activity report 2012-2013

ACTIVITY REPORT

2012-2013

GUILÉ EMERGING MARKETS ENGAGEMENT FUNDSocially Responsible Investment Fund

NOTICEThis document is published for information purposes only. The content of this document does notconstitute an offer for sale or a solicitation of an offer to purchase nor does it constitute an incentive toinvest or to engage in arbitrage transactions. It may not be construed as a contract under anycircumstances.The information contained in this document has not been analyzed with regard to your personal profile. Ifyou have questions regarding any investment or if you have doubts as to whether an investment decisionis appropriate, please contact your particular client representative or, if applicable, seek financial, legal, ortax advice from your customary advisors.de Pury Pictet Turrettini S.A. makes every effort to verify the information provided but cannot give anyguarantee as to its accuracy.Past performance that might be indicated in the information transmitted by de Pury Pictet Turrettini S.A.in no way determines future returns. Any decision to invest or divest that may be made by the reader ofthe information appearing herein is made at the sole initiative of the investor who is familiar with themechanisms governing the financial markets.All documents legally required to be made available to investors, in particular the prospectus relating toan investment company with variable share capital (SICAV), will be provided to them upon their request.This document is the intellectual property of de Pury Pictet Turrettini S.A. Any reproduction ortransmission of this document in whole or in part to a third party without the prior written authorizationof de Pury Pictet Turrettini S.A. is strictly prohibited.

ABSENCE OF CONFLICT OF INTEREST DECLARATIONThe mission of the Fondation Guilé requires strict attention to matters of independence and impartiality inorder to preserve the integrity of its engagement process.It is extremely important that the extra-financial analysis of companies in the Guilé Funds, a critical part ofthese products, is not compromised by any conflict of interest on the part of analysts.Therefore, the Fondation Guilé formally states that BHP, the company that provided the specialists on theGuilé Engagement Team, received no fees in 2012-2013 from the companies that compose the GuiléFunds.

WELCOME

For the third consecutive year, the Guilé Funds are publishing a transparent andexhaustive report on their engagement activities on behalf of their investors, with oneminor operational change. We have decided to modify our reporting period, which willnow cover the 12 months starting on April 1 and ending March 31.

We made this decision because many companies publish their extra-financialinformation after their financial statements, sometimes even very late in the calendaryear, which made us feel that we had to rush our analysis in order to carry out theengagement on time. Therefore, this new reporting period will allow the GuiléEngagement Team to take all the time it needs to pursue its work.

We hope you will enjoy reading this 2012-2013 Activity Report.

Socially responsible investing is making great progress in Switzerland:

By choosing to invest in Guilé Funds or mandates, private and institutional investorsare assuming their responsibility as shareholders:- by meticulously exercising their voting rights,- and by having an annual dialogue with the companies in the portfolio.

At Guilé, the fund manager takes on the financial cost of this action, and pays back tothe Fondation Guilé part of his management commission so that the Fondation’sexperts can perform these tasks independently and objectively:- analyze the company’s sustainable development policy;- assess to what extent the company observes the commitments it made by signing theUnited Nations Global Compact and/or sustainable development goals favorable to itsshareholders;-hold discussions with the representatives of each company to establish and/or plan theprogress expected by investor-shareholders.

Lastly, this active shareholder responsibility does not occur at the expense of fund ormandate performance: wealth managers and corporate responsibility experts combinetheir respective knowledge of each company to add value to Guilé investments over thelong term, while assessing the financial AND extra-financial risk they present.

ENGAGEMENT OF GUILÉ INVESTORS

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The Novethic study, “Controversial companies: do investors blacklists make adifference?”, published in early 2013, reviews the various types of responsible investorsamong 19 European institutional investors managing over 1.5 trillion euros. The studyshows that engagement, followed by exclusion as a last resort, is the strategy adoptedby companies such as ABP and APG in the Netherlands, Nordea and AP1-4 in Sweden,and by the Government Pension Fund in Norway.

The study states, “The large Dutch pension fund APG is skilled in this strategy. It explainsthat its responsible investing policy, applied to 200 billion euros of assets, consists ofusing its role as a shareholder to encourage companies to improve their sustainabledevelopment strategies. It feels that engagement is the best way to create long-termchange.”

Although the Guilé Funds are not comparable to the largest funds in northern Europe interms of assets managed, they do manage to engage effectively with other companiesdue to the acknowledged expertise of the Fondation Guilé.

Many corporate executives whom we work with confirm this view:

At times, the expertise of the Fondation Guilé is requested earlier by some companies,who state this directly in their public annual Corporate Social Responsibility report (seefollowing pages).

ENGAGEMENT OF GUILÉ INVESTORS

“Guilé's COP assessment provided very helpful input for compiling our next report. The external expertise confirmed my feeling to report more information that might seem obvious to us, but not necessarily to our external stakeholders.“Ms. Nicki Crayfourd, Director of Health, Safety and Environment, COMPASS GROUP

"H&M is very committed to addressing and openly reporting on the UN Global Compactprinciples. The assessment of and feedback to our COP that is provided by FondationGuilé is very helpful; it is valuable to have an external point of view and the suggestionsfrom Guilé will be incorporated into H&M’s next report.“Maritha Lorentzon, Global Code of Conduct Coordinator and Nils Vinge, Head ofInvestor Relations, H&M

“It is most appreciated and very useful to have an external opinion on the way ourreporting is perceived by our stakeholders.”Mr. Grégory Soudan, Deputy Head of Group Risk Management, SCOR

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Extract from the CSR report of Coca-Cola Hellenic published in 2012

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Extract from the CSR report of Heineken published beginning 2013

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• Exercise investors’ VOTING RIGHTS at General Shareholders’ Meetings, according to chosen

governance rules;

• Engage in DIALOGUE with portfolio companies in order to obtain transparency and full information regarding their

compliance with the ten principles of the Global Compact.

RESPONSIBILITY

EXERCISE OF VOTING RIGHTS IN THE EMERGING MARKETS IN 2011

Nb of companies in the portfolio

Nb of companies: voting rights exercised

Nb of companies: voting rights not exercised

Companies entered in the portfolio after the AGM 2011

45 30 9 6


Nb of companies in the portfolio




39 31 2 6

In keeping with the goal stated in our last annual report, this rate increased again and we have now voted in 93.9% of portfolio companies.

In 2011, Guilé successfully voted in 76.9% of portfolio companies.

- One of the two portfolio companies where we were unable to vote in 2012 is MobileTeleSystems (Russia); a simple process error between the custodian bank and the proxyvoting platform caused the problem.

- And the other company, Baidu, did not hold a general meeting for its shareholders!This Chinese company has in fact set up its head office in the Cayman Islands, where thelaw excuses it from the legal obligation to organize a general shareholders’ meeting.This case is a perfect illustration of why companies and investors need to be made moreaware of their responsibilities, so that they can help establish solid governance thatfavors shareholders in emerging countries.

EXERCISE OF VOTING RIGHTS IN THE EMERGING MARKETS

In 2010, Guilé successfully voted in 62.2% of portfolio companies.

Administrative difficulties with voting long-distancein emerging countries continue.But while there were 14 companies where wedidn’t vote in 2010 and six companies in 2011,there were only two such companies in 2012.

In general, we exercise voting rights at general shareholders' meetings of emergingcountry companies based on the recommendations that Comgest and Guilé receivefrom ISS. However, managers do not always follow these recommendations. Rather,they call on their in-depth knowledge of these companies to vote in a manner that isboth responsible and economically viable for the shareholder-investor.


Nb of companies in the portfolio at the end of 2011




43 23 14 6

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The Engagement Team alternates trips to the various emerging markets: India andChina in 2009, South Africa in 2010 and Brazil in 2011. The remaining dialogues areheld as long and very exhaustive teleconferences.

In 2012, the specialists at the Fondation Guilé traveled to Taiwan to head a meeting inpartnership with the fund manager, Comgest, and the regional network partner of theWorld Business Council for Sustainable Development.

The theme of the conference wasCorporate Sustainability and UN Global Compact:Benefits for Investors, Investees and otherStrategic Stakeholders

The meeting also provided an opportunity for the Engagement Team to meetrepresentatives from Guilé portfolio companies, such as Larry Sun, a Manager at TaiwanSemiconductor Manufacturing Company. Sun also gave a talk on corporateresponsibility issues in the context of managing suppliers and subcontractors.

SHAREHOLDER DIALOGUE IN EMERGING COUNTRIES

At the Taipei event, wemet with some 80participants and heldvery open discussionson the benefits,experiences and espe-cially the expectationsthey have concerningCorporate Social Res-ponsibility (CSR) ingeneral, and the 10principles of the GlobalCompact in particular.

With the participation of:

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FUND MANAGEMENT

• Produce ADDED FINANCIAL VALUE through active management of Emerging Markets equities compared to

the fund’s benchmark index;

• Provide transparent, structured, independent, and stable asset management.

PERFORMANCE OF THE GUILÉ EMERGING MARKETS FUND

Despite an abundance of gloomy economic news, 2012 was a very good year for thestock markets. The MSCI Emerging Markets index rose by 18.2% in US dollars, aperformance comparable to that of the major developed markets. Investors remainhungry for emerging market assets, which is probably why the asset class was able toperform well in spite of a sharp decline in macro and microeconomic growth. In additionto lower earnings for commodity producers, which make up nearly 25% of the index,sales were sluggish and margins were squeezed as a result of the global slowdown andan unexpected rise in competition, particularly from companies in developed markets.

The sub-fund was unable to match the index’s rise in a context where Q4 sawapproximately 2/3 of annual net GEM Equity inflows. This underperformance is all themore frustrating because our stocks, on average, saw their earnings per share rise byaround 8.5% - well above the class average.

The portfolio suffered from being significantly underweight in financial stocks, whichperformed extremely well this year. HTC, Baidu, JBS and gold-mining stocks weighedparticularly heavily on the sub-fund’s performance. While we understand the price dropin HTC’s shares, a holding which we have now liquidated, the weakness of Baidu, JBSand the gold-mining stocks is harder to explain from a structural perspective.

In contrast, being overweight in consumer staples and underweight in energy wasbeneficial to performance. The sub-fund’s exposure to ‘global’ stocks was alsofavourable. Heineken, Bunge and Coca-Cola HBC made positive contributions. TSMC,Tencent and Magnit performed especially well on the back of excellent financial results.

Expressed in USD, the emerging markets registered a rise of 18.2% over the year. Overthe same period, A and B classes of Cadmos Fund Management – Guilé EmergingMarkets Engagement Fund respectively increased by 15.0% and 16.0%.

PORTFOLIO POSITIONING / COMPANY-RELATED NEWS

A certain number of portfolio holdings were liquidated in 2012. Five of these sell-offswere for strategic reasons (Grupo Televisa, Delta Electronics, HTC, Telkom Indonesiaand AngloGold Ashanti). The other positions were eliminated for more technical reasons(contributing shares to a takeover, liquidating small, long-standing positions, etc.).

GUILÉ EMERGING MARKETS ENGAGEMENT FUNDmanaged by Comgest - Paris

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Several companies were added to the portfolio. Brasil Foods is one of these and thecountry’s leading producer of chicken and food products. The company was created byPerdigão's acquisition of its rival Sadia (which was previously in our portfolio). Its mainstrengths are its refrigerated distribution chain and high degree of vertical integration.Brasil Foods also enjoys considerable dominance (50-60% of the market) in a number ofproduct categories, such as pizzas, hamburgers, cooked meats, pasta, etc.

Natura, Brazil's leading direct seller of beauty products, was reintroduced to theportfolio. The company enjoys very strong brand awareness, which continues to attractincreasing numbers of sales representatives. We took advantage of a temporary drop inthe share price to rebuild our position in the firm during Q2.

Sanlam is using the insurance expertise it has acquired in South Africa to expand on theAfrican continent. The company is now well established in nine African countries, wherethere is no competition from the world's leading insurers. Sanlam has a very strongbalance sheet, the result of prudent and pragmatic financial management. The excesscapital built up in recent years is allowing the company to expand into new growthmarkets such as India and Malaysia.

With the help of occasional state aid, Yandex and Baidu have overtaken Google as theleading search engines in Russia and China respectively. The two companies arebenefiting from the structural growth of online advertising in their respective countries,especially China, where there is a huge appetite for the Internet. Moreover, a growingnumber of companies wants to have a presence on the Internet and advertising pricesare increasing as they compete for online views.

Our portfolio is well positioned through its long-held core holdings to show resilientgrowth in a low-growth environment. In addition, the more recent and contrarianinvestments should be of benefit to us in the case of any growth acceleration, whichtoday cannot be ruled out from our point of view. The following portfolio positionsshow the highest potential upside according to our in-house valuation and target prices:China Mobile, Bharat Heavy, Baidu, Ping An, MTS, Gold Fields, China Life, Yandex, JBS,TSMC.

We reduced our investments in CCR and Tencent after a sharp increase in the shareprices of these two companies. We cut our investment in Gold Fields because wewanted to reduce the portfolio's overall exposure to gold-mining stocks.


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We invested in gold-mining stocks as a way of hedging the portfolio against amacroeconomic crash. The global economic situation remains difficult, and there hasbeen little in the way of structural reforms to improve it. We feel that the risk premiumon the equity markets sufficiently reflects the current major macroeconomic risks,which is why we decided to sell out of AngloGold Ashanti and reduce our investment inGold Fields. We increased our investments in BHEL (industrials, India), Tenaris(industrials, Argentina) and Walmex (retail, Mexico).

OUTLOOK

The global economy has rarely experienced such levels of uncertainty. On the one hand,numerous economic imbalances are prompting fears of a painful drop in asset prices.On the other hand, low official inflation rates and extremely reflationary monetarypolicies are broadly favourable for the financial markets. However, the US fiscal cliff andsluggish growth in Europe will continue to pressurise the markets.

After a brief spell of rate-raising, emerging-market central banks are once again in aphase of monetary easing. On average, interest rates in the emerging world havereturned to their 2009 levels. Accommodating budgetary policies have also beenimplemented, with the Chinese and Brazilian governments resuming infrastructurespending and India deregulating some sectors with a view to attracting industrialinvestment. All these measures have stabilised the situation in the major emergingnations but have failed to revive their economies and growth remains sluggish.

With growth stabilising to a degree, and in spite of a sharp slowdown, the emergingstock markets may benefit from significant injections of liquidity until monetary policy inthe wealthy nations returns to normal.

However, these decisive and favourable monetary conditions should not detract fromthe structural and economic weaknesses afflicting emerging nations. First, they rely ondemand from the US, Europe and China, which has been persistently mediocre, andsecond, there is greater competition, especially from companies in developed markets.All this, against a background of a chronic lack of quality infrastructure, reduces theirgrowth potential. Paradoxically, the emerging markets are likely to perform best just asthe fundamentals show their limitations.


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Country GEMEF Portfolio as of 31.12.2012 Currency %

Argentina Tenaris S.A. ADS USD 3.67Brazil Odontoprev S/A BRL 1.86Brazil BRF-Brasil Foods S.A. BRL 2.19Brazil Natura Cosmeticos S.A. BRL 2.07Brazil Duratex SA BRL 1.61Brazil Weg S/A BRL 2.89Brazil Cielo S/A BRL 1.88Brazil Petrobras Petroleo Brasileiro ADR USD 2.03Brazil JBS S/A BRL 2.94Brazil CCR SA BRL 2.14Chile Empresas Copec S.A. CLP 2.02China Baidu Inc. ADS USD 2.66China Ping An Insurance (Group) Co. of China Ltd. HKD 3.50China China Mobile Ltd. HKD 3.57China China Life Insurance Co. Ltd. (China) HKD 3.58China Tencent Holdings Ltd. HKD 1.97Greece Coca-Cola Hellenic Bottling Co. S.A. ADS USD 2.03India Comgest Growth India USD 0.49India GAIL (India) Ltd. INR 1.85India Bharti Airtel Ltd. INR 1.97India Bharat Heavy Electricals Ltd. INR 2.74Korea NHN Corp. KRW 2.04Korea Shinsegae Co. Ltd. KRW 1.05Korea E-mart Co. Ltd. KRW 2.17Korea Samsung Life Insurance Co. Ltd. KRW 2.57Mexico America Movil S.A.B. de C.V. MXN 1.96Mexico Wal-Mart de Mexico S.A.B. de C.V. MXN 3.59Netherlands Heineken N.V. EUR 4.01Others Comgest Growth GEM Promising Companies EUR 0.33Others Comgest Growth Latin America USD 1.08Poland Kernel Holding S.A. PLN 2.32Russia Mobile TeleSystems ADS USD 2.69Russia Yandex N.V. Cl A USD 2.48Russia Magnit JSC GDR USD 2.28South Africa MTN Group Ltd. ZAR 2.52South Africa Naspers Ltd. ZAR 2.24South Africa Sanlam Ltd. ZAR 1.73South Africa SABMiller PLC ZAR 1.01South Africa Gold Fields Ltd. ZAR 2.28Taiwan Taiwan Semiconductor Manufacturing Co. USD 4.93United Kingdom Randgold Resources Ltd. GBP 2.12United States Bunge Ltd. USD 3.54

COMPOSITION OF THE PORTFOLIO AS OF 31.12.2012

GUILÉ EMERGING MARKETS ENGAGEMENT FUND

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CONFIDENTIAL REPORT

• Results of corporate extra-financial disclosure analysis

• Minutes of the dialogue in the name of Guilé Funds investors (dialogue with each company that was in our

portfolio as of 31.12.2012 and that published a CSR report on due time for the assessment)

Source: FONDATION GUILÉ

DISCUSSION OF THE COMPREHENSIVENESS AND OF THE QUALITY OF THE COMPANY’S NON-FINANCIAL REPORTINGThe comprehensiveness and quality of Coca-Cola Hellenic’s COP have made enormous strides over the years. As a result, the group’s non-financial reporting now ranks among the best of any company in the Guilé funds. Coca-Cola Hellenic has even introduced some industry benchmarks, so that stakeholders can make a comparative assessment of its results.The Fondation Guilé emphasised the room for further improvement; first, in the management of suppliers, particularly as regards upholding the labour standards (audits, monitoring of actions taken etc.); second, in the reporting on anti-corruption measures (and their integration into the company’s values).Guilé is a member of Coca-Cola Hellenic’s stakeholder panel, whose activities include reviewing the company’s corporate social responsibility report. The company has told us that it plans to publish its first integrated annual report (financial and non-financial information) in 2013 and will again enlist the support of the Guilé experts.

GREECE

LEVEL OF ENGAGEMENT

ANALYSIS OF THE REASONS FOR INVESTING

The world’s largest Coca-Cola bottler in terms of sales.Present in twenty-seven European countries and Nigeria, with a high exposure to the emerging markets.Covers a total population of 560 million consumers. Controls one of the region’s finest distribution networks; for example, it has 1.7 million refrigerators placed in retail outlets.

ANALYSIS OF THE CORPORATE SOCIAL RESPONSIBILITY ISSUESThe company is obviously exposed to issues of good water-management; but anti-corruption is also a key concern, particularly in view of its production activities in Eastern Europe. In terms of governance, Kar-Tess Holding and The Coca-Cola Company control 50 per cent of the company. These two shareholders thus have a substantial influence on Coca-Cola Hellenic’s strategy.

REVIEW OF SHAREHOLDER ENGAGEMENTContact with the Guilé engagement team: • 4th COP analysis• 4th discussion with the company since its entry into the portfolio, conference call meeting with the Sustainability Manager

Assessment results :

Coca-Cola Hellenic – signatory to the Global Compact since 2005

(6) (Publicizes Guilé's recommendations)

5 Shows improvement on at least one weak point raised by Guilé

4 Approves the progress objectives clearly specified by the Guilé assessment

3 Displays awareness and accepts the principle of a regular (annual) dialogue

2 Agrees to a detailed discussion about our assessment

1 Acknoledges receipt of our assessment

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activity report 2012-2013

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