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Emerging Market fund proposal

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The document provides background information on Guy Rodwell, a British fund manager specializing in emerging markets investments. It outlines his qualifications and experience, the investment strategies and funds he manages, and his views on opportunities currently presented by emerging markets.

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Emerging Market Fund Manager Guy Rodwell April 2010
Contents Profile: Guy Rodwell Investment strategy Why an emerging market fund now?
Guy Rodwell British, age 38, currently based in Paris 16 years investment experience with Schroders, Edmond de Rothschild AM, Lloyd George Management, Sovereign AM Managed Emerging Market, Latin American and Brazilian portfolios Lived and worked in Hong Kong, London, Brazil, Argentina, Monaco and Paris English mother tongue. Fluent in Spanish, Portuguese and French
Highlights 1990-93: Cambridge University 1989, 90, 91: Lloyd George Management - Hong Kong / Asia Pacific 1993-2001: Schroders Latin America and Europe 2002-03: Sovereign Asset Management Monaco covering Asia, Latin America and US 2003-05: Aforge Gestion - Paris 2005-09: Edmond de Rothschild Asset Management Global Emerging Markets, Brazil
Emerging market fund managed by Guy Rodwell Net performance Fund Fund Fund 3 years 1 year Year to date
Entrepreneurship 2006 Launch, marketing and management of Saint-Honor辿 Emerging Opportunit辿s. Current size: 85m 2007 Launch, marketing and management of Saint-Honor辿 Br辿sil. Current size: 157m Numerous and varied investor presentations, interviews & client meetings in English, French, Spanish and Portuguese je te remercie vivement pour ta contribution cette prise de conscience forte du r担le des march辿s 辿mergents. En tant que fid竪le client ( titres professionnel et priv辿) depuis de nombreux mois de Saint Honor辿 Emerging Opportunit辿s, j'ai toujours suivi avec attention la gestion que tu mettais en uvre sur cet univers complexe, h辿t辿rog竪ne et plein de promesses I warmly thank you for your contribution to expanding my understanding of emerging markets. As a faithful client for many months of Saint-Honor辿 Emerging Opportunit辿s (on a personal and professional basis), I have always closely followed your management of the fund in a universe that is complex, varied and full of promise Emerging market client, 2009
Investment analysis four pillars Franchise quality Price momentum Earnings momentum Valuation
Observation over many years has taught us that chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions. - Benjamin Graham
Good companies that appear overvalued in the short term are being priced by the market for earnings decades ahead. Since these are impossible to forecast, we should understand the durability of the business model and be ready to pay higher multiples Why franchise quality counts Based on study by Rob Arnott, Research Affiliates as highlighted in article "Future tips from past clairvoyants", FT 10/8/09
Franchise quality Pricing power : market share, barriers to entry, tightening supply and demand, overall market growth Balance sheet and returns : gearing, forex debt, cash flow, historic return on capital Management quality : honesty, execution track record, openness, shareholder value, dividend policy Country risk : banking system, current account deficit, fiscal deficit, currency, politics, corporate governance Is this a world-class business that can generate significant shareholder value?
Franchise quality Understanding the quality of the business is vital in setting comparative valuation parameters. Is this company a dog, cash cow, trailblazer or star?
Price momentum Trend-breaks: an early signal that the market is waking up to a new idea Upward moves can be violent Cross when the traffic lights turn red, not when the walk sign turns green
Those who have knowledge don't predict. Those who predict don't have knowledge. - Lao Tzu
Rising earnings estimates often drive stock prices Pick stocks where estimates can increase further Earnings momentum
Valuation relative to sector peers and history can signal opportunities but intrinsic value is the best guide Valuation a holistic approach
Outliers can be overlooked opportunities Valuation vs peers
Very low value vs history either means this time its different or a buying opportunity is close Valuation vs history
Valuation - intrinsic Does it feel right that a world class mobile telecom company should trade at 5x PE? Can valuations over- or undershoot in the current climate? (Liquidity, risk tolerance, greed, exuberance, fear, despair) If GEM country debt yields can contract further what effect will this have on discount rates? Judgment and common sense count
Investment process summarised
Risks Business quality can change rapidly due to new regulations and/or entrants (Bharti, China Mobile, Redecard); the market can be merciless Sometimes earnings and price momentum signals are premature No magic formula, silver bullet or black box
Predicting rain doesnt count; building arks does . - Warren Buffett
Conclusion Holistic approach starting with stock specific risk control Relatively low turnover and therefore transaction costs Ready to go
Why an emerging markets fund? (For the moment) it's different economies are healthier than ever before China, "South/South" trade and commodities Giant infrastructure needs Consumption
The long term snapshot
Medium term winds are positive Explosive liquidity can lead to a massive bubble In sweet spot for US recovery No debt problem in core markets, unlike developed Emerging markets interest rates & GDP growth
Long term debt trends are very positive Source: Pimco
Risks to Emerging Markets Global market performance - emerging markets are still high beta Chinese rates and an NPL crisis US$ strength Market betas to MSCI World
Vale Pricing power : iron ore in short supply; worlds largest producer Balance sheet : low net debt Management : good management but political interference my become a threat Country risk: structurally improving Brazilian macro fundamentals Business quality Value drivers China : massive infrastructure expenditure and industrialisation driving steel demand Pricing: movement to spot pricing, normally at a premium to contract prices Risks : government interference in investment decisions, government royalties Mining - Brazil 2009 2010 2011 PE 25.8 19.6 17.5 EV/EBITDA 12.3 9.7 8.8 PBV 2.4 2.2 2.0
Sberbank Business quality Value drivers Structural growth: loan/GDP only 38%, retail loans/GDP only 8% Economy : recovering domestic demand should lead to better loan quality. However, a return to instability would hit banks hardest Strategic plan: aimed at bolstering leadership position and raising efficiency GDR listing in 2010 : should help liquidity and improve disclosure Size : more than 50% of retail deposits, 31% of Russian loan market Capital: capital adequacy ratio of 16.4% , an ample cushion in the event of macro instability Management : generally good; has weathered economic crisis well. Governance : Sberbank sometimes used as an instrument of state policy (Opel), although Central Bank ownership speeds up decision-making Bank - Russia 2009 2010 2011 ROE 1.5% 9.8% 20.9% PE nm 16.4 6.8 PBV 1.9 1.7 1.3
China Taiping Insurance Business quality Value drivers Growth : low life insurance penetration means can participate in a rapidly growing market. Offset in part by competitive general insurance Ming An acquisition : synergies and cost-savings Margins : rising agency productivity could be offset by expansion costs Pension reform : well-positioned given pension licence Margins : highly regulated life insurance pricing and therefore high margins for life insurers. Property & casualty high competition however Life insurance is sellers market: scarce supply of agents & actuarial professionals, low penetration. Pension licence Centralised back office and operating centres, capability of cross selling among business lines Management : good Insurance - China 2009 2010 2011 ROE 14.8 11.6 12.9 PE 30.7 28.0 21.1 P/EmbV 2.7 2.3 1.8
Guy Rodwell [email_address] +33 642 12 25 04 2 avenue des Etats-Unis 78000 Versailles France
This presentation and the information (Information) herein represents the views and opinions of Guy Rodwell (the Author). The Information is based on publicly available sources gathered at the time of writing. The Information and views presented may change without notice. The Author has given due care and attention to the preparation of the presentation and the Information, but cannot guarantee its accuracy or completeness and accepts no responsibility for the accuracy of his sources. No steps have been taken to independently verify the Information. The Author is not obliged to make amendments or changes to this publication should errors be discovered or opinions or information change. Special attention should be given to the fact that projections can vary in both positive and negative ways and are subject to uncertainty and contingencies, many of which are outside of the control of the Author. The Information shall not be interpreted as advice on the purchase or sale of specific financial instruments. The Author bears no responsibility in any instance for loss which may result from reliance on the Information. The Author holds copyright to the Information, unless expressly indicated otherwise or this is self-evident from its nature. Express permission from the Author is required to republish the Information or to distribute or copy such information. This shall apply regardless of the purpose for which it is to be republished, copied or distributed. Transactions with financial instruments by their very nature involve high risk. Historical price changes are not necessarily an indication of future price trends. Investors are encouraged to acquire general information from the Author or other expert advisors on the nature of securities trading, investment issues, taxation, etc. in connection with securities transactions. Disclaimer

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Emerging Market fund proposal

  • 1. Emerging Market Fund Manager Guy Rodwell April 2010
  • 2. Contents Profile: Guy Rodwell Investment strategy Why an emerging market fund now?
  • 3. Guy Rodwell British, age 38, currently based in Paris 16 years investment experience with Schroders, Edmond de Rothschild AM, Lloyd George Management, Sovereign AM Managed Emerging Market, Latin American and Brazilian portfolios Lived and worked in Hong Kong, London, Brazil, Argentina, Monaco and Paris English mother tongue. Fluent in Spanish, Portuguese and French
  • 4. Highlights 1990-93: Cambridge University 1989, 90, 91: Lloyd George Management - Hong Kong / Asia Pacific 1993-2001: Schroders Latin America and Europe 2002-03: Sovereign Asset Management Monaco covering Asia, Latin America and US 2003-05: Aforge Gestion - Paris 2005-09: Edmond de Rothschild Asset Management Global Emerging Markets, Brazil
  • 5. Emerging market fund managed by Guy Rodwell Net performance Fund Fund Fund 3 years 1 year Year to date
  • 6. Entrepreneurship 2006 Launch, marketing and management of Saint-Honor辿 Emerging Opportunit辿s. Current size: 85m 2007 Launch, marketing and management of Saint-Honor辿 Br辿sil. Current size: 157m Numerous and varied investor presentations, interviews & client meetings in English, French, Spanish and Portuguese je te remercie vivement pour ta contribution cette prise de conscience forte du r担le des march辿s 辿mergents. En tant que fid竪le client ( titres professionnel et priv辿) depuis de nombreux mois de Saint Honor辿 Emerging Opportunit辿s, j'ai toujours suivi avec attention la gestion que tu mettais en uvre sur cet univers complexe, h辿t辿rog竪ne et plein de promesses I warmly thank you for your contribution to expanding my understanding of emerging markets. As a faithful client for many months of Saint-Honor辿 Emerging Opportunit辿s (on a personal and professional basis), I have always closely followed your management of the fund in a universe that is complex, varied and full of promise Emerging market client, 2009
  • 7. Investment analysis four pillars Franchise quality Price momentum Earnings momentum Valuation
  • 8. Observation over many years has taught us that chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions. - Benjamin Graham
  • 9. Good companies that appear overvalued in the short term are being priced by the market for earnings decades ahead. Since these are impossible to forecast, we should understand the durability of the business model and be ready to pay higher multiples Why franchise quality counts Based on study by Rob Arnott, Research Affiliates as highlighted in article "Future tips from past clairvoyants", FT 10/8/09
  • 10. Franchise quality Pricing power : market share, barriers to entry, tightening supply and demand, overall market growth Balance sheet and returns : gearing, forex debt, cash flow, historic return on capital Management quality : honesty, execution track record, openness, shareholder value, dividend policy Country risk : banking system, current account deficit, fiscal deficit, currency, politics, corporate governance Is this a world-class business that can generate significant shareholder value?
  • 11. Franchise quality Understanding the quality of the business is vital in setting comparative valuation parameters. Is this company a dog, cash cow, trailblazer or star?
  • 12. Price momentum Trend-breaks: an early signal that the market is waking up to a new idea Upward moves can be violent Cross when the traffic lights turn red, not when the walk sign turns green
  • 13. Those who have knowledge don't predict. Those who predict don't have knowledge. - Lao Tzu
  • 14. Rising earnings estimates often drive stock prices Pick stocks where estimates can increase further Earnings momentum
  • 15. Valuation relative to sector peers and history can signal opportunities but intrinsic value is the best guide Valuation a holistic approach
  • 16. Outliers can be overlooked opportunities Valuation vs peers
  • 17. Very low value vs history either means this time its different or a buying opportunity is close Valuation vs history
  • 18. Valuation - intrinsic Does it feel right that a world class mobile telecom company should trade at 5x PE? Can valuations over- or undershoot in the current climate? (Liquidity, risk tolerance, greed, exuberance, fear, despair) If GEM country debt yields can contract further what effect will this have on discount rates? Judgment and common sense count
  • 20. Risks Business quality can change rapidly due to new regulations and/or entrants (Bharti, China Mobile, Redecard); the market can be merciless Sometimes earnings and price momentum signals are premature No magic formula, silver bullet or black box
  • 21. Predicting rain doesnt count; building arks does . - Warren Buffett
  • 22. Conclusion Holistic approach starting with stock specific risk control Relatively low turnover and therefore transaction costs Ready to go
  • 23. Why an emerging markets fund? (For the moment) it's different economies are healthier than ever before China, "South/South" trade and commodities Giant infrastructure needs Consumption
  • 24. The long term snapshot
  • 25. Medium term winds are positive Explosive liquidity can lead to a massive bubble In sweet spot for US recovery No debt problem in core markets, unlike developed Emerging markets interest rates & GDP growth
  • 26. Long term debt trends are very positive Source: Pimco
  • 27. Risks to Emerging Markets Global market performance - emerging markets are still high beta Chinese rates and an NPL crisis US$ strength Market betas to MSCI World
  • 28. Vale Pricing power : iron ore in short supply; worlds largest producer Balance sheet : low net debt Management : good management but political interference my become a threat Country risk: structurally improving Brazilian macro fundamentals Business quality Value drivers China : massive infrastructure expenditure and industrialisation driving steel demand Pricing: movement to spot pricing, normally at a premium to contract prices Risks : government interference in investment decisions, government royalties Mining - Brazil 2009 2010 2011 PE 25.8 19.6 17.5 EV/EBITDA 12.3 9.7 8.8 PBV 2.4 2.2 2.0
  • 29. Sberbank Business quality Value drivers Structural growth: loan/GDP only 38%, retail loans/GDP only 8% Economy : recovering domestic demand should lead to better loan quality. However, a return to instability would hit banks hardest Strategic plan: aimed at bolstering leadership position and raising efficiency GDR listing in 2010 : should help liquidity and improve disclosure Size : more than 50% of retail deposits, 31% of Russian loan market Capital: capital adequacy ratio of 16.4% , an ample cushion in the event of macro instability Management : generally good; has weathered economic crisis well. Governance : Sberbank sometimes used as an instrument of state policy (Opel), although Central Bank ownership speeds up decision-making Bank - Russia 2009 2010 2011 ROE 1.5% 9.8% 20.9% PE nm 16.4 6.8 PBV 1.9 1.7 1.3
  • 30. China Taiping Insurance Business quality Value drivers Growth : low life insurance penetration means can participate in a rapidly growing market. Offset in part by competitive general insurance Ming An acquisition : synergies and cost-savings Margins : rising agency productivity could be offset by expansion costs Pension reform : well-positioned given pension licence Margins : highly regulated life insurance pricing and therefore high margins for life insurers. Property & casualty high competition however Life insurance is sellers market: scarce supply of agents & actuarial professionals, low penetration. Pension licence Centralised back office and operating centres, capability of cross selling among business lines Management : good Insurance - China 2009 2010 2011 ROE 14.8 11.6 12.9 PE 30.7 28.0 21.1 P/EmbV 2.7 2.3 1.8
  • 31. Guy Rodwell [email_address] +33 642 12 25 04 2 avenue des Etats-Unis 78000 Versailles France
  • 32. This presentation and the information (Information) herein represents the views and opinions of Guy Rodwell (the Author). The Information is based on publicly available sources gathered at the time of writing. The Information and views presented may change without notice. The Author has given due care and attention to the preparation of the presentation and the Information, but cannot guarantee its accuracy or completeness and accepts no responsibility for the accuracy of his sources. No steps have been taken to independently verify the Information. The Author is not obliged to make amendments or changes to this publication should errors be discovered or opinions or information change. Special attention should be given to the fact that projections can vary in both positive and negative ways and are subject to uncertainty and contingencies, many of which are outside of the control of the Author. The Information shall not be interpreted as advice on the purchase or sale of specific financial instruments. The Author bears no responsibility in any instance for loss which may result from reliance on the Information. The Author holds copyright to the Information, unless expressly indicated otherwise or this is self-evident from its nature. Express permission from the Author is required to republish the Information or to distribute or copy such information. This shall apply regardless of the purpose for which it is to be republished, copied or distributed. Transactions with financial instruments by their very nature involve high risk. Historical price changes are not necessarily an indication of future price trends. Investors are encouraged to acquire general information from the Author or other expert advisors on the nature of securities trading, investment issues, taxation, etc. in connection with securities transactions. Disclaimer