International Equity. Second Quarter 2018 Review

Transcription

1 International Equity Second Quarter 2018 Review

2 COMPOSITE PERFORMANCE SUMMARY As of June 30, 2018 Performance (% Total Return) 1 Annualized Returns; 2 Inception date: December 31, 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 INTERNATIONAL EQUITY (gross of fees) HL INTERNATIONAL EQUITY (net of fees) MSCI ALL COUNTRY WORLD EX-US INDEX 3, Up/Down Capture (trailing five years, annualized): 105/85 The performance returns shown are preliminary. The International Equity Composite contains fully discretionary, fee-paying accounts investing in non-us equity and equity-equivalent securities, and cash reserves and is measured against the MSCI All Country World ex-us 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 March 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 International Equity Composite has beenexamined for the periods January 1, 1990 through March 31, 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 International Equity Composite, please contact Harding Loevner at or visit The firm maintains a complete list and description of composites, which is availableupon request. Investment statistics shown are derived from trailing five years monthly returns. Statistics are supplemental information only and complement the fully compliant International Equity Composite GIPS Presentation. 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 June 30, 2018 Higher Quality Faster Growth 60 More Profitable Lower Risk Percent Profit Margin Return on Assets Return on Equity Debt/Equity 0.2 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 International Equity MSCI ACW 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. 3

4 MSCI ACW EX-US INDEX TOTAL RETURNS BY QUALITY, GROWTH, AND VALUE RANK 2Q18 Most expensive stocks performed best; quality and growth not determinative. Return (%) Quality Rank Quintiles Growth Rank Quintiles Value Rank Quintiles -10 Highest Lowest Fastest Slowest Least Exp. Most Exp YTD Only most expensive stocks in positive territory for the YTD. Return (%) Quality Rank Quintiles Growth Rank Quintiles Value Rank Quintiles Highest Lowest Fastest Slowest Least Exp. Most Exp. Source: FactSet; Data as of June 30, Please read the disclosures on the last page, which are an integral part of this presentation. 4

5 BENCHMARK SECTOR/REGION RETURNS Second Quarter Sector Total Return (%) Region Total Return (%) ENER 7.5 MIDEAST 11.0 HLTH 1.5 MATS -0.1 CANADA 4.9 STPL -0.5 PACXJ 1.8 HL INTL COMPOSITE UTIL XEMU 0.5 MSCI ACWXUS INDEX -2.4 HL INTL COMPOSITE -0.6 INDU RLST EMU -2.1 INFT -2.8 MSCI ACWXUS INDEX -2.4 DSCR -3.2 JAPAN -2.8 TCOM -5.8 FINA -7.0 EMERGE Source: FactSet; Data as of June 30, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. 5

6 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK Second Quarter Effect (%) Sector Total Effect: 1.8 Selection Effect: 1.2 Allocation Effect: 0.6 TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS ROYAL DUTCH SHELL -1.0 L'ORÉAL CANADIAN NATIONAL RAILWAY -2.0 FINA MATS DSCR HLTH STPL TCOM CASH RLST ENER UTIL INFT INDU BAIDU TEMENOS GROUP Selection Effect Allocation Effect Total Effect Region Total Effect: 1.8 Selection Effect: 1.3 Allocation Effect: 0.5 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS FANUC ITAÚ UNIBANCO Effect (%) WEIBO TSMC M3-2.0 EMU XEMU EMERGE PACXJ CASH OTHER¹ MIDEAST CANADA JAPAN 1 Includes companies classified in countries outside the Index. Composite : International Equity 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 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. 6

7 BENCHMARK SECTOR/REGION RETURNS Year to Date Sector Total Return (%) Region Total Return (%) ENER 5.7 MIDEAST 5.2 HLTH 1.5 HL INTL COMPOSITE 0.0 HL INTL COMPOSITE 0.0 UTIL 0.0 JAPAN -1.8 INFT MATS PACXJ -2.0 STPL -3.2 EMU -2.5 MSCI ACWXUS INDEX INDU CANADA -2.7 DSCR -4.1 XEMU -2.9 RLST -4.3 MSCI ACWXUS INDEX -3.4 FINA -7.9 TCOM -9.8 EMERGE Source: FactSet; Data as of June 30, Past performance does not guarantee future results. Please read the disclosures on the last page, which are an integral part of this presentation. 7

8 PERFORMANCE ATTRIBUTION COMPOSITE VS BENCHMARK Year to Date Effect (%) Sector Total Effect: 3.5 Selection Effect: 2.5 Allocation Effect: 1.0 TOP 5 CONTRIBUTORS TO ABSOLUTE RETURNS DASSAULT SYSTÈMES -1.0 SYSMEX L'ORÉAL -2.0 FINA INFT HLTH MATS STPL TCOM INDU CASH DSCR ENER UTIL RLST Selection Effect Allocation Effect Total Effect M3 MONOTARO Region Total Effect: 3.5 Selection Effect: 2.9 Allocation Effect: 0.6 TOP 5 DETRACTORS FROM ABSOLUTE RETURNS FANUC SAMSUNG ELECTRONICS Effect (%) BBVA BAYER NASPERS -2.0 EMU PACXJ XEMU JAPAN CASH EMERGE OTHER¹ CANADA MIDEAST 1 Includes companies classified in countries outside the Index. Composite : International Equity 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 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. Data is not annualized. Please read the disclosures on the last page, which are an integral part of this presentation. 8

9 COMPLETED PORTFOLIO TRANSACTIONS Trailing 12 Months 3Q2017 4Q2017 1Q2018 2Q2018 Positions Established WEIBO DAITO TRUST NOVOZYMES LONZA GROUP TEMENOS GROUP Positions Sold MITSUBISHI ESTATE TELEVISA GARANTI BANK SHIRE Portfolio Turnover (5-yr avg annual): 12.1% 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 Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 9

10 PORTFOLIO ALLOCATION COMPARISON June 30, 2018 vs June 30, 2017 Sector (%) Region (%) INFT EMU FINA XEMU HLTH EMERGE INDU MATS STPL DSCR ENER JAPAN PACXJ MIDEAST CANADA RLST OTHER CASH CASH /30/2018 6/30/ /30/2018 6/30/ 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 Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 10

11 PORTFOLIO PROFILE END WEIGHTS As of June 30, 2018 SECTOR HL % ACWIxUS % (UNDER)/OVER HLTH INFT CASH 3.8 INDU MATS ENER STPL RLST UTIL TCOM FINA DSCR (10.0) (5.0) REGION HL % ACWIxUS% (UNDER)/OVER EMU CASH 3.8 MIDEAST OTHER FRONTIER PACXJ XEMU JAPAN CANADA EMERGE (10.0) (5.0) Ten Largest Holdings Total Weight 32.2% COMPANY COUNTRY SECTOR WT (%) AIA GROUP HONG KONG FINA 4.4 BAYER GERMANY HLTH 3.6 ROYAL DUTCH SHELL UK ENER 3.4 DASSAULT SYSTÈMES FRANCE INFT 3.3 ALLIANZ GERMANY FINA 3.2 COMPANY COUNTRY SECTOR WT (%) SAMSUNG ELECTRONICS SOUTH KOREA INFT 3.1 NESTLÉ SWITZERLAND STPL 3.1 M3 JAPAN HLTH 2.8 BAIDU CHINA INFT 2.7 L'ORÉAL FRANCE STPL % 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 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 International Equity Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation. 11

12 FIRM PROFILE June 30, investment professionals International Equity portfolio management team averages 13 years at Harding Loevner OUR GLOBAL EQUITY STRATEGIES OUR GLOBAL CLIENTELE 1% 1% 21% 28% 49% Global International (non-us) Emerging Markets Frontier Emerging Markets International Small Companies 76% 10% 2% 4% <1% 8% Asia Pacific Canada Europe Latin America & Caribbean Middle East & Africa United States Total AUM $65B Data as of June 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. 12

13 13 SUPPLEMENTAL SLIDES

14 THE US DOLLAR STRENGTHENED DURING 2Q DXY Since June 30, 2017 Canadian Dollar 2Q18 Spot Rate Change Australian Dollar Swiss Franc Norwegian Krone Japanese Yen Taiwanese Dollar South Korean Won Euro British Pound Swedish Krona Mexican Peso -8.7 South African Rand Turkish Lira Brazilian Real Source: MSCI Inc., Bloomberg; Data as of June 30, Please read the disclosures on the last page, which are an integral part of this presentation. 14

15 COMPOSITE PERFORMANCE MONTHLY RETURNS Year to Date Performance (% Total Return) 3.00 Percent Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 YTD 2018 The performance returns shown are preliminary. 15 HL International Equity (Gross) MSCI All Country World ex-us Index The International Equity Composite contains fully discretionary, fee-paying accounts investing in non-us equity and equity-equivalent securities, and cash reserves and is measured against the MSCI All Country World ex-us 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 March 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 International Equity Composite has beenexamined for the periods January 1, 1990 through March 31, 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 International Equity Composite, please contact Harding Loevner at or visit The firm maintains a complete list and description of composites, which is availableupon request. Investment statistics shown are derived from trailing five years monthly returns. Statistics are supplemental information only and complement the fully compliant International Equity Composite GIPS Presentation. Please read the disclosures on the last page, which are an integral part of this presentation.

16 THE S&P 500: MANUFACTURERS AND ALL OTHERS NET PROFIT MARGINS through Q1 2018E Percent All Others 2 Manufacturers Source: Corporate Reports, Empirical Research Partners Analysis. 1 Based on trailing four-quarter data smoothed on a trailing three-month basis; 2 Excludes financials and REITs. Please read the disclosures on the last page, which are an integral part of this presentation. 16

17 S&P 500 MANUFACTURERS MARGIN EXPANSION DYNAMIC Q vs 2000 Decline in Interest Rates Wage Savings 1 From Offshoring Wage Savings From 2 More Efficient Domestic Plants Declines in Developed World Effective Tax Rates Use of Tax Havens Changes in Tax Expense Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau, Corporate Reports, Empirical Research Partners Analysis. 1 Assumes that the lost U.S. jobs were replaced by jobs in China at lower rates of compensation: 2 Assumes the decline in the labor intensity of these plants matches that for the entire U.S. manufacturing system. Please read the disclosures on the last page, which are an integral part of this presentation. 17

18 COMPOSITION OF THE FIRST $34 BILLION OF CHINESE IMPORTS SUBJECT TO TARIFFS 2017 Transportation Equipment All Others Chemicals. Plastic and Rubber and Mineral Products Metal Manufacturing Computer Equipment Communication Equipment Semiconductors Technology Industrial Capital Goods Other Technology Products Capital Goods Electrical Equipment Source: U.S. Census Bureau, Empirical Research Partners Analysis. Please read the disclosures on the last page, which are an integral part of this presentation. 18

19 THE $34 BILLION OF IMPORTS FROM CHINA SUBJECT TO TARIFFS Share that are from Foreign-Invested Enterprises Operating in China Percent Technology Products Transportation Equipment Electronical Equipment Industrial Capital Goods Other Manufacturing Source: Lovely, M.E. and Yang Liang, "Revised Tariff Against China Hit Non-Chinese Supply Chains Even Hard," PIIE Charts. Please read the disclosures on the last page, which are an integral part of this presentation. 19

20 QUALITY, GROWTH, AND VALUATION CHARACTERISTICS Andrew West Model, Alec Walsh Model, MSCI ACW ex-us Index as of June 30, 2018 Quality Growth Valuation Percent Profit Margin Return on Assets Debt/Equity Return on Equity Std Dev of 5yr ROE 5 Year Sales Growth Year Earnings Growth Year Cash Flow Growth Year Dividend Growth Price to Earnings Price to Book Price to Cash Flow Andrew West Model Alec Walsh Model MSCI ACW 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. 20

21 PERFORMANCE ATTRIBUTION Andrew West and Alec Walsh Models from September 30, 2011 to June 30, % Sector 80% 30% 38% 60% 40% 20% 70% 62% 0% Andrew West Model Alec Walsh Model 100% 80% Region 20% 24% 60% 40% 80% 76% 20% 0% Andrew West Model Selection Effect Allocation Effect Alec Walsh Model Source: FactSet. Please read the disclosures on the last page, which are an integral part of this presentation. 21

22 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 Model at June 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 International 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 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 EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US and Canada. The Index consists of 21 developed market countries. 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 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. The S&P 500 Index is an unmanaged index commonly used to measure performance of US stocks. 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 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. The Andrew West and Alec Walsh virtual model portfolios do not include actual dollar amounts invested. No individual models were required to comply strictly with the International Equity strategy s portfolio guidelines. Therefore, had the guidelines strictly applied, performance and other portfolio-related information shown in this presentation in relation to the models may have been different. Source (Benchmark Performance, Performance Attribution, Contributors and Detractors): FactSet, Harding Loevner International Equity Composite; MSCI Inc. Source (Portfolio Profile, Portfolio Transactions, Historical End Weights, Quality-Growth Characteristics [Run date: July 5, 2018]): FactSet; Harding Loevner International 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. 22