POLAR CAPITAL Polar Capital Asian Financials Fund Citywire Paris Forum 10th February 2011This presentation is for non-US professional investors only 1
Why use an Asian Financials Fund?• Financials are over 35% of Financials as % of total market your Asian portfolio 80% 70% 60% 60%• Why use a generalist to 50% 47% 47% 43% 37% 37% manage your largest 40% 29% 28% 30% exposure? 20% 16% 15% 10% 0%• A sector with very different Kong Hong Singapore Philippines Australia China Thailand Indonesia India Korea Taiwan balance sheet issues/analytical skills Source: JPMorgan, Oct 2010 2 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Why use the Polar Asian Financials Fund? Polar Capital Asian Financials Fund relative to MSCI Asia (ex Japan) & MSCI Asia (ex Japan) Financials (Since inception)• Strong out-performance of Asian 300% markets over long-term 250%• Strong out-performance of Asian 200% financials over long-term 150%• Out-performance in Asia requires 100% financials out-performance 50%• 20+ years of Asian financials 0% Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 experience Polar Capital Asian Financials Fund MSCI Asia x Japan Financials Index MSCI Asia x Japan Index Source: Bloomberg 3 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Best performing financial sector fund• Asian financials have recovered more than other financial sectors• Lipper Fund Award 2010 over 3 & 5 years• Strength even with weak Chinese banks Financial Sector Funds 1 Years 3 Years 5 Years 10 years Polar Capital Asian Financials (GBP adjusted) 18.3% 29.6% 66.4% 174.7% Jupiter Financial Opps -2.2% 15.7% 34.5% 169.6% Hiscox Insurance 16.8% 11.3% 17.7% 54.5% Fidelity Global 10.3% -3.0% 3.2% na Polar Capital European Financials (GBP adjusted) 1.0% -11.7% 3.0% 13.6% Henderson Global 11.9% -15.0% 14.2% na BlackRock World (GBP adjusted) 6.6% -19.9% -31.1% na Scottish Widows Financial 12.5% -20.6% -1.8% 11.0% JPM Global Financials 3.4% -25.9% -22.1% -6.7% Axa Framlington Financials 5.4% -26.7% -30.2% -17.4% Source: Bloomberg, Dec 2010 4POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Moving on from recovery• High quality sector with few Asian Crisis 1997/00 vs. Global Banking Crisis 2008/10 structural handicaps and 130 Dot-com bubble bursts limited sovereign fears Lehman Bankruptcy 110 90 Obama Stimulus• Valuations remain (%) 70 attractive after consistent earnings and BV growth 50 Thailand receives IMF loan S.Korea receives Basel III proposals IMF loan EU/IMF Bailout Fund 30 Feb-97 Jun-97 Oct-97 Feb-98 Jun-98 Oct-98 Feb-99 Jun-99 Oct-99 Feb-00 Jun-00• Short-term interest rate Aug-08 Dec-08 Apr-08 Aug-08 Dec-09 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Hiscox Far Eastern Financial Fund (1997/ 00) Hiscox Far Eastern Financial Fund (2008/ 10) Hiscox European Financial Fund (2008/ 10) pressures offers Source: Polar Capital opportunity 5POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Outperforming the economy• Loan growth stronger than Asian Loan/Nominal GDP Growth (2011 estimate) nominal GDP growth in 2009, 25 2010 and 2011 21 20 15 15 15.7 15 13 13 12 12 11 10• Beneficiary of higher 10 7.8 7.5 7.4 7.6 9.1 9 7.5 6 5 government spending and 5 4 4.6 domestic consumption 0 -5 -2 China Indo nesia M alaysia Singapo re Ko rea Thailand P hilippines Ho ng Taiwan India UK Ko ng• Personal lending has been a %Loan Grow th %Nominal GDP Grow th key driver of loan growth but Source: JP Morgan corporate demand to recover 6POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Improved competitive environment• Weakness of foreign players Asian Syndicated Loan Market (mainly US/European banks) 30.0% 25.2% 24.4% 25.0%• Window of opportunity for local 20.0% 19.8% banks (in banking and insurance) 15.0% 11.9% 10.0% 7.5% 6.1%• Strong oligopolies 5.0% 3.2% 3.30% 2.40% 0.0% Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q4 2010 % share on non-Asian banks• Excellent funding Source: Thomson 7POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
A focus on domestic growth• Asian banks are domestic plays Asian Breakdown of banking system loans (% ) (loan books biased to property, 120.00% consumers, domestic fixed 100.00% asset investment) 80.00% 44.10% 65.60% 60.00%• Limited balance sheet exposure 40.00% 55.90% to exports (trade finance only 20.00% 34.40% 5% of loans) 0.00% 2000 2009 Households Business• Growing proportion of Source: Central Banks retail/consumer lending 8POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Corporate lending returns• Recovery in capacity Asian Manufacturing Capacity Utilisation utilisation, infrastructure 102 100 spending 98 96• Low rates and strong 94 appetite from banks to lend 92 90 88• Credit penetration is low 2007 2008 2009 2010 Source: JP Morgan 9POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Additional supports to earnings ROE (Asian Banks)• Fee income strength 25%• Falling loan loss provisions 20% 17.3% 18.30% 16.2% 15.9% (coverage already high) 15.1% 13.9% 14.0% 15% % 10%• Rising margins (assuming interest rate rises) 5% 0% 2006 2007 2008 2009 2010 2011 2012• Improved efficiency Source: JP Morgan 10POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Top line translating into EPS growth EPS CAGR 2011-2012• EPS growth remains strong 30% 25%• Supported by pre-provision 20% operating profit growth (16.9% 15% CAGR 2011/12). 10% 5%• Limited capital issuance 0% es ia a na nd g a re a an on si si re d po in la hi e ay In iw Ko K pp ai on C ga Ta al Th g i li d M n on In Ph Si H Source: JP Morgan 11POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Valuation fears overplayed 120 Price/Book as % of average P/B*• Valuations do not reflect ‘bubble’ conditions 100 80• Cheap in Korea, China % 60 and Taiwan 40 20• 30% average growth in 0 book value over the next Indonesia Malaysia Thailand Singapore Hong Kong Taiwan Korea India China * Over the past 8 years Source: Bloomberg 2 years 12 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Book values have risen 35% since 2007 • Strong recovery in share MSCI ASIA xJ.Finance P/B prices 3.0 2.5 • But book values have also 2.0 risen Average:1.59 1.5 1.0 • Price/Book close to average 0.5 0.0 02/08/02 02/07/03 02/06/04 02/05/05 02/04/06 02/03/07 02/02/08 02/01/09 02/12/09 02/11/10 Source: Bloomberg 13POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
PE approach equally attractive• Average earnings set 120 PE as % of average PE* to double over next 2 100 years 80• Falling provisions to 60 drive recovery 40 20• Strong loan demand 0 Indonesia Thailand Singapore Korea India Malaysia Hong Kong Taiwan China * Over the past 8 years Source: Bloomberg 14 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Well placed for future capital changes• Starting from a position of Tier 1 Capital Ratio Equity/Asset Ratio Equity Growth strength (2010) (2010) (09-11) Indonesia 15.2% 11.3% 33.9% Thailand 11.3% 10.3% 19.5%• Impressive internal capital generation Singapore 13.6% 10.6% 16.8% Malaysia 11.8% 8.0% 19.4% India 10.5% 8.5% 44.1%• Leverage is low Hong Kong 10.7% 9.6% 14.5% China 9.1% 6.6% 41.5%• Concerns focused on China Korea 9.6% 6.7% 20.2% Taiwan 9.7% 6.8% 9.2% Europe* 10.1% 5.4% n/a * Core Europe excluding global banks Source: JP Morgan 15 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Rising rates are good for margins• Economic momentum Expectations for Asian 10 year bond yields (2010) suggests need to raise rates 6 (China/India) 5.9 5.8 5.7• Inflation expectations 5.6 % 5.5 increasing 5.4 (China/India/Hong Kong) 5.3 5.2 5.1 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10• But Asian banks will see Month revenue benefits (as margins widen) Source: Consensus Estimates, Dec 2010 16POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Continued healthy macro picture• GDP growth expectations 2011 Asian GDP growth expectations (consensus) are stabilising 5.50 5.40• Strongest improvements 5.30 in Hong Kong, Malaysia, 5.20 and Philippines % 5.10 5.00• Consumer and 4.90 government spending 4.80 remain strong Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Month Source: Consensus Estimate, Dec 2010 17 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Country allocation • China - capital pressures but do not expect banking crisis (increasing exposure) • Hong Kong - rising valuations and increased inflation (reducing exposure) • India - attractive fundamentals but value difficult to find (stable exposure) • Korea – very attractive valuations but earnings outlook is weak (increasing exposure) • Indonesia – strong fundamentals although valuations a concern (stable exposure) 2005 2006 2007 2008 2009 2010 Hong Kong 39.7% 35.6% 20.6% 20.4% 21.6% 16.7% China 0.0% 0.0% 9.0% 19.5% 19.6% 22.4% India 3.4% 7.0% 6.6% 6.2% 5.8% 7.9% Korea 14.5% 15.1% 14.3% 6.4% 11.9% 8.9% Thailand 6.8% 6.9% 8.1% 8.6% 9.5% 6.4% Singapore 13.5% 10.8% 5.1% 8.7% 9.3% 7.6% Taiwan 9.1% 11.3% 6.3% 2.2% 9.2% 7.0% Regional 0.0% 0.0% 7.5% 10.5% 2.5% 3.4% Malaysia 4.4% 5.4% 8.6% 8.4% 4.2% 5.4% Indonesia 0.0% 0.0% 5.4% 1.8% 2.8% 4.8% Cash 8.7% 5.7% 1.8% 7.3% 3.7% 5.6% Source: BNP Paribas, As at 31 Dec 2010 18POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Portfolio as at 31 December 2010 Top 10 holdings: Cas h China Construction Bank 5.1% Othe r 3.9% 5.6% Hong Kong Bank of China 4.5% Indone s ia 16.7% OCBC 3.7% 4.8% Dongbu Insurance 3.5% M alays ia 5.4% ICBC 3.4% Public Bank 3.4% Re gional 3.4% HSBC 3.4% Hang Seng Bank 3.2% Taiw an China China Taiping Insurance Holding 3.1% 7.0% 22.4% United Overseas Bank 3.0% Sector breakdown: Singapore 7.6% Diversified Banks 67.6% Life & Health Insurance 6.3% Thailand 6.4% India Diversified Real Estate 3.6% Kore a 7.9% 8.9% Property & Casualty Insurance 3.5% Consumer Finance 2.4% Investment Banking & Brokerage 3.2% Thrifts & Mortgage Finance 2.3% It should not be assumed that recommendations made in the future will be profitable or will equal the performance of securities in this document. A list of all recommendations made within the immediately preceding 12 months is available up on request. Source: Polar Capital, As at 31 Dec 2010 19POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Performance to 31 December 2010 300 260 220 180 % 140 100 60 20 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Hiscox Far Eastern Financial Fund ($) Datastream Asia ex Japan Financials Index ($) % December YTD 1 year 3 years Launch*Polar Capital Asian Financials Fund ($) +1.7 +14.2 +14.2 +2.0 +156.3Datastream Asia ex Japan Financials Index($) +2.8 +11.5 +11.5 -11.0 +40.6MSCI AC AS xJ/Finance ($) +3.6 +12.3 +12.3 -11.2 +55.2 * 5 December 1996 Source: Polar Capital, As at 31 Dec 2010 20 POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Appendices 21POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Chinese Financials Chinese banks- key data • Attractive valuations China Asian Average • Continued growth momentum Price/Book 1.6x 2.0x Price/Earnings 8.4x 12.0x • Risk profile reducing Return on Equity 20.50% 16.20% Loans/Deposit 67.40% 88.10% Non-performing loans 0.90% 1.90% • Regulatory driven sector Coverage Ratio 225% 126% Equity/Assets 6.10% 9.20% • Capital is key concern Source: Polar Capital, As at 31 Dec 2010 22POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Summary of Fund terms • Only European domiciled fund dedicated to investing in Asian Financials ex Japan • Dublin listed OEIC, launched in December 1996 • AUM: $71.2 million as at 31 December 2010 • 2010 Dividend : $1.77 per share • Annual Management Charge: 1.00% p.a. • Performance Fee: 10% (with high watermark) • Bloomberg: ELDFEFI ID • Sedol: B2B0972 • Daily Dealing at NAV • Dealing Tel: +353 1 612 6485 Fax: +353 1 512 5374 23POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Investment approach PORTFOLIO VALUE RISK MACRO MGMT GROWTH CONSTRUCTIONCAPM CAPITAL LOANS GDP + TREND MANAGEMENT BOTTOM UPNORMALISED FUNDING REVENUES INFLATION + LONG-TERM 30-40 STOCKSROE TREND PROFITABILITYPRICE/BOOK GROWTH EARNINGS C/A +TREND REGULAR IN-HOUSE CONTACT RESEARCHPRICE/EARNINGS MACRO BOOK VALUE BUDGET DIRECT SCORING AS BALANCE INDUSTRY DOUBLE-CHECK EXPERIENCEYIELD NPLS BOND YIELD TRENDHISTORIC VALUE COVERAGE 24POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
The investment team John Yakas – Fund Manager John Yakas joined Polar Capital in September 2010 and is the manager of the Polar Capital Asian Financials and Polar Capital European Financials Funds. John has over 20 years experience in the financial services industry and has been involved with the Asian Financials Fund since its launch in 1996 and has also been responsible for the European Financial Fund for the past three years. Previously, he worked for HSBC in Hong Kong and was the head of Asian research at Fox-Pitt, Kelton in 1995 and established their office in Hong Kong in 2000. John joined Hiscox Investment Management in 2003 (subsequently HIM Capital). George Barrow - Analyst George joined Polar Capital in September 2010 and is an investment analyst working closely with John Yakas on the Polar Capital European Financials Fund and the Polar Capital Asian Financials Fund. He was previously at HIM Capital from 2008 where he completed his IMC. George holds a Masters degree in International Studies from SOAS where he graduated with merit. 25POLAR CAPITAL Please refer to the Important Information at the end of this presentation.
Polar Capital Four Matthew Parker Street London SW1H 9NPHouse viewThis document has been produced based on Polar Capital research and analysis and represents our house view. All sources are Polar Capital unless otherwise stated.Important informationThe information provided in this presentation is for the sole use of those attending the presentation it shall not and does not constitute an offer or solicitation of an offer tomake an investment into any fund managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital and is not intendedfor private investors.This presentation is only made available to professional clients and eligible counterparties. Shares in the fund should only be purchased by professional investors. Anyother person who receives this presentation should not rely upon it. The law restricts distribution of this document in certain jurisdictions, therefore, persons intowhose possession this document comes should inform themselves about and observe any such restrictions.This document does not provide all information material to an investor’s decision to invest in the Polar Capital Financial Funds Plc – Polar Capital Asian Financials Fund,including, but not limited to, risk factors. For more information, please refer to the fund’s offer document and read it carefully before you invest.Statements/Opinions/ViewsAll opinions and estimates in this report constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do notnecessarily represent the views of Polar Capital. Polar Capital is not rendering legal or accounting advice through this material; readers should contact their legal andaccounting professionals for such information.Third-party dataSome information contained herein has been obtained from other third party sources and has not been independently verified by Polar Capital. Polar Capital makes norepresentations as to the accuracy or the completeness of any of the information herein. Neither Polar Capital nor any other party involved in or related to compiling,computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof),and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to anyof such data. 26POLAR CAPITAL
Polar Capital Four Matthew Parker Street London SW1H 9NPHoldingsThis portfolio data is “as of” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the fund. The holdings mayrepresent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition.Information on particular holdings may be withheld if it is in the fund’s best interest to do so. A complete list of the portfolio holdings may be made available upon request. Itshould not be assumed that any of the securities transactions or holdings discussed was or will prove to be profitable, or that the investment recommendations or decisions wemake in the future will be profitable or will equal the investment performance of the securities discussed herein. The information provided in this document should not beconsidered a recommendation to purchase or sell any particular security.BenchmarksThe following benchmark index is used: Datastream Asia ex Japan Financial Index. This benchmark is generally considered to be representative of the Far East Financialuniverse. This benchmarks is a broad-based index which are used for comparative/illustrative purposes only and have been selected as it is well known and is easilyrecognizable by investors. Please refer tohttp://thomsonreuters.com/products_services/financial/financial_products/investment_management_research/portfolio_management/datastream for more information.Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the fund. For example, investmentsmade for the fund may differ significantly in terms of security holdings, industry weightings and asset allocation from those of the benchmark. Accordingly, investment resultsand volatility of the fund may differ from those of the benchmark. Also, the indices noted in this presentation are unmanaged, are not available for direct investment, and arenot subject to management fees, transaction costs or other types of expenses that the fund may incur. In addition, the performance of the indices reflects reinvestment ofdividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparativebenchmark data performance. The information regarding the indices are included merely to show the general trends in the periods indicated and is not intended to imply thatthe fund was similar to any of the indices in composition or riskRegulatory statusThis document is Issued in the UK by Polar Capital.Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the Financial Services Authority. A list of members is open to inspectionat the registered office, 4 Matthew Parker Street, London SW1H 9NP 27 POLAR CAPITAL