For professional investors only Think Emerging Market Equities Think BMO Global Asset Management
Why emerging markets? Despite recent volatility, we believe that emerging market equity investments offer strong potential for capital growth over the long term. Strong fundamentals Emerging markets have favourable demographics, fast-growing economies, rising incomes and increasing levels of consumer spending. Emerging market specialists LGM Investments is BMO Global Asset Management s centre of excellence for emerging market equities, with investment teams based in London and Hong Kong. An active investment approach The team at LGM Investments has a proven record in picking high-quality emerging market companies capable of generating long-term outperformance. 2
BMO Global Asset Management and LGM Investments At BMO Global Asset Management, our aim is to offer our clients high quality investment solutions by drawing on our worldwide investment capabilities. These include those in our four regional investment hubs together with the specialist expertise in our network of investment boutiques. LGM Investments is our centre of excellence for emerging market equities. A part of BMO Global Asset Management since 2011, and originally established in Hong Kong in 1991, LGM Investments has established a strong reputation as a specialist investor in global emerging, frontier and Asian equity markets. We feel that our LGM-managed emerging market equity funds offer investors the best of both worlds: the investment autonomy of a specialist, boutique investment house coupled with the backing of a financially strong parent company. The company has a well-resourced team of investment professionals based in London and Hong Kong. Our London-based team has an average of nearly 15 years industry experience and nearly 8 years working for LGM. LGM Investments is our centre of excellence for emerging market equities 3
The investment case for emerging markets Emerging markets are playing an ever more important role in global economic activity. Countries such as India, Indonesia and the Philippines are recording stronger economic growth rates than developed world countries. Moreover, their comparatively young and fast-growing populations represent sizeable potential consumer markets for a range of businesses and companies over the long term. At the same time, emerging market companies are accounting for a rising share of international equity markets and are consequently playing a more important role in asset allocation within global investment portfolios. Emerging markets can also offer higher long-term returns than developed markets, as their economies evolve. This makes them a useful source of diversification to add value to portfolios in this current low yield investment environment. With global emerging market equity markets currently looking attractive on a historical basis, following a recent sell-off in the asset class, we believe that emerging markets represent a good long-term investment for the following reasons: Favourable demographics: emerging markets tend to have both young and fast-growing populations. Rising incomes: as economic activity rates grow within these emerging economies, average incomes and overall employment levels rise. Rising consumer spending: as incomes rise, so in turn do aspirations to purchase consumer goods, open bank accounts and take out loans. We are long-term investors and look to buy the highest-quality companies at the most attractive prices. 4
Quality investment for the long term At LGM Investments, we are active, bottom-up, fundamentally-driven stock pickers and primary research is the cornerstone of our investment approach. We believe that cash flow growth and stock price performance are closely correlated over the long term. As a result we look to invest in high quality companies that can grow cash flow at a high and steady rate, based on a high-returning and sustainable growth model and positioned within sectors (consumer staples, financials, consumer discretionary) that benefit from secular growth. These companies include dominant industry players that offer basic goods and services to a rapidly growing urban population, operating within less developed market areas. We can invest across both the large and mid-cap universe, but we have a bias towards mid-caps, as they tend to be less well understood and less efficiently priced. Overall, we adopt a different stance to the MSCI Emerging Markets Index, which is inherently backward looking and has a bias towards maturing and near-developed markets. We believe that the MSCI Emerging Markets Index is failing to deliver the benefits of secular growth in emerging markets, based on GDP per capita, as the following chart highlights. Secular growth is not reflected in the index Emerging (Index weight: 10%) Establishing (Index weight: 12%) Maturing (Index weight: 36%) Near developed (Index weight: 39%) Secular demand growth Philippines Vietnam India Peru Thailand South Africa Indonesia Egypt China Mexico Turkey Malaysia Colombia South Korea Taiwan Chile Russia Poland Brazil 2.500 5.000 7.500 10.000 12.500 (USD) GDP per capita Qatar, UAE, Greece, Hungary, Romania and Czech Republic are not included in the above Index Weights. Source: LGM, MSCI Emerging Markets Index, Dec 2015 2016 MSCI. Reproduction by permission. 5
Conviction drives our portfolios Our emphasis on true emerging markets is apparent in the typical country and sector weightings of our portfolios. While the MSCI Emerging Markets Index is heavily weighted towards China, South Korea and Taiwan (the last two of which are near developed world status), at LGM we look beyond these countries to emerging markets which we feel offer greater long-term potential in terms of both favourable demographics and rising incomes over the long term, such as India, Indonesia and the Philippines. We are less exposed than the MSCI Emerging Markets Index to China, where we have difficulty identifying suitable high quality companies that meet our strict governance standards. This reduced exposure to China means that our funds have avoided much of the Chinarelated slowdown that has impacted on the wider emerging market sector in recent years. At the sector level, while the MSCI has significant exposure towards information technology, telecommunication services and energy all of which can be affected by global trends and volatile short-term changes in sentiment at LGM we have a primary focus on the consumer-driven areas of consumer staples, financials and consumer discretionary. Basic goods such as shampoo and dairy products are likely to continue being bought by consumers across the market cycle, regardless of global worries about growth or commodity prices. Typical country weightings Typical sector weightings India Indonesia Philippines Mexico China & Hong Kong Singapore Vietnam Egypt Turkey South Africa Chile Peru South Korea Nigeria Kenya Taiwan Brazil Thailand Malaysia Cash & others 0% 10% 20% 30% 40% Consumer staples Financials Consumer discretionary Industrials Health care Materials Utilities Telecommunication services Information technology Energy Cash & others 0% 10% 20% 30% 40% 50% LGM Global Emerging Markets Strategy MSCI Emerging Markets Index LGM Global Emerging Markets Strategy MSCI Emerging Markets Index For illustrative purposes only. 6
A considered approach to portfolio construction The LGM investment approach is simple. We look to buy the highest-quality emerging market companies at the most attractive prices. To achieve this, we adopt a robust approach to portfolio construction. This involves travel to the countries and companies where we wish to invest and then undertaking a full company analysis before deciding whether or not to include it on a watch list for potential investment. We then take considered decisions on which companies to include in our portfolios and at what weighting, taking into account overall portfolio risk levels and also the price at which we can buy the company s stock. Investment process Designed to find the highest quality at attractive prices Idea Generation generation Company Analysis analysis Investment Decision decision Universe Travel, company meetings Fortnightly quality ranking tool Cross sector analysis Discussion Forum forum High quality Valuation upside Investment decision Weights determined Portfolio risk considered Portfolio Portfolio Managers (PMs) & Analysts (PMs coordinate) Analysts / PMs PMs make investment decision Investment Board oversight Watch list Our primary valuation tool is discounted cash flow analysis. We only look to purchase stocks when they are priced below what our analysis shows to be a fair value price. We also look to keep hold of these stocks until they are significantly overpriced (sell if trading at a premium of 50%+), so that we do not sell winners too early and lose out on potential upside. Our approach aims to generate steady performance over time. An emphasis on value and quality typically means our portfolios are characterised by lower volatility and drawdowns than more index orientated funds during times of economic difficulties. 7
We use proprietary research to build portfolios that contain high conviction ideas that we believe will benefit from the secular demand trends in the region. Rishikesh Patel, Portfolio Manager 8
A focus on risk management Our robust risk management approach helps us to target stable and predictable investment returns from the companies we invest in. As stated before, we look to invest in high quality emerging market companies that have a robust balance sheet. Added to that, we look for companies that have a well-regarded management team and a clear alignment of interests with both majority and minority shareholders. Managing fundamental risks what do we mean by quality? Sustainable business model High return on invested capital Strong brand / market leader Price and/or cost advantage Favourable industry dynamics Low capital intensity asset light Alignment with majority shareholders Dividends and share buybacks No questionable related party transactions Active board maximising shareholder value Quality Robust balance sheet Low debt Limited foreign exchange risk No hidden obligations Strong capital base (financials) Proven management team Consistent execution at all levels Strong capital discipline Properly incentivised Management depth We also set strict parameters on overall portfolio exposure to stocks, sectors and countries, as shown below: Typical investment guidelines Individual stocks Country weightings Sectors Derivatives 10% maximum with holdings over 5% representing less than 40% of total 10% limit on company s issued share capital across all portfolios Benchmark countries: Maximum of 30% Non-benchmark countries: Absolute maximum of 15% for any one country and 20% in total Maximum of 50% in one sector, at least 5 invested sectors No derivatives, with exception of P Notes A commitment to good governance We have been a signatory to the United Nations Principles for Responsible Investment since 2008 and a full environment, social and governance (ESG) assessment forms an integral part of our investment research and approach. LGM Investments was also a founding member of the Association for Sustainable & Responsible Investment in Asia in 2001 and we have been a member of the Asian Corporate Governance Association for many years. Our proprietary LGM ESG Company Matrix is used to assess a company for ESG factors at both the industry and company-specific level. In addition, we utilise the resources of one of the world s largest independent providers of ESG research, organisationwide, to reinforce our internally-generated ESG company analysis. ESG factors around corporate governance and sustainability remain key considerations for all investments managed by LGM. Moreover, we believe that taking into account social and environmental factors in the overall investment decision-making process will ultimately improve shareholder value over the long term. 9
Our emerging market equity fund range BMO Global Asset Management offers five Emerging Market equity funds, the GBP-denominated F&C Emerging Markets Fund and four USD-denominated funds, the F&C Global Emerging Markets Fund, BMO Responsible Global Emerging Markets Equity Fund, BMO LGM Frontier Markets Fund and the BMO LGM Global Emerging Markets Growth and Income Fund. F&C Emerging Markets Fund F&C Global Emerging Markets Fund BMO LGM Global Emerging Markets Growth and Income Fund Investment aim Long-term capital growth through active investment in a globally diversified portfolio of emerging market equities. Long-term capital growth through active investment in a globally diversified portfolio of emerging market equities. Long-term capital growth and income generation through active investment in a globally diversified portfolio of emerging market equities. Benchmark MSCI Emerging Markets Index TR MSCI Emerging Markets Index TR MSCI Emerging Markets Index Geographic remit Global Global Global Fund type Accumulating Distributing Accumulating or Distributing Fund managers Rishikesh Patel, Irina Hunter, Damian Bird Rishikesh Patel, Irina Hunter, Damian Bird Fund size 22.4m US$ 32.5m US$ 233.6m Investment vehicle UK OEIC Dublin UCITS Dublin UCITS Fund currency GBP USD USD* Launch date 22.05.1996 04.04.2003 22.10.2009 Source: BMO Global Asset Management as at 31.05.16. * Other share classes available in GBP and Eur. LGM Investments have been managing the F&C branded funds since the 1 January 2015. Rishikesh Patel, Irina Hunter, Damian Bird People power Rishikesh Patel Irina Hunter Damian Bird Meet our specialist global emerging markets team. Rishi joined LGM in 2006 focusing on our Indian mandates. He relocated to our London office in 2014 and became lead portfolio manager for our global emerging markets mandates in July 2016. Prior to this, Rishi worked for General Electric and was an IT and real estate analyst at ICICI Securities. Rishi holds a post-graduate degree in Finance and Management and graduated in Commerce from Narsee Monjee College of Commerce & Economics, Mumbai. Irina joined LGM in 2007 and is a portfolio manager. Irina has previously worked for the US-Russia Investment Fund, a private equity investment fund in Moscow, and joined AGF Funds in 2002 contributing to the award winning AGF Emerging Markets Fund. Irina has an MBA from the University of Rochester and a Bachelor Degree in Finance and Banking from the Moscow Finance Academy. Damian joined LGM in 2015 as an Asian equity portfolio manager and became coportfolio manager for our global emerging markets mandates in July 2016. Damian spent more than five years at Arisaig Partners, including two years in Singapore focusing on Asian and Eastern European consumer equities. Prior to LGM, Damian was a Portfolio Manager at Infusive Asset Management. Damian holds a BA Honours in Economics and History from Oxford University and is a CFA Charterholder. 10
BMO LGM Frontier Markets Fund BMO Responsible Global Emerging Markets Equity Fund The Fund aims for long-term capital growth through investment in an actively managed portfolio, primarily invested in equity and equity-related securities of companies in Frontier Markets worldwide. In exceptional circumstances, the Fund may invest in debt securities. 50% MSCI Frontier Markets Index, 50% MSCI Frontier Markets ex GCC Index Global Distributing Thomas Vester, Dafydd Lewis To provide capital growth by investing in a portfolio of equities of companies that stand to benefit from sustainable development trends in emerging markets while minimising investment risk associated with ESG factors. MSCI Emerging Markets NR Global Accumulating Jeff Chowdhry, Sam Mahtani We also have our emerging market debt funds in our fixed income range. For more information please get in touch. US$ 597.5m US$ 36.5m Dublin UCITS Luxembourg UCITS USD USD 14.12.11 01.07.1994 Thomas Vester Dafydd Lewis Jeff Chowdhry Sam Mahtani Thomas joined LGM in 2011 and was appointed CIO in 2014. Previously, he was at BankInvest managing Eastern European and Frontier Market mandates. He holds a MSc in Applied Economics and Finance from Copenhagen Business School and has a distinguished academic career including studying at Harvard Business School, London School of Economics, University of Southern California and National University of Singapore. Dafydd joined LGM in December 2011, initially focusing on the Frontier Financials sector and was appointed Portfolio Manager in 2014. Dafydd joined HSBC s emerging market equity team in 2005 and relocated to Dubai in 2007 to cover Middle Eastern equities. In 2008 he joined BMO GAM focusing on global frontier markets. Dafydd is a CFA charterholder and holds a BSc (Hons) in Economics from the University of Bath. Jeff joined BMO Global Asset Management (EMEA) in 1994, focusing on Asia, Latin America and EMEA. Jeff has previously been a portfolio manager at Royal Insurance and BZW Investment Management where he launched and managed one of the first India funds available to foreign investors. He has an MBA from Kingston Business School and a BSc (Hons) in Economics from Brunel University. Sam joined BMO Global Asset Management (EMEA) in 1993, helping to launch the F&C India Fund, the third offshore India fund available to foreign investors. Sam has over 20 years of investment experience in emerging markets, with a specific focus on India, China, Korea and Latin America. He is an Associate of the Institute of Financial Services and a member of the CFA Society in the UK. 11
Contact us Adviser sales 0800 085 0383 sales.support@bmogam.com bmogam.com/adviser Discretionary sales 0207 011 4444 client.service@bmogam.com bmogam.com/adviser Follow us on LinkedIn Subscribe to our BrightTALK channel Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and investors may not get back the original amount invested. 2016 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. CM09875 (07/16). UK.