A new route to equity income
Sophia Whitbread
Fund manager, Newton Emerging Income Fund
September 2013
For professional clients only.
Any views and opinions expressed hereafter are those
of the investment adviser, unless otherwise noted
Equity income suite As at 30 June 2013
Past performance is not a guide to future performance. Please note that Newton’s equity income suite also includes Newton European Higher Income strategy (AUM £23.5m as at 30 June 2013) and Newton Emerging Income strategy (launched October 2012). Parenthesis indicate strategy composite inception year. Performance shown is GIPS Composite, gross of fee, relative to strategy specific FTSE index comparator. Source: Newton, *as at 30 June 2013
2
UK Equity Income (1995)
£2.2bn
Global Equity Income (2006)
£5.5bn
Emerging Equity Income
£0.3bn
Asian Equity Income (2005)
£3.9bn
Total equity income suite AUM AUM by strategy
Investment performance to end March 2013 (relative returns)
Equity income suite accounts for 22% of total AUM
1.7
-1.9
0.11.5
4.1
-3-4.7
20.6
4.35.5 5.7
10.79.2
4.4
-10
-5
0
5
10
15
YTD (%) 1 year (%) 3 years (% pa) 5 years (% pa) Since inception (% pa)
UK Equity Income Global Equity Income Asian Equity Income
Rela
tive
ou
t o
r
un
de
rpe
rfo
rma
nce
Increasing choice of high yielding stocks in emerging markets
Past performance is not a guide to future performance. Current yields are not indicative of future yields Source: FACTSET, Datastream, 31 December 2012
Geographical split of FTSE World index stocks yielding greater than 3%
1995
2012
3
Sophia Whitbread Jason Pidcock
2011 to date Newton Investment Management
2010 Baillie Gifford
– Analyst
2005 to 2010 Newton Investment Management
– Global financials analyst
2004 to date Newton Investment Management
1996 – 2004 BP Investment Management
– Fund manager, Asia-Pacific ex Japan
1993 – 1996 Henderson Investment Management
– Assistant fund manager, Asia-Pacific ex
Japan
Responsibilities Responsibilities
Investment manager – global and emerging markets Investment leader – Asia-Pacific ex Japan equities
Qualifications Qualifications
CFA charterholder*
IMC
MPhil (Cantab)
MA (Cantab)
IMC
BA
7 years at Newton
7 years’ investment experience
8 years at Newton
19 years’ experience
Emerging income team
* CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
4
Newton Emerging and Asia Pacific Equity Team Idea generation and input
Total number of investment personnel = 73 Source: Newton, June 2013 (excludes private client business)
Highly interactive idea generation, formal and informal discussions
5
Zoe Kan
Caroline Keen
Rob Marshall-Lee
Wilfred Frost Jason Pidcock
Sophia Whitbread
Strategy – 3 14 years investment experience
10 years at Newton
Global industry
research – 18 13 years investment experience
6 years at Newton
Corporate
governance / SRI – 4 11 years investment experience
5 years at Newton
Global portfolio
management – 28 17 years investment experience
11 years at Newton
Team meetings Analyst (external) meeting Corporate contact Strategists & economists
Bond / FX Strategy Group Investment Strategy Group Thematic Focus Groups
Emerging and Asia Pacific Equity Team 11 years average investment experience
8 years at Newton
Newton's investment process Overview
6
• Newton conducts proprietary global research:
– career global sector analysts
– credit, asset class, regional, strategic complements
– incorporating responsible investment
• Newton thinks globally, using themes which:
– represent key forces of observable change
– provide long-term orientation
– provide a stimulus for debate and a focus for research
• Investment engine deliberately based in London:
– affords perspective: dispassionate global judgement
– communication culture, robust real-time debate
– efficient idea generation and implementation
• Newton constructs single portfolios:
– research recommended lists act as menus
– model portfolios provide leadership
– fund managers given discretion and accountability
Global income
strategy
Client
requirements
Investment
risk group
Perspective, pragmatism and insight are key
Newton Emerging Income Fund
• Thematic stock picking approach with long-term horizon
• Fund aims to yield at least 15% more than its FTSE All World All Emerging Index
• For inclusion in the portfolio any holdings under consideration must have a prospective yield of at
least 85% of the index
• Any holding whose prospective yield falls below a 30% discount to the index will be sold
• Concentrated portfolio of fewer than 60 stocks
• Transparent, straightforward portfolio structure
Objective To achieve income with long-term capital growth
FTSE All World All Emerging Index Comparative
index
7
The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested
Themes drive high conviction ideas Emerging Income
8
Source: Newton as at June 2013
Mexico: seizing its moment
Reform and competitiveness
• Manufacturing renaissance with greater specialization
• NAFTA facilitating increased regional trade
• A new government with political will for reform
• Low leverage at the consumer and corporate level – 15% private debt to GDP
• Young population – median age is 27
• Preferred sectors: infrastructure, consumer, financials
Source: ILO, SHCUP, INEGI and Morgan Stanley Research / Newton research December 2012
2.5
2.0
1.5
1.0
0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2.0
0.6
Manufacturing wages (USD per hour)
Mexico
China
2.4
2.2
illustrative purposes only
9
Brazil – investing in infrastructure
• Brazil overtook the UK in terms of the world’s largest economies to become the
6th largest economy in 2011
• Consumption has been the driver of growth while industrial production has lagged.
• President Dilma’s focus now upon investment
• Catch-up in infrastructure investment required ahead of the World Cup in 2014 and Olympics in 2016
• Greater involvement of private sector is targeted
• Consumer supported by demographics, salaries growing above inflation
• Preferred sectors: infrastructure, consumer
Source: World Economics Forum Morgan Stanley Latam Economics, December 2012
6
104 118 122 130
140
120
100
80
60
40
20
0
GDP Quality of overall
infrastructure
Quality of roads Quality of air transport
Quality of ports
Brazil: GDP and Infrastructure Quality Ranking
(ranking out of 142 countries, inverted scale, 2011)
For illustrative purposes only
10
ASEAN – Asia’s brightest spot
• ASEAN = Association of South East Asian Nations. 10 countries ~ 600m people
• ASEAN’s combined GDP of over US$2trn is around 30% bigger than India’s GDP, buoyed by strong domestic
demand, allowing it to shrug off weaker exports
• Investment to GDP ratios are on an upward trend across ASEAN, especially in Indonesia
• Domestic demand supported by population growth, with labour forces increasing and dependency
rations falling.
• Many countries have improved business environments: all four countries have cut procedures required to
start a business (World Bank) since 2005; President Aquino in the Philippines has been fighting corruption
• Industry structures often favourable (e.g. REITs)
Asean disposable income growth,
five-year Cagr
Sources: CLSA Asia-Pacific Markets, Newton research, December 2012
0 1 2 3 4 5 6 7 8
Total
Thailand
Singapore
Philippines
Malaysia
Indonesia
(%) (%)
For illustrative purposes only
11
Share of population aged below 20
0 10 20 30 40 50
Singapore
Thailand
China
Brunei
Vietnam
Indonesia
Burma
India
Malaysia
Cambodia
Philippines
Laos
Source: Euromonitor, CLSA Asia-Pacific Markets, Newton research, December 2012
Investment (% of GDP)
Source: Thomson Datastream, Capital Economics, December 2012
0
5
10
15
20
25
30
35
Indonesia Thailand Malaysia Philippines
2001
2012F
Idea generation Stock selection
Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations Source: Newton as at May 2013
Stock example: Millicom
• High single digit revenue growth
driven by emerging market
mobile data growth, mobile
financial services and e-
commerce
• Very strong, under levered
balance sheet and free cash
flow positive
• 17.5x P/E and 3.7% dividend
yield for 2013.
• Pure play Mobile telecoms
operator in Latin America, Africa &
Asia.
• Mobile data revenue growth is
accelerating spurred by low cost
($60) smartphones
• Only 17% of customers use data
today, which management think
can easily double.
• Growing penetration and ARPU in
Mobile Financial Services (MFS) in
underbanked regions
Attractive valuation Strong fundamentals
12
Idea generation Stock selection
Portfolio holdings are subject to change at any time without notice, are for information purposes only, and should not be construed as investment recommendations Source: Newton as at May 2013
13
Stock example: Bangkok Bank
• 2013E PE 10.4x, P/BV 1.3x
• ROE 12.8%, yield 3.7%
• A leading bank in Thailand. Highly
profitable market with considerable
growth potential
• Prudently regulated market, low
credit leverage in the economy
• Conservative management, solid
balance sheet, strong capital and
liquidity
Attractive valuation Strong fundamentals
Themes
Idea generation Stock selection
Portfolio holdings are subject to change at any time without notice, are for information purposes only, and should not be construed as investment recommendations PSource: Newton as at May 2013
14
Stock example: Life Healthcare
• High and sustainable ROIC
• Revenue growth c. 10% p.a. due
to a combination of 2-4% volume
growth, annual price increases
running at 1-2% over CPI
• 2013E EV/EBITDA 12.5X
• 2013 yield 3.4%
• Leading South African hospital
operator
• Growing EM demand for private
healthcare in environment of high
disease burden (HIV and TB)
• Beneficiary of inadequate public
healthcare investment
Attractive valuation Strong fundamentals
Themes
Security selection in practice
Source: Newton, May 2013 Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations
Themes
Fundamentals Valuation
Portfolio
Odontoprev Itau
Life
Healthcare
Tofas
Odontoprev
Dominant scale in Brazilian dental
insurance business
High and sustainable ROIC
Healthy Demand beneficiary
X Well loved business with high
investor expectations (priced in)
x EV/EBITDA = 18x
Itau
Leading Brazilian bank with strong
management team
Population Dynamics beneficiary
x Fast credit growth has led to greater
risk of loan write-offs
x Lower near-term growth in Brazilian
economy
x Sector transitioning to lower
sustainable return on assets
Life Healthcare
Leading South African hospital operator
Growing EM demand for private
healthcare
Beneficiary of inadequate public
healthcare investment
High and sustainable ROIC
12.5x EV/EBITDA represents good
value for the quality and growth
Tofas
Turkish auto manufacturer with low
costs
Attractive valuation and returns;
dividend yield of 7.1%
x Cyclical European consumer
exposure unattractive as per Debt
Burden and Global Realignment
themes
15
= 3% Position in funds
Newton Emerging Income Fund Positioning as at 30 June 2013
Source: BNY Mellon Asset Management International Limited Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations
16
Stocks (%)
Fibra Uno
Administracion SA Financials 3.20
Bangkok Bank PCL Financials 3.14
Taiwan Semiconductor
Manufacturing Technology 3.08
Philippine Long Dist
Telecom Telecommunication 3.01
Souza Cruz SA Consumer Goods 2.90
Top 5 holdings Country weightings (%) Economic sector weightings (%)
Newton Emerging Income Fund Performance as at 30 June 2013
Past performance is not a guide to future performance. Please note that sector returns are likely to vary depending on the timing of data extraction from Lipper. Source: Lipper IM Fund performance calculated as total return including income net of UK tax and annual charges, but excluding initial charge in GBP terms. The impact of the initial charge, which may be up to 4%, can be material on the performance of your investment. Performance figures including the initial charge are available upon request.
Cumulative return between 31/12/2012 to 30/06/2013(%)
-6
-4
-2
0
2
4
6
8
10
Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
Pe
rce
nta
ge
gro
wth
Newton Emerging Income Sterling Inc FTSE AW Emerging TR GBP IMA Global Emerging Markets
-0.08%
-2.50%
-3.49%
17
Summary
• Emerging countries provide exposure to high growth potential
• Experienced investment team with wealth of knowledge
• Investment in sustainable business models with competitive advantage
• Frequent travel assures deep regional insight
• First-class access to range of high quality information
• Yield discipline ensures above average yield
• Newton has demonstrated strength in equity income investing
• Research and stock selection underpinned by global thematic approach
18
Important information
CP10806-14-11-2013(3m)
Past performance is not a guide to future performance. The value of investments and the income from
them is not guaranteed and can fall as well as rise due to stock market and currency movements.
When you sell your investment you may get back less than you originally invested.
This is a financial promotion for Professional Clients and/or distributors only. This is not intended as
investment advice. You should read the Prospectus and Key Investor Information Document (KIID) for each
fund in which you want to invest. The Prospectus and KIID can be found at www.bnymellonam.com.
All information relating to Newton Emerging Income Fund (‘the Fund’) and Newton Investment Management
Limited (Newton) has been prepared by Newton for presentation by BNY Mellon Asset Management
International Limited (BNYMAMI). Any views and opinions contained in this document are those of Newton as
at the date of issue, are subject to change and should not be taken as investment advice. BNYMAMI and its
affiliates are not responsible for any subsequent investment advice given based on the information supplied.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a
generic term to reference the corporation as a whole or its various subsidiaries. All rankings based on
worldwide assets under management for The Bank of New York Mellon Corporation as at 31 December 2011,
unless otherwise stated.
This document should not be published in hard copy, electronic form, via the web or in any other medium
accessible to the public, unless authorised by BNYMAMI to do so. No warranty is given as to the accuracy or
completeness of this information and no liability is accepted for errors or omissions in such information.
Portfolio holdings are subject to change at any time without notice, are for information purposes only and
should not be construed as investment recommendations.
This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any
circumstances in which such offer or solicitation is unlawful or not authorised.
The Fund may not be registered for sale in all markets. Fund is a sub-fund of BNY Mellon Investment Funds,
an investment company with variable capital (ICVC) incorporated in England and Wales under registered
number IC27 and authorised by the Financial Conduct Authority. BNY Mellon Fund Managers Limited (BNY
MFM) is the Authorised Corporate Director. BNY Mellon Fund Managers Limited, BNY Mellon Centre, 160
Queen Victoria Street, London EC4V 4LA. Registered in England No. 1998251. Authorised and regulated by
the Financial Conduct Authority. The investment adviser of the Newton sub-funds is Newton Investment
Management Limited/Newton.
ICVC investments should not be regarded as short-term and should normally be held for at least five years.
There is no guarantee that the Fund will achieve its objective. This Fund invests in international markets which
means it is exposed to changes in currency rates which could affect the value of the Fund. A fall in the global
emerging markets may have a significant impact on the value of the Fund because it invests primarily in this
market. The Fund may use derivatives to reduce costs and/or the overall risk of the Fund (i.e. Efficient
Portfolio Management (EPM)). Derivatives involve a level of risk, however, for EPM, they should not increase
the overall riskiness of the Fund. The Fund invests in emerging markets. These markets have additional risks
due to less developed market practices. A fall in the value of a single investment may have a significant
impact on the value of the Fund because it typically invests in a limited number of investments. The Fund
takes its charges from the capital of the Fund. Investors should be aware that there is potential for capital
erosion if insufficient capital growth is achieved by the Fund to cover the charges. Capital erosion may have
the effect of reducing the level of income generated. A complete description of the risk factors is set out in the
Prospectus in the section entitled "Risk Factors".
This document is issued in the UK by BNY Mellon Asset Management International Limited, BNY Mellon
Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and
regulated by the Financial Conduct Authority.
BNY Mellon Asset Management International Limited, BNY Mellon Investment Funds, BNY Mellon Fund
Managers Limited , and any other BNY Mellon, entity mentioned are all ultimately owned by The Bank of New
York Mellon Corporation.
BNY Mellon Fund Managers Limited and Newton Investment Management Limited are members of the IMA.
19