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Pictet Asset Management Mark Boulton and Stephen Burrows May 2012 Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLY

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Page 1: Pictet

Pictet Asset Management

Mark Boulton and Stephen Burrows

May 2012

Pictet-Emerging Markets High Dividend fund

FOR PROFESSIONAL INVESTORS ONLY

Page 2: Pictet

2Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Table of contents

1. Why emerging market high yield equities

2. Pictet-Emerging Markets High Dividend fund

3. Conclusion

4. Portfolio composition, performance and technical details

5. Appendices

Page 3: Pictet

Why emerging market high dividend yield equities?

1

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4Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

High dividend yields are available in emerging equities

Source: Bloomberg as at 31/03/2012 (German Government Bond: Citigroup German Government Bond Index, US Government Bond: Citigroup US Government Bond Index, MSCI World Index, US A Corporate Bond: Citigroup US A Corporate Bond Index.*Source: Pictet Asset Management. Portfolio is the PGSF Global High Yield Emerging Equity Fund managed for Japanese investors, gross dividend yield as at 31 March 2012.

Gross dividend yield level of the PGSF Global High Yield Emerging Equity Fund and various asset classes

1.8%

2.2%

2.7%

3.3%

5.5%*

1%

2%

3%

4%

5%

6%

German Government Bond US Government Bond MSCI World Equity US "A" Corporate Bond Portfolio*

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5Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

High dividend segment – historical perspective

Emerging Market, Total Return, Net Dividend Reinvested, 31 Dec 1998 – 31 March 2012Emerging market high dividend yielding stocks have outperformed

28% of total return from MSCI EM Index (Dec 1998-March 2012) has come from dividends

Source: Pictet Asset Management. MSCI EM High Dividend Yield Index and MSCI EM Index, rebased to 100.

0100200300400500600700800900

1000

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MSCI EM High Dividend Yield Index MSCI EM Index

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6Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

High yielding stocks offer good risk-adjusted returns

Source: Pictet Asset Management. MSCI EM High Dividend Yield Index and MSCI EM Index, total return, net dividends reinvested, from 31 Dec 1998 – 31 March 2012.

Risk and return from MSCI EM High Yield Index versus MSCI EM Index 31Dec 1998 - 31 March 2012

Higher returns of high yielding stocks do not imply higher risk

MSCI EM High Yield Index has:

• Lower volatility

• Higher sharpe ratio

23.89%

0.55

24.92%

0.35

Annualised volatility (% p.a.) Sharpe ratio

MSCI EM High Dividend Yield Index MSCI EM Index

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7Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Growing dividends from emerging markets companies

Dividend growth in emerging markets has been greater than in developed markets over the past ten years

MSCI EM & MSCI World equity dividend per share (indexed)

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MSCI EM MSCI World

Source: Morgan Stanley Research

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8Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Strong balance sheets underpin growing and sustainable dividends

Strong growth in shareholders equity has led to a reduction in corporate gearing (net debt/shareholders equity ratio)

Insert here your graphs and tables

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Net Debt Shareholders Equity

$m

Global emerging markets corporate net debt and shareholders equity

Source: GEM Inc, UBS

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9Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Dividend payout ratios also have the potential to rise

Equity dividend payout ratios (% est. 2011)Dividend payout ratios in emerging markets trail the developed world by a wide margin

Increasing share ownership will support higher dividend payouts

Source: Thomson Reuters Datastream, UBSDividend pay-out ratio is % of a company’s earnings paid out as dividend.

35%

28%

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World GEM

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10Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Wider share ownership supports higher dividend payouts

Asia ex-Japan average payout ratios and free float decilesOngoing IPO’s and secondary offerings are widening the ownership structure of emerging companies, particularly in Asia

Higher free float percentages:• support higher dividend payouts

• lead to better corporate governance

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Freefloat deciles (%)

Avg payout ratio (%)

Source: Factset, CLSA Asia-Pacific Markets

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11Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Dividend yield and earnings growth – opportunity to benefit from both

There is no need to make a trade off between the growth potential of emerging markets and exposure to high dividend paying stocks

Insert here your graphs and tables

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

MSCI EM Top 50% Dividend Yield Equity Index MSCI EM Index

Earnings per share (US$, 2000 =100)

Source: MSCI, Pictet Asset Management. The MSCI top 50% dividend yield equity index is an index customised for Pictet Asset Management and consists of the top 50% high yielding stocks of the MSCI Emerging Markets Index.

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12Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

High dividend yield emerging companies have superior profitability

Return on equityCompanies providing higher dividend yields in emerging markets have generally well managed and sustainable business franchises

This is reflected in higher levels of profitability Insert here your graphs

and tables

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2006 2007 2008 2009 2010 2011

MSCI EM Top 50% Dividend Yield Equity Index MSCI EM Index

%

Source: MSCI, Pictet Asset Management. The MSCI top 50% dividend yield equity index is an index customised for Pictet Asset Management and consists of the top 50% high yielding stocks of the MSCI Emerging Markets Index.

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13Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

High dividend yields in emerging equities – a summary

• Dividends have played a key role in emerging market equity returns

• Strong balance sheets underpin growing and sustainable dividends

• Low dividend pay-out ratios have the potential to rise

• Wider share ownership promotes higher dividends

• High dividend paying emerging companies have had attractive earnings growth and good profitability

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Pictet-Emerging Markets High Dividend fund

2

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15Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Pictet-Emerging Markets High Dividend – at a glance

• Focus on emerging market stocks that deliver high and sustainable dividends

• Aims to provide a return through dividend income and capital appreciation

• Distribution of dividend to investors in the fund:

– Monthly, annual or reinvested dividend

– Payout level annual distribution $4, monthly distribution $0.33

• Experienced investment team:

− Pictet has been managing Emerging Market equities with a value bias since 1989

− AUM of $3.1bn** in global emerging market high dividend equity

*Dividend policy is reviewed annually. ** Source: Pictet Asset Management, as at 31 March 2012 in the PGSF Global High Yield Emerging Equity Fund managed for Japanese investors.

Emerging market dividend stocks offer income and growth potential

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16Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Investment beliefs and philosophy

• The long-term case for economic, earnings and dividend growth in emerging markets remains intact

• Emerging market companies will continue to increase dividends

• Active management with a value bias can exploit investment opportunities within this high dividend yield universe

Mark BoultonSenior Investment Manager

Stephen Burrows Senior Investment Manager& Product Specialist

Klaus Bockstaller Head Global Emerging Markets

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17Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset ManagementPictet Asset Management

Global investment universe

Global emerging markets universe covers 69 countries Unique Emerging markets database: • 6250 companies• 69 countries• 12 sectors• 70 industries• 20 years of historical

financial data

Large emerging markets team: 30+ professionals covering EM equity, debt and economics

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18Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management 18

Investment process summary

EMERGING MARKETS DATABASE

LIQUIDITY SCREENINGMarket cap >± USD 1billion Liquidity >± USD 2mln/day

HIGH YIELD UNIVERSE

DIVIDEND SCREENINGTargeting the top quartile dividend yields

DIVIDEND SUSTAINABILITY SCORE• Earnings volatility• Financial leverage• Dividend payout ratio

FUNDAMENTAL ANALYSIS• Industry and Franchise• Management • Financial Analysis

VALUATION

±6,500

INVESTABLE UNIVERSE

±1600companies

RISK MANAGEMENT

INVESTMENT TEAM Pro-actively monitoring risk exposure at a stock, country and sector level

INDEPENDENT RISK TEAM Liquidity and full risk analysis

±400companies

FINAL PORTFOLIO

±100-200 stocks

HIGHEST CONVICTION STOCK IDEAS

TOP DOWN RISK ASSESMENT OF COUNTRY, CURRENCY AND SECTOR WEIGHTS

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19Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Dividend sustainability score

• Earnings volatility

– Stocks are ranked according to the variability of their historical (five years) earnings per share

– We prefer lower earnings volatility

• Financial leverage

– Stocks are ranked according to total debt/shareholders equity (last reported data)

– We prefer lower financial leverage

• Dividend payout ratio

– Stocks are ranked according to the average dividend payout ratio over the last three years

– We prefer more conservative dividend payout ratios

Three factors are combined on an equal weight basis to determine a dividend sustainability score

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20Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Stock example: Bosideng International Holdings

Leading Chinese clothing manufacturer and distributor – signature product being down jackets (37% market share).

Screening for:Market cap: USD 2.3bnLiquidity: USD 4.5mln average daily volumeDividend: 2012 Yield 8.1%

• 2012 P/E ratio 10 times

• Pictet Value relative to sector median of 0.46 where a score of 1.0 would put it at the median valuation level relative to its sector peers globally.

VALUATION

• Score of 37% - very high ratings on earnings volatility and capital position.

• Payout ratio maintained at between 65% and 80% since the IPO in 2007.

DIVIDEND SUSTAINABILITY SCORE

• Attractive industry growth reflecting increasingly affluent Chinese consumer.

• Company has a consistent record in growing business via building and acquiring brands whilst maintaining margins.

• Conservative balance sheet , 10% of market cap in cash and history of self-financing growth.

FUNDAMENTAL ANALYSIS

Source: Pictet Asset Management, Bloomberg. Data as at 31 March 2012.

COUNTRY AND CURRENCY RISK ASSESMENT: China √

Bosideng products in Shanghai department store

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21Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Portfolio construction

Maximum 40%Guideline for sector exposure

5% at costMaximum position size

Emerging market currency exposure is not hedgedCurrency exposure

Maximum 35% Guideline for country exposure

100-200Typical number of positionsStock weights in the portfolio reflect:• Level of conviction based on:

- Dividend yield- Dividend sustainability score- Fundamental and valuation analysis

• Evaluation of country risk and liquidity profile

Page 22: Pictet

Conclusion

3

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23Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Why invest in the Pictet-Emerging Markets High Dividend fund?

– Dividends are increasingly important in emerging markets

– The fund offers both income and access to long-term growth potential of emerging markets

– An active, analytical approach is key to identifying stocks with high and sustainable dividend yields

– Experienced fund managers draw on a substantial in-house knowledge base of emerging market and high dividend equities

Pictet has invested in emerging markets using a value based approach since 1991

*Source: Pictet Asset Management as at 31 March 2012.

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Portfolio composition, performance and technical details

4

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25Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Characteristics of an emerging high dividend yield portfolio

Portfolio Style Skyline of Pictet emerging high dividend yield portfolio* Vs. MSCI EM indexSignificant dividend and strong value bias

Bias towards high margin and high quality (return-on-equity) companies

Source: Pictet Asset Management, as at 31 March 2012. * PGSF Global High Yield Emerging Equity Fund.

Portfolio Style Skyline™

0.4

11.7

3.8

1.50.0

2.33.1

-0.7

3.6

-1.6-2.9

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26Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Geographical and sector allocation% Country weights relative to MSCI EM Index % Sector weights relative to MSCI EM Index

Source: Pictet Asset Management as at 31 March 2012 for PGSF Global High Yield Emerging Equity Fund.

- 15% - 12% - 9% - 6% - 3% 0% 3% 6% 9%

Brazil

Taiwan

Thailand

Russia

Czech Republic

Turkey

Peru

Poland

UAE

Philippines

Kazakhstan

Colombia

Hungary

Nigeria

Hong Kong

M orocco

Chile

Egypt

M alaysia

Indonesia

South Africa

China

M exico

India

Korea (Rep.)

-8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

Te le c o ms

Financ ials

Ene rgy

Utilitie s

Mate rials

IT

He althc are

Industrials

Co ns. Staple s

Co ns. Disc .

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27Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Top 10 holdings

5.0%2.1%FinancialsSouth AfricaAfrican Bank Investments

8.8%2.3%MaterialsSouth AfricaKumba Iron Ore

6.6%2.3%FinancialsBrazilBanco Do Brasil

3.9%2.3%Cons. StaplesBrazilAmbev-Cia Bebidas America

4.1%2.4%EnergyChinaPetrochina

6.6%2.5%TelecomsRussiaMobile Telesystems

6.1%2.7%MaterialsBrazilVale

6.3%2.8%FinancialsChinaBank of China

5.7%3.2%FinancialsChinaIndustrial And Comm. Bank China

3.7%3.5%ITTaiwanTaiwan Semiconductor Manufactur.

Gross Div FY1 %Portfolio WeightCountrySectorCompany

Source: Pictet Asset Management, Bloomberg. Data as at end of March 2012 for the PGSF Global High Yield Emerging Equity Fund, excludes Cash.

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28Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Performance PGSF Global High Yield Emerging Equity Fund: Jan 2011–March 2012 (1)

Jan 2011: change in investment process - focus on top quartile dividend stocks

Source: Pictet Asset Management. Performance of the PGSF Global High Yield Emerging Equity Fund managed for Japanese investors. Data as at end of March 2012.

Monthly Performance %

0.00

0.63

2.00

-0.83

-2.03

1.63

0.72

-0.50

1.11

-0.17

Performance Portfolio Benchmark Difference

Current Quarter 14.55% 14.08% 0.46%YTD 14.55% 14.08% 0.46%1 Year -4.74% -8.80% 4.06%Since change investment process* -2.09% -3.74% 1.65%*31 January 2011

Net Performance in USD

Cumulative Performance %

(annualised per 31.03.12)

-30

-20

-10

0

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Feb 2011 Mar 2011 Apr 2011 May 2011 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012

-30

-20

-10

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PGSF Global High Yield Emerging Equity Fund MSCI EMF (Net Return Index)

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29Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Performance PGSF Global High Yield Emerging Equity Fund (2)

Performance in USD, net of fees

Source: Pictet Asset Management. Performance of the PGSF Global High Yield Emerging Equity Fund managed for Japanese investors. Data as at end of March 2012.

Annual Performance %

0.00

0.00

0.00

0.00

-11.93

4.91

-14.65

-2.35

1.55

0.46

Performance Portfolio Benchmark Difference Portfolio Benchmark

Current Quarter 14.55% 14.08% 0.46% 26.62% 30.39%YTD 14.55% 14.08% 0.46% 6.45%Since Inception (31.01.07) 3.75% 5.19% -1.44% -0.201 Year -4.74% -8.80% 4.06%3 Years 22.09% 25.07% -2.98%5 Years 3.30% 4.67% -1.37%10 Years

Information Ratio

Net Performance in USD

(annualised per 31.03.12) (annualised 5 years per 31.03.12)

Standard DeviationTracking Error

Cumulative Performance %

Risk Figures

-200

-150

-100

-50

0

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2007 (Feb) 2008 2009 2010 2011 2012 (Mar)

-60

-40

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PGSF Global High Yield Emerging Equity Fund MSCI EMF (Net Return Index)

Jan 2011: Change of investment process: focus on top quartile dividend stocks

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30Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Pictet-Emerging Markets High Dividend fund

• Name: Pictet-Emerging Markets High Dividend• Fund managers: Mark Boulton, Stephen Burrows • Reference index: MSCI Emerging Markets • Legal status: Compartment of the Pictet Luxembourg SICAV, UCITS compliant• EU saving directive: In scope no tax • Reference currency: USD • NAV calculation: Daily, settlement NAV + 4• Subscription period: 21 May to 6 June 2012 until 3.00 pm Luxembourg• Launch date: 7 June 2012 • Dividend: Reinvested or distributed

Source: Pictet Asset Management as at 31 March 2012.

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Appendix

5

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32Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Investment resources

Klaus BockstalllerHead Global Emerging Markets

Global Emerging Market Equity Regional Research

Global Emerging Sector Research

Emerging Economic Analysis

Risk Management

Emerging Market Traders (3 dedicated traders)

PROVIDING SPECIFIC INPUT

Emerging Debt Investment Team

High Dividend Selection Investment Team

Pictet Asset Management Strategy Unit

Sector and Theme Funds Investment Teams

EXCHANGES VIEWS AND ANALYSIS

Mark BoultonSenior Investment Manager 20 years investment experience

Stephen BurrowsSenior Investment Manager & Product Specialist21 years investment experience

PORTFOLIO CONSTRUCTION

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33Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Biographies

Mark Boulton Senior Investment Manager

Mark Boulton joined Pictet Asset Management in 1998. He is a Senior Investment Manager of the Emerging Markets High Dividend fund. He was Head of the Global Equities team for eight years before taking on responsibility for Equities Advisory in 2009.After qualifying as a chartered accountant with Arthur Andersen & Co., he joined the European equity team at Rothschild Asset Management as an investment manager in 1991. In 1995, he spent 18 months at Rothschild & Compagnie Banque in Paris as Head of the European Team. On his return to London in 1997 he became Head of the International Equities Department, where his responsibilities also included global emerging markets. At the end of 1997 he was appointed Director of Rothschild Asset Management.Mark graduated from Brasenose College, Oxford in 1988 with an MA (Hons) in Chemistry. He has a diploma in Investment Management from the London Business School and is an associate member of the Securities Institute.

Stephen BurrowsSenior Investment Manager & Product Specialist

Stephen Burrows joined Pictet Asset Management in 1997. He is a Senior Investment Manager of the Emerging Markets High Dividend Fund and Product Specialist for the Emerging Markets Equities team. Previously he was a Senior Investment Manager for the European Equities team at Pictet. He began his investment career in 1987 with a three year training program at Rothschild Asset Management before moving on to become an Investment Manager for European Equities and a member of the Global Asset Allocation Committee. In 1995 he moved to Norwich Union Investment Management as an Investment Manager in the European Equity team.Stephen is an Associate Member of the Society of Investment Professionals.

Klaus BockstallerHead Global Emerging Markets

Klaus Bockstaller joined Pictet Asset Management in 2009 as Head of EMEA and LatAm. In 2011 he assumed responsibility for all EMEA and Global mandates. Before joining Pictet, Klaus was a founding partner of Fleming Family & Partners Capital Management LLP (FCM). He spent five years at Fleming managing the FCM European Frontier and the FCM Global Opportunities long / short equity funds. Previously, Klaus spent seven years at UBS Brinson as Portfolio Manager –Eastern Europe (1994 – 2000) and in 2000 he moved to Baring Asset Management as Head of EMEA. Klaus holds a Masters degree (Diplom Volkswirt) in Economics from the University of Freiburg.

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34Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Investment process – Fundamental analysis and valuation

• Growth drivers• Competition and product differentiation• Barriers to entry and pricing power• Quality and utilisation of productive assets. • New market opportunities

• Improving ROE, ROIC• Sustainability of margins• Capital management• Balance sheet structure• Cash flow generation• Dividend history & outlook

• Credibility • Proven track record• Coherent strategy• Reporting transparency• Corporate Governance

•Dividend yield •Undervalued capacity (proprietary database)•Traditional metrics

INDUSTRY DYNAMICS & BUSINESS FRANCHISE FINANCIAL ANALYSIS MANAGEMENT VALUATION

We validate our analysis through company meetings. The Global Emerging Markets team has approximately 1400 meetings per year.

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35Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

COUNTRY RISK INDICATOR

Economic environment:•Leading activity index / CPI inflation rate

Public finance:• Debt and fiscal balance to GDP ratio

Financial domestic strength:• Loans to GDP ratio and deposits ratio

External financing needs:• Net foreign assets• Total and short-term external debt• Current account

External strength:• FX reserves / FX reserves to imports ratio• Openness to GDP ratio• Real trade-weighted exchange rate

Top down risk assessment

SECTOR RISK ANALYSIS

Sector valuation relative to replacement cost

Pricing power, inventory levels

Capacity trends, over/under investment

Demand cycle

Margin pressures

Does the macro and sector analysis alter our bottom up views?

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36Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Polish Insurance company with leading market shares in life (33%) and non-life (37%).

Screening for:Market cap: USD 8.7bnLiquidity: USD 23mln average daily volumeDividend: 2012 Yield 8.4%

• Score of 59% - high rating on earnings variability and capital position.

• Regulator recommended 75% payout ratio which is low in the sector given the level of excess capital.

DIVIDEND SUSTAINABILITY SCORE

• Price to Book 2.1 times

• Price to Embedded Value 1.1 times

• 2012 P/E ratio 10 times

• Company offers superior profitability. ROE 19% vs European average of 12%.

• Management following through on IPO promises – cost reduction programme one year ahead of target.

• Very conservative capital position - estimated to have excess capital of PLN5.6bn on total capital of PLN12.9bn.

VALUATION FUNDAMENTAL ANALYSIS

Source: Pictet Asset Management, PZU (* 2010 data), Morgan Stanley, Deutsche Bank, Citi. Data as at 31 March 2012.

0

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COUNTRY AND CURRENCY RISK ASSESSMENT: Poland √

Life insurance premiums as a percentage of GDP*

Stock example: PZU

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37Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Stock example: HTC Corporation

Description: Taiwanese technology company that manufactures own and 3rd party branded smart and feature phones.

Screening for:Market Cap: USD 13.9bnLiquidity: USD 95mln average daily volumeDividend: 2012 Yield 8.5%

• Score of 28%

• Average payout ratio of 70% over last five years.

•Management willing to use balance sheet to support dividends in an industry which by its nature has more volatile earnings.

DIVIDEND SUSTAINABILITY SCORE

• 2012 P/E ratio 9.5 times

• High ROE maintained to date, justifies the 3.8 times book value – but ROE levels need to be maintained.

• 10% share of global smart phone market. The smart phone percentage of total handset shipments is set to grow from 27% in 2011 to 49% in 2015*

•Management quality & close relationship with Qualcomm (chip-set architect) should ensure HTC benefits from this growth as 4G rolls out. •Conservative balance sheet - USD2.6bn net cash

VALUATION FUNDAMENTAL ANALYSIS

Source: Pictet Asset Management, Gartner*. Data as at 31 March 2012.

COUNTRY AND CURRENCY RISK ASSESSMENT: Taiwan √

HTC makes a wide range of phones to meet different needs

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38Pictet-Emerging Markets High Dividend fund FOR PROFESSIONAL INVESTORS ONLYPictet Asset Management

Stock example - Telefonica Brasil

Created from merger of fixed line operator Telesp and mobile operator VIVO in 2011.

Screening for:Market cap: USD 31bnLiquidity: USD 22mln average daily volumeDividend: 2012 Yield 7.8%

• Score of 81% - but excellent balance sheet. Mid-range earnings volatility and a high payout ratio should be sustainable.

• Slightly different situation – 51% owned by Telefonica of Spain, who ensure strong dividend stream from Telefonica Brasil to cover their own dividend commitments.

DIVIDEND SUSTAINABILITY SCORE

• 2012 P/E ratio 11 times

• EV/Ebitda of 4.7 times

• Pictet Value relative to sector median of 1.17, where a score of 1.0 would put it at the median valuation level relative to sector peers. Growth prospects should be above the peer group.

• Structural TMT growth aided by 5mn people per annum entering “middle class” in Brazil.

• Company well positioned with dominant fixed line position in wealthiest Sao Paulo region and the largest national mobile network.

• High quality management and network – e.g. fibre to the home investment should enable them to continue to dominate broadband services in Sao Paolo.

VALUATION FUNDAMENTAL ANALYSIS

Source: Pictet Asset Management, Bradesco. Data as at 31 March 2012.

Brazil’s middle class is growing

COUNTRY AND CURRENCY RISK ASSESSMENT: Brasil√

Page 39: Pictet

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