Opportunities in Global Emerging Markets
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Opportunities in Global Emerging Markets Charlemagne Capital. Julian Mayo, Director of Investments February 24, 2005. Global Emerging Markets Fund. Inception Date:February 24, 2005

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Opportunities in global emerging markets charlemagne capital

Opportunities in Global Emerging Markets

Charlemagne Capital

Julian Mayo, Director of Investments

February 24, 2005


Global emerging markets fund

Global Emerging Markets Fund

  • Inception Date:February 24, 2005

  • Investment Objective:The fund seeks long-term growth of capital by investing in globalemerging markets.

  • General Account:$5,000 minimum

  • IRA Account: No Minimum

  • Business Account: $5,000 minimum

  • Trust Account: $5,000 minimum

  • UGMA/UTMA:$1,000 minimum

  • ABC Investment Plan:$1,000 minimum w/$100 minimum per month

  • Expense Ratio:Capped at 2.0%


Opportunities in global emerging markets charlemagne capital

The Subadviser

Charlemagne Capital


The subadviser charlemagne capital

The Subadviser: Charlemagne Capital

  • Independent emerging markets investment management group

  • Entrepreneurial, with significant institutional backing

  • Funds under management approx. $2.0 billion*

  • Strong debt-free balance sheet

  • Subadviser to US Global Investors Accolade Eastern Europe Fund (ticker: EUROX) – “12-month winner”, Wall Street Journal Best Performing Mutual Fund, as well as the US Global Investors Global Emerging Markets Fund

    *as at 31 Dec 2004


The subadviser charlemagne capital1

US$

The Subadviser : Charlemagne Capital

Assets under management US$ m

Dynamic growth: all in emerging markets

Source: Charlemagne Capital


Opportunities in global emerging markets charlemagne capital

Charlemagne Capital

Institutional mandates

$ 1019m

Private equity

$ 217m

Hedge funds

$ 154m

Long only funds

$ 626m

Segregated accounts

OCCO range

Magna range / Offshore funds

Private equity portfolios

The Subadviser : Charlemagne Capital

Diversified institutional client base


Opportunities in global emerging markets charlemagne capital

The Subadviser : Charlemagne Capital

Investment team

  • High quality, dedicated professionals

  • Significant emerging market experience

  • Alignment of interest with investors

  • Blue chip, institutional backgrounds

  • Strong internal performance driven culture


Opportunities in global emerging markets charlemagne capital

Investment Process

Exploit inefficiencies in emerging markets

via a disciplined bottom-up process

focused, low risk portfolios

consistent returns

low volatility

+

=

The goal


Opportunities in global emerging markets charlemagne capital

Investing in Emerging Markets

  • The Investment Process: How we invest in emerging markets

  • The Investment Case: Global emerging markets

    Did you know:

    Over 80% of people in the world live in emerging markets!

    Only 10% of Indians have even seen a telephone!


Opportunities in global emerging markets charlemagne capital

Investment Process


Opportunities in global emerging markets charlemagne capital

OCCO Eastern European Fund

Investment Process

Clear Ownership Structure - Cover (4 Eyes Principle)

Julian Mayo

Manager

Asia

20 years experience

Stefan Böttcher

Lead Manager

17 years experience

Andrew Wiles

Manager

EMEA

10 years experience

Stefan Herz

Head of Research

EMEA / Latam

13 years experience

Yvonne Yeoh

Manager

Asia

10 years experience

Samir Patel

Manager

Latam

9 years experience

James Hanson

Risk Manager

11 years experience


Opportunities in global emerging markets charlemagne capital

Emerging Markets Universe

  • Listed companies

  • 80% of market cap

  • Best opportunities

  • Special situation

Charlemagne Capital Universe

  • Detailed analysis

  • Quarterly management meetings

  • Propriety database

Focus Stock List

  • Risk management

Macro Overlay

  • Low volatility

  • High tracking error

Portfolio

Investment Process

Structured, consistent process


Opportunities in global emerging markets charlemagne capital

Investment Process: Qualitative Checklist

Checklist What it means

Focus stock list

Disciplined bottom-up research


Opportunities in global emerging markets charlemagne capital

Investment Process: Company Research

Focus stock list: Detailed corporate database

Valuation analysis

Rigorous stock analysis


Investment process valuation analysis

Investment Process: Valuation Analysis

Price target

Price-driven valuation analysis


Investment process

Investment Process

Risk: Significant valuation shift

Avoid

Macroeconomic risk overlay


Opportunities in global emerging markets charlemagne capital

Private Equity

Local Offices

Corporate

Events

Local Contacts

Special situations qualitative screening by fund managers

Company visit by fund manager

Risk adjusted return target

Portfolio

(Max. 25% of NAV)

Investment Process: Special Situations

Delivering alpha


Opportunities in global emerging markets charlemagne capital

Investment Process - Portfolio Construction

  • Country, sector and cash limits determined by a maximum tracking error of 15%

  • Special situations + illiquid stocks maximum 25% of NAV

  • Stock positions:

    • Core: 3%

    • Max: 9%

    • Min: 1%

  • Large positions: indication of conviction

Focused, concentrated portfolios managed within risk limits


Opportunities in global emerging markets charlemagne capital

Investment Process

Risk management

  • Administrative risk

    • Markets must meet criteria such as security of ownership, currency convertibility, custody, taxation, liquidity

  • Market risk

    • ‘Four-eyes’ principle – each decision is seconded

    • Constant price screening by dedicated dealer

    • Weekly stock/sector review meetings

    • Monthly macroeconomic reviews

    • Quarterly company visits

  • Portfolio risk

    • Informed management of risk


Opportunities in global emerging markets charlemagne capital

Investment Process

Sell discipline

  • Sell triggers:

    • Price change

    • Change of fundamental assessment

    • Superior alternative investment opportunity

    • Instant implementation


Opportunities in global emerging markets charlemagne capital

Investment Process: Best Team Ideas

The strategy: example OTP

Hungary Gross Loans/ GDP 2002

  • OTP: well placed for convergence

  • Banking sector penetration will increase towards EU levels as interest rates decline

  • OTP is the market leader in all products

  • Expect a further $2bn in mortgage loans to be added over the next couple of years

OTP: Market Share (2003)

Source: Charlemagne Capital / Brunswick UBS Warburg / Merrill Lynch OTP / IMF


Opportunities in global emerging markets charlemagne capital

Investment Process: Best Team Ideas

The strategy: example Dongkuk Steel

  • Korean steel mill, dominant domestic steel plate producer

  • Strong core product demand from shipbuilding and construction

  • Management addressing corporate governance discount

  • Stock trading at 3x2004 earnings, 5% dividend yield

Korean Shipbuilding Backlog

18

16

3 ½ yrs backlog

14

12

10

m tonnes

8

6

4

2

0

1998

1999

2000

2001

2002

2003

Source: Charlemagne Capital


Opportunities in global emerging markets charlemagne capital

Investment Process: Best Team Ideas

The strategy: example URBI

  • Leading Mexican home builder

  • Large and growing housing deficit in Mexico

  • Management enhancing margins through better working capital and better revenue mix

  • Strong cash flow generation due to low capex

  • Valuations justified by its better growth prospects

Source: Charlemagne Capital


Opportunities in global emerging markets charlemagne capital

Investment Process

  • Summary

  • Fundamental bottom-up approach

  • Lean decision making

  • Disciplined portfolio construction

  • Rigid sell discipline

  • Informed risk management


Opportunities in global emerging markets charlemagne capital

Investment Case

Global Emerging Markets

  • Politics: better economic management

  • Economics

  • Valuations


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

International reserves now exceed external debt

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

Exchange rates seem undervalued

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

GEMs vs Developed mkt cap weighted sovereign yields

Spreads narrowed but still room to fall

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

High GDP Growth

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

Current account + FDI: surpluses across the board

Sound fundamentals

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

GEMs vs global 12 month forward consensus P/Es

30

25

20

15

10

5

0

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

MSCI EMF 12 month forward P/E

MSCI World 12 month forward P/E

Cheap relative to world

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

GEMs: Earnings yield gap

Equities more attractive than bonds

Source: Charlemagne


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

GEMs vs Developed P/BV

Equities look cheap on price to book

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

Standard deviation of country vs sector

Country and sector volatility falls – stock selection counts!

Source: UBS


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

Stock selection matters – yearly performance 2003

+188%

-13%

* Top and bottom performance out of largest 25 GEMs stocks by market capitalisation


Opportunities in global emerging markets charlemagne capital

Investment Case: Global Emerging Markets

Source: UBS


Opportunities in global emerging markets charlemagne capital

Model Portfolio

Global Emerging Markets


Opportunities in global emerging markets charlemagne capital

Model Portfolio

Geographic allocation

Actively managed portfolios

Source: Charlemagne Capital / Bloomberg – 31 Dec 2004


Opportunities in global emerging markets charlemagne capital

Model Portfolio

Geographic allocation

Actively managed portfolios

Source: Charlemagne Capital / Bloomberg – 31 Dec 2004


Opportunities in global emerging markets charlemagne capital

Model Portfolio

Sector allocation

Overweight

Financials

Actively managed portfolios

Source: Charlemagne Capital / MSCI – 31 Dec 04


Opportunities in global emerging markets charlemagne capital

Model Portfolio

Sector allocation

Underweight

Materials

Actively managed portfolios

Source: Charlemagne Capital / MSCI – 31 Dec 04


Opportunities in global emerging markets charlemagne capital

Thank You!

For more complete information about the

Global Emerging Markets Fund and/or Eastern European Fund (EUROX)

or any U.S. Global fund, obtain a prospectus by visiting us at www.usfunds.comor call 1-800-US-FUNDS. Please consider carefully the fund’s investment objectives, risks, charges and expenses, andread the prospectus carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. This article should not be considered a recommendation for the securities of any company mentioned.

Holdings as a percentage of net assets as of 12/31/04:

Eastern European Fund: OTP Bank Rt. (8.34%)

Although mentioned none of the following companies are held in the Eastern European Fund as of 12/31/04: America Movil, Dongkuk Steel, Kookmin Bank, Petrochina, Petrobras, Posco, Reliance, Sasol, SK Telecom, Telefonos Mexico, URBI and Yukos.

The MSCI EM Free Total Net Return Index measures the market performance, including price performance and income from dividend payments.


The disclaimer

The Disclaimer

This document is issued by Charlemagne Capital (UK) Limited which is authorised and regulated by the Financial Services Authority (“FSA”). 'Magna Umbrella Fund plc is an open ended investment company authorised by the Irish Financial Services Regulatory Authority as a UCITS.  It is recognised by the FSA under section 264 of the Financial Services and Markets Act 2000 for marketing to persons in the UK. This document must not be relied on for purposes of any investment decisions. Before investing in any fund(s) recipients who are not professional investors should contact their independent financial adviser and all documents relating to the particular fund(s) such as report and accounts and offering memorandum/prospectus should be read, which specify the particular risks associated with the fund(s), together with any specific restrictions applying and the basis of dealing. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. The information in this document does not constitute investment, tax, legal or other advice and is not a recommendation or, an offer to sell nor a solicitation of an offer to buy shares in the fund(s), which may only be made on the basis of the Prospectus/Fund’s Offering Memorandum which can be obtained from the address below. A United Kingdom investor who enters into an Investment Agreement to acquire an interest in the fund will not have the right to cancel the agreement under any cancellation rules made by the FSA. Charlemagne Capital (UK) Limited reasonably believes that the information contained herein is accurate as at the date of publication but no warranty or guarantee (express or implied) is given as to accuracy. The information and any opinions expressed herein may change at any time.

Issued by Charlemagne Capital (UK) Limited - Authorised and Regulated by the FSA.

Charlemagne Capital (UK) Limited

39 St. James‘s Street

London SW1A 1JD

United Kingdom

Tel: + 44 (0)20 7518 2100

Fax: + 44 (0)20 7518 2198/9

www.charlemagnecapital.com

[email protected]


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