INVESTMENTS IN THE LUXURY INDUSTRY - Rietumu Banka
INVESTMENTS IN THE LUXURY INDUSTRY
«B RA NDS & LUX URY» : MORE THAN A FUND A modern approach to investments assumes different scenarios for allocation of funds: from strictly individual solutions to proven standard products. Each of them is a precise combination of financial expertise and investor’s individual goals and objectives. Individual portfolios with selection of particular financial instruments and contemporary analytical insights have usually high demand among high-net-worth professional investors. Investing in mutual fund units is an alternative approach affordable to broad investment society. Rietumu Asset Management brings to Your attention innovative investment product - the investment portfolio that consists of stocks of leading public companies. This product is single investment idea driven with high level of personification in contrast to standardized mutual fund units. Stock selection process is based on modern and efficient investment models, developed by Rietumu Bank’s financial analysts and portfolio managers. We offer to find out more about key characteristics of «Brands & Luxury» portfolio. «BRANDS & LUXURY» PORTFOLIO 2
«B RA NDS & LUX URY» : ASSET WITH TIME-PROVEN PRESTIGE AND VALUE Investment portfolio «Brands & Luxury» developed by Rietumu Asset Management specialists is an opportunity to profit together with leading global companies whose products for decades have been a benchmark of quality and prestige for million of people all over the world. «BRANDS & LUXURY» PORTFOLIO INVESTS IN S t a bl e t a rge t m a rke t H i g h-q ual i ty manag ement Rapi dl y g ro w i ng dem and «Defen s i ve» ma rket s ec to r high consumer purchasing power highly experienced management team growing number of millionaires resilience of business model during economic downturn brand loyalty established management traditions low sensitivity to price growth high profitability Historical performance of «Brands & Luxury» model portfolio, 10 years fast adoption of western lifestyle by eastern world Asia – the main demand growth driver shareholders’ reward in the form of ample dividends Annual portfolio growth 16.9%* * Backtesting of «Brands & Luxury» model portfolio from 01.01.2005. 2005 20 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 «BRANDS & LUXURY» PORTFOLIO Past performance does not guarantee future profitability. 3
«B RA NDS & LUX URY» : INVESTMENT IDEA Exclusiveness of goods associated with the premium segment, brand loyalty, and stable demand – are key factors, that ensure sustainable business development of producers and secures their strong financial conditions. Producers of premium goods possess strong pricing power and, as a result, achieve higher level of profitability. «Brands & Luxury» portfolio’s investment idea is built in the light of major characteristics of the modern global luxury goods market. Companies that own famous brands and produce premium goods have a set of distinctive features. This industry appeals to such categories as dreams, aspirations, desires and acknowledgement of achievements- as against simple desire to possess one or another good in practical relation. As a result, “sellers of prestige” are less sensitive to changes in rational factors and economic downturns. Target market of such companies - relatively stable range of wealthy clients, who usually are characterized by high level of purchasing power. The volume of this market shows sustainable increase, due to growing population and number of wealthy individuals, as well due to prosperity growth in Asian countries. According to the WealthInsight data, in 2014 the number of millionaires in the world equaled 17.8 million people. It’s estimated that by 2024 this number will be equal to 23.3 million. Moreover the most considerable increase is estimated in Asian region: 45%. Rietumu Asset Management experts’ calculations show that for the last 10 years average gross margin ratio (the difference between net revenue and cost of goods sold divided by revenue) for “Brands & Luxury” companies exceeded 40%, while average ratio for world economy failed to reach 30%. 50 Gross m a rgi n ra ti o , % 40 30 20 10 25 20 15 T he nu mbe r of milliona ires, m l n peopl e Other Europe North America Asia 40% 23% Source: WealthInsight, Rietumu Asset Management 45% 2004 2014 2006 2007 2008 2009 2010 «Brands & Luxury» companies 2011 2012 2013 2014 2015 Source: Bloomberg, Rietumu Asset Management Stocks of “Brands & Luxury” companies are traditionally considered as “defensive” market cluster, which to a wide extent protect investors from excess volatility. Another important advantage for shareholders of companies belonging the premium segment – traditionally generous shareholders reward in the form of ample dividends. 5 - 2005 Global companies 22% 10 0 2024 According to Rietumu Asset Management analysis, for the last 10 years “Brands & Luxury” companies in average paid more than a half of their profits in the form of dividends. «Brands & Luxury» represent not only stability and high expected return, but also it is an indication of wealth, reputation and prestige converted in securities. «BRANDS & LUXURY» PORTFOLIO 4
«B RA NDS & LUX URY» : STRUCTURE (1-2) Individual Portfolio Investment type «Brands & Luxury» portfolio is composed of publicly quoted stocks: global leaders in premium and luxury products manufacturing; companies, that own globally known brand names. Stocks Asset class USD Currency The construction of investment portfolio is dynamic process. Its actual composition is defined by professional portfolio managers. The portfolio is rebalanced in a consistent periodic manner and can include stocks of 25-35 issuers. Portfolio includes stocks of industry leading companies with strong financial fundamentals and attractive market valuation. Stock selection process is based on modern and efficient investment models, developed by Rietumu Bank’s financial analysts and portfolio. managers. 100 000 USD Minimum investment amount Global markets Geographical focus Investment limitations Stocks of public companies with famous brands and premium goods More than 3 years Recommended investment horizon Expected return More than 10% annually Subscription fee 0.35% Management fee 1.50% per annum INVESTMENT PROCESS I nve st ment u nive r se Q uanti tati ve anal y si s Q ual i tati ve a n a l y s i s Po r tf ol i o c o ns tru c ti o n Stocks of public companies with famous brands and premium goods Industries: retail goods, hotels, apparel, auto manufacturing, drinks, cosmetics, equipment, etc. RAM investment models select stocks of companies with strong financial fundamentals and attractive market valuation Analytical data input from publicly available sources Portfolio managers construct final portfolio based on their expertise RISK-CONTROL AND MONITORING Stock selection is scrupulous multi-stage process conducted by Rietumu Asset Management experts. «BRANDS & LUXURY» PORTFOLIO 5
«B RA NDS & LUX URY» : STRUCTURE (2-2) Key Statistics 29 Number of Issuers Average Equity Ratio 55.48% Average Return on Equity Ratio 24.90% Average Price to Earnings Ratio 15.82 Average Price to Book Ratio 3.96 Average Beta 0.87 Asset Allocation Structure 0% 50% U SD 69% HKD Bonds Stocks Other 100% 100% 14% EU R 11% G BP 4% CHF 3% Currency Exposure Top 10 Holdings LVMH MOET HENNESSY LOUIS VUI 3.54% TIFFANY & CO 3.53% BURBERRY GROUP PLC 3.53% HUGO BOSS AG -ORD 3.52% APPLE INC 3.52% CHRISTIAN DIOR SE 3.51% DECKERS OUTDOOR CORP 3.51% HARLEY-DAVIDSON INC 3.49% SANDS CHINA LTD 3.48% MICHAEL KORS HOLDINGS LTD 3.45% 0% 20% 40% 60% U nit ed St a t es 80% 65% Hong Kong 14% Fra nce 7% Grea t B r it a in 4% Ger ma ny 4% Ja pa n 3% Sw it zer la nd 3% Geographical Exposure «BRANDS & LUXURY» PORTFOLIO Western Europe North America D ep a r t men t S tores Ap p a rel L od g i n g S oft w a re Food C omp u t er s L ei s u re P rod u c t s B evera g es O ffi c e/ B u s i n es s Eq u i p S emi c on d u c tor s D i s t r i b u t i on / W h ol es a l e El ec t ron i c s 17% 65% 0% 10% 4% 3% 3% 3% 3% 3% 3% 7% 7% APAC 17% 20% 10% 30% 21% 40% 31% Industry Group Exposure Source: Bloomberg, Rietumu Asset Management 6
«B RA NDS & LUX URY» : Brands Luxury products PORTFOLIO COMPOSITION T i cker Nam e o f th e i s s u e r C ou n t r y I n d u s t r y S ec tor I n d u s t r y G rou p Eq u i t y ra t i o MC FP TIF US BRBY LN BOSS GR AAPL US CDI FP DECK US HOG UN 1928 HK 590 HK 880 HK 27 HK RL US UHR VX LVMH MOET HENNESSY LOUIS VUI TIFFANY & CO BURBERRY GROUP PLC HUGO BOSS AG -ORD APPLE INC CHRISTIAN DIOR SE DECKERS OUTDOOR CORP HARLEY-DAVIDSON INC SANDS CHINA LTD LUK FOOK HOLDINGS INTL LTD SJM HOLDINGS LTD GALAXY ENTERTAINMENT GROUP L RALPH LAUREN CORP SWATCH GROUP AG/THE-BR France United States Great Britain Germany United States France United States United States Hong Kong Hong Kong Hong Kong Hong Kong United States Switzerland Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Technology Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Apparel Department Stores Apparel Department Stores Computers Apparel Apparel Leisure Products Lodging Department Stores Lodging Lodging Apparel Department Stores 40.78 54.72 64.46 50.81 48.11 19.57 80.09 30.53 56.66 74.16 58.66 74.02 63.72 83.02 23.22 16.22 26.21 37.49 38.37 22.23 17.72 27.84 39.58 19.96 27.95 29.20 17.72 9.18 14.54 23.19 20.45 22.12 15.68 13.87 15.88 14.21 12.90 8.15 7.23 14.37 16.70 17.36 3.82 4.22 5.00 7.61 5.66 3.41 2.62 3.96 5.12 1.54 1.98 3.84 2.94 2.03 KORS US FL US HRL US PEP US ORCL US COH US CAJ US INTC US GES US BBY US GPS US FOSL US GRMN US MSFT US CPB US MICHAEL KORS HOLDINGS LTD FOOT LOCKER INC HORMEL FOODS CORP PEPSICO INC ORACLE CORP COACH INC CANON INC INTEL CORP GUESS? INC BEST BUY CO INC GAP INC/THE FOSSIL GROUP INC GARMIN LTD MICROSOFT CORP CAMPBELL SOUP CO United States United States United States United States United States United States Japan United States United States United States United States United States United States United States United States Consumer, Cyclical Consumer, Cyclical Consumer, Non-cyclical Consumer, Non-cyclical Technology Consumer, Cyclical Technology Technology Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Consumer, Cyclical Industrial Technology Consumer, Non-cyclical Apparel Department Stores Food Beverages Software Department Stores Office/Business Equip Semiconductors Department Stores Department Stores Department Stores Distribution/Wholesale Electronics Software Food 83.25 69.78 66.09 24.67 43.88 66.08 66.77 61.74 67.06 32.74 38.79 44.30 72.52 52.08 19.91 43.54 21.06 18.00 32.88 20.81 18.91 8.48 19.82 8.99 19.40 41.96 36.83 8.64 22.53 47.51 10.01 18.52 22.90 20.76 17.89 14.81 18.21 12.46 16.62 13.21 13.47 10.17 16.41 17.82 18.93 3.83 3.80 3.98 8.71 3.64 3.54 1.51 2.40 1.83 2.50 5.50 3.99 2.56 4.12 9.27 Ret u r n Pr i ce to Pr i ce o n Eq u i t y E a r n i n g s to Bo o k ra t i o ra t i o ra t i o Di v i den d Bet a Y i el d ( i n di ca t ed) 1.95 1.71 2.48 3.44 1.64 1.74 2.22 6.30 4.92 9.68 1.51 1.86 1.44 1.73 2.92 1.47 4.14 3.23 3.97 2.67 2.43 4.40 2.71 2.62 Pr i ce C u r ren cy ( l o ca l cu r ren cy) 0.97 0.88 0.89 0.75 0.88 1.06 0.79 1.12 0.96 0.55 0.88 1.01 0.52 1.15 163.90 93.68 1574.00 105.30 126.82 181.20 73.69 55.86 31.60 22.35 8.67 34.75 132.59 404.20 EUR USD GBP EUR USD EUR USD USD HKD HKD HKD HKD USD CHF 0.72 0.62 0.90 0.62 1.24 0.64 0.81 1.09 0.87 0.98 0.83 0.76 1.05 1.06 0.56 42.95 69.44 57.86 96.35 40.79 32.58 32.25 29.69 22.65 34.42 37.79 70.15 46.40 45.76 47.59 USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD Source: Bloomberg, Rietumu Asset Management Portfolio structure and composition are indicative. Its actual composition is defined by portfolio managers and rebalanced in a consistent periodic manner. «BRANDS & LUXURY» PORTFOLIO 7
«B RA NDS & LUX URY» : HISTORICAL PERFORMANCE OF THE MODEL PORTFOLIO Rietumu Asset Management experts ran model portfolio «Brands & Luxury» historical performance simulation for 10 years , from January 1, 2005. Calculated value appreciation equaled 16, 9% annualy. Consequently, portfolio historic return exceeded the benchmark by 7 times. 500 Mod e l Por tf olio Ch aracte r i s ti cs ( 01.01.2005-01.0 7 .2 0 1 5 ) M od el Por t fol i o B en c h ma r k (M S C I AC W I ) Average return – 3 months 4.23% 1.35% Average outperformance – 3 months 2.88% - Average annual return 16.92% 5.41% Average annual outperformance 11.51% - Return since 01.01.2005 345.95% 49.73% Outperformance 01.01.2005 296.21% - Annualized volatility 22.32% 17.45% Maximum drawdown -47.72% -50.66% Sharpe ratio (annualized) 0.65 - Information ratio (annualized) 1.08 - 80% Jensen's Alpha (annualized) 5.56% - 60% Beta 1.13 - 40% Tracking error 10.67% - 20% Correlation 88.43% - Average number of portfolio holdings 0% 31 - -20% Source: Bloomberg, Rietumu Asset Management 400 Historical performance of «Brands & Luxury» model portfolio (01.01.2005 100) 345.95% 300 Model portfolio Benchmark 200 49.73% 100 0 2 0 0 5 2 0 0 6 2 0 0 7 2008 2009 2010 2011 2012 2013 2014 2015 Performance versus the Benchmark Current price correction offers an excellent opportunity for investment in growing trend 2 0 0 5 2 0 0 6 2 0 0 7 2008 2009 2010 2011 2012 2013 2014 2015 Backtesting of «Brands & Luxury» model portfolio from 01.01.2005. Past performance does not guarantee future profitability. «BRANDS & LUXURY» PORTFOLIO 8
«B RA NDS & LUX URY» : TERMS Volatility – a statistical measure characterizing the size of changes in an asset's value. A higher volatility means that an asset's value can be spread out over a larger range of values and, consequently, implies higher risk level. Correlation – a statistical relationship between a portfolio and a benchmark. The correlation coefficient ranges between -1 (-100%) and 1 ( 100%). The correlation coefficient of 1 or 100% implies that changes in a portfolio value perfectly duplicate a benchmark changes. The correlation coefficient of -1 or -100% implies that a portfolio value moves with the same strength as a benchmark value but in the opposite direction. The correlation coefficient of 0 implies that there is no relationship between a portfolio and a benchmark. Sharpe ratio – a measure of portfolio returns adjusted by the risk-free rate. The Sharpe ratio describes how portfolio returns compensate the additional risk an investor is forced to take. The Sharpe ratio is calculated as the excess return (portfolio returns less the risk –free rate) divided by Standard deviation of portfolio returns. Tracking error – a measure of a divergence between the price changes of a portfolio and the price changes of a benchmark. The lower the coefficient, the smaller the divergence. Equity ratio – total shareholder’s equity to total assets ratio. Beta – a measure of market risk, or systematic risk. The Beta coefficient shows the volatility, as well, asset correlation to a benchmark. The Beta coefficient of 1 implies that an asset will move with a benchmark. The Beta coefficient of less than 1 implies that an asset will be less volatile than a benchmark (lower market risk). Thus, the Beta coefficient higher than 1 implies higher price volatility and higher market risk. Maximum Drawdown – the maximum decline in a portfolio value, quoted as the percentage, from the previous price peak to the consequent price bottom during the specific period of time. Information ratio – a ratio of risk-adjusted portfolio returns. The information ratio shows portfolio returns above the returns of a benchmark adjusted by the volatility of those returns. Price-to-earnings ratio (PE ratio) – a company’s market capitalization to it’s net income. Jensen's Alpha – a portfolio performance measure adjusted by market risk, the average market return and risk-free interest rate. The coefficient describes the ability of portfolio manager to generate excess risk-adjusted returns over a benchmark, i.e. manager’s efficiency. The higher the coefficient, the more efficient portfolio management is. «BRANDS & LUXURY» PORTFOLIO Price-to-book ratio (PB ratio) – a company’s market capitalization to it’s book value. Return on equity ratio (ROE ratio) – a company’s net profit to it’s total shareholder’s equity. 9
DISCLAIMER DISCLAIMER: This overview (including any attachment (-s)) does not constitute a request, offer, recommendation or invitation of any kind to buy, sell or redeem any financial instruments or to conclude and/or to perform other transactions of any kind. The authors of the information presented in this overview, as well as JSC “Rietumu Asset Management" IMF, registered in the Commercial Register of Republic of Latvia on January 29, 2014, registration number 40103753360, legal address: 7 Vesetas Street, Riga, LV-1013, Latvia, hereinafter referred to as “RAM” , both together and individually, are not liable for possible use of the information presented in this overview, including any direct or indirect damages (including lost profits), as well as any penalties. Evaluations, opinions and forecasts presented in this overview are based solely on the RAM’s specialists' conclusions regarding financial instruments and issuers considered in this overview. While the information contained in this overview is obtained from sources believed to be reliable, the RAM does not guarantee its accuracy and completeness. Any of your investment decision should be fully based on your assessment of your personal financial circumstances and investment objectives. The RAM draws your attention to the fact that transactions in the securities and financial instruments market involve risk and require appropriate knowledge and experience. «BRANDS & LUXURY» PORTFOLIO 10
«BRANDS & LUXURY»PORTFOLIO 4 «Brands & Luxury» represent not only stability and high expected return, but also it is an indication of wealth, reputation and prestige converted in securities. «Brands & Luxury» portfolio's investment idea is built in the light of major characteristics of the modern global luxury goods market.
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