TIAA-CREF International Equity Fund: Distinct company insights driving high-conviction investments

Transcription

1 TIAA-CREF International Equity Fund: Distinct company insights driving high-conviction investments Christopher Semenuk, Portfolio Manager Dan Morris, CFA, Global Investment Strategist May 22, 2014

2 International Equity Agenda Investment capabilities Market overview: Europe, Emerging Asia, Japan Stock stories: Accor, HDFC, Mazda Risk management Closing remarks 2

3 International Equity Fund capabilities Portfolio Management Chris Semenuk Lead manager with 26 years of investment experience 14 years managing International Equity Fund Utilities analysts Regional specialists Consumer analysts Energy analysts Financial services analysts Centralized equity research team with a global perspective Over 40 research analysts with an average of 17 years experience Supported by 11 research associates Career analysts run sector neutral portfolios Demonstrate conviction through their investments Telecom services analysts Technology analysts TIAA-CREF portfolio managers Materials analysts Industrials analysts Healthcare analysts 3

4 Distinguishing characteristics Long-tenured management team with extensive industry/company relationships Supported by research staff of experienced global sector specialists using proprietary models and bringing deep knowledge in their areas of expertise Systematic and consistent approach to stock selection Fundamental bottom-up analysis Consistent focus on cash flow generation Nearly fully invested providing pure exposure to the asset class Focused portfolio of stocks with high-quality bias Concentrated in highest-conviction holdings Smaller market-cap bias helps us develop unique insight Long-term view on companies and markets 2- to 5-year investment horizon on all holdings 4

5 Economic recovery accelerating in Europe Composite Purchasing Managers Indices (PMIs) Index level; value greater than 50 indicates expansion Europe Emerging markets Tohoku earthquake/ tsunami Japan Last data April Source: National Bureau of Statistics of China, HSBC, Markit, TIAA-CREF Asset Management. 5

6 Japan is hoping QE provides the same boost it did in the U.S. and the U.K. Monetary base (M0)* Indexed x Increase since Dec 2007 ($bn) UK: $490 USA: $3,058 Japan: $1,251 Eurozone: $440 µ 2.0x x Latest data April-May Source: US Federal Reserve, Bank of England, European Central Bank, Bank of Japan, TIAA-CREF Asset Management. *Monetary base is defined as the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the central bank). 6

7 Emerging markets and Japan are trading well below historical valuation levels Region and country relative valuations Latin America Asia ex-japan Europe United States DM ex-japan EMEA Emerging Asia Japan* Emerging Markets -30 % Last data: May 19, Note: Valuation based on current price to next twelve-month earnings relative to long-run average. Japan value calculated on median PE only since 2000, otherwise median is from Source: IBES, TIAA-CREF Asset Management. 7

8 Earnings momentum recovering for emerging markets Forward earnings estimates Japan (left axis) Europe ex-uk (right axis) Emerging markets (right axis) May 13 Aug 13 Nov 13 Feb 14 May 14 Last data: May 19, Indices in local currency terms except emerging markets, which is in USD. Source: Bloomberg, TIAA-CREF Asset Management. 8

9 International Equity Fund stock selection process: Four pillars Consistent cash generation History of using cash to generate accretive results Industry competitive Return On Capital Employed (ROCE) Performance-oriented management Management benchmarked against sector best-in-class Leadership focused on innovation and shareholder value Top-tier management drives leading market share Stock Selection Process Attractive sector valuation Price-to-cash flow vs. market and sector 5- and 10-year discounted cash flow analysis Sector analysts proprietary models TIAA-CREF must have an edge Not well followed by the Street Unique insight into company 9

10 International Equity Fund stock selection process: Accor S.A. Consistent cash generation 300M Euro cash flow annually after capital expenditures (capex) Cash flow used to keep debt low, balance sheet strong Cash also used to build a state-of-the-art booking system to compete with online travel agents Performance-oriented management Management divided the company into two separate businesses Property and Services measuring each against best-in-class industry peers Accor facts French Hotel chain in 92 countries $11.0 billion market cap Consumer cyclical sector Attractive valuation relative to sector Trades at less than 10x 2014 EV/EBITDA 2% to 3% discount to global peers TIAA-CREF must have an edge High confidence in CEO based on our past investment experience with him. Please note the purpose of this material is to provide an example of how the portfolio management team evaluates securities. All information shown is historical, is provided for informational purposes only and should not be deemed as a recommendation to buy or sell the security shown above. 10

11 International Equity Fund stock selection process: HDFC Bank Ltd. Consistent cash generation History of generating excess cash Cash used to improve balance sheet Growing in under-banked markets in rural India HDFC Bank facts: Indian Diversified financial services $34.9 billion market cap Financial Services sector Performance-oriented management Highly focused on cost discipline and high standards of risk and credit analysis A gold-standard benchmark in Asian banking sector Innovator in Indian banking market, offering Internet services and targeting friends and family to find good credit customers Attractive valuation relative to sector Valuation considered somewhat high by Indian bank standards, but not relative to Asian or global peers Under appreciated/overlooked by global investors, creating opportunities for further growth TIAA-CREF must have an edge History with current management team: Strong relationship with former CFO who became CEO High confidence in management s ability to execute and meet financial goals Please note the purpose of this material is to provide an example of how the portfolio management team evaluates securities. All information shown is historical, is provided for informational purposes only and should not be deemed as a recommendation to buy or sell the security shown above. 11

12 International Equity Fund stock selection process: Mazda Motor Corp Consistent cash generation Unlike many car manufacturers, Mazda has generated free cash after capex across market cycles Balance sheet is almost in a net cash position Mazda facts Japanese Global auto company $12.9 billion market cap Consumer Cyclical sector Attractive valuation relative to sector Valuation became cheap relative to history as growth slowed due to aging product portfolio Believe valuation will improve given future prospects for planned product innovation Performance-oriented management Management is focused on innovation Producing cars for younger buyers who appreciate performance and forwardthinking design TIAA-CREF must have an edge Our research analyst identified an upcoming refresh in Mazda s product portfolio before the Street recognized it Please note the purpose of this material is to provide an example of how the portfolio management team evaluates securities. All information shown is historical, is provided for informational purposes only and should not be deemed as a recommendation to buy or sell the security shown above. 12

13 Country allocations International Equity Fund Country allocations vs. MSCI EAFE Index as of March 31, 2014* Country** Percent of portfolio Percent of benchmark Variance France 21.92% 9.96% 11.96% United Kingdom 20.61% 21.15% (0.54%) Japan 13.51% 19.73% (6.22%) Switzerland 9.09% 9.30% (0.21%) Sweden 8.44% 3.25% 5.19% India 7.76% 0.00% 7.76% Greece 6.07% 0.00% 6.07% Germany 6.00% 9.47% (3.47%) Netherlands 1.58% 3.06% (1.48%) United States 1.58% 0.00% 1.58% Total 96.56% 75.93% 20.63% * Allocations at the time of investment may be different. All information is provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities shown above. The portfolio is actively managed and holdings may not be current. ** Country of Issue used in determining weights. 13

14 Sector allocations International Equity Fund Sector allocations as of March 31, 2014* Percent of portfolio vs. MSCI EAFE Index Industrials Consumer Discretionary Financials Health Care 12.95% 11.76% 16.14% 7.72% 10.44% 24.83% 25.56% 29.60% International Equity Fund MSCI EAFE Index Materials 6.99% 8.14% Consumer Staples 6.15% 10.99% Telecommunication Services 3.69% 4.96% Information Technology 2.54% 4.53% Utilities Energy 0.99% 0.05% 3.76% 6.90% Short-Term Investments, Other 1.30% 0% 5% 10% 15% 20% 25% 30% 35% *The data shown is provided for informational purposes only. Allocations at the time of investment may be different. 14

15 Risk management Active risk management strategy seeks to closely monitor: Deviations of sector and regional weightings relative to the benchmark Targeted tracking error range from bps Typical position size of up to 600 bps Systematic risk and beta Risk control guidelines Top 10 holdings consistently represent 40% to 45% of assets Name count ranges from 70 to 100 Proactive trading around core positions as opportunities warrant Individual security positions remain in bps range 15

16 Closing remarks Portfolio management team with long-term track record and deep relationships with company management, supported by global sector research specialists Consistent and systematic management approach focusing on free cash flow Concentrated portfolio of stocks with a quality bias and high-conviction positions 2- to 5-year investment horizon on holdings 16

17 Performance International Equity Fund Institutional class Net of fees as of March 31, 2014* Average annual returns vs. MSCI EAFE Index 30% 25.16% 25% 20% 17.56% 19.14% 16.02% 15% 10% 5% 0% 2.91% 0.66% 2.91% 0.66% 8.62% QTD YTD 1-Year 3-Year 5-Year 10-Year Since Inception 7.21% 7.33% 6.53% 5.86% 4.40% International Equity Fund (Institutional Class) MSCI EAFE Index * The Fund s inception date is July 01, Returns do not reflect the taxes that a shareholder would pay on fund distributions or on redemptions of fund shares. Investment return and principal value will fluctuate so that, when redeemed, shares may be worth more or less than the original cost. The performance presented represents past performance and is not an indicator or guarantee of future results. Performance data for the Fund is presented net of management fees and expenses and includes the reinvestment of dividends through March 31, The net expense ratio for this portfolio is 0.51%. Current performance may be lower or higher than the performance presented herein. For performance current to the most recent month-end, please visit Please see the Appendix for important notes to this presentation. 17

18 Q&A Two options for asking questions: Send questions from webinar console To ask questions by phone, signal the operator 18

19 Important information This material is prepared by TIAA-CREF Asset Management and represents the views of Christopher Semenuk and Dan Morris as of May These views may change in response to changing economic and market conditions. The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Please note the Fund is subject to special risks, including currency fluctuation and political and economic instability. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call or log on to for product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing. TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.tiaa-cref products may be subject to market and other risk factors. See the applicable product literature, or visit tiaa-cref.org for details Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, (TIAA-CREF), 730 Third Ave., New York, NY C