Emerging Markets: Leading the way to a
brighter future
May 2019
The value of investments and the income from them may go down as well as up and you may not get back the amount you originally invested.This information is only for use by professional clients, eligible counterparties or qualified investors. It is not aimed at, or for use by, retail clients.
Paul Desoisa
Global Emerging Markets, Martin Currie
18%
15%
12%10%
9%
22%
15%
8%8%
5%
26%
15%
25%
14%
0%
5%
10%
15%
20%
25%
30%
Energy Materials Telecommunications InformationTechnology
Consumer Financials Other
2008 2018
The dirty past versus the bright futureA shift from commodity and cyclical industries to sustainable high-ROE, cash-flow generating industries
Source: Factset and Martin Currie. 2008 sector exposure is as at 1 January 2008. 2019 data is accurate as at 30 November 2018. Other includes Industrials, Utilities, Healthcare and Real Estate.
2
MSCI Emerging Markets sector exposure over ten years
20082018
Long-term growth themes creating opportunities
Three themes we are interested in right now:
1. Digital disruption
2. Internal Combustion Engines (ICE) to Electric Vehicles (EV)
3. China’s economic transition
3
Digital disruptionConsumer staples are no longer the driver of the Emerging Market growth story
4
Digital disruption
Source: Statista and EY, ‘FinTech Adoption Rates’, June 2017. *Hong Kong is a special administrative region of the people’s republic of China.
Technology is driving the EM leapfrog
57%
59%
60%
72%
83%
UK
Australia
Brazil
India
China
13%
15%
20%
21%
22%
Hong Kong
US
India
Brazil
China
25%
27%
29%
39%
58%
Hong Kong
US
Brazil
India
China
12%
13%
15%
20%
46%
Germany
US
Brazil
India
China
31%
32%
38%
43%
47%
Germany
SouthAfrica
China
UK
India
Money transfer
& payments
Financial
planning
Savings &
investments
Borrowing Insurance
5
ICE to EV“The trend has been decided. And the sense of urgency has increased.” —SK Innovation CFO
6
ICE to EVEM companies dominating both supply and demand
Source: Venture Capitalist ‘Battery Megafactory Forecast’ October 2018. www.visualcapitalist.com
7
Top 7 plants, Gigawatt hours (2023)
China’s economic transitionAir pollution is killing over 1 million people in China every year
8
China’s move from coal to gasA golden age for natural gas in China
Source: International Energy Agency, Gas 2018 Report.
9
Primary energy consumption mix
Natural gas target (%)
15% in 203010% in 2020
6% in 2010
Legg Mason IF Martin Currie Emerging Markets Fund
Legg Mason IF Martin Currie Emerging Markets FundAnnualised period returns
Past performance is not a reliable indicator of future results.Source: Legg Mason as at 31 March 2019 for Class X Acc GBP. Annualised performance is calculated on a NAV to NAV basis, with net income reinvested and after deduction of annual fund expenses. The figures
provided includes the re-investment of dividends. MSCI Emerging Markets index used as benchmark. The Legg Mason IF Martin Currie Emerging Markets Fund incepted on 26 June 2015. Performance shown
includes periods prior to the Fund’s inception date, reflecting performance of a predecessor fund with a substantially similar investment objective and policy and whose assets were transferred into this Fund on the
date indicated above, inception 9 September 1991. The performance data should be used for illustrative purposes only, as performance prior to the inception date has not been adjusted to take into account the
lower fees of the fund.
10.11
-2.56
17.63
9.959.09
7.447.44
-0.32
14.36
8.929.99
N/A
-5%
0%
5%
10%
15%
20%
3 Months One year Three years (p.a.) Five years (p.a.) Ten years (p.a.) Since inception (p.a.)
Annualis
ed r
etu
rn
Legg Mason IF MC Emerging Markets Fund – Cl X Acc. (RDR ext) MSCI EM (net) [Prior To 1 Jan 2001 MSCI EM (gross)] (GBP)
11
Standardised past performanceRolling period returns
Past performance is not a reliable indicator of future results.Currency exchange rate fluctuations may impact the value of your investmentSource: Legg Mason, as at 31 March 2019. Performance is calculated on a NAV to NAV basis, with net income reinvested and after deduction of annual fund expenses. Sales charges, taxes and other locally
applied costs to be paid by an investor have not been deducted. Comparisons to relevant indexes and peer groups are included as a standard against which the performance of a fund can be measured.
Performance shown includes periods prior to the Fund’s inception date, reflecting performance of a predecessor fund with a substantially similar investment objective and policy and whose assets were transferred
into this Fund on 26 June 2015. The performance data should be used for illustrative purposes only, as performance prior to the inception date has not been adjusted to take into account the lower fees of the fund.
Rolling 12-month performance
(%)
31 Mar 2018–
31 Mar 2019
31 Mar 2017–
31 Mar 2018
31 Mar 2016–
31 Mar 2017
31 Mar 2015–
31 Mar 2016
31 Mar 2014–
31 Mar 2015
Legg Mason IF Martin Currie Emerging
Markets Fund X Acc GBP (RDR ext)-2.56 18.23 41.27 -9.68 9.32
12
Legg Mason IF Martin Currie Emerging Markets Fund
▪ Highly-experienced, focused and collaborative team
▪ Proven investment philosophy supported by disciplined investment process
▪ Effective stewardship of client capital through integration of ESG
▪ Stock-driven portfolio with a compelling performance record
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Fund risks
Investment in company shares: The fund invests in
shares of companies, and the value of these shares
can be negatively affected by changes in the company,
its industry or the economy in which it operates.
Emerging markets investment: The fund may invest
in the markets of countries which are smaller, less
developed and regulated, and more volatile than the
markets of more developed countries.
Investment in smaller company shares: The fund
buys shares in smaller companies. It may be difficult to
sell these shares, in which case the fund may not be
able to minimise a loss on such shares.
Concentrated fund: The fund invests in fewer
companies than other funds which invest in shares
usually do. This means that the fund does not spread
its risk as widely as other funds and will therefore be
affected more if an individual company has significant
losses.
Fund currency: Changes in exchange rates between
the currencies of investments held by the fund and the
fund's base currency may negatively affect the value of
an investment and any income received from it.
Derivatives: The use of derivatives can result in
greater fluctuations of the fund's value and may cause
the fund to lose as much as or more than the amount
invested.
Fund operations: The fund is subject to the risk of loss
resulting from inadequate or failed internal processes,
people or systems or those of third parties such as
those responsible for the custody of its assets,
especially to the extent that it invests in developing
countries.
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Appendix
Our Global Emerging Markets teamExperienced, Focused and Aligned team
Source: Martin Currie, 31 March 2019.
We have a highly-experienced and deeply-resourced GEMs team, with experience managing through multiple cycles
Highly Experienced
▪ Average 20 years investment experience
Sector expertise
▪ Specialisation enables better comparison
of stocks between countries
Singular focus
▪ One strategy means no competing distractions
Client alignment
▪ Reward is based on client outcome
Team member Sector specialisation Industry experience
Kim Catechis Macro and Political 31 years
Alastair Reynolds Materials and Energy 28 years
Paul Sloane Financials 25 years
Divya Mathur Information Technology 23 years
Andrew Mathewson Consumer and Healthcare 16 years
Colin Dishington Communications Services 8 years
Paul Desoisa Industrials and Utilities 5 years
Averageindustry
experience
20 years
16
A transparent and disciplined investment processHarnessing our collective experience to deliver a truly stock-driven portfolio
17
Our process facilitates a
collaborative approach
■ Team members perform both
Portfolio Manager and Analyst roles
■ Experience and perspective
harnessed to gain better
investment insight
■ Entire team is involved in portfolio
construction decisions
UNIVERSE OF QUALITY COMPANIES
FUNDAMENTAL RESEARCH
APPROVED RESEARCH LIST
c.100 stocks
PORTFOLIO CONSTRUCTION
4060 Holdings
Our philosophy
Past performance is not a guide to future returns. Source: Martin Currie and UBS PAS as at 31 March 2019. Data calculated for the longest running Global Emerging Markets representative account. MSCI Emerging Markets Index used as benchmark. Start date
for manager tenure 1 October 2010. Note that the Net Debt, EV, EBIT and Interest Cover metrics exclude holdings in Financials. *Consensus.
18
High quality, growth, attractive valuations
10
15
20
25
2010 2011 2012 2013 2014 2015 2016 2017 2018
RO
E (
%)*
-10
0
10
20
30
40
50
2010 2011 2012 2013 2014 2015 2016 2017 2018
Debt/equity r
atio
-5
0
5
10
15
20
2010 2011 2012 2013 2014 2015 2016 2017 2018
His
toric e
arn
ings
gro
wth
(%
)*
6
8
10
12
14
16
18
20
2010 2011 2012 2013 2014 2015 2016 2017 2018
P/E
*
Martin Currie Benchmark
Quality – return on equity Quality – debt/equity ratio
Growth – historic earnings growth Value P/E
Top 10 holdings by active weightRepresentative account
Past performance is not a guide to future returns.Source: Martin Currie as at 31 March 2019. There may be differences between the representative account and the Legg Mason Martin Currie Global Emerging Markets Fund including differences in the amount of
assets under management, cash flows, fees and expenses, and applicable regulatory requirements, including investment and borrowing restrictions. The past performance and allocations of the representative
account may not be indicative of the Legg Mason Martin Currie Global Emerging Markets Fund over the same period. MSCI Emerging Markets index used as benchmark. Any differences in relatives are due to
rounding. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will
prove to be, profitable. *EPAM Systems is a US-listed stock with primary operations in Central and Eastern Europe.
Stock Country Sector Portfolio (%) Index (%) Active (%)
Samsung Electronics Korea Information Technology 7.4 4.0 3.4
Taiwan Semiconductor Taiwan Information Technology 6.8 3.7 3.1
OTP Bank Hungary Financials 2.9 0.2 2.7
AIA Hong Kong Financials 2.6 – 2.6
Credicorp Peru Financials 2.8 0.3 2.5
Titan Company India Consumer Discretionary 2.6 0.1 2.5
LG Chem Korea Materials 2.8 0.3 2.5
EPAM Systems CEE* Information Technology 2.4 – 2.4
Alibaba China Consumer Discretionary 6.7 4.5 2.2
Industrial & Comm Bank of China China Financials 3.0 1.0 2.1
19
Sector and country exposure
Source: Martin Currie as at 31 March 2019. Data calculated for the Martin Currie Global Emerging Markets representative account. MSCI Emerging Markets Index used as benchmark. Any differences in relatives
are due to rounding. *USA refers to EPAM Systems and Hong Kong refers to AIA.1.1% of the portfolio is invested in the I shares MSCI EM UCITS ETF for cashflow management purposes.
20
Sector
Portfolio
(%)
Index
(%)
Active
(%)
Information Technology 23.7 14.6 9.1
Consumer Discretionary 18.4 13.4 5.0
Healthcare 3.1 2.6 0.5
Financials 24.3 24.2 0.1
Materials 7.3 7.4 -0.0
Utilities 1.8 2.5 -0.7
Energy 6.9 8.1 -1.2
Real Estate – 3.2 -3.2
Consumer Staples 2.3 6.4 -4.1
Communications 8.1 12.3 -4.2
Industrials 0.4 5.4 -5.0
Cash 2.7 – 2.7
Country
Portfolio
(%)
Index
(%)
Active
(%)
Peru 4.1 0.4 3.7
Hong Kong* 2.6 – 2.6
Hungary 2.9 0.3 2.6
USA* 2.4 – 2.4
Korea 14.6 13.0 1.6
Taiwan 12.0 11.3 0.7
Indonesia 2.5 2.2 0.3
Russia 4.0 3.8 0.3
Turkey 0.6 0.5 0.1
India 9.0 9.2 -0.2
Philippines 0.8 1.1 -0.3
Mexico 2.2 2.7 -0.4
Malaysia 1.0 2.2 -1.2
Brazil 5.4 7.2 -1.9
South Africa 3.8 5.9 -2.1
China 28.3 33.0 -4.7
Cash 2.7 – 2.7
Stock attributionRepresentative account12 months to 31 March 2019
Past performance is not a guide to future returns. Source: Martin Currie as at 31 March 2019. Data calculated for the Martin Currie Global Emerging Markets representative account. MSCI Emerging Markets index used as benchmark. There may be differences
between the representative account and the Legg Mason Martin Currie Global Emerging Markets Fund including differences in the amount of assets under management, cash flows, fees and expenses, and
applicable regulatory requirements, including investment and borrowing restrictions. The past performance and allocations of the representative account may not be indicative of the Legg Mason Martin Currie
Global Emerging Markets Fund over the same period. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the
security transactions discussed here were, or will prove to be, profitable. The attribution figures above are based on the Fund's holdings and do not reflect fees or expenses of the Fund.
1) EPAM Systems is a US listed company with primary operations in Central and Eastern Europe.
2) Stock not held in period.
Stock name Country Sector
Relative
contribution
EPAM Systems¹ CEE Information Technology 1.0
Lukoil Russia Energy 0.6
AIA Hong Kong Financials 0.6
CNOOC China Energy 0.5
Titan Company India Consumer Discretionary 0.5
HDFC Bank India Financials 0.4
Credicorp Peru Financials 0.3
Cosan Brazil Energy 0.3
Asian Paints India Materials 0.3
Bank Rakyat Indonesia Indonesia Financials 0.3
Stock name Country Sector
Relative
contribution
Aspen Pharmacare S. Africa Healthcare -0.7
Shanghai Fosun Pharma China Healthcare -0.7
Maruti Suzuki India India Consumer Discretionary -0.6
Akbank Turkey Financials -0.4
Yes Bank India Financials -0.4
Genting Malaysia Consumer Discretionary -0.4
Sunny Optical China Information Technology -0.4
Brilliance China China Consumer Discretionary -0.4
Globalwafers Taiwan Information Technology -0.4
Reliance Industries* India Energy -0.4
Top ten contributors
(%)
Bottom ten contributors
(%)
21
Sector and country attributionRepresentative account
Past performance is not a guide to future returns.Source: Martin Currie as at 31 March 2019. Data calculated for the Martin Currie Global Emerging Markets representative account. MSCI Emerging Markets index used as benchmark. There may be differences
between the representative account and the Legg Mason Martin Currie Global Emerging Markets Fund including differences in the amount of assets under management, cash flows, fees and expenses, and
applicable regulatory requirements, including investment and borrowing restrictions. The past performance and allocations of the representative account may not be indicative of the Legg Mason Martin Currie
Global Emerging Markets Fund over the same period. Any differences in relatives are due to rounding. Information provided should not be considered a recommendation to purchase or sell any particular security.
It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable. The attribution figures above are based on the Fund’s holdings and do not reflect fees or expenses
of the Fund.
1) USA refers to EPAM Systems and Hong Kong refers to AIA.
12 months to 31 March 2019
Sector
Relative return
contribution (%)
Energy 0.7
Communications 0.3
Information Technology 0.3
Consumer Staples 0.3
Financials 0.2
Utilities 0.1
Industrials -0.0
Real Estate -0.2
Materials -0.3
Consumer Discretionary -0.9
Healthcare -1.3
Total -1.3
Country
Relative return
contribution (%) Country
Relative return
contribution (%)
USA* 1.0 Thailand 0.0
Korea 1.0 Poland 0.0
Hong Kong* 0.6 Indonesia 0.0
Hungary 0.2 Colombia -0.1
Russia 0.1 United Arab Emirates -0.1
Chile 0.1 South Africa -0.1
Mexico 0.1 Taiwan -0.1
Peru 0.1 Philippines -0.1
Greece 0.1 Qatar -0.2
Pakistan 0.0 Malaysia -0.3
Brazil 0.0 Turkey -0.5
Egypt 0.0 India -1.0
Czech Republic 0.0 China -1.4
Total -1.3
22
Emerging markets are undervaluedEmerging Market companies deliver a similar Return on Equity to those in Developed Markets, but at a significantly lower valuation (Price-to-Book)
Past performance is not a guide to future returns. Source: Bloomberg as at 31 March 2019.
Return on Equity Price-to-Book
23
2.4
1.6
1.0
1.5
2.0
2.5
3.0
P/B
ratio
MSCI World Index MSCI Emerging Markets Index
13.012.8
0%
4%
8%
12%
16%
20%
RO
E
MSCI World Index MSCI Emerging Markets Index
This is a sub-fund (‘fund’) of Legg Mason Funds ICVC (‘the Company’), an umbrella investment company with variable capital, authorised in the UK by the
Financial Conduct Authority as an undertaking for collective investment in transferable securities (‘UCITS’).
Information has been prepared from sources believed reliable. It is not guaranteed in any way by any Legg Mason, Inc. company or affiliate (together
‘Legg Mason’).
Before investing you should read the application form, Prospectus and KIID (and accompanying Supplementary Information Document). These and other
relevant documents may be obtained free of charge in English from Legg Mason Investment Funds Limited, 201 Bishopsgate, London EC2M 3AB or from
www.leggmason.co.uk.
Individual securities are examples only and are not recommendations to buy or sell an investment.
Opinions expressed are subject to change without notice and do not consider the needs of investors.
This financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London, EC2M 3AB. Registered in England
and Wales, Company No. 1732037. Authorised and regulated by the UK Financial Conduct Authority.
This information is only for use by professional clients. It is not aimed at retail clients. Not for onward distribution.
April 2019
ICVC ICVCUUK ITALY
Important information
24
ICVC ICVCUUK ITALY
