ING Invest Banking & Insurance Morningstar Nov10
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Page 1 of 4 | Morningstar® Research Report ING (L) Invest Banking & Insurance P USD Acc Morningstar Category Benchmark MSCI World/Financials NR USD Morningstar Qualitative Rating™ Elite Superior Standard Inferior Impaired Oliver Kettlewell Morningstar Analyst Executive Summary People: Paul Vrouwes has managed this fund since July 2006 and receives support from six analysts. Parent: A restructuring at ING IM has improved accountability of portfolio managers and analysts, but it has resulted in some team turnover. Process: The team prefers banks with good capitalisation buffers, diversified earnings, and geographical reach. Performance: Returns have lagged the category average since inception. Price: The fund's TER is in line with the median sector fund. Role in Portfolio: Niche Player. Sector funds should play only a small, specialty role in an investor's portfolio. Morningstar Style Box™: Ownership Zone Deep Val Core Val Blend Core Grth High Grth Giant Large Mid Small Micro Centroid = weighted average of stock holdings Zone = 75% of fund's stock holdings (as of 31/10/10) 4.0 6.0 8.0 10.0 12.0 Growth of 10,000 (EUR) Fund Benchmark Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Performance 31/12/10 * * ( ( * ( ) ( ( ( Cat Perf Quartile -13,19 -30,69 13,46 5,95 30,25 10,76 -17,79 -54,99 27,45 8,43 Total Return -0,84 -1,65 -2,03 -2,99 1,92 0,11 -0,50 -3,34 0,46 -3,45 +/- Benchmark -0,83 -1,06 -1,83 -3,00 1,78 -3,00 -5,93 -1,94 -9,96 0,13 +/- Category 36 44 55 69 32 54 82 57 75 54 Percentile Rank Morningstar Opinion 12 Oct 2010 | This manager's focus on well-capitalised banks from developed markets continues to go unrewarded. Paul Vrouwes has managed this fund since July 2006 and his performance record since then ranks in the third quartile of the financials sector peer group. Vrouwes is also manager of ING's health-care and biotechnology funds. We find grouping the management of these two strategies with financials to be a strange combination. On the positive side, Vrouwes has six equity analysts dedicated to researching companies in the financial sector. The team has focused on banks with high capital adequacy ratios since the credit crisis of 2008. In some ways, therefore, the team is ahead of the curve in terms of recent legislation that will force banks to hold more common equity on their balance sheets that protects them from unforeseen losses from their business activities. The manager builds a portfolio that is a reflection of the analysts’ attention to Tier 1 capital. HSBC, JP Morgan, and Bank of America are among the highest-capitalised banks in the sector and are well represented in the portfolio. Vrouwes has also picked up credit card companies recently, such as MasterCard, due to low valuations in the industry. To make room for positions in credit card companies and well-buffered banks, the manager has been reducing the exposure to emerging markets. Positions in China, Brazil, and Turkey account for 1%-2% of the portfolio as of Oct. 2010, compared with nearly 10% a year earlier. The manager reduced his emerging-markets exposure due to illiquidity and volatility concerns in those countries. While stock prices in emerging markets tend to be more volatile than developed-market exchanges, putting pressure on this fund’s 3%-6% tracking error, many developing- market banks contain healthy balance sheets that would appear to adhere to the team’s renewed focus on strudy banks. Emerging-markets banking stocks have also been among the best performers since the credit crisis. We think the team’s penchant for prudence will give investors reasonable downside protection going forward, at least relative to the category. But the flipside is that outperformance relative to the benchmark will be more difficult to achieve. Commonwealth Bank of Australia, for example, was purposely avoided due to its weaker balance sheet; however, the stock price of this big- benchmark bank has outperformed its peers' recently. Furthermore, retreating from emerging-market stocks, which has lowered this fund’s active share figure to 50%, has further dragged on returns. We think such an approach will lead to stable—rather than standout—returns relative to the peer group. We’re therefore maintaining our Standard rating for ING (L) Banking and Insurance. Morningstar® Category Sector Equity Financial Services Manager's Benchmark 100% MSCI World/Financials NR USD Inception Date 03/09/1997 12 Month Yield % 0,00 ISIN LU0119198637 Domicile Luxembourg Legal Status/UCITS SICAV Currency USD Total Net Assets USD 99,99 Mil Copyright © 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (“Information”) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein. ß ®
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Transcript of ING Invest Banking & Insurance Morningstar Nov10
Page 1 of 4 | Morningstar® Research Report
ING (L) Invest Banking & Insurance P USD Acc Morningstar Category Benchmark
MSCI World/Financials NR USD
Morningstar Qualitative Rating™
EliteSuperiorStandardInferiorImpaired
Oliver KettlewellMorningstar Analyst
Executive Summary
People: Paul Vrouwes has managed thisfund since July 2006 and receives support fromsix analysts.
Parent: A restructuring at ING IM hasimproved accountability of portfolio managersand analysts, but it has resulted in some teamturnover.
Process: The team prefers banks with goodcapitalisation buffers, diversified earnings, andgeographical reach.
Performance: Returns have lagged thecategory average since inception.
Price: The fund's TER is in line with themedian sector fund.
Role in Portfolio: Niche Player. Sector fundsshould play only a small, specialty role in aninvestor's portfolio.
Morningstar Style Box™: Ownership Zone
Deep Val Core Val Blend Core Grth High Grth
Giant
Large
Mid
Small
Micro
Centroid = weighted average of stock holdingsZone = 75% of fund's stock holdings
(as of 31/10/10)
4.0
6.0
8.0
10.0
12.0 Growth of 10,000 (EUR)
Fund
Benchmark
Category
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Performance 31/12/10
* * ( ( * ( ) ( ( ( Cat Perf Quartile
-13,19 -30,69 13,46 5,95 30,25 10,76 -17,79 -54,99 27,45 8,43 Total Return
-0,84 -1,65 -2,03 -2,99 1,92 0,11 -0,50 -3,34 0,46 -3,45 +/- Benchmark
-0,83 -1,06 -1,83 -3,00 1,78 -3,00 -5,93 -1,94 -9,96 0,13 +/- Category
36 44 55 69 32 54 82 57 75 54 Percentile Rank
Morningstar Opinion12 Oct 2010 | This manager's focus on well-capitalisedbanks from developed markets continues to gounrewarded.
Paul Vrouwes has managed this fund since July 2006 andhis performance record since then ranks in the thirdquartile of the financials sector peer group. Vrouwes isalso manager of ING's health-care and biotechnologyfunds. We find grouping the management of these twostrategies with financials to be a strange combination. Onthe positive side, Vrouwes has six equity analystsdedicated to researching companies in the financialsector.
The team has focused on banks with high capital adequacyratios since the credit crisis of 2008. In some ways,therefore, the team is ahead of the curve in terms of recentlegislation that will force banks to hold more commonequity on their balance sheets that protects them fromunforeseen losses from their business activities.
The manager builds a portfolio that is a reflection of theanalysts’ attention to Tier 1 capital. HSBC, JP Morgan,and Bank of America are among the highest-capitalisedbanks in the sector and are well represented in theportfolio. Vrouwes has also picked up credit cardcompanies recently, such as MasterCard, due to lowvaluations in the industry.
To make room for positions in credit card companies andwell-buffered banks, the manager has been reducing theexposure to emerging markets. Positions in China, Brazil,and Turkey account for 1%-2% of the portfolio as of Oct.2010, compared with nearly 10% a year earlier. Themanager reduced his emerging-markets exposure due toilliquidity and volatility concerns in those countries. Whilestock prices in emerging markets tend to be more volatilethan developed-market exchanges, putting pressure onthis fund’s 3%-6% tracking error, many developing-market banks contain healthy balance sheets that wouldappear to adhere to the team’s renewed focus on strudybanks. Emerging-markets banking stocks have also beenamong the best performers since the credit crisis.
We think the team’s penchant for prudence will giveinvestors reasonable downside protection going forward,at least relative to the category. But the flipside is thatoutperformance relative to the benchmark will be moredifficult to achieve. Commonwealth Bank of Australia, forexample, was purposely avoided due to its weakerbalance sheet; however, the stock price of this big-benchmark bank has outperformed its peers' recently.Furthermore, retreating from emerging-market stocks,which has lowered this fund’s active share figure to 50%,has further dragged on returns. We think such an approachwill lead to stable—rather than standout—returnsrelative to the peer group. We’re therefore maintainingour Standard rating for ING (L) Banking and Insurance.
Morningstar® Category Sector Equity Financial ServicesManager's Benchmark 100% MSCI World/Financials NR USDInception Date 03/09/199712 Month Yield % 0,00
ISIN LU0119198637Domicile LuxembourgLegal Status/UCITS SICAVCurrency USDTotal Net Assets USD 99,99 Mil
Copyright © 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (“Information”) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended torepresent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserveits rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Informationcontained therein.
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Page 2 of 4 | Morningstar® Research Report
ING (L) Invest Banking & Insurance P USD Acc Morningstar Category Benchmark
MSCI World/Financials NR USD
Manager Paul VrouwesManager Start Date 01/07/06Average Tenure 4,55Avg Yrs Experience 20Longest Tenure 4,55
Other Funds ManagedING (L) Invest Health Care; ING (L) InvestBiotechnology
Number of Analysts 6 financial servicesanalysts; 2supporting realestate analysts
PeopleThe team is well structured, consisting of portfoliomanager Paul Vrouwes and six analysts in support roles.However, the team has witnessed some turnover in recentyears. Two analysts have left since our last rating: Onemoved to the consumer-goods sector team at ING, whileanother analyst left the firm. Their replacements are FrankOnstwedder (who has 16 years of experience), Luca DellaSanta (14 years), and William Pang (4 years). While all sixanalysts in the team have decent experience, none of themhas been at ING longer than four years. Vrouwes has beenmanager since July 2006. In 2009, he also becamemanager of ING's health-care and biotechnology funds.We find grouping the management of these two strategieswith financials to be a strange combination. Due to his
new manager responsibilities, Vrouwes is handing overmore stock research to the analysts who focus on thefinancials sector. Analysts have either a regionalspecialisation or a subsector focus such as banks,insurers, or diversified financials. Two real estate analystsprovide limited support for the fund’s small real estateexposure.
Management CompanyING Investment Management Luxembourg S.A
Total Assets Under Mgt EUR 375 BilTotal Assets in Strategy EUR 75 Mil
ParentING Investment Management (ING IM) is making changesfor the better, but some uncertainties remain due to theimpending split from ING Group. The separation of theinsurer from the bank is expected before 2013, giving INGplenty of time for an orderly separation. We see it aspositive that the asset management arm of ING willbecome more independent from ING Group because thefirm's past fund range included some unsuitable trend-ledfunds. We are beginning to see positive changes with thefirm’s three theme-led technology funds beingstreamlined into one sensible tech strategy. In addition,management of some Holland-based funds is beingtransferred to local market investment hubs, although thishas come with the departure of some high-profile analysts
and managers based in The Hague. Performanceaccountability is improving with portfolio managerbonuses dependent on fund returns, while analysts arebeing judged on shadow long-short portfolios for theirrelevant sector (previously bonuses were linked more togroupwide profitability). A disappointing change has seenthe management fee on most Luxembourg-domiciledfunds increase from 1.3% to 1.5%, resulting in higherTERs, although many funds still remain cheaper thanaverage within their respective peer group.
No Holdings (Range) 50-70Max Position Size 10%Expd Track Error 3-6%Expd Turnover 100%Sector Constraints Financial ServicesRegional Constraints No constraintsTactical Use of Cash NoHedging Policy UnhedgedManager's Benchmark 100% MSCI World/
Financials NR USD
Process: Investment ApproachLike most ING sector funds, the process is driven by stockresearch while subsector themes and regional allocationare considered at the margin. The analysts produce pricetargets for one and three years. These price targets are acombination of a discounted cash flow model and pricemultiples. On the valuation front, capitalisation has
become a key metric and the team now looks for bankswith a higher capitalisation ratio than they would haverequired before the banking crisis. For valuation, they lookat price/book and price/tangible book values for banks,and price/embedded value for insurers. Also, a company'sworth is broken down to distinguish between sturdy andriskier units of the business. This tends to steer the teamaway from riskier areas such as investment banking.
Copyright © 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (“Information”) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended torepresent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserveits rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Informationcontained therein.
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Page 3 of 4 | Morningstar® Research Report | All Portfolio data as of 31/10/10
ING (L) Invest Banking & Insurance P USD Acc Morningstar Category Benchmark
MSCI World/Financials NR USD
Value Measures Fund Rel Cat
Price/ProspectiveEarnings
11,78 1,07
Price/Sales 1,05 1,24Price/Book 1,15 1,23Price/Cash Flow 1,58 0,71Dividend Yield 1,87 0,70
Growth Measures Fund Rel CatLong-Term Earnings 9,34 0,84Historical Earnings -41,39 1,13Sales -51,17 0,95Cash Flow -51,17 9,95Book Value -54,20 2,93
Average Market Cap USD 50445,04 Mil
Process: Portfolio PositioningING has built a portfolio centered on banks with healthycapitalisation ratios. HSBC, JP Morgan, and Bank ofAmerica are among the highest-capitalised banks in thesector, so it’s no surprise they feature prominently in theportfolio’s top 10 holdings. Hartford Financial Serviceswas recently bought for similar reasons. Aside fromtraditional banks, the manager has picked up credit cardservices company MasterCard. Valuations in the creditcard industry dropped across the board in spring 2010 dueto new regulation that reduced the fees that credit cardcompanies can charge to their customers. The managerbought shares of MasterCard and held his position inAmerican Express, which he viewed as oversold. Visa andCaptial One were avoided because these companies’
profits are more dependent on technology rather thanfinancial services. Maintaining close positions to thebenchmark, avoiding off-benchmark stocks, and reducingexposure to emerging markets has depressed this fund’sactive share figure to 50%. This is the lowest figure of allthe funds we’ve rated in the financials sector peer group.
Morningstar Holdings Based Style Map
Deep Val Core Val Blend Core Grth High Grth
Giant
Large
Mid
Small
Micro
Centroid = weighted average of stock holdingsZone = 75% of fund's stock holdings
(as of 31/10/10)
Top 5 Regions % Equity
United States 39,74Eurozone 19,05United Kingdom 11,24Europe - ex Euro 8,85Japan 7,22
Top 5 Countries % Equity
United States 39,74United Kingdom 11,24Japan 7,22Switzerland 5,55France 5,53
Market Maturity % Equity
Developed Country 97,84Emerging Markets 2,16Not Classified 0,00
Asset Allocation
0 25 50 75 100
% Assets long % short % net %
Stocks 99,37 0,00 99,37
Bonds 0,00 0,00 0,00
Cash 2,52 0,00 2,52
Other 1,03 2,92 -1,89
Sector Delta
Information
Man
ufac
turin
g
Services
FundCategory
Top Holdings % Assets31-10-10
J.P. Morgan Chase & Co. 6,58
HSBC Holdings PLC 6,54
Wells Fargo Company 5,61
Berkshire Hathaway Inc. B 4,62
Citigroup, Inc. 3,80
DnB NOR ASA 3,28
ING Groep N.V. 3,04
Metlife Inc. 3,02
Banco Santander Central Hispano 2,77
Westpac Banking Corp 2,47
Bank of America Corp 2,44
Goldman Sachs Group, Inc. 2,42
Toronto-Dominion Bank 2,36
Mitsubishi Tokyo Fin. Grp 2,26
AXA SA 2,11
ANZ Banking Group Ltd 1,97
BNP Paribas 1,96
Royal Bank of Canada 1,78
Credit Suisse Group 1,77
The Travelers Companies, Inc. 1,65
Total Equity/Bond Holdings 64/0
Assets in Top 10 Holdings % 41,73
Sector Weightings % Equity Rel Cat
h Information 0,00 0,00
r Software 0,00 0,00
t Hardware 0,00 0,00
y Media 0,00 0,00
u Telecommunication 0,00 0,00
j Service 98,77 1,01
i Healthcare 0,00 0,00
o Consumer Services 0,00 0,00
p Business Services 0,00 0,00
a Financial Services 98,77 1,01
k Manufacturing 1,23 0,73
s Consumer Goods 0,00 0,00
d Industrial Materials 1,23 1,05
f Energy 0,00 0,00
g Utilities 0,00 0,00
Copyright © 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (“Information”) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended torepresent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserveits rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Informationcontained therein.
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Page 4 of 4 | Morningstar® Research Report | Performance data as of 31/12/10
ING (L) Invest Banking & Insurance P USD Acc Morningstar Category Benchmark
MSCI World/Financials NR USD
Trailing (EUR) TotalRtn %
+/-Bmark
+/- Cat
%Rnkin Cat
3 Mo 6,86 -0,71 3,06 336 Mo 6,39 -1,95 -1,73 561 Yr 8,43 -3,45 0,13 543 Yr Annualised -14,64 -2,87 -3,62 625 Yr Annualised -10,75 -1,88 -4,13 72
MPT Stats 3 Yr RelCat
5 Yr RelCat
R-Squared 99,43 1,13 99,01 1,14Beta 1,04 1,05 1,04 1,05Alpha -2,31 -1,74 -1,54 -0,54
Volatility & RiskAdj Returns
3 Yr RelCat
5 Yr RelCat
Std Deviation 30,22 0,99 24,48 0,98Mean -0,93 1,55 -0,69 2,16Sharpe Ratio -0,44 1,47 -0,44 1,69Information Ratio -0,91 45,50 -0,63 -5,73Treynor Ratio -17,01 1,25 -10,37 1,77
Performance AnalysisThe fund’s performance record has been mediocre sinceits inception. Since Vrouwes took charge in July 2006through Sept. 2010, the fund has underperformed theMSCI World/Financials benchmark by an average of 2%per year. Over the year-to-date period, the fund hasunderperformed the benchmark by 2.5%. The maindetractors came from the remnants of exposure to Greece,namely National Bank of Greece, but also Bank ofAmerica, Banco Santander, and AXA. Not holdingCommonwealth Bank of Australia, one of the best-performing benchmark stocks, also damped returns. Onthe plus side, there’s been positive attribution from
MetLife Corp, a life-insurance company based in the US.Furthermore, large stakes in Berkshire Hathaway andCitigroup enjoyed stellar returns. But its peer-groupperformance ranking lands in the third quartile for 2010,similar to 2009 and 2008, and we think an average rankingis the most likely outcome going forward.
Monthly Return vs Morningstar® Category (EUR) Fund
6
4
2
0
-2
-4
-6201020092008
Risk & ReturnThe fund's returns have lagged those of its typical peerunder the current manager, and it doesn't fare any betterwhen one takes risk into account. In all, the picture is oneof a disappointing risk/reward profile.
Risk Return Analysis Fund Category Peers Category Average3 Yr Return
3 Yr Standard Deviation
0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00-60,00
-40,00
-20,00
0,00
20,00
40,00
Morningstar Rating™(Rel Cat)
MorningstarReturn
MorningstarRisk
MorningstarRating™
3 Year Avg Avg QQQ
5 Year Bel avg Avg QQQ
10 Year Bel avg Avg QQQ
Overall Bel avg Avg QQQ
Price
The fund's TER is in line with the median sector fund inthe Morningstar database.
Max. Initial Sales Charge % 3,00Max. Annual Management Fee % 1,50Total Expense Ratio % 1,90
Copyright © 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (“Information”) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended torepresent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserveits rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Informationcontained therein.
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