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

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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

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• 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

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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

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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

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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

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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

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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

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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

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= 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

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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%

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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

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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.

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