Emerging Markets Equity

Transcription

1 Emerging Markets Equity First Quarter 2018 Review Imperial County Employees Retirement System May 14, 2018

2 TABLE OF CONTENTS Page 3: Page 5: Page 6: Page 17: Firm Profile Investment Philosophy Performance & Attribution Supplemental Information Investment Philosophy & Process (cont.) Historical Attribution Investment Team Responsibilities 2

3 FIRM PROFILE As of March 31, investment professionals Emerging Markets Equity portfolio management team averages 12 years at Harding Loevner OUR GLOBAL EQUITY STRATEGIES OUR GLOBAL CLIENTELE Global Asia Pacific 1% <1% 20% 48% International (non-us) Emerging Markets 10% 2% 4% <1% 9% Canada Europe 30% International Small Companies Frontier Emerging Markets 75% Latin America & Caribbean Middle East & Africa United States Total AUM $66B Data as of March 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. 3

4 INVESTMENT TEAM Our team combines deep industry experience and long HL tenure with new talent. Analysts Primarily organized by global sector Co-located to ensure consistent approach Average of 9 yrs. at HL, 20 yrs. industry experience 23 CFA charterholders, 18 advanced degrees Emerging Markets Portfolio Managers G. Rusty Johnson, CFA, Co-Lead Portfolio Manager Craig Shaw, CFA, Co-Lead Portfolio Manager Pradipta Chakrabortty, Portfolio Manager Scott Crawshaw, Portfolio Manager Richard Schmidt, CFA, Portfolio Manager Simon Hallett, CFA Ferrill Roll, CFA Co-Chief Investment Officers Andrew West, CFA Manager of Research Timothy Kubarych, CFA Deputy Manager of Research 4

5 A PORTFOLIO OF HIGH-QUALITY, GROWING COMPANIES As of March 31, 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 HL Emerging Markets Equity MSCI Emerging Markets Index MSCI World Index Trailing 5-Yr Dividend Growth 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. 5

6 EMERGING MARKETS COMPOSITE PERFORMANCE SUMMARY As of March 31, 2018 Performance (% Total Return) 3 MONTHS 1 YEAR 3 YEARS 1 5 YEARS 1 10 YEARS 1 SINCE INCEPTION 1,2 HL EMERGING MARKETS EQUITY (gross of fees) HL EMERGING MARKETS EQUITY (net of fees) MSCI EMERGING MARKETS INDEX 3, Annualized Returns; 2 Inception date: November 30, 1998; 3 The Benchmark Index; 4 Gross of withholding taxes. The performance returns shown are preliminary. The Emerging Markets Composite contains fully discretionary, fee-paying accounts investing in non-us equity and equity-equivalent securities of companies domiciled predominately in emerging markets and cash reserves, and is measured against the MSCI Emerging Markets 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 December 31, 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 Emerging Markets Composite has been examined for the periods December 1, 1989 through December 31, 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. The US dollar is the currency used to express performance. For complete information on the construction and historical record of the Emerging Markets 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. 6

7 MSCI EM INDEX TOTAL RETURNS BY QUALITY, GROWTH, AND VALUE RANK 1Q18 Random patterns of performance by Quality, Growth, and Value. Return (%) Quality Rank Quintiles Growth Rank Quintiles Value Rank Quintiles Fastest-growing and most-expensive stocks performed best. Return (%) Quality Rank Quintiles Growth Rank Quintiles Value Rank Quintiles 0 Source: FactSet; Data as of March 31, Please read the disclosures on the last page, which are an integral part of this presentation. 7

8 BENCHMARK SECTOR/REGION RETURNS Calendar Year 2017 Sector Total Return (%) Region Total Return (%) INFT 61.1 CHINA 54.3 RLST 50.0 SKOREA 47.8 DSCR 40.4 INDIA 38.8 MSCI EM INDEX 37.8 HL EM COMPOSITE 36.8 MSCI EM INDEX 37.8 MATS 34.3 HL EM COMPOSITE 36.8 FINA 33.2 SAFRICA 36.8 HLTH 32.7 TAIWAN 28.5 STPL 26.0 SMALL EMS 27.8 INDU ENER BRAZIL 24.5 TCOM 17.5 MEXICO 16.3 UTIL 17.1 RUSSIA Includes the remaining emerging markets, which individually comprise less than 5% of the Index. 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. 8

9 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK Calendar Year 2017 Effect (%) Sector INDU UTIL TCOM FINA HLTH MATS STPL RLST ENER DSCR CASH INFT Selection Effect Allocation Effect Total Effect Total Effect: -1.0 Selection Effect: 0.0 Allocation Effect: -1.0 TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS TENCENT SAMSUNG ELECTRONICS TSMC MARUTI SUZUKI AIA GROUP Region Total Effect: -1.0 Selection Effect: 2.5 Allocation Effect: -3.5 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS MAGNIT TENARIS Effect (%) QATAR NATIONAL BANK SUN PHARMACEUTICAL ARCELIK -2.0 BRAZIL TAIWAN INDIA RUSSIA SAFRICA CHINA FRONTIER MEXICO DEV MKT SMALL MKTS1 2 LISTED EMS3 SKOREA CASH 1 Includes countries with less-developed markets outside the Index; 2 Emerging markets or frontier markets companies listed in developed markets; 3 Includes the remaining emerging markets, which individually comprise less than 5% of the Index. Past performance does not guarantee future results. Composite : Emerging Markets Composite. Benchmark : MSCI Emerging Markets Index. Sector and Region Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Emerging Markets 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. Please read the disclosures on the last page, which are an integral part of this presentation. 9

10 BENCHMARK SECTOR/REGION RETURNS First Quarter Sector Total Return (%) Region Total Return (%) ENER 7.6 BRAZIL 12.5 HLTH FINA HL EM COMPOSITE RUSSIA TAIWAN UTIL 3.0 HL EM COMPOSITE 3.1 INFT 2.2 CHINA 1.8 MSCI EM INDEX 1.5 MSCI EM INDEX 1.5 MATS 0.8 MEXICO 0.9 INDU -0.7 SMALL EMS STPL RLST SKOREA -0.4 TCOM -3.6 SAFRICA -4.0 DSCR -6.1 INDIA Includes the remaining emerging markets, which individually comprise less than 5% of the Index. Source: FactSet; Data as of March 31, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. 10

11 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK First Quarter Sector Total Effect: 1.7 Selection Effect: 1.6 Allocation Effect: 0.1 Effect (%) TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS 51JOB INC. ITAÚ UNIBANCO -2.0 FINA UTIL STPL INDU ENER DSCR MATS RLST CASH TCOM HLTH INFT Selection Effect Allocation Effect Total Effect ENN ENERGY LUKOIL TSMC Region Total Effect: 1.7 Selection Effect: 0.9 Allocation Effect: 0.8 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS GEDEON RICHTER MARUTI SUZUKI Effect (%) 0.0 BHARTI AIRTEL LARGAN PRECISION -1.0 ASTRA INTERNATIONAL -2.0 CHINA RUSSIA SAFRICA DEV MKT INDIA FRONTIER MEXICO CASH BRAZIL SKOREA TAIWAN SMALL LISTED1 MKTS 2 EMS 3 1 Emerging markets or frontier markets companies listed in developed markets; 2 Includes countries with less-developed markets outside the Index; 3 Includes the remaining emerging markets, which individually comprise less than 5% of the Index. Past performance does not guarantee future results. Composite : Emerging Markets Composite. Benchmark : MSCI Emerging Markets Index. Sector and Region Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Emerging Markets 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. 11

12 COMPLETED PORTFOLIO TRANSACTIONS First Quarter Positions Established COMPANY COUNTRY SECTOR BAIDU CHINA INFO TECHNOLOGY BANCO MACRO ARGENTINA FINANCIALS Positions Sold COMPANY COUNTRY SECTOR BHARTI INFRATEL INDIA TELECOM SERVICES CHINA MERCHANTS CHINA INDUSTRIALS CSPC PHARMACEUTICAL GROUP CHINA HEALTH CARE HAN'S LASER CHINA INDUSTRIALS SUNNY OPTICAL CHINA INFO TECHNOLOGY Portfolio Turnover (5-yr avg annual): 20.7% 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 Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 12

13 PORTFOLIO ALLOCATION COMPARISON March 31, 2018 vs March 31, 2017 Sector (%) Region (%) FINA CHINA + HK INFT SMALL EMS DSCR SKOREA INDU TAIWAN ENER BRAZIL STPL RUSSIA HLTH SAFRICA TCOM DEV MARKET LISTED UTIL INDIA MATS RLST MEXICO FRONTIER MARKETS Total FM weight (including DM-listed) = 4.0% at 3/31/18 CASH CASH /31/2018 3/31/ /31/2018 3/31/ Includes the remaining emerging markets, which individually, comprise less than 5% of the Index; 2 Emerging markets or frontier markets companies listed in developed markets, excluding Hong Kong; 3 Includes countries with lessdeveloped markets outside the Index. Sector and Region end weights are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 13

14 PORTFOLIO PROFILE END WEIGHTS As of March 31, 2018 SECTOR HL % MSCI EM % (UNDER)/OVER FINA DSCR INDU HLTH CASH 2.1 STPL UTIL ENER RLST TCOM INFT MATS (8.0) (4.0) REGION HL % MSCI EM % (UNDER)/OVER CHINA + HK DEV MKT LISTED RUSSIA FRONTIER CASH 2.1 MEXICO BRAZIL SAFRICA SMALL EMS TAIWAN INDIA SKOREA (8.0) (4.0) Ten Largest Holdings Total Weight 29.0% COMPANY COUNTRY SECTOR WT (%) COMPANY COUNTRY SECTOR WT (%) TSMC TAIWAN INFT 4.6 ENN ENERGY CHINA UTIL 2.1 SAMSUNG ELECTRONICS SOUTH KOREA INFT 4.4 LUKOIL RUSSIA ENER 2.1 TENCENT CHINA INFT 4.3 ITAÚ UNIBANCO BRAZIL FINA 2.1 SBERBANK RUSSIA FINA JOB INC. CHINA INDU 2.1 AIA GROUP HONG KONG FINA 2.5 STANDARD BANK SOUTH AFRICA FINA % Active Share 1 The Harding Loevner Emerging Markets Model portfolio s end weight in China is 27.5% and Hong Kong is 6.0%. The Benchmark does not include Hong Kong; 2 Emerging markets or frontier markets companies listed in developed markets, excluding Hong Kong; 3 Includes countries with less-developed markets outside the Index; 4 Includes the remaining emerging markets, which individually comprise less than 5% of the Index; Source: Harding Loevner Emerging Markets 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 Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 14

15 COMPOSITE PERFORMANCE AS OF MARCH 31, 2018 We aim for above-market investment returns without additional volatility Annualized Returns for Trailing Periods (%) Percent Year 3 Years 5 Years 10 Years Since Inception HL Emerging Markets Equity (gross) HL Emerging Markets Equity (net) MSCI EM Index Past performance does not guarantee future results. The performance returns shown are preliminary. The 3-year, 5-year, 10-year, and since inception returns are annualized. Inception Date: November 30, HL EMERGING MARKETS MSCI EM HL EMERGING MARKETS MSCI EM Alpha (%) 3.42 Information Ratio 0.87 Beta 0.90 Sharpe Ratio R-Squared 0.94 Up/Down Capture (%) 98/85 Standard Deviation (%) Investment statistics shown are derived from trailing five years monthly returns. Statistics are supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 15

16 COMPOSITE PERFORMANCE SUMMARY AS OF MARCH 31, 2018 HL EMERGING Appendix 16 MARKETS GROSS (%) HL EMERGING MARKETS NET (%) MSCI EM INDEX 1 (%) HL EMERGING MARKETS 3-YR STD DEV 2 (%) MSCI EM INDEX 3-YR STD DEV 2 (%) INTERNAL DISPERSION 3 (%) NO. OF ACCOUNTS COMPOSITE ASSETS ($M) FIRM ASSETS (%) 2018 YTD N.A , , , , , , , , , , , Benchmark Index; 2 Variability of the Composite and the Index returns over the preceding 36-month period, annualized; 3 Asset-weighted standard deviation (gross of fees); 4 The 2018 YTD performance returns and assets shown are preliminary; 5 N.A. Internal dispersion is less than a 12-month period. The Emerging Markets Composite contains fully discretionary, fee-paying accounts investing in non-us equity and equity equivalent securities of companies domiciled predominately in emerging markets and cash reserves, and is measured against the MSCI Emerging Markets Total Return Index (Gross) for comparison purposes. Returns include the effect of foreign currency exchange rates. The exchange rate source of the benchmark is Reuters. The exchange rate source of the Composite is Bloomberg. Additional information about the benchmark, including the percentage of composite assets invested in countries or regions not included in the benchmark, is available upon request. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 24 emerging market countries. You cannot invest directly in this Index. Harding Loevner LP claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Harding Loevner has been independently verified for the period November 1, 1989 through December 31, 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 Emerging Markets Composite has been examined for the periods December 1, 1998 through December 31, The verification and performance examination reports are available upon request. 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. The firm maintains a complete list and description of composites, which is available upon request. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Composite performance is presented gross of foreign withholding taxes on dividends, interest income and capital gains. Past performance does not guarantee future results. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The US dollar is the currency used to express performance. Returns are presented both gross and net of management fees and include the reinvestment of all income. Net returns are calculated using actual fees. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. The standard fee schedule generally applied to separate Emerging Markets accounts is 1.25% annually of the market value up to $20 million; 0.90% of amounts from $20 million to $100 million; 0.75% of amounts from $100 million to $200 million; 0.55% of amounts above $200 million. Actual investment advisory fees incurred by clients may vary. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. The Emerging Markets Composite was created on November 30,

17 17 SUPPLEMENTAL INFORMATION

18 EMERGING MARKETS PORTFOLIO PROFILE OFF-BENCHMARK HOLDINGS DETAIL Frontier Markets Risk Country Holding End Weight Kenya EAST AFRICAN BREWERIES 0.3 Kenya SAFARICOM 1.0 Argentina BANCO MACRO 0.8 Panama COPA HOLDINGS 0.9 Total Frontier Markets Weight 3.0 Total Frontier Markets exposure, including Frontier Markets companies listed in Developed Markets, is 4.0% Developed Market Listed Risk Country Holding End Weight SE Asia incl. China AIA GROUP 2.5 China ASM PACIFIC TECHNOLOGY 0.8 Hong Kong HONG KONG EXCHANGES 1.5 China SANDS CHINA 1.3 Hong Kong Subtotal 6.1 Nigeria/Russia COCA-COLA HBC 1.4 Mexico TENARIS 1.1 Georgia BANK OF GEORGIA 0.9 Kazakhstan NOSTRUM OIL & GAS 0.1 Other Developed Market Listed Subtotal 3.5% Total Developed Market Listed Weight 9.6% Data as of March 31, Source: FactSet; Harding Loevner Emerging Markets Model; MSCI Inc. The portfolio is actively managed, therefore holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of portfolio holdings for the past year, contact Harding Loevner. Portfolio holdings are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 18

19 PORTFOLIO STATISTICS AS OF MARCH 31, 2018 HL EMERGING MARKETS MSCI EM INDEX MSCI WORLD INDEX NUMBER OF HOLDINGS ,632 DIVIDEND YIELD 1 (%) PORTFOLIO TURNOVER (5-YR AVG ANNUAL %) 20.7 QUALITY METRICS PROFIT MARGIN 2 (%) RETURN ON ASSETS 2 (%) RETURN ON EQUITY 2 (%) DEBT/EQUITY 2 (%) STD DEV OF 5-YR ROE 2 (%) GROWTH METRICS SALES GROWTH 2,3 (%) EARNINGS GROWTH 2,3 (%) CASH FLOW GROWTH 2,3 (%) DIVIDEND GROWTH 2,3 (%) VALUATION METRICS PRICE/EARNINGS PRICE/CASH FLOW PRICE/BOOK MARKET CAP WTD MED MARKET CAP ($B) WTD AVG MARKET CAP ($B) Weighted mean; 2 Weighted median; 3 Trailing five years, annualized; 4 Weighted harmonic mean. Statistics are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 19

20 MODEL PORTFOLIO HOLDINGS AS OF MARCH 31, 2018 SECTOR / COMPANY / DESCRIPTION COUNTRY WGT (%) CONSUMER DISCRETIONARY MKT CAP (US$ B) TRAILING P/E TRAILING P/CF 5-YR ROE (%) 5-YR EPS GROWTH (%) 5-YR CF GROWTH (%) ARÇELIK Consumer appliances manufacturer Turkey ASTRA INTERNATIONAL Auto business operator Indonesia CTRIP.COM Online travel services China N.A ECLAT TEXTILE Technology-based textile manufacturer Taiwan HANKOOK TIRE Tire manufacturer South Korea HANSSEM Home-furnishings retailer South Korea JD.COM E-commerce retailer China N.A N.A MARUTI SUZUKI Automobile manufacturer India MIDEA GROUP Consumer appliances manufacturer China NASPERS Internet and media services South Africa N.A. SANDS CHINA Integrated resorts and casinos operator Hong Kong SHENZHOU INTERNATIONAL Textile manufacturer China CONSUMER STAPLES AMBEV Alcoholic beverages manufacturer Brazil AMOREPACIFIC Cosmetics manufacturer South Korea CBD Foods and comsumer products retailer Brazil COCA-COLA HBC Coca-Cola bottler UK EAST AFRICAN BREWERIES Alcoholic beverages manufacturer Kenya FEMSA Beverages manufacturer and retail operator Mexico LG HOUSEHOLD & HEALTH CARE Cons products manufacturer South Korea ENERGY CNOOC Oil and gas producer China LUKOIL Oil and gas producer Russia NOSTRUM OIL & GAS Oil and gas producer UK N.A. N.A. 4.1 N.A NOVATEK Natural gas producer Russia N.A TENARIS Steel pipe manufacturer Italy N.A. Not Applicable. The portfolio is actively managed therefore holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner. Portfolio holdings are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 20

21 MODEL PORTFOLIO HOLDINGS AS OF MARCH 31, 2018 SECTOR / COMPANY / DESCRIPTION COUNTRY WGT (%) MKT CAP (US$ B) TRAILING P/E TRAILING P/CF 5-YR ROE (%) 5-YR EPS GROWTH (%) 5-YR CF GROWTH (%) FINANCIALS AIA GROUP Insurance provider Hong Kong N.M B3 Clearing house and exchange Brazil BANCO BRADESCO Commercial bank Brazil N.A BANCO MACRO Commercial bank Argentina N.A BANCO SANTANDER CHILE Commercial bank Chile N.A BANCOLOMBIA Commercial bank Colombia N.A BANK OF GEORGIA Commercial bank UK N.A BANK PEKAO Commercial bank Poland N.A BANK RAKYAT Commercial bank Indonesia N.A COMMERCIAL INTERNATIONAL BANK Commercial bank Egypt N.A CREDICORP Commercial bank Peru N.A DISCOVERY HOLDINGS Insurance provider South Africa N.M N.A. GARANTI BANK Commercial bank Turkey N.A N.A. GF BANORTE Commercial bank Mexico N.A HDFC CORP Mortgage lender India N.A N.A. HONG KONG EXCHANGES Clearing house and exchange Hong Kong ITAÚ UNIBANCO Commercial bank Brazil N.A KOMERČNÍ BANKA Commercial bank Czech Rep N.A SBERBANK Commercial bank Russia N.A SIAM COMMERCIAL BANK Commercial bank Thailand N.A STANDARD BANK Commercial bank South Africa N.A HEALTH CARE ASPEN PHARMACARE Pharma manufacturer South Africa CSPC PHARMACEUTICAL GROUP Pharma manufacturer China GEDEON RICHTER Pharma manufacturer Hungary JIANGSU HENGRUI MEDICINE Pharma manufacturer China SINO BIOPHARMACEUTICAL Pharma manufacturer China N.A. Not Applicable; N.M. Not Meaningful. The portfolio is actively managed therefore holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner. Portfolio holdings are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 21

22 MODEL PORTFOLIO HOLDINGS AS OF MARCH 31, 2018 SECTOR / COMPANY / DESCRIPTION COUNTRY WGT (%) MKT CAP (US$ B) TRAILING P/E TRAILING P/CF 5-YR ROE (%) 5-YR EPS GROWTH (%) 5-YR CF GROWTH (%) INDUSTRIALS 51JOB INC. Online human resource services China N.A AIRTAC Pneumatic-equipment manufacturer Taiwan ASUR Airport operator Mexico CHINA MERCHANTS* Container-terminal operator China COPA HOLDINGS Airline operator Panama N.A DP WORLD Container-terminal operator UAE HAN S LASER Laser equipment manufacturer China JIANGSU EXPRESSWAY Toll road and bridge operator China WEG Industrial equipment manufacturer Brazil INFORMATION TECHNOLOGY AAC TECHNOLOGIES Smartphone components manufacturer China ADVANTECH Industrial PCs manufacturer Taiwan ALIBABA E-commerce retailer China ASM PACIFIC TECHNOLOGY Semiconductor eqpt manufacturer Hong Kong BAIDU Internet products and services China HANGZHOU HIKVISION Surveillance camera manufacturer China HON HAI PRECISION Electronics manufacturer Taiwan LARGAN PRECISION Smartphone lens modules producer Taiwan NAVER Internet services South Korea NETEASE Gaming and internet services China SAMSUNG ELECTRONICS Electronics manufacturer South Korea SUNNY OPTICAL Optical component manufacturer China TENCENT Internet and IT services China TSMC Semiconductor manufacturer Taiwan WEIBO Social network China N.A. N.A. MATERIALS SASOL Energy and chemical technology developer South Africa *The sale of China Merchants was completed just after the end of the quarter. N.A. Not Applicable. The portfolio is actively managed therefore holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner. Portfolio holdings are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 22

23 MODEL PORTFOLIO HOLDINGS AS OF MARCH 31, 2018 SECTOR / COMPANY / DESCRIPTION COUNTRY WGT (%) MKT CAP (US$ B) TRAILING P/E TRAILING P/CF 5-YR ROE (%) 5-YR EPS GROWTH (%) 5-YR CF GROWTH (%) REAL ESTATE EMAAR PROPERTIES Real estate developer and manager UAE TELECOM SERVICES BHARTI INFRATEL Telecom services India CHINA MOBILE Mobile telecom services China SAFARICOM Mobile network operator Kenya UTILITIES ENN ENERGY Gas pipeline operator China CASH 2.1 The portfolio is actively managed therefore holdings shown may not be current. Portfolio holdings should not be considered recommendations to buy or sell any security. It should not be assumed that investment in the security identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner. Portfolio holdings are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 23

24 CHINA WEIGHT GROWS WHILE INDIA WEIGHT SHRINKS Emerging Markets model, 4Q 2014 through 1Q End Weight Percent China & Hong Kong India Source: FactSet; Emerging Markets model, data as of March 31, Please read the disclosures on the last page, which are an integral part of this presentation. 24

25 QUALITY FACTOR INCREASING Mirrors increase to China exposure Percent /30/ /31/2016 3/31/2017 6/30/2017 9/30/ /31/2017 3/31/2018 Relative Weight QR Fractile 1 Relative Weight QR Fractile 2 Relative Weight QR Fractile 3 Model Portfolio End Wt in China Source: FactSet; data as of March 31, Please read the disclosures on the last page, which are an integral part of this presentation. 25

26 QUALITY GROWTH PROFILE OF HL EM CHINA HOLDINGS 2017: A Quality-Growth upgrade year 1.0 Ctrip.com China Names 2017 Additions 2018 Additions Tencent Alibaba 51job Inc. Midea Baidu CSPC Sunny Hans Laser AAC Tech Sino Bio Hikvision Hengrui Shenzhou Intl AIA 0.8 JD.com ASMP Weibo Sands China HKEX NetEase ENN Energy Growth Score CNOOC Jiangsu Exprwy 0.2 China Mobile China Merchants Quality Score Source: FactSet; Emerging Markets model, as of March 31, 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 Emerging Markets Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 26

27 ACTIVE MANAGEMENT Our Tracking Error vs. the benchmark is low relative to our peer active managers, while our high Active Share reflects strong expression of specific investment insights. Low Tracking Error Strong Insight Expression HL Emerging Markets Equity Tracking Error Compared to Peer Universe 5 Years Rolling Annually 10.0 Tracking Error (%) Share weights in HL Emerging Markets Equity Share weights in MSCI EM Index 2.0 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 evestment Emerging Markets All Cap Equity Universe* HL Emerging Markets 5-Year Average Active Share: 73%** Emerging Markets Equity Composite (gross), calculated monthly. *Universe of Emerging Markets All Cap Equity managers, i.e., active managers that pursue a style similar to that of Harding Loevner. Box represents range from 25th to 75th percentile of the universe, including median manager and whisker represents 5th and 95th percentiles of the universe. ** Active Share is the proportion of holdings by weight that differ from holdings of the benchmark index. Data as of March 31,

28 INVESTMENT PROCESS We narrow the investable universe in stages according to our insights about industries and companies, before considering stock prices. Research Universe ,000 Companies Companies Qualified for Further Research 250 Valued and Rated Stocks 200 Portfolio Holdings 80 28

29 STAGE 1: QUALIFICATION We use fundamental data and professional judgment to sort companies by apparent business quality and growth prospects. EXAMPLE: CONSUMER DISCRETIONARY SECTOR KEY CRITERIA COMPETITIVE ADVANTAGE SUSTAINABLE GROWTH FINANCIAL STRENGTH Growth Rank High DM EM FM QUALITY MANAGEMENT Low Low Quality Rank High Source: Harding Loevner, HOLT database. HOLT data as of December 19, Size of bubble reflects market cap. The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. It should not be assumed that investment in the securities identified has been or will be profitable. Please read the disclosures on the last page, which are an integral part of this presentation. 29

30 STAGE 2: IN-DEPTH RESEARCH Analysts assess business quality using our standardized framework. COMPANY EXAMPLE: Midea Group (China-based household appliances manufacturer and distributor) KEY CRITERIA QUALITY ASSESSMENT FRAMEWORK COMPETITIVE ADVANTAGE China s leading appliances brand strengthened by product innovation and consistent R&D investments. SUSTAINABLE GROWTH Further penetration driven by disposable income growth. FINANCIAL STRENGTH Strong balance sheet and cash flow generation. QUALITY MANAGEMENT COMPETITIVE INDUSTRY STRUCTURE Threat of new entrants Threat of substitution Bargaining power of buyers Bargaining power of suppliers Intensity of rivalry COMPANY STRATEGY Growth persistence and variability Strength of free cash flow Balance sheet strength Seasoned management with long-term and global vision. Foresight and change management ESG risk factors 5 6 Total Score 60/100 Michael E. Porter, The Five Competitive Forces that Shape Strategy. Harvard Business Review, January 2008, The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. 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. 30

31 STAGE 3: VALUATION & RATING Shifting from company analysis to security analysis, analysts build comprehensive forecasts, estimate fair value, and issue stock ratings. ANALYSTS FORECASTS FINANCIAL TREND ESTIMATES VALUATION AND RATING MIDEA GROUP Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Reported Currency: CNY Profit & Loss Statement Drivers Sales 159, , , , , , ,777 Organic Sales Growth 15.5% 22.0% 12.0% 12.0% 10.0% 10.0% 9.0% Gross Profit (Cash) 47,362 59,951 67,386 75,473 83,020 91,322 99,541 Gross Profit, % margin 29.6% 27.8% 27.9% 27.9% 27.9% 27.9% 27.9% - Total SG&A 27,440 36,589 40,497 44,816 48,702 52,918 56,967 Total SG&A, % Sales 17.2% 17.0% 16.8% 16.6% 16.4% 16.2% 16.0% EBITDA 20,155 23,675 27,241 31,051 34,751 38,881 43,094 EBIT 16,577 19,804 23,265 26,955 30,523 34,509 38,569 EBIT, % margin 10.4% 9.2% 9.6% 10.0% 10.3% 10.5% 10.8% EBIT, % yoy 17.1% 19.5% 17.5% 15.9% 13.2% 13.1% 11.8% Pretax Income 18,915 22,726 26,473 30,354 34,118 38,303 42,569 Effective Tax Rate, % NPBTA 16.2% 17.0% 20.0% 20.0% 20.0% 20.0% 20.0% Net Income 14,684 17,472 19,616 22,490 25,277 28,376 31,536 NI, % yoy 15.6% 19.0% 12.3% 14.7% 12.4% 12.3% 11.1% Cash Flow Statement Drivers Total Capex 2,323 3,135 3,511 3,932 4,325 4,758 5,186 Cash from Operations 29,179-11,595 24,906 28,100 31,262 34,726 38,294 Cash from Investing -17,290-11,620-5,406-6,248-6,801-7,652-8,336 Cash from Financing 3,137-7,481-8,855-10,095-11,302-12,645-14,017 Balance Sheet Total Current Assets 120, , , , , , ,180 Net PP&E 21,638 23,826 23,493 23,464 23,699 24,225 25,029 Other Assets 28,342 33,902 35,664 37,846 40,184 42,938 45,946 Total Assets 170, , , , , , ,155 Interest Bearing Debt 19,172 19,172 19,172 19,172 19,172 19,172 19,172 Common Equity 61,127 70,905 81,884 94, , , ,152 Other Liabilities 90,302 73,253 81,619 91, , , ,831 Total Liabilities & Equity 170, , , , , , , Cash Flow Return on Investment (Hist) Cash Flow Return on Investment (F'cst) Discount Rate (%) Historical Asset Growth % Forecast Asset Growth % Sustainable Growth Rate % Warranted Price Net Cash Flows (1+Discount Rate) Data as of December 1, 2017 The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. 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. CFROI and HOLT are trademarks or registered trademarks of Credit Suisse or its affiliates in the United States and other countries. n = t=1 BUY HOLD SELL Analysts define business mileposts that companies must meet for their investment theses to remain intact. 31

32 STAGE 4: PORTFOLIO CONSTRUCTION Portfolio Managers engage with Analysts, judge the relative merits of qualified stocks, and manage portfolio risk. BUY CRITERIA Covered, valued, and rated by an Analyst at HL Underpriced, implying high expected return Diversifier of portfolio risk SELL CRITERIA Fails to achieve business mileposts set in advance by Analysts Overpriced, implying low expected return Holding too large due to relative appreciation 32

33 STAGE 4: PORTFOLIO CONSTRUCTION Our portfolio decision-making structure promotes transparency and accountability; paper portfolios are used for signaling, training, and succession planning. G. Rusty Johnson, CFA Co-Lead Analysts Recommendations Craig Shaw, CFA Co-Lead PAPER PORTFOLIOS Pradipta Chakrabortty Scott Crawshaw EMERGING MARKETS MODEL PORTFOLIO EMERGING MARKETS CLIENT PORTFOLIOS Richard Schmidt, CFA 33

34 QUALITY-GROWTH SECTOR RANKING EMERGING MARKETS EQUITY RESEARCH UNIVERSE BY MSCI GICS SECTOR (EX-FINANCIALS) Growth Rank High Followed Not Followed Low Low Quality Rank High Source: Harding Loevner, HOLT database. HOLT data as of December 19, Financials are not included due to non-comparability issues in the metrics chosen. The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. To request a complete list of portfolio holdings for the past year contact Harding Loevner. Please read the disclosures on the last page, which are an integral part of this presentation. 34

35 EMERGING MARKETS EQUITY PORTFOLIO GUIDELINES Strategy guidelines ensure diversification and limit risk. GUIDELINE 0 20% GENERAL LIMITS Number of holdings Minimum number of markets 15 Maximum cash 10% (normally ~3%) Maximum in one security (at time of purchase) 5% At market value 6% Maximum in one industry (excluding Banks) 20% Maximum in Banks 25% Minimum number of sectors 7 Maximum in one sector (excluding Financials) 25% Maximum in Financials 30% GEOGRAPHIC LIMITS China + Hong Kong in aggregate 0 35% Brazil, India, Mexico, Russia, South Africa, South Korea, Taiwan 1 Indonesia, Malaysia, Thailand, Turkey % Other single emerging or frontier market 0 5% Frontier markets in aggregate 0 20% Developed markets in aggregate 0 15% 1 The geographic and regional constraints set forth above are per-country constraints, not aggregate constraints, and are grouped together for convenience. As of March 31, 2018, subject to change. 35

36 FIVE-YEAR SECTOR PERFORMANCE ATTRIBUTION AS OF MARCH 31, HL Emerging Markets Composite vs MSCI EM Index Total Effect: 3.3 Selection Effect: 2.6 Allocation Effect: 0.7 Effect (%) FINA INFT INDU DSCR HLTH ENER UTIL TCOM RLST CASH MATS STPL Selection Effect Allocation Effect Total Effect Largest Contributors to Relative Return SECTOR SELECTION EFFECT (%) TENCENT INFT 4.49 MARUTI SUZUKI DSCR 3.06 SBERBANK FINA 2.19 NASPERS DSCR JOB INC. INDU 1.88 Largest Detractors from Relative Return SECTOR SELECTION EFFECT (%) CBD STPL TELEVISA DSCR NAVER INFT ASM PACIFIC TECHNOLOGY INFT GARANTI BANK FINA 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 selection effect in the charts above; and (2) a list showing the weight and relative contribution to return of all holdings during the last 5 years. Past performance does not guarantee future results. In the charts above, selection effect" is the holdings contribution to return relative to the GICS sector return. However, a stock with positive relative performance may nevertheless have lost value and may have contributed negatively to the absolute performance of the strategy. Contributors and detractors exclude cash and securities in the Composite not held in the Model Portfolio. Sector Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 36

37 HISTORICAL SECTOR WEIGHTS 100% Portfolio Absolute Weight SECTOR 20% Portfolio Relative Weight* DSCR 90% STPL 15% 80% ENER 10% 70% FINA 60% HLTH 5% 50% INDU 0% INFT 40% MATS -5% 30% RLST -10% 20% TCOM 10% UTIL -15% CASH 0% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18-20% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 *Relative to the benchmark, the MSCI Emerging Markets Index. Historical sector weights are shown for the Emerging Markets Equity Model. Absolute end weights and relative weights are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 37

38 FIVE-YEAR GEOGRAPHIC PERFORMANCE ATTRIBUTION AS OF MARCH 31, HL Emerging Markets Composite vs MSCI EM Index Total Effect: 3.3 Selection Effect: 2.8 Allocation Effect: 0.5 Effect (%) CHINA DEV MARKET 1 LISTED INDIA RUSSIA SMALL EMS TAIWAN FRONTIER SAFRICA SKOREA BRAZIL CASH MEXICO MARKETS 2 3 Selection Effect Allocation Effect Total Effect Largest Contributors to Relative Return COUNTRY SELECTION EFFECT (%) TENCENT CHINA 5.92 Largest Detractors from Relative Return COUNTRY SELECTION EFFECT (%) CBD BRAZIL MARUTI SUZUKI INDIA 2.67 CHINA MERCHANTS CHINA TSMC TAIWAN 2.61 MAGNIT RUSSIA SBERBANK RUSSIA 2.05 SASOL SOUTH AFRICA SAMSUNG ELECTRONICS SOUTH KOREA 1.81 TELEVISA MEXICO Includes emerging markets or frontier markets companies listed in developed markets; 2 Includes the remaining emerging markets, which individually, comprise less than 5% of the Index; 3 Includes countries with less-developed markets outside the Index. 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 selection effect in the charts above; and (2) a list showing the weight and relative contribution to return of all holdings during the last 5 years. Past performance does not guarantee future results. In the charts above, selection effect" is the holdings contribution to return relative to the MSCI country return. However, a stock with positive relative performance may nevertheless have lost value and may have contributed negatively to the absolute performance of the strategy. Contributors and detractors exclude cash and securities in the Composite not held in the Model Portfolio. Geographic Attribution and Contributors and Detractors are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 38

39 HISTORICAL GEOGRAPHIC WEIGHTS 100% Portfolio Absolute Weight GEOGRAPHY 25% Portfolio Relative Weight* 90% BRAZIL CHINA + HK 1 20% 80% INDIA 15% 70% MEXICO 10% 60% RUSSIA 5% 50% SAFRICA 0% SKOREA 40% TAIWAN -5% 30% SMALL EMS 2-10% 20% FRONTIER MKTS 3-15% 10% DEV MKT LISTED 4-20% CASH 0% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18-25% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 1 The Harding Loevner Emerging Markets Model Portfolio s end weight in China at March 31, 2018 is 27.5% and Hong Kong is 6.0%. The Benchmark does not include Hong Kong; 2 Includes the remaining emerging markets, which individually, comprise less than 5% of the Index; 3 Includes countries with less-developed markets outside the Index; 4 Emerging markets or frontier markets companies listed in developed markets, excluding Hong Kong. *Relative to the benchmark, the MSCI Emerging Markets Index. Historical geographic weights are shown for the Emerging Markets Equity Model. Absolute end weights and relative weights are shown as supplemental information only and complement the fully compliant Emerging Markets Composite GIPS Presentation. 39

40 ANALYST RESPONSIBILITIES Sector Industry Sector Industry Consumer Discretionary Information Technology Peter Baughan, CFA Maria Lernerman, CFA Sergei Pliutsinski Jafar Rizvi, CFA Andrew West, CFA Consumer Staples Richard Schmidt, CFA Sergei Pliutsinski Energy Craig Shaw, CFA Shali Zhu, CFA Financials Bryan Lloyd, CFA Retailing, Consumer Services Retailing Consumer Durables & Apparel Media Automobiles & Components Food Beverage & Tobacco Household & Personal Products Banks, Diversified Financials, Insurance Christopher Mack, CFA Lakshman Venkitaraman, CFA Materials Anix Vyas, CFA Shali Zhu, CFA Real Estate Patrick Todd, CFA Telecom Services Jafar Rizvi, CFA Utilities Jingyi Li Software & Svcs., Tech Hardware & Eqpt., Semiconductors & Semiconductor Equipment Ferrill Roll, CFA Banks, Diversified Financials Moon Surana, CFA Diversified Financials Country/Region Capitalization Health Care China International Small Companies David Glickman, CFA Patrick Todd, CFA Alexander Walsh, CFA Industrials Peter Baughan, CFA Jingyi Li Health Care Eqpt. & Svcs., Pharmaceuticals Biotechnology & Life Sciences Commercial & Professional Svcs. Capital Goods Jingyi Li Wenting Shen, CFA Emerging Markets Scott Crawshaw G. Rusty Johnson, CFA Frontier Emerging Markets Sean Contant, CFA Jafar Rizvi, CFA Other Special Projects Timothy Kubarych, CFA Anix Vyas, CFA Andrew West, CFA Shali Zhu, CFA Capital Goods Transportation Commercial & Professional Svcs. Pradipta Chakrabortty Babatunde Ojo, CFA Sergey Dubin, CFA Portfolio Analysis Michelle Lee Japan Yoko Sakai, CFA 40