gei miami
TRANSCRIPT
The case for Global Equity Income
William Davies – Head of Global Equity
June 2013
For institutional investors
Wholesale
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the
Funds may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any
“U.S. Person”, as defined in Regulation S under the 1933 Act.
For investment professionals only, not for US investors
October 2013
1. The market environment, and why income strategies will continue to attract investors
2. How to approach income investing
3. The advantages of a global approach
4. Summary and conclusion
Agenda
2
Threadneedle Global Equity team
Over $6bn in global equity AUM
Source: Threadneedle as at 30 September 2013.
14 years’ experience
5 years at Threadneedle
12 years’ experience
6 years at Threadneedle
William Davies
Head of Global Equity
27 years’ experience
19 years at Threadneedle
11 years’ experience
7 years at Threadneedle
Jonathan Crown
Fund Manager
7 years’ experience
4 years at Threadneedle
Ashish Kochar
Fund Manager
Pauline Grange
Fund Manager
Esther Perkins
Fund Manager
26 years’ experience
1 year at Threadneedle
Neil Robson
Fund Manager
25 years’ experience
19 years at Threadneedle
Stephen Thornber
Fund Manager
4 years’ experience
1 year at Threadneedle
James Foreman
Client Portfolio Analyst
3
Threadneedle – experienced equity income management
Over $6 billion in equity income AUM
Source: Threadneedle as at 30 September 2013..
Stephen Thornber
Global Income
25 years’ experience
4
Benchmark MSCI AC World FTSE All Share S&P 500 MSCI Europe MSCI Asia (ex Japan)
Holdings 75-95 45-60 50-70 30-50 50-60
Leigh Harrison
UK Income
29 years’ experience
Diane Sobin
US Income
27 years’ experience
Nick Davis
Pan-European Income
9 years’ experience
George Gosden
Asian Income
19 years’ experience
The market environment 1
US – Improving housing and labour markets support growth, inflation remains benign, growth accelerates to 2.5% in 2014
Japan – Policy changes creating positive change, challenges in implementation ahead
Europe –Signs of a bottom appearing, a slow and protracted recovery ahead
Emerging markets – Strong growth but trajectory is downwards, BRIC’s each face major and different challenges
Global economic outlook
Source: Threadneedle, as at 30 September 2013. These estimates and forecasts are as of the date provided and are subject to change without notice at any time based
upon market and other factors. None of Threadneedle, its directors, officers or employees make any representation, warranty, guaranty or other assurance that any of
these estimates or forecasts will prove to be accurate.
1 Fiscal year.
6
Institutional
2014 GDP growth forecast (%)
Developed Markets Threadneedle Consensus
US 2.5 2.7
UK 2.3 2.1
Japan 1.5 1.7
Europe 0.7 0.9
2014 GDP growth forecast (%)
Emerging Markets Threadneedle Consensus
China 7.5 7.4
India1 5.5 5.9
Russia 2.8 3.3
Brazil 3.0 2.6
The taper caper
7
Source: Bloomberg, September 2013.
1.50
1.75
2.00
2.25
2.50
2.75
3.00
Jan-13 Apr-13 Jul-13 Oct-13
Rising rates have put bond proxies under pressure
Fed Chairman Ben Bernanke:
“the winding-down process due to start this year”
US 10 year treasury yield (%)
Interest rates and inflation
8
10 year breakeven inflation expectations1 Yield on US 10 year treasury bonds
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Our view
Futures
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2003 2004 2006 2008 2010 2012 2014 2016 2018
% %
Source: Bloomberg and Threadneedle Investments as at 30 September 2013.
1 Derived from Treasury Inflation Protected Securities market (TIPS).
Rates are likely to stay low for longer
Performance profile
Source: FactSet Alpha Tester, CLSA Asia-Pacific Markets March 2013. MSCI-weighted USD total return with monthly rebalancing.
(4)
(2)
0
2
4
6
8
10
12
14
Expansion Downturn Slowdown Recovery
(%)
MSCI AC World – Quintile one dividend yield annualised outperformance since 1995
High dividend investing has performed in most economic conditions
9
Demographic changes
Source: UN, World Population Aging 1950-2050. Published September 2012.
10
Proportion of global population 60 years or older
8%
10%
21%
0%
5%
10%
15%
20%
25%
1950 2000 2050
Year People over 60 years old
2000 606 million
2050 2 billion
Wholesale
Rising demand for income
Yield choices
Source: Bloomberg as at 30 September 2013. Equity dividend yields are consensus FY14. The mention of stocks is not a recommendation to deal.
1 Expected medium term dividend growth of a representative portfolio.
11
2.6 2.7
1.8
0.7
3.6
4.45.0
4.1 3.93.5 3.5
4.03.5
4.6
5.35.7
6.4
5.5 5.6
4.7
6.6
5.9
4.7
0
1
2
3
4
5
6
7
8
9
10
US
UK
Ge
rma
ny
Ja
pa
n
Me
xic
o
Bra
zil
Ind
on
esia
Ru
ssia
Vo
da
fon
e
Gla
xo
Sm
ith
Klin
e
To
tal S
.A.
Bla
cksto
ne
AT
&T
Vo
da
fon
e
Gla
xo
Sm
ith
Klin
e
To
tal S
.A.
Bla
cksto
ne
AT
&T
BO
C H
on
g K
on
g
DiG
i.co
m
Ra
dia
nt E
lec.
Na
ga
Co
rp
Va
lid
So
luco
es
%
Equities (FY14) Investment Grade (10yr) Government Debt (10yr) Emerging Market Debt (USD 10yr)
Zero income growth
5-10% annual income growth1
Equities continue to offer more attractive income
How to approach income investing 2
Dividend paying stocks have outperformed
The highest yielding quintile has performed best
Source: CLSA, FactSet Alpha Tester as at 30 June 2013.
Note: Backtest based on MSCI universe with more than 3 analyst coverage. MSCI weighted US-dollar total return with monthly rebalancing.
Cumulative performance since 1995
0
200
400
600
800
1000
1200
Dec 94 May 96 Oct 97 Mar 99 Aug 00 Jan 02 Jun 03 Nov 04 Apr 06 Sep 07 Feb 09 Jul 10 Dec 11 May 13
Ind
ex
First quintile dividend yield Second quintile dividend yield MSCI AC World
13
Global Equity Income philosophy
We believe dividends are an underappreciated
signal of investment quality
Our focus is companies with a high dividend yield,
growth, and a robust balance sheet
When dividend investing, a balanced and
diversified portfolio is important to control risk
14
High, growing, and sustainable dividends
Note: Stock and portfolio characteristics may be subject to change over time and subject to prevailing market conditions. Actual investment parameters will be agreed
and set out in the prospectus or formal investment management agreement.
Growth
Portfol
io
Sustainability
Income
Quality
Income
Investment process
Select stocks based on
valuation and conviction
Manage risk though
diversification and balance
Implementation
Global team and regional
equity teams
Macro and themes
Company meetings
Focused idea generation Always
15
Dividend
yield > 4%
Typical characteristics:
Earnings growth >5%
Dividend growth >5%
Gearing <75%
Dividend cover >1.25x
Detailed fundamental analysis
Investable universe: 1300 stocks 400 stocks 75-95 stocks
Research and debate
Note: Stock and portfolio characteristics may be subject to change over time and subject to prevailing market conditions. Actual investment parameters will be agreed
and set out in the prospectus or formal investment management agreement.
A robust and consistent process
Source: Threadneedle Investments as at 30 June 2013. Analysis is adjusted for cash levels.
16
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13
Balancing the portfolio
Sources of income Characteristics Typical weighting Examples
Compounders Reliable growth, strong cash flow generation c.35%
Assets High levels of fixed or financial assets c.25%
Secular growers Sustainable high growth potential c.20%
Cyclicals Most sensitive to economic conditions c.20%
Kraft, AstraZeneca
National Grid, HSBC
Hugo Boss, AIMIA
Rio Tinto, Total
Wholesale
Global Equity Income Fund
A significant dividend tilt and a mild growth bias
Source: Style Research as at 30 June 2013. Style Skylines™ created with, embodies and/or executes proprietary software and/or data under license from Style
Research Ltd. © Style Research Ltd. All Rights Reserved. Must not be redistributed by third parties.
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the Funds may not be offered, sold or
delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
Wholesale
17
Portfolio Style SkylineTM
Global Equity Income Fund
Source: Threadneedle Investments as at 30 June 2013.
1 Based on institutional share class with income distributed
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the Funds may not be offered, sold or
delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
0%
1%
2%
3%
4%
5%
6%
7%
8%
2008 2009 2010 2011 2012 2013
Portfolio MSCI AC World
Portfolio dividend yield versus benchmark Historic net distribution yield1
0%
1%
2%
3%
4%
5%
6%
7%
8%
2008 2009 2010 2011 2012
18
Wholesale
UPDATE CHART ON RIGHT IN JAN AND JULY
Delivering a high income stream
Superior total return performance
Performance versus benchmark (USD)
Wholesale
USD
Source: FactSet as at 30 September 2013. Fund data is gross of fees. Gross fund returns gross of tax and TER for comparison with indices. Gross performance from 31 March 2010 onwards
is based on daily cash flows and valuations, from 1 January 2008 to 31 March 2010 based on Global Close prices, and prior to January 2008 based on 12pm prices. Fund data is quoted on a
bid to bid basis with income re-invested at bid. Index data provided by Thomson Financial DataStream. The relative returns shown are calculated on a geometric basis. All data is quoted in
USD. Past performance is not a guide to future returns.1 Outperformance shown is calculated on a geometric basis, annualised against the MSCI AC World Index.
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the Funds may not be offered, sold or delivered directly or
indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
4.8%
18.1%
13.8%
22.0%
11.9% 14.9%
8.3%10.8%
18.4%
2.0%
YTD 1 year 3 years 5 years Since inception
(30 June 2007)
Threadneedle Global Equity Income Fund MSCI AC World
Outperformance1 +2.8% +3.0% +2.7% +3.4% +2.7%
19
Global Equity Income Fund
Source: Mercer Investment Consulting as at 30 June 2013. Risk and return characteristics calculated monthly in USD versus the MSCI AC World Index.
Bars show the positions in the universe of funds of the 95th percentile, upper quartile, median, lower quartile and 5th percentile.
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the Funds may not be offered, sold or
delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
Performance versus peers since inception (30 June 2007)
Top quartile returns
Relatively low tracking error
Top decile information ratio
Top decile consistency
Wholesale
Any currency
Consistent and superior risk adjusted returns
20
Global Equity Income Fund
The advantages of a global approach 3
Dividend growth
Source: FactSet, CLSA Asia-Pacific Markets, March 2013.
0
5
10
15
20
25
30
35
Russia China Singa-
pore
Brazil South
Africa
EM Australia AxJ India Korea Taiwan Japan World DM Europe France USA UK Germany HK
DP
S C
AG
R s
ince
200
0 (%
)
MSCI regions and markets – Dividend CAGR since 2000
Global markets offer the potential for superior growth
22
A wide opportunity set of high dividend stocks
Global income investors can diversify without compromise
Source: Bloomberg as at 30 August 2013. Market cap measured in USD.
World
All companies, Market Cap > $1 billion and dividend yield > 4% 1304
Sector breakdown:
Financials 474
Energy 157
Utilities 131
Industrials 123
Consumer discretionary 111
Materials 91
Telecommunications 89
Technology 60
Consumer staples 56
Healthcare 12
23
Global themes
A go anywhere approach
Source: Threadneedle Investments as at 30 September 2013.
The mention of stocks is not a recommendation to deal.
Themes Portfolio strategy Stocks
Emerging market consumer Rising wages support increasing consumption
New areas of expenditure
Opportunities for global brands
Ambev, Hugo Boss,
Las Vegas Sands, NagaCorp
Defensive growth Steady growers with large moats
Predictable recurring revenues
Improving cost bases and increasing dividends
Imperial Tobacco, Kraft,
GlaxoSmithKline, Sydney Airport
US shale energy revolution Growth of shale oil/gas volume in the US
Increased capex in energy industry
Low cost input for energy consumers
LyondellBasell, HollyFrontier,
Enterprise Products
De-leveraging Banks need to down-size balance sheets
Distressed sellers offer opportunities
Well capitalised players take advantage
Blackstone, Intermediate Capital,
Newcastle Investment Corp
24
Emerging market consumer
1 Source: Haver Analytics, GS Global ECS Research, US Federal Reserve, Bank of England as at December 2010. *Consumer Loans and Individual Credit Cards as
% of GDP (excluding other types of bank loans – mortgage loans etc.). **Bank loans (personal) to households as % of GDP.
2 Source: Haver as at 29 February 2012.
The mention of stocks is not a recommendation to deal.
25
0%
20%
40%
60%
80%
100%
120%
UK
US
Ko
rea
Ta
iwa
n
Th
aila
nd
So
uth
Afr
ica
Hu
ng
ary
Po
lan
d
Cze
ch
Re
pu
blic
Ch
ina
Bra
zil
Tu
rke
y
Ind
on
esia
Ind
ia
Ru
ssia
Ho
us
eh
old
de
bt
*
50
100
150
200
250
300
350
400
00 02 04 06 08 10
Ind
ex
Brazil China Indonesia Russia
Household debt as percentage of GDP (%)1 Robust growth in retail sales2
Summary and conclusion 4
Summary
A compelling proposition
Wholesale
27
Global equity income strategies are likely to
continue to rise in popularity
A consistently successful approach emphasises:
Sustainably high dividends and growth
A balanced portfolio, trading defensiveness for upside
A global approach offers superior growth, a
large opportunity set
Growth
Portfol
io
Sustainability
Income
Quality
Income
Appendix 7
6
8
10
12
14
16
18
20
Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13
MSCI World Index MSCI World High Dividend Index
29
PE ratio progression
Valuation of high dividend companies
High dividend stocks remain at a discount
Source: Bloomberg as at 30 September 2013. Uses BEst (current annual) PE ratio.
Source: MSCI index data as at 30 September 2013.
30
11.1 11.210.3
13.412.7
14.414.1
11.7
Europe Asia Pacific Japan USA
High dividend index Regular Index
Forward PE ratios
Regional variations exist
Valuation of high dividend companies
The MSCI High Dividend Yield Indices:
Are derived from country, regional or composite level MSCI Equity indices (herein, “Parent Indices”)
Include only securities that offer a higher than average dividend yield relative to their respective Parent Index and
pass dividend sustainability screens
Must have a dividend yield at least 30% higher than the Parent Index yield
Must have a reasonable pay-out and a non-negative 5y dividend per share growth rate
Offer broad market coverage
Are free float market capitalisation weighted
How are MSCI High Dividend Yield Indices constructed?
A high dividend yield benchmark
Source: MSCI High Dividend Yield Indices Methodology, May 2011.
31
WILLIAM DAVIES
Head of Global Equities and Deputy Head of Equities
Biography
William Davies is Head of Global Equities and Deputy Head of Equities at Threadneedle Investments. He manages
retail and institutional funds including the Threadneedle Global Select Fund.
Prior to taking up his current roles William was Head of European Equities for 12 years (until 2011), during which
time he oversaw a period of very strong performance and significant growth in assets.
William joined Threadneedle at the company’s inception in 1994. Prior to this, he worked for Eagle Star
Investments1. He has also worked for Hambros Bank as a European Investment Manager where he led the
European equity team.
William holds a BA (Hons) degree in Economics from Exeter University.
Threadneedle start date: 1994
Industry start date: 1985
1 Eagle Star Investments became part of Threadneedle in 1994.
32
Biography
STEPHEN THORNBER
Fund Manager
Stephen Thornber has managed the Threaneedle Global Equity Income Fund since its inception in 2007, and is
responsible for several institutional funds. He heads the energy sector research team.
Prior to joining the global equities team Stephen was a UK fund manager and spent five years managing the
Threadneedle UK Monthly Income Fund. He has also worked as a fund manager for Eagle Star Investments1 and for
the Kuwait Investment Office.
Stephen has an honours degree in Business and Finance from Plymouth Polytechnic and is an associate member of
the UK Society of Investment Professionals.
Threadneedle start date: 1994
Industry start date: 1987
33
1 Eagle Star Investments became part of Threadneedle in 1994.
Any mention of Funds are purely for information only. The Funds mentioned are not registered for sale in the US. Shares in the Funds
may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as
defined in Regulation S under the 1933 Act.
Key Risks applying to all the funds:
Market Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested.
Currency Risk: Where investments are made in assets that are denominated in multiple currencies, changes in exchange rates may affect the
value of the investments.
Investor Currency Risk: Where investments in the fund are in currencies other than your own, changes in exchange rates may affect the value of
your investments.
Effect of portfolio concentration: The fund has a concentrated portfolio (holds a limited number of investments and/or takes large positions in a
relatively small number of stocks) and if one or more of these investments declines or is otherwise affected, it may have a pronounced effect on the
fund’s value.
High Volatility Risk: The fund typically carries a risk of high volatility due to its portfolio composition or the portfolio management techniques used.
This means that the fund’s value is likely to fall and rise more frequently and pronounced than with other funds
Global equities funds key risks
Wholesale
34
Wholesale
For internal use and for Professional and/or Qualified Investors only (not to be used with or passed on to retail clients)
Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by
exchange rate fluctuations. This means that an investor may not get back the amount invested.
Threadneedle Specialist Investment Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales,
authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UCITS scheme.
This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment
advice or services.
The mention of any specific shares or bonds should not be taken as a recommendation to deal.
This document is a marketing communication. The research and analysis included in this document have not been prepared in accordance with the legal requirements designed to
promote its independence and have been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and
is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment
advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.
This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be
reproduced in any form or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of Threadneedle
Investments and must be returned upon request.
Issued in the US by Threadneedle International Limited (“TINTL”), a UK.-based investment management firm provides financial services to individual and institutional investors.
TINTL is registered as an investment adviser with the U.S. Securities and Exchange Commission and is authorised and regulated in the conduct of its investment business in the UK
by the UK Financial Conduct Authority.
Important notes
35