VONTOBEL ASSET MANAGEMENT, INC. HIGH QUALITY GROWTH AT SENSIBLE PRICES

Transcription

1 VONTOBEL ASSET MANAGEMENT, INC. HIGH QUALITY GROWTH AT SENSIBLE PRICES

2 Look beyond the U.S. for great companies After years of a sluggish economy, investors are challenged to find sufficient growth to meet their longterm goals. Many investments that promise strong performance deliver more risk than the average investor can withstand. The search for sustainable growth cannot start and end at home. Americans have an average of only 13% of their assets invested overseas. 1 In order to find highquality companies that offer longterm growth potential, investors must expand their horizons. U.S. Non- U.S. Americans invest most of their money at home but many of the world s largest companies are overseas 2 At Vontobel Asset Management, we believe there are great businesses located all over the world many of them outside the U.S. We seek to identify leading companies, capture their operating results, and turn them into investment results for our clients. U.S. Non- U.S. 1 Source: 2015 Legg Mason Global Investment Survey. 2Source: Fortune Magazine s Global 500 ranking of the world s largest corporations, published in the July 22, 2015 issue. Of the Global 500 companies, 128, or 25.6%, are U.S.-based. Companies are ranked by total revenues for their respective fiscal years ended on or before March 31,

3 Vontobel Asset Management: An institutional manager serving individual investors Vontobel Asset Management is the U.S. subsidiary of Vontobel Holding, A.G., a banking and wealth management firm headquartered in Switzerland. Based in New York, we have been managing assets for U.S. institutions for over 20 years. Rajiv Jain Chief Investment Officer & Co-Chief Executive Officer Assets under management currently total more than $48.1 billion in our global and international equity portfolios. 3 In 2005, we became a subadviser to the Virtus Funds. Our Chief Investment Officer is Rajiv Jain, who was recognized as Morningstar s International-Stock Fund Manager of the Year (U.S.) in During his 26 years in the industry, he has developed and refined our unique approach to global equity investing. Mr. Jain collaborates with our team of analysts, who average more than 20 years of experience. As we do for our institutional clients, we seek to compound our mutual fund clients wealth while maintaining an acceptable level of risk. Over the long term, we have found that sustainable earnings growth drives consistent returns and leads to outperformance. At Vontobel, we place a premium on franchises that produce sustainable, organic growth over years, not quarters. We invest in companies that emphasize operational excellence, and prefer those which place a higher importance on value creation by investing for the future, rather than use gimmicks to boost short-term earnings. We believe the wisdom of this investment approach creates enduring, lower-risk returns. 3 As of December 31,

4 Our success is built on a close alignment of interests We try to align the interests of our clients, our firm, and the companies in which we invest on our clients behalf. OUR CLIENTS: We know that the assets our clients entrust to us represent their future: a dignified retirement, a legacy that outlives them, or other meaningful goals. To achieve those dreams, they need to participate in rising markets and limit losses in market declines. That is as important to us as it is to them. OUR FIRM: We want to grow with our clients, not at their expense. Our compensation structure embodies that goal. Our personal wealth is invested alongside that of our clients. a world of investment opportunities OUR INVESTMENTS: We seek to establish productive relationships with well-managed businesses. To be chosen for our funds, companies must demonstrate a commitment to enhancing shareholder value over years not just the next quarter. We encourage long-term thinking and a keen focus on employees and customers. 2

5 Our investment approach sets us apart At Vontobel, we specialize in long-only global equity investing. The funds we manage emphasize companies over countries. Rather than giving our clients exposure to emerging markets, for example, we seek to identify and own the top companies whose revenue is generated in this rapidly developing region. Our goal is to produce a smoother ride for clients by capturing upside in rising market cycles and protecting principal in down market cycles. We have accomplished that by seeking high-quality growth at sensible prices. We focus on companies that can meet our demanding standards, and we are patient enough to buy them when they are attractively valued. As bottom-up investors, we work to create an investable universe of what we believe are the best businesses in the world. Our analysts must demonstrate the sustainability of each company s earnings stream over five years. And, the stock price must be in line with that projection. Though we intend to invest for the long term, there are times when a stock becomes too expensive and we must sell it. If a company s earnings power or long-term competitive advantage deteriorates, that will also prompt us to search for a better alternative. 3

6 Four key characteristics define the Vontobel style A BOTTOM-UP APPROACH THAT FOCUSES ON EARNINGS GROWTH 1 2 HIGH-CONVICTION PORTFOLIOS THAT ARE CONCENTRATED IN QUALITY NAMES We seek companies with the ability to grow earnings for at least five years. Our experience has taught us that the best predictors of sustainable growth include: n high return on equity n high return on assets n low-to-moderate leverage n low capital expenditure n strong operating margins n high barriers to entry n durable demand The companies in which we invest must have strong brands with enduring demand. We look for a competitive advantage that will allow a company to maintain pricing power and be rewarded by the markets for the long term. The quality companies we seek are not abundantly available. Therefore, our Funds tend to hold between 40 and 75 positions. The top 10 holdings in each Fund represent approximately 35% 45% of total assets. 4 We maintain exposure to at least five different sectors, but are willing to take larger positions in the names in which we believe. RESULT: Diversification tends to lose its effect when a portfolio has too many holdings. By setting high hurdles for a stock to be included in our Funds, we rule out many names. When a company does meet our standards, we engage with management to encourage continued success. Concentrating our portfolios has resulted in high alpha, low beta, and low standard deviation for our Funds. RESULT: This approach has historically produced an overweight to consumer staples stocks in the Funds because these stocks demonstrate the attributes we favor: understandable businesses, branded products, pricing power, and free cash flow generation. The sector includes a variety of businesses with diverse earnings drivers. Holding consumer staples names has historically served to mitigate risk and drive alpha in the Funds. Similar products, different markets: We own the stocks of a beer distributor in Brazil, a brewing company in South Africa, and a beer brand in China. Though these companies are engaged in the same business, they offer diversification because they serve different constituents in varied regions. 4 4 As of December 31, 2015.

7 THE FLEXIBILITY TO INVEST WITHOUT THE CONSTRAINTS OF A BENCHMARK 3 4 A LONG-TERM FOCUS ON ABSOLUTE RETURNS Although all mutual funds must be compared to unmanaged indexes, we believe that closely tracking a benchmark entails unacceptable levels of risk. We are willing to sacrifice tracking error in pursuit of higher alpha and lower beta than our peers. Thus, our Funds do not closely resemble their benchmarks. RESULT: We are comfortable taking sector bets that result in large over- and underweights relative to our benchmarks. For example, in 2007, financial stocks started to show signs of strain. Our analysts were no longer confident that the sector s earnings were sustainable. Over the next three months, we sold every financial company held in the Funds, reducing our sector weight to zero. Because we were not compelled to maintain a position in order to track the benchmark, we could avoid the sector s underperformance, which lasted for five years. Our experience has taught us that compounding wealth requires outperforming in down markets. We emphasize what matters most to our clients: How has my Fund performed? rather than did my Fund beat the index? After all, it is small comfort to an investor to suffer a 32% loss when the index declines 35%. We strive to minimize absolute losses in market declines. RESULT: Lower levels of risk are a natural outgrowth of our investment style. Our Funds tend to capture significant upside in rising markets, while avoiding the bulk of the downside in declining markets. The construction of many global indexes is highly problematic. For example: n The MSCI Emerging Markets Index is dominated by global cyclicals, commodities, and energy stocks, because they tend to be the largest names. n As of December 31, 2015, the MSCI EAFE Index had a 23% weight to Japan, which has offered no real growth for two decades. 5

8 Virtus Global Equity Funds: Delivering attractive risk-adjusted performance Class A Shares, as of 12/31/ year statistics, except where noted. VIRTUS FOREIGN OPPORTUNITIES FUND Focuses on well-managed businesses with consistent operating histories and financial performance across international markets, including emerging market economies. Class A: JVIAX Class C: JVICX Class I: JVXIX Class R6: VFOPX JVIAX MSCI EAFE Average Annual Return 5.98% 3.60% Alpha 3.11% 0.00% Beta Sharpe Ratio Standard Deviation 13.05% 14.99% Peer Group Performance Rank 43/288 Peer Group Percentile 15% Morningstar Data: Ranking in Foreign Large Growth category. 3-year ranking 226/323; 70%. 10-year ranking 36/189; 19%. VIRTUS EMERGING MARKETS OPPORTUNITIES FUND Holds well-established companies positioned to benefit from increased consumer spending in emerging markets. Class A: HEMZX Class C: PICEX Class I: HIEMX Class R6: VREMX HEMZX MSCI EM Average Annual Return 0.78% -4.81% Alpha 4.30% 0.00% Beta Sharpe Ratio Standard Deviation 14.93% 17.79% Peer Group Performance Rank 7/386 Peer Group Percentile 2% Morningstar Data: Ranking in Diversified Emerging Mkts category. 3-year ranking 148/578; 26%. 10-year ranking 3/172; 2%. 6 Indexes defined on inside back cover. Morningstar Ranking / # of Funds in Category displays the fund s actual rank within its Morningstar Category based on average annual total return and number of Funds in that Category. The Morningstar Percentile Ranking compares a Fund s Morningstar risk and return scores with all the Funds in the same Category, where 1% = Best and 100% = Worst Morningstar, Inc. 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, complete, 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.

9 NWWOX MSCI ACWI Average Annual Return 10.15% 6.09% Alpha 4.88% 0.00% Beta Sharpe Ratio Standard Deviation 11.96% 13.06% Peer Group Performance Rank 33/781 Peer Group Percentile 5% Morningstar Data: Ranking in World Stock category. 3-year ranking 440/984; 45%. 10-year ranking 203/417; 49%. VIRTUS GLOBAL OPPORTUNITIES FUND Owns sensibly priced securities of high-quality companies expected to grow earnings faster than the market on a sustainable basis across world equity markets, including the U.S. Class A: NWWOX Class C: WWOCX Class I: WWOIX VGEAX MSCI EUROPE Average Annual Return 7.75% 3.88% Alpha 4.63% 0.00% Beta Sharpe Ratio Standard Deviation 12.99% 16.85% Peer Group Performance Rank 5/78 Peer Group Percentile 6% VIRTUS GREATER EUROPEAN OPPORTUNITIES FUND Offers exposure to European market economies by investing in high-quality, well-established companies. Class A: VGEAX Class C: VGECX Class I: VGEIX Morningstar Data: Ranking in Europe Stock category. 3-year ranking 66/86; 76%. 10-year ranking NA. Alpha: A measure of performance on a risk-adjusted basis. Beta: A quantitative measure of the volatility of a given portfolio relative to the overall market. Higher beta suggests higher volatility. Beta can also refer to relative volatility to a portfolio s stated benchmark. Sharpe Ratio: A statistic that measures the efficiency, or excess return per unit of risk, of a manager s returns. It is calculated by taking the portfolio s annualized return, minus the annualized risk-free rate (typically the 30-Day T-Bill return), divided by the portfolio s annualized standard deviation. The greater the Sharpe Ratio, the better the portfolio s risk adjusted return. Standard Deviation: A measure of variability of returns around the average return for an investment. Higher standard deviation suggests greater risk. 7

10 Compounding wealth to meet our clients goals Vontobel Asset Management offers global equity mutual funds that are managed consistently with our institutional portfolios. Through disciplined application of our investment approach over several market cycles, we have compiled a track record of long-term outperformance and superior alpha capture. Peter Newell Managing Director & Senior Portfolio Adviser Talk to us about investing in high-quality companies around the world. Visit or call to learn more. We invest in high-quality names, with low beta and low standard deviation that have resulted in strong alpha generation over time. We are looking for an advocacy class of investor that knows precisely what they can expect from a relationship with Virtus and Vontobel. 8

11 Class A Performance as of 12/31/2015 in percent. Virtus Foreign Opportunities Fund (A: JVIAX) QTD YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEP 7/6/1990 NAV POP Index Benchmark since inception performance is reported from 7/31/90. Class A operating expenses are 1.41%. Virtus Emerging Markets Opportunities Fund (A: HEMZX) QTD YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEP 8/11/1999 NAV POP Index Class A operating expenses are 1.56%. Excluding the indirect expenses incurred by the underlying funds in which the Fund invests, fund class operating expenses are 1.55%. Virtus Global Opportunities Fund (A: NWWOX) QTD YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEP 5/13/1960 NAV POP Index NA Class A operating expenses are 1.45%. Virtus Greater European Opportunities Fund (A: VGEAX) SINCE INCEP QTD YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR 4/21/2009 NAV NA POP NA Index NA Class A operating expenses are 1.45% and gross operating expenses are 1.89%. Operating expenses reflect a contractual expense reimbursement in effect through 1/31/2017. Operating expenses do not include indirect expenses incurred by the underlying funds in which the Fund invests. Average annual total returns reflect the change in share price and the reinvestment of all dividends and capital gains. Net Asset Value (NAV) returns do not reflect the deduction of any sales charges. POP (Public Offering Price) performance reflects the deduction of the maximum sales charge of 5.75%. A contingent deferred sales charge of 1% may be imposed on certain redemptions within 18 months on purchases on which a finder s fee has been paid. Performance data quoted represents past results. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please visit Virtus.com for performance data current to the most recent month-end. IMPORTANT RISK CONSIDERATIONS Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk. Geographic Concentration: A fund that focuses its investments in a particular geographic location will be highly sensitive to financial, economic, political, and other developments affecting the fiscal stability of that location. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Prospectus: For additional information on risks, please see the fund s prospectus. INDEX DEFINITIONS 5 The MSCI EAFE Index (net) is a free float-adjusted market capitalization-weighted index that measures developed foreign market equity performance, excluding the U.S. and Canada. 6 The MSCI Emerging Markets Index (net) is a free float-adjusted market capitalization-weighted index designed to measure equity market performance in the global emerging markets. 7 The MSCI AC World Index (net) is a free float-adjusted market capitalization-weighted index that measures equity performance of developed and emerging markets. 8 The MSCI Europe Index (net) is a free float-adjusted market capitalization-weighted index that measures equity market performance of the developed markets in Europe. The indexes are calculated on a total return basis with net dividends reinvested. The indexes are unmanaged, their returns do not reflect any 3 fees, expenses, or sales charges, and are not available for direct investment.

12 Investors should carefully consider the investment objectives, risks, charges, and expenses of any Virtus Mutual Fund before investing. The prospectus and summary prospectus contain this and other information about the fund. Please contact your financial representative, call , or visit to obtain a current prospectus and/or summary prospectus. You should read the prospectus and/or summary prospectus carefully before you invest or send money. Not all products or marketing materials are available at all firms. Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value. Distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc Virtus Investment Partners, Inc. 4