribution has a Skewness of. A positively skewed distribution has larger gains than losses, while a negatively skewed distribution has a longer tail of losses. Small Capitalization Stocks: Also referred to as small-cap stocks, these are securities of companies whose overall market capitalization is roughly less than $1.5 billion. Standard Deviation (s): A measure of volatility, or risk, inherent in a security or portfolio. The standard deviation of a series is a measure of the extent to which observations in the series differ from the arithmetic mean of the series. For example, if a security has an average annual rate of return of 1% and a standard deviation of 5%, then two-thirds of the time, one would expect to receive an annual rate of return between 5% and 15%. Style Analysis: A return based analysis designed to identify combinations of passive investments to closely replicate the performance of funds. 5

26 GLOSSARY OF TERMS (Continued) Style Dispersion: Style dispersion measures the deviation around a managers average asset weights. For example, if a manager maintains constant asset exposures over the time period being analyzed then the dispersion will be zero. The more the manager varies in asset exposure over time the higher the style dispersion result will be. Style dispersion will tend to increase in times of increased market volatility and may seem to be random at times when analyzing over long periods (possibly due to change in management style or investment policy). The resulting numbers are best used when comparing to another manager and are difficult to independently interpret. Style Map: A specialized form or scatter plot chart typically used to show where a Manager lies in relation to a set of style indices on a two-dimensional plane. This is simply a way of viewing the asset loadings in a different context. The coordinates are calculated by rescaling the asset loadings to range from -1 to 1 on each axis and are dependent on the Style Indices comprising the Map. Style Returns: The sum of the Return of each Style Asset multiplied by its weight for the time period. Style R-squared: Measures how well the estimated Manager's style return series fits the manager's return series. The higher the Style R-squared, the better the fit between the manager's style and return series. Timing return: The Manager's Style Returns in excess of the Benchmark's Style Returns. Total Return: Total Return geometrically compounds the Returns in the series from one period to the next. Tracking Error/Excess Standard Deviation: The standard deviation of the difference between the rate of return of a portfolio and its benchmark. Treynor Ratio - The Treynor Ratio is defined as the ratio of the manager's excess geometrically annualized return over the portfolio Beta. Excess returns are computed versus the cash index. Universe: Also called a peer group, a universe is a large number of portfolios of a similar style. These portfolios can be divided into deciles or quartiles and then used for performance measurement and comparative purposes. Portfolios are ranked within the universe, which tells the investor how well a manager has done relative to his or her peers. US BLS CPI All Urban SA : Changes in the prices paid by urban consumers for a representative basket of goods and services, seasonally adjusted. Value: Refers to the style of an equity manager. A value manager seeks to create returns by purchasing stocks selling at a discount to their true or intrinsic value. Typical portfolio characteristics of this strategy include a low price-to-earnings ratio, high book-to-market ratio, and high dividend yield. Vaulation Factor: Risk premium associated with buying companies trading at a low price/book multiple. VIX : VIX is a trademark ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 5 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 3 day period. 6