David Orr, Portfolio Manager

TBLI Conference – June 2010ESG: A Way to Reduce Downside Risk

2 TBLI ASIA 2010 www.sparinvest.lu

• Investment Philosophy & Process

• Integration of ESG into Investment Process: why, and how?

• Ongoing Development and Outlook

Agenda

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Investment philosophy

Investment Philosophy & Process

Mission: To protect and increase

the capital of our investors

Consider downside risk before upside potential

Long term investing

Buying the company, not the stock

No style drift – remain disciplined at all times

Positive returns – no relative benchmarking

TBLI ASIA 2010 www.sparinvest.lu

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Documentation Portfolio Valuation Analysis

Investment Process

Universe: developed markets only – lower political risk

100 % Bottom-up

Current data source is Bloomberg

Markets screened using value criteria such as: P/B, P/E, NDE, EV/EBITDA

Regular & ad hoc screenings for further analysis

Weekly value team meeting is central to the process

Sparinvest Value

Model

Factsheet with historic figures

Case build-up; information search

Fundamental analysis: traditional, with in-house check list

Operational track record

Contact with company; alternate research sources

Definition – assets, earnings, or both

Estimate long term earnings power & asset strength from historical performance

Look at comparable transaction values in specific industry

Calculate intrinsic value (target price)

If discount is 40% or more, we invest. If not, we monitor

90-120 companies

Weightings by region, sector & market cap: residual of our bottom-up process

Price to book ratio typically under 1.5, EV/EBITDA median of 5, & NDE average of 15%

Historically has included many takeover targets

Internal style control by investment committee.

Internal: Electronic files only:

team shares whole investment case

Monitoring & review of holdings: full-review of each case at least semi-annually

Communication with companies

Portfolio statistics

External: Daily & monthly fund

factsheets

Quarterly letter to shareholders

Presentations

Investment Philosophy and Process

Screening Screening

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Why integrate ESG?

Focus on ESG values in themselves (potentially to trigger change)

Focus on corporate value: to make more money

Integrating ESG: Focus on Values, or Value?

Integration of ESG

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Documentation Portfolio Valuation Analysis

Investment Process: Focus on Intrinsic Value

• 100% bottom-up

• Developed markets only

• Data source: Bloomberg

• Markets screened on value criteria, such as P/B, P/E, NDE, EV/EBITDA

• Regular & ad hoc specialised screens

• Sparinvest Factsheet: historical data

• Information search

• Fundamental analysis, including detailed in-house check list

• Operational track record

• External research

Integration of ESG

Screening Screening

• Detailed & comprehensive check list

• Constant development since fund inception

• Examples:• Goodwill & other impairment risk• Pension liabilities

• Contingent liabilities• Environmental concerns• Board quality• Management track record• Ownership structure• Shareholder returns

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Little Strokes Fell Great Oaks: The Rosenfeld EffectCalifornia’s electricity usage per capita is exactly the same as 30 years ago - despite the boom in electronic devices. How?One key factor is the “Rosenfeld effect”, named after Dr Arthur Rosenfeld, a physicist and former commissioner at the Californian Energy Commission. Following the mantra that “Conserving energy is cheaper and smarter than building power plants”, he proposed many energy-conservation measures. Examples are standards in building insulation, light efficiency, energy-saving light bulbs, and so on. Household appliances were to be designed using a minimal amount of energy; producers were held responsible for motivating their customers to shift to low-energy products.

• Quantifiable?

• Environmental, Social, or Governance?

• Impact on short-term share price, or long-term intrinsic value?

Impact of ESG Issues on Corporate Value

Integration of ESG

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Documentation Portfolio Valuation Analysis

Investment Process: Focus on ESG Values Themselves

• 100% bottom-up

• Developed markets only

• Data source: Bloomberg

• Markets screened on value criteria, such as P/B, P/E, NDE, EV/EBITDA

• Regular & ad hoc specialised screens

• Sparinvest Factsheet: historical data

• Information search

• Fundamental analysis, including detailed in-house check list

• Ethical screening

• Operational track record

• External research

Integration of ESG

Screening Screening

• Ethical screen:• Before initial investment• Semi-annual screens of existing

holdings

• Norm-based:• Environmental protection• Human rights• Labour standards• Anti corruption

• Sector-based:• Alcohol• Gambling• Tobacco• Pornography• Weapons

TBLI ASIA 2010 www.sparinvest.lu

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UN PRI: SRI Team

Enhance fundamental analysis: assess external ESG research

Develop policies for active ownership: engagement & voting

Ongoing Development

Integration of ESG

UN PRI in Sparinvesti. Focus on Valueii. Focus on Returniii. Focus on Risk

Fiduciary Duty

Sparinvest ”Ethical”i. Focus on valuesii. Focus on investor demands

Active ownership

DialogueVoting

Transparency

ESG factorsEnvironment

SocialGovernance

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Investment Performance

Integration of ESG

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• Focus on absolute value – not relative

• Long term investment

• Strong process, with in-house view of risk vs reward

Outlook: Outperformance Enhanced by ESG

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The mentioned sub-fund is part of Sparinvest SICAV, a Luxembourg-based, open-ended investment company. For further information we refer to the full and/or simplified prospectus and the current annual / semi-annual report of Sparinvest SICAV which can be obtained free of charge at the offices of Sparinvest or of appointed distributors together with the initial statutes of the funds and any subsequent changes to such statutes. Investments are only made on the basis of these documents. Past performance is no guarantee for future returns. Investors may not get back the full amount invested. Investments may be subject to foreign exchange risks. The investor bears a higher risk for investments into emerging markets. The indicated performance is calculated Net Asset Value to Net Asset Value in the fund’s base currency, without consideration of subscription fees. For investors in Switzerland the funds’ representative and paying agent is RBC Dexia Services Bank S.A., Zurich Branch, Badenerstrasse 567, P.O. Box 101, CH-8066 Zurich. Published by Sparinvest, 28, Boulevard Royal, L-2449 Luxembourg.

Disclaimer

Disclaimer

TBLI ASIA 2010 www.sparinvest.lu