Newton emerging income fund paper sophia bespoke 3

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Newton emerging income fund paper sophia bespoke 3

  1. 1. A new route to equity income Sophia Whitbread Fund manager, Newton Emerging Income Fund September 2013 For professional clients only. Any views and opinions expressed hereafter are those of the investment adviser, unless otherwise noted
  2. 2. Equity income suite As at 30 June 2013 Past performance is not a guide to future performance. Please note that Newton’s equity income suite also includes Newton European Higher Income strategy (AUM £23.5m as at 30 June 2013) and Newton Emerging Income strategy (launched October 2012). Parenthesis indicate strategy composite inception year. Performance shown is GIPS Composite, gross of fee, relative to strategy specific FTSE index comparator. Source: Newton, *as at 30 June 2013 2 UK Equity Income (1995) £2.2bn Global Equity Income (2006) £5.5bn Emerging Equity Income £0.3bn Asian Equity Income (2005) £3.9bn Total equity income suite AUM AUM by strategy Investment performance to end March 2013 (relative returns) Equity income suite accounts for 22% of total AUM 1.7 -1.9 0.1 1.5 4.1 -3 -4.7 2 0.6 4.35.5 5.7 10.7 9.2 4.4 -10 -5 0 5 10 15 YTD (%) 1 year (%) 3 years (% pa) 5 years (% pa) Since inception (% pa) UK Equity Income Global Equity Income Asian Equity Income Relativeoutor underperformance
  3. 3. Increasing choice of high yielding stocks in emerging markets Past performance is not a guide to future performance. Current yields are not indicative of future yields Source: FACTSET, Datastream, 31 December 2012 Geographical split of FTSE World index stocks yielding greater than 3% 1995 2012 3
  4. 4. Sophia Whitbread Jason Pidcock 2011 to date Newton Investment Management 2010 Baillie Gifford – Analyst 2005 to 2010 Newton Investment Management – Global financials analyst 2004 to date Newton Investment Management 1996 – 2004 BP Investment Management – Fund manager, Asia-Pacific ex Japan 1993 – 1996 Henderson Investment Management – Assistant fund manager, Asia-Pacific ex Japan Responsibilities Responsibilities Investment manager – global and emerging markets Investment leader – Asia-Pacific ex Japan equities Qualifications Qualifications CFA charterholder* IMC MPhil (Cantab) MA (Cantab) IMC BA 7 years at Newton 7 years’ investment experience 8 years at Newton 19 years’ experience Emerging income team * CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. 4
  5. 5. Newton Emerging and Asia Pacific Equity Team Idea generation and input Total number of investment personnel = 73 Source: Newton, June 2013 (excludes private client business) Highly interactive idea generation, formal and informal discussions 5 Zoe Kan Caroline Keen Rob Marshall-Lee Wilfred FrostJason Pidcock Sophia Whitbread Strategy – 3 14 years investment experience 10 years at Newton Global industry research – 18 13 years investment experience 6 years at Newton Corporate governance / SRI – 4 11 years investment experience 5 years at Newton Global portfolio management – 28 17 years investment experience 11 years at Newton Team meetingsAnalyst (external) meeting Corporate contact Strategists & economists Bond / FX Strategy GroupInvestment Strategy Group Thematic Focus Groups Emerging and Asia Pacific Equity Team 11 years average investment experience 8 years at Newton
  6. 6. Newton's investment process Overview 6 • Newton conducts proprietary global research: – career global sector analysts – credit, asset class, regional, strategic complements – incorporating responsible investment • Newton thinks globally, using themes which: – represent key forces of observable change – provide long-term orientation – provide a stimulus for debate and a focus for research • Investment engine deliberately based in London: – affords perspective: dispassionate global judgement – communication culture, robust real-time debate – efficient idea generation and implementation • Newton constructs single portfolios: – research recommended lists act as menus – model portfolios provide leadership – fund managers given discretion and accountability Global income strategy Client requirements Investment risk group Perspective, pragmatism and insight are key
  7. 7. Newton Emerging Income Fund • Thematic stock picking approach with long-term horizon • Fund aims to yield at least 15% more than its FTSE All World All Emerging Index • For inclusion in the portfolio any holdings under consideration must have a prospective yield of at least 85% of the index • Any holding whose prospective yield falls below a 30% discount to the index will be sold • Concentrated portfolio of fewer than 60 stocks • Transparent, straightforward portfolio structure Objective To achieve income with long-term capital growth FTSE All World All Emerging Index Comparative index 7 The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested
  8. 8. Themes drive high conviction ideas Emerging Income 8 Source: Newton as at June 2013
  9. 9. Mexico: seizing its moment Reform and competitiveness • Manufacturing renaissance with greater specialization • NAFTA facilitating increased regional trade • A new government with political will for reform • Low leverage at the consumer and corporate level – 15% private debt to GDP • Young population – median age is 27 • Preferred sectors: infrastructure, consumer, financials Source: ILO, SHCUP, INEGI and Morgan Stanley Research / Newton research December 2012 2.5 2.0 1.5 1.0 0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2.0 0.6 Manufacturing wages (USD per hour) Mexico China 2.4 2.2 illustrative purposes only 9
  10. 10. Brazil – investing in infrastructure • Brazil overtook the UK in terms of the world’s largest economies to become the 6th largest economy in 2011 • Consumption has been the driver of growth while industrial production has lagged. • President Dilma’s focus now upon investment • Catch-up in infrastructure investment required ahead of the World Cup in 2014 and Olympics in 2016 • Greater involvement of private sector is targeted • Consumer supported by demographics, salaries growing above inflation • Preferred sectors: infrastructure, consumer Source: World Economics Forum Morgan Stanley Latam Economics, December 2012 6 104 118 122 130 140 120 100 80 60 40 20 0 GDP Quality of overall infrastructure Quality of roads Quality of air transport Quality of ports Brazil: GDP and Infrastructure Quality Ranking (ranking out of 142 countries, inverted scale, 2011) For illustrative purposes only 10
  11. 11. ASEAN – Asia’s brightest spot • ASEAN = Association of South East Asian Nations. 10 countries ~ 600m people • ASEAN’s combined GDP of over US$2trn is around 30% bigger than India’s GDP, buoyed by strong domestic demand, allowing it to shrug off weaker exports • Investment to GDP ratios are on an upward trend across ASEAN, especially in Indonesia • Domestic demand supported by population growth, with labour forces increasing and dependency rations falling. • Many countries have improved business environments: all four countries have cut procedures required to start a business (World Bank) since 2005; President Aquino in the Philippines has been fighting corruption • Industry structures often favourable (e.g. REITs) Asean disposable income growth, five-year Cagr Sources: CLSA Asia-Pacific Markets, Newton research, December 2012 0 1 2 3 4 5 6 7 8 Total Thailand Singapore Philippines Malaysia Indonesia (%) (%) For illustrative purposes only 11 Share of population aged below 20 0 10 20 30 40 50 Singapore Thailand China Brunei Vietnam Indonesia Burma India Malaysia Cambodia Philippines Laos Source: Euromonitor, CLSA Asia-Pacific Markets, Newton research, December 2012 Investment (% of GDP) Source: Thomson Datastream, Capital Economics, December 2012 0 5 10 15 20 25 30 35 Indonesia Thailand Malaysia Philippines 2001 2012F
  12. 12. Idea generation Stock selection Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations Source: Newton as at May 2013 Stock example: Millicom • High single digit revenue growth driven by emerging market mobile data growth, mobile financial services and e- commerce • Very strong, under levered balance sheet and free cash flow positive • 17.5x P/E and 3.7% dividend yield for 2013. • Pure play Mobile telecoms operator in Latin America, Africa & Asia. • Mobile data revenue growth is accelerating spurred by low cost ($60) smartphones • Only 17% of customers use data today, which management think can easily double. • Growing penetration and ARPU in Mobile Financial Services (MFS) in underbanked regions Attractive valuation Strong fundamentals 12
  13. 13. Idea generation Stock selection Portfolio holdings are subject to change at any time without notice, are for information purposes only, and should not be construed as investment recommendations Source: Newton as at May 2013 13 Stock example: Bangkok Bank • 2013E PE 10.4x, P/BV 1.3x • ROE 12.8%, yield 3.7% • A leading bank in Thailand. Highly profitable market with considerable growth potential • Prudently regulated market, low credit leverage in the economy • Conservative management, solid balance sheet, strong capital and liquidity Attractive valuation Strong fundamentals Themes
  14. 14. Idea generation Stock selection Portfolio holdings are subject to change at any time without notice, are for information purposes only, and should not be construed as investment recommendations PSource: Newton as at May 2013 14 Stock example: Life Healthcare • High and sustainable ROIC • Revenue growth c. 10% p.a. due to a combination of 2-4% volume growth, annual price increases running at 1-2% over CPI • 2013E EV/EBITDA 12.5X • 2013 yield 3.4% • Leading South African hospital operator • Growing EM demand for private healthcare in environment of high disease burden (HIV and TB) • Beneficiary of inadequate public healthcare investment Attractive valuation Strong fundamentals Themes
  15. 15. Security selection in practice Source: Newton, May 2013 Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations Themes Fundamentals Valuation Portfolio Odontoprev Itau Life Healthcare Tofas Odontoprev  Dominant scale in Brazilian dental insurance business  High and sustainable ROIC  Healthy Demand beneficiary X Well loved business with high investor expectations (priced in) x EV/EBITDA = 18x Itau  Leading Brazilian bank with strong management team  Population Dynamics beneficiary x Fast credit growth has led to greater risk of loan write-offs x Lower near-term growth in Brazilian economy x Sector transitioning to lower sustainable return on assets Life Healthcare  Leading South African hospital operator  Growing EM demand for private healthcare  Beneficiary of inadequate public healthcare investment  High and sustainable ROIC  12.5x EV/EBITDA represents good value for the quality and growth Tofas  Turkish auto manufacturer with low costs  Attractive valuation and returns; dividend yield of 7.1% x Cyclical European consumer exposure unattractive as per Debt Burden and Global Realignment themes 15 = 3% Position in funds
  16. 16. Newton Emerging Income Fund Positioning as at 30 June 2013 Source: BNY Mellon Asset Management International Limited Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations 16 Stocks (%) Fibra Uno Administracion SA Financials 3.20 Bangkok Bank PCL Financials 3.14 Taiwan Semiconductor Manufacturing Technology 3.08 Philippine Long Dist Telecom Telecommunication 3.01 Souza Cruz SA Consumer Goods 2.90 Top 5 holdingsCountry weightings (%) Economic sector weightings (%)
  17. 17. Newton Emerging Income Fund Performance as at 30 June 2013 Past performance is not a guide to future performance. Please note that sector returns are likely to vary depending on the timing of data extraction from Lipper. Source: Lipper IM Fund performance calculated as total return including income net of UK tax and annual charges, but excluding initial charge in GBP terms. The impact of the initial charge, which may be up to 4%, can be material on the performance of your investment. Performance figures including the initial charge are available upon request. Cumulative return between 31/12/2012 to 30/06/2013(%) -6 -4 -2 0 2 4 6 8 10 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Percentagegrowth Newton Emerging Income Sterling Inc FTSE AW Emerging TR GBP IMA Global Emerging Markets -0.08% -2.50% -3.49% 17
  18. 18. Summary • Emerging countries provide exposure to high growth potential • Experienced investment team with wealth of knowledge • Investment in sustainable business models with competitive advantage • Frequent travel assures deep regional insight • First-class access to range of high quality information • Yield discipline ensures above average yield • Newton has demonstrated strength in equity income investing • Research and stock selection underpinned by global thematic approach 18
  19. 19. Important information CP10806-14-11-2013(3m) Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. This is a financial promotion for Professional Clients and/or distributors only. This is not intended as investment advice. You should read the Prospectus and Key Investor Information Document (KIID) for each fund in which you want to invest. The Prospectus and KIID can be found at www.bnymellonam.com. All information relating to Newton Emerging Income Fund (‘the Fund’) and Newton Investment Management Limited (Newton) has been prepared by Newton for presentation by BNY Mellon Asset Management International Limited (BNYMAMI). Any views and opinions contained in this document are those of Newton as at the date of issue, are subject to change and should not be taken as investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries. All rankings based on worldwide assets under management for The Bank of New York Mellon Corporation as at 31 December 2011, unless otherwise stated. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNYMAMI to do so. No warranty is given as to the accuracy or completeness of this information and no liability is accepted for errors or omissions in such information. Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. The Fund may not be registered for sale in all markets. Fund is a sub-fund of BNY Mellon Investment Funds, an investment company with variable capital (ICVC) incorporated in England and Wales under registered number IC27 and authorised by the Financial Conduct Authority. BNY Mellon Fund Managers Limited (BNY MFM) is the Authorised Corporate Director. BNY Mellon Fund Managers Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1998251. Authorised and regulated by the Financial Conduct Authority. The investment adviser of the Newton sub-funds is Newton Investment Management Limited/Newton. ICVC investments should not be regarded as short-term and should normally be held for at least five years. There is no guarantee that the Fund will achieve its objective. This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund. A fall in the global emerging markets may have a significant impact on the value of the Fund because it invests primarily in this market. The Fund may use derivatives to reduce costs and/or the overall risk of the Fund (i.e. Efficient Portfolio Management (EPM)). Derivatives involve a level of risk, however, for EPM, they should not increase the overall riskiness of the Fund. The Fund invests in emerging markets. These markets have additional risks due to less developed market practices. A fall in the value of a single investment may have a significant impact on the value of the Fund because it typically invests in a limited number of investments. The Fund takes its charges from the capital of the Fund. Investors should be aware that there is potential for capital erosion if insufficient capital growth is achieved by the Fund to cover the charges. Capital erosion may have the effect of reducing the level of income generated. A complete description of the risk factors is set out in the Prospectus in the section entitled "Risk Factors". This document is issued in the UK by BNY Mellon Asset Management International Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. BNY Mellon Asset Management International Limited, BNY Mellon Investment Funds, BNY Mellon Fund Managers Limited , and any other BNY Mellon, entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. BNY Mellon Fund Managers Limited and Newton Investment Management Limited are members of the IMA. 19

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