michel wiskirski - knack · 6 carlos slim helu telecoms 7 larry ellison software 8 charles koch...
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Michel Wiskirski
Analyst Emerging Markets EMEA
Carmignac
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Emerging Markets and Responsible Investment
October 11th 2017 SPEAKER:
Michel WISKIRSKI Emerging Market Analyst, ESG Specialist
P R O F E S S I O N A L S O N LY
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More than 50% of our global flagship equity Fund’s* total net assets were invested in emerging markets
1989 Carmignac invests in Emerging Markets since its inception in 1989
Carmignac, Historic Investor in Emerging Markets
1997 Launch of Carmignac Emergents
2007 Launch of Carmignac Portfolio Emerging Discovery
2011 Launch of Carmignac Portfolio Emerging Patrimoine
2014 RQFII license granted by the Chinese authorities. Carmignac is one of two first French players to obtain this license. Current quota: RMB 6 billion (USD 940M)
Carmignac Investissement Quarterly report extract at 31/03/1989
Source: Carmignac, * Data for Carmignac Investissement
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Our Simple Approach to Invest in EM
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A Simple Approach
UNDERPENETRATION STRONG FCF MACRO + +
COUNTRIES SECTORS STOCKS
Strong macro fundamentals (growth
outlook, balance of payments, currency,
inflation)
Companies with a strong FCF profile i.e capital light
business that can self finance their growth
Underpenetrated sectors with long-term growth
potential
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Fundamental analysis Cycle analysis
Growth
Inflation
Balance of payment
Exchange rate
Local debt
External debt
1/ What we Look For: Macro Quality Laurent CHEBANIER Country Risk Analyst
Country Risk
Long term Structural trends
Cyclical analysis Country
risk analysis
Charles ZERAH Fund Manager Fixed Income Joseph MOUAWAD EM FI & FX Analyst
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2/ What to Look For: Long-term Secular Growth that can be Found in Underpenetrated Sectors
Sources: Carmignac, Emerging Advisors Group, International Monetary Fund, 30/12/2016
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Bank loans (% of GDP)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
MSCI EM CE
3/ What to Look For: Self-Financed Growth
Sources: Carmignac, Bloomberg, MSCI, Companies, 31/12/2016
Stock Allocation
MSCI Emerging Markets Carmignac Emergents
Companies generating strong
cash flows and
sound balance sheets
Companies which are either highly
leveraged or unprofitable
Companies generating strong cash
flows and
sound balance sheets
=
Able to self-finance their
growth
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A Rigorous Stock-Picking…
Source: 2016 Forbes.com LLC™ All Rights Reserved, May 17th 2017
FORBES Top 20
1 Bill Gates Software
2 Warren Buffett Insurance
3 Jeff Bezos Internet
4 Amancio Ortega Retail
5 Mark Zuckerberg Internet
6 Carlos Slim Helu Telecoms
7 Larry Ellison Software
8 Charles Koch Industry
9 David Koch Industry
10 Michael Bloomberg Software
11 Bernard Arnault Consumer goods
12 Larry Page Internet
13 Sergey Brin Internet
14 Liliane Bettencourt Consumer goods
15 S. Robson Walton Retail
16 Jim Walton Retail
17 Alice Walton Retail
18 Jianlin Wang Property
19 Ka-Shing Li Consumer goods
20 Sheldon Adelson Property
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Software
Checkpoint
Line Corp
*Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC™ All Rights Reserved, May 17th 2017
FORBES Top 20
1 Bill Gates Software
2 Warren Buffett Insurance
3 Jeff Bezos Internet
4 Amancio Ortega Retail
5 Mark Zuckerberg Internet
6 Carlos Slim Helu Telecoms
7 Larry Ellison Software
8 Charles Koch Industry
9 David Koch Industry
10 Michael Bloomberg Software
11 Bernard Arnault Consumer goods
12 Larry Page Internet
13 Sergey Brin Internet
14 Liliane Bettencourt Consumer goods
15 S. Robson Walton Retail
16 Jim Walton Retail
17 Alice Walton Retail
18 Jianlin Wang Property
19 Ka-Shing Li Consumer goods
20 Sheldon Adelson Property
…That Has Proven Its Worth in Developed Markets
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Insurance
AIA Group
BB Seguridade
Sul America
Wiz Solucoes
Avivasa
*Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC™ All Rights Reserved, May 17th 2017
FORBES Top 20
1 Bill Gates Software
2 Warren Buffett Insurance
3 Jeff Bezos Internet
4 Amancio Ortega Retail
5 Mark Zuckerberg Internet
6 Carlos Slim Helu Telecoms
7 Larry Ellison Software
8 Charles Koch Industry
9 David Koch Industry
10 Michael Bloomberg Software
11 Bernard Arnault Consumer goods
12 Larry Page Internet
13 Sergey Brin Internet
14 Liliane Bettencourt Consumer goods
15 S. Robson Walton Retail
16 Jim Walton Retail
17 Alice Walton Retail
18 Jianlin Wang Property
19 Ka-Shing Li Consumer goods
20 Sheldon Adelson Property
…That Has Proven Its Worth in Developed Markets
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*Carmignac, as of 31/05/2017 Source: 2016 Forbes.com LLC™ All Rights Reserved, May 17th 2017
FORBES Top 20
1 Bill Gates Software
2 Warren Buffett Insurance
3 Jeff Bezos Internet
4 Amancio Ortega Retail
5 Mark Zuckerberg Internet
6 Carlos Slim Helu Telecoms
7 Larry Ellison Software
8 Charles Koch Industry
9 David Koch Industry
10 Michael Bloomberg Software
11 Bernard Arnault Consumer goods
12 Larry Page Internet
13 Sergey Brin Internet
14 Liliane Bettencourt Consumer goods
15 S. Robson Walton Retail
16 Jim Walton Retail
17 Alice Walton Retail
18 Jianlin Wang Property
19 Ka-Shing Li Consumer goods
20 Sheldon Adelson Property
…That Has Proven Its Worth in Developed Markets
Internet
Tencent
Baidu
Bitauto
MercadoLibre
58.com
Kakao
Sina
YY
Delivery Hero
Despegar.com
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Quality Financial Ratios, Consequence of Our Stock-Picking
* Consensus estimates ** Net debt at last company publication date and market capitalisation as at 04/08/2017– Net
debt excluding financials Past performance is not necessarily indicative of future performance
Sources: Carmignac, Datastream, Bloomberg, 04/08/2017
EPS Growth(CAGR 2016-18)*
Return On Equity(2017)*
FCF Yield (%)(2018)*
Net debt / Market Cap**
-5%
0%
5%
10%
15%
20%
25%
Carmignac Emergents
MSCI Emerging Markets
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Factoring ESG Criteria in our Investment Process
16 Source: Carmignac, January 2017
Sustainability is Inherent to our Investment Process: A Best-in-Universe Approach
Our commitment to investors
… while contributing to
sustainable development
Generating attractive returns with a low
turnover…
By selecting the right
Countries
Underpenetrated sectors
Capital-light companies
Systematic integration of ESG issues into our decision making process and company analysis
Implementation of an exclusion list, and identification of controversial sectors based on the EM team’s own convictions, that may vary from third party ESG research providers
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Underpenetration Goes Hand In Hand With Sustainability
Offering innovative technologies
Financing sustainable technologies
Improving living standards
Financing the future
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Financing the future
We invest in underleveraged countries where credit penetration is particularly low and where banks finance the real economy and the future development of the country (blue bars on the chart)
We do not like countries where banks support financial engineering and where the high credit leverage endanger financial stability.
Sources: Carmignac, Emerging Advisors Group, International Monetary Fund, 30/10/2015
Underpenetration: Bedrock Of Our Investment Process
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Ch
ina
S. K
ore
a
Taiw
an
Mal
aysi
a
Thai
lan
d
Ch
ile
Sou
th A
fric
a
Ru
ssia
Po
lan
d
Cze
ch R
ep
Bra
zil
Ind
ia
Co
lom
bia
Hu
nga
ry
Pe
ru
Ph
ilip
pin
es
Ind
on
esia
Mex
ico
Arg
enti
na
Bank loans (% of GDP)
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The Case For Argentina
*Countries in the MSCI Emerging Market index Source: Carmignac, EM Advisors Group, Bloomberg, July 2016
48%
76%
30%
37%
11% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Public debt Corporate debt Household debt
Emerging Market average* Argentina
Debt as % of GDP
% G
DP
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Financing sustainable technologies
Companies developing, providing and promoting sustainable technologies
Clean energy vehicles and buses benefiting from increasing demand
Supported by a favorable regulatory framework and anti pollution initiatives
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Underpenetration: Bedrock Of Our Investment Process
Sources: Carmignac, Deutsche Bank, Macquarie Bank, Bloomberg, 31/12/2015
Electric bus penetration in public transport in
China (% of total buses)
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Sources: Carmignac, Company data 2017
Underpenetration: Bedrock Of Our Investment Process
Taesa (Brazil): Current and future electricity
networks Improving living standards
Companies improving the quality of life and promoting a sustainable way of living by providing critical public and private infrastructure in
• Transportation
• Housing
• Telecommunications
• Electricity
Supported by a favorable regulatory framework
For example, we invest in a transmission company in Brazil enabling the expansion of electricity networks to all parts of Brazil, including remote places.
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ESG Investment Steps
Step 1 – Idea Generation All companies eligible to our investment universe must meet both our country, sector and company criteria as well as our ESG standards and exclusion policy.
Step 2 – ESG analysis The team carries out a detailed ESG evaluation. Companies are screened for controversies using the MSCI ESG Business Involvement Screener and stock selection is made through a best in class approach to sustainability using the MSCI ESG Rating Research
Step 3 – Company visits We complete our analysis with very regular on site visits, one on one meetings with company management in order to understand the companies’ strategy as well as their long term engagements
Step 4 – Monitoring Consideration of ESG issues does not end when the investment decision is made. The whole EM team discusses on an on-going basis the investment case of companies they invest in, including a review of different sustainability aspects.
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Carmignac Emergents Screening
INVESTMENT UNIVERSE
COUNTRY SELECTION
SECTOR SELECTION
STOCK SELECTION
FUND
≈200 companies
40-60 companies
≈400 companies
≈600 companies
Embedded
ESG Filter & analysis
using MSCI ESG rating
Research
SOE / non-SOE
Underpenetrated sectors
Balance sheet quality
Profitability
Long term growth
Stock daily liquidity
External vulnerability
Wealth / cash flow generation
Company ESG analysis
≈1000 companies
Investable Universe
Source: Carmignac, January 2017
24 Source: Carmignac, January 2017
Carmignac Emergents Screening
MSCI EM
67% 33%
Carmignac Emergents Investable Universe
Unprofitable companies, SOEs, overleveraged companies, saturated sectors, etc.
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Exclusion Policy
Source: Carmignac, 2017
Carmignac exclusion list
EM team’s own company exclusions
Controversial Sectors analysis
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EM team’s own company
exclusions
EM Equity Team’s Extended Exclusion List
Source: Carmignac, January 2017
TEAM’S RESTRICTIONS
Tobacco companies that derived any turnover from the production of tobacco products
Thermal coal companies which have more than 5% of their revenues from coal extraction
Oil sands companies who derived more than 1% of total production from oil sands
Adult entertainment companies involved in the production of pornographic materials
Meat processing companies that derived any turnover from the production of cattle, pork, lamb or poultry
Companies in the PETA (People for Ethical Treatment of Animals) exclusion list
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EM team’s own company
exclusions
Case study: Exclusion of meat companies
TEAM’S RESTRICTIONS
Meat processing companies that derived any turnover from the production of cattle, pork, lamb or poultry:
Slaughterhouses and a livestock confinement companies are responsible of the slaughter of over 100 billion animals globally each year It is estimated to account for 16% of all greenhouse emissions worldwide
23% of global fresh water supplies, 33% of global arable land and 45% of global land are devoted to livestock feed, and cattle ranching accounts for 70% of the deforestation in the Amazon rainforest.
If 45% of corn and 80% of soybeans grown globally were fed directly to humans instead of animals, around 70% more food would be added to the world’s supply, enough to feed 4 billion additional people
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Controversial Sectors analysis
Controversial Sectors: An Exercise Of Best In Class
Source: Carmignac, January 2017
Taking into account the social impact and conduct of the companies Specific considerations and scrutiny Examples in our portfolio
Official and legal gambling companies that are run through a licensed company as opposed to unofficial gambling mostly run by
criminal and terrorist organizations
Kangwon Land (Korean gambling company) Official casino revenues at $1bn vs. unofficial gambling market at $50bn per year.
Alcoholic beverages producers run through a licensed company offering formal and high quality products, encouraging those who consume alcohol to do
so safely as opposed to informal alcohol
United Spirits (Indian spirits company). In India, unofficial spirits accounts for 50% of the total spirits liquor market
Mining companies supporting communities making efforts to reduce the environment impact of their activities
Grupo Mexico (Mexican copper producer) addressing the needs of local communities by investing in education and reforestation projects
Controversial Sectors
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* Excluding warrants/ P-Notes and preference shares
Source: Carmignac, January 2017
Our Internal ESG Guidelines
Portfolio construction objective
Minimum 40% of the Fund invested in companies rated A or above by MSCI ESG
Maximum 25% of fund invested in companies rated below BB by MSCI ESG
Program of engagement with companies
We commit to a strengthened engagement dialogue with companies to improve their approach to ESG issues
Voting Policy engagement
A participation rate of 80% or above*
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Conclusion
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Sources: Bloomberg as of 31/08/2017, base 100 as of 28/09/2007
FT, « Investors in companies that do good do better », James Kynge, 20/07/2017
The Value Added of ESG to Invest in Emerging Markets Starts to be Recognised Financial Times on the 20th of July 2017
32
Sources: Bloomberg as of 31/08/2017, base 100 as of 28/09/2007
FT, « Investors in companies that do good do better », James Kynge, 20/07/2017
Good Governance Outperforms in Emerging Markets
40
60
80
100
120
140
160MSCI Emerging Markets ESG Index
MSCI Emerging Markets Index
33
Conclusion: A Socially Conscious Fund
Sustainability Score as of 30/06/2016. Sustainability Rating as of 31/07/2017. Above Average. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Sustainability Score. © 2017. All rights reserved. The information contained herein:
(1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Carmignac Emergents is identified as a socially conscious Fund by Morningstar
Carmignac Emergents has a high sustainability score
Morningstar Sustainability Globes
‘Socially Conscious’ Tag
A strong recognition of our ESG strengths by Morningstar and MSCI ESG
Morningstar Sustainability Globes rating is a way to evaluate how well the companies in a fund’s portfolio are managing the environmental, social, and governance—or ESG—investing factors relevant to their industries.
Out of 470 Global Emerging Market Equity funds as of 31/07/2017. Based on 74% of AUM. 4,13
4,60
3,6
3,8
4,0
4,2
4,4
4,6
4,8
MSCI EM Carmignac Emergents
Overall MSCI ESG score* - Carmignac Emergents vs MSCI EM
Carmignac Emergents
Due to its rigorous investment process,
Carmignac Emergents has a higher
MSCI ESG rating than the MSCI EM Index
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Conclusion: A Rigorous Approach that Works over the Long Term
Carmignac
Emergents
A EUR Acc
+64.6% Reference
Indicator**
+49.0%
Past performance is not necessarily indicative of future performance. Management fees are included in performance.
**MSCI Emerging Markets (EUR), (Reinvested net dividends, rebalanced quarterly) Source: Carmignac, 29/09/2017; Base 100: 31/12/2009
Carmignac Emergents
Ref. Indicator*
2010
+30.9%
+24.5%
2012
+17.3%
+13.4%
2011
-12.1%
-17.8%
2013
-6.2%
-6.8%
2014
+5.8%
+11.4%
2015
+5.2%
-5.2%
2016
+1.4%
+14.5%
2017 (YTD)
+15.2%
+14.0%
90
100
110
120
130
140
150
160
170
180
35
Source: Carmignac, 31/07/2017; Base 100: 30/07/2012; Morningstar Direct. © 2017 Morningstar, Inc - All rights reserved. Monthly returns in Euro, net of fees, as of 31/07/2017. Category composed of all shares of all funds in the Global Emerging Markets Equity Morningstar category. Share class used for Carmignac Emergents: FR0010149302 ((1) Reference indicator: MSCI EM. Management fees are included in performance.)
Past performance is not a reliable indicator of future performance
Conclusion: A Rigorous Approach That Works over the Long Term
Carmignac Emergents is 1st quartile for its volatility and down capture ratio over 5 years 1st
5-year volatility Quartile in its Morningstar category
5-year Down Capture Ratio Quartile in its Morningstar category
1st quartile
4th quartile
Low down capture
High down capture
0
25
50
75
100 MSCI EM
Carmignac Emergents
Morningstar category
1er quartile
4th quartile
Low volatility
High volatility
0
25
50
75
100
MSCI EM
Carmignac Emergents
Morningstar category
36
Q&A
Emerging Market Analyst, ESG Specialist
Michel Wiskirski
T H A N K Y O U F O R A T T E N D I N G !
F O L L O W O U R E X P E R T S O N O U R W E B S I T E w w w. c a r m i g n a c . c o m
L I N K E D I N
P R O F E S S I O N A L S O N LY
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Non contractual document, completion achieved on 09/10/2017
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