emerging markets flexible management -...
TRANSCRIPT
27.11.2014 Pavillon Cambon, Paris
For Professional Investors only
Emerging Markets Flexible Management Alexandre Narboni
MAGELLAN Performance* (net, in EUR)
Cumulative performance since inception (%)
Rolling performance (%)
*Net performance in EUR as of 31/10/2014
Source: FactSet/Comgest. *Past performance is no guarantee of future results. Indices are used for comparison of past performance only. Performance calculation based on NAV to NAV variation expressed in euros. Fund volatility is calculated using
weekly performance data. The index used for comparative purposes changed from MSCI Emerging Markets price to MSCI Emerging Markets dividends reinvested from 01/01/2006. Comgest S.A. assumed full management of the fund on 31/12/1994 and
'performance since inception' is as of this date.© 2014 Morningstar, Inc. All rights reserved. Ratings and awards mentioned in this document can change at any time and do not constitute a buy recommendation.
QTD YTD 1 Year 3 Years
annualised
5 Years
annualised
10 Years
annualised
Inception
annualised
Portfolio 5.59 17.77 17.21 10.06 9.15 11.64 9.06
Index 2.01 13.98 9.21 6.99 8.11 10.38 4.72
2
Dec
1994
Dec
1999
Dec
2004
Dec
2009
100
200
300
400
500
% change
Fund MSCI EM - NR
MAGELLAN VS. MSCI EM: HISTORICAL DRAWDOWNS
Magellan & MSCI Emerging Markets: worst drawdowns (1994 – 2013)
-33%
-60% -58%
-66%
-38%
-24%
-61%
-42%
-49%
-25%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1995 1998 2001 2008 2011
MSCI EM
Magellan
09/03/1995 10/09/1998 21/09/2001 27/10/2008 04/10/2011
Comgest’s quality growth expertise in the emerging markets
with reduced volatility and drawdowns Source: Comgest / Bloomberg, Data is EUR
Simulated performances are not a reliable indicator of present or future performance. Indices are used for illustrative purposes only.
Trough of
the MSCI EM
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OUR APPROACH TO FLEXIBLE MANAGEMENT
What do other flexible funds typically do? Why we are different
Use of alternative asset classes: bonds,
precious metals, short-selling
Use of options to hedge downside risk
Discretionary and therefore
opaque risk-on / risk-off strategy
Our expertise:
invest in quality growth companies
Options are expensive when we need them!
Our research on companies must be
the least affected by short-term noise
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COMGEST’S GEM FLEX CONCEPT
A flexible
emerging markets
equity fund
Systemic equity market risk
hedging, using solely
equity index futures
Net exposure to equity
after hedging: 20% to
100%
Strict focus on
quality growth
companies
Systematic hedging level
strategy, indexed on
emerging markets volatility
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EM Equity market
FX
Alpha
RISK DIVERSIFICATION DOES NOT ALWAYS MEAN RISK REDUCTION
HEDGING Balanced Funds
Diversification to other risks
Comgest GEM Flex
Dynamic equity exposure
Active management
of EM equity risk
3 sources of risk EM
Equity market
FX
Alpha
Equities Cash / Cash equivalents
Precious metals /
Commodities
Bonds
6
EMERGING MARKETS: BONDS DO NOT ALWAYS HEDGE EQUITIES
2013 Emerging Markets Equities vs. EM Sovereign Bonds
Source: Bloomberg, 02/10/2013
Past performance is no guarantee of future results. Indices are used for comparison of past performance only.
80
85
90
95
100
105
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
Bloomberg Emerging Sovereign Bond Index (USD) MSCI Emerging Markets (USD)
7
Hedging approach
THE BIG PICTURE
Step 1 Statistical calculation of the proxy based
on portfolio of stocks
Step 2 Systematic calculation of hedging level based
on market volatility
Two steps run
on a daily basis
EQUITY
PORTFOLIO
ACTUAL HEDGE
NET PORTFOLIO
50%
0
PROXY
=
HEDGING
PORTFOLIO
EMERGING MARKETS
QUALITY GROWTH
PORTFOLIO
BASKET OF INDICES MOST
CORRELATED TO THE
EQUITY PORTFOLIO
NET EQUITY
EXPOSURE:
20% TO 100% OF NAV CASH
PORTION OF PROXY
ACTUALLY SOLD
WITH FUTURES
100%
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Euro Stoxx 1%
Kospi (Korea) 2%
Top 40 (South Africa) 3%
FTSE (UK) 3%
MexDer (Mexico)
9%
Nifty (India) 10%
S&P 500 11%
MSCI Taiwan 12%
Hang Seng 19%
MSCI Emerging Markets
30%
PROXY COMPOSITION: Comgest Growth Emerging Markets Flex
Daily rebalancing based on the portfolio holdings’ correlations with indices
Majority of emerging market indices Date: 31/10/2014
Source: Comgest
10
CALCULATING THE HEDGING LEVEL
Equity Exposure* in % of NAV
*Net of hedge and cash equity exposure.
Source: Comgest
0%
20%
40%
60%
80%
100%
0 5 10 15 20 25 30 35 40
VEM proprietary indicator
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HEDGING LEVEL INDEXED TO VOLATILITY
Traditional Emerging
Market volatility index
Standard deviation of past
MSCI Emerging Markets returns Average absolute returns
Traditional volatility is typically too slow to respond to change
Proprietary EM dynamic
volatility indicator (VEM)
Weighted average of
absolute variations
More weight on
recent observations
More weight on
negative returns
The solution:
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ESTIMATING EMERGING MARKETS VOLATILITY Proprietary Estimate: as reactive as VIX but less noisy
800
850
900
950
1000
1050
1100
5
10
15
20
25
30
35
40
45
Historical EM Volatility Proprietary EM Volatility MSCI Emerging Markets
The proprietary EM volatility indicator
is expected to be more reactive to market stress Data between 01/01/2013 and 30/09/2013
Source: Comgest
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0%
10%
20%
30%
40%
50%
60%
70%
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Feb
-13
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Ju
n-1
3
Ju
l-1
3
Au
g-1
3
Se
p-1
3
Oct-
13
No
v-1
3
De
c-1
3
Ja
n-1
4
Feb
-14
Ma
r-1
4
Ap
r-1
4
Ma
y-1
4
Ju
n-1
4
Ju
l-1
4
Au
g-1
4
Se
p-1
4
Oct-
14
Average
25%
HEDGING LEVEL SINCE LAUNCH Comgest Growth Emerging Markets Flex
Source: Quantam
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COMGEST GROWTH EMERGING MARKETS FLEX Performance since inception in EUR*
CGEM FLEX
EUR I Acc
MSCI EM net 60%
+CASH (EUR) 40%
Annualised Performance 8.5 3.4
Annualised Volatility 11.7 8.4
Since inception
(11/07/2012, in %) MSCI EM - NR
5.3
13.9
Magellan C
9.9
13.4
Outperformance
86% of Magellan’s performance captured in bull market
Annualised volatility reduced by 12.7% compared to Magellan
*Net performance data as at 31/10/2014. Past performance is no guarantee of future results. Indices are used for comparison of past performance only. Volatility is calculated using weekly performance data. Source : Factset / Comgest.
Magellan outperformance
(stock picking)
Moderate average
hedging level
EM currencies vs. EUR
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SOLID PROTECTION DURING THE LAST MARKET CORRECTION
16
10
20
30
40
50
60
70
80
90
95
97
99
101
103
105
107
109
111
1-Aug 9-Aug 17-Aug 25-Aug 2-Sep 10-Sep 18-Sep 26-Sep 4-Oct 12-Oct 20-Oct
CGEM Flex I (left scale) MSCI Emerging Markets (left scale) Hedging Level (Right scale)
Net performance data as at 22/10/2014. Past performance is no guarantee of future results. Indices are used for comparison of past performance only. Source : Factset / Comgest.
-5.3%
-10.3%
COMGEST GROWTH EM FLEX CHARACTERISTICS
UCITS IV compliant fund launched on 11/07/2012
AUM as at 31/10/2014: EUR 94.5m
Benchmark: 60% MSCI Emerging Markets NR (Eur) + 40% Cash (EUR)
2 available share classes:
EUR I Acc Class
EUR R Acc Class
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CONCLUSION
Investing in quality growth companies within the emerging market universe...
An experienced and diverse investment team
20-year track record, 9.1% compound annual performance*
A portfolio with equity holdings in-line with our flagship Global Emerging Markets funds
... while reducing volatility
Systematic, transparent and simple hedging method using only equity index futures
Equity market exposure hedged between 0 and 80%
Hedging basket of futures revised daily based on portfolio holdings and market stress
*Data as of end October 2014. Comgest S.A. assumed full management of Magellan C on 31/12/1994. Magellan C was use during the backtesting phase.
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Appendices
COMGEST GROWTH EMERGING MARKETS FLEX EUR R ACC Performance since inception* (net, in EUR)
CGEM FLEX
EUR R Acc
MSCI EM net 60%
+CASH (EUR) 40%
Annualised Performance 6.4 3.1
Annualised Volatility 10.3 8.8
Since inception
(25/09/2012, in %) MSCI EM - NR
4.8
14.6
Magellan C
9.2
12.0
*Performance data as at 31/10/2014. Past performance is no guarantee of future results. Indices are used for comparison of past performance only. Volatility is calculated using weekly performance data. Source : Factset / Comgest.
Comgest Growth Emerging Markets Flex EUR R Acc
MSCI EM (net) 60% + Cash (Eur) 40%
MSCI Emerging Markets – Net Return
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Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-1480
90
100
110
120
COMGEST GROWTH EMERGING MARKETS FLEX EUR R ACCMSCI EM (NET) 60% + CASH (EUR) 40 %MSCI EMF (Emerging Markets ) - Net Return
OUR HEDGING INSTRUMENTS: LISTED INDEX FUTURES
Fixed universe of index futures
Index Zone Stock Exchange
Location Currency
S&P 500 USA Chicago USD
DJ EURO STOXX 50 Europe Berlin EUR
HANG SENG Hong Kong/China Hong Kong HKD
KOSPI Korea Seoul KRW
IPC Mexico Mexico City MXN
TAIWAN MSCI Taiwan Singapour SGD
NIFTY India Singapour SGD
TOP 40 South Africa Johannesburg ZAR
FTSE 100 UK London GBP
MSCI EMERGING MARKETS Emerging markets New York USD
No OTC Futures
Settlement in cash
Liquid instruments
Prices available on Bloomberg
Large geographical coverage
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COMGEST: KEY CONTACTS – EQUITY PMs Vincent Strauss has over 35 years’ investment experience, 20 of which were gained with Comgest. He graduated from the HEC business
school (Lausanne) and holds a PhD in Economics. He started his career at Crédit Commercial de France and was responsible for the firm's
institutional operations. In 1982, he joined Banque Indosuez (Paris) as a portfolio manager supervising the Pacific Basin markets. He was a
Director at Batif before moving on to Multifinance International. Vincent joined Comgest in 1994 and is today Chairman of Comgest Global
Investors (the Comgest Group’s holding entity) and CEO and CIO of the Comgest Group. Vincent is one of the lead portfolio managers of
Comgest’s Global Emerging Markets strategies and a Portfolio Manager within the firm’s Global Equity strategy.
Wojciech Stanislawski graduated from the Panthéon-Assas University (Paris) with a joint Master’s Degree in Business and Financial
Management. Following several internships with financial institutions in Poland, he joined Comgest’s investment team in 1999. Wojciech
has worked in Comgest’s Global Emerging Markets team for the past 15 years, being named a Portfolio Manager of the flagship GEM
“Magellan” fund in 2000. Wojciech is responsible for the daily supervision and management of the fund managers and analysts within the
GEM equity investment team and he is one of the lead Portfolio Managers of Comgest’s GEM, GEM Promising Companies, Latin American
and Indian equity strategies.
Emil Wolter graduated from the University of London with a BSc in Financial Economics. He has worked as a financial analyst since 1995
and as an analyst and portfolio manager on Asian and Emerging Markets equities since 1997. Initially an analyst and portfolio manager with
Pictet Asset Management in London, Emil went on to head up the emerging markets franchise at Polar Capital Partners in both London and
Singapore. More recently he was Head of Asian Equity Strategy in Singapore at the securities brokerage units of Royal Bank of Scotland
and Macquarie. Emil joined Comgest in 2012 as Portfolio Manager covering Asian and Global Emerging Market equities.
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COMGEST: KEY CONTACTS – HEDGING STRATEGY
Alexandre Narboni graduated from ENSAE (School of Economics, Statistics and Finance in Paris) and holds a Master’s Degree in Financial
Mathematics from the University of Columbia. He began his career in loan securitisation with Société Générale in New York before moving on to
HSBC where he was responsible for the credit risk of hedge funds. He joined Comgest in 2009 and is a Portfolio Manager specialised in US
equity.
Charles Biderman completed a Masters in Engineering at the Institut National des Télécommunications in France, majoring in Finance and
undertaking part of his studies in Buenos Aires. He joined Comgest’s investment team in 2006 and is a Portfolio Manager in the Emerging
Markets team, specialising in Latin American companies. Charles is a Portfolio Manager of Global Emerging Markets equity portfolios and is the
co-lead Portfolio Manager of the firm’s Latin American equity strategy, having been a key decision maker since the product’s inception in 2009.
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OPERATIONAL CHART
A transparent division of responsibilities
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IMPLEMENTING THE HEDGING METHODOLOGY ON A DAILY BASIS
Comgest’s resources remain focused on fundamental equity research
Quantam brings its sophisticated calculation & trading capabilities:
Best execution of futures through state-of-the-art trading platform (slippage
minimisation, roll management)
Data cleaning, data mining and statistical analysis
Proprietary and adjustable systematic calculation programs
Active in research regarding hedging techniques
Quantam is responsible for calculating the proxy and placing the relevant
futures orders on the different exchanges on behalf of Comgest
Comgest’s Middle Office performs post-trade compliance checks and NAV
reconciliation with the fund Administrator
Equity exposure may be raised at Comgest’s discretion should a strong discrepancy
occur between our views on the market volatility and the hedging strategy’s output
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OUR PARTNER: QUANTAM
Who is Quantam?
Independent Asset Management firm
Proprietary futures trading activities since 2004
6 investment professionals based in Paris and Miami with solid quantitative background
Quantam has developed proprietary software and methods which are able to screen and analyse, on a daily basis, huge tick-by-tick historical databases on all major electronic exchanges
Quantam develops and implements advanced algorithmic techniques in order to continually fine tune and increase the robust nature of its tools
Risk Control
Quantam only operates on regulated and liquid markets
Quantam does not practice OTC activities
Exchange member & co-located at
Registered with
Affiliated with
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IMPORTANT INFORMATION This document has been prepared for professional investors only and may only be used by these investors. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment. The securities discussed herein may not be held in the portfolio at the time you receive this presentation. Performance figures are provided net of all fees unless otherwise stated and are calculated on a time-weighted, total return basis. Funds which specialise in a particular region or market sector may entail higher risks than those which hold a very broad spread of investments. Past investment results are not necessarily indicative of future investment results. The value of all investments and the income derived therefrom can decrease as well as increase. This may be partly due to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the Fund. Reference to market indices or other measures of relative market performance over a specified period of time are provided for your information only. Reference to an index does not imply that the portfolio will achieve returns, volatility or other results similar to the index. The composition of the index will not reflect the manner in which a portfolio is constructed. The information and any opinions have been obtained from or are based on information from sources believed to be reliable, but accuracy can not be guaranteed. No liability is accepted by Comgest in relation to the accuracy or completeness of the information contained in this document. The information in this document is not comprehensive and is presented for informational purposes only. All opinions and estimates constitute our judgment as of the date of this presentation and are subject to change without notice. Comgest does not provide tax or legal advice to its clients and all investors are strongly urged to consult their own tax or legal advisors concerning any potential investment. Before making any investment decision, investors are advised to check the investment horizon and category of the Fund in relation to any objectives or constraints they may have. Investors must read the latest Fund prospectus and the Key Investor Information Document (“KIID”), available at our offices and on our website www.comgest.com Investors shall undertake to respect the legal, regulatory and deontological measures relative to the fight against money laundering, as well as the texts that govern their application, and if modified investors shall ensure compliance with the applicable texts. This material is in no case an offer for people living in a specific jurisdiction which does not authorize the distribution of the Funds mentioned herein. The investment professionals listed in this document are employed either by Comgest S.A., Comgest Asset Management International Limited, Comgest Far East Limited, Nippon Comgest Inc, Comgest Singapore Pte. Ltd. Comgest S.A. is regulated by the Autorité des Marchés Financiers (AMF). Comgest Far East Limited is regulated by the Hong Kong Securities and Futures Commission. Comgest Asset Management International Limited is regulated by the Central Bank of Ireland. Nippon Comgest Inc. is regulated by the Financial Service Agency of Japan (registered with Kanto Local Finance Bureau (No. Kinsho 1696)). Comgest Singapore Pte Ltd, created 18 August 2010, is a Licensed Fund Management Company & Exempt Financial Advisor (for Institutional and Accredited Investors) regulated by the Monetary Authority of Singapore.
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