quarterly client update: second quarter 2014...quarterly client update: second quarter 2014 1 april...

Quarterly Client Update: Second Quarter 2014

1 April – 30 June 2014 For Professional Investors Only

First State Stewart Sustainability Strategies

Investment philosophySince 1988 we have had an approach to investment founded on:

– Stewardship– An absolute return mindset– Bottom-up analysis– Long-term thinking– Searching for quality companies– Finding sustainable and predictable growth– Strong valuation disciplines

Investment objectiveTo generate attractive long-term, risk-adjusted returns by investing in the shares of those companies which we believe are particularly well positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate.

COmmentAry

Alice in Financeland

There is little about the current financial system that makes sense. The more one looks, the less sense it makes. In theory the financial sector is supposed to support the long-term growth of the real economy. In practice, it has become so detached from the real world that it is more akin to a fantasy land, inhabited by a growing number of peculiar characters undertaking nonsensical tasks. Lewis Carroll’s Alice would be very much at home.

When Alice falls down the rabbit hole into Wonderland she embarks on a series of bizarre encounters, from the white rabbit with his pocket watch, the hookah-smoking caterpillar to the gleeful Queen of Hearts herself. In between these encounters Alice shrinks and falls into her

own pool of tears, takes part in a circular running race with no winner and gives witness at a trial where all persons more than a mile high are ordered to leave the court.

Today’s Financeland is in danger of making all this seem very ordinary. In Financeland, there are ABCDs (Asset Backed Credit Default Swaps), COCOcds (Credit Default Swaps on Contingent Convertible Notes), Airbag Swaps (interest rate swap whose value adjusts according to rising interest rates by indexing the floating portion of a constant maturity swap), Christmas Trees (three different call options at strike prices resembling a Christmas Tree), DECS (Dividend Enhanced Convertible Stock – preferred stock with extra dividends plus an embedded short put option and a long call on the issuing company’s shares), FLEXs (Flexible Exchange Options), Index Rolls (combination of index funds and LEAPS – long-term equity anticipation securities), PERCS (Preference Equity Redemption Cumulative Stock – convertible shares with extra dividends limited in term and participation), Quadruple Witches (the third Friday of March, June, September and December when stock index futures, stock index options, stock options and single stock options all expire on the same day), and Zebras (Zero Basis Risk Swaps).

And that’s not even mentioning Delta (sensitivity to an underlying instrument), Gamma (sensitivity of Delta), Vega (sensitivity to underlying volatility), Vomma (sensitivity to Vega) and Zomma (the change in Gamma!).

When Mum’s hard-earned Pound heads down the hole into today’s Financeland, it is likely to go on a similar journey to Alice, encountering strange financial beasts and involuntarily taking part in circular nonsense. Mum’s proverbial Pound has every chance of drowning in dark pools, being pounced upon by ultra-low latency traders and falling prey to Alligator Swaps, Canary Calls and Iron Butterflies.

Contents

Commentary 2

Significant Portfolio Changes 4

engagement 5

Proxy Voting 6

Business Update 6

Investment trip report: India 8

Fund Information 10

Source: iStock, May 2014.

First State Investments First State Stewart Quarterly Client Update

2

There is one key difference between Wonderland and Financeland. While Alice returns to the real world unscathed, the same cannot be said for Mum’s Pound.

Financeland’s absurdity has three main underpinning features. The first is the blindfold nature with which Mum’s Pound is handled. As it enters Financeland, the chances are high that it will be simply allocated to an index or exchange traded fund (ETF).

Most index and ETF funds make no attempt to work out whether the companies receiving this scarce capital are intending to use it productively. Thus, very poor quality companies, whose activities are counter to the long-term benefit of societies, are the easy recipients of society’s capital.

The second absurdity of Financeland is its short-termism. Based on NYSE index data, in 1940 the mean duration of holding period by US investors was seven years. This stayed the same for the next 35 years. By the 1987 crash the average holding period had fallen to under two years. By the turn of the century it had fallen to below one year. It was around seven months by 2007.

Short-termism and speculation are bad for Mum’s Pound. They have created too many agents whose purpose is to grab as much as possible of the Pound, rather than productively put it to good use. High frequency trading is a case in point. Its sole purpose is to take some of Mum’s Pound away from her by getting a millisecond ahead of her order. That they are willing to pay millions of pounds for the privilege of that millisecond is testament to the amount of damage they are doing.

Also, the damage wrought by short-termism reaches far back into the real world. Given their dependence on such short-term, transient, unreliable capital, many listed companies are under pressure to run their businesses simply for the next three months, rather than the next ten to twenty years. This is not good for society or Mum’s Pound.

The Third aspect of absurdity in Financeland is the obsession with financial alignment. Just as the Queen of Hearts could only think about chopping off heads, so are today’s Financelanders obsessed with financial alignment.

A recent Financial Times headline announced “Fund Managers urged to put more skin in the game”. Your managers will care a lot more about looking after your money if they have their own money alongside, went the subtext. Again, this is a much less reassuring statement than it first appears. Does Mum really want to hand over her hard-earned savings to investors who are only going to try their best because they are looking after their own money at the same time?

If blindness, short-termism and misplaced alignment are the ailments of Financeland, what are their cures? A large number of ideas have been suggested over recent years, three in particular stand out as worthy of immediate consideration.

Most compelling is to create a series of new electronic long-term stock exchanges designed to replace the void left when the old stock exchanges metamorphosed into today’s financial casinos. Buyers and sellers would exchange real shares in real companies. There would be no short-selling or financial derivatives and a minimum holding period of a day.

The second compelling idea is around the restriction of liquidity. The majority of equity investment has no notice period. Introducing a simple notice period of a week or month on all regulated investments would deal a significant blow to short-termism. Listed equities are in theory a way of reallocating society’s savings for the long-term. Why then do investors in equities need to be able to buy or sell instantly? We are used to time deposits when we entrust our savings to the bank. Why not time investments too?

The third idea relates to alignment. Rather than focus on the financial alignment between managers and shareholders, emphasis should be placed instead on real alignment with the broader society, from which real companies and financial companies both derive their license to operate.

All of these ideas appear, at first glance, peculiar. It is only when we are able to stand back from Financeland and recognize the absurdity of what it has become that ideas such as long-only stock exchanges, time investments and the importance of purpose appear eminently sensible suggestions for reconnecting Financeland to the Real World. Alice finally woke up. It is time we did too.

www.firststateinvestments.com

3

SIgnIFICAnt POrtFOlIO ChAngeS

Worldwide

During the quarter we did not initiate any new positions within the Worldwide strategy. Instead, we added to BankInter having gained further conviction in the insurance and banking part of the business; Varian Medical Systems, a medical devices company that displays high levels of integrity; Waters Corp on short-term share price weakness given it’s a company we believe will be a beneficiary from investing in original Asian R&D for its analytical science business; and Henkel, a defensive high quality consumer stock company.

We sold out of train company CAF, having lost conviction in the quality of the financials. Increased competition from state-owned companies has led to a deterioration in working capital terms of new contracts. Coloplast was sold because of expensive valuations; and Techne Corp, following recent management changes. We also reduced our position in Ebro Foods, following a meeting with company representatives and residual concerns on the approach to risk.

emerging markets

In our Emerging Markets strategy, we initiated a new position in Marco Polo, a Brazilian family-controlled bus company that maintains a risk-aware culture with health and safety and environmental concerns being key priorities. Operationally, they have a solid track record, have an increasingly environmentally friendly fleet of vehicles and will be a beneficiary from further exposure to emerging markets and the robust demand for sustainable inter-state transport.

In addition, we added to Natura as we believe it is one of the best “LOHAS” (lifestyle of health and sustainability) brands globally; Jeronimo Martins following a meeting with the company that confirmed our positive view on their ability to replicate their success in Poland; African Oxygen as we are backing management to improve this franchise over time by restructuring the business and pushing accountability further down the Company; and Unilever Nigeria on compelling valuations due to the short-term headwinds it is currently facing.

We sold out of Spirax Sarco as it is no longer considered an Emerging Markets company on sales or profits; and Aspen Pharmaceuticals as we were unable to build enough conviction to make it a meaningful position within the portfolio at these levels. We also reduced our ownership in Delta Thailand, Delta Electronics, Giant Manufacturing, Public Bank and Gruh Finance on valuations.

Asia

In Asia, we initiated a new position in Container Corp, a well-run logistics operation that is likely to be a beneficiary of a cyclical recovery in India and added to HDFC Corp, India’s largest housing company. We believe both companies are well positioned to benefit from India’s infrastructure development.

We sold out of Uni-President China over doubts in the sustainability positioning of products and our ability to influence change; Infosys on the basis that we prefer Tech Mahindra and DBS Group Holdings as we have concerns about exposure to the Singaporean property market.

India

In our Indian strategy we bought Elgi Equipment, an Indian family business that specialises in manufacturing air compressors. We believe it is a strong domestic franchise that has proven it can successfully compete with multi-national peers and is well positioned to contribute to and benefit from the development of Indian infrastructure. We added to Lupin, having gained further comfort in the abilities of the next generation of the controlling family; and sold out of industrials company Carborundum Universal as we believe it faces a number of sustainable headwinds during its cyclical turnaround.


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gUArAnty trUSt BAnk

market cap: USD $5.3m

Shareholders since: October 2009

Sustainability classification: Responsible finance

Company description: A Nigerian deposit-funded, commercial bank.

Investment rationale: GT Bank is an entrepreneurial bank with high levels of integrity. Their culture is conservative, risk-aware, has successfully transitioned past the first generation management team and survived the Nigerian banking crisis of 2008/09 which demonstrated very clearly who was lending well, who was lending badly and who had sticky fingers. GT Bank passed with flying colours.

risks: Ensuring their risk management models are replicated across new franchises as they expand throughout broader Africa.

engagement issues: The bank was fined £535k in 2011 in the UK for inadequate money laundering controls. We are comfortable that this is a result of being slightly unprepared in the first year of their UK operations rather than anything more sinister.

Source: FSS Team, June 2014

engAgement

As long-term shareholders, we regard ourselves and our clients as active owners of the companies we invest in and believe it is our obligation to engage with companies where we have concerns over their approach to sustainability and governance issues. We acknowledge that there is no such thing as the perfect company and therefore for us engagement is an on-going process. Typically we engage through regular dialogue, meetings or by writing a personal letter.

Examples of engagement issues identified and undertaken during the quarter include:

- Weg SA (a Brazilian electric motor manufacturer): Weak independence of a member of their Fiscal Council.

- CSL Ltd (an Australian developer and manufacturer of vaccines and plasma protein biotherapies): Following the disclosure of a product recall in 2012 we requested further clarification on what preventative measures have since been implemented to mitigate future product recalls. We also took the opportunity to congratulate CSL Ltd on the openness of their Sustainability and Corporate Social Responsibility reporting.

- Sheng Siong (a Singaporean supermarket chain): Improved Board independence and clearer transparency on the actual dollar worth of their legal services.

- Linde Bangladesh (a Bangladeshi industrial gases company): Weak independence of the board.

- BHP Billiton (an Australian Mining Company): We raised the following allegations against BHP Billiton and Cokal starting a development in Indonesia which involves bulldozing and clearing Indonesian rainforest to make way for massive open-cut coal mines. The rainforest is home to vulnerable and endangered species like orang-utans, pygmy elephants, Sumatran rhinos, clouded leopards and sun bears. Although BHP is not held in the Sustainability strategies we do at times feel it is necessary to engage companies which we do not hold on our concerns.

- Samsung Fire and Marine (a South Korean multinational insurance business): Following a share buyback program where the shares were re-issued to a related party; we struggle to understand the logic in this transaction and how it will add value to our clients’ capital over the mid to long-term. Engagement is ongoing.

One of the engagement issues we are considering increasing our efforts on is diversity in India. Following the rulings of the new Indian Companies Act, that states companies must have one female director on their Boards by 1st October 2014 (something we are delighted to see implemented); it has come to our attention that some companies are complaining of the paucity of suitable candidates and it is suggested that they are planning to simply appoint the wife of the promoter, or do as others have done and appoint a computer algorithm onto its board. We would be incredibly disappointed if some of the Indian companies held within the Sustainability strategies took this approach and we will be actively engaging and informing the companies held within the strategy of our views on this.


5

BUSIneSS UPdAte

On 20-21 May 2014, we hosted a small forum in Edinburgh. The purpose of the forum was to re-examine the concept of sustainable investment to one that is about managing risk, making the best possible investment decisions and allocating capital in a way that reflects the fact that the long-term really does matter.

The forum opened with an introduction to the problem of short-termism in the financial services industry through the lens of Alice in Financeland (as touched on in the commentary section of this report).

Short-termism has long been a problem in the finance industry. While awareness of the risks it poses and the undesirable behaviours it causes has grown since the financial crisis of 2008 there is little evidence that the problem is being fixed.

One issue which encapsulates a lot of what is wrong with Financeland in its present state is the ‘shadowy’ practice of high frequency trading (HFT). High Frequency Traders essentially make money by front-running big investors, as documented in Michael Lewis’ book ‘Flash Boys’. As the book explains, this dubious practice is legal and is actively enabled by stock exchanges motivated by short-term profit targets.

Lewis’s book is a stark illustration of what seems to be a lack of ethics and values in the finance industry and in particular the lack of attention the industry gives to the need to fulfill its social license to operate. As long-term active investment managers and responsible asset owners we believe it is our duty to be at the forefront of the effort of addressing this.

PrOxy VOtIng

During the quarter there were 91 company meetings to vote on. We voted against 109 resolutions relating to corporate structure:

- Tomra Systems, Kingfisher plc and Spirax-Sarco Engineering plc’s request to shorten the notice period for an extraordinary general meeting from 21 to 14 days, as we believe this is not in the best interests of shareholders.

- We voted against MTR Corporation, Uni-President China Holdings, Unilever Plc, Inversiones Aguas Metropolitanas, Vapores, Aguas Andina SA, Sika, Sonda, Ayala Corp, Manila Water, Globe Telecom, Bank of the Philippine Islands, Airtac International Group, Giant Manufacturing, Kasikornbank Public Co and Kuhne & Nagel International AG as each issued a proposal to transact any and all other business brought before the annual meeting of shareholders. We consider ourselves active shareholders. As a result, we do not give companies unfettered rights.

- GlaxoSmithKline’s re-election of Sir Christopher Gent as we believe his previous experience on the audit and compensation committee at Lehman Brothers prior to the collapse is a valid rationale for believing he is not appropriately skilled for the Board of GSK or the best possible steward for your investments. We also voted against GSK’s request to shorten the notice period for an extraordinary general meeting, for the same reasons as we stated for Tomra’s similar request.

- Meyer Burger’s re-election of Mr Alexander Vogel and Mr Rudolf Güdel as we believe both individuals have fairly significant related party transactions which could impair their level of independence on the board.

- ENN Energy Holding’s request to issue and repurchase shares without pre-emptive rights, this is not something we would support.

- China Mengniu Dairy Co’s request to issue new shares without pre-emptive rights. Again this is not something that we support as we understand the company to be in a healthy financial position and it does not seem to require new equity funding at this stage following several strategic acquisitions.

Should any client like a full list of all proxy voting for the companies held in the strategies, please contact us directly.


6

As a result, through a series of discussions and roundtable groups, the first task of the forum was the small matter of redesigning the financial system for the long-term. It was agreed we must take away the emphasis on short-term performance and profit or at least redesign the system so that it is genuinely for the benefit of the end user. We concluded that we could design a new stock exchange, specifically for long-term investors, where ‘disruptive’ short-term influences are removed. Such an exchange would be publically owned, slow (ultra-low frequency), expensive: “You pay more because it stands for something” and governed by a set of simple but stringent rules, e.g. hedge funds and short selling are banned.

Linking to this, the forum then considered the problem of increased flows to passive strategies. Solutions presented included abolishing benchmarks or at least redesigning them, based on more absolute measures such as cash or inflation to reduce passive investing; creating indices that reflect social impacts like job creation or ‘social dividends’; and implementing a ‘long-term’ kite mark certification based on measures including total expense ratio and portfolio retention to help address the problem of ‘closet indexers’.

Lastly, it was agreed that the area of financial incentives and executive remuneration is in need of an overhaul. As an industry, we must try and break the obsession with financial incentives, particularly short-term, and base remuneration structures on straightforward measures of long-term performance. We also need to find ways to create social alignment as much as financial alignment.

The second task of the forum was redefining ‘sustainability’. As a team one of our core concerns has been that ‘sustainability’ has become an overused term and may now be redundant – unanimously the forum agreed it is not! We discussed the principles of sustainable development and the challenges around “meeting the demands of today without using up the resources of tomorrow”. We heard from two of our favourite companies held within the strategies on what a sustainable company looks like and debated what sustainability means in an investment context. Whilst there is no one ‘sustainability investment process’, the central challenge remains to prove that sustainability can be a driver of returns rather than a compromise and for funds managed in this way to be considered amongst more ‘mainstream’ funds.

The final task and objective of the forum was to solicit feedback directly from company leaders and senior management, as well as clients, on how we and the industry can be more effective at engagement. Engagement with companies is central to our investment process; from the moment analysis of a company begins, to the point of investment and throughout. Whilst it was evident from the discussion that companies welcomed investor engagement and, over the long-term, investors have the ability to influence the behavior and culture of a company, it seemed that a non-governmental organisation (NGO) appeared to be the most successful in advocating a change to date! The key take away from this was that we (as investors) still have a long way to go in developing a credible reputation amongst company management, and need to take a more multi-faceted approach to engagement through more collaboration with NGOs and other investors in order to influence change.

We were delighted with the quality and openness of the debate, the level of interaction and the boldness of ideas were extremely gratifying, not to mention highly enjoyable! If collaboration is among the best ways to address the challenges we face as sustainable investors in a flawed financial system, then the forum augured well for the possibility of positive change in the future.

If you would like to review the full summary paper from the event please click on the following link (http://www.firststateinvestments.com/uploadedFiles/Content/Uploadedliterature/manual/Asia/PdFArticles/Sustainability%20Client%20Forum%20may%2014_Asia.pdf), and as ever if you have any feedback, thoughts or suggestions please get in touch.


7

InVeStment trIP rePOrt: IndIA

Sashi reddy, Portfolio manager

I spent some time enjoying the colours and sounds of an Indian wedding in the Indian rural heartland a week after listening to a highly charged up business community in Mumbai earlier this month. For the first time in Indian history, both these sections of society have come together. They voted out a government who did not deliver but it remains to be seen whether they have voted in someone who can. The latter is important if India is to have a stable government for more than one term. There are no easy short cuts to delivering sustainable long-term development. The decisive mandate would be wasted if people start expecting short term results from the government often dubbed as “Modi magic”!

Roughly 100 miles from the city of Hyderabad is a village where my uncle and his family have been farming for decades. In the midst of running me through the problems of being a small landowner farmer, he attends a call on his mobile phone from a trader willing to buy out his entire onion produce. The negotiations carry on for 15 minutes but end without a deal as my uncle was betting on onion prices rising strongly over the next few weeks. An interesting display of market economics from a sector used to government interference. I soon gather five other uncles that evening for a discussion on local farm economics. Onions have always made the BJP1 cry. They cost them an election in 2004 and are now testing them just a few days after coming back to power 10 years later. All the uncles I was chatting with were beneficiaries of soaring onion prices and were upset that the government is trying to artificially bring prices down to curb inflation. I thought I was speaking to serious advocates of a free market until the discussion got to sugarcane where arguments for minimum support prices found lots of favour all of a sudden! All of this is nothing new but a reminder that India will remain a complex country pulling in a billion different directions.

economic growth is a panacea for all ills

This is the mantra of the new government and speaking to anyone linked to the stock markets will make one believe this is true. It is, but only up to a certain point. Economic growth pursued at the cost of social and environmental factors is not sustainable long term.

The state of Gujarat, where Mr. Modi reigned as Chief Minister for 13 years, has seen strong economic growth in the last decade. Statistics can argue whether it was the best in the country or not but it is admirable on an absolute basis. It is debatable whether this development was broad-based and whether social indicators have kept pace with economic ones. The challenge will be much bigger in India than it is in Gujarat. The country will add millions of people to its workforce every year for the next couple of decades. Creating jobs on such a scale in a world that is quickly automating will not be easy. Joblessness often manifests itself in the form of social unrest. This could be potentially dangerous under a less tolerant right wing Hindu party.

Removing obvious bureaucratic hurdles should increase the pace of development. Infrastructure companies have often complained about the red tape around environmental clearances. This is well known but their own track record of managing sustainable development issues in their operations remains less than satisfactory. While there is little doubt that private sector investment will play a crucial role in developing Indian infrastructure, the government must ensure companies are made more accountable. The government’s role must extend far beyond just making the approval process simpler.

1 Bharatiya Janata Party


8

Gujarat is a power surplus state, something of an anomaly in a power starved country. It is achievements like this which make the business community and the general public quite hopeful. Gujarat has not stopped here and is now trying to improve the quality of its energy source. The state accounted for 60% and three BJP run states (Gujarat, Madhya Pradesh and Rajasthan) together accounted for 90% of all solar capacity installed in the country until last year. These are encouraging signs for the country as a whole given the ample scope to develop renewable energy.

“less government and more governance”

Such statements are positive for any country let alone India. And these are not empty statements coming from Mr. Modi. His record and the experience of many of the business leaders with his administration suggest the Indian government will operate in a way it has never before in the past. All positive!

During his tenure as Chief Minister of Gujarat, Mr. Modi failed to appoint the head of the state Lokayukta, the anti-corruption ombudsman. The state finally got its anti-corruption chief in December 2013, 10 years after the post became vacant. By this time Mr. Modi’s national ambitions were very clear. Such gaps in governance will come under higher scrutiny when running the country. This coupled with the meteoric rise of some business houses in Gujarat and the backgrounds of some of Mr. Modi’s entourage stop us from giving the new government the full benefit of the doubt, yet.

Statements such as “Modi-vated” or “Modis Operandi” are now common place amongst journalists and economic researchers alike displaying the optimistic mood of the nation. We are generally wary of such runaway expectations as Indians swing from hope to despair quite quickly; it was only five years ago that markets rose 14% on a single day when the congress came back to power giving it a thumbs up. Thankfully we have a universe of good quality companies in India who manage their businesses sensibly over the long term without dependence on any particular political regime. And if transparency and governance are tenets of Mr. Modi’s government, such companies should continue to deliver sustainable absolute returns over the long term.

Charanka - the largest solar park in Asia in the state of Gujarat.

Source: Gujarat Power Corporation Limited, 2014.


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10

First State Asia Pacific Sustainability FundFund SizeNumber of Holdings 51

Ten Largest Holdings as at 30 Jun 2014 Significant Additions - Three Months to 30 Jun 2014

Stock Name Stock NameMarico 0.0 Housing Development Finance FinancialsTech Mahindra 0.0 Shinhan Financial FinancialsTaiwan Semiconductor (TSMC) 2.5 Container Corp Of India IndustrialsCSL 0.7Dabur India 0.0 Significant Disposals - Three Months to 30 Jun 2014Delta Electronics T-F 0.0Standard Food Corp 0.0 Stock NameKasikornbank 0.2 Infosys Information TechnologyPublic Bank Bhd 0.4 Uni President China Consumer StaplesTowngas China 0.0 DBS Group Financials

Total 3.8

Sector Allocations as at 30 Jun 2014 Country Allocations as at 30 Jun 2014

* Index Data * Index Data

Market Capitalisation as at 30 Jun 2014

Portfolio Weight 3.2 13.3

Index Weight 0.0 17.7

Style Research does not always have full stock coverage; weights may not total 100%.

Contribution Analysis - Twelve Months to 30 Jun 2014Top Three Contributing Stocks Bottom Three Contributing Stocks

Tech Mahindra 5.8 391 Manila Water Co 2.3 -122Amorepacific Group 3.1 197 Standard Food Corp 3.6 -64Delta Electronics T-F 3.7 117 Idea Cellular 3.0 -64

Cumulative Performance to 30 Jun 2014

Fund (net of fees)* 210.0 - 123.1 120.6 29.8 31.3 7.8 7.0 6.6Benchmark Return** 112.6 - 52.4 69.4 5.3 18.0 4.3 3.7 3.4

Calendar Year PerformanceYTD 2013 2012 2011 2010 2009 2008 2007

Fund (net of fees)* 7.0 7.5 26.8 -11.0 34.8 41.9 -20.9 34.03.7 1.5 16.9 -15.0 21.8 54.2 -33.4 34.2

Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES.*The Inception Date for performance measurement purposes is 19 December 2005. Returns are cumulative, net of fees and tax, and denominated in GBP.**The Benchmark for the First State Asia Pacific Sustainability Fund is the MSCI AC Asia Pacific ex Japan Index and is calculated net of tax.

3.6

41.8

3.5

Benchmark Return**

IndexWeight** (%)

£0 to £500m

PortfolioWeight* (%)

% Change:Since

Launch*

6.0

26.3 9.1 1.2

£267 m

5.84.54.33.8

3.53.53.4

£2.5b to £5b£1b to £2.5b£500m to £1b19.2

Value Added*

(bps)

Value Added*

(bps) Stock NamePortfolio

Weight (%)

27.2 14.9

8.5£10b+

Sector

Sector

£5b to £10b

Stock Name Portfolio

Weight (%)

5 Years

7 Years

10 Years

57.1

3 Months

6 Months

1 Year

2 Years

3 Years

Financials 21.1% (35.9%*)

Consumer Staples 20.6% (6.2%*)

Information Technology 17.5% (16.5%*)

Telecom Services 10.8% (5.1%*)

Industrials 9.9% (8.1%*)

Health Care 7.2% (2.3%*)

Utilities 6.9% (3.5%*)

Consumer Discretionary 2.1% (7.9%*)

Materials 1.7% (8.7%*)

Energy 0.0% (5.9%*)

Cash 2.3% (0.0%*)

India 27.7% (6.6%*)

Taiwan 18.1% (11.7%*)

South Korea 9.2% (15.0%*)

Philippines 7.4% (1.0%*)

Thailand 7.2% (2.1%*)

China 6.9% (17.8%*)

Singapore 6.6% (4.7%*)

Australia 5.8% (25.3%*)

Malaysia 5.4% (3.8%*)

Other 3.6% (12.0%*)

Cash 2.3% (0.0%*)

Investment involves risks. Past performance is not indicative of the future or likely performance.


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First State Global Emerging Markets Sustainability FundFund SizeNumber of Holdings 63


Stock Name Stock NameUnilever 0.0 Marcopolo IndustrialsMarico 0.0Tech Mahindra 0.0Standard Food Corp 0.0Jeronimo Martins Sgps 0.0 Significant Disposals - Three Months to 30 Jun 2014Guaranty Trust Bank 0.0Weg 0.1 Stock NameDelta Electronics T-F 0.0 Aspen Pharmacare Health CarePublic Bank Bhd 0.4 Spirax-Sarco Eng IndustrialsDabur India 0.0

Total 0.6








Tech Mahindra 5.2 376 Manila Water Co 2.3 -119Delta Electronics T-F 2.5 114 IAM Chile 2.3 -74Tube Investment India 1.6 82 Shoprite 1.7 -59


Fund (net of fees)* 125.1 107.6 44.9 21.3 24.2 3.8 4.6 4.8Benchmark Return** 67.6 49.8 10.5 -7.2 7.9 1.4 2.8 3.9

Calendar Year PerformanceYTD 2013 2012 2011 2010

Fund (net of fees)* 4.6 2.7 25.1 -14.3 38.42.8 -4.4 13.0 -17.8 22.6

Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES.*The Inception Date for performance measurement purposes is 08 April 2009. Returns are cumulative, net of fees and tax, and denominated in GBP.**The Benchmark for the First State Global Emerging Markets Sustainability Fund is the MSCI Emerging Markets Index and is calculated net of tax.

5 Years

SinceLaunch*

3 Months

6 Months

1 Year

2 Years

3 Years

4 Years

Sector

Sector

£5b to £10b

Value Added*

(bps)

Value Added*

(bps)Portfolio

Weight (%)

14.750.8

28.2 16.0

£2.5b to £5b10.71.7

£10b+


Weight (%)

£1b to £2.5b£500m to £1b

35.5

Benchmark Return**

IndexWeight** (%)

£0 to £500m

Stock Name

£282 m

2.4

2.4


2.92.8

2.4

% Change:

6.35.95.23.0

21.4 11.8

2.2








Health Care 1.7% (1.8%*)


Energy 0.0% (10.8%*)

Cash 4.8% (0.0%*)

India 20.0% (6.8%*)

Taiwan 8.6% (12.1%*)

Brazil 7.5% (11.0%*)

Chile 7.2% (1.5%*)

Nigeria 6.6% (0.0%*)

UK 6.3% (0.0%*)


South Africa 6.1% (7.5%*)

China 4.5% (18.4%*)

Other 22.2% (41.8%*)

Cash 4.8% (0.0%*)



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First State Worldwide Sustainability FundFund SizeNumber of Holdings 52


Stock Name Stock NameUnilever 0.2Dia 0.0Waters Corp 0.0CSL 0.1Glaxosmithkline 0.3 Significant Disposals - Three Months to 30 Jun 2014Markel Corp 0.0Kansai Paint 0.0 Stock NameHenkel 0.0 CAF IndustrialsJeronimo Martins Sgps 0.0 Coloplast B Health CareTech Mahindra 0.0 Techne Corporation Health Care

Total 0.7








Tech Mahindra 2.8 135 Jeronimo Martins Sgps 3.1 -82Xylem Inc 2.2 95 Vapores 1.6 -52Dia 6.1 59 Manila Water Co 1.1 -35


Fund (net of fees)* 22.7 - - - - 4.0 0.5 -0.4Benchmark Return** 26.0 - - - - 9.1 2.9 2.4

Calendar Year PerformanceQ2-14 Q1-14 Q4-13 Q3-13 Q2-13 Q1-13

Fund (net of fees)* -0.4 1.0 2.7 0.7 1.2 13.72.4 0.4 4.9 1.1 -0.3 14.0

Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES.*The Inception Date for performance measurement purposes is 23 November 2012. Returns are cumulative, net of fees and tax, and denominated in GBP.**The Benchmark for the First State Worldwide Sustainability Fund is the MSCI AC World Index and is calculated net of tax.

4 Years

8.0

3 Months

6 Months

1 Year

2 Years

3 Years


Weight (%)

SinceLaunch*

5.90.2

5 Years

Sector

Sector

29.9

Value Added*

(bps)

Value Added*

(bps) Stock Name

£10b+

75.0

2.8

Portfolio Weight (%)

£5b to £10b£2.5b to £5b£1b to £2.5b£500m to £1b8.0 2.3

39.8

22.3

£130 m

Benchmark Return**

IndexWeight** (%)

£0 to £500m


% Change:

3.42.8

3.5

6.55.64.14.03.63.6


Health Care 21.6% (10.6%*)








Energy 0.0% (10.2%*)

Cash 8.3% (0.0%*)

USA 21.4% (49.0%*)

UK 11.7% (7.8%*)

Japan 9.8% (7.3%*)

Spain 7.4% (1.3%*)

Switzerland 7.1% (3.3%*)

India 5.5% (0.7%*)

Australia 5.1% (2.8%*)

Germany 5.1% (3.4%*)


Other 15.4% (24.2%*)

Cash 8.3% (0.0%*)



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disclaimer

First State Asia Pacific Sustainability Fund, First State Global Emerging Markets Sustainability Fund and First State Worldwide Sustainability Fund are not authorized by the Securities & Futures Commission in Hong Kong and are not available for sale to retail public in Hong Kong.

The information contained within this document has been obtained from sources that First State Investments (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. Neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. This document is intended solely for distribution to professional/institutional investors as may be defined in the relevant jurisdiction and is not intended for distribution to the public. The information herein is for information purposes only; it does not constitute investment advice and/or recommendation, and should not be used as the basis of any investment decision. Some of the funds mentioned herein are not authorised for offer/sale to the public in certain jurisdiction.

The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not necessarily a guide to future performance. Please refer to the offering documents for details, including the risk factors.

This document/the information may not be reproduced in whole or in part without the prior consent of FSI. This document shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First State Investments’ portfolios at a certain point in time, and the holdings may change over time.

In Hong Kong, this document is issued by First State Investments (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First State Investments and First State Stewart are business names of First State Investments (Hong Kong) Limited. The First State Stewart team manages Asia Pacific, Global Emerging Markets and other worldwide equities strategies. The Securities and Futures Commission has not reviewed the contents of www.firststateinvestments.com. In Singapore, this document is issued by First State Investments (Singapore) whose company registration number is 196900420D. First State Stewart (registration number 53236764B) is a business division of First State Investments (Singapore). First State Investments (registration number 53236800B) is a business division of First State Investments (Singapore).

Alexis Ng Managing Director, South East Asia and Head of Distribution, Asia +65 6580 1321 [email protected]

Lauren Prendiville Director, Institutional Business, Southeast Asia +65 6580 1365 [email protected]

Vivian Tang Director, Institutional Business, North Asia +852 2846 7540 [email protected]

Carol Lin Director, Institutional Business, North Asia +852 2846 7546 [email protected]

For further information contact:

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