JOM FUNDS CURRENT ACCOUNT IN THE PHILIPPINES Monthly Report February 2014

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1 musd JOM FUNDS In this monthly comment, some views on company meetings of the first Asia trip in PHILIPPINES First trip to Philippines since late-summer The growth story seems to be stronger than during my last visit, as clearly the confidence has improved among consumers, which translates to solid growth numbers across the board in various sectors. For example, auto sales growth is at +15% annually, and this clearly shows as busier traffic and more new cars on the streets. There have been some speculation of possible overheating in the real estate market, but I saw only few more building cranes than in Furthermore, the structural housing shortage in the Philippines is a bit similar to Indonesia: there is demand for some 3.6m housing units, while only 168k units are built annually. So at current pace it will take decades to even out the gap. The GDP growth is at some 7%, that is, second highest pace is Asia after China. The current account is on the surplus, but the inflation level might creep up during this year, which increases the possibility of interest rate hikes, but this should not impact the overall growth too much. The political situation has remained healthy, as the current government is deemed relatively clean of corruption, and president Aquino s programs have been effective, even if some infrastructure PPP projects are slightly behind schedule. However, the infra program will most likely be followed through while he s in power, that is by year 2016, as in the Philippines one president s term is limited to one. None of the presidential candidates currently in speculations seems as corruption-free as Aquino, but it is still early and naturally more contenders will emerge once we get closer to the actual election in What comes to companies, overall the worst performers in terms of earnings will likely be found within the financial sector: many banks realised one-off trading profits in 2013, so their earnings growth will be marginally on the negative this year. Overall the loan base in the country is still expanding, loan growth will be some +10% this year. I met with many consumer companies, of which many have been able to grow their market share both in domestic and export markets such as Vietnam, Thailand and Malaysia. Slightly worrisome was the point that none of the companies had been able to expand into Indonesia, which is by far the largest market in the ASEAN region as it accounts for nearly half of its consumption, and on the other hand the competitive landscape is still relaxed in many sectors. Reasons stated were language and cultural (religious) differences, and other not very clearly explained miscellaneous difficulties. CURRENT ACCOUNT IN THE PHILIPPINES $ $ $ $ $0.00 -$ The current account in the Philippines has been on the positive in the last years, Brown line monthly data, red dash 3m average. Source: Bloomberg

2 JOM FUNDS INDONESIA In Indonesia, the elections are approaching, and speculations on alliances and results are already running high, and candidate slandering is well on the way. Wildest theories heard on my trip were that two leading candidates would join forces and unite behind Brabowo, who s currently second in polls, and leave the current poll leader Jokowi behind in the presidential race. This is likely not to happen though. On the other hand, we don t even officially know if Jokowi is going to be the candidate for his party PDI-P, as the former president and party leader Megawati has stated that the nominee will be announced only after the parliamentary elections in April. This strategy bears risks, as PDI-P s victory in the parliamentary elections is not certain if Jokowi s is not the frontrunner for the party. The company I met in Tangeran pays its employees at least the regional minimum wage and does not recruit people that are under 18 years old. The International Labour Organization ILO, a sub-organisation of the UN, has set the age limit at 16 years in the textile industry. The age limit in the company also ensures the quality of production, as the facility focuses on more complex garments like winter clothing and not just simple t-shirts. Brands manufactured included Amer Sports, Uniqlo, North Face and Arcteryx. Indonesia s textile exports are forecast to rise to 75.3 bn USD by 2030 from the current level of 13.3 bn USD. This would mean that the country s share of global production rises to 5.5% from the current level of 1.7%. But the political games are more intricate than that: I heard that many of the smaller parties have lobbied the PDI-P to sit on the announcement, as a clear victory for PDI-P would mean less seats for them. So PDI-P s risk-taking involves giving out votes to the smaller parties and thus building alliances and gaining support in the parliament for the next government term. Additional signs that Jokowi will in fact be nominated eventually is that he s been set as the main face in the election campaign set to start in March. Furthermore, Jokowi has lately taken the deputy mayor Ahok more and more to the streets, compared to his usual work routine mainly in his the office. This might indicate that Ahok is being prepared to take over as mayor, should Jokowi receive some other position later this year.. So March-April is decisive in Indonesia in terms of political developments. The Indonesia textile industry was one of focus points the during my trip: the manufacturing capacity is growing at the moment for the same reasons that foreign firms overall are investing in the country: low production costs and growing consumption and market demand. Many western clothing retailers (H&M, Zara, North Face etc.) don t want to have all of their production in countries with poor labour laws, slave-level salaries and blatant child labour use. A picture from the site visit to a textile manufacturer in Tangeran, Indonesia.

3 JOM FUNDS In Indonesia the textile industry got left behind after the Asian financial crisis, as the financial sector was reorganized and loans were tight, and many smaller margin players were pushed out of the market. The annual export growth was at some +1% level in the early 2000s, but now the industry has already regained momentum. The graph showing growth rates (% p.a.) for various areas in years and Source: CLSA In Indonesia monthly wages are still behind the average levels of for example the Philippines and China. Source: CLSA

4 JOM SILKKITIE INVESTMENT FUND JOM Silkkitie Investment Fund s NAV was at the end of February, and thus the performance during the month stood at +7.46%. 12-month performance was at +8.87%, and 6-month performance at 18.08% on Since the inception , the Fund NAV has increased by %, or in annual terms the performance has been+18.36%. In the first weeks of the month, Indonesia s weight was briefly raised in the portfolio, but already towards the end of February we decided to take profits and increased weightings in China, Thailand and Philippines instead. We sold off one of our Malaysian holdings altogether, and as a result Malaysia s weight dropped to half compared to the end of January. Indonesia 27 % Consumers 40 % Geographical Break-down of Equities China 22 % Vietnam 14 % Infra 31 % Philippines 17 % Malaysia 5 % Japan 8 % Thailand 7 % Equities by Investment Themes Global Leaders 4 % Financial & Property 25 % Name: JOM Silkkitie Fund (non-ucits) Portfolio Manager: Juuso Mykkänen Custodian: SEB. Helsinki branch Benchmark index: No official index Profit sharing: The Fund has only accumulating units Fund rules last confirmed: JOM SILKKITIE, NAV ( ) Fund size Inception date: ISIN-code: FI Bloomberg-ticker: JOMSILK FH Fund target group: Demanding investors who understand the potential of Asian equity markets in the long run. Minimum subscription: Subscription account: SEB meur Number of fund units Inception date Last month s performance +7.46% Performance since inception % Annualised performance since inception % Accumulated management fee* 0.19% Accumulated performance fee* 0.00% Accumulated custodian fee* 0.02% Net investment position (prior to subscriptions on ) 97.8% Volatility** 18.2% Portfolio turnover*** 219.0% OVERVIEW OF THE FUND Management fee: 1.2% p.a. Subscription fee: 1.5% - 0%* Redemption fee: 1% (min. 20 ) Performance fee: 10% on the return exceeding the hurdle rate of 5%. (pls see Fund prospectus for details Morningstar rating: Past performance is no guarantee for future returns. The Fund value may increase or decrease, and the investor may incur losses when redeeming his shares. MSCI AC Asia ex-japan (EUR) is a price index, which does not take dividends into account. Further details on JOM Silkkitie (Investment Fund (non- UCITS) may be found in the key investor information document, fund prospectus and fund rules, which are available by request from JOM Fund Management Ltd, or on the website *For the fiscal period since , % of fund average net assets. **Based on daily returns during 12 months. Detailed formulas available from the Fund Management Company.

5 JOM SILKKITIE INVESTMENT FUND FUND CORRELATION (12M, DAILY) WITH SOME EQUITY INDICES (EUR) JOM SILKKITIE NAV VS. THE REGIONAL EQUITY MARKET INDEX Jakarta Composite Index JCI Philippine composite Index PCOMP HK China H shares HSCEI MSCI Asia ex-japan Topix MSCI World S&P 500 Bloomberg Europe 500 Index Indonesia Philippines China Asia Japan World US Europe FUND PERFORMANCE MONTHLY (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year MSCI AC Asia ex-japan (EUR) JOM Silkkitie % + 40 % + 20 % + 0 % -20 % % % FUND PERFORMANCE BI-ANNUALLY (%) % % % % % % % % Past performance is no guarantee for future returns. The Fund value may increase or decrease, and the investor may incur losses when redeeming his shares. MSCI AC Asia ex-japan (EUR) is a price index, which does not take dividends into account. Further details on JOM Silkkitie (Investment Fund (non- UCITS) may be found in the key investor information document, fund prospectus and fund rules, which are available by request from JOM Fund Management Ltd, or on the website *For the fiscal period since , % of fund average net assets. **Based on daily returns during 12 months. Detailed formulas available from the Fund Management Company.

6 JOM KOMODO INVESTMENT FUND JOM Komodo Fund s NAV increased by % in February thus YTD 2014 the Fund has returned 27.07%. 12-month performance stood at -8.47%, while six month performance was at %. Since inception the fund has returned +9.24% altogether. No major trading moves in the Fund s portfolio during February, however, we took some profits towards the end of the month, and as a result the equity weight of the Fund dropped to 92.1% from previous end-of-month level 99.9% Financial & Property 30 % Industrial 28 % Equities by Sector Consumer, Non-cyclical 34 % Consumer, Cyclical 8 % JOM KOMODO NAV vs. INDONESIA EQUITY INDICES JAKARTA COMPOSITE Index JOM Komodo MV Indonesia SmallCap TR Index JOM KOMODO, NET ASSET VALUE ( ) Size of the fund FUND PERFORMANCE MONTHLY (%) 6.51 meur Number of fund units Inception date Last month s performance % Performance since inception +9.24% Accumulated management fee* 0.24% Accumulated performance fee* 0.00% Accumulated custodian fee* 0.03% Net investment position (prior to subscriptions on ) 92.1% Volatility** 33.5% Portfolio turnover 144.6% Fund s correlation to JCI-Index (12m) 0.78 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Name: JOM Komodo Fund (non- UCITS) Portfolio Manager: Juuso Mykkänen Custodian: SEB. Helsinki branch Benchmark index: No official index Profit sharing: The Fund has only accumulating units Fund rules last confirmed: FUND OVERVIEW Inception date: ISIN-code: FI Fund target group: Demanding investors who understand the potential of Asian equity markets in the long run. Minimum subscription: Subscription account: IBAN: FI BIC: ESSEFIHXXXX Management fee: 1.5% p.a. Subscription fee: 1.5% - 0%* Redemption fee: 2% (min. 20 ) Performance fee: 10% on the return exceeding the hurdle rate of 5%. (pls see Fund prospectus for details Past performance is no guarantee for future returns. The Fund value may increase or decrease, and the investor may incur losses when redeeming his shares. Jakarta Composite Index (EUR) and MV Indonesia SmallCap Index (EUR) are price indices, which do not take dividends into account. Further details on JOM Komodo Investment Fund (non-ucits) may be found in the key investor information document, fund prospectus and fund rules, which are available by request from JOM Fund Management Ltd, or on the website *For the fiscal period since , % of fund average net assets. **Will be calculated based on daily returns during 12 months. after the fund has sufficient track history. Detailed formulas available from the Fund Management Company.