Axa im citiwire 2013_it pays to be selective investing in asia equity

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Axa im citiwire 2013_it pays to be selective investing in asia equity

  1. 1. COPYRIGHT © 2013 AXA ROSENBERG INVESTMENT MANAGEMENT It pays to be selective investing in Asia Equity October, 2013 Kevin Chen, Pan Asian Chief Executive Officer
  2. 2. Title in 20 pt. typeOpportunities in Asia Pacific ex-Japan Equities
  3. 3. Asia ex-Japan: Long-Run Structural Opportunity  Despite near term headwinds (China slowdown) the long term drivers of structural growth remain  There is good reason for long-run optimism with respect to Asia ex-Japan: – Superior demographics, high savings rates and the potential for further improvements in productivity  Continued growth on the supply side as developed-market demand recovers  A good base for domestic consumption growth, which still has a long way to go – Stronger balance sheets relative to developed markets, both at corporate and sovereign level – Profit margins have been reducing but not collapsing; further productivity improvements could deliver a recovery here  Asia ex-Japan has historically offered the strongest reward to Superior Earnings  As of June the region has greatest levels of asset mispricing (as observed by AXA Rosenberg’s Stock selection model ) 2 Source: AXA Rosenberg (September 2013)
  4. 4. 3 Asia ex-Japan has delivered superior earnings growth and returns 3 MSCI AC Asia Pac ex Japan MSCI Pac ex Japan MSCI World Annualized Total Return 11.46% 11.49% 4.55% Annualized Volatility 22.87% 22.15% 17.21% Return/Volatility 0.50 0.51 0.27 Source: MSCI, Thomson Reuters DataStream, AXA Rosenberg, all data from August 2003 to August 2013. It is not possible to invest directly in to an index. Past performance is not a guide to future performance. Total return and volatility data calculated from monthly total returns of indices shown; cumulative price return shows rebalanced price index of indices shown. Exhibit created September 2013. MSCI AC Asia Pac. Ex Jap. MSCI Pac. Ex Jap. MSCI World Annualised Total Return (%) 12.17 12.92 7.70 Annualised Total Volatility (%) 22.38 22.16 16.07 Return/Volatility 0.54 0.58 0.48  Asia ex-Japan has delivered superior return (even on a Risk Adjusted Basis)  Historical performance has been underpinned by superior earnings growth  Following the recent period of underperformance of Asia and emerging markets, AXA Rosenberg’s forward earnings projections for stocks in the AC Asia ex-Japan universe shows that right now the region is reasonably valued compared to developed markets.  Bottom up we calculate that the region is trading on 13x forward earnings, a 28% discount to global developed markets. This discount is close to 1 standard deviation below historic average (exhibit 1).
  5. 5. 4 -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Rolling12-MonthSpread BestQuintilevs.MarketReturn(%) Return Spread of Best Quintile vs Market Asia Pac xJapan Broad -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Rolling12-MonthSpread BestQuintilevs.MarketReturn(%) Return Spread of Best Quintile vs Market Asia Pac xJapan Broad Reward to Superior Earnings was Strongest in Asia ex-Japan Reward to Realised Forward E/P 1984 - 2012 Reward to Realised Forward E/P Change 1984 - 2012 Region Average Reward to Realised E/P Growth US 11.89% Europe 12.25% Japan 10.81% Asia 13.14% Source: AXA Rosenberg, charts on the left map 1 year rolling return of stocks with the highest realised forward earnings yield (based on AXAR forecasts) against that of the market as well as the 1 year rolling return of stocks with the highest realised earnings yield change against that of the market. Analysis is based on our broad market universe including 6500 companies as at 31/12/12. Table compares the average return of stocks with highest realised E/P Growth against that of the market for the period from 1984 to 2012 for each or the regions. The forecast earnings data was not captured in real time but recreated in the present time. Part of the timeframe shown predates AXA Rosenberg’s existence as a firm and the inception of the relevant strategies. Past performance is not a guide to future performance and data is updated annually (calendar year). G201308 - 458 Period: 1984 - 2012  Historically, there has been a compelling reward to the stocks that produce the best forward earnings and the best earnings change  Compared to other regions, this data suggest that earnings may matter more in Asia  We believe there is significant potential opportunity to profit from active management in Asian stocks
  6. 6. 5 Emerging Asia ex-Japan has a high levels of asset mispricing (as seen by AXA Rosenberg’s Stock selection model ) 5 Source: AXA Rosenberg, based on its entire universe of securities of approximately 20,000 securities (as of June 2012) worldwide that it deems to have sufficient accounting history and standards. The above chart was then created by backtesting of AXA Rosenberg’s current valuation model (as of June 2013) to each of the stocks in the universe and ranking them from most undervalued to most overvalued on a monthly basis through the entire timeframe shown, and then comparing the spread between the most overvalued half of stocks to the most undervalued half of stocks. Please note that the valuation model did not exist in the current form during the timeframe shown, nor was the valuation data captured in real-time during such timeframe. Investors should also note that part of the timeframe shown predates AXA Rosenberg’s existence as a firm. Please see the appendix for more information on hypothetical backtesting. G201308 - 458 Emerging markets and Asia ex-Japan exhibit a wide spread between high and low valued companies (as seen by AXA Rosenberg’s Valuation Model) 1.0 1.5 2.0 2.5 3.0 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 RatioofFairValuetoPrice:HightoLowValuationModelHalvesof Market(Rolling12-month) Ratio of Fair Value-to-Price for High vs. Low Valuation Model Halves (Rolling 12-Month Average) thru Aug 2013 US Broad Europe Broad Japan Broad Asia Pac xJapan Broad World Broad Global Emerging
  7. 7. AXA Rosenberg Asia Ex-Japan Composites Alpha as of August 31, 2013 6 Source: AXA Rosenberg to 31 Aug 2013. The performance information shown herein are gross of management fees. An investor’s actual return will be reduced by management fees and other expenses the investor may incur. Further information on AXA Rosenberg’s fees may be found in its Form ADV Part 2 and/or provided upon request. The collection of management fees produces a compounding effect on the total rate of return net of management fees. As an example, the effect of management fees on the total value of an investor’s portfolio assuming a) quarterly fee assessment, b) $1,000,000 investment, c) portfolio return of 8% a year, and d) 1.00% annual investment management fee would be $10,416 in the first year, and cumulatively $59,816 over five years and $143,430 over ten years. Past performance is not indicative of future results. Alpha for Broad Market Composites 2013 Trailing 1 Trailing 3 Trailing 5 Since Inception Asia Pacific ex-Japan (Developed) 0.68% 1.84% 1.56% 0.09% 1.36% Jan-93 Asia Pacific ex-Japan (incl. Emerging Asia) 0.30% 1.56% 1.51% 1.06% 2.28% Mar-01 Asia Pacific ex-Japan Small Cap 5.57% 11.55% 8.21% 2.01% 4.11% Oct-96
  8. 8. Title in 20 pt. typeAppendix
  9. 9. Asia ex-Japan Strategies Target Portfolio Features Compared to Benchmark Source: AXA Rosenberg as at 31st August 2013. The descriptions set forth above represent our strategy and approach only and do not equate to the stated investment objective as per the prospectus. Each specific client/investor’s experience may vary. No assurance is made that these features will be achieved. Past performance is not a guide to future performance. Target active returns are shown gross of management fees over a full market cycle. An investor’s actual return will be reduced by management fees and other expenses the investor may incur. Investment in the Fund is subject to the Fund’s offering document. Please see the Disclaimer at the end of this presentation for further information about the effect of management fees. EO201308 - 443 Portfolio characteristics AXA Rosenberg Pacific Ex-Japan AXA Rosenberg Pacific ex-Japan Small Cap AXA Rosenberg All Country Asia Pacific ex-Japan Investment Team / Portfolio Manager Singapore based investment team led by Kevin Chen our Pan Asia CIO Current Benchmark MSCI Pacific Ex Japan Index S&P Asia Pacific ex-Japan Small Cap Index MSCI AC Asia Pacific ex-Japan Index Inception date Strategy Inception: January 1993 Strategy Inception: October 1996 Strategy Inception: March 2001 Target Outperformance 2.5% (over a full market cycle) 4% (over a full market cycle) 3% (over a full market cycle) Target Tracking Error 5% ex-ante (over a full market cycle) 6% ex-ante (over a full market cycle) 6% ex-ante (over a full market cycle) Typical number of holdings 60 -120 stocks 100 - 200 stocks 150 - 250 stocks Expected turnover 80% - 100% 80% - 100% 80% - 100% Earnings Yield Premium: Portfolios typically have stronger forecast earnings per unit of cost and, historically, stronger realised earnings yields when compared to the benchmark Price to Book Discount: A portfolio typically holds stocks that appear to be trading at a discount relative to their Book Value when compared to Benchmark. % Max Active Position Size 2.5% 2.5% 2.5% Sector: Our strategy is set up to have moderate sector exposures. Active exposures reflect clustering of bottom up alpha ideas 12% 12% 12% Country: Our strategy is designed to have very low country and currency risk. We take active risk where we have active insights instead. 3% 3% 5%
  10. 10. Disclaimer This document and the information contained herein have been prepared and issued by AXA Investment Managers Asia Ltd (“AXA IM Asia”) for private informational and educational purposes only at the sole request of the recipients, and intended solely for professional and/or institutional investors. They are strictly confidential, and must not be reproduced, circulated, distributed, redistributed or otherwise used, in whole or in part, in any way without the prior written consent of AXA IM Asia. They are not intended for distribution to any persons or in any jurisdictions for which it is prohibited. To the maximum extent permitted by law, AXA IM Asia makes no warranty as to the accuracy or suitability of any information contained herein and accepts no responsibility whatsoever for errors or misstatements, whether negligent or otherwise. Such information may be subject to change without notice. The data contained herein, including but not limited to any backtesting, simulated performance history, scenario analysis and investment guidelines, are based on a number of key assumptions and inputs, and are presented for indicative and/or illustrative purposes only. The information contained in this document is not an indication whatsoever of possible future performance and must be considered on this basis. Where information, contents or materials are provided by or quoted from any third party (“Third Party Information”), AXA IM Asia does not accept any responsibility or liability for such Third Party Information, and cannot and does not provide, and shall not be taken to provide, any warranty as to the accuracy, suitability, completeness or correctness of such Third Party Information. Any views, opinions or recommendations (if any) that may be contained in such Third Party Information, unless otherwise stated, do not reflect or constitute views, opinions or recommendations of AXA IM Asia. This document has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person. Nothing contained within this document shall constitute an offer to enter into, or a term or condition of, any business, trade, contract or agreement with the recipient or any other party. This document shall not be deemed to constitute investment, tax or legal advice, or an offer for sale or solicitation to invest in any particular fund. If you are unsure about the meaning of any information contained in this document, please consult your financial or other professional advisers. The data, projections, forecasts, anticipations, hypothesis and/or opinions herein are subjective, and are not necessarily used or followed by AXA IM Asia or its affiliates who may act based on their own opinions and as independent departments within the organization. Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. Investors should not make any investment decision based on this material alone. 9

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