Schroders PLC · LSE:SDR
Schroders — Investor Presentation (January 2011)
45 slides from Schroders's investor presentation, Jan 25, 2011
Slide 1: Schroder ISF Emerging Markets Debt Absolute Return
Schroder ISF* Emerging Markets Debt Absolute Return Christopher Wyke Product Manager – Emerging Markets Debt, Currencies and Commodities 25 January 2011 For professional investors or advisors only * Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation
Slide 2: Investment outlook: US 10 year bond yield
Investment outlook Global Environment Fundamental Analysis US 10 year bond yield (1873 – 2010) % 18 16 Bonds widely 14 considered as “certificate of confiscation” 12 10 Bond Bear Market Bond Bull Market 8 6 Bonds viewed as “safe haven” 4 ? 2 July 1939 = low of 1.3 0 1873 1880 1887 1894 1901 1908 191
Slide 3: The Fed and Emerging Market Yields
Investment outlook Global Environment Fundamental Analysis The Fed and Emerging Market Yields 60 60 Fed Easing Fed Fed Fed Fed Fed Fed Easing Fed Tightening Fed Easing 681 bps Tightening Easing TighteningEasingTightening 550 bps 425 bps 500 bps 300 bps 75 bps 25 bps 75 bps 175 bps 50 50 40 40 Yield
Slide 4: EMD at Schroders: Performance, Years to December 2010
EMD at Schroders Performance: 10 Years to December 2010 Correlations to Schroders EMD 18 clear diversification benefit Annual Rate of Return US$% 16 EM Equities US Treasuries 0.21 14 Global Govt. Bonds 0.62 US Corp Bonds 0.53 12 Schroders EMD* Global High Yield 0.55 10 Global High Yield US Equities
Slide 5: Distinguishing features
Schroder ISF Emerging Markets Debt Absolute Return Distinguishing features Typical Manager Schroders External Debt or Local Debt External Debt, Local Debt FOCUS Only Currencies Combined Absolute return focus STYLE Closely indexed Active asset allocation Over-concentrated: Fully diversified RISK Mexi
Slide 6: Schroders EMD: Performance in Euros
Schroders EMD* Performance in Euros – December 2010 2010 Euro Hedged % 1995† 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD Schroders EMD* 24.68 21.14 2.28 -1.06 26.98 15.35 3.84 29.99 11.74 11.95 -0.62 11.94 6.65 -0.26 19.11 2.75 EMBI+ 38.65 37.87 11.50 -14.92 23.59 12.68
Slide 7: Performance: Attractive risk-adjusted returns
Schroder ISF Emerging Markets Debt Absolute Return Performance Attractive risk-adjusted returns “Total Return” approach, intolerance of losses, use of cash (“The Goalkeeper”) 300 1 2 3 4 5 6 7 8 9 10 Since Dec 1998 ** Fund EMBI+ ELMI+* 250 Annual Rate of Return % 11.90 12.19 8.83 Annual Volatility %
Slide 8: Monthly Returns
Schroder ISF Emerging Markets Debt Absolute Return Monthly Returns 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 1999 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 Quarterly Returns Monthly Distribution of Returns since 1999 13% 35 0.25 Total periods of negative returns: 44 Total period
Slide 9: Performance: Lipper EMD Universe
Schroder ISF Emerging Markets Debt Absolute Return Performance Lipper EMD Universe Return vs Volatility: 3yrs to 31 December 2010 % 3yr Volatility 40 3yr cumulative return US$ % Aberdeen Global 24.79 18.29 35 Templeton BlueBay 17.40 15.63 30 Goldman Sachs 23.20 18.31 Pictet Skandia Morgan Stanley 18
Slide 10: Performance: Lipper Absolute Return Universe
Schroder ISF Emerging Markets Debt Absolute Return Performance Lipper Absolute Return Universe Lipper Absolute Return Universe Return vs Volatility: 3yrs to 31 December 2010 Return vs Volatility: 5yrs to 31 December 2010 80 120 3yr Cumulative Return US$ % 5yr Cumulative Return US$ % 60 Schroder ISF
Slide 11: Schroders EMD performance attribution
Schroders EMD performance attribution Contribution to return by sector % External Debt Local Debt Currency TOTAL 2010 0.03 4.22 -0.79 3.01 2009 8.30 4.12 6.13 19.75 2008 1.21 6.16 -6.72 -0.31 2007 1.25 4.31 2.87 8.31 2006 1.78 6.59 6.89 14.60 2005 -1.36 4.79 -2.72 0.72 2004 1.60 4.49 6.31 12.41 2003
Slide 12: Long-term inflationary trends (1800-2010)
Investment outlook Global Environment Fundamental Analysis Long-term inflationary trends (1800-2010) 12% 10% PPI for all commodities 10yr moving average 8% 6% 4% 2% 0% -2% CPI 10yr moving average -4% -6% -8% 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 Source: NBER; University of Mich
Slide 13: Recent inflationary trends
Investment outlook Global Environment Fundamental Analysis Recent inflationary trends CPI Inflation – Emerging Countries CPI Inflation – Developed Countries 30 5 % YoY % YoY 4 25 3 20 2 15 1 10 0 5 -1 0 -2 1996 1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 1996 1997 1999 2000 2002 2003 2005 2006
Slide 14: Commodities and bond yields
Investment outlook Global Environment Fundamental Analysis Commodities and bond yields 500 17 Yield % Price Index 10 Yr US Treasury Yield - rhs 450 15 CRB Commodity Price Index - lhs 400 13 350 11 300 9 250 7 200 5 150 100 3 50 1 Jan-60 Jan-65 Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05
Slide 15: Global real broad money growth
Investment outlook Schroders EMD Weekly Notes 7 March 2008: Global Environment Fundamental Analysis “this sharp deceleration Schroders EMD Quarterly suggests that we are about Meeting 30 March 2009: to see something quite “Liquidity is now Global real broad money growth dramatic in financial markets
Slide 16: Who will print the most?
Investment outlook Global Environment Quantitative Analysis Who will print the most? 500 % GDP 400 The debt pyramid… 6.3 e everag sing L 300 Increa 200 0.7 Credit Leverage Factor 0.4 0.7 0.7 0.7 0.7 0.8 0.8 100 0.7 1.2 1.3 1.4 1.6 1.8 3.1 0.6 0.9 1.0 1.1 1.3 0.3 0.6 0.7 0.7 1.3 2.5 3.0 0.7 0 -100 -2
Slide 17: Taiwan – Rapid Accumulation of Foreign Assets
Investment outlook Country Analysis Fundamental Analysis Taiwan – Rapid Accumulation of Foreign Assets kept the Exchange Rate Artificially Undervalued Net international investment position Real effective exchange rate index 450 150 $ bln REER Index 400 ? 140 350 130 300 250 120 200 110 150 100 100 5
Slide 18: China: following the path of Japan?
Investment outlook Country Analysis Fundamental Analysis China: following the path of Japan? 0 0 JP¥ / US$ US$ / RMB 1 50 2 JP¥ vs US$ - 1960 to present 100 3 150 4 200 5 250 6 7 300 RMB vs US$ - 1994 to present 8 350 Months from beginning of revaluation 9 400 -138-123-108 -93 -78 -63 -48 -33 -18 -3
Slide 19: Schroder ISF Emerging Markets Debt Absolute Return: portfolio as at December 2010
Schroder ISF Emerging Markets Debt Absolute Return As at 31 December 2010 Exposure Duration Yield % G3 0.8 Mexico 1.4 1.4 3.6% External Debt 0.3 China 3.5 2.2 0.6 Malaysia 0.8 -13.1 Cash 2.7% 1.0 Poland 1.4 2.1 24.5% 3.2 Chile 0.2 2.9 Asia 9.7 Mexico† 0.8 2.7 38.2% 8.0 China 0.9 -1.4 4.4 Indonesia^
Slide 20: Appendix
Appendix “+ Schroders
Slide 21: People: Investment team
People Investment team Emerging Market Debt Latin America EEMEA Asia G Besaccia A Guezour N Brown G Blanning Buenos Aires Sentiment Quantitative Chart Analysis Analysis Analysis M Nelson M Melville O Agra Trading / Implementation Product Management S Hodges C Wyke C Smith M Michael L Clapton N Belli
Slide 22: Decision-making process
Investment process Decision-making process Global Environment (“Top Down”) Market Analysis Country Analysis Asset (“Bottom Up”) Allocation Portfolio Risk Control Construction 21
Slide 23: Market analysis
Investment process Market analysis Quarterly Weekly Global Environment Country Analysis Global Outlook Fundamental Political, Economic & Market Analysis Regional Outlook Quantitative Long-Term Risk Model Risk Model Technical Long-Term Chart Analysis Chart Analysis Sentiment Consensus Views Consensus
Slide 24: Indonesia – Country Report
Schroders Alternative Investments Group – Emerging Markets Debt Investment process Politics Indonesia – Country Report Population: 235 million While 2009 – a Presidential election year – is unlikely to be incident free, the political scene in Indonesia is a picture of serenity when compared to the
Slide 25: Sovereign Risk Model
Investment process Country Analysis Quantitative Analysis Sovereign Risk Model Growth Dynamics Sovereign External Liquidity 6 Factors scored for each Country: Hot Money Indicator -2 to +2 Domestic Banking System: External Liquidity Credit Cycle Competitiveness Total of Scores on all Factors = Global
Slide 26: Argentina: the Growth Dynamics cycle
Investment process Country Analysis Quantitative Analysis Argentina: the “Growth Dynamics” cycle 12 Adjustment Equilibrium Score: +1 Score: +2 02 6 03 09 06 90 05 10(F) 08 07 08 04 Strong Growth Deep Recession Real GDP Growth 0 88 91 -12 -6 0 6 12 89 01 96 95 93 92 00 99 87 97 C/A Balance % GDP 94 -
Slide 27: Taiwan scores highly on all vulnerability indicators
Investment process Country Analysis Quantitative Analysis Taiwan scores highly on all vulnerability indicators Growth Dynamics 2 1 Credit Cycle 0 Sovereign External Liquidity -1 -2 Competitiveness - REER Hot Money Indicator Banking System External Liquidity Average EM 2009 Taiwan 2009 Taiwan LT Aver
Slide 28: Technical Analysis: Indonesia Rupiah 10yr government bond
Investment process Country Analysis Technical Analysis Indonesia Rupiah 10yr government bond 16 Yield (2) (1) 14 (v) (4) Target ii 12 i (ii) (3) (i) (iv) Gap (iii) iv (iii) 10 (i) iii (iv) (ii) (5) 8 1.5 Weekly MACD 1.0 0.5 0.0 -0.5 -1.0 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Source: Schroders; B
Slide 29: Brazil: rating agencies as a contrarian indicator
Investment process Country Analysis Sentiment Analysis Brazil: rating agencies as a contrarian indicator 0 Spread bps 500 1000 1500 2000 = Down grades = Up grades 2500 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Bloomberg; JP Morgan; Standard & Poor’s; Moody’s
Slide 30: Indonesia – Investment Summary
Schroders Alternative Investments Group – Emerging Markets Debt Indonesia – Investment Summary Investment process 1. Fundamental Analysis The political risk currently in Indonesia is low, despite 2009 being an election year. Although market volatility related to the election Investment Summary pro
Slide 31: Investment process: Summary
Investment process Summary Wide Universe: 58 Countries Included Four Levels of Analysis Undertaken Bond Market and Currency Return Forecasts Country Discussed at Weekly Meeting Forecast Adjusted Expected 12M Return Expected 12M Return < 10% > 10% BUY Monitor - subject to portfolio construction disci
Slide 32: Portfolio Construction Risk Control
Investment process Portfolio Construction Risk Control ― Diversification limits ― by Region ― by Country ― by Security ― Avoidance of “averaging down” ― strong principle; improves timing; replacement for ‘stop-loss’ on individual positions ― Avoidance of poor risk profiles ― e.g. bond lending, count
Slide 33: Risk control diversification rules and country limits
Investment process Portfolio Construction Risk Control RISK CONTROL DIVERSIFICATION RULES RISK CONTROL COUNTRY LIMITS Max Tier I (max 20%) Tier II (max 10%) Tier III (max 5%) Brazil Argentina Ecuador Region Latin American 75% Chile Bulgaria Egypt Asia 75% China Colombia Guatemala Eastern Europe 50%
Slide 34: Geoff Blanning and Abdallah Guezour
Schroder ISF Emerging Markets Debt Absolute Return Geoff Blanning, Head of EMD (London) - MA Oxford University - Investment career commenced in 1985 - Managed Global Bond Funds at NM Rothschild & Bankers Trust before developing and managing Morgan Grenfell’s first Emerging Markets Debt Fund in 1993.
Slide 35: Guillermo Besaccia and Nick Brown
Schroder ISF Emerging Markets Debt Absolute Return Guillermo Besaccia, EMD Fund Manager (Buenos Aires) - Graduate degree in Corporate Finance, Argentina. BA in Economic & Computer Science, McGill University Canada. - Joined Mildesa Servicios Busatiles in 1992 where he worked on the research team as
Slide 36: Margaret Nelson and Oscar Agra
Schroder ISF Emerging Markets Debt Absolute Return Margaret Nelson, EMD, Currencies & Commodities Quantitative Analyst (London) - Msc (Financial Mathematics), University of Warwick - Investment career commenced in 2007 when she joined the EMD & Commodities team Oscar Agra, EMD, Currencies & Commodit
Slide 37: Malcolm Melville, Chart Analyst
Schroder ISF Emerging Markets Debt Absolute Return Malcolm Melville, Chart Analyst (London) - Joined Schroders in 2010 working within the Emerging Market Debt team responsible for Chart Analysis. - In 2004 Malcolm worked for Caxton Europe Asset management as a Portfolio Manager responsible for manag
Slide 38: Chris Smith and Lee Clapton
Schroder ISF Emerging Markets Debt Absolute Return Chris Smith, EMD Trader (London) - SFA Securities Representative Certificate, IAQ Exchange Traded Derivative Certificate - Investment career commenced in 1987, worked at Robert Fleming Brokers within the Fixed Income & Derivatives Trade support team
Slide 39: Christopher Wyke and Matthew Michael
Schroder ISF Emerging Markets Debt Absolute Return Christopher Wyke, EMD, Currencies & Commodities Product Manager (London) - MA (Economics & Politics) from University of Edinburgh and Kennedy Fellow in Economics from Harvard University - Investment career commenced in 1981 when he joined Rothschild
Slide 40: Nichola Bellini, Product Executive
Schroder ISF Emerging Markets Debt Absolute Return Nichola Bellini, EMD, Currencies & Commodities Product Executive (London) - Joined Schroders in 2005, working within the in the EAFE / Global Equity Team and transferred to the EMD & Commodities Team in February 2006 as Product Executive 39
Slide 41: Historical sector allocation
Schroder ISF Emerging Markets Debt Absolute Return Historical sector allocation 1 % 0.8 0.6 0.4 0.2 0 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Cash EM Local Currency Debt EM External (US$) Debt Net US% Exposure Source: Schroders – 31 December 2010 40
Slide 42: Historical duration
Schroder ISF Emerging Markets Debt Absolute Return Historical duration 9 Duration 8 JP Morgan EMBI+ Index 7 Typical EMD fund carries 6 extreme interest-rate / credit risk 5 4 3 Schroders 2 1 Minimal interest rate risk 0 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec
Slide 43: Emerging Europe Debt Absolute Return: Historical performance
Schroders ISF Emerging Europe Debt Absolute Return Historical performance to December 2010 Dec €uro % 2000† 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 Schroder ISF EEDAR* 6.77 13.40 12.69 2.43 9.04 3.09 4.52 3.70 7.70 15.65 0.47 3.13 Salomon EMU 3M Euro Deposit 3.40 4.54 3.39 2.44 2.11 2.
Slide 44: Emerging Europe Debt Absolute Return: Attractive risk-adjusted returns
Schroders ISF Emerging Europe Debt Absolute Return Historical performance to December 2010 Attractive risk-adjusted returns SSB EMU 3- Since Mar 2000** Fund 5yr Govt Bond Annual Rate of Return % 7.55 4.77 140 % Annual Volatility % 3.43 2.66 120 Schroder ISF EED** Sharpe Ratio 1.33 0.71 100 Sortino R
Slide 45: Important information
Important information The views and opinions contained herein are those of the Schroders Emerging Market Debt team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. Risk warnings: Investments in emerging markets are subject to mar