Navigating Emerging Markets
Matthew StraussVice-President, Portfolio Management
and Portfolio Manager
Emerging markets
• Emerging markets (EM) investments: longer-term perspective– An integral part of a fully diversified equity portfolio, not only for the strong of heart
• Risk and return– Containing volatility within emerging markets without sacrificing all of the upside
• Outlook– Taking advantage of the diversified nature of emerging markets and moving beyond Brazil,
Russia, India and China (BRICs)
20
30
40
50
60
70
80
Advanced economies
Emerging market and developing economies
% o
f glo
bal G
DP1
Increasing economic importance
Source: IMF & World Bank
United StatesChinaIndia
JapanGermany
RussiaBrazil
United KingdomFrance
ItalyMexico
Korea, South
0 2 4 6 8 10 12 14 16
Largest 12 economies in the world2
U.S.$ trillion (2012)
1&2 Purchasing Power Parity
A market that can’t be ignoredEquity market capitalization
Source: World Bank
0
4
8
12
16
20
24
0
20
40
60
80
100
120 % of world market (left axis)
% of GDP (right axis)
Reaping the benefits
-60%
-30%
0%
30%
60%
90% Emerging Markets (EM) Developed Markets (DM)
5yr rolling average DM 5yr rolling average EM
% re
turn
per
ann
um
Higher returns but with higher volatility
Source: Bloomberg * YTD – 31 Aug
Signature’s approach to EM investments
• The inconvenient EM truths– Cyclical – deal with it– Less transparent – cry me a river– More political – ask Obama about Putin
• Signature’s approach– It’s a team – 9 global sector specialist PMs (and 8 analysts), 3 macro strategists (and 2 EM analysts)
• Explore all sources of risks and return– Active stock, sector, country and currency management– Cross-asset class expertise (e.g. rates, FX, credit, commodities, equity, property)
• Regulatory/policy & political risks – Beyond the headlines– Country visits– Expanding EM fixed-income capabilities
• Analyzing companies – the importance of quality– Must go beyond financials analysis and company reports (e.g. strong balance sheets, sustainability of margins,
and returns on invested capital)– Meeting management (e.g. corporate governance, strength, track record, accounting principles, direction) – Discussions with competitors, holding companies, and subsidiaries (e.g. barriers to entry, market share,
corporate governance and respect)
Absolute returns & focusing on volatility
CI Signature Emerging Markets Fund
EM outlook, part I of II
* Aug. 31 2014
3944939629398073998740165403454052540703408834106141241414214159941779400
500
600
700
800
900
1000
1100
1200
1300 MSCI Emerging Markets Equity Index
China stimulus
Caught in a rangeGrowth slowdownTighter monetary conditionsLower commodity pricesFed taperingHigh valuations
2014 YTD* return- Emerging: 10.7%- Developed : 7.3%- S&P 500: 9.9%
EM outlook, part II of II
• BRICs• Business cycle• Politics
– Russia/Ukraine– Middle East– Turkey– China
• EM fund – fully engaged– China, India, Philippines and Mexico over Brazil & Russia– Selective cyclical over over-priced defensives – Financials, health care and industrials over telecom and energy
Panel Discussion
FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO CLIENTS
Thank you
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