Global Emerging Markets

Transcription

1 For professional investors only Global Emerging Markets Opportunities for the next 10 Years Jeff Chowdhry and Rishikesh Patel

2 Introduction Jeff Chowdhry Director, Emerging Market Equities Keith Scott Director, Sales and Client Relationships Rishikesh Patel Portfolio Manager 24 Sep

3 The strategic case for emerging markets (EM) secular growth not reflected in the index Source: LGM, MSCI Emerging Markets Index, May MSCI ESG Research Inc. Reproduction by permission. Qatar and United Arab Emirates (UAE) are not included in the above index weights. GDP Gross Domestic Product 3

4 The strategic case for emerging markets comparing economy size vs. per capita GDP Per cap ($) GDP ($ trn) United States 54,629 17,419 Germany 47,627 3,853 United Kingdom 45,603 2,942 France 42,736 2,829 Source: World Bank, LGM, Size of bubble represents relative size of the economy 4

5 Benchmark driven investing unintended consequences MSCI India sector weights comparing domestic vs. global Source: MSCI, LGM, MSCI ESG Research Inc. Reproduction by permission. 5

6 Stocks drive our country and sector weightings Country weightings Sector weightings LGM Global Emerging Markets Strategy and Index data as at Strategy data based on a representative account.market weightings are subject to change. Source of data: Factset, MSCI MSCI ESG Research Inc. Reproduction by permission.copyright: All index data in this report is copyright and proprietary to MSCI. Portfolio composition subject to change 6

7 Making the case for sustainable investing The academic evidence is compelling* 88% of studies show that solid ESG practices result in better operational performance 80% of studies show that stock price performance is positively influenced by good sustainability practices Positive relationship between cost of capital and companies with strong ESG credentials 90% of studies show that sound ESG standards lower the cost of capital *University of Oxford and Arabesque Partners (2014): From The Stockholder to the Stakeholder. ESG Environmental, Social & Governance. 7

8 EM ESG has outperformed EM Annual performance of MSCI EM ESG vs. MSCI EM Cumulative index performance gross returns (Sep 2007-Aug 2015) - USD Annual performance Year MSCI EM ESG MSCI EM Source: MSCI, MSCI ESG Research Inc. Reproduction by permission. 8

9 ESG issues can impact business performance Environmental Climate change Waste management Biodiversity Social Human rights Labour standards Business ethics Governance Remuneration Board structures Shareholder rights Fines for regulatory breaches Policy changes lead to product obsolescence Loss of license to operate High staff turnover Prosecution under anti-bribery legislation Excessive risk-taking behaviour Lack of checks and balances 9

10 Stock example: Cairn India Background: Oil and gas exploration and production company in India Our assessment: Strong business with quality managers Good governance Solid environmental credentials Added to the portfolio 27 May 2010 Company taken over by Vedanta Resources in 2012 Concerns around Board balance and independence, protection of minority shareholders rights The company conducted significant related party transactions without seeking prior approval from minority shareholders Lack of sufficient independent representation on the Board Exited 1 st April 2014 June 2015: Vedanta announced Cairn India was merging with itself We believe main motive is to access Cairn s significant US$3bn cash balance to pay down Vedanta s US$7bn net debt Price (INR) of Cairn India Source: Bloomberg as at For information purposes only. Please note that this does not constitute a recommendation relating to this company. Added to portfolio: INR ( ) Exited: INR ( ) 10

11 LGM composite performance as at 31 August 2015 (Preliminary) Annualised 3 year Annualised 5 year LGM composites AUM US$ mn % Relative % % Relative % LGM Global Emerging Markets Composite MSCI Emerging Markets LGM Responsible Global Emerging Markets Composite MSCI Emerging Markets Total Return LGM Frontier Markets Composite 14.1 N/A % MSCI FM+50% FM ex GCC (Net) 7.3 N/A LGM India Composite S&P BSE 100 TR N/A 2.1 Source: BMO Global Asset Management. Past performance is not indicative of future performance. Performance data is gross of investment management fees. This document does not constitute an invitation to buy or sell LGM s products. 11

12 Disclaimer Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Issuers mentioned or included in any MSCI ESG Research Inc. materials may include MSCI Inc. clients of MSCI or suppliers to MSCI, and may also purchase research or other products or services from MSCI Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, not received approval from, the united states Securities and Exchange Commission or any other regulatory body. MSCI ESG Research Inc., its affiliates and information providers make no warranties with respect to any such ESG materials. The ESG materials contained herein are used under license and may not be further used, distributed or disseminated without the express written consent of MSCI ESG Research Inc. 12

13 Contact Us BMO Global Asset Management (EMEA) - Head Office Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) bmogam.com Extensive worldwide investment capabilities Total focus on clients Comprehensive range of products and solutions Defined expertise including a suite of specialist investment boutiques Scale and stability our parent company is the Bank of Montreal, one of Canada s largest banks 2015 BMO Global Asset Management. All rights reserved. BMO Global Asset Management is a trading name of F&C Management Limited, which is authorised and regulated by the Financial Conduct Authority. 13