reliance u.s. equity opportunities fund€¦ · morningstar investment adviser india private...

Reliance U.S. Equity Opportunities Fund (A Open Ended Diversified Equity Scheme) Offer for Sale of Units at Rs.10/- per unit during the new fund offer period NFO Opens – July 03, 2015

NFO Closes – July 17 , 2015

Product Label

U.S Equity Opportunities Fund

Consumption based Economy

Why U.S.?

U.S.: Growth Drivers

Reliance US Equity Opportunities Fund

Source: Bloomberg, IMF, World Economic Outlook

United States of America (USA)

Market Capitalization: $23 trillion (36% of Global Market Cap)

At $18.1 trillion, US is the biggest economy in the world basis GDP.

US is also the biggest market basis Market Capitalization.

Such size can have a significant influences on global equity markets.

`

Home to a quarter of Fortune 500 companies

GDP : $18.1 trillion (20% of Global GDP)

Slide

U.S.: Home to the best companies

5

U.S. markets open doors to invest in the most innovative, efficiently

managed and unique companies.

more than 50% of the top 100 co’s are of U.S domicile and quarter of fortune

500 companies are headquartered in USA.

15

3

4

6

8

11

53

0 10 20 30 40 50 60

Rest of the World

Australia

France

Germany

United Kingdom

China/HK

United States

More than 50

of top 100 co’s

by size are of

U.S. domicile

Source: Bloomberg

Slide

Returns offered by US equity

markets could be different

from domestic equity markets

in different phases.

6

U.S. Markets: An opportunity to diversify

Source: Bloomberg. * YTD performance from 01-Jan-15 to 30-Jun-15. Past performance may or may not be sustained in the future.

Period Correlation

3 years 0.25

5 years 0.26

10 years 0.29

Low

correlation,

hence potential

to diversify

Correlation between Daily Nifty

Returns and Daily S&P 500 Returns

Calendar Year Returns (absolute)

-23

18

44

0.8

-52

-25

5

-0.3

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

2008 2011 2013 2015 YTD*

S&P 500 Index (INR) CNX Nifty Index

Ret

urn

s (%

)

Diversification could be the key …

Over the last 5 years, the movement of S&P BSE Sensex Index is compared to

the returns of (80% S&P BSE Sensex + 20% S&P 500 Index*)

8

10

12

14

16

18

20

22

Jan-1

0

Mar-

10

M

ay-1

0

Jul-10

Sep-1

0

Oct-

10

Dec-1

0

Feb-1

1

Apr-

11

Jun-1

1

Aug-1

1

Oct-

11

Dec-1

1

Feb-1

2

Apr-

12

Jun-1

2

Aug-1

2

Oct-

12

Dec-1

2

Feb-1

3

Apr-

13

Jun-1

3

Aug-1

3

Oct-

13

Dec-1

3

Feb-1

4

Apr-

14

Jun-1

4

Aug-1

4

Oct-

14

Dec-1

4

Feb-1

5

Apr-

15

Jun-1

5

Sensex 80% Sensex + 20% S&P 500

Diversifying your investments could give you different

returns as compared to investing in one single market

Period

S&P BSE

Sensex

Index

80% S&P BSE

Sensex + 20%

S&P 500 Index*

3 years 15.41% 9.65%

5 years 17.17% 11.72%

10 years 25.65% 17.74%

Standard Deviation of Daily Returns

80% S&P BSE Sensex + 20% S&P

500* Index has lower Standard

Deviation as compared to S&P BSE

Sensex Index, signifying lower

volatility as compared to Indian

Equity Markets

Ind

ex M

ove

men

t -

No

rmal

ized

Val

ues

Index Movement (Normalized Values)

The above mentioned index movement is after considering currency movement during said period. Further, the index values mentioned in the indices

are pre-tax values. Actual movement may vary after discounting currency and taxation. Past performance may or may not be sustained in the future.

* S&P 500 Index is in INR Terms

Source: Bloomberg *

Potential benefit from currency movement

Source: Bloomberg.

USD/INR Depreciation

Jul-00 44.6700

Jul-01 47.1300 5.51%

Jul-02 48.8450 3.64%

Jul-03 46.4350 -4.93%

Jul-04 45.8850 -1.18%

Jul-05 43.5500 -5.09%

Jul-06 46.0700 5.79%

Jul-07 40.6600 -11.74%

Jul-08 43.3300 6.57%

Jul-09 47.8925 10.53%

Jul-10 46.5750 -2.75%

Jul-11 44.5825 -4.28%

Jul-12 55.4275 24.33%

Jul-13 59.5225 7.39%

Jul-14 60.0750 0.93%

Jul-15 63.6050 5.88%

Total Depreciation since Jul-00

42%

Average Depreciation since Jul-00

2.83%

38

42

46

50

54

58

62

66

70

Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jun-1

2

Jun-1

3

Jun-1

4

Jun-1

5

USD/INR

INR has depreciated 42% (cumulative) since July-00

against the USD

That translates into a currency gain of 2.83% on an

average each year

Slide

Consumption based economy

9

US: A Consumption Based Economy

Consumption constitutes 70% of the total U.S. GDP and is the

biggest contributor of GDP growth.

Data as on Dec-14. Source: Bureau of Economic Analysis, Morningstar ®

5

97

97.5

98

98.5

99

99.5

100

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Wage Trend Indicator Index*

10

Job Openings on the Rise

Increased Job openings with higher wages could lead to increased

disposable income in the hands of the consumer

2500

3000

3500

4000

4500

5000

5500

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Job Openings

US job openings have doubled

since Jan-10

Expected wage earnings have

shown a positive tend since

2013

* Wage Trend Indicator is an index that reflects trend in US private industry wages. The Index is benchmarked

to 100 in 1976.

Source: Bloomberg. Past Performance may or may not be sustained in the future

Job

op

enin

gs (

‘00

0)

US: Personal Savings on a rise..

Personal Savings Rate has seen a sharp rise since Nov-2014.

Higher Savings Rate could fuel consumption growth in the near

future.

Source: US Bureau of Economic Analysis, Morningstar ®. Past Performance may or may not be sustained in the future

Personal Saving Rate correspond to the ratio of personal income saved to personal net disposable income

Slide

Tumbling Gasoline Prices Pushed Down U.S. Inflation

12

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-0

5

Jun-0

5

Nov-0

5

Apr-

06

Sep-0

6

Feb-0

7

Jul-07

Dec-0

7

May-0

8

Oct-

08

Mar-

09

Aug-0

9

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

Aug-1

4

Jan-1

5

Jun-1

5

Gasoline Price

0

50

100

150

200

250

Jan-0

5

Jun-0

5

Nov-0

5

Apr-

06

Sep-0

6

Feb-0

7

Jul-07

Dec-0

7

May-0

8

Oct-

08

Mar-

09

Aug-0

9

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

Aug-1

4

Jan-1

5

Jun-1

5

Bloomberg Commodity Price Index

-3

-2

-1

0

1

2

3

4

5

6

Jan-0

5

May-0

5

Sep-0

5

Jan-0

6

May-0

6

Sep-0

6

Jan-0

7

May-0

7

Sep-0

7

Jan-0

8

May-0

8

Sep-0

8

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

May-1

1

Sep-1

1

Jan-1

2

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

Jan-1

5

May-1

5

Consumer Price Index

Inflation

below

long

term

average

Sharp fall in gasoline and other commodity prices have led to a fall in inflation, which could

leave consumers with higher disposable income, thus leading to the increased consumption.


$ p

er g

allo

n

700

900

1100

1300

1500

1700

1900

2100

2300

Mar-

00

Dec-0

0

Sep-0

1

Jun-0

2

Mar-

03

Dec-0

3

Sep-0

4

Jun-0

5

Mar-

06

Dec-0

6

Sep-0

7

Jun-0

8

Mar-

09

Dec-0

9

Sep-1

0

Jun-1

1

Mar-

12

Dec-1

2

Sep-1

3

Jun-1

4

Mar-

15

Corporate Profits …

Industrial Activity and Corporate profits on the rise..

13

80

85

90

95

100

105

110

Jul-00

Mar-

01

Nov-0

1

Jul-02

Mar-

03

Nov-0

3

Jul-04

Mar-

05

Nov-0

5

Jul-06

Mar-

07

Nov-0

7

Jul-08

Mar-

09

Nov-0

9

Jul-10

Mar-

11

Nov-1

1

Jul-12

Mar-

13

Nov-1

3

Jul-14

Mar-

15

Industrial Production Index - Manufacturing

After seeing a slump during the slowdown, both Industrial Production

and Corporate Profits have picked up and are in an upward trend

$ B

illio

n


Corporate Profits of Listed companies in USD Billion Industrial Production Index - Manufacturing. Benchmarked

to 100 in 2007

Slide

Strong USD may have little impact of U.S. Economy

14

Source: Bloomberg, Morningstar ®. Past Performance may or may not be sustained in the future

Though the USD has shown an upward trend recently, exports contribute

only 13% to the total GDP, and hence the accelerating USD should not be a

cause of concern for U.S.

Slide

Recovery on the way …

15

Source: Stocks—Ibbotson Associates SBBI U.S. Large Stock Index. © 2015 Morningstar. ®. Past Performance may or may not be sustained in the future

Historically, in the U.S., every recession is followed by a recovery and an expansion.

The markets have shown a recovery after the global financial crisis.

We could be at the beginning of an expansion in the U.S. equity markets.

Perc

enta

ge R

etu

rns

(%)

2015

Slide

US has the world’s largest economy (GDP) and also the largest Equity

Market.

US GDP is 20% of the global GDP and US Market capitalization is 36% of the

global Market capitalization.

US is home to the most innovative and efficient co’s in the world.

A quarter of fortune 500 companies are headquartered in the US and 50 out of the

100 world’s largest companies are of US domicile.

US markets offer an opportunity to diversify.

Very low correlation between US and Indian Equity Markets (0.29 over the last 10

years).

US is a consumption based economy.

Consumption contributes 70% to the total GDP and factors like lower inflation, higher

wages and higher savings could lead to accelerated consumption.

16

Summary

The U.S. economy is a Resilient and Adaptable Economy

Source: Bloomberg, IMF, World Economic Outlook

PRESENTING

Reliance U.S. Equity

Opportunities Fund (An Open Ended Diversified Equity Scheme)

Research Support by

Slide

An open-ended diversified equity scheme

The scheme will primarily invest into equity and equity related securities of

companies listed on recognized stock exchanges in the US.

Benchmark: S&P 500 Index

The investment strategy would be powered by the research support of

Morningstar Investment Adviser India Private Limited (MIA), a group company

of Morningstar, Inc.

Morningstar employs their proprietary research methodology, focused on

Economic Moats, to identify investment opportunities.

Companies having sustainable competitive advantages that allow them to earn excess returns

over a long period of time are identified as having an Economic Moat.

Reliance US Equity Opportunities Fund proposes to follow the ‘Hare’ strategy

for its investments.

The Hare Portfolio invests in stocks of firms that are experiencing rapid growth, emphasizing

those that possess sustainable competitive advantages.

18

Reliance US Equity Opportunities Fund

Slide

Morningstar® Equity Research

19

Source: Morningstar ®

A differentiated approach to Equity Research

Fundament

-al

Analysis

Economic

Moat

Rating

Company

Valuation

Fair Value

Estimate

Uncertainty

Assessme

nt

Analyst

conducts

company and

industry

research

-Financial

Statements

- Management

Visits,

-Industry & Co.

Reports

Analyst rates

the strength of

competitive

advantage:

None, Narrow

or Wide

Analyst

considers past

financial results

and focuses on

competitive

position and

future prospects

to forecast cash

flows

Analyst uses

discounted cash

flow model to

develop Fair

Value Estimate ,

which serves as

a foundation for

Morningstar

Rating TM for

stocks

The analyst then

evaluates the range

of potential intrinsic

values for the

company and

assigns an

uncertainty rating:

Low, Medium, High,

Very High or Extreme

. The uncertainty

rating determines the

margin of safety

required before the

analyst recommends

the stock

The current stock price relative to Morningstar’s Fair Value estimate adjusted for uncertainty, determines the Morningstar Ratings for stocks

Slide

Morningstar® Strategy

20


Five Morningstar ratings which drive stock selection:

Economic Moats

Sustainable competitive advantages of a company

Moat Trends

Is the competitive advantage stable or improving

Stewardship

Does Management Protect Shareholder’s interest

Price/Fair Value Ratios

Stock Price compared to Intrinsic Value

Uncertainty

Greater uncertainty requires a larger margin of safety

Morningstar® recommends investment in companies with strong and growing competitive advantages, trading at Reasonable Prices.

Slide

“The key to investing is …determining the competitive advantage of any given company and,

above all, the durability of that advantage. The products or services that have wide, sustainable

moats around them are the ones that deliver rewards to investors”. – Warren Buffet

MOAT: A sustainable competitive advantage

21


Economic moats represent sustainable competitive advantage that allow companies

to protect their value and lead to excess returns.

Has the firm historically

generated solid returns on

capital?

Is the firm’s future likely

to be different than its

past?

Does the firm have one or more

of the following competitive

advantages?

• Switching Costs

• Network Effect

• Intangible Assets

• Cost Advantage

• Efficient Scale

How strong is the firm’s

competitive advantage? Is it

likely to last a long time or a

relatively short time?

How many years will the firm’s

competitive advantage last?

1. Returns

No

Yes

No

2. Advantages

Yes

No Moat

3. Longevity

10+ Years

Narrow

Moat

20+ Years

Wide

Moat

No

No Moat

> 10 years

No Moat

Slide

The Morningstar® Hare Strategy

22

Morningstar® Strategy: Invest in companies with strong and growing

competitive advantages, trading at reasonable prices


The Hare Portfolio invests in stocks of firms that are

experiencing rapid growth, emphasizing those that

possess sustainable competitive advantages.

Companies in this portfolio tend to be faster-growing,

with both higher risk and higher return potential.

Companies with wide or narrow moats, positive or stable

moat trends, and medium or high uncertainty form a part

of the Hare Portfolio.

Slide

Value Core Growth

9 6 58 Large

0 5 3 Medium

0 5 0 Small

Hare Strategy: April 2015 Portfolio

23

Style Breakdown (%) Top Sectors (%)

Financial Services 26.2

Technology 15.7

Consumer Cyclical 15.2

Healthcare 13.8

Basic Material 7.3

42 44

High

Medium

43

43 Exemplary

Standard

64

22

Wide

Narrow

Portfolio Distribution (%)

32

55 Positive

Stable

Moat Moat Trend

Uncertainty Stewardship


Hare Portfolio is

characterized by:

Aggressive picks

(growth companies)

Wide or Narrow Moats

Positive or Stable Moat

Trends

Medium or High

uncertainty

Slide

Scheme Facts

24

Slide

Scheme Features

25

Investment

Objective

Option

Minimum

Application

Amount

The primary investment objective of Reliance US Equity Opportunities Fund is to provide long

term capital appreciation to investors by primarily investing in equity and equity related

securities of companies listed on recognized stock exchanges in the US and the secondary

objective is to generate consistent returns by investing in debt and money market securities in

India.

a) Growth Plan: Growth Option

b) Dividend Plan: Dividend Payout Option & Dividend Re-investment Option

Rs. 5,000 and in multiples of Re.1 thereafter

Benchmark S&P 500 Index

Asset Allocation

Equity and Equity related Instruments listed on the recognized stock exchanges in the US :

80% -100%;

Fixed income securities, including money market instruments, cash and equivalent, Treasury

bills and fixed deposits in India: 0% - 20%

Load Structure

Exit Load:

1% if redeemed or switched out on or before completion of 1 year from the date of allotment of

units.

Nil if redeemed or switched out after the completion of 1 year from the date of allotment of units.

Scheme Specific Risk Factors:

1. Currency movements: Since these investments will be made and held in a different currency (the US Dollar), their value

will be dependent on currency movements of the USD vis-à-vis the INR, which in turn may be determined or influenced by

a host of factors like inflow and outflow of foreign investments to and from India, the relative strength of the USD vies-a-

vies other currencies, relative current and future interest rates, domestic economic and political developments and

government actions both in the United States (US) and in India, and given that the USD is a currency used in international

trade, by factors not relating directly to either country (like international prices of commodities like oil and gold, trade flows

and conflicts in other regions), among other things. These currency movements may reduce or even wipe out gains made

on the market in the US as investments would be denominated in USD whereas Net Asset Values would be denominated

in INR and purchases and redemptions of units would also take place in INR. Generally, a strengthening of the INR vis-à-

vis the USD (i.e. less INR per USD) would lead to reduction in NAV in INR terms, other things remaining the same. To

manage risks associated with the portfolio, foreign currency and interest rate exposure, the Fund may use / invest in

derivatives for efficient portfolio management including hedging and in accordance with the conditions as may be

stipulated by SEBI / RBI. The Fund also hereby avers that offshore investments shall be made subject to any / all

approvals, as well as the conditions thereof as may be stipulated by SEBI / RBI and provided such investments do not

result in expenses to the fund in excess of the ceiling, if any, on the expenses prescribed by SEBI. However, no

assurance can be given that the hedging objectives will be achieved. The hedging strategy may also substantially limit

Unit holders from benefiting if the currencies move in the opposite direction. Additionally, Unit holders may be exposed to

fluctuations in the NAV caused by fluctuations in the mark-to-market value of derivative instruments, in the rare event

where such instruments do not move in tandem to underlying USD-INR rates (known as ‘basis’ risk). The Fund may,

where necessary, appoint other intermediaries of repute such as advisors, sub-managers, sub-custodian etc. for

managing and administering such investments. The appointment of such intermediaries shall be in accordance with the

applicable requirements of SEBI and within the permissible ceilings of expenses. The fees and expenses would

illustratively include, besides the investment management fee, custody fees and costs, fees of appointed overseas

advisors and sub-managers, transaction costs, and overseas regulatory cost.

2. Risks related to Taxation: Since these investments will be made in the US, they will be subject to taxation laws of the

US and changes therein. Hence, the taxation rules that apply at the time of making the investment may change when

investments are exited and the scheme may be subject to a higher level of taxes than originally anticipated. The

continuance of assessments may also impact the AMC’s ability to repatriate funds relating to the scheme from the US to

India.

Slide

Disclaimers:

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Certain factual and statistical information (historical as well as projected) pertaining to Industry and markets have been obtained from independent third-party sources, which are deemed to be reliable. It may be noted that since RCAM has not independently verified the accuracy or authenticity of such information or data, or for that matter the reasonableness of the assumptions upon which such data and information has been processed or arrived at; RCAM does not in any manner assures the accuracy or authenticity of such data and information. Some of the statements & assertions contained in these materials may reflect RCAM’s views or opinions, which in turn may have been formed on the basis of such data or information.

Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.

The research support provided to RCAM by MIA is not be to construed as investment advice under applicable law. MIA, its affiliates, officers, directors and employees shall be responsible/liable neither for any trading decisions, damages or other losses related to the research or its use, nor for the accuracy, timeliness and/or completeness of the research

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

27

Thank you

reliance u.s. equity opportunities fund€¦ · morningstar investment adviser india private...

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