1 looking for alpha? unexpected opportunities in north america october 2007 tom walker director,...
TRANSCRIPT
1
LOOKING FOR ALPHA?LOOKING FOR ALPHA? UNEXPECTED OPPORTUNITIES IN NORTH AMERICA October 2007
Tom WalkerDirector, Martin Currie Investment Management
2
NORTH AMERICA
How investors see it:
Underperforming
Slow growth
End of Era
How Martin Currie sees it:
40 great stocks
3
THE CASE FOR INVESTING IN EQUITIES
Source: Ibbotson/Datastream. The information provided is for illustrative purposes only and is not meant to represent the past or future performance of any particular investment or the indices. It is not possible to invest directly in an index. Stocks are represented by the S&P 500® Index, an unmanaged index that consists of the common stocks of 500 large capitalization companies, within various industrial sectors, most of which are listed on the New York Stock Exchange. Stock prices fluctuate with market condition and may result in loss of principal. Bonds are represented by the Lehman Brothers Aggregate Bond Index, an unmanaged market-weighted index that consists of U.S. government and agency securities, mortgage-backed securities issued by the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association and investment-grade (rated BBB or better) corporate bonds, all of which will mature within 30 years. Bonds held to maturity offer a fixed rate of return. Cash is represented by the annualized monthly yield on all actively traded Treasury bills maturing in 90 days quoted on a discounted basis in the secondary market. T-bills are guaranteed by the U.S. government as to payment of principal and interest and offer a fixed return if held to maturity. All returns assume reinvestment of dividends.
4Past performance is not a guide to future returns. Source: Lipper Hindsight. Bid to bid, total returns in Sterling on a cumulative basis to 30 September 2007.
INVESTORS JUST DON’T WANT TO KNOW
5
PERCEPTION………
6
REALITY……
7
THE DOMINO EFFECT
8
THE DOLLARAt top of 25 year range versus sterling
Source: Bank of England. As at 30 September 2007.
0
0.5
1
1.5
2
2.5
01/0
9/8
2
01/0
9/8
4
01/0
9/8
6
01/0
9/8
8
01/0
9/9
0
01/0
9/9
2
01/0
9/9
4
01/0
9/9
6
01/0
9/9
8
01/0
9/0
0
01/0
9/0
2
01/0
9/0
4
01/0
9/0
6
0
0.5
1
1.5
2
2.5
Spot exchange rate, US $ into Sterling
9
WHAT PRICE A BIG MAC ?Is it actually sterling that is overvalued?
Source:Economist.com;Prudential Equity Group,LLC. As at 31 January 2007
Cost and % under/over of a Big Mac
57%
21%19%0%-4%-6%
-17%-18%-28%
-46%-56%
0
1
2
3
4
5
6
Ch
ina
Ind
ia
Jap
an
Arg
en
tin
a
Au
str
alia
Bra
zil
Can
ad
a
US
Eu
ro A
rea
UK
Sw
itzerl
an
d
US
D
10
-20
-15
-10
-5
0
5
10
15
20
25
30
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Exports: Goods and Services
Imports: Goods and Services
US Nominal Goods and Services Exports and Imports, Y/Y%
THE DEFICITUS nominal goods and services exports and imports, Y/Y%
Source Citigroup, August 2007
11
INFLATION Inflation is trending down
Source: Bear Sterns. As at 30 September 2007.
Core PCE Deflator
12
0
5
10
15
20
25
Mar-07 J un-07 Sep-07 Dec-07 Mar-08 J un-08 Sep-08 Dec-08
Monthly Rate Resets ($bn)Monthly Rate Resets ($bn)
0
5
10
15
20
25
Mar-07 J un-07 Sep-07 Dec-07 Mar-08 J un-08 Sep-08 Dec-08
Monthly Rate Resets ($bn)Monthly Rate Resets ($bn)
HOUSEHOLD DEBTStill a lot of resets ahead of us
Source: JP Morgan.
13
HOUSING (MONTHS OF INVENTORY)Home sales will take time to recover
Source: National Association of Realtors.
14
…BUT DON’T UNDERESTIMATE THE US CONSUMERUS Household Net Worth (ex Real Estate)
Source: FRB Flow of Funds and Citi Investment Research – US Equity Strategy
15
EQUITIES LOOK CHEAP
Source: UBS US Equity Strategy
16
EARNINGS EXPECTATIONS REMAIN MODEST
Source: Thomson Financial / IBES.
17
OUTLOOK FOR NORTH AMERICAN EQUITIES
North American economy is slowing but the global economy is increasingly resilient
The US dollar is at a level which makes US companies highly competitive
Inflation is trending lower within Fed target range
Interest rate trends uncertain – avoid housebuilders and wary on banks
US equities remain attractive even though earnings growth is slowing
2005 2006 2007 (est) 2008 (est)
USA 3.2 2.9 2.0 2.4
Eurozone 1.5 2.9 2.6 2.2
Japan 1.9 2.2 2.3 2.1
UK 1.9 2.8 2.8 2.1
Source: Consensus Economics. As at 10 September 2007.
GDP growth compared
18
WHY MARTIN CURRIE FORNORTH AMERICA?
North American fund fits our ‘Big Boutique’ business model:
Stock-picking approach
Focused portfolio – 40 stocks
Partnership between a proven product manager and an experienced team of sector managers
Manager’s remuneration linked directly to performance
Distinctive investment process – combining numerical screening, fundamental research and committed stock selection
Exceptional investment performance – including on a risk-adjusted basis
Stands out in a sector with few consistent performers
Positioned to take advantage of resurgence of large-caps
Tom WalkerLead manager, North America
19
PERFORMANCE IN PERSPECTIVETop-quartile ranking in peer group
Past performance is not a guide to future returns. Returns are in sterling and net of fees.Source: Lipper Hindsight. Bid-bid basis with net income reinvested over period shown. * From 30 April 2002 to 28 September 2007.Although Martin Currie complies with the GIPS standards, and each fund return is calculated using the recommended methodology, the method of calculation used in this presentation falls outside the scope of the GIPS standards.
Cumulative performance1 year 2 years 3 years 4 years 5 years Manager’s
tenure*
Martin Currie North American Fund 13.6 19.7 45.6 49.4 76.7 26.9
Sector average 7.6 9.7 26.7 28.8 46.1 5.2
MSCI North America 8.6 13.8 33.3 39.7 66.3 17.1
Quartile ranking 1 1 1 1 1 1
vs sector average 20.1%
vs MSCI North America 8.3%
-5
0
5
10
15
20
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
% c
han
ge
20
NORTH AMERICAN PORTFOLIOSAn experienced and well-resourced team
Product managers
Tom WalkerLead-manager, North America
Rahul SharmaConsumer
Chris Butler Head of sector managers,
materials
Duncan GoodwinEnergy
Donald Barlow Utilities
Ken HughesIndustrials
Elaine MorrisonConsumer
Rachel Nimmo Healthcare
Paul Sloane Financials
Len RiddellFinancials
Sector manager team
Dealing
(Team of 10)
Performance analytics group
(Team of 13)
Dan GardnerHead of risk management
Risk management
Jamie MarianiTechnology, media and
telecommunications
David ForsythCo-manager, North America
Toby McCullaghConsumer
Luca Fasan Technology, media and
telecommunications
Jane CoullTechnology, media and
telecommunications
Bruce MacDonaldInfrastructure
21
5.6
1.7
1.6
1.3
0.4
-0.3
-0.5
-3.2
-4.0
-4.9
Information technology
Utilities
Telecommunication services
Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financials
Sector weightings %
PORTFOLIO CHARACTERISTICSRelative stock and sector weightings
Top five positive positions
Martin Currie
%
Index
weight %
Active weight
%
1. Gildan Activewear 2.9 - +2.9
2. Cisco Systems 4.0 1.3 +2.7
3. MEMC Electronic Materials 2.7 0.1 +2.6
4. Mirant 2.6 0.1 +2.5
5. Anadarko Petroleum 2.7 0.2 +2.5
Top five negative positions
Martin Currie
%
Index
weight %
Active weight
%
1. Exxon Mobil - 3.5 (3.5)
2. Microsoft - 1.7 (1.7)
3. Citigroup - 1.5 (1.5)
4. Procter & Gamble - 1.5 (1.5)
5. Chevron - 1.3 (1.3)
Source: Martin Currie. As at 30 September 2007. Index: MSCI North America.This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in any of the stocks.
22
200420052006200781012141618202224262830
CORNING
CorningCorning relative to S&P 500 Composite Index
Global leader in glass technology
Flat screen television sales still growing strongly
Under appreciated fibre optic, diesel emission control and polysilicon businesses
Source:Thomson Datastream as at 1 October 2007. Past performance is not a guide to future returns. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock.
23
2004200520062007510152025303540
GILDAN ACTIVEWEAR
Gildan ActivewearGildan Activewear relative to S&P 500/TSX Composite Index
Leader in volume T-shirt production, also socks and underwear
Make ‘em cheap – but in Central America, not China
Quality company, conservatively managed and under researched
Source:Thomson Datastream as at 1 October 2007. Past performance is not a guide to future returns. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock.
24
2004200520062007152025303540
CVS
Leading food and drug retailer – 100% domestic US sales
Beneficiary of growth in use of low cost generic drugs
Experienced acquirer and integrator of businesses
CVSPrice relative to S&P 500 Composite Index
Source:Thomson Datastream as at 1 October 2007. Past performance is not a guide to future returns. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock.
25
2004200520062007152025303540
CANADIAN PACIFIC RAILWAY
Domestic assets – but China, et al, are the engine of growth
Strong trends in operating efficiency
Attractive valuations ….. and Warren Buffet thinks so too !
Canadian Pacific Railway relative to S&P 500/TSX Composite IndexCanadian Pacific Railway
Source:Thomson Datastream as at 1 October 2007. Past performance is not a guide to future returns. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock.
26
SUMMARYAlpha is alive and well in North America
Alpha is in companies – not politics and macro economics
North American companies are selectively the best in the world
Our investments are quoted in North America, a dynamic and growing environment….
….but many are global operators thriving in the global market place
27
REGULATORY INFORMATION
Martin Currie Investment Management Limited (MCIM) has issued and approved this presentation in its capacity as investment adviser. MCIM is referred to throughout as ‘Martin Currie’. MCIM is authorised and regulated by the Financial Services Authority and is a member of the Investment Management Association. Registered in Scotland (no 66107), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. The presentation may not be distributed to third parties and is intended only for the attendee. The presentation does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned. The information contained in this presenter has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice. Martin Currie Investment Funds (MCIF) Martin Currie North American Fund (the fund) is a subfund of an Open-ended investment company (Oeic). The fund is referred to throughout as the North American Fund. Martin Currie Unit Trusts Limited is the Authorised Corporate Director for the Oeic, and is an affiliate of MCIM. It is also authorised and regulated by the Financial Services Authority. MCIM is the investment adviser to the fund. In the exceptional event that an Oeic subfund’s liabilities exceed its net assets, the Oeic structure allows for these liabilities to be allocated across other subfunds in the Oeic. Investment in the fund can only be made in accordance with the terms and conditions outlined in the Simplified Prospectus or Key features document available at the time of investing.
Past performance is not a guide to future returns. Markets and currency movements may cause the value of investments and income from them to fall as well as rise and you may get back less than you invested when you decide to sell your investments. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples, contained in this presenter. Movements in foreign exchange rates may have a separate effect, unfavourable as well as favourable, on the gain or loss otherwise experienced on an investment. Funds which invest in one country carry a higher degree of risk than those with portfolios diversified across a number of markets. Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companies often have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which they are exposed, may not be available. Investment in derivative instruments, including futures, options or contracts for differences, carries a high risk of loss, the markets in these investments being very volatile. A relatively small adverse market movement may result not only in the loss of the original investment but also in unquantifiable further loss exceeding any margin deposited. Warrants often involve a high degree of gearing so that a relatively small movement in the price of the security to which the warrant relates may result in a disproportionately large movement, unfavourable as well as favourable, in the price of the warrant.
Performance information - with the exception of any figures calculated on a fund's net asset value, which fall outside the scope of the GIPS standards, all performance information calculated by Martin Currie complies with the GIPS standards.