Emerging Markets Leaders Fund

Transcription

1 Emerging Markets Leaders Fund Quarterly Review Todd M. McClone, CFA, Partner Jack Murphy, CFA, Partner Portfolio Managers

2 William Blair Emerging Markets Leaders Fund Important Disclosures Risks: The views expressed in this report and the information about the holdings are as of the date of this material, unless otherwise noted, and are subject to change. Information about the Fund s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay invested in any one particular sector. Holdings are subject to change at any time. The Fund involves a high level of risk and may not be appropriate for everyone. You should only consider it for the aggressive portion of your portfolio. The Fund s returns will vary, and you could lose money by investing in the Fund. The Fund holds equities which may decline in value due to both real and perceived general market, economic, and industry conditions. Investing in securities of smaller companies tends to be more volatile and less liquid than securities of larger companies. International investing involves special risk considerations, including currency fluctuations, higher volatility, lower liquidity, economic and political risk. Investing in emerging markets can increase these risks. The securities of emerging market companies may be subject to greater volatility and less liquidity than companies in more developed markets. Individual securities may not perform as expected or a strategy used by the Adviser may fail to produce its intended result. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Convertible securities may be called before intended, which may have an adverse effect on investment objectives. Performance cited represents past performance. Past Performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call , or visit our Web site at Class N shares are available to the general public without a sales load. Class I Shares are available only to investors who meet certain eligibility requirements. This content is for informational and educational purposes only and is not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor s objectives, guidelines and restrictions. Investing includes the risk of loss. Please carefully consider the Fund's investment objective, risks, charges, and expenses before investing. This and other information is contained in the Fund's prospectus, which you may obtain by calling Read it carefully before you invest or send money. Copyright 2018 William Blair & Company, L.L.C. William Blair is a registered trademark of William Blair & Company, L.L.C. Distributed by William Blair & Company, L.L.C., member FINRA/SIPC 2

3 William Blair Emerging Markets Leaders Fund Summary & Outlook Market Review by concerns about decelerating macro indicators and the weakening renminbi currency, which further weighed on sentiment and Chinese equities broadly. Global equities advanced in the third quarter primarily driven by the U.S. significantly outperforming non-us developed and emerging markets continuing the trend of U.S. equity dominance. The U.S. bull market run became the longest in history despite escalating concerns on geopolitical tensions and rising interest rates, as Treasury bond yields surged higher in September. From a style perspective, value-oriented market leadership accelerated in September within non-u.s. developed and emerging markets. The broad sell-off of growth oriented stocks across emerging markets was most pronounced within China and India, as measured by the MSCI China IMI Growth and the MSCI India IMI Growth indices. U.S. equities extended year-to-date gains on robust strength in corporate earnings and positive signs of continued economic growth. Health Care and Information Technology drove outperformance. Mega-caps within IT, such as Amazon, Alphabet, and Apple, extended to record highs on consensus-beating quarterly results. This market cap leadership was representative of the broader U.S. market performance as large caps outperformed their small cap counterparts by approximately 3.2%, as measured by the MSCI U.S. Standard and Small Cap indices. Performance Third quarter underperformance of the Emerging Markets Leaders Fund (Class N) versus the MSCI Emerging Markets (net) was primarily driven by an overweight allocation in the Consumer Discretionary sector. Relative performance in the sector was dragged down by auto-related names amid decelerating growth and Chinese hotel operator Huazhu Group due to concerns about slowing consumption growth in China and disappointing guidance. Stock selection within the Health Care sector also hampered relative performance, led by weak performance by Chinese pharmaceutical companies CSPC Pharmaceutical Group and Jiangsu Hengrui Medicine, as both were affected by regulatory changes aimed at reducing prices in generic and cancer drugs. Finally, the Energy underweighting also detracted to relative returns as the sector was the best performing in emerging markets. Partially offsetting these effects was the lack of exposure to Real Estate coupled with positive stock selection within Industrials. Within this sector, Grupo Aeroportuario del Pacifico, the Mexican airport operator, contributed to relative returns as the stock was lifted by solid operating performance, favorable growth outlook and stronger currency. Non-U.S. developed market equity performance was mixed in the third quarter with positive performance in Japan and weaker returns in the U.K. Japanese equities rallied on the reelection of Shinzo Abe to the leadership position of the ruling Liberal Democratic Party; a positive signal to investors that Abenomics policies would continue. The reelection coupled with a weakening yen bolstered investor sentiment in September bringing Japanese equities into positive territory year-to-date. Within the U.K., the pound slumped to an 11-month low versus the U.S. dollar on Brexit uncertainty and growing fears about the potential collapse in talks. U.K. equities recovered in September, but remained down (-2.00% MSCI U.K. IMI) for the quarter. Emerging markets equities continued to decline in the third quarter and year-to-date amid heightened geopolitical tension and a strengthening U.S. dollar. The Turkish Lira plunged to record lows following the U.S.-imposed sanctions on Turkey for failure to release evangelical pastor Brunson. Russian and South Africa currencies sold off in solidarity with the Turkish Lira. Trade war rhetoric remained a headwind for China, compounded From a regional perspective, Emerging Asia was a key detractor to relative performance, hampered by China and India overweightings and stock selection. In particular, Consumer Discretionary, IT and Health Care exposure weighed on China results while the Financials overweighting and auto-related names hurt India relative performance. These negative effects 3

4 William Blair Emerging Markets Leaders Fund Summary & Outlook were somewhat mitigated by positive stock selection in Taiwan (bolstered by strong performance by Taiwan Semiconductor Manufacturing) and Mexico (benefiting from the overweighting and strong results by Grupo Aeropuertario del Pacifico and Banorte). corporate earnings growth accelerated to 22% YoY, a decade high (excluding the post GFC bounce). Barring additional policy support, it is difficult to see US corporates maintaining this rate of profit growth. If the rest of the world continues to grow at the current pace, while the US economy slows marginally, the growth wedge and by extension the substantial outperformance of US markets vis-à-vis the rest of the world is likely to moderate from here. Positioning During the period, Consumer Discretionary exposure was reduced through the liquidations of Yum China Holdings and Brilliance China Automotive. Yum China Holdings, the fast food restaurant operator, was sold after the stock jumped on the potential buyout by Hillhouse Capital Group, while Brilliance China Automotive, the car manufacturer, was sold due to decelerating growth coupled with concerns related to the BMW joint venture amid changes in the regulatory backdrop. Materials exposure was increased during the period, through the purchase of UPL, the Indian agrochemical company. The investment thesis was predicated on improving growth outlook (amid recovering trends in Latin America) coupled with expected benefits of the Arysta acquisition. Exposure to Consumer Staples also increased. From a geographic perspective, notable adjustments were increases to Mexico and Taiwan, offset by a decrease to China. Rising US yields and increasing fiscal deficits in emerging markets (EMs) have reduced US dollar liquidity in More recently, higher oil prices in the wake of the US re-imposing economic sanctions on Iran contribute to a more challenging macroeconomic environment for the EMs, as many are large energy importers. Beyond these broader macro headwinds, turbulence within EM equities and currencies has been largely idiosyncratic and self-inflicted: the South African government reopening the possibility of farm repossession, for example, and the upcoming presidential election in Brazil where the top two contenders are from the far-right and the far-left. Increasingly reckless economic policies in Turkey and the exposed fragility of the Indian financial system have also compounded EM underperformance versus developed markets. On September 24th, the Trump administration implemented 10% tariffs on $200 billion worth of imported goods from China, which will increase to a rate of 25% on January 1st, This is in addition to the $50 billion of tariffs that were implemented in July and August. While the first set of tariffs was initially focused on industrial goods such as materials, machinery, and chemicals, the second round of tariffs is targeting over 5,700 consumer goods, including agricultural products, textiles, and furniture. Outlook As we head into the final quarter of 2018, surveys suggest that global growth is likely to decelerate modestly into the remainder of this year. Specifically, purchasing manager surveys continue to point to deceleration in the pace of industrial orders growth and subsequent industrial production growth. Given substantial and relatively abrupt changes in US trade policy, we now expect near term economic activity to slow somewhat as firms work out the new rules and adjust to the impact on their supply chains. With the implementation of the second round of tariffs including consumer goods, we are expecting inflation from the additional tariffs to pick up in the near term. Corporations that are affected by the additional tariffs will either have to absorb the costs themselves, leading to a decrease in margins, or will pass along the additional costs to the end consumer to keep their profits intact. As cost increases are pushed to the consumer, we are expecting to see an uptick in inflation starting in At the same time, we expect the growing divergence between the US and other economies to begin to normalize. Specifically, in Q the US economy expanded at an annual rate of 4.2% the rate of growth which we believe is likely to mark the cyclical high. Consistent with this high economy-wide growth rate, 4

5 William Blair Emerging Markets Leaders Fund Summary & Outlook From a portfolio strategy perspective, positioning within our ACWI-oriented strategies has generally reflected our more cautious outlook, with reduced EM weightings in favor of increased developed market exposure. Within our dedicated EM strategies, we have maintained overweighted positions in India and Mexico, and underweighted exposures in Korea and Taiwan. Within China, our positioning continues to emphasize domestically-oriented consumer, healthcare and technology companies that we believe are well positioned to benefit from the economy s ongoing transition to a consumption and servicesdriven growth model. Through much of this year, China has been implementing significant and wide-spread changes in its tax structure, affecting both corporate and income taxes. Reducing taxes for households is expected to support consumer demand in China. We are not expecting China to implement a large stimulus, but slow policy changes have been made to keep growth steady. Year to date, the renminbi is down nearly 6% against the US dollar. As the dollar strengthens, further depreciation cannot be ruled out. 5

6 Market Performance QTD Size Large Cap Small Cap Communication Svcs Discretionary Staples Energy Financials Healthcare Industrials IT Materials Real Estate Utilities Quality Valuation Etrend Momentum Growth Composite Regions Developed Markets (DM) Japan Europe ex UK UK USA Emerging Markets (EM) Asia China India Korea Taiwan EMEA Russia South Africa Latin America Brazil Mexico Frontier Markets (FM) Sectors 2017 Style AC World (DM+EM) YTD Past performance is not a reliable indicator of future results. Regional performance is based on IMI region/country indexes. Sector and style values are based on the MSCI EM IMI Index. Size values are based on the MSCI EM IMI Index. Style values reflect the Quintile 1 minus Quintile 5 spread of William Blair s proprietary quantitative models. Sectors are based on Global Industry Classification (GICS) sectors. Large Cap and Small Cap based on MSCI Global Investable Market Index Methodology. Data in blue reflects the top 20% (highest) values by region, country, sector, and style. Data in red reflects the bottom 20% (lowest) values by region, country, sector, and style. All index returns are net of dividends. A direct investment in an unmanaged index is not possible. Name change from Telecommunication Services to Communication Services effective after close of business on 9/28/18; industry and subindustry reclassifications effective 10/1/18. 6

7 William Blair Emerging Markets Leaders Fund Performance September Quarter YTD 1 Year 3 Year 5 Year 10 Year Since Inception* Emerging Markets Leaders Fund (WELNX) Class N -2.30% -4.86% % -5.73% 8.96% 2.76% % Emerging Markets Leaders Fund (WBELX) Class I -2.28% -4.84% % -5.54% 9.22% 3.04% 5.40% -- Emerging Markets Leaders Fund (WELIX) Institutional Class J -2.28% -4.84% % -5.49% 9.32% 3.11% 5.50% -- MSCI Emerging Markets (net) -0.53% -1.09% -7.68% -0.81% 12.36% 3.61% 5.40% 2.95% Periods ended 9/30/2018 *Class N inception 5/3/2010 Class I & J inception 3/26/2008 Performance cited represents past performance. Past Performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call , or visit our Web site at Class N shares are available to the general public without a sales load. Class I Shares are available only to investors who meet certain eligibility requirements. Emerging Markets Leaders Fund Expense Ratios: Gross Class N Shares 1.47% Class I Shares 1.25% Institutional Class 1.19% Expenses shown are as of the most recent prospectus. A direct investment in an index is not possible. 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. 7

8 William Blair Emerging Markets Leaders Fund Performance Analysis (by sector) The table below shows the calculated sector attribution of the Emerging Markets Leaders Fund vs. its benchmark. Emerging Markets Leaders Fund vs. MSCI Emerging Markets (net) 07/01/2018 to 09/30/2018 Emerging Markets Leaders Fund MSCI Emerging Markets (net) Attribution Analysis Issue Contrib to Allocation Selection Return Average Weight Return Contrib to Return Average Weight Return Invest Communication Services 1.5% -6.7% - 4.4% 1.6% -0.3% Consumer Discretionary 15.1% -14.4% -2.3% 9.4% -10.5% -1.0% -0.8% -0.4% -1.2% Consumer Staples 13.4% -3.0% -0.4% 6.6% -2.8% Energy 2.9% 10.8% 0.3% 7.5% 14.3% 1.0% -0.6% -0.8% Financials 24.0% 0.6% 0.2% 23.1% 1.3% 0.3% - - Health Care 2.8% -25.3% -0.8% 3.1% -7.1% -0.6% -0.6% Industrials 4.1% 3.9% 0.2% 5.2% 2.9% 0.2% - Information Technology 27.3% -5.1% -1.4% 27.5% -4.6% -1.3% - - Materials 4.7% -1.7% - 7.7% 4.2% 0.3% -0.4% -0.5% Real Estate 2.9% -6.0% Utilities 1.3% -12.0% 2.5% -1.9% - Cash 3.1% % -4.7% % -1.1% -1.2% -2.4% -3.6% GICS Sector Past performance does not guarantee future results. Performance cited represents past performance and current performance may be lower or higher than the data quoted. Gross investment performance assumes reinvestment of dividends and capital gains, is gross of investment management fees and net of transaction costs. Attribution by segment is based on estimated returns of equities held within the segments listed. All stocks held during a measurement period, including purchases and sales, are included. Cash is not allocated among segments. Calculations are for attribution analysis only and are not intended to represent simulated performance history. The actual returns may be higher or lower. We calculate attribution using Opturo. Opturo runs transactions-based attribution, taking into account all trading activity. Interaction effect is reallocated into Allocation effect and Trade effect is reallocated into Issue Selection effect. Invest is the decision to stay invested. It is meant to capture excess fund returns that are attributable to compounding effects rather than an active decision. Sectors are based on Global Industry Classification (GICS) Sectors. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Name change from Telecommunication Services to Communication Services effective after close of business on 9/28/18; industry and subindustry reclassifications effective 10/1/18. 8

9 William Blair Emerging Markets Leaders Fund Performance Analysis (by region) The table below shows the calculated regional attribution of the Emerging Markets Leaders Fund vs. its benchmark. Emerging Markets Leaders Fund vs. MSCI Emerging Markets (net) 07/01/2018 to 09/30/2018 Emerging Markets Leaders Fund MSCI Emerging Markets (net) Attribution Analysis Average Weight Return Contrib to Return Average Weight Return Contrib to Return Allocation Issue Selection Invest EM Asia 71.8% -6.7% -4.8% 74.6% -1.8% -1.4% 0.2% -3.7% -3.5% EMEA 10.6% -4.7% -0.5% 14.2% -1.6% -0.4% -0.3% Latin America 14.5% 5.4% 0.7% 11.2% 4.8% 0.5% 0.2% Cash 3.1% % -4.7% % -1.1% 0.5% -4.1% -3.6% Region Past performance does not guarantee future results. Performance cited represents past performance and current performance may be lower or higher than the data quoted. Gross investment performance assumes reinvestment of dividends and capital gains, is gross of investment management fees and net of transaction costs. Attribution by segment is based on estimated returns of equities held within the segments listed. All stocks held during a measurement period, including purchases and sales, are included. Cash is not allocated among segments. Calculations are for attribution analysis only and are not intended to represent simulated performance history. The actual returns may be higher or lower. We calculate attribution using Opturo. Opturo runs transactions-based attribution, taking into account all trading activity. Interaction effect is reallocated into Allocation effect and Trade effect is reallocated into Issue Selection effect. Invest is the decision to stay invested. It is meant to capture excess fund returns that are attributable to compounding effects rather than an active decision. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. 9

10 William Blair Emerging Markets Leaders Fund Top Holdings by Weight The table below shows the Emerging Markets Leaders Fund s largest holdings as of 9/30/2018 by market cap. The stocks are listed by country and by the economic sector that defines each one s role in the portfolio. Country Economic Sector % of Net Assets Large Cap Taiwan Semiconductor-Sp Adr Tencent Holdings Ltd Alibaba Group Holding-Sp Adr Samsung Electronics Co Ltd Naspers Ltd-N Shs Taiwan China China South Korea South Africa Information Technology Information Technology Information Technology Information Technology Consumer Discretionary 6.6% 6.1% 5.9% 3.2% 2.9% Mid Cap Shenzhou International Group Credicorp Ltd Airports Of Thailand Pcl-For Uni-President Enterprises Co Cp All Pcl-Foreign China Peru Thailand Taiwan Thailand Consumer Discretionary Financials Industrials Consumer Staples Consumer Staples 2.0% 2.0% 1.9% 1.8% 1.7% Small Cap Grupo Aeroport Del Pacific-B Capitec Bank Holdings Ltd Haier Electronics Group Co Southern Copper Corp Unilever Indonesia Tbk Pt Mexico South Africa China Peru Indonesia Industrials Financials Consumer Discretionary Materials Consumer Staples 1.7% 1.6% 1.3% 1.2% 1.0% : 40.7% Individual securities listed in this report are for informational purposes only, and are not intended to be a recommendation or solicitation for the purchase or sale of securities. Market cap calculations are based on the free float adjusted market cap. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described to do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed were or will be profitable. Holdings are subject to change at any time. Name change from Telecommunication Services to Communication Services effective after close of business on 9/28/18; industry and subindustry reclassifications effective 10/1/18. 10

11 William Blair Emerging Markets Leaders Fund Portfolio Positioning Regional Exposure EM Asia China India South Korea 14.9 EMEA Latin America Cash & Equivalents William Blair Emerging Markets Leaders Fund MSCI Emerging Markets (net) Health Care Utilities William Blair Emerging Markets Leaders Fund MSCI Emerging Markets (net) Portfolio Diff Previous QTR Portfolio Diff YTD -2.8 Cash & Equivalents Real Estate Other Materials Information Technology Industrials Financials Mexico Energy Consumer Staples Consumer Discretionary Brazil Communication Services Taiwan South Africa Russia Sectoral Exposure Portfolio Diff Previous QTR Portfolio Diff YTD Source: William Blair. Cash & Equivalents includes: cash and dividend accruals. Name change from Telecommunication Services to Communication Services effective after close of business on 9/28/18; industry and subindustry reclassifications effective 10/1/18. 11

12 William Blair Emerging Markets Leaders Fund Portfolio Characteristics Characteristics of market capitalization, growth, profitability and valuation are shown below in the table below. Emerging Markets Leaders Fund MSCI Emerging Markets (net) Large [>$15b] 43.6% 44.7% Medium [$4-15b] 41.3% 32.1% Small [<$4b] 11.7% 23.2% EPS, 3 year historic 21.3% 16.8% DPS, 3 year historic 23.8% 15.4% Reinvestment rate 16.3% 12.3% ROE 22.5% 16.6% Operating Margin 23.5% 19.5% PE [Estimated EPS] 17.5 X 11.3 X Price-to-Book Value 3.9 X 2.3 X EV/EBITDA 12.3 X 8.6 X Market Capitalization Fundamental Characteristics Growth Profitability Valuation Sources: Factset, Eagle. Market cap calculations are based on the free float adjusted market cap. Growth and profitability characteristics shown are weighted averages, and valuation characteristics shown are weighted harmonic averages. 12

13 William Blair Emerging Markets Leaders Fund Holdings Portfolio Weight EM Asia China Tencent Holdings Ltd Alibaba Group Holding-Sp Adr Ping An Insurance Group Co-H Shenzhou International Group Cnooc Ltd Kweichow Moutai Co Ltd-A China International Travel-A Huazhu Group Ltd-Adr Haier Electronics Group Co Cspc Pharmaceutical Group Lt Enn Energy Holdings Ltd Jiangsu Hengrui Medicine C-A Autohome Inc-Adr Ctrip.Com International-Adr Anta Sports Products Ltd Tingyi (Cayman Isln) Hldg Co Tal Education Group- Adr Sunny Optical Tech India Infosys Ltd Housing Development Finance Bajaj Finance Ltd Hdfc Bank Limited Indusind Bank Ltd Hindustan Unilever Ltd Upl Ltd Hdfc Standard Life Insurance Maruti Suzuki India Ltd Asian Paints Ltd Portfolio Weight EM Asia (continued) India (continued) Britannia Industries Ltd Mrf Ltd Petronet Lng Ltd Hdfc Bank Ltd-Adr Indonesia Bank Rakyat Indonesia Perser Telekomunikasi Indonesia Per Unilever Indonesia Tbk Pt South Korea Samsung Electronics Co Ltd Lg Chem Ltd Lg Household & Health Care Taiwan Taiwan Semiconductor-Sp Adr Uni-President Enterprises Co Thailand Airports Of Thailand Pcl-For Cp All Pcl-Foreign EMEA Hungary Otp Bank PLC Russia Yandex Nv-A South Africa Naspers Ltd-N Shs Capitec Bank Holdings Ltd Firstrand Ltd Bid Corp Ltd Bidvest Group Ltd Portfolio Weight Latin America Argentina Ypf S.A.-Sponsored Adr Brazil Itau Unibanco Holding S-Pref Raia Drogasil SA Ambev Sa-Adr B3 Sa-Brasil Bolsa Balcao Chile Quimica Y Minera Chil-Sp Adr Mexico Grupo Financiero Banorte-O Grupo Aeroport Del Pacific-B Alsea Sab De Cv Peru Credicorp Ltd Southern Copper Corp Cash As of 9/30/2018. Information about the Fund s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay in any one particular sector. Holdings are subject to change at any time. Cash includes cash equivalents and accruals. 13

14 Glossary - Terms Alpha: A measure of a portfolio s return in excess of the market return, after both have been adjusted for risk. It is a mathematical estimate of the amount of return expected from a portfolio above and beyond the market return at any point in time. For example, an alpha of 1.25 indicates that a stock is projected to rise 1.25% in price in a year over the return of the market, or the return when the market return is zero. When an investment price is low relative to its alpha, it is undervalued, and considered a good selection. Beta: A quantitative measure of the volatility of the portfolio relative to the overall market, represented by a comparable benchmark. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile, and could be expected to rise and fall more slowly than the market. Developed Markets: Using the Morgan Stanley Capital International (MSCI) geographic definition, this region includes: United Kingdom, Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Spain, Sweden and Switzerland), Japan, Pacific Asia (Australia, Hong Kong, New Zealand, and Singapore) and the Western Hemisphere (Canada and other Americas). Debt to Capital Ratio: This figure is the percentage of each company s invested capital that consists of debt. Companies with a high Debt to Capital level may be considered more risky. From a portfolio perspective, the portfolio Debt to Capital Ratio is a weighted average of the individual holdings' Debt to Capital Ratio. Emerging Markets: Using MSCI s geographic definition, this region includes: Emerging Markets Asia (China, India, Indonesia, Malaysia, S Korea, Taiwan, and Thailand), Emerging Markets Europe, Mid-East and Africa (Czech Republic, Hungary, Poland, Russia, Turkey, Egypt, Morocco, and S Africa), and Latin America (Argentina, Brazil, Chile, Columbia, Mexico, Peru and Venezuela). EPS (Earnings Per Share) Growth Rate (Projected): This measure represents the weighted average of forecasted growth in earnings expected to be experienced by the stocks within the portfolio over the next 3-5 years. From a portfolio perspective, the portfolio P/E ratio and EPS Growth Rate are weighted averages of the individual holdings P/E ratios and EPS Growth Rates. Data calculated in FactSet. EV/EBITDA: (Enterprise Value / Earnings Before Interest, Taxes and Depreciation-Amortization): The EV/EBITDA ratio is useful for global comparisons because it ignores the distorting effects of individual countries' taxation policies. It's used to find attractive takeover candidates. Enterprise value is a better measure than market cap for takeovers because it takes into account the debt which the acquirer will have to assume. Therefore, a company with a low EV/EBITDA ratio can be viewed as a good takeover candidate. EV/IC: (Enterprise Value / Invested Capital) Ratio: Enterprise Value (EV), which is market capitalization minus cash plus debt divided by Invested Capital (IC), which is the sum of common stock, preferred stock and long-term debt. This number will get you a simple multiple. If it is below 1.0, then it means that the company is selling below book value and theoretically below its liquidation value. Information Coefficient: A measure of the correlation between expected and actual returns. Information Ratio: A measure of risk-adjusted return. The annualized excess return of the portfolio relative to a respective benchmark, divided by the annualized tracking error relative to that same benchmark. The higher the measure, the higher the risk-adjusted return. PBV: (Price/Book Value) Ratio: The PBV Ratio measures the value of a company's common stock relative to its shareholder's equity. A price-to-book multiple above one means that the price of the company's common stock is higher than its common shareholder's equity. A price-to-book multiple below one means that the price of the company's common stock are less than its break-up value, and the shares may be undervalued. PCF: (Price/CashFlow): Some analysts favor the price/cash flow over the price-earnings (PE) ratio as a measure of a company s value. Cash flow is a measure of a company's financial health. It equals cash receipts minus cash payments over a given period of time. 14

15 Glossary - Terms P/E: (Price/Earnings) Ratio: This is the most common measure of how expensive a stock is. Simply, it is the cost an investor in a given stock must pay per dollar of current annual earnings. A high P/E generally indicates that the market is paying more to obtain the stock because it has confidence in the company s ability to increase its earnings. Conversely, a low P/E often indicates that the market has less confidence that the company s earnings will increase rapidly or steadily, and therefore will not pay as much for its stock. R-squared: A measurement of how closely the portfolio s performance correlates with the performance of its benchmark, such as the MSC AC World Free ex US Index. In other words, it is a measurement of what portion of a portfolio s performance can be explained by the performance of the overall market or index. Ranges from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation. Risk (Standard Deviation): A measure of the portfolio s risk. A higher standard deviation represents a greater dispersion of returns, and thus a greater amount of risk. The annualized standard deviation is calculated using monthly returns. Sharpe-Ratio: A risk-adjusted measure calculated using standard deviation and excess return (Portfolio return Risk Free Rate) to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio s historic risk-adjusted performance. Tracking Error: Tracking Error measures the extent to which a portfolio tracks its benchmark. The tracking error of an index portfolio should be lower than that of an active portfolio. The tracking error will always be greater than zero if the portfolio is anything other than a replication of the benchmark. Trailing 1-Year Turnover: This figure reflects the portfolio s trading activity by calculating the amount of the portfolio s holdings bought or sold over the prior year, expressed as a percentage of the portfolio s average market value. Turnover figures may be related to the amount of trading costs experienced by the portfolio. Weighted Average Market Capitalization: Market capitalization refers to the total market value of each company's outstanding shares. The Weighted Average Market Capitalization for a portfolio is calculated as the average market capitalization of the stocks within the portfolio, weighted by the amount of each stock owned. Weighted Median Market Capitalization: This calculation represents the median market capitalization of the stocks in the portfolio, weighted by the amount of each stock owned. 15