18 INTERNATIONAL SMALL CAP Top 10 Reasons This Remains A Misunderstood and Underutilized Asset Class Please see last page for important disclosures.
1 INTERNATIONAL INVESTING IS RISKY.
2 INTERNATIONAL INVESTING IS RISKY. Since 1970, the U.S. has never been the best performing market Twice it s been the worst The U.S. only ranks 9 th on an annualized return basis over this 48-year period Source: Morningstar. Based on the performance of individual MSCI country indices. Past performance does not guarantee future results. Data as of 12/31/2017.
3 Markets outside the U.S. have historically offered investors attractive investment opportunities.
4 SMALL CAP INVESTING IS EVEN RISKIER.
5 Absolute Returns Across Asset Classes Standard Deviation Across Asset Classes Up/Down Market Capture Comparison 20 years ending 03/31/18 20 years ending 03/31/18 20 years ending 03/31/18 8.0% 7.9% 7.4% 23.2% 19.8% 150 100 102.6% 119.8% 5.4% 17.9% 17.1% 50 0 50 100 92.5% 150 122.6% MSCI ACWI ex USA Small Cap MSCI EM Russell 2000 ACWIxUS MSCI EM Russell 2000 MSCI ACWI ex USA Small Cap ACWIxUS MSCI ACWI ex USA Small Cap vs. MSCI ACWI ex USA IMI Russell 2000 vs. Russell 3000 Source: Morningstar. Absolute returns and standard deviation calculation above are using gross returns. Up/Down Market Capture is shown using net returns. See disclosures page for additional information. Past performance does not guarantee future results.
6 Don t allow negative perceptions about international or small cap investing overwhelm the historical investment merits of this asset class.
7 YOU PREFER TO OWN STOCKS OF COMPANIES YOU KNOW AND RECOGNIZE.
8 Names you know Businesses you understand Some of the world s most dominant companies The logos listed here are the trademarks of their respective owners, are used for illustrative purposes only, should not be considered a specific stock recommendation, and should not be considered an endorsement or sponsorship by, or affiliation with, Manning & Napier.
9 Strength lies in the differences, not the similarities. -Stephen Covey
10 THERE S NO BENEFIT TO YOUR OVERALL PORTFOLIO.
11 Diversification Benefits 20 years ending 03/31/18 Next 5 years Index MSCI World Correlation with S&P 500 0.96 Long-Term Earnings Growth Estimates MSCI ACWIxUS 11.64% MSCI EAFE Russell 2000 MSCI ACWI ex USA Small Cap 0.86 0.82 0.77 MSCI EM MSCI ACWI ex USA Small Cap 14.91% 14.75% MSCI EM Large 0.76 MSCI EM Small 0.70 Data as of 03/31/2018. Past performance does not guarantee future results. Diversification does not assure a profit or protect against loss in a declining market. Source: Morningstar. Long-Term Earnings Growth is defined by Morningstar as the estimated earnings growth over the next five years and does not guarantee returns.
12 International small cap companies are forecasted to grow their earnings faster than many other equity markets.
13 YOUR BENCHMARK DOESN T OWN IT.
% Investable Market Cap Outside the U.S. 14 Potential blind spot in investors portfolios if they don t realize these market differences MSCI International Equity Benchmarks 100% 90% 80% 14% 1% 100% 85% 70% 60% 50% 40% 30% 20% 10% Source: MSCI. Data as of 03/31/2018. See disclosures page for additional information 0% ACWIxUS ACWI ex USA Small Cap ACWIxUS MicroCap ACWIxUS IMI
15 Don t let benchmark selection and methodology create investment blind spots in your portfolio.
16 THE INVESTABLE UNIVERSE OF COMPANIES IS TOO NARROW.
17 46 Countries THE INVESTABLE UNIVERSE OF COMPANIES IS TOO NARROW. 22 Developed Markets 24 Emerging Markets 36 Currencies 6 Distinct Regions 4,329 Companies Data as of 03/31/2018. See disclosures page for additional information.
18 The international small cap market is a relatively large, fast growing, and dynamic equity market.
19 YOU ALREADY GET EXPOSURE THROUGH INTERNATIONAL ALL CAP EQUITY MANAGERS.
20 YOU ALREADY GET EXPOSURE THROUGH INTERNATIONAL ALL CAP EQUITY MANAGERS. The top 20 largest foreign equity funds manage over $600B in total AUM Average exposure to small caps in the top 20 is only 6.38% (defined as <$5B) Median exposure to small caps in the top 20 is only 4.68% Small caps make up 15% of the international equity market Sources: FactSet and Morningstar. Analysis: Manning & Napier. Data as of 12/31/2017. Foreign equity funds includes actively-managed open-end mutual funds with a Morningstar Category of Foreign Large Blend, Foreign Large Growth, or Foreign Large Value. The oldest available share class of each fund was used.
21 We believe a dedicated allocation to international small cap equities is necessary to achieve meaningful, diversified exposure to this asset class.
22 YOU UTILIZE PASSIVE STRATEGIES EXCLUSIVELY.
23 Effective indexing is more challenging when the underlying market is large and dynamic Active Management Opportunity Percent of Universe with Fewer than Four Analysts Covering Companies Data as of 03/31/2018. 50 MSCI USA MSCI EM MSCI ACWI ex USA Small Cap 45 44% 40 Number of Constituents 631 846 4,329 35 Top 10 Weighting 18.97% 24.82% 1.97% 30 28% Largest Position Size 3.65% 5.40% 0.26% 25 Turnover 2.75% Source: MSCI. Data as of 03/31/2018. 3.78% 10.97% 20 15 10 5 0 0% U.S. Large Cap (S&P 500) 4% International Large Cap (MSCI ACWI ex USA Large Cap) U.S. Small Cap (Russell 2000) International Small Cap (MSCI ACWI ex USA Small Cap) Sources: FactSet and Morningstar. See last page for additional information
24 Lack of analyst coverage can lead to information inefficiencies and a greater ability for active managers to add value.
25 ALL THE BEST MANAGERS ARE CLOSED TO NEW INVESTORS.
26 AUM is a concern for any strategy that focuses on smaller capitalization companies ALL THE BEST MANAGERS ARE CLOSED TO NEW INVESTORS. Capacity is a function of Market cap focus Number of holdings Liquidity tolerance Position size limits Company ownership limit Disciplined managers will close their strategies rather than compromise their investment philosophy and process
27 The opportunity to invest in experienced and skilled international small cap managers still exists. Investors should conduct thorough due diligence to assess the skill, discipline, and intentions of these managers.
28 THE ASSET CLASS IS EXPENSIVE.
29 Earnings Growth and Valuation Characteristics U.S. Large Cap U.S. Small Cap International Large Cap Emerging Markets International Small Cap Projected EPS Growth* 12.21% 14.35% 11.38% 14.91% 14.75% Price/Earnings (current)** 16.93 17.78 13.05 11.64 14.61 PEG Ratio 1.39 1.24 1.15 0.78 0.99 Data as of 03/31/2018. Past Performance does not guarantee future results. Source: Morningstar. *1 year I/B/E/S medians **1 year forward Long-Term Earnings (Projected EPS) Growth represents the estimated earnings growth over the next 5 years and does not guarantee returns. Price/Earnings for a stock is the ratio of the company s most recent month-end share price to the company s estimated earnings per share (EPS) for the current fiscal year. PEG Ratio is based on these two metrics previously defined. Indices from the left: S&P 500, S&P Small Cap 600, MSCI ACWI ex USA Large Cap, MSCI EM, MSCI ACWI ex USA Small Cap.
30 No other asset class offers what international small cap offers investors today: portfolio diversification, historically higher returns with comparable risk, higher earnings growth potential, and attractive valuations.
THANK YOU
Disclosures Manning & Napier Advisors, LLC (Manning & Napier) offers a separately managed account, mutual fund, and a collective investment trust fund under the International Small Cap Equity strategy. For more information about the Manning & Napier Fund, Inc. Rainier International Discovery Series, you may obtain a prospectus at www.manning-napier.com or by calling (800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. All investments involve risks, including possible loss of principal. The value of your investment will fluctuate in response to stock market movements. Investment in small-and medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Investments concentrated in foreign and emerging market countries may be subject to fluctuating currency values, different accounting standards, and economic and political instability. The value of the investment may be affected by changes in exchange rates between foreign currencies and the U.S. dollar. Investments in emerging markets may be more volatile than investments in more developed markets. Diversification does not assure a profit or protect against loss in a declining market. Past performance does not guarantee future results. MSCI Index returns do not reflect any fees or expenses and are denominated in U.S. dollars. Prior to 12/31/1998, MSCI Index returns assume daily investment of gross dividends (which do not account for applicable dividend taxation), as net returns were not available. Subsequent to 12/31/1998, the MSCI Index returns are net of withholding taxes. They assume daily reinvestment of net dividends thus accounting for any applicable dividend taxation. The MSCI ACWI ex USA Small Cap Index is designed to measure a small cap representation across 22 of 23 Developed Markets countries (excluding the U.S.) and 24 Emerging Markets countries. The MSCI Emerging Markets Index (MSCI EM) is a free float-adjusted market capitalization index designed to measure large and mid-cap representation across 24 Emerging Markets countries. The MSCI ACWI ex USA Index (ACWIxUS) is designed to measure large and mid-cap representation across 22 of 23 Developed Markets countries (excluding the U.S.) and 24 Emerging Markets countries. The MSCI ACWI ex USA Investable Market Index (IMI) is designed to measure large, mid, and small-cap representation across 22 of 23 Developed Markets countries (excluding the U.S.) and 24 Emerging Markets countries. The MSCI World Index is a free float-adjusted market capitalization index designed to measure large and mid-cap representation across 23 Developed Markets countries. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure large and mid-cap representation across 21 Developed Markets countries (excluding the U.S. and Canada). The MSCI Emerging Markets (EM) Large Cap Index is a free float-adjusted market capitalization index designed to measure large-cap representation across 24 Emerging Markets countries. The MSCI Emerging Markets (EM) Small Cap Index is a free float-adjusted market capitalization index designed to measure small-cap representation across 24 Emerging Markets countries. The MSCI ACWI ex USA Micro Cap Index (ACWIxUSMicrocap) is designed to measure micro-cap representation across 22 of 23 Developed Markets countries (excluding the U.S.) and 24 Emerging Markets countries. The MSCI USA Index is a free float-adjusted market capitalization index designed to measure the performance of large and mid-cap segments of the U.S. market. The MSCI USA Small Cap Index is designed to measure the performance of the small cap segments of the US market. The MSCI ACWI ex USA Large Cap Index is a free float-adjusted market capitalization weighted index designed to measure large-cap representation across 22 of 23 Developed Markets countries (excluding the U.S.) and 24 Emerging Markets countries. The Russell Index returns are based on a market capitalization-weighted average of relative price changes of the component stocks plus dividends whose reinvestments are compounded daily. The Russell Index returns do not reflect any fees or expenses. The Russell 2000 Index is an unmanaged index that consists of 2,000 U.S. small-capitalization stocks. The Russell 3000 Index is an unmanaged index that consists of 3,000 of the largest U.S. companies based on total market capitalization. The S&P Index returns do not reflect any fees or expenses. The S&P 500 Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The Index returns do not reflect any fees or expenses. The Index includes dividends, but not the reinvestment of dividends. S&P Dow Jones Indices LLC, a subsidiary of the McGraw Hill Financial, Inc., is the publisher of various index based data products and services and has licensed certain of its products and services for use by Manning & Napier. All such content Copyright 2018 by S&P Dow Jones Indices LLC and/or its affiliates. All rights reserved. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. The S&P SmallCap 600 Index is an unmanaged, capitalization-weighted measure of 600 small U.S. companies with market capitalizations between $300 million and $1.4 billion listed on the on the New York Stock Exchange and the NASDAQ stock market. Morningstar 2018. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. The Manning & Napier Fund, Inc. (the Fund) is managed by Manning & Napier. Manning & Napier Investor Services, Inc. (MNBD), an affiliate of Manning & Napier, is the distributor of the Fund shares. Manning & Napier has contracted Rainier Investment Management, LLC, an affiliate of Manning &Napier and MNBD, to sub-advise the International Discovery Series. ALL-SEM005 (5/18)