FOR PROFESSIONAL ADVISERS ONLY
Baring European Equities
August 2015
Baring Asset
Management Limited
155 Bishopsgate,
London, EC2M 3XY
James Buckley
Tel +44 (0)20 7628 6000
Fax +44 (0)20 7638 7928
www.barings.com
Authorised and regulated by the
Financial Conduct Authority
CONFIDENTIAL
Corporate and overview slides
Guidelines for equity presentation slides
Agenda
• Company overview
• Investment philosophy
• Investment process
• Portfolio
• Client service
• Appendix
3
Corporate overview
• Providing investment management services in emerging and developed markets, asset
allocation and specialist fixed income to investors worldwide
– Current assets under management US$42.3billion
• Operating in 11 countries with professionals from 35 different nations
– 122 investment professionals
– Investors based in London, Hong Kong, Seoul, Tokyo and Boston
• Mandates tailored to client needs
– Segregated accounts for institutions: specialist and international capability in equities and fixed income
– Pooled funds for institutions, distributors and product assemblers: high alpha regional equity and fixed
income funds and multi asset expertise
London, Boston, Dubai, Frankfurt, Geneva, Hong Kong, Kaohsiung, Paris,
San Francisco, Seoul, Taipei, Tokyo, Toronto
An international investment management company
with a history dating back to 1762
Source: Barings, 31 December 2014
4
What sets us apart
Genuinely high conviction portfolios
• High active share
• Best ideas orientated
• Rigorously applied through Portfolio Scorecard
Well defined quality GARP philosophy
• Emphasis on Quality, Growth and Upside
• Identifying strong businesses with good expansion potential and attractive valuations
• Three to five year time horizon gives us a non-consensus perspective
In-depth, in-house, bottom-up research
• Focused approach to identifying the best opportunities
• Robust peer review encourages innovative thinking
• Company Scorecards provide a structured approach, common across all teams
… a strong platform for strong performance
5
Corporate update
Senior leadership enhanced
• Ken Lambden appointed CIO
• GEMS portfolio management team: Jean-Louis Scandella, William Palmer and Isabelle Irish
A rigorously applied quality GARP process
• Focus on unrecognised growth over three to five years
• Increased conviction and active share
Strong performance since enhancements to process
• Driven by strong stock selection
6
European Large Cap Equities
Team and resource
James Buckley
Head of European Large Cap
• 22 years equity investment
experience, joined Barings in
July 200
• Manager of Baring European
Growth and Europa funds
• MBA from Cambridge
University
James Buckley
Paul Morgan
Head of European Large Cap
22, 9
(Lead)
Investment Manager
19, 7
(Backup)
Quant Team
5 members, average
11 years investment
experience
Specialist Analysts, Portfolio Managers and Team Heads
61 members, average 14 years investment experience
European Small
Cap
European Country
Analysts
•
Alexandra
Hillier
Specialists
• Rob Smith
• Nick Williams
• Chris Hyde
• Colin Riddles
• Rosemary Simmonds
• Matthew Ward
• Piers Aldred
• tbc
Other Equity
•
•
•
•
•
•
•
•
•
World & Int’l
North America
Japan
Emerging Markets
EMEA/Frontiers
Latin America
Asia Pacific
China
Resources
Global Sectors
• Technology
• Pharmaceuticals
• Resources
Experience matched with extensive resources
Source: Barings, 31 December 2014. Years of experience: Investment experience; Time at Barings
7
Investment philosophy
Guidelines for equity presentation slides
Investment philosophy
Growth at a Reasonable Price
Growth
Focus on companies with growth of 10-20% CAGR
Reasonable price
Seek unrecognised growth over a three to five year horizon, only paying a justified short
term premium over the market
Quality
Provides the level of certainty needed for a three to five year earnings forecast
Quality GARP companies have delivered superior
returns with lower volatility
9
Investment process
Guidelines for equity presentation slides
Investment process
Sourcing
ideas
High conviction ideas generated from Barings’ diverse pool of
global investors
• Analyst and Portfolio Manager expertise
• Quantitative screening for quality GARP
• Thematic screening
Researching
companies
•
•
•
•
Constructing
portfolios
Maintaining
• Quality
• Growth
• Upside
Monitoring
portfolios
•
•
•
•
Focused and in-depth
Finding unrecognised growth on a three to five year horizon
Companies scored 1 to 5
Best Ideas List owned by a panel of three senior investors
Analysing
• Liquidity
• Volatility
• Concentration
Delivering
• High conviction
• High active share
• Quality GARP
Portfolio Manager
Quant Team
Investment Committee
Investment Risk
11
Finding unrecognised growth
Researching companies
Quality
Growth
Upside
Helps to drive sustainable,
steady results
Provides a long term
platform for
outperformance
Measured using a
disciplined, discounted
earnings approach
• Franchise
‒ Competitive advantage
‒ Efficiency
‒ Stability
• Last three years net
earnings growth
• Discounted earnings over
five years
• 12 month earnings growth
• Management
‒ Competence
‒ Commitment
‒ Alignment with
shareholder interest
• Next five years earnings
growth
• Next 12 month P/E
‒ Compared to history
‒ Compared to sector
‒ Compared to peer
• P/B relative to ROE and
cost of capital
• Balance sheet
Quality (1 to 5)
Growth (1 to 5)
Upside (1 to 5)
Consistent stock scoring methodology
12
Company Scorecard
Novo Nordisk
Source: Barings internal estimates, February 2015.
13
Sourcing ideas at Barings
• 122 investment professionals from 35 different nations
– Provides insight into local culture and business practices
• Investors continuously share information and ideas and discuss trends across teams
– Investors conducted 1689 company meetings in 2014
• Investors use various screens to identify investment opportunities
– Quant driven analysis
– Screens tailored for specific investment universe
High conviction ideas generated from Barings’
diverse pool of global investors
Source: Barings, 31 December 2014
14
Building quality GARP portfolios
Market strategy
Bottom up focus
• Upside
• Quality GARP profile
• Risk Management
Portfolio approach
• High conviction: 40-60 stocks
• Targeting over 75% active share
• Diversified portfolio: minimum weighing 1%, maximum active weighting 3%
• Cash is not used as an asset
Review and sell disciplines
• Fundamental thesis deterioration
• Exhaustion of upside potential
• Higher conviction alternative
High conviction quality GARP portfolios
Source: Barings, 31 December 2014
15
Comprehensive risk management and monitoring
Integrated
portfolio
monitoring
Independent
risk oversight
Level 1
Research
• Quality
• Growth
• Upside
• Analyst
• Portfolio Manager
Ex ante
Level 2
Portfolio construction
• Volatility
• Liquidity
• Concentration and conviction
• Portfolio Manager
• Head of Team
Ex ante
Level 3
Monitoring
• Implied alpha
• Regression analysis
• Stress testing
•
•
•
•
Ex ante
and
Ex post
Level 4
Risk management
• Liquidity
• Tracking error
• Client and other internal
investment guidelines
• Investment Risk Team
Portfolio Manager
Quantitative Team
Head of Team
Head of Equities
Ex post
16
The portfolio
Guidelines for equity presentation slides
Systematic analysis of the portfolio
European Growth
80
70
60
50
40
30
20
10
0
Growth
75.50
0.60
13.10
10.67
12.89
0.02
Active
Share
Active
Weight
(Top 5)
Small
Holdings
(<1% )
Standard Deviations
Weight (%)
Conviction
0.40
0.20
0.01
0.00
-0.20
-0.15
-0.40
EPS Growth EPS Growth
(3Yrs Trailing) (12Mth Fwd)
Sustainable EPS Revisions
Growth Rate
Upside/Valuation
0.60
0.40
0.20
0.07
0.01
0.00
-0.04
-0.18
-0.24
-0.40
-0.60
ROE
Debt to
Equity
FCFY
EPS
Growth
Stability
Volatility
Standard Deviations
0.60
Standard Deviations
0.25
-0.60
Small/Mid
Off
Weight Benchmark
(<$5bn)
Quality
-0.20
0.17
0.33
0.40
0.23
0.20
0.13
0.02
0.00
-0.20
-0.40
-0.60
Price/Book
(Trailing)
P/E (12Mth
Fwd)
DY (Trailing)
EV/EBITDA
Systematic quantitative tools support the portfolio managers in building portfolios in line with their objectives
Source: Barings, Factset, Style Research 31 July 2015. Data relates to Baring European Growth Fund.
18
Systematic analysis of the portfolio
Europa
90
80
70
60
50
40
30
20
10
0
Growth
0.60
79.19
16.05
14.05
11.43
0.10
Active Share
Active
Weight (Top
5)
Small
Holdings
(<1% )
Standard Deviations
Weight (%)
Conviction
0.00
-0.20
-0.04
-0.04
-0.16
-0.40
EPS Growth EPS Growth
(3Yrs Trailing) (12Mth Fwd)
Sustainable EPS Revisions
Growth Rate
Upside/Valuation
0.60
0.40
0.14
0.20
0.02
0.00
-0.05
-0.15
-0.24
-0.40
-0.60
ROE
Debt to
Equity
FCFY
EPS
Growth
Stability
Volatility
Standard Deviations
0.60
Standard Deviations
0.15
0.20
-0.60
Small/Mid
Off
Weight
Benchmark
(<$5bn)
Quality
-0.20
0.40
0.40
0.20
0.05
0.00
-0.20
-0.05
-0.01
-0.07
-0.40
-0.60
Price/Book
(Trailing)
P/E (12Mth
Fwd)
DY (Trailing)
EV/EBITDA
Systematic quantitative tools support the portfolio managers in building portfolios in line with their objectives
Source: Barings, Factset, Style Research 31 July 2015. Data relates to Baring Europa Fund
19
Baring European Growth Trust
Top 10 holdings
Top 10 current overweight stocks*
%
Top 10 current underweight stocks*
%
Ryanair Holdings Plc
2.95
Novartis AG
3.98
Airbus Group SE
2.95
Total SA
1.77
Cap Gemini SA
2.47
Banco Santander SA
1.65
Basilea Pharmaceutica Ltd
2.38
Anheuser-Busch InBev SA
1.59
Sanofi
2.35
Daimler AG
1.43
ASML Holding NV
2.33
Siemens AG
1.41
Actelion Ltd
2.31
BASF SE
1.32
Telefonica Deutschland
2.29
Unilever NV
1.22
Royal KPN NV
2.27
SAP SE
1.17
Wendel SA
2.25
Telefonica SA
1.14
Source: Barings, as at 31 July 2015
*Relative to MSCI Europe ex UK Performance Comparison – Reference to the Performance Comparison is for comparative purposes only
Holdings are subject to change.
20
Baring Europa Fund
Top 10 holdings
Top 10 current overweight stocks*
%
Top 10 current underweight stocks*
%
Ryanair Holdings Plc
2.67
Novartis AG
2.75
Shire Plc
2.34
Roche Holding Ltd
2.34
Safran SA
2.16
HSBC Holding Plc
1.99
Novo Nordisk A/S
2.14
BP Plc
1.29
Bayer AG
2.13
Royal Dutch Shell Plc Class A
1.28
Basilea Pharmaceutica Ltd
2.12
British American Tobacco Plc
1.27
Cap Gemini SA
2.11
Total SA
1.22
Airbus Group SE
2.09
GlaxoSmithKline Plc
1.21
BT Group Plc
2.05
Banco Santander SA
1.14
WPP Plc
1.97
Anheuser-Busch InBev SA
1.10
Source: Barings, as at 31 July 2015
*Relative to MSCI Europe Performance Comparison – Reference to the Performance comparison is for comparative purposes only.
Holdings are subject to change.
21
Historic Performance
European Growth
20
17.13
15.27
15
11.81
10.64
10
8.52
9.68
9.38
8.19
7.21 6.37
5
0
YTD
1 Year
3 Year
Baring European Growth Trust
5 Year
10 Year
MSCI Europe Ex UK
Past performance is not a guide to future performance
Source: Morningstar, 31 July 2015. In GBP Gross Income reinvested. Performance MSCI Europe Ex UK Index
22
Historic Performance
Europa
13.9413.73
15
10
9.51
7.55
5
7.54
8.92
5.38 5.59
1.5
0
-0.51
-5
YTD
1 Year
3 Year
Baring Europa Fund
5 Year
10 Year
MSCI Europe
Past performance is not a guide to future performance
Source: Morningstar, 31 July 2015. In USD Gross Income reinvested. Performance MSCI Europe Index
23
Baring European Growth
Performance as at 31st July 2015
20
11.81
10
17.13 15.27
9.38
9.68
8.19
0
50
31.40
1 Year26.38
0
10.99 annualised
10.04
3 Years
Fund
Fund
Rank*
Quartile*
1 Year
13.24
12.12
5 Years
annualised
Perf ormance comparison
3 Years annualised
5 Years annualised
1 Year
3 Years annualised
5 Years annualised
43/124
33/117
42/109
2nd
2nd
2nd
Past performance is not a guide to future performance
Source: Barings. Performance figures are shown net of fees and charges for the Class A GBP Income unit, in Sterling on a bid to bid basis, with gross income reinvested.
Performance comparison is MSCI Europe ex UK. Reference to the performance comparison is for comparative purposes only.
Source: *Barings/Morningstar – Quartile rankings customised. Morningstar, UK Registered Investment Funds Equity Europe
24
Baring Europa Fund (Pan European)
Performance as at 31st July 2015
20
10
0
-10
13.94
7.54
1.50
3 Years annualised
Fund
Quartile*
8.92
-0.51
1 Year
Rank*
13.73
5 Years annualised
Perf ormance Comparison
1 Year
3 Years annualised
5 Years annualised
69/233
46/202
96/175
2nd
1st
3rd
Past performance is not a guide to future performance
Source: Barings. Performance figures are shown net of fees and charges for the Class A USD Income unit, in US Dollars on a NAV per unit basis, with gross income reinvested.
Performance comparison is MSCI Europe. Reference to the performance comparison is for comparative purposes only.
Source: *Barings/Morningstar – Quartile rankings customised. Morningstar, UK Registered Investment Funds Equity Europe
25
European Growth Full year 2014 performance
contributors
Contributors
Company
Detractors
Contribution to
portfolio
Company
Detraction from
portfolio
Ryanair Holding
1.11
Airbus Group
-1.06
Aer Lingus Group
0.94
ArcelorMittal
-1.00
Red Electrica
0.75
Adidas
-0.89
Novo Nordisk
0.65
Alpha Bank
-0.70
ASML Holding
0.62
Galp Energia
-0.58
Bottom-up stock selection drives performance
Source: Barings, 31 December 2014
26
Europa Full year 2014 performance contributors
Contributors
Detractors
Contribution to
portfolio
Company
Detraction from
portfolio
Ryan air
0.86
Tullow Oil
-1.14
Aer Lingus
0.82
Airbus
-0.84
Shire
0.71
ArcelorMittal
-0.78
Red Electrica
0.48
Alpha Bank
-0.74
ASML Holding
0.33
BG Group
-0.72
Company
Bottom-up stock selection drives performance
Source: Barings, 31 December 2014
27
Baring European Growth
Current characteristics
European Growth Characteristics
European
Growth
Fund Size (Euro millions)
Number of holdings in portfolio
Performance
Comparison
116.06m
41
89.18
97.94
Mid-cap eur 2-5bn (%)
4.81
1.94
Small Cap eur<2bn (%)
6.01
0.12
Forecast earnings growth (next 12 months)
12.54%
12.33%
PE Valuation, (next 12 months)
17.46X
16.10X
Large-cap eur>5bn + (%)
Source: Barings as at 31st July 2015,
Performance comparison refers to MSCI Europe ex UK at same date. Reference to the Performance comparison is for comparative purposes
only.
28
Baring Europa Fund
Current characteristics
Europa Characteristics
Performance
Comparison
Europa
Fund Size (Euro millions)
Number of holdings in portfolio
100.96m
50
84.20
98.02
Mid-cap eur 2-5bn (%)
9.04
1.90
Small Cap eur<2bn (%)
6.76
0.08
7.89%
8.70%
15.91X
15.95X
Large-cap eur>5bn + (%)
Forecast earnings growth (next 12 months)
PE Valuation, (next 12 months)
Source: Barings as at 31st July 2015,
Performance Comparison refers to MSCI Europe at same date. Reference to the Performance Comparison is for comparative purposes only
29
Style Characteristics
Consistent with GARP approach
•
Baring European MSCI Europe Ex
Growth
UK
Baring Europa
MSCI Europe
Return on Equity %
12.48
15.06
13.44
15.70
Debt/equity ratio %
116.03
125.89
133.69
126.10
Three year EPS growth
2.76
5.85
4.17
5.09
Dividend yield
2.37
2.97
3.30
3.17
P/E FY1
18.08
16.83
16.53
16.65
Active Share
75.5%
N/A
79.19%
N/A
Market Cap (USD Million)
60,261.89
71,637.06
40,687.87
69,363.28
Number of holdings (ex cash)
41
330
50
441
Source: Barings, Factset, Style Research, Axioma 31 July 2015
Barings European Large Cap
Baring Europa Fund
Baring European Growth Trust
• Fund manager: James Buckley
• Fund manager: James Buckley
• Investment universe
• Investment universe
– MSCI Europe
• Fund information
–
–
–
–
Launched 21 April 1987
AUM US$112.7m
Irish Authorised UCITS
Daily dealing
• Share class information
– XD Date 01 May
– Dividend paid by: 31 July
Class A USD Income
– ISIN: IE0000829121
– Bloomberg code: BRGEUAI ID
– Lipper ID: 60000679
Morningstar RatingTM
Source: Barings, 31 January 2015
– MSCI Europe ex UK
• Fund information
–
–
–
–
Launched 23 January 1983
AUM £79m
UK Authorised Unit Trust UCITS
Daily dealing
• Share class information
– XD Date 01 May
– Dividend paid by: 10 July
Class A GBP Income
– ISIN: GB0000804335
– Bloomberg code: BRGEGTI LN
– Lipper ID: 60008951
Class I USD Income
– ISIN: GB0000804335
– Bloomberg code: BRGEGTI LN
– Lipper ID: 68163740
Morningstar RatingTM
31
Companies, themes and
contributors/detractors
Guidelines for equity presentation slides
Portfolio changes
Q2 2015
Companies bought
Company
Companies sold
% of portfolio
Company
% of portfolio
ASML
0.20
Zurich Insurance Group
2.10
Tui AG
0.19
Natixis
0.26
FCC
0.17
UBS
0.11
Bottom-up stock selection drives performance
Source: Barings, 30 June 2015
33
Novo-Nordisk
Danish leading player in Diabetes Care
Company Scorecard
Company name
Novo Nordisk
Quality
Franchise
2.0
Management
1.5
Balance sheet
1.0
Overall
1.5
Last three years
2.0
Next 12 months
1.0
CAGR next five years
2.0
Overall
1.7
Market measure
5.0
Static measure
1.0
Discounted earnings
3.0
Overall
3.0
Growth
Upside
Stock score
Source: Barings internal estimates, 31 December 2014
• Novo Nordisk is the only pure play diabetes care
company in the world with No.2 position in the US
and No1 position in all markets ex US giving it the
leading global market share
• Novo is capable of maintaining its 15%+ EPS
growth rate of the last 5 years over the next five
years thereby doubling EPS
• Novo will able to do this by exploiting the global
diabetes pandemic and its current and future
product portfolio covering best in class drugs for
the type 2 diabetes treatment flow
2.1
34
Ryanair
European Low Cost Carrier Airline
Company Scorecard
Company name
ASML
Quality
Franchise
2.0
Management
1.1
Balance sheet
1.1
Overall
1.3
Last three years
3.0
Next 12 months
1.0
CAGR next five years
1.0
Overall
1.7
Market measure
5.0
Static measure
5.0
Discounted earnings
5.0
Overall
5.0
Growth
Upside
Stock score
• Ryanair is the only truly low cost carrier in Europe
with the scale to maintain cost leadership.
• Ryanair is currently at the start of business model
reconfiguration that will enable industry leading
revenue and profit growth.
• A robust balance sheet with €4.3bn of gross cash
and high cash generation will enable continued
capital returns.
2.3
Ryanair is a long term structural growth business
Source: Barings internal estimates, 31 December 2014
35
ASML
Dutch Semiconductor Equipment Manufacturer
Company Scorecard
Company name
ASML
Quality
Franchise
1.0
Management
1.0
Balance sheet
1.0
Overall
1.0
Last three years
5.0
Next 12 months
1.0
CAGR next five years
1.0
Overall
2.3
Market measure
5.0
Static measure
3.0
Discounted earnings
3.0
Overall
3.7
Growth
Upside
Stock score
2.3
• ASML is the clear market leader in the
development of lithography tools to the
semiconductor industry
• ASML is entering it’s next significant growth phase
which is likely to double sales over the next 5 years
and treble EPS in that time period
• ASML is well positioned to continue leading the
future of Moore’s Law as it benefits the entire
technology ecosystem and wider society.
ASML is critical to the future of the entire technology sector
Source: Barings internal estimates, 31 December 2014
36
Appendix
Baring European Growth
Relative Sector Weightings
Relative Sector Weightings
Healthcare
6.70
Financials
5.89
Industrials
4.43
Information Technology
1.23
Telecommunication Services
0.33
Utilities
0.24
Energy
-2.47
Consumer Discretionary
-3.10
Materials
-5.53
Consumer Staples
-7.67
Source: Barings, as at 31 July 2015, relative to the MSCI Europe x UK Performance comparison.
Reference to the Performance comparison is for comparative purposes only.
Weightings are subject to change.
38
Baring Europa Fund
Relative Sector Weightings
Relative Sector Weightings
Financials
7.05
Healthcare
5.19
Industrials
3.90
Telecommunication Services
1.86
Information Technology
0.87
Utilities
-0.71
Consumer Discretionary
-3.23
Energy
-3.66
Materials
-4.82
Consumer Staples
-8.40
Source: Barings, as at 31 July 2015, relative to the MSCI Europe Performance comparison.
Reference to the Performance comparison is for comparative purposes only
Weightings are subject to change.
39
Biographies
Last updated: 1st January 2015
40
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41