BetterIR_July_2013

N e w s l e t t e r

RBett e rt h e

Viewing Investor Behavior through a P&L Lens

Emerging Europe Liquidity

Corporate Access is Changing; Is it Improving? Ipreo Corporate Access Survey 2013 Highlights

Firm Snapshot - Eagle Asset Management

Fund Snapshot - RidgeWorth Large Cap Value Equity Fund

Metro Area Targeting Focus - South Florida, USA

CONTENTS:

N e w s l e t t e r

Volume 6, Issue 3July 2013

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Copyright ® 2013 Ipreo. All rights reserved. Articles are published without any responsibility for any loss resulting from any action or decision by any person as a result of any information contained herein.

When meeting with institutional investors, it is imperative that an Investor Relations team is equipped with a deep understanding of the thought process of managers with whom it will be interacting. There are many resources at an IRO’s disposal that can help put into perspective the drivers of individual institutions’ share movements within the stock. While it is true that all firms are united in their goal to maximize returns on their portfolio, investors have very distinct trading styles in terms of how they buy and sell their holdings to achieve that goal. Much of the variation in investors’ buying and selling profiles has to do with the performance of individual holdings. Regardless of investors’ original rationale for buying a certain security, their decisions to hold, sell, or buy more of that security depends in large part on how that security has fared since it was acquired.

One useful tool to analyze this aspect of investors’ decision-making is estimating the initial purchase price, or cost basis, of each security in the portfolio. Cost basis analysis can be an effective tool in analyzing investor sentiment regarding your stock and, at the portfolio level, can explain a great deal about individual managers’ tendencies when it comes to profit-taking or exiting positions at a loss.

Luckily, publicly disclosed ownership information can give any IRO some of the tools needed to estimate the purchase price at which each investor entered the stock. One common calculation for average cost basis for a particular security is calculated by measuring an institution’s quarterly share change in terms of the security’s volume-weighted average price (VWAP) over the period. This average cost basis is then weighted relative to the firm’s previous position and cost basis. For example, if a firm holds 1,000 shares of XYZ at an average cost basis of $100 and adds 500 shares at a VWAP of $90, the adjusted cost basis would be calculated as follows:

[(1,000*$100) + (500*$90)] / (1000 + 500) = $96.67

Cost basis can be calculated at the fund level as well, and given the frequency with which funds file relative to firms (typically monthly vs. quarterly), fund-level cost basis data can provide a more current view of an entity’s cost basis exposure. Of course, while this method is by no means perfect (an investor can be buying or selling shares at the highest or lowest prices in a period, not the VWAP), for longer-term holdings, it can give a rough idea of the valuation when the manager entered the stock.

Knowing your investor’s initial cost basis intuitively gives you a number of useful takeaways to keep in mind during your communication. An investor that entered the stock at a far different price (either higher or lower) made decisions justifying the valuation at that price; unless the manager believes the company has changed fundamentally, it’s always more likely for an investor to pull back on the position. If the P&L position in your stock is far below or above the manager’s overall return (either on a holding period or on an annualized basis), you may already be seen as an outlier in the portfolio. Also, a taxable investor around an annual reporting period may be more averse to selling a stock and booking a large gain, or more likely to harvest tax losses to obscure gains, and the reverse maybe true for pension funds and other non-taxable investors.

Cost Basis at the Broad Portfolio Level

Thus far, we have primarily focused on individual firms’ cost basis exposure to a particular security. While this can be informative, it is also beneficial for an IRO to understand the way each institutional investor approaches portfolio construction. For example, if investor A is currently sitting on a 6% gain in its position in company XYZ and investor B is sitting on a 28% gain, it seems reasonable to assume that investor B’s position is more in jeopardy of being trimmed as the firm takes profits. However, depending on the type of investor, the opposite may be the case – a 6% gain can be seen as far underperforming the rest of the portfolio. This is where portfolio-level analysis can be invaluable, as institutional investors often display distinct preferences and tolerances when it comes to unbooked gains and losses. The firms in Table 1, for example, have a tendency to liquidate their positions before gains or losses exceed 10%, with the vast majority of their portfolio sitting between -10% to +10% P&L.

Table 1% of Port. in Each Return Band

Investor Name <-25%-25% to -

10%-10% to

10%10% to

25% >25%Carlson Capita l , L.P. 2% 3% 57% 22% 16%Highbridge Capita l Management, LLC 1% 8% 54% 17% 21%DePrince, Race & Zol lo, Inc. 3% 10% 49% 24% 13%Global Thematic Partners , LLC 3% 10% 46% 23% 19%Mil lennium Management, LLC 1% 4% 40% 34% 20%

Viewing Investor Behavior through a P&L Lens

Source: Ipreo Research

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Unlike the firms displayed in Table 1, those in Table 2A have demonstrated a willingness to sit on large gains, while the institutions in Table 2B are willing to hold onto positions that are largely “in the red”. Note that market conditions must be considered when analyzing this type of data, as significant institutional gains/losses are not always consistent with current market activity.

Table 2A% of Port. in Each Return Band

Investor Name <-10%-10% to

10%10% to

25%25% to

50% >50%Ruane, Cunni ff & Goldfarb, Inc. 0% 3% 10% 3% 84%Riverbridge Partners , LLC 8% 2% 9% 9% 80%D.F. Dent & Company, Inc. 3% 2% 14% 7% 77%Brown Capita l Management, LLC 3% 6% 15% 6% 73%Geneva Investment Management of Chicago, LLC 3% 2% 10% 17% 72%

Table 2B% of Port. in Each Return Band

Investor Name <-25%-25% to -

10%-10% to

10%10% to

25% >25%Tradewinds Global Investors , LLC 25% 15% 31% 13% 16%Van Eck Associates Corporation 20% 16% 23% 15% 25%WHV Investment Management, Inc. 16% 5% 10% 11% 58%Deutsche Investment Management Americas , Inc. 16% 5% 17% 21% 41%Dodge & Cox 11% 10% 21% 12% 45%

One factor that can help to explain disparity between the preferences of the firms in Tables 1 and 2 is portfolio turnover. The following table (Table 3) displays the average cost basis in each return band for a group of U.S.-domiciled hedge funds. One common attribute between these institutions is that they all have a very high rate of portfolio turnover relative to the average institutional investor. As you can see below, these firms’ portfolios are most heavily concentrated in the cost basis bands between -10% and 10%, while the lower-turnover institutions displayed in the accompanying table (Table 4) have more diverse portfolios and are more positively skewed with respect to gains and losses.


Investor NamePortfolio Turnover <-10%

-10% to 10%

10% to 25% >25%

Balyasny Asset Management, L.P. (U.S.) 2% 4% 61% 14% 20%Graham Capita l Management, L.P. 2% 17% 60% 20% 4%Sigma Capita l Management, LLC 1% 2% 59% 15% 23%Carlson Capita l , L.P. 2% 5% 57% 22% 16%Highbridge Capita l Management, LLC 1% 9% 54% 17% 21%


Investor NamePortfolio Turnover <-10%

-10% to 10%

10% to 25% >25%

Fidel i ty Management & Research Company 1% 3% 12% 16% 69%Neuberger Berman Management, LLC 1% 4% 12% 19% 65%Cooke & Bieler, L.P. 4% 14% 11% 30% 44%Columbia Wanger Asset Management, LLC 3% 9% 11% 14% 67%Eagle Boston Investment Management, Inc. 8% 13% 10% 14% 65%



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Portfolio-Level Cost Basis View

As is mentioned above, fund-level cost basis analysis can be a useful tool to assess investor momentum between firm-level public filings, as funds disclose their positions more frequently than their parent institutions. This type of analysis also allows us to engage in a more detailed assessment of fund-level buying and selling activity, which we have found to have a very high correlation to the distribution of the fund’s holdings across cost basis bands. Further, mutual fund managers, which typically calculate and report NAV on a daily basis and typically report holdings more often than hedge funds, private equity firms, and institutional investors, may not have the ability to hold onto positions long enough for a turnaround in investments that have fallen in value. Viewing a manager’s portfolio on a P&L basis can also give much more insight into the manager’s thought process. Managers concerned with minimizing distributions to taxable clients may be careful to maintain large holding period gains, while managers facing redemptions might be under pressure to liquidate holdings and pull from positions in which valuations are far different from the initial investment thesis and deeply “in the red” or “in the green”.

Alternative investors, which typically tend to have set schedules for investor redemption requests and payments, may not be as pressured to sell out of losing investments as they typically have a longer time frame to plan out equity sales to fulfill distributions. Further, as PE firms tend to have very long holding periods it is not as surprising that 48% of portfolio holdings, on average, are held in losing positions. Similarly, when analyzing activist investors, which look to split up a company or have a longer-term turnaround plan, we can see that approximately 31% of investors’ public portfolios are currently in losses. By comparison, the average mutual fund has less than 17% of its portfolio in negative positions.

Table 5% of Portfolio in Each Return Band

Investor NamePortfolio Turnover <-50% -50%-25% -25%-10% -10%-0% 0%-10% 10%-25% 25%-50% 50%-100% >100%

All Institutions 71% 5.2% 4.9% 6.0% 9.1% 14.0% 20.1% 20.4% 13.7% 6.6%

All Mutual Funds 76% 1.1% 2.5% 4.4% 8.7% 16.5% 23.3% 23.4% 14.3% 5.6%

Deep Value 61% 0.6% 2.3% 4.4% 8.3% 17.5% 24.5% 24.8% 13.6% 4.0%Yield 72% 0.6% 2.9% 5.4% 10.0% 19.5% 22.9% 22.7% 11.0% 4.9%Value 67% 0.8% 2.6% 4.6% 8.4% 16.0% 23.1% 24.6% 14.7% 5.1%Specialty 72% 1.0% 3.1% 4.3% 9.9% 17.4% 25.7% 22.3% 12.0% 4.4%GARP 82% 0.6% 2.0% 4.1% 9.0% 16.8% 23.5% 23.2% 15.0% 5.6%Growth 77% 0.4% 2.0% 3.9% 8.1% 15.5% 22.2% 25.0% 16.0% 6.9%Agg. Growth 87% 0.7% 1.8% 3.7% 7.9% 15.6% 20.5% 23.4% 17.7% 8.5%

Alternative 117% 6.0% 5.7% 6.6% 11.9% 15.7% 20.4% 16.8% 11.2% 5.6%

Investor NamePortfolio Turnover <-50% -50%-25% -25%-10% -10%-0% 0%-10% 10%-25% 25%-50% 50%-100% >100%

Activists 81% 5.6% 7.7% 7.1% 10.1% 12.7% 18.0% 16.2% 15.0% 7.4%

It is worth mentioning that average portfolio turnover and investment style do not always tell the whole story, as certain firms may be willing to hold their ‘core positions’ fairly long-term while rapidly turning over their smaller positions. Some firms that are generally regarded as having high rates of portfolio turnover will restrict the majority of their liquidations and initiations to less significant positions. If a prospective firm deems your stock to be a core holding, it is likely that the firm will be more patient when it comes to booking gains or losses than their broad portfolio return band distribution would indicate.

When approaching institutional investors, it is important to understand both the distribution of their holdings across different cost basis classes as well as the likelihood that they will make investment decisions based on the position of those holdings. Many firms will be quick to turn over a winning or losing position, choosing to concentrate their holdings in the -10% to 10% cost basis bands, while others may see the upside in a poor performer or recent windfall. Funds that have a more uniform distribution among cost basis bands, or that are skewed towards winners or losers, can be inferred to tolerate, or even prefer, holdings that have experienced significant gains or losses.

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Back of Napkin

For any communication with existing shareholders, it is always worth the minimal effort necessary to estimate the initial purchase price of a position. Managers may even quote their initial purchase price directly to you if asked. Beyond this, even without sophisticated tools, you can get a good idea of the manager’s thought process by looking at the positions the manager reports and their activity over time. Of the manager’s largest sells, were the positions purchased at far cheaper prices? If so, don’t be surprised if the manager considers your stock a source of funds after a jump in valuation. Of the manager’s largest buys, are these positions deeper “in the red,” suggesting a willingness to hold or buy into losses with conviction? Call the manager and tell your investment story after a weak earnings release – an investor with a high tolerance for holding losses may be a perfect fit in a tough period.

Authors: Alex Weissman, Christopher Stroh, Lucas Wittman

Alex Weissman is a Senior Analyst in Ipreo’s Corporate Analytics Group. Christopher Stroh is an Associate Director in Ipreo’s Corporate Analytics Group. Lucas Wittman is a Research Associate in Ipreo’s Corporate Analytics Group.

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Introduction

Rarely, or never, do investors have an indefinite investment horizon, so the investor will always look at the risk behind the position – how easily can I exit my position when the time comes, and how will this affect my profits? For developed markets, this is less of a concern outside small caps, but in emerging markets, even mega cap stocks can have a free float as low as 10% - effectively trading as a small to mid cap stock. Aside from concerns over dominant government or strategic holders having the majority of shareholder power- if a stock has an average daily trading value of $500k, it would be very difficult to justify initiating a position of $5M. At ten times the average volume to liquidate a position of this size would take several weeks and surely either adversely affect any profits or augment losses. In this paper we will look at the different measures of liquidity, how emerging Europe fares in these views, and which investors are taking a bullish view on these markets.

Issuer

How do you define the liquidity of a stock? In this article we will look at three areas:

Each area can be used in isolation to give an idea of the liquidity of a stock, but in conjunction you can get a clearer view of the liquidity risk of your investment. Issuers should also be looking in the mirror to understand how they are viewed by the investor community, and to see how they can raise their liquidity profile.

Shareholder Structure

If a company has a market cap of $1B, but strategic holders hold 75% of the company, then the company is effectively trading as a company with a $250M market cap. The potential daily trade volume is therefore a quarter of a similar size company with 100% free float. In addition to the physical trading constraints of a smaller free float, there is a lack of shareholder power as voting rights are dominated by one or few strategic investors whose interests may not be aligned with those of the institutional holders.

Free float sizes vary wildly in emerging markets, where historical ownership trends of large government positions and founding family holdings continue. The table below outlines the number of companies in Hungary, Poland, Russia, and Turkey where we can see the free float size – separated into five bands:

Region <10% 10-25% 25-50% 50-75% 75-100%Hungary 4 (18%) 4 (18%) 8 (36%) 4 (18%) 2 (9%)Poland 7 (3%) 25 (12%) 98 (45%) 66 (31%) 20 (9%)Russia 67 (28%) 85 (35%) 63 (26%) 14 (6%) 11 (5%)Turkey 43 (11%) 78 (20%) 118 (31%) 35 (9%) 110 (29%)

Free Float Size - Number of Companies (percentage)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

<10% 10-25% 25-50% 50-75% 75-100%

Hungary

Poland

Russia

Turkey

Emerging Europe Liquidity

• Shareholder structure• Trading costs• Trade volume

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In Russia, for example, the vast majority of companies have a free float below 25% and a low level of liquidity, and this is a key point of contention for investors in the region. Below are some responses to the question:

To what extent does liquidity influence your investment decision?

• “Liquidity is a big factor depending on how many assets you have under management. If you have a one hundred dollar fund it is easy, but if you have a hundred billion dollar fund, it gets much harder. In our emerging markets we have 3 or 4 billion dollars to invest.”

• “We could double our position if it was more liquid.”• “This depends on the Portfolio Manager. For some it is crucial, it is a “make or break,” in some cases they can take positions in lower

liquidity companies so it depends within the firm what their restrictions or preferences are.”• “It is easier to have clarity on the strategy and objectives of the management team when they are independent than when

they’re owned by a larger company. Here we do have people who can invest in low liquidity but when the free float is only a tiny percentage of the total equity you are really, really a minority investor and that would not be seen as ideal in our minds.”

Trading Costs

Demand and supply is one of the fundamental basics of economics; if a company is performing well, investors want to buy yet few will be willing to sell, so the share price will continue to rise as investors will demand a premium to part with shares. Conversely, if a stock is out of favour, then investors will struggle to sell any volume of shares without taking a fiscal hit. The percentage spread between the bid and ask price is just one of the liquidity risk costs to consider, as are the exchange costs.

Source: Elkins McSherry August 2012

So while in a simplistic view, an investor will be looking to make up the transaction cost plus 0.40% in trading venue cost in the US, emerging markets investors must find further growth in their investment due to the larger average venue cost of 0.90% and the larger transaction costs. Looking at the bid-ask spreads by region, we can clearly see the increased costs involved in executing a trade in emerging regions than in developed markets.

Continued on the next page...

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Region <10% 10-25% 25-50% 50-75% 75-100%

Hungary 3.00% 4.20% 11.87% 1.20% 5.63%

Poland 4.56% 2.66% 1.89% 1.86% 2.01%

Russia 22.60% 47.73% 8.27% 28.91% 40.90%

Turkey 0.45% 0.46% 0.49% 0.89% 0.79%

Average Transaction Cost by Free Float Size

In contrast, the average transaction cost in the FTSE100 is 0.11%, while the CAC40 trades even tighter with an average of 0.08%.

Trade Volume

How much trade volume is sufficient for a company to be on the investment radar, and is there a desired maximum exposure? Trade volume implies liquidity, and one should always look at the monetary value of this daily volume to understand just how liquid a company is. Many will see $1M of average daily volume as a threshold to begin looking at a potential investment in more detail, and in emerging markets a maximum exposure is likely to be two times the USD daily traded volume – you do not want to be over-exposed to a stock where it may take months to liquidate a position once you have met your investment horizon.

Region Less than $1M Between $1M and $5M Over $5M

Hungary 18 2 2

Poland 185 23 8

Russia 209 12 19

Turkey 151 91 42

Average USD Daily Traded - Number of Companies

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than $1M Between $1M and $5M

Over $5M

Hungary

Poland

Russia

Turkey

Source: FactSet

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Top Three Liquid Companies by Region

Looking at the aforementioned views on liquidity, below are the top three USD daily traded issuers by region:

Company Name Region % FF Share Price Daily Traded Transaction Cost

OTP Bank Nyrt. Hungary 74.51 $19.75 $29,682,611 0.16%

MOL Hungarian Oil and Gas Plc Hungary 34.02 $84.70 $6,675,823 0.08%

Chemical Works of Richter Gedeon Plc Hungary 74.48 $171.23 $4,046,461 0.12%

KGHM Polska Miedz S.A. Poland 68.21 $62.27 $55,616,266 0.05%

Powszechna Kasa Oszczednosci Bank Polski S.A. Poland 56.36 $11.77 $26,868,336 0.06%

Powszechny Zaklad Ubezpieczen S.A. Poland 64.81 $132.61 $26,418,159 0.02%

Sberbank of Russia OJSC Russia 39.75 $3.31 $403,358,819 0.03%

Gazprom OAO Russia 47.96 $4.92 $182,810,317 0.02%

Lukoil Holdings Russia 57.48 $66.17 $93,673,807 0.03%

Turkiye Garanti Bankasi A.S. Turkey 50.76 $5.33 $223,589,906 0.21%

Turkiye Is Bankasi A.S. Turkey 31.18 $3.68 $152,675,951 0.31%

Turkiye Vakiflar Bankasi T.A.O. Turkey 25.26 $3.08 $96,779,112 0.37%

0.00%0.05%0.10%0.15%0.20%0.25%0.30%0.35%0.40%

Source: FactSet

Aggregate listed companies by region – Largest 50 market cap vs. Rest of region

Looking at the difference between the fifty largest market caps in each region, and the remaining equities, we can see the clear disparity between the transaction costs – huge in Russia’s case, large in Poland, and relatively small in Turkey.

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Region Cut Average % FF Average Daily Traded ($M) Average % transaction cost*Poland Top 50 47.02 $4.70 0.22%Poland Rest 46.68 $0.12 1.40%Russia Top 50 29.62 $21.82 0.13%Russia Rest 23.31 $0.09 3.26%Turkey Top 50 27.17 $22.81 0.30%Turkey Rest 31.79 $1.58 0.43%

* Estimated spread based on median bid-ask spread over one day period

Source: FactSet

In comparison the FTSE Allshare, with 600 constituents, the top 50 market caps have a low average transaction cost of 0.07%, while the remaining 550 stocks have a far higher average cost of 0.86% - behind that of the same group of Turkish stocks.

Dual / Secondary listing

Is there a liquidity benefit to having a secondary listing? Local currency, time zone, and investment mandates are three factors that can adversely affect investment in emerging markets. There is a far smaller pool of investors who will invest in emerging markets compared to investors who can and will invest in UK or US listed issuers. Allocating part of the share capital to a secondary listing will open up a far larger pool of investment, but there are costs and regulatory implications to be considered. UK Registrars operate Depository Interest programs, allowing access to the AIM and FTSE Main Market, while Depositary Receipt banks provide a route to US investors.

Key Investors / Funds

The Sovereign Wealth Fund of Norway is the largest holder of emerging European equities, with over $114B of investment in the region, an increase of $24B since the beginning of 2012. The fund stated in early 2012 that it was beginning to shift their portfolio weightings towards emerging markets – at the expense of developed European markets. It is encouraging to note the presence of low turnover investors amongst the largest holders, suggesting some stability to be in the region. While low turnover investors are the major force in emerging Europe, the presence of higher turnover funds, such as the Market Vectors ETF Trust-Russia ETF, Baring Emerging Europe Plc and the Deka – ConvergenceAktien fund signals the presence of liquidity within the region as high turnover investors could not invest in illiquid markets.

Top Ten Funds

Fund Name Investment Advisor Turnover Current ($M) Change ($M)The Government Pension Fund - Global Norges Bank Investment Management Low $114.11 $24.21Alecta Pension Alecta Pensionsförsäkring AB Low $77.36 -$4.74 iShares MSCI Emerging Markets Index Fund BlackRock Fund Advisors Low $49.66 $5.24Vanguard Emerging Markets Stock Index Fund The Vanguard Group, Inc. Low $45.26 $0.00Market Vectors ETF Trust-Russia ETF Van Eck Associates Corporation High $19.34 $0.24Stichting Pensioenfonds ABP APG Asset Management US, Inc. Low $18.53 $2.33Russian Prosperity Fund Euro Prosperity Capital Management (RF), LTD High $15.27 $0.10Vanguard Total International Stock Index Fund The Vanguard Group, Inc. Low $13.85 $1.80Evli Russia Evli Investment Management, LTD High $13.24 $1.31Ilmarinen Mutual Pension Insurance Ilmarinen Mutual Pension Insurance Company Low $12.05 -$0.52

-$20 $0

$20 $40 $60 $80

$100 $120 $140

The Government Pension Fund -

Global

Alecta Pension iShares MSCI Emerging

Markets Index Fund

Vanguard Emerging

Markets Stock Index Fund

Market Vectors ETF Trust-Russia

ETF

Stichting Pensioenfonds

ABP

Russian Prosperity Fund

Euro

Vanguard Total International

Stock Index Fund

Evli Russia Ilmarinen Mutual Pension

Insurance

Billi

ons Current Holding Change

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Top Ten Buyers

Fund Name Investment Advisor Turnover Current ($M) Change ($M)The Government Pension Fund - Global Norges Bank Investment Management Low $114.11 $24.21Baring Emerging Europe plc Baring Asset Management, LTD (U.K.) Medium $7.57 $7.38UBS (Lux) Equity SICAV - Russia (USD) UBS AG (GAM Switzerland) Medium $9.55 $6.57iShares MSCI Emerging Markets Index Fund BlackRock Fund Advisors Low $49.66 $5.24Caisse de Dépôt et Placement du Québec Caisse de dépôt et placement du Québec Low $9.69 $4.71Danske Invest Russia Small Cap Fund (FI) Danske Capital Finland Oy Very High $8.10 $4.52Deka - ConvergenceAktien Deka Investment GmbH High $8.77 $4.36Deka-Russland CF Deka Investment GmbH Medium $4.87 $4.20Danske Invest Arvo Russia Value Fund (FI) Danske Capital Finland Oy Very High $10.40 $2.70Global Emerging Markets Yield Fund Renaissance Asset Managers (UK), LTD High $2.56 $2.56

$0

$20

$40

$60

$80

$100

$120

The Government Pension Fund -

Global

Baring Emerging Europe plc

UBS (Lux) Equity SICAV - Russia (USD)

iShares MSCI Emerging Markets

Index Fund

Caisse de Dépôt et Placement du

Québec

Danske Invest Russia Small Cap Fund (FI)

Deka -ConvergenceAktien

Deka-Russland CF Danske Invest Arvo Russia Value Fund

(FI)

Global Emerging Markets Yield Fund

Billi

ons

Current Holding Change

Top Ten Sellers

Fund Name Investment Advisor Turnover Current ($M) Change ($M)MFS Util ities Fund MFS Investment Management Medium $7.10 -$5.93 Alecta Pension Alecta Pensionsförsäkring AB Low $77.36 -$4.74 East Capital Russian Fund East Capital Asset Management AB Medium $8.79 -$2.62 db x-trackers MSCI Russia Capped Index ETF State Street Global Advisors, LTD Very High $8.74 -$1.84 MFS Variable Insurance Trust-Util ities Series MFS Investment Management High $2.11 -$1.76 HSBC GIF BRIC Markets Equity HSBC Global Asset Management (France) High $0.01 -$0.93 ESPA STOCK EUROPE - EMERGING Erste Sparinvest Kapitalanlage GmbH High $0.17 -$0.88 Swedbank Robur Rysslandsfonden Swedbank Robur Fonder AB Medium $1.46 -$0.80 ESPA Stock Russia Erste Sparinvest Kapitalanlage GmbH Very High $0.20 -$0.78 East Capital Eastern European Fund East Capital Asset Management AB High $2.01 -$0.64

-$20

$0

$20

$40

$60

$80

$100

MFS Utilities Fund

Alecta Pension East Capital Russian Fund

db x-trackers MSCI Russia

Capped Index ETF

MFS Variable Insurance Trust-Utilities Series

HSBC GIF BRIC Markets Equity

ESPA STOCK EUROPE -

EMERGING

Swedbank Robur Rysslandsfonden

ESPA Stock Russia

East Capital Eastern

European Fund

Billi

ons Current Holding Change

Source: Ipreo Flow of Funds

Identified funds in emerging Europe with discernible investment turnover information show a bullish sentiment towards the region (this is for identified funds and does not necessarily reflect the whole investor universe). Low turnover funds hold near 50% of assets identified, and also registered the biggest inflows. High and very high turnover funds show a decent level of interest, led by interest in Turkish equities, showing the increased liquidity coming into the region as emerging markets come more to the fore with developed European nations still struggling to get back to solid growth.

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Turnover Current ($M) Change ($M)

Low $81,482 $2,624

Medium $45,993 $88

High $26,174 $671

Very High $12,432 $415

Source: Ipreo

US-based Grantham Mayo Van Otterloo & Co lead the way amongst the “very high” turnover investors buying Turkish equities, while the “high” turnover group of investors include OppenheimerFunds (fourth largest investor in the ISE) and T. Rowe Price International, which was the tenth largest buyer overall in the region over the past two quarters.

Conclusion

While investing in highly liquid stocks is going to be the preference of most investors, there is always going to be a market for stocks that sit in the lower echelons of the liquidity scale – albeit a smaller pool. A targeted approach to investor outreach for stocks with lower liquidity is needed, aggressively going after known holders of illiquid stocks such as BlackRock Fund Advisors, and Baring Asset Management. Targeting firms should be looked at on a fund level to ascertain who the portfolio managers are with funds investing in said stocks.

If a company’s goal is to increase liquidity and open themselves up to the wider investment community then there are options to issue more stock to the open market – either local market or look at a secondary listing. Issuing stock from existing capital and increasing the free float percentage can raise the company’s free float weighting in the index, bringing in more passive money from index funds and ETF’s. This is not something that should be done on a whim, investors will want to know what the additional funds are going to be used for, and existing shareholders may question whether the capital raising would have been better served by the debt market. Fundamental changes and future goals to change the ownership structure should always be carefully vetted in advance and in detail with the investment community, and when done correctly can raise both the liquidity and investor profile of the company. Ipreo offers a range of services to assist emerging market companies, such as index analysis, investor targeting, proxy solicitation and perception studies to understand key issues from the issuer and the investor base.

Author: Mark RobinsonMark is a Senior Analyst in Ipreo’s Global Markets Intelligence Group

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Corporate Access is Changing; Is It Improving?

IROs that have spent over a decade in the business have witnessed the expansion of corporate access from its infancy to taking a central role in the value proposition a brokerage brings to the table for its buy-side customers. As more and more brokers have built out dedicated corporate access groups to help differentiate themselves from others, it would seem to follow that greater competition among corporate access providers would produce a process that generates more value both for the buy-side and for issuers – after all, if a CEO isn’t happy with the results of corporate access work, or if a portfolio manager isn’t happy with the quality of the meetings he or she is participating in, there are now plenty of other options for both the PM and the CEO to switch to.

It’s certainly not an easy task to measure the effectiveness of a particular corporate access team from the corporate side, or even from the buy side. However, seen in aggregate, the opinions of IR teams can give a pretty good estimate of how effective corporate access is for issuers as a whole, and even further, the areas where IROs have seen improvement or additional concern.

Ipreo has conducted an annual Corporate Access Survey each of the past four years, with the goal of identifying both the process issuers go through to select a corporate access provider, as well as helping to benchmark investor outreach activity levels across issuers. This year’s results suggest that satisfaction levels with corporate access are continuing to improve, driven by predominantly by an increase in satisfaction from small- and mid-cap issuers (often the companies that most need assistance to raise their profile in front of the investment community). Broadly speaking, Investor Feedback and Market Intelligence are the factors in decision-making that issuers believe are most lacking from corporate access teams, but again, ratings of IRO’s opinions on these factors have improved year-over-year.

Satisfaction Levels

Consistent with our 2012 survey, issuers provide their opinion on the corporate access process. Results show issuers are satisfied with their analyst relationship and meeting logistics, and least satisfied with market intelligence and feedback (Figure 1). Attitudes were mixed with respect to investor suitability, research quality, and regional or industry expertise, while global presence does not appear to weigh heavily when broadly evaluating satisfaction. Rankings were mostly consistent across regions and cap sizes, though notable exceptions included Asian issuers’ elevated satisfaction with market intelligence and feedback, and large-cap issuers’ higher marks on logistics.

Figure 1- Satisfaction Levels by Service Category

Looking at overall corporate access satisfaction levels over time, Figure 2 (next page) tells a positive story with “Very Satisfied” and “Somewhat Satisfied” responses rising from 62% in 2011 to 76% of our sample in 2013. Strengthening satisfaction levels were driven predominantly by small- and mid-cap issuers, while large-cap responses have remained more consistent over time. Large caps have demonstrated a three-year trending increase in “Somewhat Dissatisfied” responses, but the sentiment remains confined to 13% of the large-cap sample.

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Figure 2- Trends in Overall Satisfaction

To understand what is driving improvement behind the scenes, we present individual satisfaction factors through time in Figure 3. Across all global regions and cap sizes, analyst relationship quality, meeting logistics, and market intelligence and feedback appear to be making positive strides in “Very Satisfied” responses.

Figure 3- Trends in “Very Satisfied” by Service Category

What do Issuers Look for in a Corporate Access Sponsor?

“Suitability of Investors in Meetings” continues to be the most highly valued service provided by corporate access sponsors. 77% of respondents indicated an “Extremely Important” or “Very Important” for this service category, down from 88% in the year-ago survey, but solidly ahead of “Quality of Research,” which 67% of respondents gave a high priority.

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Figure 4- What do Issuers look for in a Sponsor

While investor suitability remains the leading importance factor, the edge appears to be eroding relative to other factors over time. Figure 5 shows percentages of respondents indicating “Extremely Important” across each survey year where data exists. Key trends include the rising prominence of research quality, market intelligence and feedback, and logistics as important factors to overall satisfaction. A market cap breakdown reveals further interesting trends, notably the degree to which small-cap respondents increasingly rate research quality as “Extremely Important.” In 2010, 7.1% of small-cap respondents ranked research quality highest, compared to 23% in the 2013 survey.

Figure 5 - Trends in “Extremely Important” Responses by Service Category

Looking at trends in “Not Important” responses, one notable finding surfaces: across market caps and global regions, “Presence of Existing Banking Relations” has steadily declined from 50% citing “Not Important” in 2010 to 32% in 2013 (Figure 11). Broader banking relationships appear to be gaining relevance in corporate access at a time when declining research coverage can mean fewer touch points for brokers and issuers.

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Figure 6 - Trends in “Not Important” Responses by Service Category

Conclusion

76% of all issuers gave Ipreo a rating of “Very Satisfied” or “Somewhat Satisfied” as to their opinion of corporate access overall in 2013, up from a 62% rating in 2011. While each IRO’s situation may be different from the aggregate, this may indicate that the greater competition among corporate access-providing brokers is having a positive impact.

Coincident with a shifting focus of sell side coverage in favor of larger issuers, the rise of non-covering brokers as originators appears to be durable and broad-based. While issuers may regret the lack of fresh research as an output from a marketing event, travelling with a non-covering broker can have other positive benefits – notably differentiated investor contacts, and always the possibility for future research pickup in the event the story resonates with the broker’s clients.

Click here to view the entire 2013 Ipreo Corporate Access Study

Author: John Demler & Brian MattJohn is a Product Manager on Ipreo’s Corporate Access Team.Brian is a Director in Ipreo’s Analytical Services Group.

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BetterIR - Firm Snapshot

Targeting Profile: Eagle Asset management was founded in 1976 and is a subsidiary of Raymond James Financial, Inc. The company is also the parent company of Eagle Boston Investment Management. Eagle manages over $12.6B in equity assets diversified across 1,006 portfolio holdings. The firm maintains a moderate equity turnover of about 69%.

Eagle invests 96% of its assets in the U.S. and tends to be overweight the Technology sector (20%). Within the Technology space the firm mostly focuses on the Computer Software and Services industry. The firm’s largest Tech holdings include Med Assets ($127M) and Coherent ($114M). Eagle is a growth oriented Investor focused on the small and mid-cap space (85% of EAUM). The firm’s growth portfolios focus on Technology, Consumer and Industrials sectors. The company manages a number of active funds, the biggest being the Eagle Small Cap Growth Fund ($3.5B) managed by Bert Boksen and Eric Mintz out of St. Petersburg. Other sizable funds include the JNL/Eagle Small Cap Equity Series ($1.5B), which has increased its exposure to the Tech space in Q1 2013, and the AST Small Cap Growth Portfolio ($600M). The firm’s fund family, Eagle Funds, accounts for about 41% of the total assets that the firm manages. While Eagle Funds have not experienced noticeable outflows since Q4 2012, Eagle Asset Management has significantly decreased its exposure to the equity markets by about $2B over period. The firm has scaled back its holdings in almost all industries, however, most of the selling came from the Energy (-$383M), Consumer Services (-$263M), and Industrials (-$244M) sectors in names such as Lufkin Industries (-$139.5M) and Exxon Mobil (-$57M).

How to Approach:Eagle looks for undervalued companies relative to their benchmark with growth potential. The firm seeks stock with earnings growth of 20% or greater. The firm also focuses on strong management and will look favorably towards companies with large insider ownership. In addition the firm will look to identify a future catalyst for growth before investing, such as a new product line, restructuring efforts or cost reductions. Small- to mid-cap companies with a compelling growth story will find it easiest to appeal to the Eagle Small Cap Growth Fund.

How not to Approach: With a small- to mid-cap focus, large-cap and mega-cap stocks will generally have a tougher time getting into Eagle’s portfolio. As the majority of holdings do not pay a dividend, generally the firm has a preference for stock appreciation as opposed to returning capital through a dividend.

Portfolio Fundamentals:• Forward P/E: 16.9x• 5 Year Projected Growth Rate: 11.3%• Dividend Yield: 2.1%• Price/Book: 4.1xAverage Equity Holding Period: 1.4 Years

Targeted Firm: Eagle Asset Management- St. Petersburg, Florida

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Portfolio Manager:• Mills Riddick

Targeting Profile: The RidgeWorth Large Cap Value Equity Fund is a member of the RidgeWorth family of mutual funds. Mills Riddick of Cereadex Value Advisors, the value arm of RidgeWorth Investments, is chief investment officer and has served as the sole fund manager for the past 18 years. As the head of the value team, Mr. Riddick is responsible for overseeing all domestic equity portfolios.

During the equity screening process, the $3.4B large-cap value fund utilizes a bottom-up fundamental approach, seeking investment exclusively in dividend paying companies. The fund benchmarks against the Russell 1000 Value Index and invests roughly 90% in large- to mega-cap companies. The fund’s portfolio manager, in conjunction with firm analysts, begins the screening process by searching for companies with financial stability and trade at depressed valuations. Shortly after, the team seeks to identify company specific catalysts to drive growth over a 12 to 24 month time period. Changes in management, restructurings, and new product lines are all catalysts that are typically analyzed when considering investment. The fund seeks to hold between 60-80 stocks and will consider selling a stock when the company stops paying a dividend or the identified catalyst is not leading to significant change.

The large-cap value fund invests primarily in U.S. listed companies with market capitalizations greater than $3B. The portfolio is comprised of 66 holdings spread across all macro sectors; the top three being Financials (24%), Industrials (20%), and Energy (14%). A recent mutual fund filing shows a $51M increase in the fund’s Industrial sector allocation, up 17% QoQ. Large position increases in Stanley Black & Decker (+$18.0M), Caterpillar (+$10.4M), and Fluor Corporation (+$10.7M) led expansion within the Industrials portion of the portfolio.

BetterIR - Fund Snapshot

How to Approach:Since the start of the year, the RidgeWorth family of funds has seen asset inflows of roughly $880M, leaving portfolio managers looking to deploy new capital. As the fund is not sector specific, this presents the opportunity for companies of all industries to take on a presence in the fund. Financial companies in particular will have an easier time attracting the attention of the fund, as this has historically been the largest sector allocation within the portfolio. When taking a position the fund typically allocates between 1-5% of its assets, so with an expanding asset base, the fund could be a beneficial target for IR.

How not to Approach: Given the fund’s strong focus on dividend paying companies, gaining fund interest can be problematic for issuers that have an inconsistent history of paying a dividend. The fund will remove a company from its portfolio, if and when the issuer ceases to pay dividends. Furthermore, given the recent gain in the equities markets, it will not be easy for large- to mega- cap companies trading at significant premiums to the market to find their way into the fund. Conveying a company’s story to investors is that much more important, and it will take an active IR team to show the company’s future growth potential.

Portfolio Fundamentals: • Price/Earnings: 15.9• Price/Book: 2.0• Dividend Yield: 2.6%• Price/Sales: 1.4x

Average Equity Holding Period: 1 to 2 years

Targeted Fund: RidgeWorth Large Cap Value Equity Fund- Orlando, Florida

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Metro Area Targeting Focus - South Florida, USA

Reported Equity Assets ($B): $87.5

Number of Institutions: 75

World Rank: 34/183

Top Sector Weighting: Financials

Financials Weighting: 24.3%

Top Region Weighting: N. America

N. America Weighting: 72.5%

Home Country Weighting: 69.3%

Total Net Buying ($B): $9.2

Total Net Selling ($B): -$11.1

Total Net Activity ($B): -$1.8

Welcome to Hollywood! Hollywood, Florida that is… This year, the National Investor Relations Institute Conference is

set in sunny South Florid, a where Miami and Orlando are home to a host of active investors. Equity assets in Orlando

and Miami total $87.5B combined, making this southern hub 34th of 183 metro regions around the world. Miami by

itself ranks 21st in the U.S. by total equity assets, and has 46 institutions. Not far behind is Orlando, which is home

to 29 institutions with $34.6B in equity assets. Florida investors are most heavily weighted in the Financials (24.3%)

and Consumer Services (17.2%) sectors. Florida investors have been bearish in many sectors, most notably Consumer

Goods and Industrials, where net activity reached a respective -5.8% and -6.3% over the last quarter. Though firms in

South Florida have drastically decreased their exposure to the Consumer Goods space, these firms continue to hold

$5.2B in aggregate exposure to the sector. Excluding hedge funds, Eagle Asset management (-34.7%) has been the

largest net seller in the sector, selling $372.5M worth of Consumer Goods stock.

As the market reaches new record highs, many value funds are redirecting their attention towards defensive stocks,

bracing for a downturn. Though Utilities and Basic Materials make up a small portion of investors’ portfolios in

Florida, both sectors have seen positive net activity to the tune of +2.2% and +9.7%, respectively. In South Florida,

Ceredex Value Advisors is the largest Utilities investor. The firm holds $407.6M in Utilities companies and recorded

net activity of +23.4%. Ceredex is also a large Basic Materials investor with net activity of +3.1%. ICC Capital

Management was one of the largest net buyers in Utilities holding a total value of $111.8M in the space.

South Florida is a prime spot for international investment. Fidelity Management and Research is based in Boston, but

the firm manages many Florida-based funds that invest over $3.7B in securities outside of North America. 69.3% of

Florida Investors’ portfolios are held in the United States, however, net activity in Japanese securities (+8.4%) actually

surpasses net activity in North American securities (+5.5%). A majority of this bullish behavior can be attributed to

Templeton Investment Counsel. Templeton is not only increasing its positions in Japanese securities; the firm is also

the largest foreign investor in South Florida with $19.3B of its $22.5B in equity assets allotted to non-North American

securities.

Most Recent Sector Net Activity (% Change)

Money Center Statistics Summary Notes:

Sector Allocation

Most Recent Regional Net Activity (% Change) Geographic Allocation

Europe19.5%

Asia/Pac. Ex. Japan

5.3%Japan1.5%

Middle East/Africa

0.4%

Latin America

0.9%

United States69.3%

North America

3.2%

Basic Materials

5.0%Consumer

Goods 6.1%

Consumer Services 17.2%

Energy 8.3%

Financials 24.3%

Healthcare 10.1%

Industrials 13.0%

Technology 14.7%

Utilities 1.2%

2.2%

-5.8%

-1.9%-1.2% -1.3%

0.6%

-6.3%

-2.0%

9.7%

-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%

Basic Materials Consumer Goods Consumer Services Energy Financials Healthcare Industrials Technology Utilities

2.2%

-5.8%

-1.9% -1.2% -1.3%

0.6%

-6.3%

-2.0%

9.7%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Basic Materials Consumer Goods Consumer ServicesEnergy Financials HealthcareIndustrials Technology Utilities

-0.5%

0.6%

8.4%

-7.3%

-11.4%

-2.9%

5.5%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Europe Asia/Pac. Ex. Japan Japan Middle East/Africa

Latin America United States North America

BetterIR_July_2013

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