CITYWIRE PAN EUROPEAN EVENT – BERLIN 16-18 November 2011 NEPTUNE CHINA FUND Douglas Turnbull, CFA Fund ManagerFOR INVESTMENT PROFESSIONALS ONLY NOT FOR ONWARD DISTRIBUTION
BIOGRAPHY – DOUGLAS TURNBULL Fund Manager on the Neptune China Fund, alongside Lead Manager Robin Geffen Assistant Fund Manager on Neptune Global Equity Fund, working alongside Robin Geffen Joined Neptune as an Analyst in January 2007 Graduated from Oxford University with a first class honours in Modern History CFA Charterholder Global sector research responsibilities: financials An emerging talent in fund management 2
CHINA IS HERE TO STAY Economic transition and development in China Investing in the Chinese market – Policy importance and direction Investment opportunities arising We believe this is a “generation-defining opportunity” 3
THE ECONOMIC TRANSITION TAKING PLACE IN CHINA 4
LONG-TERM: AN ECONOMY IN TRANSITION China too big to be an “Asian Tiger” Economy moving up value-chain – Push: ‘old economy’ companies under policy pressure – Pull: ‘new economy’ companies given incentives Economy moving towards endogenous growth – Domestic consumption and rural development We believe China is moving to a new & sustainable growth model 5Source: World Bank, December 2010
MEDIUM-TERM: A GRADUAL TRANSITION Urban population as % of total 100% Looks the same? Growth still 80% 60% investment led 40% – Urbanisation 20% – Industrialisation 0% India China Russia US Brazil UK FAI growth by region Qualitatively different, if quantitatively slower – Geographically focused inland – Softer infrastructure to the fore: ‘Harmonious Society’ is back Political priorities unlocking long-term potential 6Source: Bank of America Merrill Lynch, July 2011; World Bank August 2011
CHINA’S INFLATION DILEMMA OVER-HYPED CPI components Y-o-Y 25 20 CPI Food CPI non-food 15% 10 5 0 -5 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Short-term = food and energy prices (economic negative, including for consumption) Inflation expectations are important to manage, hence policy responses Longer-term = driven by wage growth; good for consumption Nuanced understanding shows inflation assists economic change 7Source: Bloomberg August 2011
INVESTING IN CHINATHE ROLE OF GOVERNMENT POLICY 8
SHORT-TERM: POLICY KEEPING GROWTH ON TRACK China quantity of money Y-o-Y China cost of money 40 35 Loan Growth M2 Growth 30 25% 20 15 10 5 Tightening cycle fairly advanced and room to loosen – Positive for economy after success of government’s firepower & willpower to stimulate – Positive for market after uncertainty/policy risk overhangs Policy sustaining economic strength and bodes well for market Source: Wolfe Trahan & Co., Bloomberg September 2011. The forecasts are Neptune’s personal views and as such this document is 9 deemed to be impartial research. We do not undertake to advise you as to any change of our views.
ADDRESSING CONCERNS: TOO GOOD TO BE TRUE? Comparison to Japan et al is inaccurate Overcapacity fears are overdone Long-term structural challenges exist, but they are not insurmountable We expect that long-term potential will continue to be realisedSource: The Economist, 14.01.10 10
A MISPRICED MARKET OPPORTUNITY MSCI China Valuation Cheap by all key comparisons P/E Peak 29.35x The current crisis is not of China Average 15.57x – European and US: confidence & politics – Policy tools still available in China Current 9.21x China’s growth increasingly insulated MSCI World 12.74x – Investing for new model of growth S&P 500 12.94x Valuation discounts are not warranted; compelling time to buySource: Bloomberg as at 31.10.11. These are Neptune’s personal views and as such this document is deemed to be impartial research. We 11do not undertake to advise you as to any change of our views.
THE INVESTMENTOPPORTUNITIES ARISING Consumer Infrastructure 12
WINNING THE WALLETS OF CHINA’S CONSUMERS Strong domestic brands – Domestic tastes understood – Leveraging JVs, e.g. Autos – Strong sales and pricing power Logistical advantages – Networks in place – Work well with local constraints More sophisticated consumer – Multi-layered consumer = multiple opportunities Domestic champions establishing dominant positionsReferences to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. 13
GLOBAL SECTOR FOCUS:GROWTH OF THE INTERNET IN CHINA Already huge market – China accounts for approx. 20% world internet users Growth potential still huge as penetration still low – China will have an estimated 551 million internet users by the end of 2011 Tencent’s QQ is the dominant online messenger – Money follows the eyeballs Fast growth on a huge scale; domestic champions winningSource: DCCI, China Internet Watch, June 2011. Please remember that forecasts are not a reliable indicator of future performance. The forecasts areNeptune’s personal views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our 14views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities.
MACAU – BETTER THAN RED OR BLACK Development of market size Already huge market – world’s largest 25.0 LV Strip Macau for gambling 20.0 US$ Bn 15.0 10.0 5.0 Growing fast – adding a Vegas in 2011 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 – Demand huge but supply constrained Picking the high quality winners – Wynn Macau and Sands China Las Vegas is now just the Macau of the West!Source: CLSA Research, February 2011 15
FINANCIALS – A CONSUMER SECOND DERIVATIVE? Banking = a “new” industry as it is today in China Valuation (P/B multiple) capped by politics and opacity Earnings at risk: medium-term implications of stimuli P/B = ROE – G Equity raisings highly likely longer term COE – G Long-term transitions further away in this sector – Consumer or SME lending Valuations unattractive for level of risk We believe index heavyweights can be avoided for now 16
CHINA’S SOCIAL HOUSING PROGRAMME Economic AND political Residential floor space completed (‘000sqm) imperative – Social housing offsetting loan quotas in private sector This has begun, and on a large scale Impact of build out is substantial – Residential construction -12.5% GDP Prospects for order books of exposed companies excellentSource: Neptune/ CLSA as at July 2011. Please remember that forecasts are not a reliable indicator of future performance. The forecasts areNeptune’s personal views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any 17change of our views.
NEPTUNE CHINA FUNDPERFORMANCE SINCE LAUNCH (VS MARKET) 4 distinct relative performance phases over life of fund: ---------- Neptune China Fund1) Lagged mega-cap rally to bubble 2) In-line over sell off relative to the MSCI China ---------- MSCI China3) Lagged initial stimulus bounce4) Period of outperformance as economic adjustments gain momentum Forward-looking fund positioning, bearing fruitsSource: Bloomberg, 31.10.11. Neptune, A Accumulation share class cumulative performance, in sterling with net income reinvested and noinitial charges. The performance of other share classes may differ. This Fund may have a high historic volatility rating and past performance is 18not a guide to future performance.
NEPTUNE CHINA FUNDCUMULATIVE PERFORMANCE –EURO Neptune China Period MSCI China Fund To 31.10.11 % return % return 1 year -16.09 -15.88 3 years 75.97 55.95 5 years 25.46 41.18 Since launch (31.12.04) 116.20 159.06 A good long-term recordSource: Lipper as at 31.10.11, IMA China / Greater China sector; A Accumulation share class cumulative performance, in euros with netincome reinvested and no initial charges. The performance of other share classes may differ. This Fund may have a high historic volatilityrating and past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise asa result of market and currency fluctuations and your clients may not get back the original amount invested. 19
CHINA: “A GENERATION-DEFININGOPPORTUNITY” Materials 2.5% Energy 11.7%Long-term growth story strong and Consumer Disc.supported Cash 5.2% 29.5%Translates into potential long-term Industrials 6.8%investment themes Telecoms 4.2% HealthcareFund focussed on consumer and 1.5% Financialsinfrastructure; financials key 7.1% IT 13.1%underweight Consumer Staples Utilities 14.3% 4.1% Developed market SIZE; emerging market potential for GROWTHSource: Neptune as at 31.10.11 20
NEPTUNE CHINA FUND Launch date: 31 December 2004 Fund Managers: Robin Geffen (Lead Manager) and Douglas Turnbull Assistant Fund Manager: Adam Kelly Fund size: £82.0* (€93.5m) Concentrated high conviction approach: 30-50 best ideas invested through HK listings Investment objective†: to generate capital growth from investment predominantly in Chinese securities, or in the securities issued by companies transacting a significant proportion of their business in China*Source: Neptune as at 31.10.11. FX rate as at 31.10.11 £1/€1.1403. †There is no assurance that the fund objective will actually be achieved.This Fund may invest more than 35% in government and public securities in a number of jurisdictions. For further details please see the Full 22Prospectus. Investments in emerging markets are higher risk and potentially more volatile than those in established markets.
NEPTUNE BY NUMBERS Corporate – £6.7 billion (€7.6billion) under management – Approximately 75% of the Company is owned by staff and directors Investment expertise – 23 investment professionals incentivised by shares, fund profitability and performance – 10 global industry sectors researched by dedicated in-house sector analysts Fund range – 10 funds registered for sale in Germany – UCITS UK-domiciled OEICs denominated in euros, US dollars or sterling – Please refer to slide 24 for a full breakdown of all Neptune funds registered in Europe and available currency share classesSource: unless otherwise stated, information is provided by Neptune as at 31.10.11. The value of an investment and any income from it can fallas well as rise as a result of market and currency fluctuation and your client may not get back the amount originally invested. FX rate as at 2331.10.11 £1/€1.1403.
CONTINENTAL EUROPEAN REGISTRATION OFNEPTUNE FUNDS Neptune Funds £ € $ The Funds listed are approved UK Equity Fund * in Germany, Switzerland, US Opportunities Fund Austria, Belgium, Japan Opportunities Luxembourg, Netherlands Fund and France in addition to the Global Equity Fund UK** European Opportunities Fund Tax transparent in Germany Russia & Greater Russia Fund and Austria Asia Pacific Opportunities Fund Currency share classes India Fund * * available: £, €, $ Emerging Markets Fund** * China Fund * *Are authorised but not currently available for investment.**Please note that the Emerging Markets fund is not registered in Belgium, Luxembourg or the Netherlands. 24
A PROVEN PROCESS WITH PROPRIETARYRESEARCH Team-driven active management – No fixed style – Seeking to outperform throughout the economic cycle Top-down global view by experienced sector analysts – Focus on economic indicators and growth prospects – Produces output of sector and regional weightings Bottom-up stock screening – We believe stock selection is essential in concentrated portfolios – Proprietary research and valuation models – Emphasis on global sectors and industry-dominant companies 25
MEET THE TEAM Rob Burnett Ewan Thompson James Dowey Head of European Equities Head of Emerging Market Equities Chief Economist Financials Sector Mining & Metals Sector Douglas Turnbull Nicola Muirhead Felix Wintle George Boyd-Bowman Mining & Metals Sector Head of US Equities Financials Sector Healthcare Sector Chris Taylor Mark Martin Head of Research Healthcare Sector Robin Geffen CEO Ted Alexander Fund Manager, Global Equities Emma Stanford Kunal Desai Thomas Smith Technology & Telecoms Sector Douglas McDowell Chemicals & Utilities Sector Head of Client Investment Strategies Harriet Grieve Shelley McKeaveney Alex Breese Thomas Sinclair Adam Kelly Rebecca Young William Rice Leonard Cripps Industrials Sector Oil & Gas Sector Consumer Sectors Culture that promotes communication and collaboration 26
CONTACT DETAILS Neptune Investment Management Limited 3 Shortlands, London W6 8DA Tel: +44(0)20 3249 0100 Fax: +44(0)20 3249 0123 email@example.com www.neptunefunds.comPhilippe Bretaudeau +44(0)20 3249 0179Client Service and Sales Manager firstname.lastname@example.orgHenry Foster +44(0)20 3249 0180Client Service Executive email@example.comCalls may be recorded for monitoring and training purposes and for your protection 27
IMPORTANT INFORMATIONThis presentation is only intended for Investment Professionals resident or domiciled in Germany. This material is not intended for the use of RetailClients.This presentation document has been provided in English as additional information for those readers with a sufficient command of the Englishlanguage. This document is issued by Neptune Investment Management Limited (“Neptune”), 3 Shortlands, London, W6 8DA which is authorisedand regulated by the Financial Services Authority 25 The North Colonade, Canary Wharf, London, E14 5HS. Details of our regulatory status andauthorisation by regulators in other countries are available from us on request. The Neptune web address is www.neptunefunds.comNeptune has 29 UK domiciled funds authorised for public distribution by the FSA. The Neptune Emerging Markets Fund was authorised by theFederal Financial Supervisory Authority (BaFin) as at 05.05.10 for public distribution in and from Germany. The remaining nine funds wereauthorised by the Federal Financial Supervisory Authority (BaFin) as at 24.09.09 for public distribution in and from Germany. Further details can belocated on the following German website http://www.bafin.de. Retail Clients should consult their Independent Financial Adviser or other authorisedintermediary.This communication is only intended for persons resident in jurisdictions where such distribution or availability would not be contrary to local lawsor regulations. The provision of investment services may be restricted in certain jurisdictions. You are required to acquaint yourself with any locallaws and restrictions on the availability of any services described.None of our products are available to residents in the United States.Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to theiraccuracy or completeness. These are the analyst’s personal recommendations and as such this document is deemed to be impartial research. We donot undertake to advise you as to any change of our views. This is not a solicitation or an offer to buy or sell. Neptune Investment ManagementLimited has produced this report for private circulation to Investment Professionals only and this document is not for onward distribution.The material is not intended for the use of Retail Clients. All information and advice is given in good faith but without any warranty.Please remember that that this Fund may have a high historic volatility rating and past performance should not be seen as a guide of futureperformance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and yourclients may not get back the amount originally invested. Any forecast, projection or target is indicative only, is not guaranteed in any way and is not areliable indicator of future performance Investments in Emerging Markets are higher risk and potentially more volatile than those in establishedmarkets. These and other risks are describes in the prospectus which should be read carefully prior to investing. This Fund may invest more than 35%in government and public securities in a number of jurisdictions. 28
IMPORTANT INFORMATIONAny past performance data that has not been shown is due to the information not being available. The information provided is for informationpurposes only and is not intended to be considered as advice to invest in a particular fund. Neptune is not authorised to give investment advice andonly provides information on Neptune products.The offer in Germany is made solely by means and on the basis of the published full and simplified prospectuses including any supplements thereof.The prospectuses and any supplements therefore have been electronically published on the website of the offer athttp://http://www.neptunefunds.com/Navigate.aspx/Financial-Adviser/1/Literature/Literature-LibraryThe information provided is for information purposes only and is not intended to be considered as advice to invest in a particular fund. The simplifiedand full prospectus (in German), the articles of incorporation or the certificate of incorporation, the audited annual and unaudited semi-annualreport, the ACD contract from 10th February 2006 between the investment company and the ACD as well as the contract with the custodian bankfrom 10th February 2006 between the investment company, the custodian bank and the ACD are available from the Information Agent in printedform and free of charge:Marcard, Stein & Co AGBallindamm 3620095 HamburgGermanyFurthermore, the issuing price and conversion price of the investment certificated are available from the German Information Agent free of charge.For further information including the relevant definitions, please see the full prospectusInformationsstelle in DeutschlandMARCARD, STEIN & COBallindamm36D-20095 Hamburghat in Deutschlean die Funktion der Informationsstelle ubernommen.Der vereinfachte und der ausfuhrliche Verkaufsprospekt, die Satzung der Gesellschaft beziehungsweise die Grundungsurkunde, die gepruftenJahresund ungepruften Halbjahresberichte, der ACD- Vertrag vom 10. Februar 2006 zwischen der Investmentgesellschaft und dem ACD sowie derVertrag mit der Depotbank vom 10. Februar 2006 zwischen der Investmentgesellschaft, der Depotbank und dem ACD sind kostenlos in Papierm beider deutschen Informationsstelle erhaltlich.Weiterhin sind bei der deutschen Informationsstelle kostenlos die Ausgabe- Rucknahme- und Umtauschpreise der Investmentanteile erhaltlich. 29