NEPTUNE CHINA FUND
Douglas Turnbull, CFA
Fund Manager
FOR INVESTMENT PROFESSIONALS ONLY NOT FOR ONWARD DISTRIBUTION
CITYWIRE PAN EUROPEAN EVENT – BERLIN 16-18 November 2011
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BIOGRAPHY – DOUGLAS TURNBULL
Fund Manager on the Neptune China Fund, alongside Lead Manager Robin Geffen Assistant Fund Manager on Neptune Global Equity Fund, working alongside Robin Geffen
Joined Neptune as an Analyst in January 2007 Graduated from Oxford University with a first class honours in Modern History CFA Charterholder Global sector research responsibilities: financials
An emerging talent in fund management
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CHINA IS HERE TO STAY
Economic transition and development
in China
Investing in the Chinese market
– Policy importance and direction
Investment opportunities arising
We believe this is a “generation-defining opportunity”
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THE ECONOMIC TRANSITION TAKING PLACE IN CHINA
LONG-TERM: AN ECONOMY IN TRANSITION
China too big to be an “Asian Tiger”
Economy moving up value-chain
– Push: ‘old economy’ companies under policy pressure
– Pull: ‘new economy’ companies given incentives
Economy moving towards endogenous growth
– Domestic consumption and rural development
We believe China is moving to a new & sustainable growth model
5 Source: World Bank, December 2010
Urban population as % of total
MEDIUM-TERM: A GRADUAL TRANSITION
Looks the same? Growth still
investment led
– Urbanisation
– Industrialisation
Qualitatively different, if
quantitatively slower
– Geographically focused inland
– Softer infrastructure to the fore:
‘Harmonious Society’ is back
Political priorities unlocking long-term potential
6 Source: Bank of America Merrill Lynch, July 2011; World Bank August 2011
FAI growth by region
0%
20%
40%
60%
80%
100%
India China Russia US Brazil UK
CHINA’S INFLATION DILEMMA OVER-HYPED
Short-term = food and energy prices (economic negative, including for consumption)
Inflation expectations are important to manage, hence policy responses
Longer-term = driven by wage growth; good for consumption
Nuanced understanding shows inflation assists economic change
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-5
0
5
10
15
20
25
Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11
%
CPI Food CPI non-food
Source: Bloomberg August 2011
CPI components Y-o-Y
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INVESTING IN CHINA THE ROLE OF GOVERNMENT
POLICY
SHORT-TERM: POLICY KEEPING GROWTH ON TRACK
Tightening cycle fairly advanced and room to loosen
– Positive for economy after success of government’s firepower & willpower to stimulate
– Positive for market after uncertainty/policy risk overhangs
Policy sustaining economic strength and bodes well for market
5
10
15
20
25
30
35
40
%
Loan Growth M2 Growth
Source: Wolfe Trahan & Co., Bloomberg September 2011. The forecasts are Neptune’s personal views and as such this document is
deemed to be impartial research. We do not undertake to advise you as to any change of our views.
China quantity of money Y-o-Y China cost of money
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ADDRESSING CONCERNS: TOO GOOD TO BE TRUE?
Comparison to Japan et al is inaccurate
Overcapacity fears are overdone
Long-term structural challenges exist, but
they are not insurmountable
We expect that long-term potential will continue to be realised
Source: The Economist, 14.01.10
A MISPRICED MARKET OPPORTUNITY
Cheap by all key comparisons
The current crisis is not of China
– European and US: confidence & politics
– Policy tools still available in China
China’s growth increasingly insulated
– Investing for new model of growth
Valuation discounts are not warranted; compelling time to buy
MSCI China P/E
Valuation
Peak 29.35x
Average 15.57x
Current 9.21x
MSCI World 12.74x
S&P 500 12.94x
Source: Bloomberg as at 31.10.11. These are Neptune’s personal views and as such this document is deemed to be impartial research. We
do not undertake to advise you as to any change of our views.
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THE INVESTMENT OPPORTUNITIES ARISING
Consumer Infrastructure
WINNING THE WALLETS OF CHINA’S CONSUMERS
Strong domestic brands
– Domestic tastes understood
– Leveraging JVs, e.g. Autos
– Strong sales and pricing power
Logistical advantages
– Networks in place
– Work well with local constraints
More sophisticated consumer
– Multi-layered consumer = multiple opportunities
Domestic champions establishing dominant positions
13 References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities.
GLOBAL SECTOR FOCUS: GROWTH OF THE INTERNET IN CHINA
Fast growth on a huge scale; domestic champions winning
Source: DCCI, China Internet Watch, June 2011. Please remember that forecasts are not a reliable indicator of future performance. The forecasts are
Neptune’s personal views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our
views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities.
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Already huge market
– China accounts for approx. 20% world internet users
Growth potential still huge as penetration still low
– China will have an estimated 551 million internet users by the end of 2011
Tencent’s QQ is the dominant online messenger
– Money follows the eyeballs
MACAU – BETTER THAN RED OR BLACK
Already huge market – world’s largest
for gambling
Growing fast – adding a Vegas in 2011
– Demand huge but supply constrained
Picking the high quality winners
– Wynn Macau and Sands China
Las Vegas is now just the Macau of the West!
Source: CLSA Research, February 2011
0.0
5.0
10.0
15.0
20.0
25.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LV Strip
Macau
15
US
$ B
n
Development of market size
FINANCIALS – A CONSUMER SECOND DERIVATIVE?
Banking = a “new” industry as it is today in China
Valuation (P/B multiple) capped by politics and opacity
Earnings at risk: medium-term implications of stimuli
Equity raisings highly likely longer term
Long-term transitions further away in this sector
– Consumer or SME lending
Valuations unattractive for level of risk
We believe index heavyweights can be avoided for now
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P/B = ROE – G
COE – G
CHINA’S SOCIAL HOUSING PROGRAMME
Economic AND political imperative
– Social housing offsetting loan quotas in private sector
This has begun, and on a large scale
Impact of build out is substantial
– Residential construction -12.5% GDP
Prospects for order books of exposed companies excellent
Source: Neptune/ CLSA as at July 2011. Please remember that forecasts are not a reliable indicator of future performance. The forecasts are
Neptune’s personal views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any
change of our views.
Residential floor space completed (‘000sqm)
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NEPTUNE CHINA FUND PERFORMANCE SINCE LAUNCH (VS MARKET)
Source: Bloomberg, 31.10.11. Neptune, A Accumulation share class cumulative performance, in sterling with net income reinvested and no
initial charges. The performance of other share classes may differ. This Fund may have a high historic volatility rating and past performance is
not a guide to future performance. 18
4 distinct relative performance phases over life of fund:
1) Lagged mega-cap rally to bubble 2) In-line over sell off
3) Lagged initial stimulus bounce
4) Period of outperformance as economic adjustments gain momentum
Forward-looking fund positioning, bearing fruits
---------- Neptune China Fund relative to the MSCI China ---------- MSCI China
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NEPTUNE CHINA FUND CUMULATIVE PERFORMANCE –EURO
Source: Lipper as at 31.10.11, IMA China / Greater China sector; A Accumulation share class cumulative performance, in euros with net
income reinvested and no initial charges. The performance of other share classes may differ. This Fund may have a high historic volatility
rating and past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as
a result of market and currency fluctuations and your clients may not get back the original amount invested.
A good long-term record
Period Neptune China
Fund MSCI China
To 31.10.11 % return % return
1 year -16.09 -15.88
3 years 75.97 55.95
5 years 25.46 41.18
Since launch (31.12.04) 116.20 159.06
CHINA: “A GENERATION-DEFINING OPPORTUNITY”
Long-term growth story strong and
supported
Translates into potential long-term
investment themes
Fund focussed on consumer and
infrastructure; financials key
underweight
20 Source: Neptune as at 31.10.11
Developed market SIZE; emerging market potential for GROWTH
Consumer Disc. 29.5%
Healthcare 1.5%
IT 13.1%
Utilities 4.1%
Consumer Staples 14.3%
Financials 7.1%
Telecoms 4.2%
Industrials 6.8%
Cash 5.2%
Energy 11.7%
Materials 2.5%
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APPENDICES
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NEPTUNE CHINA FUND
Launch date: 31 December 2004
Fund Managers: Robin Geffen (Lead Manager) and Douglas Turnbull
Assistant Fund Manager: Adam Kelly
Fund size: £82.0* (€93.5m)
Concentrated high conviction approach: 30-50 best ideas invested through
HK listings
Investment objective†: to generate capital growth from investment
predominantly in Chinese securities, or in the securities issued by
companies transacting a significant proportion of their business in China
*Source: Neptune as at 31.10.11. FX rate as at 31.10.11 £1/€1.1403. †There is no assurance that the fund objective will actually be achieved. This Fund may invest more than 35% in government and public securities in a number of jurisdictions. For further details please see the Full Prospectus. Investments in emerging markets are higher risk and potentially more volatile than those in established markets.
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NEPTUNE BY NUMBERS
Corporate
– £6.7 billion (€7.6billion) under management
– Approximately 75% of the Company is owned by staff and directors
Investment expertise
– 23 investment professionals incentivised by shares, fund profitability and
performance
– 10 global industry sectors researched by dedicated in-house sector analysts
Fund range
– 10 funds registered for sale in Germany
– UCITS UK-domiciled OEICs denominated in euros, US dollars or sterling
– Please refer to slide 24 for a full breakdown of all Neptune funds registered
in Europe and available currency share classes
Source: unless otherwise stated, information is provided by Neptune as at 31.10.11. The value of an investment and any income from it can fall
as well as rise as a result of market and currency fluctuation and your client may not get back the amount originally invested. FX rate as at
31.10.11 £1/€1.1403.
CONTINENTAL EUROPEAN REGISTRATION OF NEPTUNE FUNDS
The Funds listed are approved
in Germany, Switzerland,
Austria, Belgium,
Luxembourg, Netherlands
and France in addition to the
UK**
Tax transparent in Germany
and Austria
Currency share classes
available: £, €, $
*Are authorised but not currently available for investment.
**Please note that the Emerging Markets fund is not registered in Belgium, Luxembourg or the Netherlands.
Neptune Funds £ € $
UK Equity Fund *
US Opportunities Fund
Japan Opportunities Fund
Global Equity Fund
European Opportunities Fund
Russia & Greater Russia Fund
Asia Pacific Opportunities Fund
India Fund * *
Emerging Markets Fund** *
China Fund *
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A PROVEN PROCESS WITH PROPRIETARY RESEARCH
Team-driven active management
– No fixed style
– Seeking to outperform throughout the economic cycle
Top-down global view by experienced sector analysts
– Focus on economic indicators and growth prospects
– Produces output of sector and regional weightings
Bottom-up stock screening
– We believe stock selection is essential in concentrated portfolios
– Proprietary research and valuation models
– Emphasis on global sectors and industry-dominant companies
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MEET THE TEAM
Culture that promotes communication and collaboration
Alex Breese
Rebecca Young
Industrials Sector
Mark Martin
Healthcare Sector
James Dowey
Chief Economist
Douglas Turnbull
George Boyd-Bowman
Financials Sector
Harriet Grieve
Shelley McKeaveney
Adam Kelly
Leonard Cripps
Consumer Sectors
Felix Wintle
Head of US Equities
Healthcare Sector
Rob Burnett
Head of European Equities
Financials Sector
Ted Alexander
Kunal Desai
Technology & Telecoms Sector
Chris Taylor
Head of Research
Thomas Sinclair
William Rice
Oil & Gas Sector
Nicola Muirhead
Mining & Metals Sector
Robin Geffen
CEO
Fund Manager, Global Equities
Douglas McDowell
Head of
Client Investment Strategies
Ewan Thompson
Head of Emerging Market Equities
Mining & Metals Sector
Emma Stanford
Thomas Smith
Chemicals & Utilities Sector
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CONTACT DETAILS
Neptune Investment Management Limited
3 Shortlands, London W6 8DA
Tel: +44(0)20 3249 0100
Fax: +44(0)20 3249 0123
www.neptunefunds.com
Philippe Bretaudeau +44(0)20 3249 0179
Client Service and Sales Manager [email protected]
Henry Foster +44(0)20 3249 0180
Client Service Executive [email protected]
Calls may be recorded for monitoring and training purposes and for your protection
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IMPORTANT INFORMATION
This presentation is only intended for Investment Professionals resident or domiciled in Germany. This material is not intended for the use of Retail
Clients.
This presentation document has been provided in English as additional information for those readers with a sufficient command of the English
language. This document is issued by Neptune Investment Management Limited (“Neptune”), 3 Shortlands, London, W6 8DA which is authorised
and regulated by the Financial Services Authority 25 The North Colonade, Canary Wharf, London, E14 5HS. Details of our regulatory status and
authorisation by regulators in other countries are available from us on request. The Neptune web address is www.neptunefunds.com
Neptune has 29 UK domiciled funds authorised for public distribution by the FSA. The Neptune Emerging Markets Fund was authorised by the Federal Financial Supervisory Authority (BaFin) as at 05.05.10 for public distribution in and from Germany. The remaining nine funds were authorised by the Federal Financial Supervisory Authority (BaFin) as at 24.09.09 for public distribution in and from Germany. Further details can be located on the following German website http://www.bafin.de. Retail Clients should consult their Independent Financial Adviser or other authorised intermediary. This communication is only intended for persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. The provision of investment services may be restricted in certain jurisdictions. You are required to acquaint yourself with any local laws and restrictions on the availability of any services described. None of our products are available to residents in the United States. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are the analyst’s personal recommendations and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. This is not a solicitation or an offer to buy or sell. Neptune Investment Management Limited has produced this report for private circulation to Investment Professionals only and this document is not for onward distribution. The material is not intended for the use of Retail Clients. All information and advice is given in good faith but without any warranty. Please remember that that this Fund may have a high historic volatility rating and past performance should not be seen as a guide of future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the amount originally invested. Any forecast, projection or target is indicative only, is not guaranteed in any way and is not a reliable indicator of future performance Investments in Emerging Markets are higher risk and potentially more volatile than those in established markets. These and other risks are describes in the prospectus which should be read carefully prior to investing. This Fund may invest more than 35% in government and public securities in a number of jurisdictions.
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IMPORTANT INFORMATION
Any past performance data that has not been shown is due to the information not being available. The information provided is for information purposes only and is not intended to be considered as advice to invest in a particular fund. Neptune is not authorised to give investment advice and only provides information on Neptune products. The offer in Germany is made solely by means and on the basis of the published full and simplified prospectuses including any supplements thereof. The prospectuses and any supplements therefore have been electronically published on the website of the offer at http://http://www.neptunefunds.com/Navigate.aspx/Financial-Adviser/1/Literature/Literature-Library The information provided is for information purposes only and is not intended to be considered as advice to invest in a particular fund. The simplified and full prospectus (in German), the articles of incorporation or the certificate of incorporation, the audited annual and unaudited semi-annual report, the ACD contract from 10th February 2006 between the investment company and the ACD as well as the contract with the custodian bank from 10th February 2006 between the investment company, the custodian bank and the ACD are available from the Information Agent in printed form and free of charge: Marcard, Stein & Co AG Ballindamm 36 20095 Hamburg Germany Furthermore, the issuing price and conversion price of the investment certificated are available from the German Information Agent free of charge. For further information including the relevant definitions, please see the full prospectus Informationsstelle in Deutschland MARCARD, STEIN & CO Ballindamm36 D-20095 Hamburg hat in Deutschlean die Funktion der Informationsstelle ubernommen. Der vereinfachte und der ausfuhrliche Verkaufsprospekt, die Satzung der Gesellschaft beziehungsweise die Grundungsurkunde, die gepruften Jahresund ungepruften Halbjahresberichte, der ACD- Vertrag vom 10. Februar 2006 zwischen der Investmentgesellschaft und dem ACD sowie der Vertrag mit der Depotbank vom 10. Februar 2006 zwischen der Investmentgesellschaft, der Depotbank und dem ACD sind kostenlos in Papierm bei der deutschen Informationsstelle erhaltlich. Weiterhin sind bei der deutschen Informationsstelle kostenlos die Ausgabe- Rucknahme- und Umtauschpreise der Investmentanteile erhaltlich.