dsp black rock us flexible equity fund nfo presentation
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DSP BlackRock US Flexible Equity Fund - NFO PresentationPrajna Capital - Call 94 8300 8300 Now!TRANSCRIPT
(*The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund caninvest either in growth or value investment characteristic securities placing an emphasis as the market outlook warrants.)
NFO Period: July 17, 2012 to July 31, 2012
An Open Ended Fund Of Funds Scheme Investing In a US Equity Fund
*
Call 94 8300 8300 Now!Prajna CapitalCall 94 8300 8300 Now!
2
DSP BlackRock US Flexible* Equity Fund
Accessing one of the Flagship funds of BlackRock in the categorySource: Internal; *AUM as at May 31, 2012. *The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristic securities placing an emphasis as the market outlook warrants.
(USD 1.3 billion*)
Indian Investors
BlackRock Global Funds (BGF) US Flexible Equity Fund
3
Contents
• Why US equities?- Access to the world’s largest equity market- US Equities are a core component of global equity portfolios/indices- Amongst the most well diversified markets- Represents numerous global investment themes- Resilient economy
• Why invest now? - Attractive valuations
- Continued out-performance by US markets in recent times- Global portfolios are overweight on US equities - Strong corporate balance sheets
• Why DSP BlackRock US Flexible* Equity Fund?- BGF US Flexible Equity Fund: A portfolio well-positioned- BlackRock: World’s Largest Asset Management Company
*The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristic securities placing an emphasis as the market outlook warrants.
Why US equities?
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Access to the largest equity market in the world
Top 10 Equity Markets by Market Capitalization (US$ trillion)
Source: Bloomberg; as at May 31, 2012
US market capitalization is greater than those of the next 6 countries combined
15.7
3.3 3.0 2.9 2.91.8 1.4 1.2 1.1 1.1
0
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US Japan UK China Hong Kong Canada France Germany Australia Brazil
USD
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US Equities are a core component of global equity portfolios/ indices
US Equities have the largest allocation in every major global equity and sector index
US as a % of Global Equity Indices US as a % of Global Sector Indices (S&P Global Indices)
Source: Internal, as at May 31, 2012
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US is amongst the most well diversified markets
Source: CLSA Research; as at May 31, 2012
• All MSCI industry sectors are well represented in the US market
• The top 2 sectors – Financials & Technology – account for only ~34% of the US equity market
MSCI Wt(%) Energy Materials Industrial Cons.Disc
Cons.Staples Financial Pharma Tech Telecom Utilities Top 2
US 10.7 3.6 10.1 11.9 11.2 14.0 11.7 20.0 3.2 3.7 34.0
Japan 1.6 6.9 20.8 20.0 6.7 17.4 6.7 12.1 4.4 3.5 40.8
UK 19.5 11.3 6.2 6.2 17.2 17.8 8.8 0.7 7.5 4.9 37.3
China 18.4 5.0 6.7 5.8 5.6 35.2 0.8 7.0 13.3 2.2 53.6
Hong Kong 0.0 0.0 10.9 13.7 0.0 59.8 0.0 1.3 0.5 13.8 73.6
Canada 26.4 19.3 6.0 3.8 3.2 33.7 1.8 1.2 3.3 1.2 60.1
France 12.6 7.3 15.8 13.3 12.3 13.3 12.2 3.1 5.7 4.5 29.0
Germany 0.0 15.9 13.9 18.4 4.3 16.0 12.0 8.7 3.8 7.1 34.4
Australia 6.8 23.9 4.8 1.7 8.9 46.1 3.9 0.4 2.0 1.6 69.9
Brazil 18.8 19.9 4.4 3.6 13.1 24.2 0.9 3.5 3.5 8.0 44.1
8
Represents numerous global investment themes
US companies have exhibited unparalleled innovation to lead many global trends
Technology
New Media
Global Trend Investable Themes
Company Examples*
New Health Services
Economic Shift
Lifestyle Shifts
Demographic Shifts
Productivity Enhancement Niche Growth
Market Theme
Apple Inc.
Microsoft
IBM
Pfizer
Abbot Labs
Johnson & Johnson
Proctor & Gamble
Expedia
NASDAQ
McGraw Hill Companies
General Electric
*Company examples are for illustration purposes only, there is no guarantee that they will form a part of the portfolio of BGF US Flexible Equity Fund
9
Resilient economy
US unemployment rate
Significant decrease in unemployment numbers after each economic slowdown thereby exhibiting economic resilience
Source: ISI. Data through December 2011.
2
4
6
8
10
12
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
(%)
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US economy continues to demonstrate slow but stable economic recovery
Purchasing Managers Index in expansionary mode
Consumer Confidence Index steadily inching up
Falling initial jobless claims
Improving level of industrial production
200
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200
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YoY
(Bas
e Ye
ar 2
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Sea
sona
lly
Adj
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0
20
40
60
80
100
120
140
160
Jan-
00
Aug
-00
Mar
-01
Oct
-01
May
-02
Dec
-02
Jul -0
3 Fe
b-04
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4 A
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Feb-
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Sep
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Apr
-12
Source: Bloomberg, as at end April 2012. Past Performance may or may not be sustained in future
Reasons to invest in US equities now
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Attractive valuations
S&P 500 Forward P/E Ratio
S&P500 forward P/E ratio is trading below its the long term average Source: BofA Merrill Lynch. Data through March 2012. Past Performance may or may not be sustained in future.
Forw
ard
PE
30.0
Average = 16.9x
28.0
26.0
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
Sep/
90
Sep/
89
Oct
/91
Nov
/92
Dec
/93
Jan/
95
Feb/
96
Feb/
97
Mar
/98
Apr
/99
May
/00
Jun/
01
Jun/
02
Aug
/03
Aug
/04
Sep/
05
Oct
/06
Nov
/07
Dec
/08
Jan/
10
Jan/
11
Feb/
12
13
Attractive valuations
Most US stocks are currently available at near 30 year low prices*Source: UBS. Data through March 2012. *Forward P/E/ basis. Past Performance may or may not be sustained in future.
Spread between S&P 500 Earnings Yield and 10-Year Yields
2.5
1.5
0.5
-0.5
-1.5
-2.5
-3.5
-4.5
-5.5
-6.5
-7.564 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Stocks Expensive
Stocks Cheap
14
Attractive valuations
Company* P/E (Mar 31, 2000)
P/E (May 31, 2012)
Microsoft 57.0 9.7
Hewlett Packard 35.0 8.3
Disney 55.0 16.6
JPMorgan Chase 20.0 9.3
Amgen 60.0 10.0
Exxon Mobil 24.0 10.0
Halliburton 71.0 17.0
Lockheed Martin 18.0 11.5
Medtronic 50.0 11.5
Kimberly-Clark 17.0 18.9
IBM 31.5 14.4
General Electric 30.0 15.8
S&P 500 Index 23.5 13.5
Leading companies with good business fundamentals available at attractive valuations*Company examples are for illustration purposes only, there is no guarantee that they will form a part of the portfolio of BGF US Flexible Equity Fund
15
US Markets: Continued out-performance in recent times
Percentage of companies reporting positive EPS surprises by region (4Q’11)
Source: FactSet, Bloomberg. Past Performance may or may not be sustained in future.
80%
70%
60%
50%
40%
30%
20%
10%
0%S&P 500 Russell 1000 Russell 2000 Europe ACWI BRIC EM Japan
69% 67%
60%
55% 53% 53%
43%
24%
16
Global portfolios are overweight on the US region
Geographic equity preferences of portfolio managers*
Current Next 12-M
US Overweight Overweight
Europe Underweight Underweight
Japan Underweight Underweight
Emerging markets Overweight Overweight
*Source- Bank of America Merrill Lynch Portfolio Managers Survey June 2012
17
Strong corporate balance sheets
Free cash flow yields: 1998 vs. Today
9%
7.2%
2.8%
1998 Today
2.3%
7.9%8%
7%
6%
5%
4%
3%
2%
1%
0%
Emerging Markets US
Source: Bloomberg. “Today” data as at Feb 29, 2012. Indices used are MSCI Emerging Markets Index and MSCI US Index. Past Performance may or may not be sustained in future. Free Cash Flow Yield is calculated by dividing Free Cash Flow per Share by Current Market Price of each share.
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Strong Corporate balance sheets: Dividends & buybacks hit a record high
Buybacks plus dividends ($bn)
Excess cash in balance sheets has resulted in record buybacks and dividendsSource: Bloomberg. Past Performance may or may not be sustained in future.
145 132 144 156 170222 254
298363 372 353 324 329 350
491
706
858
1050
761
587652
880
0
200
400
600
800
1,000
1,200
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Calendar Year
USD
bn
Why DSP BlackRock US Flexible* Equity Fund?
(*The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristic securities placing an emphasis as the market outlook warrants)
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BlackRock: World’s largest Asset Management Company
One of the world’s pre-eminent asset management companies – USD 3.68 trillion assets under management with USD 1.74 trillion in equity assets
– Broad product range available through mutual funds, ETFs, commingled funds, and separate accounts
– Fiduciary model/culture - no proprietary trading
– BlackRock Solutions ® oversees USD 12 trillion in assets
– Financial Markets Advisory Group advises public and private financial institutions on key assignments
– Dedicated transitions team helps clients change investment exposure, minimizing risk and cost
Global footprint enables a deep understanding of local markets, industries, and regulatory dynamics – 24 investment centers worldwide facilitate access to major capital markets
– Global trading capabilities enable us to source assets and negotiate favorable terms for investors
– Superior insights through access to management and perspective as an investor across the capital structure in thousands of companies worldwide
– Recognized as ‘go to’ leader in recent credit and liquidity crises
Investment insights gained at a local level & shared globally maximize investment opportunities for clients – Investment platform promotes knowledge sharing across the firm; daily calls connect investment teams, linking the insights from up to seven trading desks and 79 portfolio teams across asset classes and geographies
– Nearly 10,000 employees, including more than 1,600 investment professionals, leverage the firm’s global resources – Presence in 67 cities across 27 countries provides local experience and global expertise to a diverse client base
Source: Internal, Bloomberg; as at Mar 31, 2012
21
BGF US Flexible Equity Fund: A portfolio well-positioned
As at March 2012. The sectors discussed should not be considered a solicitation or recommendation by BlackRock and may not be profitable. Company examples are for illustration purposes only, there is no guarantee that they will form a part of the portfolio of BGF US Flexible Equity Fund.
Technology
Accenture
Dell Computer
Microsoft
Energy
Apache
ConocoPhillips
Marathon Petroleum
Cyclical
JPMorgan
Parker Hannifin
Tyco International
Consumer
DISH Network
Macy’s
Time Warner
• Free cash flow
• Domestically-sourced earnings
• Health care & energy
• Adding to consumer discretionary
• Dividend yield
• Europe-sourced earnings
• Financials & utilities
• Reducing consumer staples
Health care
Eli Lilly
McKesson
UnitedHealth
Defensive
Kroger
Lockheed Martin
Philip Morris International
Overweight Underweight
Areas of focus/interest
22
BGF US Flexible Equity Fund: A well-positioned portfolio
Healthcare and energy to outperform utilities and financials
Healthcare
• Predictable earnings
• Performs well when profits decelerate
• Big pharma cheap and unloved
Risk: Patent cliffs, government austerity
Financials
• Contagion risks from Europe
• Net interest margin pressure
• Regulatory risks
Risk: Cheap and unloved
Energy
• Sector cheap relative to market
• Sector cheap relative to oil prices
• Spending upcycle
Risk: Global slowdown
Utilities
• Record high valuations
• Earnings weakness
• Growth prospects poor
Risk: Risk aversion causes continued interest
23
BGF US Flexible Equity Fund: Portfolio Characteristics (as at May 31, 2012)
Source: BlackRock, FactSet. Portfolio characteristics are of BGF US Flexible Equity Fund’s portfolio and are subject to change. Holdings are for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the industries shown above.
Sector allocation
Top 10 holdings
(%)
Apple Inc. 3.71
Exxon Mobil Corp. 2.59
Chevron Corp. 2.52
Pfizer Inc. 2.27
Verizon Communications Inc. 1.91
Abbott Laboratories 1.70
ConocoPhillips 1.53
Microsoft Corp. 1.53
UnitedHealth Group Inc. 1.48
Goldman Sachs Group Inc. 1.40
Characteristics Portfolio Russell 1000®
Est. 3-5 Year EPS Growth 9.94% 11.64%
Number of Holdings 107 977
Dividend Yield 2.0 2.1
Wtd. Avg. Market Cap. $63.7bn $94.4bn
Price/Book Value 1.6 2.0
P/E (FY1) 10.7 16.7
3.76
2.96
3.87
19.20
10.86
11.70
14.86
10.21
10.42
12.15
3.02
3.19
4.28
20.47
7.84
16.49
5.26
16.42
3.76
19.25
0 8 16 24 32
Utilities
Telecommunication services
Materials
Information technology
Industrials
Health care
Financials
Energy
Consumer staples
Consumer discretionary
Percent
BGF US Flexible Equity
Russell 1000 Index
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BGF US Flexible Equity Fund: Portfolio Management Team
( ) years of Investment experience; as at May 31, 2012
Team members average nearly 15 years of investment experience • Portfolio manager defines investment process and strategy and makes buy and sell decisions • Utilize quantitative research to evaluate opportunities in the investment universe • Analysts conduct fundamental research on the opportunities identified by the model and provide
input into the buy and sell process Large Cap Series Equity Team draws on BlackRock’s broad resources
• Diverse equity investment teams • Scientific Active Equity group • Risk & Quantitative Analysis group
Fundamental Analyst
Vice President Fundamental Analyst Fundamental Analyst
Tim Doherty, CFA (10) Todd Burnside (13) David Gardner, CFA (7)
Managing Director Fundamental Analyst
Gregory Brunk (20) Brett Shaver, CFA (10) Dan Hanson, CFA (19)
BlackRock Large Cap Series Resources
Portfolio Management Team
Product Specialist
Portfolio Manager
Peter Stournaras, CFA (17)
CIO, Fundamental Equity (Americas) Portfolio Manager
Chris Leavy, CFA (20)
Lead Quantitative Analyst
Joe Wolfe, CFA (11)
Analysts
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BGF US Flexible Equity Fund: Bridging Quantitative and Fundamental Investing
Combining the Best of BlackRock’s Quantitative and Fundamental Innovation
Quantitative analysis
Fundamental research
Portfolio construction
Actual portfolio
Best of Both Worlds
Fundamental Research Quantitative Analysis
Integrated Fundamental & Quantitative
Subjective Objective Pragmatic
Idiosyncratic Scalable Guided focus
Judgmental Systematic Disciplined, informed decisions
Forward-looking Historically-based Evidential forecasts
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BGF US Flexible Equity Fund: Investment Process: Idea Generation
The investment process described represents the portfolio management team’s current process for selecting investments for portfolios managed in the style of one of the Large Cap Series strategies. The investment process is subject to change based on market conditions, the opinions of the portfolio management team and other factors.
Quantitative Stock Opportunities
Thematic Fundamental Opportunities
Thematic Quantitative Opportunities
Fundamental Stock Opportunities
Research Prioritization Meeting
• Prioritize opportunity • Set initial conviction • Determine portfolio
complement
Research List • Set research agenda • Focus research attention • Research coordination tool
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BGF US Flexible Equity Fund: Idea Generation- Internal Quantitative Model
Current process for selecting investments in BGF US Flexible Equity Fund’s portfolio in accordance with its stated investment objectives and policies. Process subject to change based on market conditions, portfolio manager’s opinion and other factors.
Model ranks the investment universe from most to least attractive • Companies above 25th percentile eligible for investment on a quantitative basis
• No more than 20% active weight in stocks scoring below 33rd percentile
Enhancements
• Model leverages BlackRock's significant investment expertise and quantitative investment platforms worldwide
• Synchronize the model with expected holding period - reduce turnover
• Weights adjusted based on existing market regime and opportunities
Priced Attractively
- How much we pay for earnings, assets and cash flow
- Price implied expectations
Accounting we can rely on - Accruals - Pensions - Economic vs. GAAP - Capital Deployment
Fundamental Momentum - Growth - Stability of Growth
Investment Sentiment - Price Momentum - Analyst Revisions - Short Interest
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BGF US Flexible Equity Fund: Research Process
Systematic Approach, Enabling Focus on Value-Added Analysis
• Individual company template – Analysis tool and discussion framework
• Identify key drivers/pivotal issuers – Top risks and opportunities
• Review independent/external bull-bear case
• Review company filings and conference call transcripts
• Internal BlackRock insights
• Develop downside, core and stretch targets
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Risks
• US macroeconomic data continues to demonstrate recovery, although it is a slow recovery
• Sustained job creation is a major challenge
• Fiscal tightening likely in 2013 as spending cuts take effect
• De-leveraging by US households likely to continue impacting consumer spending
• Worsening of the Euro zone crisis will likely have a negative impact on the US financial system
• Weakening US Dollar
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Summary: Why invest in DSP BlackRock US Flexible* Equity Fund
• Valuations of US equities at multi year lows
• Relative strength of economy compared to other developed countries
• Corporate balance sheets of most large and mid cap US companies are in good shape
• US equities are likely to continue out-performance over other global equity markets
*The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristics securities placing an emphasis as the market outlook warrants.
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DSP BlackRock US Flexible* Equity Fund: Scheme Features
Name of Fund DSP BlackRock US Flexible* Equity Fund (DSPBRUSFEF)
Type of Fund Open ended Fund of Funds Scheme investing in a US Equity Fund
Benchmark Russell 1000 Index
Minimum investment Rs. 5,000/- and multiples of Re. 1/- thereafter amount
Options Available Growth; Payout Dividend; Reinvest Dividend
Exit Load For holding period < 12months: 1%, holding period >= 12 months: Nil
Fund Managers Mr. Mehul Jani & Mr. Laukik Bagwe
Risk Factors 1. Risks associated with underlying schemes
2. Risks associated with overseas investments
3. Risks associated with investments in debt and money market instruments
4. Risks associated with transaction in Units through stock exchange mechanism
5. Risks associated with trading in derivatives
Please read the Scheme Information Document carefully for details on risk factors before investment.
*The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristics securities placing an emphasis as the market outlook warrants.
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Disclaimer
Investment objective: The primary investment objective of DSP BlackRock US Flexible Equity Fund (Scheme) is to seek capital appreciation by investing predominantly in units of BlackRock Global Funds US Flexible Equity Fund (BGF - USFEF). The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The Scheme may also invest a certain portion of its corpus in money market securities and/ or money market/liquid schemes of DSP BlackRock Mutual Fund, in order to meet liquidity requirements from time to time. However, there is no assurance that the investment objective of the Scheme will be realized. It shall be noted ‘similar overseas mutual fund schemes’ shall have investment objective, investment strategy and risk profile/consideration similar to those of BGF – USFEF. The term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in growth or value investment characteristic securities placing an emphasis as the market outlook warrants. Asset Allocation: Units of BGF – USFEF# or other similar overseas mutual fund scheme(s): 95%-100%, Money market securities and/or units of money market/liquid schemes of DSP BlackRock Mutual Fund: 0-5%, # in the shares of BGF – USFEF, an Undertaking for Collective Investment in Transferable Securities (UCITS) III fund. Terms of Issue: Rs. 10/- per Unit. Min Investment – Rs. 5,000/- and multiple of Re. 1/- thereafter. Load Structure & Expenses: Entry Load – NIL Exit Load- For holding period < 12 months: 1%; for holding period >= 12 months: Nil. Investor Benefits & General Services: During Continuous Offer, sale (at Purchase Price) and redemption (at Redemption Price) on all Business Days (Redemption normally within 5 Business Days). SIP, SWP, STP & Nomination facilities available. If the SEBI limits for overseas investments allowed to the Fund are expected to be exceeded, the NFO may be closed / subscriptions and switches into the Scheme (During Continuous Offer) may be temporarily suspended / SIP/STP into the Scheme may be terminated. Declaration of NAV for each Business Day by 10 a.m. of the next Business Day.
Statutory Details: DSP BlackRock Mutual Fund was set up as a Trust and the settlors/ sponsors are DSP ADIKO Holdings Pvt. Ltd. & DSP HMK Holdings Pvt. Ltd. (collectively) and BlackRock Inc. (Combined liability restricted to Rs. 1 lakh). Trustee: DSP BlackRock Trustee Company Pvt. Ltd. Investment Manager: DSP BlackRock Investment Managers Pvt. Ltd. Risk Factors: Mutual funds, like securities investments, are subject to market and other risks and there can be no assurance that the Schemes’ objectives will be achieved. As with any investment in securities, the NAV of Units issued under the Schemes can go up or down depending on the factors and forces affecting capital markets. Past performance of the sponsor/AMC/mutual fund does not indicate the future performance of the Schemes. Investors in the Schemes are not being offered a guaranteed or assured rate of return. The Schemes are required to have (i) minimum 20 investors and (ii) no single investor holding>25% of the corpus of the Schemes. In case of non-fulfillment of the condition of minimum 20 investors, the investor’s money would be refunded, in full, immediately after the close of the New Fund Offer Period. In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the 25% limit would be rejected, and the allotment would be effective only to the extent of 25% of the corpus collected. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. For detailed Schemes specific risk factors, please refer the relevant Scheme Information Document (SID). For more details, please refer the Key Information Memorandum cum Application Forms, which are available on the website, www.dspblackrock.com, and at the ISCs/Distributors.
DSP BlackRock Mutual Fund has used information that is publicly available including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The Fund/AMC however does not warrant the accuracy, reasonableness and/or completeness of any information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.