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
1
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)
(%)
200
150
Price return
Div return
100
50
0
(50)
(100)
EM
2
Australia
Source: Bloomberg, CLSA Asia-Pacific Markets as at 30 November 2012
Asia ex-Japan
Europe
USA
Japan
Emerging market and Asian dividends have grown fastest
Emerging markets have seen highest growth in dividends
450
400
Emerging markets
350
Asia ex-Japan
300
Japan
250
Europe
DM
USA
200
150
100
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
3
Source: Factset, CLSA Asia-Pacific Markets
Increasing choice of high yielding stocks in emerging markets
Geographical split of FTSE World index stocks yielding greater than 3%
Emerging
Markets
9.9%
Developed
Pacific ex Japan
16.3%
Japan
0.1%
UK
20.0%
4
Past performance is not a guide to future performance
Source: FACTSET, Datastream, 30 June 2012
North America
29.1%
1995
Europe ex UK
24.6%
Increasing choice of high yielding stocks in emerging markets
Geographical split of FTSE World index stocks yielding greater than 3%
Emerging
Markets
23.4%
North America
17.5%
2011
Europe ex UK
22.9%
Developed
Pacific ex Japan
19.8%
Japan
9.0%
5
Past performance is not a guide to future performance
Source: FACTSET, Datastream, 30 June 2012
UK
7.3%
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
2011
Mexico is outgrowing the US economy by a record 2%. Why?
Manufacturing wages (USD per hour)
2.5
Manufacturing
renaissance with greater specialization
2.4
NAFTA facilitating
increased regional trade
2.0
Mexico
A2.0
new government with political
will for reform
2.2
Mexico: seizing its moment
Low leverage at the consumer and corporate level – 15% private
1.5 to GDP
debt
Young population – median age is 27
China
1.0
Preferred
sectors: infrastructure, consumer, financials
0.6
0.5
2002
7
2003
2004
2005
2006
2007
2008
2009
Source: ILO, SHCUP, INEGI and Morgan Stanley Research / Newton research December 2012
2010
2011
For illustrative purposes only
Brazil:
GDP and
Quality
Brazil
overtook
the Infrastructure
UK to become the
world’sRanking
6th largest
economy
in 2011
(ranking out
of 142 countries, inverted scale, 2011)
6
0
Consumption has been the driver of growth while industrial production has lagged.
20
President Dilma’s focus now upon investment
40
Catch-up in infrastructure investment required ahead of the World Cup in 2014 and
60
Olympics in 2016
80
Greater involvement of104
private sector is targeted
100
118
122
130
120
Interest rates now at a historical low of 7.25%
Brazil: investing in infrastructure
140
Consumer supported by demographics, salaries growing above inflation
GDP
Quality of Quality of roads Quality of air Quality of ports
Preferred sectors: infrastructure,
consumer
overall
transport
infrastructure
8
Source: World Economics Forum Morgan Stanley Latam Economics
For illustrative purposes only
ASEAN – Asia’s brightest spot
Investment (% of GDP)
Asean
income
five-year
Share=disposable
of
population
agedgrowth,
below
20
• ASEAN
Association
of South
East
Asian
Nations. Cagr
35
10 countries
~ 600m people
Laos
2001
Indonesia
30Philippines
2012Fthan
• Malaysia
ASEAN’s
Cambodia GDP is over US$2trn; around 30% bigger
25
Malaysia
India’s
GDP
India
Philippines
20
Burma
• Investment
to GDP ratios are on an upward trend
Singapore
15 Indonesia
Vietnam demand supported by population growth
• 10
Domestic
Thailand
Brunei
(%)
China
5 Total
• Improving
business
environments
(%)
Thailand
0 Singapore
0
1
2
3
4
5
6
7
8
Indonesia
Thailand
Malaysia
Philippines
0
10
20
30
40
50
Source: Thomson Datastream, Capital Economics, December 2012
9
Sources
Thomson
Datastream,
CapitalNewton
Economics,
December
2012 2012
Sources:– CLSA
Asia-Pacific
Markets,
research,
December
Source: Euromonitor, CLSA Asia-Pacific Markets, Newton research, December 2012
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
10
Our investment process
Overview
• Newton thinks globally, using themes
• Newton conducts proprietary global research
• Investment engine deliberately based
in London
• Newton constructs single portfolios
Client
requirements
11
Emerging
income strategy
Investment
risk group
Themes drive high conviction ideas
Millicom International
Cellular S.A.
12
For illustrative purposes only
Newton Emerging Income Fund
Objective
To achieve income with long-term capital growth
•Comparative
Fund aims to yield at least 15% more than its FTSE ALL World
FTSE All World Emerging Index
index
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
13
• Transparent, straightforward portfolio structure
14
Newton Emerging Income
Comparative index FTSE All-World Emerging
Portfolio 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
0.0
0.4
0.0
0.4
0.0
0.1
0.0
0.0
Hungary
United Arab Emirates
Pakistan
Morocco
0.0
0.0
0.4
Egypt
Cash
2.8
2.2
0.0
1.2
0.0
0.0
0.0
0.0
1.9
1.6
0.4
1.9
1.1
0.0
2.0
0.0
0.5
FTSE All World Emerging
Peru
Colombia
Turkey
Russia
India
United Kingdom
Czech Republic
Philippines
United States
2.1
2.1
1.6
Sweden
4.5
2.9
3.1
Poland
0
2.2
2.4
0.0
2
Chile
Indonesia
Taiwan
4.8
6
Malaysia
4
2.7
6.7
8.6
7.8
12.8
11.2
9.8
10
Thailand
6.1
8
Mexico
12
10.6
14
13.0
16
18.2
16.1
15.7
18
South Africa
Country weightings (%)
18.3
20
Brazil
China / Hong Kong
Newton Emerging Income Fund
Portfolio vs comparative index
Newton Emerging Income Fund
Portfolio vs comparative index
Economic sector weightings (%)
35
30
30.1
28.7
25
20
13.7
15
12.3
9.4
9.2
10
11.1
9.5
9.7
13.3
11.5
5.1
5
6.5
2.9
2.9
1.5
3.7
2.4
2.8
0.0
Newton Emerging Income
15
FTSE All World Emerging
Comparative index: FTSE All-World Emerging
Portfolio 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
Cash
Utilities
Health
care
Technology
Oil &
gas
Basic
materials
Consumer
goods
Industrials
Telecoms
Financials
0
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
16
Newton Emerging Income Fund
Performance as at 31 December 2012
Percentage growth
Cumulative return since inception* (%)
8
7
6
5
4
3
2
1
0
-1
-2
04/10/12
7.06%
4.70%
4.39%
12/10/12
20/10/12
28/10/12
05/11/12
FTSE All World Emerging Index
Newton Emerging Income
Income Fund
Fund
Newton
17
13/11/12
21/11/12
29/11/12
07/12/12
15/12/12
23/12/12
IMA Global Emerging Markets
*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 Lipper
Fund performance calculated as total return including income net of UK tax, net annual charges, no initial charge, in GBP
The 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.
31/12/12
Important information
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 Fund
Registration 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.
18
CP 9364-02-01-2013(3M)
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.