Equity income in emerging markets

January 2013

Twitter: #JIF2013

Any views and opinions expressed hereafter are those of the investment adviser, unless otherwise noted.For professional Clients only.

Why dividends and why emerging markets for income

• Disciplined capital allocation

• Highlight value

• Highlights earnings quality

• A number of high growth economies

• Potential for high earnings growth in the region

2

Emerging market total return – highest since 2000

Emerging markets have demonstrated high dividend contribution to their total returns (31 December 1999 to 30 November 2012)

Source: Bloomberg, CLSA Asia-Pacific Markets as at 30 November 2012

(%)

3

Emerging market and Asian dividends have grown fastest

Emerging markets have seen highest growth in dividends

Source: Factset, CLSA Asia-Pacific Markets4

Emerging markets

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Asia ex-Japan

EuropeDMUSA

Japan

Increasing choice of high yielding stocks in emerging markets

Geographical split of FTSE World index stocks yielding greater than 3%

1995

Past performance is not a guide to future performance Source: FACTSET, Datastream, 30 June 2012

5

Increasing choice of high yielding stocks in emerging markets

Geographical split of FTSE World index stocks yielding greater than 3%

2011

Past performance is not a guide to future performance Source: FACTSET, Datastream, 30 June 2012

6

Increasing choice of high yielding stocks in emerging markets

Geographical split of FTSE World index stocks yielding greater than 3%

Past performance is not a guide to future performance Source: FACTSET, Datastream, 30 June 2012

1995 2011

Mexico is outgrowing the US economy by a record 2%. Why?

Manufacturing renaissance with greater specialization

NAFTA facilitating increased regional trade

A new government with political will for reform

Low leverage at the consumer and corporate level – 15% private debt to GDP

Young population – median age is 27

Preferred sectors: infrastructure, consumer, financials

2.5

2.0

1.5

1.0

0.52002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2.0

0.6

Manufacturing wages (USD per hour)

Mexico

China

2.4

2.2

8

For illustrative purposes only

Source: ILO, SHCUP, INEGI and Morgan Stanley Research / Newton research December 2012

6

104118 122 130

140

120

100

80

60

40

20

0

GDP Quality of overall

infrastructure

Quality of roads Quality of air transport

Quality of ports

Brazil: GDP and Infrastructure Quality Ranking(ranking out of 142 countries, inverted scale, 2011)Brazil overtook the UK to become the world’s 6th largest economy in 2011

Consumption has been the driver of growth while industrial production has lagged.

President Dilma’s focus now upon investment

Catch-up in infrastructure investment required ahead of the World Cup in 2014 and Olympics in 2016

Greater involvement of private sector is targeted

Interest rates now at a historical low of 7.25%

Consumer supported by demographics, salaries growing above inflation

Preferred sectors: infrastructure, consumer

9

For illustrative purposes only

Source: World Economics Forum Morgan Stanley Latam Economics

ASEAN – Asia’s brightest spot

• ASEAN = Association of South East Asian Nations. 10 countries ~ 600m people

• ASEAN’s GDP is over US$2trn; around 30% bigger than India’s GDP

• Investment to GDP ratios are on an upward trend

• Domestic demand supported by population growth

• Improving business environments

10

Source: Thomson Datastream, Capital Economics, December 2012

Share of population aged below 20

0 10 20 30 40 50

SingaporeThailand

ChinaBrunei

VietnamIndonesia

BurmaIndia

MalaysiaCambodia

PhilippinesLaos

(%)

Source: Euromonitor, CLSA Asia-Pacific Markets, Newton research, December 2012

Asean disposable income growth, five-year Cagr

Sources: CLSA Asia-Pacific Markets, Newton research, December 2012

0 1 2 3 4 5 6 7 8

Total

Thailand

Singapore

Philippines

Malaysia

Indonesia

(%)

Investment (% of GDP)

Sources – Thomson Datastream, Capital Economics, December 2012

0

5

10

15

20

25

30

35

Indonesia Thailand Malaysia Philippines

2001

2012F

Newton has a rich history of investing in Emerging Markets

• Newton has invested in Emerging Markets for over twenty years

• Emerging market securities held across global equity and fixed income portfolios

• Emerging market growth remains a core focus for our global research team

• Frequent travel to meet with current and potential investments in Emerging Market countries

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Our investment processOverview

Emergingincome strategy

Client requirements

Investment risk group

• Newton thinks globally, using themes

• Newton conducts proprietary global research

• Investment engine deliberately based in London

• Newton constructs single portfolios

12

Themes drive high conviction ideas

13 For illustrative purposes only

Millicom International Cellular S.A.

Newton Emerging Income Fund

• Fund aims to yield at least 15% more than its FTSE ALL World Emerging Index

• For inclusion in the portfolio any holdings under consideration must have a prospective yield of at least 85% of the index

• Any holding whose prospective yield falls below a 30% discount to the index will be sold

• Concentrated portfolio of fewer than 60 stocks

• Transparent, straightforward portfolio structure

Objective To achieve income with long-term capital growth

FTSE All World Emerging Index Comparative index

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Newton Emerging Income FundPortfolio vs comparative index

Country weightings (%)

Comparative index FTSE All-World EmergingPortfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations. Source: Newton, 31 December 2012

15

Newton Emerging Income FundPortfolio vs comparative index

Economic sector weightings (%)

Comparative index: FTSE All-World EmergingPortfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations. Source: Newton, as at 31 December 2012

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Summary

• Emerging Markets offer diversification for equity income investors

• Emerging countries provide exposure to high growth potential

• Experienced investment team with wealth of knowledge

• Yield discipline ensures above average yield

• Newton has demonstrated strength in equity income investing

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Newton Emerging Income FundPerformance as at 31 December 2012

*Fund launched 04 October 2012. Source: Lipper as at 31 December 2012. Please note that sector returns are likely to vary, depending on the timing of data extraction from LipperFund performance calculated as total return including income net of UK tax, net annual charges, no initial charge, in GBPThe impact of the initial charge which may be up to 4% can be material on the performance of your investment. Performance figures including the initial charge are available upon request. Past performance is not a guide to future performance.

7.06%

4.70%4.39%

18

Cumulative return since inception* (%)

Newton Emerging Income Fund

Important information

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This is a financial promotion for Professional Clients and/or distributors only. This is not intended as investment advice. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested.

All information relating to Newton Investment Management Limited (Newton) the Newton Emerging Income Fund has been prepared by Newton for presentation by BNY Mellon Asset Management International Limited (BNYMAMI). Any views and opinions contained in this document are those of Newton as at the date of issue; are subject to change and should not be taken as investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries.

This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNYMAMI to do so. No warranty is given as to the accuracy or completeness of this information and no liability is accepted for errors or omissions in such information.

Newton Emerging Income FundRegistration is still pending in certain markets. Fund may not be registered for sale in all markets.

The Fund is a sub-fund of BNY Mellon Investment Funds, an investment company with variable capital (ICVC) incorporated in England and Wales under registered number IC27 and authorised by the Financial Services Authority. BNY Mellon Fund Managers Limited (BNY MFM) is the Authorised Corporate Director. BNY Mellon Fund Managers Limited, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1998251. Authorised and regulated by the Financial Services Authority. The investment adviser of the Newton sub-fund is Newton Investment Management Limited.

BNYMAMI is the global (ex US) distributor of the capabilities of its asset managers including those of Newton.

ICVC investments should not be regarded as short-term and should normally be held for at least five years.

There is no Guarantee that the fund will achieve its objective.

This Fund will invest in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund.

A fall in the global emerging markets may have a significant impact on the value of the Fund because it primarily invests in this market.

The Fund may use derivatives to reduce costs and/or the overall risk of the Fund (i.e. Efficient Portfolio Management (EPM)). Derivatives involve a level of risk, however, for EPM, they should not increase the overall riskiness of the Fund.

The Fund invests in emerging markets. These markets have additional risks due to less developed market practices.

A fall in the value of a single investment may have a significant impact on the value of the Fund because it typically invests in a limited number of investments.

The Fund takes its charges from the capital of the Fund. Investors should be aware that there is potential for capital erosion if insufficient capital growth is achieved by the Fund to cover the charges. Capital erosion may have the effect of reducing the level of income generated.

You should read the Prospectus and Key Investor Information Document (KIID) for each fund in which you want to invest. The Prospectus and KIID can be found at www.bnymellonam.co.uk.

A complete description of the risk factors is set out in the Prospectus in the section entitled "Risk Factors.

This document is issued in the UK by BNY Mellon Asset Management International Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Services Authority.

BNY Mellon Asset Management International Limited, BNY Mellon Fund Managers Limited , Newton and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation.

BNY Mellon Fund Managers Limited and Newton Investment Management Limited are members of the IMA.

CP 9364-02-01-2013(3M)