JPMorgan Brazil Investment Trust plc Annual General Meeting History - 26 April 2010 To Current -...
Transcript of JPMorgan Brazil Investment Trust plc Annual General Meeting History - 26 April 2010 To Current -...
JPMorgan Brazil Investment Trust plc Annual General Meeting September 2016
Sophie Bosch de Hood, Executive Director Portfolio Manager [email protected]
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Performance
Source: J.P. Morgan Asset Management. Inception Date: 26 April 2010 Benchmark History - 26 April 2010 To Current - MSCI Brazil 10/40. Total return, net of charges and any applicable fees using cum income Net Asset Values (NAVs) debt at par with net dividend (if any) reinvested, in Sterling. Past Performance is not an indication of future performance.
JPMorgan Brazil Investment Trust plc to 30th April 2016 – 12 month rolling returns
30/4/15 – 30/4/16
30/4/14 – 30/4/15
30/4/13 – 30/4/14
30/4/12 – 30/4/13
30/4/11 – 30/4/12
Portfolio return -14.4% -14.6% -24.4% 4.4% -10.0%
Index -10.9% -9.5% -17.1% 0.2% -13.0%
Ordinary share price return -18.2% -11.9% -26.0% -2.7% -15.3%
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Performance
Source: J.P. Morgan Asset Management. Inception Date: 26 April 2010 Benchmark History - 26 April 2010 To Current - MSCI Brazil 10/40 Total return, net of charges and any applicable fees using cum income Net Asset Values (NAVs) debt at par with net dividend (if any) reinvested, in Sterling. Performance is not an indication of future performance.
JPMorgan Brazil Investment Trust plc
12 Months to 30th April 2016
Portfolio return -14.4%
Index -10.9%
Ordinary share price return -18.2%
12 Months to 31st July 2016
Portfolio return 35.1%
Index 40.9%
Annualised Performance since inception – 31st July 2016
Portfolio return -5.3%
Index -4.0%
The year to 30th April 2016 was a volatile period for Brazilian equities, with sentiment driven by concerns over the persistent recessionary environment and ongoing political turbulence
In 2015, weak commodity prices and worries over deteriorating demand from China also weighed on the stock market and currency
Since February 2016, Brazilian equities have seen a strong appreciation, sentiment has been buoyed by the potential impeachment of President Rousseff, the rally in commodity prices and also inflows of investors looking for yield in a global ex-growth environment. Sterling weakness since Brexit has enhanced NAV returns
Against this challenging and volatile backdrop, driven by essentially a junk rally, the trust’s net asset value and share price underperformed the benchmark
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Brazil has had a strong 2016 – yet we are still awaiting the earnings
Source: J.P Morgan Asset Management, Factset, as of 31st July 2016 Past performance is not necessarily a reliable indicator for future performance. EPS = earnings per share
12%
61% 59%
29% 26% 23% 23% 21% 20% 19% 16% 16% 15% 10%
7% 7% 6% 6% 1% -1% -3%
-40%
-20%
0%
20%
40%
60%
80%
100%
EM Brazil Peru Thailand S Africa Russia IndonesiaHungary Chile Colombia TaiwanPhilippines UAE Korea Qatar India Turkey Malaysia Mexico China Poland
Currency effect EPS Growth (Lcl) Valuation Chg Dividend Total Return (USD)
Sources of total returns for YTD 2016
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Currency valuation and support
REER vs CARRY
Source: J.P. Morgan Asset Management estimates. Data as of June 30, 2016. REER (real effective exchange rate) relative to fair value (export-adjusted 10 year average REER) on the x axis and policy rate on the y axis. CARRY (a currency with a high Information Ratio) Countries over the line of best fit provide good carry for their currency valuation
MY
CN
TW
RU
ID
TH KR
MX
Brazil – June 2016
IN CO TR
PL HU
ZA
EG
CL PH
Brazil – August 2015
Brazil – April 2010
0
2
4
6
8
10
12
14
16
-30 -20 -10 0 10 20 30 40
Polic
y R
ate
less
US
REER Relative to Fair Value CHEAP EXPENSIVE
LOW
CAR
RY
HIG
H CA
RRY
JP SG
AU
HK
NZ
The currency has reverted to the expensive side over the past year
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Despite the rally, Brazil is trading considerably below its seven-year average
Source: Bloomberg, Bradesco CCI. Data as of August 31, 2016. Past performance is not an indication of future performance. Indices do not include fees or operating expenses and are not available for actual investment.
MSCI Brazil Index
MSCI Brazil 7-year average
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
5,000.0
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
4,728
3,487
2,542
1,287
Further upside for Brazil equities depends on lower rates, better earnings outlook, and expectations of a further appreciated Brazilian Real – we are constructive on all fronts
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Annual cumulative flows: LatAm equity funds (USD bn)
2
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Emerging Markets aggregate GDP growth is superior to developed markets, and improving at a faster rate
The level of negativity towards Emerging Markets, and Latin America in particular, was sizeable, evidenced by historical outflows
Latin American politicians are becoming more conservative whilst Developed Market politicians move to be more populist
Lower interest rates around the world are creating optimism in the region
Foreign investors are buying back into Emerging Markets and Latin American equities
Source: J.P. Morgan Asset Management. EM Fund Flows Weekly report. Data annual Year To Date (YTD)
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A market moved by headlines
Source: Factset, MSCI Brazil 10/40, July 31, 2016. Past performance is not an indication of future performance. Indices do not include fees or operating expenses and are not available for actual investment.
200
250
300
350
400
450
May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16
Petrobras released audited financials
S&P downgrades Brazil below
investment grade
# Impeachment probabilities increased # Lula questioned in relation to Car
Wash scandal # Chinese increase reserve
requirement to increase investment # Commodities rally
Dilma removed from office via impeachment proceedings
# New interim administration takes office # Stabilization of consumer and industrial confidence
MSCI Brazil 10/40 (Rebased Dec 2000 = 100)
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A decade lost in three years – the depth of the recession
Source: Goldman Sachs Global Investment Research Data as of 31st December 2015 *predicted data from March 31 2016 through December 31 2016 Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
Cumulative GDP of the “lost decade” versus past 3 years
-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.08.09.0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Real GDP Growth Avg Real GDP Average Real GDP/Capita
1980’s Lost Decade
Cumulative 2014-16 Per Capita GDP Decline =
9.0%+
Cumulative 1981-92 Per Capita GDP Decline =
7.6% *
%
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Brazil GDP growth
*Consensus estimates. Source: Bloomberg and Morgan Stanley. Data as of June 2016 Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
Economic prospects are for a recovery in 2017/18
Brazil GDP growth (year on year)
1.8%
3.0%
0.1%
-3.8% -3.5%
1.0%
2.0%
-4%
-2%
0%
2%
4%
2012 2013 2014 2015 2016e 2017e 2018e
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Real rates are high in Brazil…
Source: Bloomberg, Bradesco CCI. Data as of August 31, 2016. Past performance is not an indication of future performance. Indices do not include fees or operating expenses and are not available for actual investment.
We see room for interest rates to surprise on the downside, driven by: (1) falling inflation expectations; (2) appreciated Brazilian Real; and (3) the breakdown of inertia due to the high output gap
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16
NTN-B inflation-linked bond's real yields 7-10 years US 10-year Treasury yield
6.9 6.7 7.0
7.6
6.0
3.1
3.8 3.5
1.7 1.6 1.6
…especially compared with low or negative rates across the world
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New administration initiatives should see gross public debt stabilise
Source: BCB, Bradesco BBI. Data as of July 31st 2016. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
The primary surplus needed to stabilize this ratio is around 3% of GDP
3.9
2.9
-2.8 -2.1 54.9
60.9
51.3 51.7
69.5
Q1-
07Q
2-07
Q3-
07Q
4-07
Q1-
08Q
2-08
Q3-
08Q
4-08
Q1-
09Q
2-09
Q3-
09Q
4-09
Q1-
10Q
2-10
Q3-
10Q
4-10
Q1-
11Q
2-11
Q3-
11Q
4-11
Q1-
12Q
2-12
Q3-
12Q
4-12
Q1-
13Q
2-13
Q3-
13Q
4-13
Q1-
14Q
2-14
Q3-
14Q
4-14
Q1-
15Q
2-15
Q3-
15Q
4-15
Q1-
16Q
2-16
Jul-1
620
16 T
arge
t20
17 T
arge
t
Primary Surplus and Gross Public Debt (%)
Gross Debt (% of GDP)
Primary Surplus (12-month accumulated, % of GDP)
Prospects of a new government have helped domestic fundamentals
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Confidence is building in the country
GTM – Brazil | Page 9
Confidence indicators showing an improvement that supports the view that the economy is close to bottoming out and outlook for stronger growth is visible
Source: FGV/IBRE (Brazilian Institute of Economics of the Getulio Vargas Foundation), J.P. Morgan Asset Management. Guide to the Markets – Brazil. Data as of June 30th, 2016.
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Brazil consensus earnings
Source: Bloomberg and Morgan Stanley Research Data as of July 2016
Corporate earnings expectations appear to also have bottomed
Brazil: Consensus forward net income estimate (USDbn)
121
33
42
20
40
60
80
100
120
140
2008 2009 2010 2011 2012 2013 2014 2015 2016
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Active and absolute sector positions
How are we positioned?
Source: J.P. Morgan Asset Management. The Fund is an actively managed portfolio, holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice. Past performance is not an indication of current and future performance.
JPMorgan Brazil Investment Trust plc as of 31st July 2016
12.2
6.0 4.0 3.5 2.7
-2.2 -3.6
-7.8 -8.0 -9.3
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Industrials ConsumerDiscretionary
Financials Health Care InformationTechnology
Utilities Telecoms ConsumerStaples
Materials Energy
Portfolio weight (%) 17.9 12.3 34.8 4.4 7.6 5.3 0.0 10.1 1.1 4.0
Benchmark MSCI Brazil 10/40 Total Return (Net) Index
Relative to benchmark (%)
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Investment example: BM&F Bovespa
Source: Company website. Data as of August 2016. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities.
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Vertically integrated, multiproduct company in Brazil
Economics – Strong financial condition and prudent financial management – Highly efficient, profitable, and resilient operation – Attractive complementary acquisition of Cetip
Duration – Quasi monopolistic status in the domestic markets – Vertical integration (registration, trading, clearing, settlement,
custody, and risk management) creates an effective business moat – Long track record of consistent execution with proven model in a
volatile operating environment – Continual high investment in technology to preserve
competitiveness )
Governance – One of the best corporate governance practices in Brazil, “lead by
example” – True corporation without figure of a controlling shareholder
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Investment example: Raia Drogasil (Brazil)
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Source: Company website and annual reports. Data as of August 2016. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities.
Largest drugstore chain in Brazil with 1,330 stores focused primarily on the high and middle income consumers
Economics – Strong cash flow generation and balance sheet (net cash position) – Attractive and improving returns (2015 ROE: 13% 2021E: 24%)
Duration – Resilient sector supported by low penetration of pharma sales in
Brazil and aging of the population (currently ~10% of the Brazilians are 60 or older and this is expected to increase to 20% by 2030)
– Medicines in Brazil are not covered by insurance companies and 97% of total sales are out-of-pocket
– Consolidation opportunity: still fragmented sector (top 5 chains account for 30% of the market sales)
Governance – Listed on the Novo Mercado
– Experienced management team with solid corporate governance
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Conclusion
The opinions and views expressed here are those held by the author as at August 2016, which are subject to change and are not to be taken as or construed as investment advice
With impeachment behind us, the next few months will be critical in setting the stage for a new chapter in Brazil
If inflation begins to come down, rates will start to come down, providing a positive environment for many companies. We believe that much of the recession of the past two years was down to confidence
Our view is that currency will remain relatively stable
In the long term, we believe Brazil is past the worst of this prolonged recession and we expect earnings to recover from their very depressed levels once the economy show some signs of improvement due to operational leverage
Brazil has a big economy and although infrastructure needs development, Temer’s improvements of the regulatory environment will pave the way for improved GDP growth led by the private sector
The economic path is likely to be a difficult one, so we continue to prefer quality and domestically-oriented stocks with good long-term growth prospects irrespective of the impact of short-term economic conditions
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Appendix
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Performance Since Inception
Source: JPMorgan Asset Management. Extracted from the Company’s Annual Report for the Year Ended 30th April 2016 – Page 19
Factors contributing to NAV returns since launch in April 2010
0
20
40
60
80
100
120
Opening NAV Benchmark Sinceinception in Local
Currency
InvestmentManagement Effects
Fees, Dividends andOther Effects
Effect of BrazilianCurrency Depreciation
Closing NAV
NAV
(pen
ce p
er s
hare
)
20
Performance in the Financial Year ending 30 April 2016
Source: JPMorgan Asset Management – September 2016
Factors contributing to NAV returns for the year to 30 April 2016
46
48
50
52
54
56
58
60
62
Opening NAV Benchmark in localcurrency
InvestmentManagement Effects
Fees, Dividends andOther Effects
Effect of BrazilianCurrency Depreciation
Closing NAV
NAV
(pen
ce p
er s
hare
)
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Currency has driven the returns
Source: Factset, J.P. Morgan Asset Management, Data as of July 31, 2016.
Brazil: Sources of total returns
7%
-22%
0%
-16% -14%
-41%
61%
-50%
-30%
-10%
10%
30%
50%
70%
2010 2011 2012 2013 2014 2015 YTD 2016
Source of Total Returns
Dividend Valuation Chg EPS Growth (Lcl) Currency Total Return
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Commodities
Source: Bloomberg, MSCI and Morgan Stanley Research. Data as of August 5th 2016.
Commodities have experienced a bear market over the past 5 years, but a bottom appears to have formed.
0
100
200
300
400
500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
100
200
300
400
500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
472
371
51%
160 182
18
144
127
-65%
29 44
Commodity CRB Index Oil prices Brent
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Why is Brazil more volatile than EM?
Source: Bloomberg, MSCI and Morgan Stanley Research. Data as of August 2016
Energy, Materials and Financials represents 58% of the Brazil index
FN 32.6
CS 17.9 EN 12.1
MT 9.4
UT 6.2
CD 5.3
IN 4.9
IT 4.2 TS 2.9 HC 0.9
FN 26.5
IT 22.7 CD 10.5
CS 8.1
EN 7.1
MT 6.7
TS 4.9
IT 4.2 TS 2.9 HC 0.9
MSCI Brazil sector weight MSCI EM sector weight
Brazil is heavily skewed towards high beta sectors like energy, materials and financials. Meanwhile, in Emerging Markets, IT is the second biggest sector
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Inflation is expected to drop from 11% yoy in 2015 YE to 5% yoy in 2017YE
Source: IBGE, Focus consensus, Bradesco BBI. Data as of August 31st 2016.
Falling inflation expectations suggest a greater likelihood of single-digits nominal rates in 2017YE
4.7
6.1 6.3 5.9 5.6
4.8 4.3 4.3
5.2 4.8 4.7
5.9 6.3
6.7 7.3
6.5
5.2 4.9 5.3
5.8 6.6 6.7
5.9 5.9 6.2 6.5 6.7 6.4
8.1 8.9
9.5
10.7
9.4 8.8 8.7
7.3
5.1 4.5
Reported IPCA Inflation (%, y-o-y)
Focus Consensus estimate
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Investment objective and risk profile
Fund objective
Aims to generate total returns, primarily in the form of capital, from a portfolio primarily invested in Brazilian focused companies. The Company may also invest up to 10% in companies in other Latin American countries. Equity holdings may be reduced to a minimum of 60% of gross assets if it is considered beneficial to performance.
Risk profile
Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in bot buying and selling shares and individual share prices may be subject to short-term price fluctuations.
External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time.
This trust may utlilise gearing (borrowing) which will exaggerate market movements both up and down.
This trust may also invest in smaller companies which may increase its risk profile.
The share price may trade at a discount to the Net Asset Value of the company.
Please refer to the Fund’s prospectus for more information relating to the Fund.
JPMorgan Brazil Investment Trust plc
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Glossary
GEM Global Emerging Markets
EM Emerging Markets
DM Developed Markets
PE Price/Earnings ratio
PB Price/Book
PM Portfolio Manager
ROE Return on Equity
o/w Overweight
u/w Underweight
ROA Return on assets
BV Book Value
ADV Average Daily Volume
YoY Year on Year
EBITDA Earnings before interest, taxes, depreciation and amortization
EPS Earnings per share
DPS Dividends per share
REER Real effective exchange rate
Carry The difference between the interest rate in the country in question and the interest rate in the United States of America
IR Information Ratio
AR Argentina
BR Brazil
CL Chile
CN China
CO Colombia
CZ Czech Republic
EG Egypt
HU Hungary
ID Indonesia
IN India
KR South Korea
MX Mexico
MY Malaysia
PH Philippines
PL Poland
RU Russia
TH Thailand
TR Turkey
TW Taiwan
ZA South Africa
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J.P. Morgan Asset Management
This is a promotional document and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy. Investment is subject to documentation (Investment Trust Profiles, Key Features and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP.
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