Tailoring SRI Research to Emerging Europe investment
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Transcript of Tailoring SRI Research to Emerging Europe investment
Tailoring SRI Research to Emerging Europe Investment Veronika JuchnewitschLimestone Investment Management
TBLI Conference Europe 2008, Amsterdam
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Limestone believes, that
• Socially responsible investing means making an impact and getting better investment ideas – not company ratings
• Today, where the transparency and data availability are low, active bottom up stock selection coupled with engagement
• Is the key to maximising financial outperformance and improving sustainable business practises
• To have a maximum impact, engagement should be a collaborative rather than competitive initative
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Limestone Investment Management
Limestone Investment Management - Emerging Europe specialist equity
investment manager located in Tallinn
• Founded August 2007• Fully management owned and entrepreneurial• Strong investment team with a public track record in Emerging Europe• Signatory to the UN PRI
• Investment Philosophy is based on active management with no style bias
Large tracking error and high information ratio High conviction stock-picking Proximity to target markets Strong investment team extensive local contact network
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INVESTMENT UNIVERSE – NEW EUROPE
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Dedicated to New EuropeCEE Region compared to “old EU”
Estonia
Latvia
Lithuania
Poland
Macedonia
Montenegro
Albania
Serbia
Bosnia and Herzegovina
Bulgaria
RomaniaCroatia
Austria
Hungary
Czhech Republic
Slovakia
Slovenia
Kosovo
CEE 11
Population million 108
GDP growth 5.8%
GDP per capita, $ 13,631CPI 5.1%
EU 15
385
2.2%
32,862
2.3%
Export growth 10% 4%
FDI (% of GDP) 2004 4.8% 0.7%
Gov. Debt (% of GDP) 31% 63%
Fiscal bal. (% of GDP) -2.3% -2.7%
Unemployment rate 9.8% 7.9%
Source: EC, Eurostat, IMF
As of 2007
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Growth Engine’s Two Pillars: FDI and EU Transfers
Source: Eurostat, UniCredit , IMF, European Commission
Foreign direct investments as %GDP, average
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Strong foreign direct investments alleviate the current account imbalances while EU transfers boost underdeveloped infrastructure and agriculture together these open up great opportunities for investors
EU transfers to new members as %GDP
INVESTMENT PROCESS
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Limestone’s Investment Philosophy
• The objective is to provide exposure to the new EU member state equity markets through a disciplined identification of undervalued stocks with focus on ESG issues and engagement
Active management with no style bias Large tracking error (and high
information ratio) High conviction stock-picking based on
solid proprietary research Proximity to target markets Strong investment team, extensive local
contact network
• Dedicated team of 5 sector analysts / portfolio managers
• Disciplined risk management and transparent GIPS compliant reporting
Alvar Roosimaa, CIO, fund manager12 years of experience
Veronika Juchnewitsch fund manager, head of SRI research3 years of experience
Limestone’s Investment Process
1,000 companies
40 companies
320 companies
400 companies
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Main concerns in New Europe – transparency and data availability
• SRI Research and Engagement partnership with GES Investment Services
• 320 companies out of 1000 companies selected based on:
• Quantitative and;• Qualitative criteria + negative screens
• GES Risk Rating research identified data availability to be the main challenge
• 148 companies did not disclose any environmental information• 180 companies did not disclose any information about human rights
• Companies not publishing ESG data obtained the lowest rating
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Limestone Research: Quantitative idea generationHighly dynamic proprietary database
• 320 company coverage with DCF models and price targets• Data sources include 100 company meetings p.a. and local broker contacts
• We believe Limestone is the only local asset manager having built its investment process around extensive fundamental research
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Engagement in companies
• Investing responsibly and not constraining the investment universe
• Rather than rewarding the best in class, concentrating on those that benefit the most from engagement
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Research company specific ESG issues
Company meetings and recommendations
Follow up and actions by company
Utilise shareholder options
Progress in company behavioour
Selling the holding
NO NO
YES YES
Standard SRI approach
• Sector based negative screening• Rating by SRI Research Agency• Investment in best in class
companies
Limestone SRI approach
• Sector based negative screening – eliminates only 12 companies
• Active research, using management meetings and engagement with companies ..
- Provides access to proprietary info- Increases the level of ESG reporting
- Creates better investment ideas
Due to lack of standardized or publicly available data is not applicable in New Europe
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Limestone has developed an effective fundamental research and engagement based SRI investment process, which enables us to increase earnings visibility and to recognize investment risks
Tailored Approach For New Europe
Closing the Information Gap Through Extensive Research Capabilities
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Extra-Financial sources of information
- SRI Research from GES- Public information
Limestone Investment Team
Triple bottom line research
Companies
Management meetings
- Financial information- Management quality- CSR information
Gain access to information omitted due to lower standards of publicly available data.Influence companies to be more transparent and publish information
LIMESTONE NEW EUROPE SRI FUND
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Value Proposition: Portfolio Characteristics (as of 4 Nov ‘08)
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At current price levels, a carefully constructed and actively managed high conviction portfolio offers superior long term returns.
25.1%
15.7%
15.6%
17.4%
6.2%
20.0%
Austria
Other
Poland
Czech Rep.
Hungary
cash
31%
9%9%
5%
14%
6%4%Financials
Energy
Utilities
Materials
Industrials
Real Estate CoTelecom
Portfolio Characteristics (median)
P/E ('08e) 4.33
P/B ('08e) 0.72
Performance YTD -59%
Performance 12m -62%
PEG '08 - '10 0.46
Upside to TP's 162%
0246810
Immoeast AGOrco Property GroupErste Bank der Oester SparkKoncar DistributivniTelefonica O2 Czech RepublicSwedbank ABAutomotive Components EuropeRaiffeisen Intl Bank HoldingKGHM Polska Miedz SAPKO Bank Polski SACeramika Nowa Gala SAOTP Bank NyrtSIF 1 Banat-CrisanaOMV AGCEZ AS
P/E 2008E
Position WeightCEZ AS 9.2%OMV AG 8.8%OTP Bank Nyrt 6.1%SIF 1 Banat-Crisana 6.0%Ceramika Nowa Gala SA 5.7%KGHM Polska Miedz SA 5.2%PKO Bank Polski SA 4.9%Telefonica O2 Czech Republic 4.6%Automotive Components Europe 4.6%Koncar Distributivni 4.2%
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New Europe At Discount: LS Universe vs Euro STOXX 600
Median P/E ’08E Median P/B Median PEG ’08-’10E Average YTD return
# P/E '8e # P/E '8e # P/B # P/B # PEG # PEG # YTD # YTDAll Sectors 579 9.16 324 8.41 585 1.3 302 0.82 543 0.82 211 0.71 585 -23% 330 -55% Basic Materials 47 7.26 22 6.30 47 1.15 20 1.03 41 0.81 9 0.44 47 -33% 24 -63% Consumer Goods 62 10.47 38 15.32 62 1.51 35 0.79 60 1.08 22 0.81 61 1% 42 -57% Consumer Services 72 9.96 57 8.91 73 1.42 53 0.83 71 0.94 47 0.70 73 -28% 57 -61% Financials 139 7.3 78 7.14 140 0.81 78 0.57 128 0.79 42 0.53 142 -36% 78 -65% Health Care 30 14.38 19 10.87 32 3.29 16 0.82 29 0.9 12 1.01 32 -3% 19 -46% Industrials 120 8.38 70 7.90 121 1.47 61 0.98 116 0.64 54 0.51 120 -37% 70 -58% Oil & Gas 33 7.38 11 5.39 34 1.4 11 0.56 30 0.54 5 0.52 34 -19% 11 -61% Technology 23 11.48 16 7.79 23 2.58 15 0.81 22 0.99 11 0.71 23 -31% 16 -51% Telecommunications 19 9.47 10 9.03 19 1.99 10 1.07 16 1.07 6 1.42 19 -26% 10 -41% Utilities 34 12.46 3 9.95 34 2.27 3 2.33 30 0.91 3 0.76 34 -24% 3 -44%
STOXX 601 LS UniverseSTOXX 600 LS Universe STOXX 600 LS Universe STOXX 600 LS Universe
Sources: Bloomberg, LimeStone Research
Engagement: SIF1 Banat Crisana, Romania
18Source: GES Investment Services, SIF1 Banat Crisana Engagement Report for Limestone
The recommendations were accepted and SIF1 is currently working on improving its Corporate Governance procedures and implementing a CSR policy
The company also stated, that it will start publishing ESG reports starting from 2009
Time to get exposed to New EuropeMarket downturn has created a unique opportunity
• Complement your portfolios with an allocation to New Europe: Vicious circle of retail panic, sell side downgrades, and rating agencies
trailing the market has brought values to imply near fatal collapse Equities in Eastern Europe have reached fundamentally attractive levels Convergence process still heading forward, though further potential varies
across different markets and segments No real signs of economies landing too hard can be detected
• Careful fundamental research complemented with ESG component and engagement helps to better understand the underlying risks and opportunities
• Most extensively researched portfolio ideas in the region• Better information leads to informed investment decisions
• New Europe SRI fund – waiting investment partners• Luxembourg registered UCITS• EUR dominated share class
• For further information contact: Paavo Põld, Head of Business Development, [email protected]
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CONTACT:Paavo PõldLimestone Investment ManagementVäike-Karja 12 Tallinn 10140 [email protected] +372 511 9201Fax +372 628 2370www.limestonefunds.eu
Disclaimer: This summary is for information purposes only and does not constitute an offer to sell or a solicitation to buy. Citizens or residents of the United States may not invest in this Fund. Opinions and estimates constitute the manager’s judgment and are subject to change without notice. Past performance is not indicative of future results. Investments in emerging markets should be considered high risk where a portion or total loss of capital is conceivable. No assurance can be given that the investment objective will be achieved or that an investor will receive a return of all or part of his/her initial capital, and investment results can fluctuate substantially over any given time period. Please refer to the Fund’s prospectus which contains brief descriptions of certain risks associated with investing in the fund. Questions should be directed to your local representative or financial advisor. This document may not be reproduced, distributed, or published for any purpose without the prior written consent of the manager.
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