ing high dividend investing

For institutional use only. Not for inspection by, distribution or quotation to, the general public.

High Dividend Investing in 2011

DIY - Dividend, Income & Yield

Presented by:

Carl Ghielen, CEFAClient Portfolio Manager

Geneva, SwitzerlandDecember 7, 2010


Key Messages

• Markets supported by QE2 Fed (strong liquidity flows)

• Goals QE2: stimulating economy, stop declining inflation (expectations)

• ECB on sideline, mainly because of solidly performing (German) economy

• QE2 affects currencies: weak USD, strong EUR and Asian currencies

• Sovereign debt worries resurface due to political discussion about succession of euro zone support facility

• Neutral equities vs. fixed income; positive for commodities and real estate

• Preference for emerging markets: high growth, low debt

• Preference for yield: dividend, high yield, EMD

• Interest rates and bond yields will remain lower for longer

2


TAA Summary

• Neutral equities vs. fixed income

• (Slight) overweight commodities, real estate equities

• Defensive sector tilt

• Themes: commodities (energy), earnings momentum (IT) and cheap quality (health care, telecom)

• Overweight emerging markets, underweight developed markets

• High Dividend is our preferred style

• Modest positions• Overweight EMD, High Yield, Govt bonds• Underweight Investment Grade

St r a t e g y R e co m m e n d a t io n s

+ = -T A A CO M M EQ

REI T FI

EQ U I T Y- Se ct o r s E N G Y STA PL S D I SC RET

H L TH M A TS I N D U SIT U TIL FIN ' L

T EL CO

- R e g i o n s G EM A SIA U SAJP NEU R

- Si z e L G E SM LM ID

- St yl e H D IV CO REG RW T H V A L U E

FI X ED- M a r k e t s EM FX A B S IG C

EM Ra t e s IFLEM D H C

H YSB L

G O V T

3

For institutional use only. Not for inspection by, distribution or quotation to, the general public.4

Bond yields remain low and risk premiums attractive

‘New’ ranges to persist

Source: Thomson Reuters Datastream, ING IM


The “search for yield” is on

Higher yielding credit obvious place to look

Source: Thomson Reuters Datastream, ING IM


Equities: three themes for 2011

• Some have it all: “Emerging” markets have emerged

• Increase in corporate spending

• The scarce asset premium: sustainable dividend income in developed markets &sustainable growth at reasonable prices in emerging markets


• Low public and private debt levels

• High economic growth

• Superior corporate profitability

• Valuations are still relatively attractive

• Flooded by investors’ money flows. It is a crowded trade

• Prominent voice in international decision-making

• Still underrepresented in market indices relative to their GDP-weight

Some have it all: Emerged equity markets


“Emerging / emerged” versus “Developed” markets

Net debt/Equity

0%

50%

100%

150%

200%

jan/

95

jan/

97

jan/

99

jan/

01

jan/

03

jan/

05

jan/

07

jan/

09EM DM

Return on Equity

8 .0 0 %

9 .0 0 %

10 .0 0 %

11.0 0 %

12 .0 0 %13 .0 0 %

14 .0 0 %

15.0 0 %

16 .0 0 %

17.0 0 %

dec/

95

dec/

97

dec/

99

dec/

01

dec/

03

dec/

05

dec/

07

dec/

09

World EM

PE premium/discount emerging markets

0.350.450.550.650.750.850.951.051.15

31/0

1/95

31/0

1/97

31/0

1/99

31/0

1/01

31/0

1/03

31/0

1/05

31/0

1/07

31/0

1/09

12 Month earnings growth EM versus DM

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

jan/96

jan/98

jan/00

jan/02

jan/04

jan/06

jan/08

jan/10

Emerging World

Source: Datastream, ING IM


But too much of a good thing can…

• Create over optimism

• Lead to inadequate allocation of capital => ROE declines

• Provoke international frictions• Protectionism• Exchange rates

• Transform a crowded trade into a bubble

We are still far from bubble territory in EM


Corporate spending: driver for developed markets

Low/Medium Medium/High

We are here

Buy Backs

Strong Corporate Cash Flows+

Strong balance sheets

Dividends M&A Capex

Corporate Confidence


There is room for companies to spend

AverageNet debt/Equity non-financials

30%

40%

50%

60%

70%

dec/9

3de

c/95

dec/9

7de

c/99

dec/0

1de

c/03

dec/0

5de

c/07

dec/0

9

Global M&A volume

0

250

500

750

1000

1250

1500

mrt/01

mrt/02

mrt/03

mrt/04

mrt/05

mrt/06

mrt/07

mrt/08

mrt/09

mrt/10

Free Cash flow / Capex

100%150%200%250%300%350%400%

dec/

93

dec/

95

dec/

97

dec/

99

dec/

01

dec/

03

dec/

05

dec/

07

dec/

09

How M&A is financed

0%

10%20%

30%40%

50%

60%

70%

Cash Stock Cash &Stock

Other

Source: Datastream, Bloomberg, ING IM


Attractive valuations

Earnings yield less real fed funds

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

jan/

80

jan/

83

jan/

86

jan/

89

jan/

92

jan/

95

jan/

98

jan/

01

jan/

04

jan/

07

jan/

10

Relative ValuationTrailing PE (US market)

5

10

15

20

25

30

35

Dec-81

Dec-83

Dec-85

Dec-87

Dec-89

Dec-91

Dec-93

Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Absolute Valuation

Equity valuations are discounting zero earnings growth.This seems only plausible in a double dip scenario.



Searching for sustainable dividend income in DM

• Dividends become an important income generator• Dividend yield approaching or exceeding bond yields,

more specifically in developed markets• Low pay out ratios, strong balance sheets and high profitability

support double digit dividend growth

European dividend yield at par with corporate bond yield

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

déc.-02

déc.-03

déc.-04

déc.-05

déc.-06

déc.-07

déc.-08

déc.-09

Trailing pay out ratio

30%

40%

50%

60%

jan/

73

jan/

76

jan/

79

jan/

82

jan/

85

jan/

88

jan/

91

jan/

94

jan/

97

jan/

00

jan/

03

jan/

06

jan/

09


Dividends have lagged earnings


We expect double-digit dividend growthprovided corporate confidence returns


Conclusion

• Outlook for equities is good

• Expect returns in line with earnings growth

• Focus on growth markets

• Corporate spending as the icing on the cake

• Focus on yield


ING High Dividend Strategies

The search for yield


Boutique Structure

17


Central Trading Team

15 Traders13 + 2 in US

Average exp. 13 yrs

Corporate Analytics

Developed (19) & Emerging (7) Markets Analysts

Average exp. 13 yrs

3 Equity Boutiques

Core/Specialties/Emerging Markets

Client Portfolio Manager

Carl Ghielen

Exp. 20 yrs

5 Fixed Income Boutiques

MM/Core/Credits/Loans/EMD/Structured Investments

Strategy & Tactical AllocationTop-Down Research

12 membersAverage exp. 14 yrs

Equity Value TeamAverage experience 14 yrs

Equity Value Boutique

Nicolas Simar (Head) EuroManu Vandenbulck EuropeMoudy El Khodr GlobalHerman Klein GlobalAdour Sarkissian USPierre Nicolas Belgian

Diagnostics Team

13 membersFixed Income traders: 7

Average exp. 8 yrs

18


19

1999

Stable & Consistent Process

Pioneer in High Dividend strategies

June 2007:International Equity Dividend SMA/MF

April 1999:Euro High Dividend Off-Shore Fund (4 Stars Superior Rating)

Feb 2000:Global Dividend AandelenMutual Fund (4 Stars)

May 2002:Global High DividendOff-Shore Fund (4 Stars)

March 2005:U.S. High DividendOff-Shore Fund (5 Stars)

March 2005:Global Equity Dividend Closed-End Fund (IGD)

May 2007:Asia Pacific ex-JapanHigh Dividend Off-Shore Fund

2010

December 2004:Europe High DividendOff-Shore Fund (3 Stars)

September 2007:International High

Dividend Equity IncomeClosed-End Fund (IID)

June 2007:Global Equity Dividend SMA/MF

Fund ratings as of 30 September 2010

High dividend investing since 1999


Performance

Clear responsibilities and accountabilityStrong, stable and experienced investment team

Product

Disciplined, repeatable and systematic investment processRisk control and portfolio positioning to ensure strategic diversification

Attractive and consistent risk/return profile offering low volatility and clear defensive characteristicsActively managed with a contrarian bias

Key Benefits High Dividend Strategies

Process

People

Since 1999Strong long-term track record

20


Outperform the equity market in the long run (through the cycle)

Offer a lower volatility (downside protection, upside participation)

Offer a higher dividend yield (>100bp versus market)

Identifying the best dividend yielding stocks

Active portfolio management (high active share)

Alpha generation from bottom-up stock selection

Conviction portfolios : select the names that offer value

Fundamental, valuation driven investment style

Beliefs

Objectives

21

Aim to achieve attractive risk adjusted returns through the cycle


Dividends are the primary source of total return…

22

True across the world


Universe identification60 000 names

Liquidity screen (Market Cap > Eur 1 bln & ADV > Eur 300 mln)600 – 1 200 names

Dividend screen (Yield & Stability)300 - 500 names

Fundamental analysis & New ideas150 - 200 names

Portfolio construction100 - 120 names

Universe reduction

Process combines quantitative screening and fundamental analysis to identify attractively priced stocks with high and sustainable dividend yields

Example: Global UniverseFor illustration purpose only. The above investment process may undergo changes depositing on the investment style and the market condition.

Dividend Yield minimum:Global, Euro, Europe: 2.5%US: 2.0%

23


Fundamental Analysis2

Active management

Stock driven

Conviction based weighting

3 Portfolio Construction

Quantitative Filter1

Investment Process - Overview

Attractive yields

Identify opportunities Back top picks Build high conviction portfolio

Risk Control

Sell discipline

Contrarian bias

4 Risk Management

Achieve consistency

Sustainable yields Diversified portfolio Consistent Risk Profile

Quantitative screening

Historical data

Dividend sustainability

Attractive valuation

24

Active management within a disciplined framework


ING Investment Management 25

Dividend Yield below 2% (1.5% for US) = liquidation

Stock price goes up (= dividend yield goes down) = profit taking / sell

Dividend is reduced or cut = liquidation

Sell discipline & rebalancing

Reinvestment in less performing stocks (contrarian philosophy) or news ideas

Rebalancing to original weight

Profit taking on outperforming stocks

Reinvestment in less performing stocks

Rebalancing

Sell

Disciplined & Contrarian


Performances


• Strong relative performance over the summer months, evaporated in the Sep/Oct rally

• Outperformance year to date, more so versus high dividend style indices

• Clear style tailwind in the US and strong style headwind in Europe

Global High Dividend

Oct2010

YTD2010 1 year 3 years

(ann.)5 years(ann.)

Sinceinception

(May02) (ann.)

ING (L) Invest Global High Dividend +1.23% +10.06% +19.45% -7.75% -0.14% +1.16%

MSCI World (net return) +1.89% +9.84% +19.68% -6.85% -0.46% -0.05%

MSCI World High Dividend Yield (net return)

+1.54% +8.51% +17.87% -8.26% -0.61% +0.27%

Relative performance vs MSCI World -0.66% +0.22% -0.23% -0.90% +0.32% +1.22%

Gross performance ING (L) Invest Global High Dividend fund in EUR, Benchmark: MSCI World Net return Index, as of 31 October 2010

Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner.

27


-15%

-10%

-5%

0%

5%

10%

15%

20%

Compo

site M

omen

tum

Price M

omen

tum (1

2mth)

Earning

s Mom

entum

(6M)

Compo

site R

isk

Compo

site P

rofita

bility

Size PB

Long

term

Grow

th Rate

Compo

site G

earin

gCom

posit

e Grow

th PECom

posit

e Valu

e

Div Yiel

d

US Europe Asia Pac

Global Style Returns YTD - Regions

Source: Nomura Quantitative Solutions

Style working, butnot in Europe!

28


Global High Dividend: Portfolio Returns vs. Benchmark

Portfolio: ING (L) Invest Global High Dividend CAPBenchmark: MSCI World (net)Source: ING IM, Gross Returns as of 31 October 2010

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2002 (May) 2003 2004 2005 2006 2007 2008 2009 2010 (Oct)

Portfolio Benchmark

6 out of 9 years outperformance

Long term outperformance

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

May

-02

Aug

-02

Nov

-02

Feb-

03

May

-03

Aug

-03

Nov

-03

Feb-

04

May

-04

Aug

-04

Nov

-04

Feb-

05

May

-05

Aug

-05

Nov

-05

Feb-

06

May

-06

Aug

-06

Nov

-06

Feb-

07

May

-07

Aug

-07

Nov

-07

Feb-

08

May

-08

Aug

-08

Nov

-08

Feb-

09

May

-09

Aug

-09

Nov

-09

Feb-

10

May

-10

Aug

-10

Portfolio Benchmark

29


2.82%

-4.14%

2.70%

-3.72%

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

Up (60 months) Down (40 months)Global High Dividend MSCI World

Monthly return analysis as of 30 September 2010, Gross data versus MSCI World net return since inception of the ING (L) Invest Global High Dividend fund in May 2002.

Global High Dividend: Up and Down analysis

25 out of 40 outperformance


30


• Sep/Oct difficult months due to momentum-driven markets

• Outperformance year to date versus benchmark and high dividend style indices

• High Dividend style is working in the US in 2010

US High Dividend

Oct2010


(ann.)5 years(ann.)

Sinceinception

(Mar05) (ann.)

ING (L) Invest US High Dividend +2.93% +12.18% +20.71% -2.29% +4.26% +4.34%

S&P500 (net return) +3.77% +7.32% +15.82% -7.13% +1.09% +1.50%

MSCI US High Dividend Yield(net return) +2.83% +10.37% +19.29% -6.21% NA NA

Relative performance vs S&P500 -0.84% +4.87% +4.90% +4.84% +3.17% +2.84%

Gross performance ING (L) Invest US High Dividend fund in USD, Benchmark: S&P500 Net return Index, as of 31 October 2010Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner.

31


US High Dividend: Portfolio Returns vs. Benchmark

Portfolio: ING (L) Invest US High Dividend CAPBenchmark: S&P500 (net)Source: ING IM Performa Global, Gross Returns as of 31 October 2010



-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2005 (Apr) 2006 2007 2008 2009 2010 (Oct)

Portfolio Benchmark

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Mar

-05

May

-05

Jul-

05

Sep-

05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-

06

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-

07

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-

08

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-

10

Sep-

10

Portfolio

Benchmark

32


-4.87%

-4.03%

2.82% 3.03%

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

Up (43 months) Down (24 months)

US High Dividend S&P 500Monthly return analysis as of 31 October 2010, Gross data versus S&P500 net return since inception of the ING (L) Invest US High Dividend fund in March 2005.

US High Dividend: Up and Down analysis



33


Euro High Dividend

Gross performance ING (L) Invest Euro High Dividend in EUR, Benchmark: MSCI EMU Net return Index, as at 31 October 2010

Oct2010


(ann.)5 years(ann.)

Sinceinception

(Apr99) (ann.)

ING (L) Invest Euro High Dividend +3.60% +1.29% +9.22% -7.16% +2.06% +4.56%

MSCI EMU (net return) +3.70% +2.24% +9.76% -11.61% +0.39% +0.65%

MSCI EMU High Div (net return) +5.30% -1.64% +5.96% -12.97% -1.55% +1.90%

Relative performancevs MSCI EMU -0.10% -0.95% -0.54% +4.46% +1.68% +3.91%

• Strong relative performance over the summer months, evaporated in the Sep/Oct

momentum-driven rally

• High Dividend style clearly not working YTD in Euro-zone

• Portfolio tilted towards undervalued, laggard names


34


European Style Returns

Sector Neutral

‐15.0%

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

Compo

site

Mom

entum

Price

Mom

entum

(12m

th)

Earnings

Mom

entum

(6M)

Vol of

Earnings

changes

Compo

site

Risk

Compo

site

Profitability

Size PB

Long

term

Growth Rate

ROE

Compo

site

Gearing

Compo

site

Growth

Net Gearing PE

Compo

site

Value

Div Yield

YTD Returns

Style not working in Europe this year!

Source: Nomura Quantitative Solutions

35


Euro High Dividend: Portfolio Returns vs. Benchmark

Portfolio: ING (L) Invest Euro High Dividend CAPBenchmark: MSCI EMU (net)Source: ING IM Performa Global, Gross Returns as of 31 October 2010



-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (Sep)

Portfolio Benchmark

0

0.5

1

1.5

2

2.5

3

Apr

-99

Aug

-99

Dec

-99

Apr

-00

Aug

-00

Dec

-00

Apr

-01

Aug

-01

Dec

-01

Apr

-02

Aug

-02

Dec

-02

Apr

-03

Aug

-03

Dec

-03

Apr

-04

Aug

-04

Dec

-04

Apr

-05

Aug

-05

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Portfolio

Benchmark

36


37

Europe High Dividend

Gross performance ING (L) Invest Europe High Dividend in EUR, Benchmark: MSCI Europe Net return Index, as at 31 October 2010

Oct2010


(ann.)5 years(ann.)

Sinceinception

(Dec04) (ann.)

ING (L) Invest Europe High Dividend +2.91% +5.51% +12.93% -8.18% +1.28% +3.41%

MSCI Europe (net return) +2.48% +7.06% +15.00% -9.26% +0.83% +3.61%

MSCI Europe High Div (net) +4.05% +2.63% +10.99% -11.96% -1.09% +2.05%

Relative performance vs MSCI Europe +0.43% -1.55% -2.07% +1.08% +0.45% -0.20%


• Strong relative performance over the summer months, evaporated in the September rally

• High Dividend style clearly not working YTD in Europe

• Portfolio tilted towards undervalued, laggard names


38

Carl Ghielen – Client Portfolio Manager Investment experience: 20 years

Carl is Client Portfolio Manager for Equity strategies. He is responsible for maximizing the commercial success of the boutique through attracting and retaining clients in partnership with sales, marketing and product. Carl has been working with ING Investment Management for 10 years as Senior Investment Manager, responsible for several equity strategies. Carl started his career in 1990 as Investment Advisor at General Investment Management in Eindhoven, an independent boutique asset manager. Prior to joining ING Investment Management, Carl worked from 1994 to 2000 for Mn Services (one of the largest pension funds in the Netherlands) as Senior Portfolio Manager European Equities. Carl holds a Master’s degree in Economics (focus: Business Economics) from Tilburg University. Carl holds a CEFA degree, a European equivalent to CFA.


The elements contained in this document have been prepared solely for the purpose of information and do not constitute an offer, in particular a prospectus or any invitation to treat, buy or sell any security or to participate in any trading strategy. This document is intended for qualified investors, as defined in the Swiss Federal Collective Investments Schemes Act and its implementing ordinance and as interpreted by the Swiss Financial Market Supervisory Authority FINMA as well as private investors and describes a strategy. However, investments may be suitable for private investors only if they are recommended by an authorised self-employed or a professional employed adviser acting on behalf of the investor on the basis of a written agreement. While particular attention has been paid to the contents of this document, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. Any information given in this document may be subject to change or update without notice. Neither ING Investment Management / ING Fund Management B.V. / ING Investment Management (Europe) B.V. nor any other company or unit belonging to the ING Group, nor any of its officers, directors or employees can be held direct or indirect liable or responsible with respect to the information and/or recommendations of any kind expressed herein. The information contained in this document cannot be understood as provision of investment services. If you wish to obtain investment services please contact our office for advice. Use of the information contained in this document is solely at your risk. No direct or indirect liability is held for any loss sustained or incurred by readers as a result of using this publication or basing any decisions on it. Investment sustains risk. Please note that the value of your investment may rise or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. This presentation and information contained herein is confidential and must not be copied, reproduced, distributed or passed to any person at any time without our prior written consent. Any claims arising out of or in connection with the terms and conditions of this disclaimer are governed by Swiss law.

Disclaimer

39

ing high dividend investing

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