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Emerging marketsA presentation for the Citywire Zurich ForumPresenter: David Holstein3 March 2011
AgendaEmerging markets: a presentation for the Next Generation Forum                       Why one asset class?           ...
Why one asset class?Country remains the most important decision: Economic policies, Growth, Demographics, Politics, Curren...
Broadest opportunity set                       Large cap EM equities                Convertibles                          ...
Power of a broad universe               Realised volatility: Standard deviation of weekly returns (US$)                   ...
Synergy in analysisFixed income: Financial strength                   Equities: GrowthFocus on the ability to pay back obl...
Advantages — flexibilityAmérica Móvil: Bond vs. EquityAmérica Móvil basics                                                ...
Country dynamics: Appropriate equity risk premium?Brazil: Cash vs. Equities returns80             Cash                    ...
High-yield sovereigns: Equity-light?                                                 ‘Aggressive’ Sovereign Short-Term* De...
Corporate bonds: Company-specific risk/return             EM Corporate Bonds vs. US Treasury Yield                        ...
Sovereign Debt: Local or Dollar?Local Yield Curves 1                                                                      ...
Currencies: Return potentialCommodity currencies: Brazilian Real                                           Different econo...
Benefiting from “narrow” insights High oil prices                                                                        ...
Emerging Markets Total Opportunities (ETOP)   A new way to access emerging markets
Equity-like returns with significantly lower volatility                                   Take advantage of the dynamism in...
Setting expectations                          Clear expectations                                                          ...
Emerging markets volatilityRolling three-year volatility as of 31 December 2010                40%                35%     ...
Emerging Markets Total Opportunities group portfolioAsset mix                 %                 60                        ...
Currency positioningEmerging Markets Total Opportunities1                                                                 ...
Emerging Markets Total Opportunities group portfolioFixed income portionType of fixed-income exposure%      %100 90       ...
Country exposure and risk contribution Emerging Markets Total Opportunities1   %   16                                     ...
Top 20 risk contributorsEmerging Markets Total Opportunities 1             Issuer                                         ...
Experience and insightPeople: Emerging Markets Total Opportunities teamThree portfolio managers with an average of 23 year...
Emerging Markets Total Opportunities – cumulative returnsIn US$ (31 July 2006 – 31 December 2010) ¹100%                   ...
Emerging Markets Total Opportunities compositeInvestment results as at 31 January 2011 in US$ terms                       ...
Appendix
An introduction to Capital InternationalWhat makes us different                                     The kind of organisati...
Strength through stabilityOverview of our organisation                                                                    ...
Experience in emerging markets investingThere from the beginning    Pioneer investor in emerging markets    We believe t...
Fundamental research integrated across asset classesSharing different perspectives across geographies and assets classes i...
Emerging Markets Total OpportunitiesA good fit                Enhance appeal of emerging markets                  – Intro...
Volatility target is a significant input intothe portfolio construction process12% target volatility will vary depending o...
Emerging Markets Total Opportunities (ETOP) teamAdvantages of the multiple portfolio manager systemCollective independence...
1 76881315 citywire-zurich_forum_0311
1 76881315 citywire-zurich_forum_0311
1 76881315 citywire-zurich_forum_0311
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  1. 1. Emerging marketsA presentation for the Citywire Zurich ForumPresenter: David Holstein3 March 2011
  2. 2. AgendaEmerging markets: a presentation for the Next Generation Forum Why one asset class? 2–12 Emerging Markets Total Opportunities (ETOP) – A new way to access emerging markets 13–24 Appendix 25–35 EU.05.1-76881315_0311 1
  3. 3. Why one asset class?Country remains the most important decision: Economic policies, Growth, Demographics, Politics, Currency, Governance Emerging markets Decomposition of nominal returns1, 1992 through late-September 2009 % 70 60 50 40 Industry 30 Sector 20 Country 10 Region 0 92 94 96 98 00 02 04 06 081 Computed using capitalization-weighted monthly USD returns. Attribution of monthly USD returns to various factors.Source: Empirical Research Partners Analysis.Data smoothed on a trailing two-year basis. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 2
  4. 4. Broadest opportunity set Large cap EM equities Convertibles Corporate dollar bonds Small cap EM equities Dollar sovereign bonds 60+ Frontier market equities Countries Index-linked bonds Private market EM equities (not currently held in CIETOP) Local sovereign bonds Developed market equities with significant EM exposure Currencies EU.NB_CL.ETOP. 223658_968 EU.05.1-76881315_0311 3
  5. 5. Power of a broad universe Realised volatility: Standard deviation of weekly returns (US$) 47.0% 2010 50% Emerging markets: 2007-2010 40% 35.6% Equity only Expanding the universe to debt 30.7% 28.3% 27.2% 30% 23.9% 25.1% 23.9% 21.9% 20.5% 22.6% 18.4% 20.4% 17.1% 16.9% 16.1% 15.1% 20% 13.5% 10% 0% B razil B RICs M SCI EM IM I S&P 500 80% EM Eq / 20% EM 70% EM Eq / 20% EM 65% EM Eq 20% EM 60% EM Eq / 20% EM 50% EM Eq / 20% EM Lo cal FI FI Lo c / 1 EM FI $ FI Lo c / 1 EM FI $ / FI Lo c / 1 EM FI $ / FI Lo c / 1 EM FI $ / 0% 0% 0% 5% 5% EM FI $ Co rp 5% EM FI $ Co rp / 5% 1 EM FI $ Co rp / 0% EM FI Linker 5% EM FI Linker Cumulative returns (US$) 2007–2010 Index 50% EM Equity / 20% EM FI Local / 160 15% EM FI USD / 10% EM FI $ Corp / 5% EM FI Linker 140 MSCI Emerging Markets IMI 120 100 S&P 500 80 60 40 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10As at 31 December 2010. Sources: RIMES, Barclays, JPMorgan Chase. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 4
  6. 6. Synergy in analysisFixed income: Financial strength Equities: GrowthFocus on the ability to pay back obligation Focus on growth as a driver of future returns Sovereign instruments – concentrate on “risks”  Long-term country growth – Macroeconomic policies – Demographics – Inflation – Incomes – Currency  Industry/sector growth – Politics – Future demand – Legal system – Competition Balance sheet of country/company – Key suppliers/customers Driver: obligation being met – get paid back  Drivers of future returns: Key contacts: – Revenue growth – Central Bankers – Earnings growth – Economists/Strategists – Dividend growth – Politicians – Valuation – re-rating possibilities  Key contacts: – Company management – Sell side EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:ELKIND CONF 1209:ELKIND CONF 1209 COLOR.PPT 5
  7. 7. Advantages — flexibilityAmérica Móvil: Bond vs. EquityAmérica Móvil basics América Móvil Bond vs. Stock returns Growth of 100 Dominant telecom operator 140 Bond Bond: -19% Bond: +45% +31% in Mexico Stock: -50% Stock: +43% 120 Cumulative Increasing range of services and returns 100 penetration across Latin America Stock 80 -5% High quality company with Bond: +11% attractive assets 60 Stock: +33% Consistent grower 40 Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- 07 07 08 08 08 08 08 08 09 09 09 09 09 09 10 10 10 10 10 10 Bond yield spreads vs. US Treasuries Spread (basis points) 600 500 400Time period shown is 30 October 2007 to 31 December 2010. 300América Móvil bond reflects América Móvil SAB de CV 5.625% 11/15/2017.Government of the United States of America 4.75% 8/15/2017.Mexico sovereign bond reflects Government of Mexico 11.375% 9/15/2016. 200These charts are presented for illustrative purposes only. América Móvil bondThey are not meant to reflect the specific experience of 100investors in the Emerging Markets Total Opportunities Fund. Shares of AméricaMóvil may or may not have been held at Mexico sovereign bondany point during the referenced time period. 0Sources: MSCI data from RIMES, FactSet. Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Dec-10 EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:AMERICA MOVIL 1210.PPT 6
  8. 8. Country dynamics: Appropriate equity risk premium?Brazil: Cash vs. Equities returns80 Cash 2000–2010 Equities annualised returns60 Cash 17.5% Equities 21.4%4020 0-20-40-60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010As at 31 December 2010. Source: DataStream. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 7
  9. 9. High-yield sovereigns: Equity-light? ‘Aggressive’ Sovereign Short-Term* Debt vs. ‘Defensive’ Equities, 2008 and 2009 80 EM Utilities 60 40 Indonesia Debt EM Telecommunication Services Egypt Debt Turkey Debt 20 % Return (US$) 2009 2009 0 2008 2008 Egypt Debt Indonesia Debt Turkey Debt -20 EM Telecommunication -40 Services EM Utilities -60 0 5 10 15 20 25 30 35 40 45Source: MSCI, JPMorgan, RIMES. Volatilityreflects weekly data annualised. Realized volatility (%)* Short-Term Debt reflects 1−3 years maturity. EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:HIGH YIELD SOVEREIGNS 1210.PPT 8
  10. 10. Corporate bonds: Company-specific risk/return EM Corporate Bonds vs. US Treasury Yield Telecomm/Media Yield Energy & Materials 12.00 Banks Other 10.00 Orascom Telecom Cemex Finance Banco Do Brasil 8.00 Marfrig Evraz Standard Bank MTS Vale Reliance 6.00 Digicel BBVA Gazprom Televisa Bank of China America Movil US Treasuries 4.00 Petrobras Hyundai Motor 2.00 0.00 1yr 2yr 5yr 7yr 10yr 30yr Maturity 2009–2010 Returns Issuer Country Sector Bond maturity Bond (%) Equity (%) Description Orascom Telecom Egypt Telecom 2014 130 -31 Wireless telecom to Middle East/Asia ICICI Bank India Financials 2022 116 171 Indian banking and financial services Evraz Russia Materials 2015 157 317 Steel producer and distributor Petróleo Brasileiro – Petrobras Brazil Energy 2013 47 63 Integrated oil and gas companyAs at 31 December 2010. Source: Factset EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 9
  11. 11. Sovereign Debt: Local or Dollar?Local Yield Curves 1 Sovereign spreads vs.14.0 US Treasuries 2 Brazil Dollar bonds bps12.0 Malaysia 104 Mexico 14910.0 Indonesia Indonesia 155 Hungary Brazil 168 8.0 Mexico Russia 208 Sri Lanka 260 6.0 Hungary 343 South Korea 4.0 U.S. Argentina 489 Venezuela 1,099 2.0 0.0 1Y 2Y 3Y 4Y 5Y 7Y 10Y 20Y 30Y1 Source: Bloomberg as at 31 December 2010.2 Source: JPMorgan EMBI Global as at 4 January 2011. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM YIELD CURVES 1210.PPT 10
  12. 12. Currencies: Return potentialCommodity currencies: Brazilian Real Different economic paths: Hungarian Forintvs. South African Rand vs. Indonesia RupiahIndex vs. USD Index vs. USD160 140 130140 -5.6% +36% 120 +27% -28% Real120 110 Rand100 100 Rupiah 90 Forint -1.1% 80 -3.5% +10% 80 +0.9% 60 70 40 60 Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- 06 07 07 08 08 09 09 10 10 06 07 07 08 08 09 09 10 10As at 31 December 2010.Source: Factset EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111 D010511.PPT 11
  13. 13. Benefiting from “narrow” insights High oil prices  Argentina: Kirchner’s death and recognizing potential – Oil prices to stay high with global growth and emerging markets  Political change should be a positive catalyst demand – Economy doing well – Companies – more or less leverage to basic price of oil – Global expansion and high commodity prices help – Sasol, Gazprom, Petrobras, CNOOC – Re-establishing itself in financial/global community – repay – Oil dependent countries’ finances tied to oil prices defaulted debts – Venezuela, Russia, Nigeria, Iraq – Good financial position Venezuela $ bond has competitive returns  Limited investments – Frontier Equity market and Dollar BondsOil price vs. selected securities (as at 31 Dec 10) Stocks >$1Billion Market CapCumulative return growth base 100 Crude oil priceIndex US$/bb Returns (%)180 150 Company Sector 27 Oct 10–31 Dec 10 Venezuela SASOL160 Petrobras Oil Tenaris S.A. Energy 20.5 130140 YPF Energy 33.7 110120 Banco Macro B ADR Financials -2.8100 90 Grupo Fin Galicia B ADR Financials 17.7 80 70 60 Sovereign Fixed Income ($) 50 40 Returns (%) 20 30 27 Oct 10–31 Dec 10 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Nominal 5 Year 4.1*100 at 20 December 2007Sources: FactSet, Capital Guardian, DataStream, JPMorgan and MSCI GDP Linked 25 Year 18.8 EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 12
  14. 14. Emerging Markets Total Opportunities (ETOP) A new way to access emerging markets
  15. 15. Equity-like returns with significantly lower volatility Take advantage of the dynamism in emerging markets by investing in all types of securities with the objectives of seeking long-term capital growth, preservation of capital and lower volatility of returns. EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:NB:0910:ETOP_NB_0910.PPT 14
  16. 16. Setting expectations Clear expectations Broad guidelines 10% target annual returns and 12%  Country allocations will not exceed 25% target volatility over the business cycle  US cash and hedging of currencies and countries permitted  Volatility can be increased opportunisticallyCapital International is an active manager that creates portfolios by selecting securities using fundamental research and does not manage portfolios to achieve specific returns or volatility targets.We cannot provide any guarantee with respect to the performance or volatility targets herein. EU.NB_CL.ETOP. 223659_007 EU.05.1-76881315_0311 15
  17. 17. Emerging markets volatilityRolling three-year volatility as of 31 December 2010 40% 35% EM Equities 30% 25% Long-Run Equity Average 20% 15% High EM Bonds (US$) EM Bonds (Local Ccy) 10% Decreasing Volatility post volatility Increasing volatility Asian and 5% leading up to Moderate volatility due to Asian and Russian Volatility declines to Global peso crisis despite peso crisis Russian crises crises historically low levels financial crisis 0% Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Annualised returns EM equities EM bonds Increasing volatility October 1, 1997–July 31, 2001 -10.4% 5.0% August 1, 2007–June 30, 2010 - 4.0% 8.1% Decreasing volatility December 31, 1991–November 30, 1993 30.7% – July 31, 2001–September 30, 2005 24.1% 15.9% Moderate/low volatility* 31 December 1993–30 September 1997 Low: September 30, 2005–July 31, 2007 36.2% 10.1%Emerging markets represent: emerging markets equity (MSCI Emerging Markets Index),emerging markets bonds US$ (JPMorgan Emerging Markets Bond Index – Global), Moderate: December 1, 1993–September 30, 1997 4.0% 14.0%*emerging markets bonds local currency (JPMorgan GBI EM Global), emerging markets Moderate: June 30, 2010−December 31, 2010 26.9% 9.5%corporate bonds (JPMorgan CEMBI Corporate Emerging Market Bond Index)Source: MSCI, JPMorgan. All indices are unmanaged. Entire time period: July 31, 2007−December 31, 2010 3.5% 9.8% EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:EM_VOLATILITY_1210.PPT 16
  18. 18. Emerging Markets Total Opportunities group portfolioAsset mix % 60 Model portfolio Portfolio Fixed income 50 Equity 40 30 20 10 Cash 0 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Dec-10As at 31 December 2010Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities.Cash includes TIPs exposure from May 2008.Totals may not reconcile due to rounding. EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:CR:1210:GROUP_PORTFOLIO_ASSET_ALLOC_1210.PPT 17
  19. 19. Currency positioningEmerging Markets Total Opportunities1 Exposure Exposure Exposure Exposure Exposure Exposure % Local before after change before after changeCountry % Portfolio currency* Currency hedges (%) (%) (%) Currency hedges (%) (%) (%)Brazil 10.3 3.6 Brazilian Real 8.7 3.6 -5.1 British Pound Sterling 1.9 1.1 -0.8Mexico 8.9 4.4 Euro 1.9 -0.7 -2.6 Thai Baht 2.1 1.7 -0.4United States 6.5 39.7 Mexican Peso 6.4 4.4 -2.0 Israeli Shekel 0.6 0.1 -0.4Argentina 5.5 1.3 South African Rand 1.6 0.1 -1.5 Australian Dollar 0.7 0.5 -0.2China 3.9 0.1 Canadian Dollar 1.2 0.1 -1.1 US Dollar 24.6 39.7 15.1South Africa 2.9 0.1 Indonesian Rupiah 6.7 5.7 -1.0 US dollar exposure % 70 60 US$ assets 50 after hedge 39.7% 401 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ. 24.6% 30As at 31 December 2010*Includes hedging US$ assetsTotals may not reconcile due to roundingThis information supplements or enhances required or recommended 20disclosure and presentation provisions of the GIPS® standards, whichif not included herein, are available upon request. GIPS is a trademark Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10owned by CFA Institute. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:5176_CURR_POS_1210.PPT 18
  20. 20. Emerging Markets Total Opportunities group portfolioFixed income portionType of fixed-income exposure% %100 90 Sovereign local 80 70 60 Sovereign dollar 50 40 Inflation-linked 30 20 Corporate dollar 10 0 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10As at 31 December 2010Excludes TIPS, Cash and Equities.Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities. EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:CR:1210:GROUP_PORTFOLIO_FIXED_INCOME_PORTION_1210.PPT 19
  21. 21. Country exposure and risk contribution Emerging Markets Total Opportunities1 % 16 15.5 % of portfolio 14 % of risk contribution 12 11.4 10.0 10 8.7 8.8 8 7.4 7.6 7.3 7.3 6.86.8 6.7 6.5 6.3 5.8 6 5.5 4.7 4.8 4.9 4.4 3.9 3.8 4 3.5 3.4 3.5 3.1 3.2 3.1 2.9 2.5 2.6 2.2 2.2 1.8 1.9 1.9 2 1.3 1.2 1.5 1.4 1.0 0.8 0 ic ey es es m ng an a il d ia a a er a da a ia ico sia nd tin az re r ic di n bl in ss in at th do s rk iw Ko la na la ay ne ex In Ch Ko pu Br Af n pp Ru Tu St lo ng ai Po Ta Ca ge M do al ng Re Th ili Al th h d Ki M Ar In ut te Ph Ho u h d iSo So ec Un i te Cz Un 1 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ. As at 31 December 2010. Sources: Capital International, MSCI Barra This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT 20
  22. 22. Top 20 risk contributorsEmerging Markets Total Opportunities 1 Issuer Country Sector % of Portfolio % of Total Risk FI Brazil government inflation-linked Brazil Government 6.3% 4.9% EQ Samsung Electronics South Korea Information Technology 2.3% 4.7% FI Indonesia government (IDR) Indonesia Government 4.9% 3.0% FI Argentina government (USD) Argentina Government 4.2% 2.8% EQ Bharti Airtel India Telecommunication Services 1.3% 2.7% FI Mexico government (MXN) Mexico Government 3.1% 2.6% FI Turkey government inflation-linked Turkey Government 1.7% 2.5% EQ Sberbank Russia Financials 1.0% 2.3% EQ Taiwan Semiconductor Manufacturing Taiwan Information Technology 1.6% 2.3% EQ China Shenhua Energy China Energy 1.0% 2.2% EQ LG Chem South Korea Materials 1.1% 2.2% EQ Freeport MacMoRan Copper & Gold U.S. Materials 0.9% 2.2% FI Mexico government inflation-linked Mexico Government 1.7% 2.1% EQ Delta Electronics Taiwan Information Technology 1.2% 2.0% EQ Gazprom Russia Energy 0.9% 2.0% EQ Telekomunikacja Polska Poland Telecommunication Services 1.2% 1.9% EQ Astra International Indonesia Consumer Discretionary 0.6% 1.8% EQ United Spirits India Consumer Staples 1.0% 1.8% EQ Anglo American UK Materials 0.7% 1.7% FI Turkey government (TRY) Turkey Government 1.4% 1.6%1 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ.As at 31 December 2010. Sources: Capital Guardian, MSCI BarraConvertible securities, if listed above as a top 20 risk contributor, are classified as equity/fixed income.This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. EU.05.1-76881315_0311 NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:5176_T20RISK_1210.PPT 21
  23. 23. Experience and insightPeople: Emerging Markets Total Opportunities teamThree portfolio managers with an average of 23 years’ investment experience Portfolio manager Analyst Years of Trader experience Shaw Wagener 28 Laurentius Harrer 21 Luis Oliveira 21 1986 1990 1994 1998 2002 2006 2010 World’s first emerging Emergence of Mexican Russian Growth of Oil prices markets fund offered Asian “Tiger” peso crisis debt the BRICs surge economies default Introduction of Asian MSCI EM Index currency crisisAs at 31 December 2009 EU.05.1-76881315_0311 EU.NB_CL.ETOP. 223663_206 22
  24. 24. Emerging Markets Total Opportunities – cumulative returnsIn US$ (31 July 2006 – 31 December 2010) ¹100% Model Portfolio Start of live ETOP portfolio ¹ Since inception Cumulative returns: (31 July 06 – 31 Dec 10) 80% ETOP 1 +76.7% Annualised Annualised Returns (%) Volatility 5 (%) 60% ETOP 1 13.8 11.5 Bond Index 2 10.7 9.5 40% Blended Index 3 12.4 16.9 MSCI EM IMI 4 13.0 25.9 20% 0% -20% ETOP MSCI EM / IMI Blended index Bond index -40% Dec-10 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-101 Results are based on a model portfolio which commenced on 31 Jul 06 and includes emerging markets equities, emerging markets bonds and cash equivalents. For results prior to 30 Sep 07, income for equities and bonds is not accrued and is assumed to be immediately received and reinvested in the income-generating asset and trading expenses and other operational costs are excluded. Results after 30 Sep 07 reflect the Capital Guardian Emerging Markets Total Opportunities Fund for Tax-Exempt Trusts gross of management fees. These results are shown net of: (i) custodial, audit and other expenses and (ii) withholding taxes on dividends, interest, and capital gains. Withholding tax rates apply primarily to US institutional investors. Over the lifetime of the fund (30 Sep 07 – 30 Nov 09), deducting the highest management fee charged for portfolios with a minimum investment of US$ 10 million would result in net investment results of 3.77% per annum. Actual investment results net of management fees may differ depending on the size of the portfolio. The client’s return will be reduced by these fees and other expenses that the client may incur. CGTC’s management fees are described in Part II of its form ADV. The hypothetical results are for illustrative purposes only and are not intended to provide any assurance of actual results. Source: Capital/CGII2 50% JPMorgan GBI EM Global Index and 50% JPMorgan EMBI Global Index. Source: JPMorgan3 50% MSCI EM IMI with net dividends reinvested (with 50% MSCI EM Index prior to 30 Nov 07), 25% JPMorgan GBI EM Global Index and 25% JPMorgan EMBI Global Index4 MSCI Emerging Markets Investable Market Index with net dividends reinvested (with MSCI EM Index prior to 30 Nov 07). Source: MSCI5 Based on daily observations, using a population standard deviation calculationAll indices are unmanaged. All results reflect the reinvestment of dividends and other earnings.This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute. EU.05.1-76881315_0311 EU.SM.RES. 083624_943 23
  25. 25. Emerging Markets Total Opportunities compositeInvestment results as at 31 January 2011 in US$ terms (%) Return in US$ Composite ¹ MSCI EM IMI ² EM Equity Debt ³ 2007 3 months 2.4 3.7 3.5 2008 -22.1 -53.8 -34.4 2009 42.1 82.4 51.6 2010 11.9 19.9 17.1 2011 1 month -1.8 -2.8 -1.9 Annualised lifetime return (3 years 4 months) 6.9 0.6 5.1 Total value of Capital Guardian/International Emerging Markets Total Opportunities composite as at 31 January 2011 is US$ 1,288 million (3 accounts) (%) Standard deviation 4 Composite ¹ MSCI EM IMI ² EM Equity Debt ³ 2007 3 months 11.0 22.6 13.5 2008 15.5 38.9 25.7 2009 10.0 25.5 16.4 2010 8.1 17.5 11.8 Annualised lifetime standard deviation (3 years 4 months) 11.5 28.2 19.8Lifetime: 30 Sep 2007 to 31 Jan 20111 Before management fees and expenses. Source: Capital/CGII2 MSCI Emerging Markets Investable Market Index with net dividends reinvested (with MSCI EM Index prior to 30 Nov 07). Source: MSCI3 50% MSCI EM IMI with net dividends reinvested (with 50% MSCI EM Index prior to 30 Nov 07), 25% JPMorgan GBI EM Global Index and 25% JPMorgan EMBI Global Index4 Based on daily observations, using a population standard deviation calculation. There are no volatility figures for 1 month (to 31 Jan 2011) as the period is too short for statistical significance EU.05.1-76881315_0311 EU.SM.RES. 064621_309 24
  26. 26. Appendix
  27. 27. An introduction to Capital InternationalWhat makes us different The kind of organisation we are  Private ownership fosters stability and a long-term business culture The way we do our research  Globally integrated, fundamental research forms the basis for identifying multi-year investment opportunities The way we construct portfolios  The Multiple Portfolio Manager System helps create naturally diversified portfolios of high-conviction investments All of this is aimed at providing our clients with consistent, superior long-term investment results EU.05.1-76881315_0311 EU.NB_CL.ITC. 402471_199 26
  28. 28. Strength through stabilityOverview of our organisation The Capital Group Companies, Inc. Capital Group Capital Research and International, Inc. Management Company US$ 140 billion US$ 1,091 billionPrivate Separate accounts and US and Luxembourg-based Our organisation has always been privately owned by senior employees 1 pooled funds for institutions mutual funds for individuals and individuals 2 worldwide and institutionsLong-term This enables us to manage our business with a long-term focus Manage investment services that Capital International offersFocused Investment management is our only businessData as at 31 December 2010 – provisional1 Includes recent retirees2 Capital International does not sell directly to individuals but through intermediariesCapital Research and Management Company (CRMC) and the investment management affiliates within Capital Group International, Inc. (CGII), which include Capital International Limited (CIL)and Capital International Sàrl (CISA), manage equity assets independently from one another EU.NB_CL.ITC. 419451_019 EU.05.1-76881315_0311 27
  29. 29. Experience in emerging markets investingThere from the beginning Pioneer investor in emerging markets We believe that having a global approach to emerging markets investing makes us better investors Established resource capabilities across emerging market asset classes Experienced and stable investment team 1986 1987 1990 1992 1994 1999 2007 2007/8 2010 Emerging Markets Capital International First dedicated CIF Global Capital International Growth Fund 1 Emerging Markets Fund EM Debt mandate High Income Emerging Markets Opportunities Total Opportunities 2 MSCI CIPEF I-V Capital International Capital International EM Index Emerging Markets Emerging Markets Debt Emerging Markets Private Equity (CIEMD) launched Local Currency Debt (CIEMLCD) launched Begin investing in EM Debt Capital International Emerging Markets US Dollar Debt (CIEMUSDD) launched1 Emerging Markets Growth Fund is a US domiciled open-end interval fund generally offered to institutional investors and other “qualified purchasers” in the US by our affiliate Capital International, Inc.2 Known as CIP Emerging Markets Total Opportunities prior to 10 August 2010 EU.SM.CAP_INF. 311527_534 EU.05.1-76881315_0311 28
  30. 30. Fundamental research integrated across asset classesSharing different perspectives across geographies and assets classes is our competitive advantageOur research approach Over 100 equity and fixed income analysts collaborate to share insights from different perspectives Equity Avoiding research silos Private Investment Debt Equity opportunity Macro / Quant EU.SM.INV_PROC. 402446_575 EU.05.1-76881315_0311 29
  31. 31. Emerging Markets Total OpportunitiesA good fit  Enhance appeal of emerging markets – Introduction to the asset class — first dedicated investment – Helps make large allocation possible – Reduced volatility is an attractive attribute  Emerging markets as the asset class – Gain exposure to emerging market debt – Delegate allocation decision between emerging markets debt and equity  Great addition to an existing emerging markets equity program — different return/risk pattern  Efficient use of risk budget – Exposure to high-return assets – Attractive information ratio  Alternate/opportunistic allocation strategy – Hybrid mandate has unique characteristics – Objective is absolute return over the long term EU.05.1-76881315_0311 NYO:10 PROD:OBJECTIVES:ETOP:NB:0910:ETOP_NB_0910.PPT 30
  32. 32. Volatility target is a significant input intothe portfolio construction process12% target volatility will vary depending on actual market volatilityVolatility: annualised standard deviation%45 Model portfolio Group portfolio4035302520 MSCI EM IMI realised15 12% target ETOP model estimate10 ETOP realised 5 Fixed income index realised 0 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Dec 10As of 31 December 2010Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities.MSCI Emerging Markets IMI reflects MSCI Emerging Markets Index with net dividends reinvested through 30 November 2007 and MSCI Emerging Markets Investable Market Index with net dividends reinvested thereafter.Fixed income index represents 50% JPMorgan GBI EM Global Index and 50% JPMorgan EMBI Global Index.Standard deviation based on 252 daily observations.Volatility measures on the table are standard deviations (daily observations). All indices are unmanaged.Sources: Capital/CGII, Barra, MSCI and JPMorgan EU.NB_CL.ETOP. 223660_355 EU.05.1-76881315_0311 31
  33. 33. Emerging Markets Total Opportunities (ETOP) teamAdvantages of the multiple portfolio manager systemCollective independence  Managers own only high-conviction ideas Laurentius Luis  Diversity of ideas and disciplines Harrer Oliveira  Average years of experience: 24 Shaw WagenerA range of investment stylesLaurentius Harrer Luis Oliveira Shaw WagenerAs a high-conviction investor, Laurentius is decisive. His Luis is sensitive to the macroeconomic environment. Shaw looks to construct portfolios with relatively consistentportfolio reflects a high level of conviction whether it be He begins with several key themes or convictions which help volatility. He likes to establish a core group of long-termdefensive or aggressive. Laurentius concentrates on identifying anchor the portfolio. Luis also has a view regarding volatility convictions of premier companies or countries. He also tries toopportunities that he believes will meet or exceed the long- – its level and how/where he embraces it in the portfolio. identify opportunities where the market is not valuing upsideterm 10% return hurdle. He taps all aspects of reviews Luis works to understand the risks that are inherent in potential or embedded down-side protection appropriately. Shawopportunities across the fixed income universe often identifying positions with an expectation of the reward. Securities often tries to maximize the benefits of diversification via effective use ofaggressive fixed income securities in his efforts to generate balance or complement one another. Portfolio construction is the broad universe. Shaw is partial to high dividends and abovehigh returns. Additionally, his equity holdings generally have a important as Luis tries to contain downside risk. He works average bond yields. He looks for an effective combination ofgrowth aspect that should drive results over time. Laurentius assets hard in an effort to maximize their impact. Luis is improving prospects and attractive valuations to define thealso focuses on is successful identifying where prospective attracted to value opportunities as well as proven track portfolio.returns will may come from and what portion of volatility he records and strategies.will accept and what part he will shed. EU.SM.TEAMS.1210. 387660_829 EU.05.1-76881315_0311 32
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