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Heckman Global Advisors A Division of DCM Advisors, LLC February 5, 2019

Heckman Global Advisors [email protected] 917.386.6261

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Emerging Markets Equity Allocator February 2019

Highlights: In Emerging Asia, we are underweight in China and India. In Emerging

Europe/Middle East/Africa, we are overweight in Russia and Egypt, but remain underweight in

South Africa. In Latin America, we are overweight in Brazil and Colombia, but underweight in

Chile and Peru.

Emerging Asia is an Underweight We recommend an underweight in China. While the market’s valuation ratios are roughly average

among emerging markets, its risk and momentum indicators rank poorly. In the category of risk, the

market’s beta is relatively high at 1.2, and its excess credit growth over the past five years has been

overly rapid at 27% per annum. In the category of momentum, the MSCI China index has declined

21% in local currency terms over the past year—well worse than the average EM decline of 5%. We

also remain underweight in India, where equity valuations are expensive and analysts have been

downgrading GDP and earnings growth forecasts.

Emerging Europe/Middle East/Africa is an Overweight Russia is now the top ranked emerging market. As usual, the market’s valuation ratios are

inexpensive. In addition, the market’s attractiveness is boosted by narrowing sovereign risk spreads

and better-than-average price momentum. Egypt is also an overweight. The market’s trailing price-to-

earnings ratio is well below its historical average, GDP forecasts have been upgraded, and the

country’s real effective exchange rate is competitively valued. South Africa ranks last among

emerging markets. Its valuation ratios are relatively expensive, GDP growth forecasts have been

downgraded, the market’s beta risk is high, and the country’s current account deficit is substantial at

3.6% of GDP.

Latin America is a Marketweight Brazil is an overweight. While market’s valuation ratios are somewhat more expensive that the EM

average, Brazil’s ranking has benefited from declining sovereign spreads and robust equity price

momentum. Colombia remains an overweight, largely due to attractive valuation ratios, positive GDP

forecast revisions, and a competitively valued real effective exchange rate. Peru and Chile are

underweights. Both markets are relatively expensive and have suffered from negative terms-of-trade

trends.

This publication is provided by Heckman Global Advisors (“HGA”), which is not an independent entity but is a Division of DCM Advisors, LLC, a registered investment adviser. The region and sector allocations recommended herein are solely those of HGA and may differ from those of other business units of DCM Advisors, LLC. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy any security or any interest in DCM Advisors, LLC vehicle(s). The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. The comments contained herein are opinions and may not represent the opinions of DCM Advisors, LLC and are subject to change without notice. All investments are subject to the risk of loss, including the potential for significant loss, and it should not be assumed that any models or opinions incorporated herein will be profitable or will equal past performance. Copyright © 2018 DCM Advisors, LLC. All Rights Reserved. These materials are the exclusive property of DCM Advisors, LLC. Unless otherwise expressly permitted by DCM Advisors, LLC in writing, please do not distribute, reproduce or use these materials for any purpose other than internal business purposes solely in connection with the management of investment funds or investment products that are sponsored or advised by you. This publication is not considered a Research report under FINRA Rule 2241(a)(11) and related rules.

Leila Heckman, Ph.D. | [email protected] | 917-386-6261 John Mullin, Ph.D. | [email protected] | 917-386-6262 Allison Hay | [email protected] | 917-386-6264

A Disciplined Approach to Emerging Market Equity Allocation



Overview of the Emerging Markets Equity Allocator

Purpose The Emerging Market Equity Allocator summarizes the country allocation recommendations of our

interactive model for emerging market countries. The goal is to enhance the dollar returns of un-hedged, long-

only emerging market equity portfolios benchmarked against the MSCI emerging markets universe.

Coverage Unless otherwise noted, all return data are from the MSCI indices. Our passive benchmark is composed of the

same 23 markets under coverage, and approximates the performance of the MSCI Emerging Market Index.

The Model Our model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis

of quantitative investment factors that have been shown to convey information about future equity returns in

research by academics and practitioners, including ourselves. These include indicators of valuation, growth,

risk, interest rate trends, and sentiment/momentum. The factors and the weights we put on them are shown in

the table below. Each month, scores are computed for each factor, and a total score is computed for each

country (equal to the weighted average of the individual factor scores). Each country then gets an overweight

or underweight allocation relative to the benchmark that is roughly in proportion to the difference between the

country’s total score and the cross-market average total score (with restrictions on the maximum allocation

possible to each market to avoid unrealistically large exposures to small markets). The model is updated each

month and the performance of the hypothetical portfolio is compared to the benchmark.

Quantitative Factors 2B

Valuation Price-to-Earnings Ratio (Forecast) (Page 8)

Price-to-Earnings Minus 10 Year Average Price-to-Earnings (Page 10)

Dividend Yield (Page 12)

Growth

6-Month Change in GDP Forecasts (Page 14)

One-Month Upward Company Revision Ratio (Page 16)

Terms-of-Trade Trend (Page 18)

Risk

Beta (Page 20)

Real Exchange Rate Overvaluation (Page 22)

Current Account (Page 24)

Domestic Credit (Page 26)

Change in Sovereign Spreads (Page 28)

Monetary Policy Nominal Interest Rate Trend (Page 30)

Momentum

Year-over-Year Price Momentum (Page 32)



Investment Indicator Summary: VALUATION Forecasted Price-to-Earnings: The forecasted price-to-earnings ratio is calculated by dividing the

aggregate market capitalization of a country’s MSCI constituents by the aggregate of their forecast

earnings, aggregated from FactSet Estimates company-level data by Heckman Global Advisors. Source:

FactSet Research Systems, Heckman Global Advisors

Price-to-Earnings Minus its 10-Year Average: The Price-to-earnings ratio is calculated by dividing the

aggregate market capitalization of a country’s MSCI constituents by the aggregate of their recently

reported 12 months of earnings. This ratio is compared with its average over the last 10 years. Source:

MSCI, Heckman Global Advisors

Dividend Yield: The ratio of the total dividend payout to the marketcap of a country index. Source: MSCI

GROWTH 6-Month Change in GDP Forecasts: The 6-month change of GDP forecasts measures the difference

between the forecasted GDP growth rate and the forecasted GDP growth rate as of 6-months ago. Source:

Bloomberg

One Month Upward Company Revision Ratio: The one month upward company revision ratio is

computed as the number of companies with upward revisions to earnings forecasts divided by the total

number of companies with revisions over the last month. Source: FactSet Research Systems

Terms-of-Trade Change: A country’s terms of trade is a measure of its aggregate export price index

relative to its aggregate import price index. The model’s proprietary measure of the terms-of-trade change

over the past 18 months is based on the interaction of (a) global fuel, mineral, agricultural, and

manufacturing price movements, and (b) the varying import and export structures of the markets in the

model’s universe. Source: International Monetary Fund (IMF), World Trade Organization, U.S. Bureau

of Economic Analysis, Heckman Global Advisors

RISK Beta: Beta measures the combination of volatility and correlation for each market relative to world returns

based on the last 18 months of returns. Source: MSCI, Heckman Global Advisors

Real Exchange Rate Overvaluation: The real effective exchange rate is a measure of the local-currency

cost of the local consumption basket relative to the local-currency cost of a trade weighted basket of

foreign consumption baskets. The model’s measure of overvaluation is the percent deviation between the

current real effective exchange rate and it 6-year moving average. Source: Bloomberg, IMF, Heckman

Global Advisors

Current Account/GDP: Current Account Balance is measured relative to GDP. Source: Bloomberg,

Heckman Global Advisors

Excess Domestic Credit Growth: Excess domestic credit growth is defined as the change in the ratio of

domestic credit to GDP (DC/GDP) over the last five years. Source: World Bank and Heckman Global

Advisors

Change in Sovereign Spreads: Sovereign spreads are barometers for measuring investor risk aversion. A

declining spread implies a decline in risk aversion. The indicator included in the model is based on the

decline of the spread over the previous 24 months. Source: JP Morgan, Bloomberg

MONETARY POLICY Nominal Interest Rate Trend: Nominal interest rate changes are measured as differences between short-

term rates and their 24-month averages. Source: Bloomberg, Heckman Global Advisors

MOMENTUM (Higher Values Preferred) Price Momentum: The price momentum factor is defined as the one-year percentage change in each

market’s local currency price index. Source: MSCI

VALUE-TRAP MARKETS Value-trap markets are those that score in the first quartile according to valuation indicators but in the

bottom quartile according to the non-valuation indicators. For these markets, we neutralize valuation

scores by setting them equal to the global average country valuation score. This has the effect of lowering

the overall scores of value-trap markets.



1BCountry Rankings: February 2019

Overall Rank

Previous Rank

Valuation Rank

Growth Rank

Risk Rank

Monetary Policy Rank

Momentum Rank

Russia 1 1 2 1 4 11 3

Egypt 2 2 3 3 11 4 10

U.A.E. 3 6 1 9 7 19 18

Colombia 4 5 5 7 14 3 9

Taiwan 5 3 4 10 6 10 17

Qatar 6 12 18 6 3 17 1

Brazil 7 8 17 15 8 1 2

Czech Rep 8 7 9 2 15 20 4

Hungary 9 4 10 12 9 9 5

Poland 10 11 14 4 20 6 13

Thailand 11 9 15 13 10 5 11

Malaysia 12 15 19 14 5 13 14

S. Korea* 13 10 6 18 13 15 21

China 14 13 11 8 23 2 23

Greece 15 14 13 16 2 8 24

Philippines 16 23 23 5 12 22 12

Pakistan* 17 20 6 24 1 23 22

Indonesia 18 21 22 11 16 21 7

Chile 19 17 16 21 19 14 15

Peru 20 18 21 23 17 7 6

Mexico 21 19 12 20 21 18 20

India 22 16 24 19 18 16 8

Turkey* 23 22 6 17 22 24 19

South Africa 24 24 20 22 24 12 16

Source: MSCI, Heckman Global Advisors

*Value traps: markets with attractive valuation indicators but generally poor growth, risk, and momentum/sentiment indicators. These markets

are assigned the global average valuation score, which causes a decline in their value ranks, overall ranks, and recommended allocations.



2BRecommended Country Allocation: February 2019

The model is constructed using a proprietary re-balancing algorithm, which takes into account (on a three-

month moving average basis) scores of country attractiveness based on indicators of valuation, growth,

risk, and sentiment/momentum.

Emerging Market Model Portfolio*

MSCI-Based** Heckman Global Advisors Heckman Global Advisors

Benchmark Emerging Markets Model Emerging Markets Model

Weight (%) Weight (%) Underweight/Overweight

Brazil 8.0% 9.5% 1.5%

Chile 1.1% 0.0% -1.1%

Colombia 0.4% 4.3% 3.9%

Mexico 2.8% 0.0% -2.8%

Peru 0.4% 0.0% -0.4%

Latin America 12.8% 13.9% 1.0%

China 31.1% 27.0% -4.1%

India 8.5% 0.5% -8.0%

Indonesia 2.3% 0.0% -2.3%

Malaysia 2.3% 0.0% -2.3%

Pakistan* 0.0% 0.0% 0.0%

Philippines 1.1% 0.0% -1.1%

South Korea* 14.0% 13.0% -1.0%

Taiwan 10.7% 14.6% 3.9%

Thailand 2.4% 2.4% 0.0%

Asia 72.4% 57.5% -14.8%

Czech Republic 0.2% 2.9% 2.7%

Egypt 0.1% 4.0% 3.9%

Greece 0.2% 0.0% -0.2%

Hungary 0.3% 3.9% 3.6%

Poland 1.2% 0.0% -1.2%

Qatar 1.0% 3.5% 2.4%

Russia 3.9% 9.7% 5.8%

South Africa 6.4% 0.0% -6.4%

Turkey* 0.7% 0.0% -0.7%

United Arab Emirates 0.7% 4.6% 3.9%

Europe/Middle East/Africa 14.8% 28.6% 13.8%

* Value-trap markets

**Whereas our market rankings are a snapshot of relative attractiveness, our allocation recommendations reflect only a partial adjustment process. A sustained improvement in a market’s ranking will be fully reflected in our allocations only after three months. Benchmark weights

calculated using Morgan Stanley Capital International (MSCI) country index data.



3BPerformance of Model

The following describes the performance of a portfolio weighted using the investment factors and weights

described on page two.

Performance of Model Portfolio

Source: MSCI, Heckman Global Advisors. See Important Disclosures on page 30.



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Valuation: 2019 Price-to-Earnings Ratio – Forecast

Since future cash flows to investors are tied to future earnings, it is intuitively appealing to value markets

based on forecast price-to-earnings ratios. Our forecast price-to-earnings measure is based on our

proprietary calculation, which employs consensus earnings data from consensus earnings forecasts as well

as index weighting data from MSCI. The measure has a robust historical track record.

Performance of Forecast P/E Factor

Source: FactSet Research System, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Forecast P/E-Based Portfolios

Annualized Returns (US$) Benchmark Return (%)

Forecast P/E-Based Portfolios

Gross Return (%) Net Return (%)

1989 – 2018 9.7 13.2 12.4

YTD 8.8 11.2 11.2

2018 -14.2 -14.0 -14.4

2017 37.8 38.1 37.4

2016 11.7 14.6 14.0

2015 -14.7 -10.6 -11.2

2014 -1.9 -5.0 -5.3

2013 -2.3 -3.0 -3.3

2012 18.6 21.3 20.9

2011 -18.2 -19.8 -20.1

2010 19.0 17.0 16.5

2009 79.1 80.1 78.6

2008 -53.1 -52.9 -53.5

2007 39.7 40.2 39.4

2006 32.8 29.3 28.2

2005 34.9 49.2 47.5

2004 25.9 33.9 32.8

2003 56.3 72.8 71.3

2002 -4.5 11.3 10.2

2001 -2.7 14.6 13.5

2000 -30.8 -27.9 -28.5

1999 68.1 79.2 77.4

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI,

Heckman Global Advisors



Valuation: 2019 Price-to-Earnings Ratio – Forecast (Cont’d)

Our forecasted P/E ratios are obtained by aggregating company-level data earnings data from FactSet

Estimates using MSCI company weights. Over the years, forecast P/E ratios have consistently been

among our model’s strongest investment factors.

Forecast 2019 P/E Ratios

Source: FactSet Research Systems, MSCI, Heckman Global Advisors



Valuation: Price-to-Earnings minus its 10-Year average

Some markets persistently trade at relatively high trailing price-to-earnings ratios, while others tend to

trade at relatively low ratios. Over the past ten years, for example, trailing price-to-earnings ratios

averaged 18x in both India and the Philippines. In contrast, trailing price-to-earnings ratios averaged a

mere 10x in Turkey and 6x in Russia. To address these tendencies, we have introduced a relative

valuation measure: A country’s trailing price-to-earnings ratio relative its own 10-year average.

Performance Using P/E minus its 10-year Average


Figure 7. Returns on Cap-Weighted vs. Trailing P/E-Based Portfolios


Performance using P/E minus avg. Factor


1989 – 2018 9.7 10.0 9.2

YTD 8.8 9.3 9.3

2018 -14.2 -12.5 -13.1

2017 37.8 34.1 32.9

2016 11.7 10.1 9.2

2015 -14.7 -9.1 -9.6

2014 -1.9 -2.4 -2.9

2013 -2.3 0.9 0.4

2012 18.6 19.8 18.8

2011 -18.2 -16.3 -16.9

2010 19.0 26.0 24.5

2009 79.1 76.1 74.1

2008 -53.1 -49.0 -49.4

2007 39.0 29.9 29.5

2006 32.8 29.5 28.8

2005 34.6 30.6 29.6

2004 26.0 27.2 26.3

2003 56.3 67.4 65.8

2002 -4.7 10.7 9.4

2001 -2.7 2.6 1.7

2000 -30.8 -28.1 -28.8

1999 68.1 51.7 50.3

1998 -25.1 -31.5 -32.2

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI, Heckman Global Advisors



Valuation: Price-to-Earnings minus its 10-Year average (Cont’d)

Valuation: Price-to-Earnings minus its 10-year average




Valuation: Dividend Yield

In the country allocation process, systematically allocating to countries with high dividend yields (DYs)

tends to lead to outperformance. The DY in this context is defined as the ratio of total dollar dividend

payout over the previous 12 months relative to market capitalization. A high dividend yield can be

considered as evidence that a market is undervalued. Additionally, it has been empirically shown that the

compounding effect of dividends on a country’s total return can have a material impact over long periods

of time.

Performance using DY Factor


Returns on Cap-Weighted vs. DY-Based Portfolios


Performance of DY Factor

Gross Return (%) Net Return (%) 1989 – 2018 9.7 12.1 11.4

YTD 8.8 9.9 9.9

2018 -14.2 -9.5 -9.9

2017 37.8 24.8 24.2

2016 11.7 19.9 19.5

2015 -14.7 -16.2 -16.7

2014 -1.9 -5.2 -5.7

2013 -2.3 -3.3 -3.8

2012 18.6 16.9 16.3

2011 -18.2 -18.0 -18.4

2010 19.0 19.5 18.8

2009 79.1 77.5 76.2

2008 -53.1 -45.0 -45.5

2007 39.7 44.1 43.3

2006 32.8 35.5 34.4

2005 34.9 26.8 25.8

2004 25.9 43.0 41.5

2003 56.3 75.6 73.8

2002 -4.5 4.7 3.6

2001 -2.7 -7.6 -8.2

2000 -30.8 -16.3 -16.9

1999 68.1 52.4 51.3

1998 -25.1 -24.4 -25.3

1997 -11.9 5.1 4.1

1996 6.1 9.4 8.6

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI, Heckman Global Advisors



Valuation: Dividend Yield (Cont’d)

The 23 emerging markets are ranked based on the relative attractiveness of dividend yields. Markets with

high dividend yields are ranked above those with low yields.

Valuation: Dividend Yield (%)




Growth: 6-Month Change in GDP Forecasts

Gross Domestic Product – GDP is the broadest measure of output generated by an economic

system. This measure encompasses consumption, business investment, government spending and

net exports. Changes in forecasts of GDP relative to the forecasts six-months ago tend to be a

better indicator for country allocation than the absolute level of GDP growth. This measure takes

the current year-ahead forecast of GDP and subtracts the forecast six months ago. Higher scores

are assigned to those markets where GDP forecasts are being upgraded.

Performance using the GDP Factor

Source: Consensus Economics, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. GDP Revision-Based Portfolios


Performance using the GDP Factor

Gross Return (%) Net Return (%) 1989 – 2018 9.7 10.4 9.0

YTD 8.8 7.2 7.1

2018 -14.2 -14.9 -16.0

2017 37.8 33.9 31.9

2016 11.7 5.4 4.3

2015 -14.7 -12.5 -13.7

2014 -1.9 -6.0 -6.9

2013 -2.3 -5.7 -7.2

2012 18.6 20.0 18.8

2011 -18.2 -18.0 -19.3

2010 19.0 16.9 14.9

2009 79.1 76.4 74.4

2008 -53.1 -56.4 -57.1

2007 39.7 49.1 47.0

2006 32.8 38.8 35.8

2005 34.9 43.8 41.4

2004 25.9 23.0 20.9

2003 56.3 58.5 55.4

2002 -4.5 -5.6 -7.0

2001 -2.7 -4.7 -6.2

2000 -30.8 -24.8 -26.0

1999 68.1 75.3 72.4

1998 -25.1 -33.3 -34.4

1997 -11.9 14.7 13.4

1996 6.1 9.1 7.4

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: OECD, MSCI, Heckman Global Advisors



Growth: 6-Month Change in GDP Forecasts (Cont’d)

The 23 emerging markets are ranked from highest to lowest based on the changes to the year

ahead GDP growth forecasts made over the last six months.

Growth: Six-Month Changes to Forecasted GDP Growth (%)

Source: Consensus Economics, Heckman Global Advisors



Growth: One-Month Upward Company Revision Ratio

Portfolio managers in the U.S. have successfully incorporated earnings forecast revisions into their stock

selection processes. We have incorporated this into our country model by computing the number of

companies with upward earnings forecast revisions over one month divided by the total number of

companies with revisions. A number in excess of 50% implies that upgrades have exceeded downgrades.

One-Month Company Revision Ratio

Source: FactSet Research Systems, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. One-Month Upward Company Revision Ratio Portfolios


Performance using Upward Company Revision Ratio Factor

Gross Return (%) Net Return1 (%)

1989 – 2018 9.7 12.3 10.4

YTD 8.8 10.6 10.4

2018 -14.2 -11.6 -13.0

2017 37.8 34.4 31.9

2016 11.7 16.7 14.6

2015 -14.7 -19.0 -20.5

2014 -1.9 -0.5 -2.3

2013 -2.3 1.2 -0.4

2012 18.6 21.2 18.9

2011 -18.2 -17.9 -19.4

2010 19.0 20.9 18.8

2009 79.1 71.6 68.7

2008 -53.1 -54.0 -55.0

2007 39.0 34.2 31.8

2006 32.8 34.1 31.0

2005 34.6 48.3 44.6

2004 26.0 26.3 23.2

2003 56.3 65.3 62.3

2002 -4.7 0.1 -2.2

2001 -2.7 -6.0 -8.0

2000 -30.8 -27.3 -29.0

1999 68.1 65.9 62.9

1998 -25.1 -13.3 -15.1

1997 -11.9 0.8 -1.2

1996 6.1 21.8 19.8

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source:

FactSet, Heckman Global Advisors



Growth: One-Month Upward Company Revision Ratio (Cont’d)

In the chart below, a countries’ one-month upward company revision ratios are ranked against the

developed-world average. Markets with high one-month upward company revision ratios are attractive

relative to those markets with low one-month upward company revision ratios.

Growth: One-Month Upward Company Revision Ratio

Source: FactSet Research Systems, Heckman Global Advisors



Growth: Terms-of-Trade Trend

A country’s terms of trade is defined as the ratio of its export price index to its import price index. An

increase in the ratio improves a country’s real income, which tends to stimulate domestic demand.

Conversely, a decrease in the ratio hurts a country’s real income and thereby tends to dampen domestic

demand. The import and export price indexes used in the model are proprietary measures based on

weighted averages of the global prices of agricultural products, energy, minerals, and manufactures

(obtained from the IMF and the U.S. Bureau of Economic Analysis). For each country, the price weights

are based on import and export composition data (obtained from the WTO). The terms-of-trade change is

defined as the percentage change of the terms of trade over the previous 18 months.

Performance of Terms-of-Trade Trend

Source: International Monetary Fund, World Trade Organization, Bureau of Economic Statistics, Bloomberg. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Terms-of-Trade-Based Portfolios

Annualized Returns (US$) Benchmark Return

(%)

Terms-of-Trade Portfolios


1989 – 2018 9.7 12.7 11.6

YTD 8.8 8.3 8.1

2018 -14.2 -14.5 -15.1

2017 37.8 30.5 28.9

2016 11.7 7.4 7.2

2015 -14.7 -11.2 -11.4

2014 -1.9 0.2 -1.5

2013 -2.3 0.0 -0.8

2012 18.6 20.3 19.2

2011 -18.2 -16.6 -17.0

2010 19.0 21.7 20.3

2009 79.1 76.0 75.1

2008 -53.1 -50.2 -50.8

2007 39.7 41.5 39.9

2006 32.8 35.2 33.8

2005 34.9 40.8 39.8

2004 25.9 39.9 38.7

2003 56.3 61.5 59.3

2002 -4.5 -2.7 -3.9

2001 -2.7 12.5 10.8

2000 -30.8 -26.6 -27.1


Heckman Global Advisors.



Growth: Terms-of-Trade Trend (Cont’d)

An individual country’s terms of trade change is ranked against the EM average. Markets with higher

terms-of-trade changes (as measured by the 18 month change in the ratio of export to import prices) are

attractive relative to those markets with low or negative terms of trade changes.

Growth: Terms-of-Trade Change

Source: MSCI, Bloomberg, Heckman Global Advisors



Risk: Beta

Beta measures both the volatility and correlation of each market relative to world returns based on the last

18 months of returns. If a market is more volatile than the world returns and has a high correlation with

the world returns, it would have a high beta. Conversely, if a market is less volatile than the world returns

and has a low correlation with world returns, it would have a low beta. Low beta markets are given higher

scores on this factor and would have historically been associated with outperformance. This is a finding at

odds with at least some versions of efficient market theory in which higher returns come from riskier

investments.

Performance of Beta Factor

Source: MSCI, Bloomberg, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Beta-Based Portfolios

Annualized Returns (US$) Benchmark Return

(%)

Beta Portfolios


1989 – 2018 9.7 12.7 11.7

YTD 8.8 5.1 5.1

2018 -14.2 -9.5 -9.8

2017 37.8 29.2 27.8

2016 11.4 7.6 6.8

2015 -14.7 -12.0 -12.8

2014 -1.9 -0.3 -1.0

2013 -2.3 -0.3 -0.9

2012 18.6 25.7 24.7

2011 -18.2 -16.7 -17.3

2010 19.0 22.9 22.0

2009 79.1 63.5 62.0

2008 -53.1 -48.7 -49.4

2007 39.7 40.6 39.2

2006 32.8 34.1 32.6

2005 34.9 31.1 29.3

2004 25.9 33.8 32.5

2003 56.3 67.9 66.7

2002 -4.5 7.6 6.1

2001 -2.7 -6.6 -7.7

2000 -30.8 -23.6 -24.3

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI, Heckman Global Advisors.



Risk: Beta (Cont’d)

Risk: Beta Factor




Risk: Real Exchange Rate Overvaluation

We calculate our own real effective exchange rate index as a weighted average of the CPI-adjusted

exchange rates of each country with respect to its six largest trading partners.

Performance of Real Exchange Rate Factor


Annualized Returns: MSCI EM Benchmark vs. Real FX-Based Portfolio

EM Benchmark

Real FX-Based Portfolio

Gross (%) Net (%)

1989 – 2018 9.7 12.7 12.0

YTD 8.8 11.8 11.7

2018 -14.2 -13.7 -14.5

2017 37.8 37.2 36.3

2016 11.8 21.0 20.2

2015 -14.7 -21.6 -22.1

2014 -1.9 -5.0 -6.2

2013 -2.3 -0.3 -1.3

2012 18.6 22.4 21.5

2011 -18.2 -15.6 -16.0

2010 19.0 23.6 22.9

2009 79.1 77.8 76.3

2008 -53.1 -47.3 -47.9

2007 39.7 29.5 28.7

2006 32.8 40.8 40.0

2005 34.9 31.4 30.5

2004 25.9 32.2 31.2

2003 56.3 69.8 67.8

2002 -4.5 6.4 5.3

2001 -2.7 -0.6 -1.1

2000 -30.8 -29.5 -29.9

1999 68.1 82.9 81.7

1998 -25.1 -4.8 -5.5

1997 -11.9 -4.2 -5.2

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI, Heckman Global Advisors.



Risk: Real Exchange Rate Overvaluation (Cont’d)

Our real exchange rate valuation factor is measured as the deviation, in percent, of the most recent level

of a country’s real exchange rate from its six-year moving average.

Risk: Real Exchange Rate Overvaluation




Risk: Current Account as a percentage of GDP

A country’s current account balance is the difference between its income and its spending on consumption

and investment. By definition, therefore, a country with a current account deficit spends in excess of its

income. Of course, this is not always a bad thing, particularly if the excess spending is comprised of

investments with attractive return prospects. However, substantial current account deficits are often

associated with spending excesses that are not so benign. Consequently, we look at current account

deficits as a warning sign, and we assign relatively low scores to those markets with the largest deficits

(and, conversely, relatively high scores to those with the largest surpluses).

Performance Using the Current Account Factor

Source: Bloomberg, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Current Account-Based Portfolios


Performance Using the Current Account Factor


1989 – 2018 9.7 12.8 12.3

YTD 8.8 7.7 7.7

2018 -14.2 -10.8 -10.9

2017 37.8 37.2 37.0

2016 11.7 12.7 12.4

2015 -14.7 -9.0 -9.2

2014 -1.9 -5.6 -5.8

2013 -2.3 3.7 3.5

2012 18.6 21.2 21.0

2011 -18.2 -13.8 -14.0

2010 19.0 21.5 21.2

2009 79.1 74.4 73.7

2008 -53.1 -52.3 -52.5

2007 39.0 35.9 35.5

2006 32.8 42.8 42.3

2005 34.6 33.2 32.6

2004 26.0 20.8 20.2

2003 56.3 59.1 58.4

2002 -4.7 -1.7 -2.1

2001 -2.7 9.5 9.0

2000 -30.8 -38.3 -38.6

1999 68.1 77.8 76.8


Bloomberg, Heckman Global Advisors



Risk: Current Account as a percentage of GDP (Cont’d)

Risk: Current Account/GDP

Source: Bloomberg, Heckman Global Advisors



Risk: Excess Domestic Credit Growth

We define excess domestic credit growth as the five-year change in domestic credit relative to GDP. Our

research has shown that markets with the highest previous excess domestic credit growth are relatively

risky and subsequently deliver the lowest relative returns. Consequently, markets with the highest relative

DC/GDP growth are assigned the lowest scores (and vice-versa).

Performance Using the Excess Domestic Credit Growth Factor

Source: Bloomberg, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Excess Domestic Credit Growth-Based Portfolios


Performance Using the Domestic Credit Factor


1989 – 2018 9.7 12.9 12.4

YTD 8.8 7.5 7.4

2018 -14.2 -11.9 -12.3

2017 37.8 33.4 32.9

2016 11.7 10.1 9.7

2015 -14.7 -10.8 -11.1

2014 -1.9 -3.0 -3.4

2013 -2.3 -0.3 -0.6

2012 18.6 21.8 21.5

2011 -18.2 -17.2 -17.5

2010 19.0 20.7 20.4

2009 79.1 69.8 69.2

2008 -53.1 -46.9 -47.2

2007 39.0 46.1 45.6

2006 32.8 40.0 39.4

2005 34.6 28.9 28.4

2004 26.0 35.4 34.9

2003 56.3 70.0 69.2

2002 -4.7 -2.9 -3.5

2001 -2.7 -4.1 -4.6

2000 -30.8 -24.6 -25.0

1999 68.1 72.3 71.3

1998 -25.1 -20.6 -20.9


Bloomberg, Heckman Global Advisors



Risk: Excess Domestic Credit Growth (Cont’d)

Risk: Excess Domestic Credit Growth (%)

Source: Bloomberg, Heckman Global Advisors



Risk: Change in Sovereign Spreads

Sovereign spreads are used as barometers for measuring investor risk aversion. A declining spread implies

a decline in risk aversion. The model’s indicator is based on the decline of the spread over the previous 24

months.

Performance of Sovereign Spreads Factor


Returns on Cap-Weighted vs. Sovereign Spreads -Based Portfolios


Sovereign Spread Portfolios


2000 – 2018 6.5 7.5 6.7

YTD 8.8 9.6 9.5

2018 -14.2 -18.2 -19.0

2017 37.8 28.7 27.7

2016 11.7 10.4 9.5

2015 -14.7 -13.2 -13.9

2014 -1.9 -5.4 -6.2

2013 -2.3 -2.4 -3.0

2012 18.6 18.6 17.8

2011 -18.2 -17.4 -17.8

2010 19.0 21.0 20.4

2009 79.1 72.3 70.5

2008 -53.1 -50.1 -50.8

2007 39.7 42.7 41.5

2006 32.8 37.9 36.9

2005 34.9 44.1 43.1

2004 25.9 36.9 36.0

2003 56.3 58.0 56.3

2002 -4.5 -3.7 -4.8

2001 -2.7 2.4 1.3


Heckman Global Advisors.



Risk: Change in Sovereign Spreads (Cont’d)

Risk: Sovereign Spread Change (Basis Points)




Monetary Policy: Nominal Interest Rate Trend

Changes in monetary policy are typically associated with changes in short-term policy rates (such as the

Federal Funds rate in the U.S.). Rate increases are typically prompted by signs of overheating.

Conversely, rate declines are prompted by signs of economic weakness. Changes in monetary policy

impact economies with (as Milton Friedman observed) long and variable lags. However, when they

ultimately arrive, the impacts are often powerful. Empirically, we have found a tendency for equities in

countries with declining short-term interest rates to subsequently outperform equities in countries with

increasing interest rates.

Performance of Nominal Interest Rate Trend

Source: FactSet Research Systems, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Nominal Interest Rate Trend Portfolios


Nominal Interest Rate Trend Portfolio

Gross Return (%) Net Return1 (%)

1989 – 2018 9.7 14.4 13.3

YTD 8.8 10.6 10.6

2018 -14.2 -14.3 -14.7

2017 37.8 32.6 31.6

2016 11.7 8.5 7.9

2015 -14.7 -13.6 -14.3

2014 -1.9 0.4 -0.3

2013 -2.3 -5.1 -6.2

2012 18.6 16.0 15.2

2011 -18.2 -14.5 -15.0

2010 19.0 23.0 22.0

2009 79.1 83.3 81.4

2008 -53.1 -46.6 -47.4

2007 39.0 41.6 40.3

2006 32.8 33.8 32.5

2005 34.6 35.0 34.1

2004 26.0 32.1 31.5

2003 56.3 62.3 60.4

2002 -4.7 -0.2 -1.0

2001 -2.7 -0.3 -1.4

2000 -30.8 -27.6 -28.3

1999 68.1 68.6 66.7

1998 -25.1 -24.3 -25.8

1997 -11.9 25.3 23.9


FactSet, Heckman Global Advisors



Monetary Policy: Nominal Interest Rate Trend (Cont’d)

We measure to nominal interest rate changes as the difference between current short-term interest rates

and their 24-month moving average.

Monetary Policy: Nominal Interest Rate Change (Percentage Points)

Source: FactSet Research Systems, Heckman Global Advisors



Momentum: Price Momentum

Markets will sometimes look attractive on the basis of valuation factors yet fail to rise for extended

periods of time. Sometimes, investors are reluctant to alter their exposures to a market until they are

persuaded that a turnaround in market sentiment has occurred. To take the influence of market sentiment

on performance into account, we use a price momentum indicator—the one-year price return in local

currency terms.

Performance of Price Momentum Factor

Source: MSCI, Heckman Global Advisors, See Important Disclosures on page 37.

Returns on Cap-Weighted vs. Price Momentum-Based Portfolios

Annualized Returns (US$)

Benchmark Return (%)

Price Momentum Portfolio


1989 – 2018 9.7 12.8 11.5

YTD 8.8 7.6 7.6

2018 -14.2 -15.1 -16.1

2017 37.8 33.2 31.9

2016 11.7 7.7 6.3

2015 -14.7 -14.0 -14.8

2014 -1.9 1.3 0.1

2013 -2.3 -5.7 -6.7

2012 18.6 20.2 19.0

2011 -18.2 -16.8 -17.6

2010 19.0 19.0 17.5

2009 79.1 65.8 63.9

2008 -53.1 -58.4 -59.0

2007 39.7 41.9 40.0

2006 32.8 33.5 32.0

2005 34.9 49.6 47.8

2004 25.9 33.4 31.2

2003 56.3 67.5 64.9

2002 -4.5 7.1 5.7

2001 -2.7 -4.0 -5.4

2000 -30.8 -27.3 -28.5

1999 68.1 64.7 61.8


MSCI, Heckman Global Advisors.



Momentum: Price Momentum (Cont’d)

Our price momentum factor is an ad hoc way of incorporating technical analysis into a fundamentals-

oriented asset allocation model. It can be viewed as a proxy for information known to market participants

that is not captured fully by our model’s factors.

Momentum: Price Momentum




Data Summary: February 2019

Country %

Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month

BRAZIL 12.6 10.9 4.4 2.6 3.3 3.6 0.0 -0.1 46 48 -3 -5

CHILE 15.6 14.8 -0.8 -2.3 2.8 2.9 0.0 0.1 36 33 -5 -6

COLOMBIA 11.8 10.5 -5.1 -6.2 2.8 3.1 0.2 0.2 28 60 1 -5

MEXICO 13.9 12.8 -2.7 -3.7 2.7 2.8 -0.4 -0.4 29 36 0 0

PERU 14.7 13.5 0.3 -0.6 1.9 2.0 0.3 0.3 4 15 -4 -6

CHINA 9.6 8.6 0.7 -0.3 2.2 2.4 -0.1 -0.1 36 32 1 3

INDIA 17.4 17.0 3.6 3.7 1.3 1.3 -0.2 0.0 32 36 -1 1

INDONESIA 15.6 14.5 1.4 0.7 2.2 2.4 -0.3 -0.3 49 54 -1 -2

MALAYSIA 16.3 15.7 -0.2 -0.2 3.0 3.0 -0.5 -0.6 39 44 0 0

PAKISTAN 7.7 6.9 1.9 0.6 5.9 6.9 -1.0 -1.0 33 33 -1 2

PHILIPPINES 17.0 16.1 0.8 -0.5 1.5 1.6 -0.1 -0.1 60 30 0 1

SOUTH KOREA 9.9 7.8 -2.8 -3.6 2.4 2.5 -0.2 -0.3 24 29 0 3

TAIWAN 14.0 12.8 -4.0 -4.2 4.4 4.4 0.0 0.0 33 37 0 2

THAILAND 14.8 13.2 0.2 -0.3 3.0 3.1 0.2 0.2 32 46 -1 0

CZECH REP 13.9 12.9 3.0 2.2 6.5 6.9 -0.1 0.0 69 75 0 1

EGYPT 9.3 8.2 -4.6 -5.3 3.8 4.1 0.5 0.5 42 18 NA NA

GREECE 12.3 9.4 3.3 2.6 3.2 3.3 -0.2 -0.2 NA NA -1 -2

HUNGARY 10.0 9.6 -0.1 -0.2 2.0 2.0 0.3 0.1 23 94 0 0

QATAR 13.6 12.9 1.9 1.7 3.3 3.4 0.0 0.0 30 32 4 -5

RUSSIA 5.2 4.7 -0.5 -0.8 5.6 5.9 -0.2 -0.3 57 70 2 -5

POLAND 11.3 11.0 0.7 0.3 2.1 2.2 0.3 0.2 46 60 0 0

SOUTH AFRICA 13.8 12.4 1.6 1.0 3.0 3.1 -0.4 -0.5 37 27 -2 -2

TURKEY 7.4 5.8 -2.3 -3.2 4.6 5.2 -3.3 -3.2 52 57 -1 1

U.A.E. 9.1 8 -2.7 -2 5.2 5.5 0.2 0 14 15 1 -2

AVERAGE 11.3 11.8 0.2 -0.3 3.3 3.5 -0.2 -0.2 37 53 0 -1

P/E minus 10 yr avg P/EForecast 2019 P/E

(higher is preffered)(higher is preffered)(higher is preffered)

Upward Company

Revisions, %(higher is preffered)

6-Month Change in

GDP Forecast, % Trend, %

VALUATION GROWTH

Dividend Yield Terms of Trade

(lower is preffered) (lower is preffered)

Source: Heckman Global Advisors, FactSet Research Systems, MSCI, Bloomberg, OECD

All data is rounded to the nearest decimal or whole number.



Data Summary: February 2019

Country

Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month

BRAZIL 0.8 0.9 -5 -9 -1.4 -0.8 -3 -3 -39 -2 -1.7 -2.0 11 12

CHILE 0.8 0.8 -1 -4 -2.4 -2.1 8 8 -10 4 0.2 0.2 -10 -11

COLOMBIA 0.8 0.8 -23 -26 -3.3 -3.0 3 3 4 36 -0.7 -0.9 -4 -6

MEXICO 0.8 0.9 -7 -10 -1.7 -1.7 10 10 16 34 0.7 1.0 -14 -17

PERU 0.8 0.9 -1 -1 -1.7 -1.6 NA NA -8 10 0.0 0.0 -2 0

CHINA 1.2 1.2 -1 -5 0.1 0.4 27 27 -10 1 -1.0 -0.3 -21 -20

INDIA 0.5 0.5 1 4 -2.5 -1.8 -2 -2 15 22 0.3 0.4 -3 0

INDONESIA 0.6 0.6 -1 -2 -2.6 -2.8 5 5 -3 21 1.2 1.6 -2 -6

MALAYSIA 0.3 0.3 -5 -5 2.5 2.6 15 15 -6 22 0.1 0.1 -10 -7

PAKISTAN -0.1 -0.1 -13 -12 -4.5 -5.8 0 0 -28 86 3.4 3.8 -17 -22

PHILIPPINES 0.2 0.2 -2 -2 -1.8 -1.5 14 14 -5 12 1.9 2.3 -8 -13

SOUTH KOREA 0.8 0.8 1 2 4.3 4.5 8 8 -18 -12 0.2 0.2 -14 -19

TAIWAN 0.7 0.7 -1 2 12.4 12.8 NA NA NA NA 0.1 0.1 -12 -9

THAILAND 0.5 0.5 5 3 6.5 7.5 8 8 -8 -6 -0.1 -0.1 -7 -8

CZECH REP 0.3 0.4 4 5 0.5 0.6 2 2 2 4 1.1 1.2 0 -3

EGYPT 0.1 0.2 -10 -7 -2.5 -3.3 1 1 74 50 -0.5 -0.5 -6 -16

GREECE 0.7 0.7 -4 -4 -0.6 -0.8 -16 -16 -79 -51 0.0 NA -36 -35

HUNGARY 0.8 0.9 -1 -3 1.8 2.0 -17 -17 -9 -6 0.0 0.0 -1 -1

QATAR 0.1 0.1 -2 -2 8.1 8.7 40 40 -12 -2 0.5 0.6 21 24

RUSSIA 0.8 0.8 -8 -13 5.3 5.9 9 9 -12 8 0.1 0.4 9 11

POLAND 0.9 0.9 -3 -3 -0.8 -0.5 3 3 6 8 0.0 0.0 -8 -8

SOUTH AFRICA 1.5 1.6 5 -2 -3.6 -3.6 5 5 -13 33 0.1 0.1 -10 -15

TURKEY 0.9 0.9 -19 -20 -2.4 -4.1 14 14 50 109 7.5 7.5 -12 -21

U.A.E. 0.2 0 0 0 7.8 8.7 18 18 7 9 0.9 1.0 -12 -12

AVERAGE 0.6 0.6 -4 -5 0.7 0.8 7 7 -3 16 0.6 0.7 -5 -6

Price Momentum

YoY, %

Beta Sovereign Spread

Change, bpsOvervaluation, %

Real Exch. Rate Nom. Interest Rate

minus 2 yr avg., %(lower is preffered)

Current Account

as a % of GDP

Excess Domestic

Credit Growth, %

RISK MONETARY POLICY MOMENTUM

(lower is preffered) (lower is preffered) (higher is preffered) (lower is preffered) (lower is preffered) (higher is preffered)

Source: Heckman Global Advisors, FactSet Research Systems, MSCI, Bloomberg, OECD

All data is rounded to the nearest decimal or whole number.

Heckman Global Advisors A division of DCM Advisors, LLC February 5, 2019


24BForecast P/E Ratio and Earnings Growth Rate



Important Disclosures

This material has been prepared and issued by DCM Advisors, LLC for distribution to market professionals and institutional investor clients only. This document has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security, commodity, futures contract

or instrument or related derivative (hereinafter "instrument") or to participate in any trading strategy. Any such offer would be made only after a

prospective participant had completed its own independent investigation of the instrument or trading strategy and received all information it required to make its own investment decision, including, where applicable, a review of any prospectus, prospectus supplement, offering circular or memorandum

describing such instrument or trading strategy. This material does not provide individually tailored investment advice or offer tax, regulatory, accounting

or legal advice. The securities discussed in this material may not be suitable or appropriate for all investors. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and

merits, as well as the legal, regulatory and accounting characteristics and consequences of the transaction. You should consider this material among other

factors in making an investment decision. This information is not intended to be provided and may not be used by any person or entity in any jurisdiction where the provision or use thereof would be contrary to applicable laws, rules or regulations. Any securities referred to in this material may not have

been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom.

All investments are subject to the risk of loss, including the potential for significant loss, and it should not be assumed that any models or opinions

incorporated herein will be profitable or will equal past performance. Further, the models do not represent actual trading, and interim volatility may be

materially different within the time frame reflected in the charts.

The performance figures represent outputs from a global allocation model, not an actual portfolio. The “performance” reflects the hypothetical

performance of the model. The performance calculations do not represent the results of actual trading but were achieved by means of the retroactive application of the model designed with the benefit of hindsight. The model’s factor weightings are revised from time to time. The hypothetical results

are then rerun to reflect the revised weightings. Therefore, the hypothetical calculations reflect the results that would have been realized if the model were to have been run according to current weightings. Hypothetical performance results have inherent limitations. There often are large differences

between hypothetical performance and actual performance results. The actual performance results that could have been achieved by any investor in

reliance on the model could be significantly different than the hypothetical performance shown, especially as the model does not indicate which securities to purchase or sell, nor does it include management and trading fees. The performance of the model assumes the recommended country

weightings times the MSCI index return for each country (gross dividends). Past hypothetical performance should be not being taken as an indication or

guarantee of future performance and no representation or warranty, expressed or implied, is made regarding future performance.

Source: MSCI. The MSCI sourced information is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this

information and any other MSCI Intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and

any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy,

completeness, merchantability or fitness for a particular purpose with respect to any information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any

kind. MSCI and the MSCI Indexes are services marks of MSCI and its affiliates.

a division of dcm advisors, llcdcm advisors, llc in writing, please do not distribute, reproduce or...

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