aristotle//ppsaul global opportunities fund · 2019. 2. 25. · overlooked / misunderstood adidas...

3Q14

www aristotlecap comwww.aristotlecap.com

Aristotle/Saul Global Opportunities Fund/ ppObservations and Perspective on the Current Market

Alberto Jimenez-Crespo, CFAPortfolio Manager, Global

[email protected]

Gregory Padilla, CFAPortfolio Manager, [email protected]

11100 Santa Monica Blvd., Suite 1700Los Angeles, California 90025

310.478.4005 • [email protected]

Global Market Observations

“Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands.”~ Seth Klarman, Founder, Baupost Group

Asset Class Index QTD YTD 3yr 5yr 10yr 20yrthrough 9/30/2014

Global Equities 417 MSCI All-Country World (2.17%) 4.22% 17.36% 10.76% 7.99% 5.23%U.S. Equities 1,972 S&P 500 1.13% 8.34% 22.98% 15.69% 8.11% 9.76%

Annualized Total Return, USD Total Return, USD

European Equities 117 MSCI Europe (6.89%) (1.41%) 16.25% 7.61% 7.43% 9.11%Japanese Equities 16,174 Nikkei 225 (0.92%) (3.47%) 9.16% 9.68% 4.94% (0.48%)Emerging Markets Equities 1,005 MSCI Emerging Markets (3.38%) 2.56% 7.56% 4.79% 11.09% 4.00%30‐year Treasury 3.20% relevant U.S. Treasury 3.58% 17.86% 2.00% 7.83% 7.01% 8.22%Commodities 119 Bloomberg Commodity (11.83%) (5.59%) (15.19%) (6.68%) (9.91%) n/aOil $93.17 Brent forward dated (16.88%) (15.93%) (3.68%) 6.61% 7.06% 9.73%Natural Gas $4.01 Henry Hub 12mnth-strip (7.80%) (4.21%) (0.83%) (7.52%) (5.36%) n/aCorn $3.20 Corn No. 2 Yellow active (24.57%) (28.76%) (16.90%) (9.72%) (4.98%) n/aGold $1,208 Gold Spot (8.98%) 0.21% (9.39%) 3.70% 11.19% 6.36%Copper $3.05 Copper Spot (4.56%) (8.89%) (1.34%) 1.80% 7.91% 5.57%U.S. Dollar Index 86 DXY 7.72% 7.37% 3.04% 2.31% (0.17%) (0.46%)Euro 1.26 EUR (7.75%) (8.09%) (1.92%) (2.91%) 0.16% 0.37%Yen 110 JPY (7.59%) (3.96%) (11.09%) (3.93%) 0.04% 0.04%Yuan 6.14 CNY 1.04% (1.39%) 1.30% 2.14% 3.03% 1.67%Ruble 39.6 RUB (14.19%) (17.00%) (6.68%) (5.39%) (2.99%) (11.79%)

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Sources: Bloomberg Finance L.P. All returns are as of September 30, 2014

Risk Management

J i i i ibl i i ll i bl i i i i i ibl

V i f f i k

Just as it is impossible to maximize all variables in an equation, it is impossible to minimize all risks in a portfolio

Various forms of risk:

1. Risk of permanent loss2. Valuation risk3 Ri k i t d ith l bl fi i l t t t

We attempt to avoid 3. Risk associated with unanalyzable financials statements4. Risk associated with unsustainable business models

5 F nd m nt l ri k

completely

5. Fundamental risk6. Illiquidity risk 7. Concentration risk

We typically avoid

8. Geopolitical risk9. Risk of missing opportunities 10. Risk associated with volatility

Believe we can manage and willing to accept when

d i l

3

compensated appropriately

*The risks listed herein were inspired by Howard Marks, Chairman, Oaktree Capital Management LP, “Risk Revisted”, September 2014

Risk Management

The appropriate margin of safety is not static; it is a function of certainty and value

0%

10%

20%Valu

e

Underappreciated Quality

30%

40%

ppra

ised

V

Overlooked /

QualityCompanies

Controversial /

50%

60%

70%ount

to A

p /Misunderstood

Companies

Controversial / Out-of-Favor Companies

80%

90%

Disc

4

99%

Level of Certainty

Portfolio Positioning

“Di ifi ti ft ll i t h diff t thi b t h diff t th thi d“Diversification, after all, is not how many different things you own, but how different the things you do own are in the risks they entail.”

~Seth Klarman, Margin of Safety

Aristotle/Saul Global Opportunities FundAristotle/Saul Global Opportunities Fund As of 9/30/2014

Overlooked /Overlooked / Misunderstood

30%

Controversial /


32%

Out-of-Favor29%

Cash / Precious Metals

9%

5Allocations and holdings are subject to change.

Portfolio Positioning

A i t tl /S l Gl b l O t iti F d

Underappreciated QualityBank of America

Overlooked / MisunderstoodAdidas

Controversial / Out‐of‐FavorArch Coal (bond) ♣

Aristotle/Saul Global Opportunities Fund As of 9/30/2014

Canadian Natural Resources ♥Compass Group

Dassault SystèmesDBS GroupDiageo

AESDaiichi Sankyo

General Dynamics♥Ericsson

Kurita Water

Cameco♣Centamin ♥Centerra Gold

Dundee Precious MetalsErste GroupDiageo

eBayEMC

General MillsGivaudanM dt i

Kurita WaterKDDILennar

Mitsubishi UFJMS&ADO hk h

Erste GroupExco Resources (bond)

Goodrich Petroleum (bond)IAMGOLD (bond)Kinross Gold♣

N t Mi iMedtronicMicrosoft ♥MondelezOracle

Royal Dutch Shell

OshkoshSamsung ElectronicsTexas InstrumentsToray Industries

Toshiba

Newcrest MiningTalisman Energy♣Transocean♣

Uranium Participation

UnileverWalgreen

TotoToyo Suisan ♥Vallourec

↑ 3 3% YTD* ↓ 0.1% YTD* ↓ 4.0% YTD*

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↑ 3.3% YTD ↓ 0.1% YTD ↓ 4.0% YTD♥ = YTD top‐5 contributor ♣ = YTD top‐5 detractor

* Year to date (YTD) contribution to return excludes currency impact and fees.Allocations and holdings are subject to change.


Dassault Systèmes SA $16 billion market capitalization, French company Created in 1981 Leader in global 3D virtual creation software and PLMLeader in global 3D virtual creation software and PLM Software enables companies to virtually design, simulate and optimize products well before committing resources to a physical prototype

What is underappreciated? 3D design software business, CATIA, is used to design most autos, trucks and aircraft on the planet

We believe the core business is virtually impenetrable as data modules (e.g. 737 cockpit) can only be read by CATIAy

Newest platform, V6, enables customers to store data on a private cloud; strengthens Dassault ecosystem

Company is repositioning itself as a 3D experience company to enter new business segments

i i i l h i l d bl il bl k i d i

7

Recent expansion into new verticals has potential to double available market opportunity, and earnings

Legacy business generates 5% free cash flow yield to business owners with significant potential ahead

Overlooked

Kurita Water Industries, Ltd. $2.5 billion market capitalization, Japanese company Established in 1949 Leader in the global industrial water fieldLeader in the global industrial water field Only water company in the world that provides water treatment chemicals, water treatment hardware and service (maintenance, cleaning, etc.)

What is overlooked?

20+ straight years of profitability

10 consecutive years of dividend increases

Recently (2012) bought back 6% of shares outstanding

Transitioning from an average business (hardware/service) to a good business (solutions/service)

Transforming to a truly global company with expanding overseas sales

Ancillary issues resolved with resolution of troubled overseas water treatment project

8

Steady and expanding free cash flow as services business now represents 85% of company‐wide sales

Generates a 10‐15% free cash flow yield to business owners with $1b of cash on hand and no debt

Misunderstood

Samsung Electronics Co., Ltd. $165 billion market capitalization, South Korean company Founded in 1969 Diversified global leader in the technology industryDiversified global leader in the technology industry

What is misunderstood?

Samsung is much more than the largest smartphone company in the world with cool TV’s

World’s leading memory chip company for last 21 years (DRAM and NAND) with over $10b in profits

We believe Samsung is best positioned to lead the Smart Home industry with smart offerings in nearly We believe Samsung is best positioned to lead the Smart Home industry with smart offerings in nearly

all categories

Samsung’s flagship premium smartphones continue to operate in a duopoly with Apple

Samsung’s economies of scale and manufacturing competitiveness are extraordinary

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Samsung s economies of scale and manufacturing competitiveness are extraordinary

Nearly all of Samsung’s success has come through innovation and green field investment, not M&A

Generate over a 10% free cash flow yield to business owners and have $40b of net cash on hand

Controversial / Out-of-Favor

“ t t i t t b i i di f t b i ll f d thi th t“…most great investments begin in discomfort…bargains are usually found among things that are controversial, that people are pessimistic about, and that have been performing badly of late.”

~Howard Marks

Controversial “Things”:

Russia On‐going due diligence

Coal

Nuclear / Uranium

Lending to a low‐cost producer

~5% exposure

Precious Metals

China

~10% exposure in low‐cost producers

On‐going due diligence

Brazil

g g g

On‐going due diligence

10

Allocations and holdings are subject to change.

Perspective on Commodities

U S d ll h ( d h i ) h d i di i f lU.S. dollar strength (and growth worries) has driven commodities to a four-year low

U S Dollar vs Bloomberg Commodities IndexU.S. Dollar vs. Bloomberg Commodities Index (2009 – 2014)

11

Sources: Bloomberg Finance L.P.


Wi h h ( i l) d f QE3 h l k f l i b i lWith the (potential) end of QE3 the lack of correlation may be returning to normal

12

Sources: Bloomberg Finance L.P.The commodities index refers to the Bloomberg Commodities Index (BCOM)


Hi i ll h F d h b b hi d h i i fl iHistorically, the Fed has been behind the curve on taming inflation

13Sources:. Bloomberg (October 13, 2014), William O’Neil & Co.

Uranium Mining

P tiPerception

14

Uranium Mining

R litReality

World’s most polluted city: Linfen, China China derives 80% of its electricity from coalHistoric Nuclear Accidents:

Three Mile Island (1979)• Human error

Chernobyl (1986)• Safety culturey

Fukushima (2011)• Emergency Preparedness

Deaths directly caused by various sources of electricity (since 1975)

World’s most nuclear powered city: Paris, France France derives 75% of its electricity from nuclear

Deaths directly caused by various sources of electricity (since 1975)

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Information is as of 12/31/2013.


Cameco Corporation $7 billion market capitalization, Canadian company Formed in 1988 One of the world’s largest uranium producersOne of the world s largest uranium producers accounting for ~15% of global production from its mines in Canada, the U.S. and Kazakhstan.

Our view: Cameco is the lowest cost operator in the world and has not lost money for 25 years

Cigar Lake newest mine that is ramping up is one of the highest quality assets in the industryCigar Lake, newest mine that is ramping up, is one of the highest quality assets in the industry

Enter the financial crisis with a net cash balance sheet and acquired assets from forced sellers

While the market is over‐supplied in the short term following Fukishima, a supply deficit may occur in next five years as the 70 nuclear reactors under construction (434 exist today) globally come on‐line

16

Uranium is an environmentally friendly, stable, reliable source of base load power

Precious Metals Mining

P tiPerception

17


R lit

Consumer demand represents a majority of global gold demand

Reality

Annual gold demand is equivalent to approximately 10 school buses full of gold (~130mm ounces)

5 buses are full of jewelry headed primarily to the 2.5b consumers in China and India

2 buses are full of bars and coins headed to long-term holders around the world

1 bus is headed to technology companies for use in end-products

2 buses are headed to central bankers and exchange traded funds

18Sources:. World Gold Council


G ld i i di d di h h i l lGold equities are trading at a record discount to the physical metal

19Sources: Bloomberg Finance L.P.


Ad d i il dAdvantaged assets can earn a privileged return

Return on Equity of various gold companies

20.0%

30.0%

40.0%

0.0%

10.0%

‐30.0%

‐20.0%

‐10.0%

Goldcorp Newmont African Barrick Agnico‐Eagle Allied Nevada Yamana Gold Average Centamin2011 9.2% 2.8% 10.4% ‐16.57% 6.8% 7.6% 3.4% 31%

2012 8.0% 13.6% 2.3% 9.4% 8.1% 5.8% 7.8% 25%

2013 12 82% 20 60% 33 40% 12 73% 0 20% 5 97% 14 2% 21%

‐40.0%

30.0%

20

Sources: Company reportsPlease refer to disclosure notes at the end of this presentation. References to specific securities or sectors should not be construed as recommendations by the Fund, its Advisoror Distributor.

2013 ‐12.82% ‐20.60% ‐33.40% ‐12.73% 0.20% ‐5.97% ‐14.2% 21%

2011 2012 2013


“S h i ” Eld d“Synthetic” Eldorado

Market Capitalization ($mm) $2,883 $5,377Market Capitalization ($mm) $2,883 $5,377Net Debt ($mm) ($414) $349Enterprise Value ($mm) $2,469 $5,726

# C t i 5 5# Countries 5 5Operating mines 5 72014E production (koz) 1,180 7503 yr production growth potential 22% 21%Reserves (mm ounces) 25 28

2014E ROIC 9.5% 3.7%

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Free Cash Flow (@ $1300/oz) $370 $267FCF yield 15.0% 4.7%

Disclosures

Disclosures:

The views in this letter were as of the date stated and may not necessarily reflect the same views on the date this letter is first published or anytime thereafter. These views are intended to help shareholders in understanding the Fund’s investment methodology and do not constituteinvestment advice.

Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, whenredeemed, may be worth more or less than their original cost.

An investment in the Fund is subject to risks and you could lose money on your investment in the Fund. The principal risks of investing in theFund include, but are not limited to, investing in foreign securities, emerging markets, short sales, derivatives, below investment grade bonds,convertible securities, and ETFs.

Foreign securities have additional risks including currency rate changes, political and economic instability, lack of comprehensive companyinformation, less market liquidity, less efficient trading markets, and differing auditing controls and legal standards.

Investments in emerging markets involve even greater risks. The use of short sales and ETFs may cause the Fund to have higher expenses thanthose of other equity funds. Short sales are speculative transactions and involve special risks, including a greater reliance on the investmentteam's ability to accurately anticipate the future value of a security. The Fund’s losses are potentially unlimited in a short sale transaction. They y p f f y p yFund’s use of short sales and futures contracts leverages the Fund’s portfolio. The Fund’s use of leverage can make the Fund more volatile andmagnify the effect of any losses. There is no assurance that a leveraging strategy will be successful.

The Fund may invest in derivatives which can be highly volatile, illiquid, difficult to value, and changes in the value of a derivative may notcorrelate with the underlying securities or other securities held directly by the Fund. Such risks include gains or losses which, as a result ofleverage, can be substantially greater than the derivatives' original cost. There is also a possibility that derivatives may not perform as intendedhi h d t it f i lt i l b ff tti iti t i th iti th F dwhich can reduce opportunity for gain or result in losses by offsetting positive returns in other securities the Fund owns.

Please consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus or summaryprospectus that contains this and other information about the Fund is available by calling 1‐888‐661‐6691 or by visiting aristotlefunds.comand should be read carefully prior to investing.

The Aristotle/Saul Global Opportunities Fund is distributed by IMST Distributors, LLC.

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The Aristotle/Saul Global Opportunities Fund is distributed by IMST Distributors, LLC.

ACML‐14‐702

Disclosures

Definitions:

•The MSCI All Country World Index (ACWI) captures large and mid cap representation across 23 Developed Markets and 21 Emerging Marketscountries. With over 2,400 constituents, the index covers approximately 85% of the global investable equity opportunity set.

•The S&P 500® Index is the Standard & Poor's Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stockprices.p

•The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets countries in Europe. With 436 constituents,the index covers approximately 85% of the free float‐adjusted market capitalization across the European DevelopedMarkets equity universe.

•The Nikkei‐225 Stock Average is a price‐weighted average of 225 top‐rated Japanese companies listed in the First Section of the Tokyo StockExchange.

•The MSCI Emerging Markets Index is a free float‐adjusted market capitalization index that is designed to measure equity market performancein the global emerging marketsin the global emerging markets.

•The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures. The index is designed tominimize concentration in any one commodity or sector.

•The Brent Forward Dated index is designed to track the performance of the Brent crude market, based on the closest contract expirations.Brent Crude is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide.

•The Henry Hub pipeline is the pricing point for natural gas futures on the New York Mercantile Exchange (NYMEX). The NYMEX contract fordeliveries at Henry Hub began trading in 1990 and are deliverable 18 months in the future. The settlement prices at the Henry Hub are used asbenchmarks for the entire North American natural gas market.

•Corn No. 2 yellow refers to the physical commodity in the marketplace – separate from the futures price on an exchange, which reflects whatthe commodity might be worth in future months.

•The CRB Spot Index is the Credit Research Bureau (CRB) Spot Price Market Index. The Spot Market Price Index is a measure of price movementsof 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. Assuch, it serves as one early indication of impending changes in business activity.

•Gold Spot, Platinum Spot and Copper Spot are a commonly used standards for the value of an ounce of gold, platinum, and copper(respectively) based on the price paid for the precious metal based upon immediate delivery.

•Treasuries are negotiable debt obligations of the U.S. government secured by its full faith and credit and issued at various schedules andmaturities.

•The Federal Funds rate is the interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight

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The Federal Funds rate is the interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnightloans to meet reserve requirements. The federal funds rate is the most sensitive indicator of the direction of interest rates, since it is set dailyby the market.

The volatility (beta) of the account may be greater or less than the benchmarks. An investor cannot invest directly in these indices.

Disclosures

Definitions (cont’d):•Correlation: refers to a statistical measure of how two securities move in relation to each other.•Return on Equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation'sprofitability by revealing how much profit a company generates with the money shareholders have invested.

•Enterprise Value: a measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value iscalculated as market cap plus debt minority interest and preferred shares minus total cash and cash equivalentscalculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

•Return on Invested Capital (ROIC): a calculation used to assess a company's efficiency at allocating the capital under its control to profitableinvestments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns.

•Free Cash Flow (FCF): a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF)represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cashflow is important because it allows a company to pursue opportunities that enhance shareholder value.

h l ld ( ld) ll l f k h h d d h f h fl h•Free Cash Flow Yield (FCF Yield): An overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company isexpected to earn against its market price per share. The ratio is calculated by taking the free cash flow per share divided by the share price.

Effective January 17, 2014, Aristotle/Saul Opportunity Fund has been renamed Aristotle/Saul Global Opportunities Fund. In addition, the Fund’sinvestment strategy has been updated.

Portfolio composition will change due to ongoing management of the Fund References to specific securities or sectors should not be construedPortfolio composition will change due to ongoing management of the Fund. References to specific securities or sectors should not be construedas recommendations by the Fund, its Advisor or Distributor.

As of September 30, 2014, the Fund held the following positions:, Abbvie Inc 0.0%; adidas AG (ADR) 1.0%; adidas AG 0.4%; AES Corp 1.3%, ArchCoal Inc 9.875% due 6‐15‐19 1.8%; Bank of America 1.7%; Cameco 2.9%; Canadian Natural Resources 2.0%; Centamin plc 1.8%; Centerra Gold1.6% Compass Group plc 1.8%; Daiichi Sankyo Co (ADR) 0.5%; Daiichi Sankyo Co Ltd 0.5%; Dassault Systèmes SA 1.9%; DBG Group Holdings(ADR) 0.3%; DBS Group Holdings 0.7%; Diageo plc 2.5%; Dundee Precious Metals 1.6%; eBay 2.5%; EMC Corp 2.2%; Ericsson 1.0%; Erste Group( ) ; p g ; g p ; ; y ; p ; ; pBank AG 1.4%; Exco Resources Inc 7.500% due 9‐15‐18 2.0%; General Dynamics 1.5%; Givaudan 1.5%; Goodrich Petroleum Corp 8.875% due 3‐15‐19 1.9%; IAMGOLD Corp 6.750% due 10‐01‐20 2.4%; KDDI Corp 1.9%; Kinross Gold Corp 2.5%; Kurita Water Industries 2.6%; Lennar Corp2.6%; Medtronic 1.5%; Microsoft 2.2%; Mitsubishi UFJ Financial Group 1.1%; Mondelez International 1.4%; MS&AD Insurance Group Holdings1.9%; Newcrest Mining (ADR) 0.2%; Newcrest Mining 1.8%; Oracle Corp 1.5%; Oshkosh Corp 1.9%; Royal Dutch Shell plc 2.0%; SamsungElectronics 3.0%; Talisman Energy 3.0%; Texas Instruments 1.4%; Toray Industries Inc 1.5%; Toshiba Corp 1.5%; Toyo Ltd 1.1% Toyo SuisanKaisha Ltd 2.7%; Transocean Ltd 1.9%; Unilever 2.9% Uranium Participation Corp 2.1%; Vallourec SA 2.1%; and Walgreen Co 1.8%. Portfolio

i i ill h d i f h d f ifi i i h ld b d

24

composition will change due to ongoing management of the Fund. References to specific securities or sectors should not be construed asrecommendations by the Fund, its Advisor or Distributor.

aristotle//ppsaul global opportunities fund · 2019. 2. 25. · overlooked / misunderstood adidas...

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