1 76881315 citywire-zurich_forum_0311
DESCRIPTION
TRANSCRIPT
3 March 2011
Presenter: David Holstein
Emerging marketsA presentation for the Citywire Zurich Forum
1EU.05.1-76881315_0311
AgendaEmerging markets: a presentation for the Next Generation Forum
Emerging Markets Total Opportunities (ETOP)– A new way to access emerging markets 13–24
Appendix 25–35
Why one asset class? 2–12
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1 Computed using capitalization-weighted monthly USD returns. Attribution of monthly USD returns to various factors. Source: Empirical Research Partners Analysis. Data smoothed on a trailing two-year basis.
Why one asset class?
0
10
20
30
40
50
60
70
92 94 96 98 00 02 04 06 08
%
Emerging markets
Decomposition of nominal returns1, 1992 through late-September 2009
Country
Sector
Industry
Region
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
Country remains the most important decision: Economic policies, Growth, Demographics, Politics, Currency, Governance
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Broadest opportunity set
Private market EM equities(not currently held in CIETOP)
Frontier market equities
Small cap EM equities
Large cap EM equities Convertibles
Corporate dollar bonds
Local sovereign bonds
Index-linked bonds
Developed market equities with significant EM exposure
Dollar sovereign bonds
EU.NB_CL.ETOP. 223658_968
60+Countries
60+Countries
Currencies
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28.3%21.9% 20.5%
17.1% 18.4% 16.9% 16.1% 15.1% 13.5%20.4%22.6%23.9%25.1%27.2%
23.9%30.7%
35.6%
47.0%
0%
10%
20%
30%
40%
50%
Brazil BRICs M SCI EM IM I S&P500 80% EM Eq / 20% EMLocal FI
70% EM Eq / 20% EMFI Loc / 10% EM FI $
65% EM Eq 20% EMFI Loc / 10% EM FI $ /
5% EM FI $Corp
60% EM Eq / 20% EMFI Loc / 10% EM FI $ /5% EM FI $Corp / 5%
EM FI Linker
50% EM Eq / 20% EMFI Loc / 15% EM FI $ /
10% EM FI $Corp /5% EM FI Linker
2010
2007-2010
40
60
80
100
120
140
160
Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10
Index
Power of a broad universe
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
As at 31 December 2010. Sources: RIMES, Barclays, JPMorgan Chase.
Cumulative returns (US$) 2007–2010
MSCI Emerging Markets IMI
S&P 500
Realised volatility: Standard deviation of weekly returns (US$)
Equity onlyEmerging markets:Expanding the universe to debt
50% EM Equity / 20% EM FI Local / 15% EM FI USD / 10% EM FI $ Corp / 5% EM FI Linker
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Synergy in analysis
NYO:10 PROD:EQ:EM:ELKIND CONF 1209:ELKIND CONF 1209 COLOR.PPT
Sovereign instruments – concentrate on “risks”
– Macroeconomic policies
– Inflation
– Currency
– Politics
– Legal system
Balance sheet of country/company
Driver: obligation being met – get paid back
Key contacts:
– Central Bankers
– Economists/Strategists
– Politicians
Long-term country growth
– Demographics
– Incomes
Industry/sector growth
– Future demand
– Competition
– Key suppliers/customers
Drivers of future returns:
– Revenue growth
– Earnings growth
– Dividend growth
– Valuation – re-rating possibilities
Key contacts:
– Company management
– Sell side
Fixed income: Financial strength
Focus on the ability to pay back obligation
Equities: Growth
Focus on growth as a driver of future returns
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Advantages — flexibility
Dominant telecom operator in Mexico
Increasing range of services and penetration across Latin America
High quality company with attractive assets
Consistent grower
América Móvil: Bond vs. Equity
América Móvil basics
NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:AMERICA MOVIL 1210.PPT
América Móvil Bond vs. Stock returnsGrowth of 100
Time period shown is 30 October 2007 to 31 December 2010.América Móvil bond reflects América Móvil SAB de CV 5.625% 11/15/2017. Government of the United States of America 4.75% 8/15/2017. Mexico sovereign bond reflects Government of Mexico 11.375% 9/15/2016.These charts are presented for illustrative purposes only. They are not meant to reflect the specific experience of investors in the Emerging Markets Total Opportunities Fund. Shares of América Móvil may or may not have been held at any point during the referenced time period.Sources: MSCI data from RIMES, FactSet.
40
60
80
100
120
140
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Bond+31%
Stock-5%
Bond: -19%Stock: -50%
Bond: +45%Stock: +43%
Bond: +11%Stock: +33%
Cumulativereturns
América Móvil bond
Mexico sovereign bond
Bond yield spreads vs. US TreasuriesSpread (basis points)
0
100
200
300
400
500
600
Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Dec-10
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Country dynamics: Appropriate equity risk premium?
As at 31 December 2010. Source: DataStream.
21.4%Equities
17.5%Cash
2000–2010 annualised returns
Brazil: Cash vs. Equities returns
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
-60
-40
-20
0
20
40
60
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Cash
Equities
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High-yield sovereigns: Equity-light?
NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:HIGH YIELD SOVEREIGNS 1210.PPT
Source: MSCI, JPMorgan, RIMES. Volatility reflects weekly data annualised. * Short-Term Debt reflects 1−3 years maturity.
-60
-40
-20
0
20
40
60
80
0 5 10 15 20 25 30 35 40 45
Realized volatility (%)
% R
etur
n (U
S$)
2008
2009
EM Utilities
Indonesia Debt
Turkey Debt
EM Telecommunication ServicesEgypt Debt
Egypt Debt Indonesia Debt Turkey Debt
EM Utilities
EM Telecommunication Services
‘Aggressive’ Sovereign Short-Term* Debt vs. ‘Defensive’ Equities, 2008 and 2009
2009
2008
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EM Corporate Bonds vs. US Treasury Yield
America Movil
BBVAMTS Reliance
Televisa
Standard Bank
Gazprom Digicel
Orascom Telecom
Evraz
Banco Do Brasil
Petrobras
Cemex FinanceMarfrig
Hyundai Motor
Bank of China
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Maturity
Yield
2yr 5yr 7yr 10yr1yr 30yr
Vale
Telecomm/Media
Energy & Materials
BanksOther
US Treasuries
Corporate bonds: Company-specific risk/return
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
2009–2010 Returns
Brazil
Russia
India
Egypt
Country
Energy
Materials
Financials
Telecom
Sector
2013
2015
2022
2014
Bond maturity
47
157
116
130
Bond (%)
63
317
171
-31
Equity (%)
Integrated oil and gas companyPetróleo Brasileiro – Petrobras
Steel producer and distributor
Indian banking and financial services
Wireless telecom to Middle East/Asia
DescriptionIssuer
Evraz
ICICI Bank
Orascom Telecom
As at 31 December 2010. Source: Factset
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Sovereign Debt: Local or Dollar?
1 Source: Bloomberg as at 31 December 2010.2 Source: JPMorgan EMBI Global as at 4 January 2011.
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM YIELD CURVES 1210.PPT
Brazil
Indonesia
HungaryMexico
U.S.South Korea
20Y 30Y10Y7Y5Y4Y3Y2Y1Y
343Hungary
489Argentina
168Brazil
208Russia
260Sri Lanka
1,099
155
149
104
bpsDollar bonds
Venezuela
Indonesia
Mexico
Malaysia
Sovereign spreads vs. US Treasuries 2
Local Yield Curves 1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
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60
70
80
90
100
110
120
130
140
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
40
60
80
100
120
140
160
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Currencies: Return potential
Commodity currencies: Brazilian Realvs. South African RandIndex vs. USD
Different economic paths: Hungarian Forint vs. Indonesia RupiahIndex vs. USD
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111 D010511.PPT
As at 31 December 2010.Source: Factset
Real
Rand
+10%-3.5%
+36%-5.6%
+0.9%
Rupiah
Forint-1.1%
+27% -28%
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Argentina: Kirchner’s death and recognizing potential
Political change should be a positive catalyst
– Economy doing well
– Global expansion and high commodity prices help
– Re-establishing itself in financial/global community – repay defaulted debts
– Good financial position
Limited investments – Frontier Equity market and Dollar Bonds
Benefiting from “narrow” insights
High oil prices
– Oil prices to stay high with global growth and emerging markets demand
– Companies – more or less leverage to basic price of oil
– Sasol, Gazprom, Petrobras, CNOOC
– Oil dependent countries’ finances tied to oil prices
– Venezuela, Russia, Nigeria, Iraq
Venezuela $ bond has competitive returns
*100 at 20 December 2007Sources: FactSet, Capital Guardian, DataStream, JPMorgan and MSCI
Oil price vs. selected securities (as at 31 Dec 10)
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
Stocks >$1Billion Market Cap
Sovereign Fixed Income ($)
Returns (%) 27 Oct 10–31 Dec 10SectorCompany
Financials
Financials
Energy
Energy
17.7Grupo Fin Galicia B ADR
-2.8
33.7
20.5
Banco Macro B ADR
YPF
Tenaris S.A.
25 Year
5 Year
18.8
4.1
Returns (%) 27 Oct 10–31 Dec 10
GDP Linked
Nominal20
40
60
80
100
120
140
160
180
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-1030
50
70
90
110
130
150Venezuela SASOLPetrobras Oil
US$/bbIndexCumulative return growth base 100 Crude oil price
Emerging Markets Total Opportunities (ETOP)A new way to access emerging markets
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Take advantage of the dynamism in emerging markets by
investing in all types of securities with the objectives of
seeking long-term capital growth, preservation of capital
and lower volatility of returns.
Equity-like returns with significantly lower volatility
NYO:10 PROD:OBJECTIVES:ETOP:NB:0910:ETOP_NB_0910.PPT
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Setting expectations
Capital International is an active manager that creates portfolios by selecting securities using fundamental research and does not manage portfolios to achieve specific returns or volatility targets. We cannot provide any guarantee with respect to the performance or volatility targets herein.
EU.NB_CL.ETOP. 223659_007
Clear expectations Broad guidelines
10% target annual returns and 12% target volatility over the business cycle
Country allocations will not exceed 25%
US cash and hedging of currencies and countries permitted
Volatility can be increased opportunistically
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EM Equities
EM Bonds (US$)EM Bonds (Local Ccy)
Long-Run Equity Average
0%
5%
10%
15%
20%
25%
30%
35%
40%
Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
Rolling three-year volatility as of 31 December 2010
Emerging markets volatility
Increasing volatility
9.5%26.9%Moderate: June 30, 2010−December 31, 201014.0%*4.0%Moderate: December 1, 1993–September 30, 1997
9.8%3.5%Entire time period: July 31, 2007−December 31, 2010
10.1%36.2%Low: September 30, 2005–July 31, 2007Moderate/low volatility
15.9%24.1%July 31, 2001–September 30, 2005–30.7%December 31, 1991–November 30, 1993
Decreasing volatility8.1%- 4.0%August 1, 2007–June 30, 20105.0%-10.4%October 1, 1997–July 31, 2001
EM bondsEM equitiesAnnualised returns
* 31 December 1993–30 September 1997Emerging markets represent: emerging markets equity (MSCI Emerging Markets Index), emerging markets bonds US$ (JPMorgan Emerging Markets Bond Index – Global), emerging markets bonds local currency (JPMorgan GBI EM Global), emerging markets corporate bonds (JPMorgan CEMBI Corporate Emerging Market Bond Index) Source: MSCI, JPMorgan. All indices are unmanaged.
NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:EM_VOLATILITY_1210.PPT
Decreasing volatility
leading up to peso crisis
Moderate volatility despite peso crisis
Increasing volatility due to Asian and Russian crises
Volatility declines tohistorically low levels
HighVolatility post
Asian and Russian crises
Globalfinancial crisis
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Emerging Markets Total Opportunities group portfolio
NYO:10 PROD:OBJECTIVES:ETOP:CR:1210:GROUP_PORTFOLIO_ASSET_ALLOC_1210.PPT
Asset mix
As at 31 December 2010Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities.Cash includes TIPs exposure from May 2008.Totals may not reconcile due to rounding.
0
10
20
30
40
50
60
Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
%
Equity
Fixed income
Cash
Dec-10
Model portfolio Portfolio
18EU.05.1-76881315_0311
20
30
40
50
60
70
Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
%
Currency positioning
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:5176_CURR_POS_1210.PPT
Emerging Markets Total Opportunities1
1 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ.
As at 31 December 2010*Includes hedgingTotals may not reconcile due to roundingThis information supplements or enhances required or recommendeddisclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.
-1.10.11.2Canadian Dollar
-1.50.11.6South African Rand
-2.04.46.4Mexican Peso
-1.05.76.7Indonesian Rupiah
-2.6-0.71.9Euro
-5.13.68.7Brazilian Real
Exposure after(%)
Exposurechange
(%)
Exposure before
(%)Currency hedges
0.13.9China
3.610.3Brazil
0.12.9South Africa
1.35.5Argentina
39.76.5United States
4.48.9Mexico
% Localcurrency*% PortfolioCountry
US$ assets
US$ assets after hedge39.7%
24.6%
Exposurechange
(%)
Exposure after(%)
Exposure before
(%)Currency hedges
15.139.724.6US Dollar
-0.20.50.7Australian Dollar
-0.40.10.6Israeli Shekel
-0.41.72.1Thai Baht
-0.81.11.9British Pound Sterling
US dollar exposure%
19EU.05.1-76881315_0311
0
10
20
30
40
50
60
70
80
90
100
Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10
%
Sovereign local
Sovereign dollar
Inflation-linked
Corporate dollar
Emerging Markets Total Opportunities group portfolio
NYO:10 PROD:OBJECTIVES:ETOP:CR:1210:GROUP_PORTFOLIO_FIXED_INCOME_PORTION_1210.PPT
As at 31 December 2010Excludes TIPS, Cash and Equities.Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities.
Fixed income portion
Type of fixed-income exposure
%
20EU.05.1-76881315_0311
7.3
3.94.7
6.8
3.1
8.8
4.44.8
10.0
5.5
2.5
7.6
1.82.6
3.5
1.3
2.9
1.2 1.0 0.8
15.5
11.4
8.7
7.46.8 6.7 6.5 6.3
5.8
4.9
3.8 3.5 3.4 3.2 3.1
2.2 2.2 1.9 1.91.5 1.4
7.3
0
2
4
6
8
10
12
14
16
South
Kor
ea
China
Taiw
anIn
done
sia
India
Mex
ico
Turke
y
Russia
Braz
ilAr
genti
naTh
ailan
dUnit
ed St
ates
United
King
dom
Malays
iaPh
ilippin
esCa
nada
South
Afri
ca
Polan
dCz
ech R
epub
licHon
g Kon
gAll
othe
r
%
Country exposure and risk contribution
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:EM NEXT GEN ONE ASSET CLASS 0111.PPT
1 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ.As at 31 December 2010. Sources: Capital International, MSCI BarraThis information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.
Emerging Markets Total Opportunities1
% of portfolio
% of risk contribution
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Top 20 risk contributors
NYO:10 PROD:EQ:EM:NEXT GENERATION FORUM 0111:5176_T20RISK_1210.PPT
2.7%1.3%Telecommunication ServicesIndiaBharti AirtelEQ
1.4%
0.7%
1.0%
0.6%
1.2%
0.9%
1.2%
1.7%
0.9%
1.1%
1.0%
1.6%
1.0%
1.7%
3.1%
4.2%
4.9%
2.3%
6.3%
% of Portfolio
2.3%FinancialsRussiaSberbankEQ
1.6%GovernmentTurkeyTurkey government (TRY)FI
1.8%Consumer StaplesIndiaUnited SpiritsEQ
1.8%Consumer DiscretionaryIndonesiaAstra InternationalEQ
1.9%Telecommunication ServicesPolandTelekomunikacja PolskaEQ
2.0%EnergyRussiaGazpromEQ
2.0%Information TechnologyTaiwanDelta ElectronicsEQ
2.1%GovernmentMexicoMexico government inflation-linkedFI
2.2%MaterialsU.S.Freeport MacMoRan Copper & GoldEQ
2.2%MaterialsSouth KoreaLG ChemEQ
2.2%EnergyChinaChina Shenhua EnergyEQ
2.3%Information TechnologyTaiwanTaiwan Semiconductor ManufacturingEQ
4.7%Information TechnologySouth KoreaSamsung ElectronicsEQ
3.0%GovernmentIndonesiaIndonesia government (IDR)FI
2.8%GovernmentArgentinaArgentina government (USD)FI
2.6%GovernmentMexicoMexico government (MXN)FI
2.5%GovernmentTurkeyTurkey government inflation-linkedFI
1.7%
4.9%
% of Total Risk
Materials
Government
Sector
EQ
FI
UKAnglo American
BrazilBrazil government inflation-linked
CountryIssuer
1 Data provided is from the Capital Guardian ETOP Master Fund, which is provided for information purposes only and as an example. Data from other ETOP investment vehicles may slightly differ.As at 31 December 2010. Sources: Capital Guardian, MSCI BarraConvertible securities, if listed above as a top 20 risk contributor, are classified as equity/fixed income.This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.
Emerging Markets Total Opportunities1
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Experience and insightPeople: Emerging Markets Total Opportunities team
As at 31 December 2009
EU.NB_CL.ETOP. 223663_206
Years of experience
Three portfolio managers with an average of 23 years’ investment experience
1986 20101990 1994 1998 20062002
Introduction ofMSCI EM Index
Mexicanpeso crisis
World’s first emergingmarkets fund offered
Growth ofthe BRICs
Emergence of Asian “Tiger”economies
Oil pricessurge
Asian currency crisis
Russiandebt
default
Luis Oliveira 21
Laurentius Harrer 21
Shaw Wagener 28
Portfolio managerAnalystTrader
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-40%
-20%
0%
20%
40%
60%
80%
100%
Jul-0
6
Nov
-06
Mar
-07
Jul-0
7
Nov
-07
Mar
-08
Jul-0
8
Nov
-08
Mar
-09
Jul-0
9
Nov
-09
Mar
-10
Jul-1
0
Nov
-10
ETOP MSCI EM / IMIBlended index Bond index
Cumulative returns: ETOP 1 +76.7%
Emerging Markets Total Opportunities – cumulative returns In US$ (31 July 2006 – 31 December 2010) ¹
16.912.4Blended Index3
Since inception(31 July 06 – 31 Dec 10)
25.913.0MSCI EM IMI4
9.510.7Bond Index2
11.513.8ETOP1
AnnualisedVolatility5 (%)
Annualised Returns (%)
1 Results are based on a model portfolio which commenced on 31 Jul 06 and includes emerging markets equities, emerging markets bonds and cash equivalents. For results prior to 30 Sep 07, income for equities and bonds is not accrued and is assumed to be immediately received and reinvested in the income-generating asset and trading expenses and other operational costs are excluded. Results after 30 Sep 07 reflect the Capital Guardian Emerging Markets Total Opportunities Fund for Tax-Exempt Trusts gross of management fees. These results are shown net of: (i) custodial, audit and other expenses and (ii) withholding taxes on dividends, interest, and capital gains. Withholding tax rates apply primarily to US institutional investors. Over the lifetime of the fund (30 Sep 07 – 30 Nov 09), deducting the highest management fee charged for portfolios with a minimum investment of US$ 10 million would result in net investment results of 3.77% per annum. Actual investment results net of management fees may differ depending on the size of the portfolio. The client’s return will be reduced by these fees and other expenses that the client may incur. CGTC’s management fees are described in Part II of its form ADV.The hypothetical results are for illustrative purposes only and are not intended to provide any assurance of actual results. Source: Capital/CGII
2 50% JPMorgan GBI EM Global Index and 50% JPMorgan EMBI Global Index. Source: JPMorgan3 50% MSCI EM IMI with net dividends reinvested (with 50% MSCI EM Index prior to 30 Nov 07), 25% JPMorgan GBI EM Global Index and 25% JPMorgan EMBI Global Index4 MSCI Emerging Markets Investable Market Index with net dividends reinvested (with MSCI EM Index prior to 30 Nov 07). Source: MSCI5 Based on daily observations, using a population standard deviation calculationAll indices are unmanaged. All results reflect the reinvestment of dividends and other earnings. This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.
EU.SM.RES. 083624_943
Start of live ETOP portfolio ¹Model Portfolio
Dec
-10
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Emerging Markets Total Opportunities compositeInvestment results as at 31 January 2011 in US$ terms
Lifetime: 30 Sep 2007 to 31 Jan 20111 Before management fees and expenses. Source: Capital/CGII2 MSCI Emerging Markets Investable Market Index with net dividends reinvested (with MSCI EM Index prior to 30 Nov 07). Source: MSCI3 50% MSCI EM IMI with net dividends reinvested (with 50% MSCI EM Index prior to 30 Nov 07), 25% JPMorgan GBI EM Global Index and 25% JPMorgan EMBI Global Index4 Based on daily observations, using a population standard deviation calculation. There are no volatility figures for 1 month (to 31 Jan 2011) as the period is too short for statistical significance
2007 3 months 2.4 3.7 3.52008 -22.1 -53.8 -34.42009 42.1 82.4 51.62010 11.9 19.9 17.12011 1 month -1.8 -2.8 -1.9
Annualised lifetime return (3 years 4 months) 6.9 0.6 5.1
Total value of Capital Guardian/International Emerging Markets Total Opportunities composite as at 31 January 2011 is US$ 1,288 million (3 accounts)
2007 3 months 11.0 22.6 13.52008 15.5 38.9 25.72009 10.0 25.5 16.42010 8.1 17.5 11.8
Annualised lifetime standard deviation (3 years 4 months) 11.5 28.2 19.8
EU.SM.RES. 064621_309
(%) Return in US$ Composite ¹ MSCI EM IMI ² EM Equity Debt ³
(%) Standard deviation 4 Composite ¹ MSCI EM IMI ² EM Equity Debt ³
Appendix
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The kind of organisation we are
Private ownership fosters stability and a long-term business culture
An introduction to Capital InternationalWhat makes us different
EU.NB_CL.ITC. 402471_199
All of this is aimed at providing our clients with consistent, superior long-term investment results
The way we construct portfolios
The Multiple Portfolio Manager System helps create naturally diversified portfolios of high-conviction investments
The way we do our research
Globally integrated, fundamental research forms the basis for identifying multi-year investment opportunities
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Strength through stabilityOverview of our organisation
Private
Our organisation has always been privately owned by senior employees1
Long-term
This enables us to manage our business with a long-term focus
Focused
Investment management is our only business
EU.NB_CL.ITC. 419451_019
Capital Group International, Inc.
US$ 140 billion
Separate accounts andpooled funds for institutionsand individuals 2 worldwide
Capital Research and Management Company
US$ 1,091 billion
US and Luxembourg-based mutual funds for individuals
and institutions
Manage investment services that Capital International offers
Data as at 31 December 2010 – provisional1 Includes recent retirees2 Capital International does not sell directly to individuals but through intermediariesCapital Research and Management Company (CRMC) and the investment management affiliates within Capital Group International, Inc. (CGII), which include Capital International Limited (CIL) and Capital International Sàrl (CISA), manage equity assets independently from one another
The Capital Group Companies, Inc.
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Capital International Emerging Markets Fund
Experience in emerging markets investingThere from the beginning
Pioneer investor in emerging markets
We believe that having a global approach to emerging markets investing makes us better investors
Established resource capabilities across emerging market asset classes
Experienced and stable investment team
MSCI EM Index
First dedicated EM Debt mandate
CIF Global High IncomeOpportunities
Emerging Markets Growth Fund 1
1986 20101990 1994 1999
Capital International Emerging Markets Debt
(CIEMD) launched
2007
Capital InternationalEmerging Markets
Total Opportunities 2
2007/81987
EU.SM.CAP_INF. 311527_534
CIPEF I-V Emerging Markets
Private Equity
1992
Begin investingin EM Debt
Capital InternationalEmerging Markets
Local Currency Debt (CIEMLCD) launched
1 Emerging Markets Growth Fund is a US domiciled open-end interval fund generally offered to institutional investors and other “qualified purchasers” in the US by our affiliate Capital International, Inc.2 Known as CIP Emerging Markets Total Opportunities prior to 10 August 2010
Capital InternationalEmerging MarketsUS Dollar Debt
(CIEMUSDD) launched
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Fundamental research integrated across asset classes
Equity
Private Equity
Macro / Quant
DebtInvestment opportunity
Sharing different perspectives across geographies and assets classes is our competitive advantage
Over 100 equity and fixed income analysts collaborate to share insights from different perspectives
Avoiding research silos
Our research approach
EU.SM.INV_PROC. 402446_575
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Emerging Markets Total Opportunities
Enhance appeal of emerging markets
– Introduction to the asset class — first dedicated investment
– Helps make large allocation possible
– Reduced volatility is an attractive attribute
Emerging markets as the asset class
– Gain exposure to emerging market debt
– Delegate allocation decision between emerging markets debt and equity
Great addition to an existing emerging markets equity program — different return/risk pattern
Efficient use of risk budget
– Exposure to high-return assets
– Attractive information ratio
Alternate/opportunistic allocation strategy
– Hybrid mandate has unique characteristics
– Objective is absolute return over the long term
A good fit
NYO:10 PROD:OBJECTIVES:ETOP:NB:0910:ETOP_NB_0910.PPT
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0
5
10
15
20
25
30
35
40
45
Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10
12% target
%
As of 31 December 2010Group portfolio reflects all active accounts invested in Emerging Markets Total Opportunities.MSCI Emerging Markets IMI reflects MSCI Emerging Markets Index with net dividends reinvested through 30 November 2007 and MSCI Emerging Markets Investable Market Index with net dividends reinvested thereafter. Fixed income index represents 50% JPMorgan GBI EM Global Index and 50% JPMorgan EMBI Global Index. Standard deviation based on 252 daily observations. Volatility measures on the table are standard deviations (daily observations). All indices are unmanaged.Sources: Capital/CGII, Barra, MSCI and JPMorgan
EU.NB_CL.ETOP. 223660_355
Volatility: annualised standard deviation
MSCI EM IMI realised
ETOP model estimate
Fixed income index realised
ETOP realised
Volatility target is a significant input into the portfolio construction process 12% target volatility will vary depending on actual market volatility
Model portfolio Group portfolio
Dec 10
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Emerging Markets Total Opportunities (ETOP) teamAdvantages of the multiple portfolio manager system
Collective independence
Managers own only high-conviction ideas
Diversity of ideas and disciplines
Average years of experience: 24
Laurentius Harrer
As a high-conviction investor, Laurentius is decisive. His portfolio reflects a high level of conviction whether it be defensive or aggressive. Laurentius concentrates on identifying opportunities that he believes will meet or exceed the long-term 10% return hurdle. He taps all aspects of reviews opportunities across the fixed income universe often identifyingaggressive fixed income securities in his efforts to generate high returns. Additionally, his equity holdings generally have agrowth aspect that should drive results over time. Laurentius also focuses on is successful identifying where prospective returns will may come from and what portion of volatility he will accept and what part he will shed.
Luis Oliveira
Luis is sensitive to the macroeconomic environment. He begins with several key themes or convictions which help anchor the portfolio. Luis also has a view regarding volatility – its level and how/where he embraces it in the portfolio. Luis works to understand the risks that are inherent in positions with an expectation of the reward. Securities often balance or complement one another. Portfolio construction is important as Luis tries to contain downside risk. He works assets hard in an effort to maximize their impact. Luis is attracted to value opportunities as well as proven track records and strategies.
Shaw Wagener
Shaw looks to construct portfolios with relatively consistent volatility. He likes to establish a core group of long-term convictions of premier companies or countries. He also tries to identify opportunities where the market is not valuing upside potential or embedded down-side protection appropriately. Shaw tries to maximize the benefits of diversification via effective use of the broad universe. Shaw is partial to high dividends and above average bond yields. He looks for an effective combination of improving prospects and attractive valuations to define the portfolio.
LuisOliveira
LaurentiusHarrer
ShawWagener
A range of investment styles
EU.SM.TEAMS.1210. 387660_829
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Emerging Markets Total Opportunities — ETOPClient categories and assets under management as at 31 December 2010
Non-profit, Endowments and Foundations reflects clients invested in the Capital Guardian Emerging Markets Total Opportunities Fund for Tax-Exempt Trusts.Pension Plans reflects clients invested in the Capital Guardian Emerging Markets Total Opportunities Master Fund.High Net Worth and Family Offices reflects clients invested in the U.S. Common Trust Fund − for non-QIBs.Luxembourg Fund reflects clients invested in the Luxembourg SICAV fund, with UCITS III status, managed by our affiliate – Capital International, Sàrl – and has the same team of portfolio managers as the U.S. funds. Provided for informational purposes only.Totals may not reconcile due to rounding.This information supplements or enhances required or recommended disclosure and presentation requirements of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.
NYO:10 PROD:OBJECTIVES:ETOP:NB:1210:ETOP_VEHICLES_ASSETS_PIE_1210.PPT
$556mm40%
$420mm30%
$284mm20%
$145mm10%
Pension Plans6 clients
High Net Worth and Family Offices82 clients
Luxembourg Fund43 clients
Non-profit, Endowments and Foundations44 clients
Total: $1.4 Bn175 clients
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A range of fixed income investment styles − Average experience: 24 years
Constructs portfolios on a bottom-up basis, focuses on credit more than sovereign securities
Buys bonds with a multi-year investment horizon
Seeks credit quality that is stable or improving and strong company managements
Looks for sustainable trends first and valuations second
Relies on field research and company visits to formulate his macroeconomic views
Looks for inefficiencies in local yield curves
Selects his investments from a range of securities, including local currency debt
Quickly moves to build concentrated positions
Builds diversified bond portfolios in a gradual and deliberate manner
Focuses on macroeconomic fundamentals; determines most attractive markets and then chooses securities from within those areas
Considers liquidity and structure across local currency debt markets
Identifies unique investment ideas from his original research and structure across local currency debt markets
Research portfolio coordinator
Three analysts dedicated to emerging markets debt invest in their highest conviction ideas
These three analysts have an average of 13 years experience at Capital
These three analysts have an average of 17 years investment experience
David Barclay Laurentius Harrer Robert Neithart Kirstie Spence
The emerging markets portfolio management team
A range of equity investment styles − Average experience: 28 years
Christopher Choe
Chris looks for high growth potential and discrepancies between a company’s share price and its inherent worth. He sells stocks when he believes they have reached fair value. He emphasizes understanding managements and controlling shareholders.
David Fisher
David focuses on company management and invests where he believes people can make a difference. He dislikes businesses driven largely by macroeconomic factors such as oil prices. He is willing to pay for quality.
Victor Kohn
Victor seeks to invest in businesses that are great long-term franchises and is willing to pay a near-term premium to purchase them. He avoids commodity-based companies and turn-around stories.
Luis Oliveira
Luis studies the macro environment and tends to avoid companies that need a high growth rate to justify valuations. He places a premium on companies with proven track records and management continuity.
Lisa Thompson
Lisa is attracted to growth stocks that she believes the market does not fully understand. She focuses on understanding the drivers behind returns and is comfortable buying stocks that are not represented in the index.
Shaw Wagener
Shaw invests in a variety of stocks, many of which are long-term holdings. He often seeks companies with above-average growth and stable-to-improving profitability, or companies where fundamental change will eventually be recognized.
NYO:10 PROD:EQ:EM:EM TODAY TOMORROW 1110:CII EM EQ AND FI PMS_2010.PPT
As of 31 December 2010
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Dedicated EM resources around the world gives better insight
As at 31 December 2010Includes 22 investment analysts and 4 macroeconomic professionals with 16 years of investment experience
LATAM and EMEA Asia
Nadya Wells10 years with Capital15 years in profession
Patricia Artigas15 years with Capital24 years in profession
Patrick Grenham3 years with Capital17 years in profession
James Rutherford14 years with Capital24 years in profession
Neil Holzapfel9 years with Capital9 years in profession
Eva Sudol16 years with Capital17 years in profession
Ricardo Torres18 years with Capital18 years in profession
Eugene Minsuk Ohr20 years with Capital20 years in profession
Prem Manjooran18 years with Capital18 years in profession
Warren Howe6 years with Capital19 years in profession
Boris Petersik10 years with Capital18 years in profession
Corrina Lim5 years with Capital22 years in profession
Zhang Chen2 years with Capital4 years in profession
Dickon Corrado8 years with Capital11 years in profession
Asia, continued
Chapman Taylor16 years with Capital20 years in profession
Fiona Wong6 years with Capital6 years in profession
Yoshiko Motoyama6 years with Capital13 years in profession
Fixed Income
Kirstie Spence15 years with Capital15 years in profession
Steven Backes4 years with Capital17 years in profession
Robert Neithart23 years with Capital23 years in profession
Global network of emerging market analysts
EU.SM.TEAMS. 399645_261
Claire Cui15 years with Capital15 years in profession
Irfan Furniturewala10 years with Capital11 years in profession
Macroeconomics
Susan Dietz-Henderson3 years with Capital23 years in profession
Andrew Dougherty6 years with Capital6 years in profession
Jeetu Panjabi8 years with Capital19 years in profession
Kaixiang Zhang4 years with Capital1 year in profession
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UK regulatory information
EU.SM.REG. 064596_791
All information as at 31 December 2010 unless otherwise stated. If past results are shown, such figures are not predictive of future results. Investors should seek their own tax advice. This information is neither an offer nor a solicitation to buy or sell any securities or to provide any investment service. This fund is offered only by Prospectus, together, where applicable, with the Simplified Prospectus. These documents, together with the latest Annual Report and any documents relevant to local legislation, contain more complete information about the fund, including charges and expenses, and should be read carefully before investing. However, these documents and other information relating to the fund will not be distributed to persons in any country where such distribution would be contrary to law or regulation. This communication is issued by Capital International Sàrl and otherwise by the relevant fund. This communication is intended for professional investors only and should not be relied upon by retail investors. While Capital International uses reasonable efforts to obtain information from sources which it believes to be reliable, Capital International makes no representation or warranty as to the accuracy, reliability or completeness of the information. This communication is not intended to be comprehensive or to provide investment, tax or other advice.
Capital International SàrlRegistered office:3, Place des Bergues1201 GenevaSwitzerland
Telephone: +41 (0) 22 807 4000Facsimile: +41 (0) 22 807 4001Website: www.capitalinternational.com
Registered in Geneva, SwitzerlandGeneva Trade Registry number: CH-660-0121963-4© Copyright 2011 – Capital International Sàrl. All rights reserved.