Michel Wiskirski Analyst Emerging Markets EMEA Carmignac
SPEAKER: Michel WISKIRSKI Emerging Market Analyst, ESG Specialist Emerging Markets and Responsible Investment October 11 th 2017 P R O F E S S I O N A L S O N LY 3
Carmignac, Historic Investor in Emerging Markets 1989 Carmignac invests in Emerging Markets since its inception in 1989 More than 50% of our global flagship equity Fund s* total net assets were invested in emerging markets Carmignac Investissement Quarterly report extract at 31/03/1989 1997 Launch of Carmignac Emergents 2007 Launch of Carmignac Portfolio Emerging Discovery 2011 Launch of Carmignac Portfolio Emerging Patrimoine 2014 RQFII license granted by the Chinese authorities. Carmignac is one of two first French players to obtain this license. Current quota: RMB 6 billion (USD 940M) 4 Source: Carmignac, * Data for Carmignac Investissement
Our Simple Approach to Invest in EM 5
A Simple Approach MACRO + UNDERPENETRATION + STRONG FCF COUNTRIES SECTORS STOCKS Strong macro fundamentals (growth outlook, balance of payments, currency, inflation) Underpenetrated sectors with long-term growth potential Companies with a strong FCF profile i.e capital light business that can self finance their growth 6
1/ What we Look For: Macro Quality Country Risk Laurent CHEBANIER Country Risk Analyst Charles ZERAH Fund Manager Fixed Income Joseph MOUAWAD EM FI & FX Analyst Cycle analysis Fundamental analysis Growth Inflation Long term Structural trends Cyclical analysis Balance of payment Exchange rate Local debt Country risk analysis 7 External debt
2/ What to Look For: Long-term Secular Growth that can be Found in Underpenetrated Sectors 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Bank loans (% of GDP) 8 Sources: Carmignac, Emerging Advisors Group, International Monetary Fund, 30/12/2016
3/ What to Look For: Self-Financed Growth 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Companies which are either highly leveraged or unprofitable Companies generating strong cash flows and sound balance sheets MSCI Emerging MSCI EM Markets Stock Allocation Companies generating strong cash flows and sound balance sheets = Able to selffinance their growth Carmignac CE Emergents 9 Sources: Carmignac, Bloomberg, MSCI, Companies, 31/12/2016
A Rigorous Stock-Picking FORBES Top 20 1 Bill Gates Software 2 Warren Buffett Insurance 3 Jeff Bezos Internet 4 Amancio Ortega Retail 5 Mark Zuckerberg Internet 6 Carlos Slim Helu Telecoms 7 Larry Ellison Software 8 Charles Koch Industry 9 David Koch Industry 10 Michael Bloomberg Software 11 Bernard Arnault Consumer goods 12 Larry Page Internet 13 Sergey Brin Internet 14 Liliane Bettencourt Consumer goods 15 S. Robson Walton Retail 16 Jim Walton Retail 17 Alice Walton Retail 18 Jianlin Wang Property 19 Ka-Shing Li Consumer goods 20 Sheldon Adelson Property 10 Source: 2016 Forbes.com LLC All Rights Reserved, May 17th 2017
That Has Proven Its Worth in Developed Markets FORBES Top 20 1 Bill Gates Software 2 Warren Buffett Insurance 3 Jeff Bezos Internet 4 Amancio Ortega Retail 5 Mark Zuckerberg Internet 6 Carlos Slim Helu Telecoms 7 Larry Ellison Software 8 Charles Koch Industry 9 David Koch Industry 10 Michael Bloomberg Software 11 Bernard Arnault Consumer goods 12 Larry Page Internet 13 Sergey Brin Internet 14 Liliane Bettencourt Consumer goods 15 S. Robson Walton Retail 16 Jim Walton Retail 17 Alice Walton Retail 18 Jianlin Wang Property 19 Ka-Shing Li Consumer goods 20 Sheldon Adelson Property 11 Software Checkpoint Line Corp *Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC All Rights Reserved, May 17th 2017
That Has Proven Its Worth in Developed Markets FORBES Top 20 1 Bill Gates Software 2 Warren Buffett Insurance 3 Jeff Bezos Internet 4 Amancio Ortega Retail 5 Mark Zuckerberg Internet 6 Carlos Slim Helu Telecoms 7 Larry Ellison Software 8 Charles Koch Industry 9 David Koch Industry 10 Michael Bloomberg Software 11 Bernard Arnault Consumer goods 12 Larry Page Internet 13 Sergey Brin Internet 14 Liliane Bettencourt Consumer goods 15 S. Robson Walton Retail 16 Jim Walton Retail 17 Alice Walton Retail 18 Jianlin Wang Property 19 Ka-Shing Li Consumer goods 20 Sheldon Adelson Property 12 Insurance AIA Group BB Seguridade Sul America Wiz Solucoes Avivasa *Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC All Rights Reserved, May 17th 2017
That Has Proven Its Worth in Developed Markets FORBES Top 20 1 Bill Gates Software 2 Warren Buffett Insurance 3 Jeff Bezos Internet 4 Amancio Ortega Retail 5 Mark Zuckerberg Internet 6 Carlos Slim Helu Telecoms 7 Larry Ellison Software 8 Charles Koch Industry 9 David Koch Industry 10 Michael Bloomberg Software 11 Bernard Arnault Consumer goods 12 Larry Page Internet 13 Sergey Brin Internet 14 Liliane Bettencourt Consumer goods 15 S. Robson Walton Retail 16 Jim Walton Retail 17 Alice Walton Retail 18 Jianlin Wang Property 19 Ka-Shing Li Consumer goods 20 Sheldon Adelson Property 13 Internet Tencent Baidu Bitauto MercadoLibre 58.com Kakao Sina YY Delivery Hero Despegar.com *Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC All Rights Reserved, May 17th 2017
25% 20% 15% Quality Financial Ratios, Consequence of Our Stock-Picking Carmignac Emergents MSCI Emerging Markets 10% 5% 0% -5% EPS Growth (CAGR 2016-18)* Return On Equity (2017)* FCF Yield (%) (2018)* Net debt / Market Cap** 14 * Consensus estimates ** Net debt at last company publication date and market capitalisation as at 04/08/2017 Net debt excluding financials Past performance is not necessarily indicative of future performance
Factoring ESG Criteria in our Investment Process 15
Sustainability is Inherent to our Investment Process: A Best-in-Universe Approach Our commitment to investors Generating attractive returns with a low turnover By selecting the right Countries Underpenetrated sectors Capital-light companies while contributing to sustainable development Systematic integration of ESG issues into our decision making process and company analysis Implementation of an exclusion list, and identification of controversial sectors based on the EM team s own convictions, that may vary from third party ESG research providers 16 Source: Carmignac, January 2017
Underpenetration Goes Hand In Hand With Sustainability Financing the future Financing sustainable technologies Offering innovative technologies Improving living standards 17
China S. Korea Taiwan Malaysia Thailand Chile South Africa Russia Poland Czech Rep Brazil India Colombia Hungary Peru Philippines Indonesia Mexico Argentina Underpenetration: Bedrock Of Our Investment Process Financing the future We invest in underleveraged countries where credit penetration is particularly low and where banks finance the real economy and the future development of the country (blue bars on the chart) We do not like countries where banks support financial engineering and where the high credit leverage endanger financial stability. 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Bank loans (% of GDP) 18 Sources: Carmignac, Emerging Advisors Group, International Monetary Fund, 30/10/2015
% GDP The Case For Argentina 80% 70% 60% 50% 40% 30% 20% 10% 0% Debt as % of GDP 76% 48% 37% 30% 11% 6% Public debt Corporate debt Household debt Emerging Market average* Argentina 19 *Countries in the MSCI Emerging Market index Source: Carmignac, EM Advisors Group, Bloomberg, July 2016
Underpenetration: Bedrock Of Our Investment Process Financing sustainable technologies 60% 50% Electric bus penetration in public transport in China (% of total buses) Companies developing, providing and promoting sustainable technologies Clean energy vehicles and buses benefiting from increasing demand Supported by a favorable regulatory framework and anti pollution initiatives 40% 30% 20% 10% 0% 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 20 Sources: Carmignac, Deutsche Bank, Macquarie Bank, Bloomberg, 31/12/2015
Underpenetration: Bedrock Of Our Investment Process Improving living standards Taesa (Brazil): Current and future electricity networks Companies improving the quality of life and promoting a sustainable way of living by providing critical public and private infrastructure in Transportation Housing Telecommunications Electricity Supported by a favorable regulatory framework For example, we invest in a transmission company in Brazil enabling the expansion of electricity networks to all parts of Brazil, including remote places. 21 Sources: Carmignac, Company data 2017
ESG Investment Steps Step 1 Idea Generation All companies eligible to our investment universe must meet both our country, sector and company criteria as well as our ESG standards and exclusion policy. Step 2 ESG analysis The team carries out a detailed ESG evaluation. Companies are screened for controversies using the MSCI ESG Business Involvement Screener and stock selection is made through a best in class approach to sustainability using the MSCI ESG Rating Research Step 3 Company visits We complete our analysis with very regular on site visits, one on one meetings with company management in order to understand the companies strategy as well as their long term engagements Step 4 Monitoring Consideration of ESG issues does not end when the investment decision is made. The whole EM team discusses on an on-going basis the investment case of companies they invest in, including a review of different sustainability aspects. 22
Carmignac Emergents Screening Stock daily liquidity INVESTMENT UNIVERSE 1000 companies Embedded ESG Filter & analysis using MSCI ESG rating Research Company ESG analysis External vulnerability Long term growth Underpenetrated sectors SOE / non-soe Wealth / cash flow generation Profitability Balance sheet quality COUNTRY SELECTION SECTOR SELECTION STOCK SELECTION FUND 600 companies 400 companies Investable Universe 200 companies 40-60 companies 23 Source: Carmignac, January 2017
Carmignac Emergents Screening MSCI EM Carmignac Emergents Investable Universe 33% 67% Unprofitable companies, SOEs, overleveraged companies, saturated sectors, etc. 24 Source: Carmignac, January 2017
Exclusion Policy Carmignac exclusion list EM team s own company exclusions Controversial Sectors analysis 25 Source: Carmignac, 2017
EM Equity Team s Extended Exclusion List EM team s own company exclusions TEAM S RESTRICTIONS Tobacco companies that derived any turnover from the production of tobacco products Thermal coal companies which have more than 5% of their revenues from coal extraction Oil sands companies who derived more than 1% of total production from oil sands Adult entertainment companies involved in the production of pornographic materials Meat processing companies that derived any turnover from the production of cattle, pork, lamb or poultry Companies in the PETA (People for Ethical Treatment of Animals) exclusion list 26 Source: Carmignac, January 2017
Case study: Exclusion of meat companies EM team s own company exclusions TEAM S RESTRICTIONS Meat processing companies that derived any turnover from the production of cattle, pork, lamb or poultry: Slaughterhouses and a livestock confinement companies are responsible of the slaughter of over 100 billion animals globally each year It is estimated to account for 16% of all greenhouse emissions worldwide 23% of global fresh water supplies, 33% of global arable land and 45% of global land are devoted to livestock feed, and cattle ranching accounts for 70% of the deforestation in the Amazon rainforest. If 45% of corn and 80% of soybeans grown globally were fed directly to humans instead of animals, around 70% more food would be added to the world s supply, enough to feed 4 billion additional people 27
Controversial Sectors: An Exercise Of Best In Class Controversial Sectors Controversial Sectors analysis Taking into account the social impact and conduct of the companies Specific considerations and scrutiny Examples in our portfolio Official and legal gambling companies that are run through a licensed company as opposed to unofficial gambling mostly run by criminal and terrorist organizations Kangwon Land (Korean gambling company) Official casino revenues at $1bn vs. unofficial gambling market at $50bn per year. Alcoholic beverages producers run through a licensed company offering formal and high quality products, encouraging those who consume alcohol to do so safely as opposed to informal alcohol United Spirits (Indian spirits company). In India, unofficial spirits accounts for 50% of the total spirits liquor market Mining companies supporting communities making efforts to reduce the environment impact of their activities Grupo Mexico (Mexican copper producer) addressing the needs of local communities by investing in education and reforestation projects 28 Source: Carmignac, January 2017
Our Internal ESG Guidelines Portfolio construction objective Program of engagement with companies Voting Policy engagement Minimum 40% of the Fund invested in companies rated A or above by MSCI ESG Maximum 25% of fund invested in companies rated below BB by MSCI ESG We commit to a strengthened engagement dialogue with companies to improve their approach to ESG issues A participation rate of 80% or above* * Excluding warrants/ P-Notes and preference shares 29 Source: Carmignac, January 2017
Conclusion 30
The Value Added of ESG to Invest in Emerging Markets Starts to be Recognised Financial Times on the 20th of July 2017 31 Sources: Bloomberg as of 31/08/2017, base 100 as of 28/09/2007 FT, «Investors in companies that do good do better», James Kynge, 20/07/2017
Good Governance Outperforms in Emerging Markets 160 MSCI Emerging Markets ESG Index 140 120 100 80 60 MSCI Emerging Markets Index 40 32 Sources: Bloomberg as of 31/08/2017, base 100 as of 28/09/2007 FT, «Investors in companies that do good do better», James Kynge, 20/07/2017
Conclusion: A Socially Conscious Fund A strong recognition of our ESG strengths by Morningstar and MSCI ESG Morningstar Sustainability Globes Out of 470 Global Emerging Market Equity funds as of 31/07/2017. Based on 74% of AUM. Carmignac Emergents has a high sustainability score Socially Conscious Tag Carmignac Emergents is identified as a socially conscious Fund by Morningstar 4,8 4,6 4,4 4,2 4,0 3,8 3,6 Overall MSCI ESG score* - Carmignac Emergents vs MSCI EM 4,13 MSCI EM 4,60 Carmignac Emergents Due to its rigorous investment process, Carmignac Emergents has a higher MSCI ESG rating than the MSCI EM Index Morningstar Sustainability Globes rating is a way to evaluate how well the companies in a fund s portfolio are managing the environmental, social, and governance or ESG investing factors relevant to their industries. Sustainability Score as of 30/06/2016. Sustainability Rating as of 31/07/2017. Above Average. Sustainalytics provides company-level analysis used in the calculation of Morningstar s Sustainability Score. 2017. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content 33 providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Conclusion: A Rigorous Approach that Works over the Long Term Carmignac Emergents Ref. Indicator* 180 170 160 150 140 130 120 110 100 90 2010 +30.9% +24.5% 2011-12.1% -17.8% 2012 +17.3% +13.4% 2013-6.2% -6.8% 2014 +5.8% +11.4% 2015 +5.2% -5.2% 2016 +1.4% +14.5% 2017 (YTD) +15.2% +14.0% Carmignac Emergents A EUR Acc +64.6% Reference Indicator** +49.0% 34 Past performance is not necessarily indicative of future performance. Management fees are included in performance. **MSCI Emerging Markets (EUR), (Reinvested net dividends, rebalanced quarterly) Source: Carmignac, 29/09/2017; Base 100: 31/12/2009
Conclusion: A Rigorous Approach That Works over the Long Term 1 st 5-year volatility Quartile in its Morningstar category 0 25 50 Low volatility 1 er quartile Carmignac Emergents Morningstar category MSCI EM 5-year Down Capture Ratio Quartile in its Morningstar category 0 25 50 Low down capture 1 st quartile Carmignac Emergents Morningstar category Carmignac Emergents is 1 st quartile for its volatility and down capture ratio over 5 years 75 100 4 th quartile High volatility 75 100 4 th quartile High down capture MSCI EM Source: Carmignac, 31/07/2017; Base 100: 30/07/2012; Morningstar Direct. 2017 Morningstar, Inc - All rights reserved. Monthly returns in Euro, net of fees, as of 31/07/2017. Category composed of all shares of all funds in the Global Emerging Markets Equity Morningstar category. Share class used for Carmignac Emergents: FR0010149302 ((1) Reference indicator: MSCI EM. Management fees are included in performance.) 35 Past performance is not a reliable indicator of future performance
Q&A Michel Wiskirski Emerging Market Analyst, ESG Specialist 36
T H A N K Y O U F O R A T T E N D I N G! F O L L O W O U R E X P E R T S O N O U R W E B S I T E w w w. c a r m i g n a c. c o m L I N K E D I N P R O F E S S I O N A L S O N LY
Disclaimer This presentation is intended for professional clients and has not been submitted for FSMA validation. This presentation may not be reproduced, disseminated or communicated, in whole or in part, without prior authorisation from the management company. This presentation does not constitute a subscription offer, nor does it constitute investment advice. The information contained in this presentation may be partial information, and may be modified without prior notice. Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). Net investment returns are calculated after deducting the charges and taxes applicable to an average retail client who is an individual resident in Belgium. The analysis of financial instruments in this presentation, was not prepared in accordance with applicable regulatory provisions regarding the independence of financial analysts. The Management Company is not subject to the prohibition of entering into transactions in connection with the relevant instruments before the presentation of this material. This material is presented for illustrative purposes only to point out certain instruments which are (or which were) in the portfolios of certain Carmignac funds, and it is does not aim to promote a direct investment in the instruments mentioned herein. The portfolios of Carmignac funds may change without previous notice. To find out the actual fees charged by each distributor, please refer to each distributor's respective fee schedule. Annual maintenance costs (custody fees) may be charged. They may vary from one institution to another, please liaise with your contact for further information. The Funds present a risk of loss of capital. Any contractual information relating to the Funds entered in this publication figures in the respective prospectuses of said Funds. The prospectuses, KIIDs, the net asset values and the latest (semi-) annual management reports may be obtained, free of charge, in French or in Dutch, from the management company (tel. +352 46 70 60 1). These documents may also be obtained via the website www.carmignac.be or from Caceis Belgium S.A., the financial service provider in Belgium, at the following address: avenue du port, 86c b320, B-1000 Brussels. The KIIDs must be made available to the subscriber prior to each subscription. It is recommended that the subscriber read the KIID before each subscription. The minimum subscription amount for A EUR acc units is 1 unit. The Fund may not be offered or sold, directly or indirectly, for the benefit or on behalf of a "U.S. person", according to the definition of the US Regulation S and FATCA. If you subscribe to a French investment fund (fonds commun de placement or FCP), you must declare on your tax form, each year, your share of the dividends (and interest, if applicable) received by the Fund. You can perform a detailed calculation at www.carmignac.be. This tool does not constitute tax advice and is intended to serve solely as a calculation aid. This does not exempt you from having to perform the procedures and verifications incumbent upon you as a taxpayer. The results indicated are obtained using data that you provide, and under no circumstances shall Carmignac be held responsible in the event of error or omission on your part. Pursuant to Article 19bis of the Belgian Income Tax Code (CIR92), in the case of subscription to a Fund that is subject to the Savings Taxation Directive, the investor will have to pay, upon redemption of his or her shares, a withholding tax of 27% on the income (in the form of interest, or capital gains or losses) derived from the return on assets invested in debt claims. Distributions are subject to withholding tax of 27% without income distinction. Copyright: The data published in this presentation are the exclusive property of their owners, as mentioned on each page. Any complaint may be referred to complaints@carmignac.com or CARMIGNAC GESTION - Compliance department - 24 place Vendôme Paris France. Non contractual document, completion achieved on 09/10/2017 CARMIGNAC GESTION Asset management company (AMF authorisation no. GP 97-08 of 13/03/1997) Limited company (société anonyme or SA) with capital of 15,000,000 Registration no.: RCS Paris B 349 501 676 24 Place Vendôme 75001 Paris Tel: +33 1 42 86 53 35 CARMIGNAC GESTION LUXEMBOURG Subsidiary of Carmignac Gestion UCITS management company (CSSF authorisation of 10/06/2013) Limited company (SA) with capital of 23,000,000 - Registration no.: RC Luxembourg B67549 City Link -7, rue de la Chapelle L-1325 Luxembourg Tel: +352 46 70 60 1 38