fund presentation - castlestone managementdate range: december 31st th2010 to february 28 2011...

Next 11 Emerging Markets Fund

Fund presentation

APRIL 2011

2 www.castlestonemanagement.com

What is this fund? – Next 11 Emerging Markets Fund, based on an original idea by Goldman Sachs in

2005

Reasons why? – Countries with low levels of debt to GDP should outperform countries with high levels of

debt to GDP

Why we believe you should own this fund – Experienced management team, improved efficient frontier

curve

Why we believe this asset class will outperform over the next 10 years – debt to GDP discussion,

rising consumer class leading to possible re-rating

Addendum

Source: Castlestone Management

Next 11 Emerging Markets

Presentation Overview


Source: *Goldman Sachs Global Economics Papers – GS Global Economic Website.

Creation of the N-11 concept and its evolution

2001

Goldman Sachs coins the term „BRIC‟

2005

Goldman Sachs introduced the concept of Next 11

2007

Next 11 becomes more than an acronym – increased focus on these countries

2010

Castlestone launches the Next 11 fund


Source: Goldman Sachs & Castlestone Management

Mexico

Nigeria

Turkey

Egypt

Iran

Pakistan

Bangladesh

Indonesia

Vietnam

Philippines

Korea

What are the Next 11 Emerging Markets?

Geographically Diversified


Source: *2009 IMF, 1999 nation master. ** The Economist Pocket World Figures 2010.

Note: Past performance cannot be relied on as a guide to future performance.

0 50 100 150 200 250

Bangladesh

Egypt

Indonesia

Iran

Mexico

Nigeria

Pakistan

Philippines

South Korea

Turkey

Vietnam Population in Millions** 86.4

75.2

48.1

85.9

164.6

137.2

109.6

71.2

228.1

76.9

147.1

Population**

The driving factor


Source: *2009 IMF, 1999 nation master. ** The Economist Pocket World Figures 2010.


GDP per capita*

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

Bangladesh

Egypt

Indonesia

Iran

Mexico

Nigeria

Pakistan

Philippines

South Korea

Turkey

Vietnam

2009*

1999*

+695%

+350%

+193%

+244%

+470%

+686%

+174%

+570%

+505%

+346%

+306%

Rising consumer class


The Fund

The fund is a long only Next 11 fund with actively managed exposure to Next 11 emerging market equities.*

This fund will not invest directly in Iran, but may obtain indirect exposure to the country via stock picking

FSA recognised and approved for distribution in the UK

Available in $USD, €EUR and £GBP

€ EUR and £ GBP shares hedged against $ USD


* The fund may also invest in linked indices, ETFs and third party funds


The Objective

The primary investment objective is to provide positive returns in a variety of market conditions by investing

in the Next 11 countries ex Iran.

The Strategy

The Next 11 Emerging Markets Fund can invest across equities linked to the economic development of the

Next 11 emerging markets.



Reasons why?

The concept was introduced by Goldman Sachs in 2005 in a similar way that Goldman Sachs

introduced BRIC in 2001

─ The concept was based on determining countries with large populations that will

challenge the G7 countries by 2050

Geographic diversification

─ Next 11 countries comprise less than 20% of the MSCI Emerging Markets Index

─ Next 11 countries are less economically and politically „interlinked‟ unlike the BRIC

countries where China is dominant both economically and politically

─ Each country is predominantly domestically driven and therefore less affected by another

N11 country – consider the image of a „string of pearls‟


If a re-rating of the N11 markets were to occur, as it did with BRIC, the Next 11 Emerging Market

Fund should significantly outperform GEM funds over the next decade

Reasons why?

Next 11 Emerging Markets enhances your Emerging Markets portfolio return

Source: *Bloomberg & Castlestone Management.

2001 – 2011* BRIC outperformed GEMs by 3.4% pa

2001 – 2011* GEMs outperformed S&P by 15% pa

2001 – 2011* Next 11 outperformed S&P by 21% pa

2001 – 2011* Next 11 outperformed BRIC by 2.6% pa

2001 – 2011* Next 11 outperformed GEMS by 6% pa


Reasons why?

We believe emerging markets will outperform developed markets over the next decade

─ Equity markets in countries with low levels of debt to GDP should outperform those with high levels of debt

to GDP due to potential re-rating of equity p/e multiples:

Infrastructure investment (roads, rail) leading to improved productivity

Reduced burden of an aging population on medical and pensions systems

Dynamic development of independence, privatisation, rights etc

Better healthcare/education systems with increased population growth

Increased integration with global economies

Higher degrees of corporate governance, regulatory oversight

Source: *Bloomberg & Castlestone Management.


22% Weighting to

Next 11 would have

resulted in a total

increase in annualised

returns of 88% over

portfolio C and of 12%

over portfolio B, at the

same level of risk

Source: Bloomberg & Castlestone Management. Fixed Income: Merrill Lynch Global Government Bond Index, Equities: S&P 500 Price, Commodities: S&P GSCI TR, Emerging Markets: MSCI Emerging Markets, Next

11: BNP Core 8 Next 11 Index. October 2011 to February 2011.

Improved Portfolio Efficiency A

nn

ua

lis

ed

Retu

rn

Portfolio A: Fixed Income, Equities, Commodities, Emerging Markets and Next 11

Portfolio B: Fixed Income, Equities, Commodities and Emerging Markets

Standard Deviation

Portfolio C: Fixed Income, Equities and Commodities

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

2% 3% 4% 5% 6% 7% 8% 9%


Next 11 30%

GEM or BRIC 70%

Note: *This is based on Castlestone Management‟s view of Portfolio Planning. This should not be construed as advice. In plann ing your portfolio, please seek professional planning advice.

Emerging Market Equities

Where does this fit in you portfolio*


Source: *Goldman Sachs ,Bloomberg & Castlestone Management


What are the Next 11 Emerging Markets?

• Infrastructure growth

• Improved healthcare and education

systems

• Increased productivity = less burden

on economy

• By product of this is PRODUCTIVITY

• Increased urbanisation

• More integration with global

economies

• Property ownership

• Development of independence

• Rising consumer class

• Increased GDP per capita

• Further global & domestic

investment

• Improved corporate governance

• Potential P/E multiple expansion

• Outperformance of equity market

in countries with low levels of

debt to GDP


GEM vs S&P 500 – last decade

Source: Bloomberg & Castlestone Management

0%

100%

200%

300%

400%

500%

600%

Oct 2001 Oct 2002 Oct 2003 Oct 2004 Oct 2005 Oct 2006 Oct 2007 Oct 2008 Oct 2009 Oct 2010

MSCI Emerging Markets Index

S&P 500


Next 11 vs S&P 500 – last decade


0%

100%

200%

300%

400%

500%

600%

700%

800%

Oct 2001 Oct 2002 Oct 2003 Oct 2004 Oct 2005 Oct 2006 Oct 2007 Oct 2008 Oct 2009 Oct 2010

S&P 500

Next 11 Index


Source: Bloomberg & Castlestone Management. *Date range: December 31st 2010 to September 29th 2010. **Date range: September 2001 to June 2010. N-11: Next-11 Core 8 Index, BRIC: MSCI BRIC Index,

Emerging Markets: MSCI Emerging Markets Index TR


How have the Next 11 performed

This is your opportunity to achieve ‘BRIC-like returns’ a second time around

Index/Country Annualised Return 2001 – 2010**

N-11 +22%

BRIC +20%

Emerging Markets +16%

S&P 500 +2%

Topix 500 +2%

EUROSTOXX 600 +6%


Source: Bloomberg & Castlestone Management. As of July 2011. *Indicative, **0% because no ability to invest directly at present


MSCI Emerging Markets Index Next 11 Emerging Markets

(Indicative Weightings)

Index Weightings – Emerging Market diversification*

MSCI Country Next 11

0% Bangladesh 3%

16% Brazil 0%

17% China 0%

1% Egypt 6%

7% India 0%

2% Indonesia 18%

0% Iran 0%**

13% Korea 10%

4% Mexico 28%

0% Nigeria 4%

0% Pakistan 3%

0% Philippines 7%

7% Russia 0%

7% South Africa 0%

11% Taiwan 0%

2% Turkey 17%

0% Vietnam 4%


Source: Bloomberg & Castlestone Management. *Date range: December 31st 2010 to February 28th 2011 **Date range: September 2001 to June 2010. N-11: Next-11 Core 8 Index, BRIC: MSCI BRIC Index, Emerging

Markets: MSCI Emerging Markets Index TR


Index/Country 2010 2011 YTD*

RTS Standard (Russia) +19.1% +8.22%

MSCI Emerging Markets +16.4% -1.45%

Bombay SE500 (India) +16.4% -9.19%

S&P 500 +12.8% +4.14%

FTSE 100 +9.0% +0.30%

EURO STOXX 600 +8.6% +0.36%

MSCI BRIC +7.3% +0.23%

Bovespa (Brazil) +1.0% -2.56%

Hang Seng China Ent

Index (China - HK) -0.8% +2.23%

Nikkei 225 -3.0% -6.77%

CSI 300 (China - Local) -12.5% +5.31%

Index/Country 2010 2011 YTD*

DSE General (Bangladesh) +82.8% -25.64%

TEPIX (Iran) +68.2% +23.5%

JCI (Indonesia) +46.1% -2.60%

PSEi (Philippines) +37.6% -7.74%

Karachi 100 (Pakistan) +28.1% -3.94%

ISE Nat 100 (Turkey) +24.9% -1.85%

Kopsi (Korea) +21.9% +0.15%

Mexico ICP +20.0% -4.35%

NSE All Share (Nigeria) +18.9% +1.15%

Egypt Hermes +15.7% -27.35%

Ho Chi Minh (Vietnam) -2.0% -5.55%

How have the Next 11 performed in 2010


Source: Castlestone Management.


Investment perspective – breaking down the Next 11

10%

Leader

65%

Core

20-25%

Frontier

0-5%

Proto

Korea Mexico Egypt Bangladesh

Indonesia Vietnam Iran

Turkey Pakistan

Philippines Nigeria

Wide Range of Investment Profiles

Universe Focused on Core Countries



Conclusion

The concept was introduced by Goldman Sachs in 2005 as Goldman Sachs introduced BRIC in 2001

– second opportunity to achieve „BRIC-like returns‟

Geographic diversification within emerging markets

– Next 11 is a complement to BRIC

Next 11 Emerging Markets enhances your Emerging Markets portfolio return

We believe emerging market equities will outperform developed market equities over the next

decade

Our belief is that a diversified emerging markets portfolio should include 20 - 30% allocation to Next

11 emerging markets


Addendum


Claudio Oliveira

Head of Trading

Claudio joined Castlestone Management in April 2007 to provide fundamental research and trading execution.

Prior to joining Castlestone Management, Claudio worked for Deutsche Bank in New York for four years as an

analyst within the credit risk department. Claudio has a BA in Economics with a minor in Mathematics from

Rutgers University.

Dmitry Zhuk

Emerging Markets Equity Analyst

Dmitry joined Castlestone Management in February 2011 to take the position of an emerging markets equity

analyst. He has a generalist sector focus and is tasked with providing fundamental bottom-up company

research and assisting with top-down macro analysis. Prior to Castlestone, Dmitry spent four years as an equity

research analyst at Citigroup in London where he covered emerging markets Telecom and Media sectors.

Dmitry holds an Honours Masters degree in Economics from the University of Edinburgh, UK.

Fanfan Li

Emerging Markets Trader

Fanfan joined Castlestone in May 2011 as a junior trader. Prior to joining Castlestone, Fanfan worked as a

dealer at London Capital Group for four years gaining experience trading in an array of asset classes as well as

facilitating expansion into Chinese markets. Fanfan received an Honours Masters degree in International

Securities from the University of Reading.

Robert Hunt

Investment Manager

Robert is a director and on the investment committee of a number of BVI public professional and private funds.

Robert joined Castlestone Management in 2006 and has carried out a number of functions across the business,

starting initially in the position as Research Analyst and progressing towards an investment management role.

Prior to this Robert undertook experience as a Portfolio Assistant at Thesis Asset Management Plc during his

university placement year. He received a BA (Hons) in Financial Services from Bournemouth University, UK.

Investment team

Source: Castlestone Management.


Fundamental

Bottom-up: Buying companies, not tickers or markets - first and foremost fundamental equity analysis

But keen attention to macro for two reasons:

1. Most attractive risk/rewards where there is a bottom-up company, combined with an attractive thematic exposure

2. Avoid companies with very pertinent macro risks that may not be priced in, regardless of other attractive attributes

Long term Investment Horizon

Sector Generalist, but bias away from specialised areas (e.g. Biotech)- benefit of broad global and sector awareness/view, rather

than being pigeonholed to find the best absolute value wherever possible

Not benchmark/tracking error constrained

Contrarian mindset- avoiding “hot stocks”- biggest risk in owning individual equities is a reversal of sentiment towards a name.

Note: This is based on Castlestone Management‟s view of Portfolio Planning. All content is subject to change at the Portfolio Manager‟s discretion.

Investment philosophy


Focus upon 5:

Unknown

Unloved

Undervalued

Under-researched

Under owned

Above combined with strong attention to valuation- but interpretation includes both „value‟ (i.e. cheap assets) and „GARP‟ (i.e. cheap

growth)

Concentration: circa 30 names

Approach applied consistently throughout all prior employment


All apply to Next 11 countries

Investment philosophy


Long biased philosophy- value is captured through identifying attractive companies as longs

Derivatives used for efficient portfolio management, not value capture- primarily at the index level using futures- absolute return

mindset and incentive structure

Market exposure will vary over time:

1. Primarily to avoid systemic risks at times of volatility- links in with broader Castlestone expertise in Macro analysis

2. Owning a specific company does not require owning the underlying market.

Currencies generally left un-hedged when PM is agnostic - but reviewed especially where country concentration is high


Approach to risk management



Quantitative

• Cheap relative or absolute

valuation

• Out of favour with analysts

• Insider buying

• 52 week low

Qualitative

• Respond to newsflow, e.g.

Uncertainty providing market

mispricing

• Inflection points – e.g. Change

in management or incentives

• Attractive outlook?

• Catalyst for change?

• Valuation relative to history /

market / peers?

• Likely to be ~50% upside

• Upside >3x downside

• If not cheap / attractive on

quick and dirty look / valuation

– likely not a buy

• Porters Five Forces

• SWOT

• Competitor analysis

• Management calibre /

incentives

• Risk assessment

• Market capitalisation

• Average daily value traded

• Decide weighting

• How to fund purchase

• Risk management: hedge

currencies or business

exposure

• Buy?

• Not a buy?

• Absolute

• Relative

• Potential downside

• Margin of safety?

Traders handle execution short-

term variance from PM indicated

weightings allowed based on

market movements, available

flows

• Review on news flow

• Set price alert to review

decision regardless of no news

• Ongoing monitoring

• Continual rebalancing

Quant / Qual Screens Fundamental / Valuation

Snapshot Rigorous Analysis Universe Demarcation

Portfolio Construction Decision Valuation Execution

Watchlist Portfolio Management

Investment process


Corporate Overview

Independently owned asset manager that providing investment management services based on foresight,

appropriateness and with the aim of meeting long term investment objectives of its investors

Founded in 1996 by Angus Murray, a former President of Macquarie Bank USA Inc. and Co-Head of the

International Equity Department of NatWest Markets USA

55 employees , 9 investment professionals – 4 commodity focused, 3 emerging markets focused

Over 400 partners around the world who understand and allocate to our funds; available via major life platforms


“Index Constituent”

Aliquot Gold Bullion

March 2011

Source: Castlestone Management. Note: Morningstar rating refers to Aliquot Gold Bullion class A,C & Aliquot Precious Metals class D only. © [2010] Morningstar UK Limited. Overall rating as at 31/08/2010. All Rights

Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, completely or timely. Neither

Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Fund Focus & Awards

COMMODITIES EMERGING

MARKETS

GLOBAL

MACRO

“Best International Sales Team”

Castlestone Management

Highly Commended May 2008

“Best Performing Global Macro Fund”

Porcupine Global Macro Plus

Finalist November 2007 & 2009

“European Performance Award”

Porcupine Global Macro Plus

Highly Commended May 2009

“Index Constituent”

Aliquot Gold Bullion

October 2009


Note: Shares in Castlestone Management funds may not be offered or sold directly or indirectly in the United States nor may be held for the account or benefit of any U.S. person as defined in regulation S under the

United States securities act of 1933 (as amended). Any reoffer or resale of any such shares in the United States or to U.S. persons may constitute a violation of U.S. law. *Representative offices.

Global Reach

London, UK Investment Team

Legal & Compliance

Marketing

Sales

New York, USA

Latin America* South Africa

Europe*

Hong Kong

Singapore

Dubai*

Offices & representation in strategic locations across five continents

British Virgin Islands Fund Manager: BVI Funds

Investment Team


Important information

This document is intended for and directed at investment professionals and is not intended for retail customer use.

This document is not offering to sell any product. Any transaction requires our subsequent formal agreement which will be subject to internal approvals and binding

transaction documents. Castlestone Management (“We”) will not be liable for any use you make of any information in this document. We are not your advisor or

fiduciary. We are not recommending or making any representations as to suitability of any product or the tax, legal or accounting treatment of any product. We are

not responsible for information stated to be obtained or derived from third party sources. All opinions are given as of the date hereof and are subject to change. We

are not obliged to inform you of any such changes.

Any simulated performance data and/or past performance data contained herein is not a reliable indicator of future performance. Income from investments may

fluctuate and investors may not recoup the amount originally invested. Any forward-looking statements concerning the financial condition, results of operations and

businesses of Castlestone Management expressed or implied, are based on management's current expectations and assumptions, which may change without

notice, and are no guarantee of future results, performance or events

This document is confidential. No part of it may be reproduced, distributed or transmitted without Castlestone Management‟s written permission. Neither this

document nor any copy of it may be distributed, directly or indirectly, in the United States of America or its territories or possessions (the “United States” or to any

US Person as defined in Regulation S under the United States Securities Act of 1933 (as amended). Any failure to comply with these restrictions may constitute a

violation of United States securities law. This is not exhaustive; other regional-specific wording may apply. If in doubt, please consult with Castlestone

Management‟s Legal and Compliance department.

Castlestone Management Limited is authorized and regulated by the Financial Services Authority in the UK. Castlestone Management Limited is authorized by the

Financial Services Board in South Africa. Castlestone Management Inc. is regulated by the British Virgin Islands Financial Services Commission. This scheme is not

available for distribution in Singapore.

This scheme has been entered into the List of Restricted Schemes by the Monetary Authority of Singapore under paragraph 2(3) of the Sixth Schedule to the

Securities and Futures (Offers of Investments)(Collective Investment Schemes) Regulations 2009 for distribution to institutional and accredited investors. No

invitation to the public in Hong Kong to buy or subscribe for any product is permitted to be made. You should consult your own attorney, business adviser and tax

adviser as to legal, business, tax and related matters concerning any of the contents of this document.

This document has not been delivered for registration to the Registrar of Companies in Hong Kong, its contents have not been reviewed by any regulatory authority

in Hong Kong, nor has the product been authorised by the Securities and Futures Commission. Accordingly, this document must not be issued, circulated or

distributed in Hong Kong other than (1) in circumstances which do not constitute it as a “prospectus” as defined in the Companies Ordinance (Cap.32) or which do

not constitute an offer to the public within the meaning of that ordinance, or (2) to professional investors as defined in the Securities and Futures Ordinance

(Cap.571) and the Securities and Futures (Professional Investor) Rules made thereunder. Unless permitted by the securities laws of Hong Kong, no person may

issue in Hong Kong, or have in its possession for issue in Hong Kong, this document or any other advertisement, invitation or document relating to any products

other than to a professional investor as defined in the Securities and Futures Ordinance (Cap.571) and the Securities and Futures (Professional Investor) Rules

made thereunder.”

April 2011: 21/04/11

fund presentation - castlestone managementdate range: december 31st th2010 to february 28 2011...

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