December 212 Emerging Markets Small Cap: The Undiscovered Frontier 1 23481
The EM Small Cap Opportunity Set Global Small Cap Universe Number of Companies Emerging markets small cap comprises approximately one third of the small cap universe, yet is significantly under-owned by investors. Emerging Markets 3% US 3% World ex-us 4% High Quality Universe Structure 2 EM Small Cap is a big part of the high quality universe. 2 1 1 Emerging Markets Small US Small Developed ex-us Small Mid-Large Source: FactSet, MSCI ACWI Small Cap and William Blair Eligibility List as of 12/31/212. 2 23482
Emerging Markets Small Cap: Undiscovered & Inefficient Small Cap Weight in Emerging Markets Index The EM Index has transitioned from being largely small cap to looking more like developed markets Dec 212 3% Most activity is in mid-large cap Dec 1999 66% % 2% 4% 6% 8% 1% EM Small does not have significant sell-side coverage: inefficiencies exist 2 16 12 8 6 Median Analyst Coverage 17 4 Emerging Markets Small Emerging Markets Mid-Large Source: FactSet. Small Cap is defined as companies <$3B free float. Top chart reflects MSCI EM Index as of 12/99 and MSCI EM Index as of 12/31/212. 3 23483
Emerging Markets Small Cap: Undiscovered & Inefficient 1. Historical Correlations EM correlations have increased over the last ten years. EM Small and Frontier are today where EM was 8 years ago..8.6.4.2. Nov-2 Oct-3 Sep-4 Aug- Jul-6 Jun-7 May-8 Apr-9 Mar-1 Feb-11 Jan-12 Dec-12 MSCI Emerging Markets MSCI BRIC SC MSCI Frontier Active management has added significant value over long time periods, reflecting inefficient market. 6% % 4% 3% 2% 1% % Annualized Median Excess Return Years 7 Years Emerging SmallCap US Small Cap World ex-us Small Cap Emerging Markets Source: FactSet, evestment Alliance. Data as of 12/31/212. Three-year correlations rolled monthly. Annualized Median Excess Returns chart represents excess returns of the evestment Alliance US Small Cap Equity Universe vs. Russell 2 Index, eaacwi ex-us Small Cap Equity Universe vs. MSCI World ex-us Small Cap Index (net), ea Emerging Markets Small Cap Equity Universe vs. MSCI Emerging Markets Small Cap Index, (net), and ea All Emerging Markets Equity Universe vs. MSCI Emerging MarketsIndex (net). 4 23484
Emerging Markets Small Cap: Superior Characteristics and Supportive Valuations The emerging markets small cap universe has stronger characteristics relative to the rest of the global small cap universe, while returns have historically been much stronger as well 2 2 1 1 Global Small Cap Characteristics (%) ROE EPS LTG 1-Yr. Return (%) MSCI Emerging Markets Small Cap MSCI World ex-us Small Cap MSCI US Small Cap Despite better ROE and long term earnings growth, valuation remains supportive 2 2 1 1 Valuations (P/E NTM) Mar-2 Dec-2 Sep-3 Jun-4 Mar- Dec- Sep-6 Jun-7 Mar-8 Dec-8 Sep-9 Jun-1 Mar-11 Dec-11 Sep-12 MSCI Emerging Markets Small Cap MSCI US Small Cap MSCI World ex-us Small Cap Source: FactSet, MSCI. As of 12/31/212. 2348
Emerging Markets Small Cap: Undiscovered & Inefficient Selected Regional and Country Differences Region and country weightings vary significantly versus the EM Index 2 1 1 - -1-1 14-1 1 7-4 - -1-6 -3 EM Asia China Indonesia Taiwan EMEA Russia LatAm Brazil Mexico Sector Weightings The EM Small Cap Universe is much more tilted towards Consumer and Industrials and away from Resources and Telecom Services 1 1 - -1-1 9-7 9-1 -7-1 Source: Eagle. MSCI Differences are EM Small weight EM weight. MSCI EM Small Cap and EM Indices as of 12/31/212. Consumer Financials Healthcare Industrials IT Resources Telecom Services Utilities 6 23486
Investment Philosophy: Organic Value Creation In evaluating the quality characteristics and growth prospects of Consumer Discretionary companies, we focus on: Brand strength and competitive landscape Unit growth prospects and saturation risk Capital intensity and returns on invested capital Case Study: Ace Hardware Indonesia Well established leader in Indonesia home improvement that enjoys a first mover advantage Significant unit expansion opportunity with no signs of saturation Solid margin and returns due to strong execution and weak competition Respected management team with track record of value creation Percent 2 1 Operating Performance Metrics As of December 31, 212 Growth of $1 $8. $8. $7. $7. $6. $6. $. $. $4. $4. $3. $3. $2. $2. $1. $1. $. $. Historical Performance As of December31, 212 Yr Avg ROA Operating Margin Nov-7 May-8 Nov-8 May-9 Nov-9 May-1 Nov-1 May-11 Nov-11 May-12 Nov-12 Ace Hardware Indonesia MSCI AC World IMI / Specialty Retail -IND Ace Hardware Indonesia MSCI AC World / Specialty Retail -IND Source: FactSet and MSCI. Past returns are no guarantee of future performance. For illustrative purposes only. This should not be considered investment advice to buy or sell any security. 7 2398
Investment Philosophy: Organic Value Creation In evaluating the quality characteristics and growth prospects of Consumer Discretionary companies, we focus on: Brand strength and competitive landscape Unit growth prospects and saturation risk Capital intensity and returns on invested capital Case Study: Jubilant Foodworks Established dominant pizza delivery network in India Robust store growth outlook with no signs of saturation Low capital needs and highly productive units generate a superior return profile Superior sustainable growth prospects led by a talented management team Percent 4 3 2 1 Operating Performance Metrics As of December 31, 212 Growth of $1 $6. $. $. $4. $4. $3. $3. $2. $2. $1. $1. $. $. Historical Performance As of December 31, 212 ROE FY1 EPS Growth Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Jubilant FoodWorks Ltd. MSCI AC World IMI / Hotels Restaurants & Leisure -IND Jubilant FoodWorks Ltd. MSCI AC World / Hotels Restaurants & Leisure -IND Source: FactSet. Past returns are no guarantee of future performance. For illustrative purposes only. This should not be considered investment advice to buy or sell any security. 8 23243
Emerging Markets Small Cap: Risks Accounting standards / transparency Significant family ownership: positives and negatives Country political risk factors escalate in importance Liquidity scarcity 9 23487
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