Ashmore Group plc Investor presentation June 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 (58%) • 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 76.5bn 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, 93% 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 (67%) DIVERSIFIED CLIENT BASE • Well-capitalised, liquid balance sheet with • Global client base diversified by type and location £485m 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 ~47% of equity DISTINCTIVE STRATEGY & EFFECTIVE BUSINESS MODEL • Progressive dividend policy, £1bn • Three phase strategy to capture value from long-term EM growth trends 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, 257 employees in 11 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
Developed Markets events have weighed on Emerging Markets asset prices… Developed Markets issues Emerging Markets • • EURUSD weak and volatile due to No significant external shock e.g. commodity price collapse or global economic slowdown • US politics / protectionism • No read-across from country-specific situations e.g. Turkey • weaker European data (growth, inflation) • Italian politics • EM fundamentals are strong and better than in 2013 • Fed tightening as data improves • GDP growth is accelerating – cheap currencies driving export growth and, increasingly, domestic activity • US real yields have increased ~80bps over past • IMF expects EM/DM growth premium to increase from 2% to 3.5% over next three six months (cf +120bps in 2013) years • Only two GBI-EM countries have a current account deficit >3% (Argentina & • Ongoing geopolitical risks e.g. Korea, Iran Turkey); overall position is flat vs 3% deficit in 2013 • FX reserves increasing • Oil price rally • EM valuations across rates, FX and equity markets were not stretched at beginning of 2018 • Global allocators/cross-over investors have taken profits, but dedicated institutional money has remained invested due to underweight positions • Therefore the recent moves in Emerging Markets asset prices are unwarranted • EMFX has sold off in sympathy with EURUSD • External debt spreads have widened (+50bps YTD to 325bps) • Indices -2% to -4% YTD 4
…which means significant value opportunities available • Index returns Selectively adding risk to model portfolios to reflect substantial value available after the recent market correction % 2016 2017 2018YTD Total External debt +10.2 +10.3 -4.0 +16.7 Local currency bonds Local currency +9.9 +15.2 -3.7 +21.9 • Index yield of 6.5% and record high real yield of >3%, around Corporate debt +9.7 +8.0 -2.4 +15.6 100bps higher than a year ago • Blended debt +8.4 +11.8 -3.3 +17.2 Inflation at a new cyclical low of 3.3% • Currencies are broadly flat and highly competitive after 40-50% Equities +11.3 +37.5 -2.0 +50.0 devaluation from 2010-2015 10yr UST -0.1 +2.2 -3.3 -1.3 S&P 500 +9.5 +21.8 +1.8 +35.8 External debt • Index spread of ~325bps is wider than post-crisis median Local currency bonds, total return in USD (indexed) (315bps) despite more diverse asset class (67 countries) and 120 stronger fundamentals • Wider spreads highly unusual in period with oil price rising (first EURUSD time since 2008/9 crisis) weaker 110 Equities • Broad-based domestic economic growth, low inflation and 100 competitive FX provide a solid backdrop • Strong earnings growth (+21% in 2018, +11% in 2019) not reflected in MSCI EM PER of 12x 90 May-17 Nov-17 May-18 5
Asset classes: valuations Local currency External debt Index: 67 countries, 152 issuers, 658 bonds Index: 19 countries, 19 issuers, 216 bonds 1000 12.0% 7.0% 900 6.0% 10.0% 800 5.0% 700 8.0% Yield (%) 600 4.0% 6.0% 500 3.0% 400 4.0% 2.0% 300 2.0% 1.0% 200 100 0.0% 0.0% 2003 2005 2007 2009 2011 2013 2015 2017 0 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: 51 countries, 629 issuers, 1,396 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 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 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 30.0 Benchmark indices are unrepresentative of the USD 24.5trn 18% investment opportunity 25.0 USD 20.1trn 8% Active management is critical 20.0 US$ trillion 15.0 USD 8.9trn • USD 8.3trn Structural developments, e.g. removal of capital 1% 10.0 8% controls, will increase index representation over the USD 1.8trn long term 5.0 USD 1.0trn 22% 46% 0.0 External debt Local External Local Total fixed Equities • Based on JP Morgan data, EM ETFs represent: currency debt corporate currency income debt corporate 10% of fixed income mutual funds; only 4% of index debt market cap and 0.3% of total universe Mkt cap included in benchmark Mkt cap not included in benchmark 26% of equity mutual funds; only 10% of index Wide range of returns available (2017) market cap and 1.8% of total universe 80% Belize +57% 60% EMBI GD index +10% 40% 20% 0% -20% Source: BIS, JP Morgan, Bloomberg -40% Venezuela -34% 8
US interest rates • Index returns since first Fed rate increase (2004 & 2015) EM typically underperforms before Fed hiking cycle starts and performs strongly once it has begun Since Dec 2015, external debt spread has narrowed 160 125bps, delivering +19% total return vs -2% for 10yr UST 150 140 • Structural developments mean the majority of EM countries 130 do not suffer the adverse effects experienced in 1990s: 120 Flexible FX regimes and substantial reserves (US$8.7trn or 110 76% of world total) 100 86% of bond financing is in local currency 90 More accountable political institutions 0 +6 +12 +18 +24 +30 +36 +42 +48 Independent, orthodox central banks EMBI GD Ret. 2004 EMBI GD Ret. End 2015 6.00 200 5.00 180 4.00 160 3.00 140 2.00 120 1.00 100 0.00 80 0 +6 +12 +18 +24 +30 +36 +42 +48 0 +6 +12 +18 +24 +30 +36 +42 +48 Fed Fund 2004 Fed Fund 2015 GBI-EM GD 2004 GBI-EM GD End 2015 9
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