Tom Mann, CFA | Senior Portfolio Manager
BCI Global Investment Conference
Risks and Opportunities in Global Equities Today
June 2017For professional investors only. Not suitable for retail clients
Where are the opportunities for investors today?Key themes
1. Growth Bubble
2. Financials – Weighing up Risk and Return
3. Emerging vs Developed Markets
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Source: Schroders, QEP
05/06/2017 18:33:46
75
100
125
150
175
200
225
250
275
300
325
Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16
Nasdaq 100
US Momentum
US Growth
US Index
World Growth
Word Index
World Value
World ex US
Emerging Markets
Market ReviewYour experience will have been very different depending on what you owned…
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Source: Schroders, FactSet in USD as at 30 April 2017. MSCI indices are Net Dividend Re-invested. Past performance is not a guide to future performance and may not be repeated.
05/06/2017 18:33:46
1. US equities have led the charge
over the last six years…
2. ...as Growth and Momentum stocks
were pushed to even higher
valuation levels
3. Emerging Markets struggled to
keep pace
– Some Mega cap stocks have been priced for exceptional growth
– Expensive valuation not limited to the US, or to software
Growth bubble yet to deflateFashionable darlings of social media, internet and tech have continued winning...
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Source: Schroders as at 12 May 2017. Returns in US dollar terms. Securities mentioned are for illustrative purposes only and not a recommendation to buy or sell.
Stock Country Industry
Market Cap
($m)
Forward
P/E Ratio
Price /
Sales
Forward
Sales
Growth
(Next Year)
EPS ex
Extras
Growth
(3yr)
Forward
EPS
Growth
(Next Year) PEG Ratio
YTD
Return
(USD)
3 Yr
Return
(USD)
Facebook Inc US Software 419,835 28.9 14.4 35% 120.2% 17.6% 1.6 30.7% 151%
Tencent Hldgs Ltd CN Software 316,178 35.5 14.3 37% 32.1% 37.4% 0.9 35.4% 155%
Alphabet Inc US Software 643,389 26.8 6.9 18% 19% 4% 6.2 20.8% 76%
Tesla Inc US Autos 50,282 Lossmaker 6.2 61% -14% -24% 3.5 52.0% 71%
Amazon Com Inc US Retail 451,572 116.8 3.2 22% 225% 50% 2.3 28.2% 216%
Growth bubble yet to deflate…creating a range of opportunities elsewhere
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Source: Schroders as at 24 May 2017. Returns in US dollar terms. Securities mentioned are for illustrative purposes only and not a recommendation to buy or sell.
Stock Country IndustryMarket
Cap ($m)
Forward EPS
Growth (Next Year)
Forward P/E Ratio
Return on Capital
EmployedOperating
Margin
YTD Return (USD)
3 Yr Return (USD)
Infosys Ltd IN IT Services 33,929 3.4% 14.7 32.4% 24.9% 1.6% 21.6%
Novo-Nordisk As DK Pharmaceuticals 104,579 4.8% 17.6 126.0% 43.4% 17.6% 3.7%
Taiwan Semicon Man TW Semiconductors 176,400 7.4% 14.5 25.8% 41.2% 21.7% 84.4%
Apple Inc US Hardware 801,889 12.8% 15.7 28.6% 26.9% 33.9% 87.6%
Unilever Nv NL Consumer Staples 165,666 11.9% 22.7 25.1% 15.3% 37.6% 41.5%
Funding and Leverage RiskExample criteria used to assess Quality in selected banks
FinancialsFocus upon balance sheet strength
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Source: Schroders. Table data as at 28 February 2017. *Implied Leverage is calculated based on Tangible Assets to Tangible Equity.
US
Bank
Australian
Bank
South African
Bank
Deposits to Net Loans 161% 76% 110%
Implied Leverage* 9 14 10
Debt to Assets 24% 31% 2%
QEP Financials
Quality RankHigh Quality Low Quality High Quality
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0% 25% 50% 75% 100%
US
Simple
Banks
US
Complex
Banks
HK & SG
Australia
Canada
UK
Japan
Continental
Europe
Scandinavia
Price/Tangible Book
FinancialsUS banks currently offer best risk-return, more selective in Europe, cautious elsewhere
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Source: QEP investment team, as of 31 March 2017. Price/Tangible Book of the large banks by assets versus QEP Global Quality Rank. Countries mentioned are for illustrative purposes only and not a recommendation
to buy or sell.
QEP Global Quality Rank
Potential ShortsReassuringly Expensive
Opportunity Knocks
Low QualityHigh Quality
Selective High Risk/Return Cautious
Emerging Markets vs. Developed Markets Trading at a 30% discount
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Source: MSCI, 31 January 2000 to 31 March 2016. Premium/discount relative to MSCI World
Premium or discount of MSCI EM to MSCI World
-80%
-60%
-40%
-20%
0%
20%
40%
60%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE PB
Expensive
Cheap
Important considerations for investors
1. Index concentration – buyer beware
2. Be active and be selective
3. Country (and currency) risk matters
Emerging MarketsIndex concentration risk
Source: MSCI as at 31 March 2017. *Data for Index Weight – SOE is as at 25 February 2016; weight represents percentage of the MSCI EM Index where the Government owns more than 20% of the equity. Sectors and
countries mentioned are for illustrative purposes only and not a recommendation to buy or sell.
24%
25%15%
36%
Financials Tech Resources Other Sectors
27%
15%
12%
46%
China Korea Taiwan Other countries
Index Weight – Sectors
Index Weights – Countries
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SOE's25%
non-SOE's75%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
China Other Countries
Other Sectors Financials
Index Weight – State Owned Enterprises (SOE)*
Nearly 50% in just two sectors (financials & technology)
Over 50% in just three countries (China, Korea & Taiwan)
SOE’s account for 25%, and Financials alone account for over 11%
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Regional Sector Forward Price-Earnings Multiple
Emerging MarketsMost sectors attractively valued relative to developed
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Source: Schroders, MSCI as at 31 March 2017. Sectors mentioned are for illustrative purposes only and not a recommendation to buy or sell.
Sector Emerging Markets World
Health care 21.1 16.3
Cons. Staples 20.9 19.9
Utilities 10.2 16.3
Telecoms 16.0 14.3
Cons. Discretionary 15.5 16.9
Industrials 13.9 17.5
Technology 14.2 18.5
of which: Tech Software 24.7 22.0
of which: Tech Hardware 10.1 15.2
Materials 11.7 15.8
Energy 8.7 21.1
Financials 9.2 12.7
Real Estate 10.1 24.7
Benchmarks 12.2 16.6
Country Risk MattersQEP approach to evaluating country (and currency) risk
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Source: Schroders. Data as at 23 March 2017. Countries mentioned are for illustrative purposes only and not a recommendation to buy or sell.
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Currency Valuation Currency Credibility Credit Risk Growth Prospects ESG Risk
Thank you
Important information
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For professional investors and advisers only. The material is not suitable for retail clients. We define "Professional Investors" as those who have the appropriate expertise and knowledge e.g.
asset managers, distributors and financial intermediaries.
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