Ashmore Group plc Investor presentation December 2018 www.ashmoregroup.com
A specialist active manager of Emerging Markets assets EMERGING MARKETS FUNDAMENTALS UNDERPIN LONG-TERM GROWTH • EM accounts for majority of world’s population (85%), FX reserves (66%), GDP ( 59%) • High growth potential: social, political and economic convergence trends with DM • Large, liquid, diverse investment universe • Investors are underweight, typically <10% allocations vs 10%-20% EM weight in global indices ASHMORE CHARACTERISTICS LONG-STANDING INVESTMENT APPROACH DELIVERS OUTPERFORMANCE • AuM of USD 76.4bn diversified across eight investment themes • Deep understanding of EM underpins an active, value-based investment philosophy • Inefficient markets mean volatile prices, but significant alpha opportunities • Strong investment performance, 94% of • Investment committees, not a star culture AuM outperforming benchmarks over • Performance track record extends over more than 25 years three years • High EBITDA margin (66%) DIVERSIFIED CLIENT BASE • Well-capitalised, liquid balance sheet with • Global client base diversified by type and location £480m of excess capital • Retail markets accessed through intermediaries 1/3 rd of AuM sourced from EM-domiciled clients • • Alignment of interests between clients, employees and shareholders; employees own ~46% of equity DISTINCTIVE STRATEGY & EFFECTIVE BUSINESS MODEL • Progressive dividend policy, more than • Three phase strategy to capture value from long-term EM growth trends £1bn returned to shareholders since IPO • Remuneration philosophy aligns interests and provides flexibility through profit cycles • Disciplined cost control delivers a high profit margin • High conversion of operating profits to cash (109% since IPO) • Scalable operating platform, 253 employees in 10 countries • Network of local EM fund management platforms • Strong balance sheet supports commercial and strategic initiatives, e.g. seed capital 2
Emerging Markets Current views
Emerging Markets fundamentals are positive… • Emerging Markets fundamentals continue to improve Emerging nations had the ability and willingness to respond to the market environment of 2013-2015 2018 2013 ˗ significant macro adjustments GDP growth +5.1% +5.1% ˗ very few defaults, demonstrating resilience Inflation +4.6% +5.5% ˗ Current account (GBI-EM countries, % GDP) 0% -3% leading to positive economic trends Share of world GDP 59% 56% • EM fundamentals are strong and in better shape than in 2013 LC bonds outstanding (US$trn) 21.1 12.3 ˗ EM FX is more competitive - % of total EM bonds 87% 85% ˗ Central banks raised rates and successfully targeted inflation Real LC yield 3% 1% ˗ External balances are stronger ED spread over US Treasuries 3.6% 2.8% ˗ Reforms e.g. China, India, Indonesia and across Latin America EMBI GD countries 67 57 ˗ Capital markets have continued to grow and to diversify GBI-EM GD countries 18 16 ˗ GDP growth is accelerating YoY and versus developed markets ˗ Higher US interest rates are priced in to markets ˗ Elections typically increase volatility but provide opportunities ˗ Active managers have significant investment firepower 4
…so recent price moves creates attractive opportunities • Profit-taking after strong Emerging Markets returns in 2016 & 2017 Attractive local currency real yields e.g. local currency bonds +26%, equities +53% 6.00 Local currency bonds real yield (%) 5.00 • Markets affected by Developed Markets events (e.g. Italian politics) and strong USD, the drivers of which are likely to be temporary 4.00 ˗ New Fed chair Powell establishing credibility 3.00 ˗ Unfunded tax cut boosted GDP growth 2.00 ˗ Protectionism / tariffs 1.00 ˗ USD was weak vs EUR since end-2016 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 • Emerging Markets sentiment influenced by small number of countries with particular issues e.g. Turkey, Argentina • Valuations reset to end-2016 levels, immediately after US election ˗ e.g. local currency bonds real yield of ~3%, high in absolute terms, relative to history and relative to DM sovereign bonds of equivalent quality & duration • Elections eg Brazil typically increase volatility but provide opportunities 5
Asset classes: valuations Local currency External debt Index: 68 countries, 152 issuers, 663 bonds Index: 19 countries, 19 issuers, 219 bonds 12.0% 7.00% 1000 900 6.00% 10.0% 800 5.00% 700 8.0% Yield (%) 600 4.00% 6.0% 500 3.00% 400 4.0% 2.00% 300 200 2.0% 1.00% 100 0.0% 0.00% 0 2003 2006 2009 2012 2015 2018 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 JPM GBI Global (lhs) JPM GBI-EM GD (lhs) Yield difference: GBI-EM vs GBI Global (rhs) EMBI GD spread over UST, bps Corporate debt Equities Index: 50 countries, 644 issuers, 1,416 bonds 5.0 110 1200 4.5 100 1000 4.0 90 800 3.5 80 600 3.0 70 400 2.5 60 200 2.0 50 0 1.5 40 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CEMBI BD spread over UST, bps EM vs DM growth premium (IMF, %, lhs) MSCI EM vs DM total return (Dec2010=100, rhs) 6
Volatility risk • Active management can exploit value created by 12m alpha when entering markets during +10pts VIX spikes volatile prices in inefficient markets Active Passive History Strategy Alpha returns returns (years) • Fixed Income 3.0% 11% 8% Significant alpha can be generated versus passive (index) exposure External Debt (EMBI GD) 2.3% 12% 9% 24 Corporate Debt (CEMBI BD) 3.0% 10% 7% 16 Local Currency Bonds (GBI EM GD) 2.5% 10% 8% 15 • Bond yields provide substantial reward for risk Stocks 2.5% 7% 5% taken, based on actual defaults Equities (MSCI EM) 3.8% 7% 4% 24 EM Small Cap (MXEFSC Index) 5.0% 9% 4% 24 Frontier Equities (MXFM Index) -1.3% 5% 6% 16 EMBI yield and defaults 1,400 Yield net of defaults (bps) 1,200 Estimated loss from default in EMBI GD (bps) 1,000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 7
Active versus passive investing in Emerging Markets Large investment universe, low index representation • EM fixed income and equity markets are inefficient 35.0 US$28.9trn Benchmark indices are unrepresentative of the 19% 30.0 investment opportunity US$24.3trn 9% 25.0 Active management is critical US$ trillion 20.0 • 15.0 Structural developments, e.g. removal of capital US$10.9trn US$10.3trn 2% 9% controls, will increase index representation over the 10.0 long term US$2.0trn 5.0 US$1.2trn 23% 46% 0.0 • Based on JP Morgan data, EM ETFs represent: External External Local Local Fixed income Equities sovereign corporate sovereign corporate 11% of fixed income mutual funds; only 2% of index Mkt cap included in benchmark Mkt cap not included in benchmark market cap and 0.2% of total universe 26% of equity mutual funds; only 6% of index Wide range of returns available (12m to June 2018) market cap and 1.1% of total universe +11% EMBI GD index -1.6% -39% Source: BIS, JP Morgan, Bloomberg 8
Ashmore Group plc
Consistent three-phase strategy to capitalise on Emerging Markets growth trends 1. Establish Emerging Markets asset class Recent developments • • Ashmore is recognised as an established specialist Emerging Markets manager, Investor allocations to Emerging Markets are increasing, and and is therefore well positioned to capture investors’ rising allocations to the asset Ashmore’s AuM grew 26% in FY2017/18 with record gross classes and net subscriptions 2. Diversify developed world capital sources and themes • • Ashmore is diversifying its revenue mix to provide greater revenue stability Ashmore continues to develop products and capabilities through the cycle. There is particular focus on growing intermediary, equity within its eight investment themes. Retail AuM increased by and alternatives AuM 47% in FY2017/18 and represents 14% of total AuM 3. Mobilise Emerging Markets capital • Ashmore’s growth will be enhanced by accessing rapidly growing pools of • 33% of Group AuM has been sourced from clients domiciled investable capital in Emerging Markets in the Emerging Markets and AuM managed by local platforms increased 26% in FY2017/18 to US$4.9 billion 10
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