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«BRANDS & LUXURY» PORTFOLIO
«BRANDS & LUXURY»:
MORE THAN A FUND
A modern approach to investments assumes different scenarios for allocation of funds: from strictly individual solutions to
proven standard products. Each of them is a precise combination of financial expertise and investor’s individual goals and
objectives.
Individual portfolios with selection of particular financial instruments and contemporary analytical insights have usually high
demand among high-net-worth professional investors.
Investing in mutual fund units is an alternative approach affordable to broad investment society.
Rietumu Asset Management brings to Your attention innovative investment product - the investment portfolio that consists of
stocks of leading public companies. This product is single investment idea driven with high level of personification in contrast to
standardized mutual fund units.
Stock selection process is based on modern and efficient investment models, developed by Rietumu Bank’s financial analysts
and portfolio managers.
We offer to find out more about key characteristicsof «Brands & Luxury» portfolio.
2
«BRANDS & LUXURY»:
ASSET WITH TIME-PROVEN PRESTIGE AND VALUE
3
Investment portfolio «Brands & Luxury» developed by Rietumu Asset Management specialists is an opportunity to profit together with leading global companies whose products for decades have been a benchmark of quality and prestige for million of people all over the world.
«BRANDS & LUXURY» PORTFOLIO INVESTS IN Stable targetmarket
High-qualitymanagement
Rapidly growingdemand
«Defensive» market sector
highly experienced management team
established management traditions
high profitability
high consumerpurchasing power
brand loyalty
low sensitivity to price growth
resilience of business model during economic downturn
shareholders’ reward in the form of ample dividends
growing number of millionaires
fast adoption of western lifestyle by eastern world
Asia – the main demand growth driver
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Historical performance of«Brands & Luxury» model portfolio, 10 years
Annual portfolio growth
+16.9%** Backtesting of «Brands & Luxury» model portfolio from 01.01.2005.
Past performance does not guarantee future profitability.
«BRANDS & LUXURY» PORTFOLIO
«BRANDS & LUXURY»:
INVESTMENT IDEA
4«BRANDS & LUXURY» PORTFOLIO
«Brands & Luxury» represent not only stability and high expected return, but also it is an indication of wealth, reputation and prestige converted in securities.
«Brands & Luxury» portfolio’s investment idea is built in the light of major characteristics of the modern global luxury goods market.
Companies that own famous brands and produce premium goods have a set of distinctive features. This industry appeals to such categories as dreams, aspirations, desires and acknowledgement of achievements- as against simple desire to possess one or another good in practical relation. As a result, “sellers of prestige” are less sensitive to changes in rational factors and economic downturns.
Target market of such companies - relatively stable range of wealthy clients, who usually are characterized by high level of purchasing power. The volume of this market shows sustainable increase, due to growing population and number of wealthy individuals, as well due to prosperity growth in Asian countries.
According to the WealthInsight data, in 2014 the number of millionaires in the world equaled 17.8 million people. It’s estimated that by 2024 this number will be equal to23.3 million. Moreover the most considerable increase is estimated in Asian region: +45%.
Exclusiveness of goods associated with the premium segment, brand loyalty, and stable demand – are key factors, that ensure sustainable business development of producers and secures their strong financial conditions. Producers of premium goods possess strong pricing power and, as a result, achieve higher level of profitability.
Rietumu Asset Management experts’ calculations show that for the last 10 years average gross margin ratio (the difference between net revenue and cost of goods sold divided by revenue) for “Brands & Luxury” companies exceeded 40%, while average ratio for world economy failed to reach 30%.
Stocks of “Brands & Luxury” companies are traditionally considered as “defensive” market cluster, which to a wide extent protect investors from excess volatility. Another important advantage for shareholders of companies belonging the premium segment – traditionally generous shareholders reward in the form of ample dividends.
According to Rietumu Asset Management analysis, for the last 10 years “Brands & Luxury” companies in average paid more than a half of their profits in the form of dividends.
-
5
10
15
20
25
2004 2014 2024
OtherEuropeNorth AmericaAsia
The number of millionaires, mln people
Source: WealthInsight,Rietumu Asset Management
+40%
+22%
+23%
+45%
0
10
20
30
40
50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Global companies «Brands & Luxury» companies
Gross margin ratio , %
Source: Bloomberg, Rietumu Asset Management
5«BRANDS & LUXURY» PORTFOLIO
«BRANDS & LUXURY»:
STRUCTURE (1-2)
INVESTMENT PROCESS
RISK-CONTROL AND MONITORING
Investment universe Portfolio constructionQuantitative analysis Qualitative analysis
Industries: retail goods, hotels, apparel,auto manufacturing, drinks, cosmetics,equipment, etc.
RAM investment models select stocks ofcompanies with strong financial fundamentalsand attractive market valuation
Analytical data input from publiclyavailable sources
Portfolio managers construct finalportfolio based on their expertise
Stock selection is scrupulous multi-stage process conducted by Rietumu Asset Management experts.
Stocksof public
companies withfamous brands
and premium goods
«Brands & Luxury» portfolio is composed of publicly quoted stocks: global leaders in premium and luxury products manufacturing; companies, that own globally known brand names.
The construction of investment portfolio is dynamic process. Its actual composition is defined by professional portfolio managers. The portfolio is rebalanced in a consistent periodic manner and can include stocks of 25-35 issuers.
Portfolio includes stocks of industry leading companies with strong financial fundamentals and attractive market valuation. Stock selection process is based on modern and efficient investment models, developed by Rietumu Bank’s financial analysts and portfolio. managers.
Investment typeAsset class CurrencyMinimum investment amountGeographical focus
Investment limitations Recommended investment horizonExpected returnSubscription feeManagement fee
Individual PortfolioStocks
USD100 000 USD
Global marketsStocks of public companies with
famous brands and premium goodsMore than 3 years
More than 10% annually0.35%
1.50% per annum
6«BRANDS & LUXURY» PORTFOLIO
«BRANDS & LUXURY»:
STRUCTURE (2-2)
Number of IssuersAverage Equity RatioAverage Return on Equity RatioAverage Price to Earnings RatioAverage Price to Book RatioAverage Beta
2955.48%24.90%
15.823.960.87
Key Statistics
LVMH MOET HENNESSY LOUIS VUITIFFANY & COBURBERRY GROUP PLCHUGO BOSS AG -ORDAPPLE INCCHRISTIAN DIOR SEDECKERS OUTDOOR CORPHARLEY-DAVIDSON INCSANDS CHINA LTDMICHAEL KORS HOLDINGS LTD
3.54%3.53%3.53%3.52%3.52%3.51%3.51%3.49%3.48%3.45%
Top 10 Holdings
65%14%
7%
4%
4%
3%
3%
0% 20% 40% 60% 80%
United StatesHong Kong
FranceGreat Br i ta in
GermanyJapan
Switzer land
31%21%
10%7%7%
4%3%3%3%3%3%3%
0% 10% 20% 30% 40%
Depar tment StoresApparelLodging
SoftwareFood
ComputersLeisure Products
BeveragesOff ice/Business Equip
SemiconductorsDistr ibut ion/Wholesale
Electronics
100%BondsStocksOther
Asset AllocationStructure
CurrencyExposure
Geographical Exposure Industry Group Exposure
69%
14%
11%
4%
3%
0% 50% 100%
USD
HKD
EUR
GBP
CHF
NorthAmerica65%
WesternEurope17% APAC
17%
Source: Bloomberg, Rietumu Asset Management
«BRANDS & LUXURY»:
PORTFOLIO COMPOSITION
7«BRANDS & LUXURY» PORTFOLIO
Portfolio structure and composition are indicative. Its actual composition is defined by portfolio managers and rebalanced in a consistent periodic manner.
Ticker Name of the issuer Country Industry Sector Industry Group Equityrat io
Returnon Equityrat io
Pr ice toEarningsrat io
Pr iceto Bookrat io
Div idendYield( indicated)
Beta Pr ice( localcurrency)
Currency
MC FPTIF USBRBY LNBOSS GRAAPL USCDI FPDECK USHOG UN1928 HK590 HK880 HK27 HKRL USUHR VX
KORS USFL USHRL USPEP USORCL USCOH USCAJ USINTC USGES USBBY USGPS USFOSL USGRMN USMSFT USCPB US
LVMH MOET HENNESSY LOUIS VUITIFFANY & COBURBERRY GROUP PLCHUGO BOSS AG -ORDAPPLE INCCHRISTIAN DIOR SEDECKERS OUTDOOR CORPHARLEY-DAVIDSON INCSANDS CHINA LTDLUK FOOK HOLDINGS INTL LTDSJM HOLDINGS LTDGALAXY ENTERTAINMENT GROUP LRALPH LAUREN CORPSWATCH GROUP AG/THE-BR
MICHAEL KORS HOLDINGS LTDFOOT LOCKER INCHORMEL FOODS CORPPEPSICO INCORACLE CORPCOACH INCCANON INCINTEL CORPGUESS? INCBEST BUY CO INCGAP INC/THEFOSSIL GROUP INCGARMIN LTDMICROSOFT CORPCAMPBELL SOUP CO
FranceUnited StatesGreat BritainGermanyUnited StatesFranceUnited StatesUnited StatesHong KongHong KongHong KongHong KongUnited StatesSwitzerland
United StatesUnited StatesUnited StatesUnited StatesUnited StatesUnited StatesJapanUnited StatesUnited StatesUnited StatesUnited StatesUnited StatesUnited StatesUnited StatesUnited States
Consumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalTechnologyConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, Cyclical
Consumer, CyclicalConsumer, CyclicalConsumer, Non-cyclicalConsumer, Non-cyclicalTechnologyConsumer, CyclicalTechnologyTechnologyConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalConsumer, CyclicalIndustrialTechnologyConsumer, Non-cyclical
ApparelDepartment StoresApparelDepartment StoresComputersApparelApparelLeisure ProductsLodgingDepartment StoresLodgingLodgingApparelDepartment Stores
ApparelDepartment StoresFoodBeveragesSoftwareDepartment StoresOffice/Business EquipSemiconductorsDepartment StoresDepartment StoresDepartment StoresDistribution/WholesaleElectronicsSoftwareFood
40.7854.7264.4650.8148.1119.5780.0930.5356.6674.1658.6674.0263.7283.02
83.2569.7866.0924.6743.8866.0866.7761.7467.0632.7438.7944.3072.5252.0819.91
23.2216.2226.2137.4938.3722.2317.7227.8439.5819.9627.9529.2017.729.18
43.5421.0618.0032.8820.8118.918.4819.828.9919.4041.9636.838.6422.5347.51
14.5423.1920.4522.1215.6813.8715.8814.2112.908.157.2314.3716.7017.36
10.0118.5222.9020.7617.8914.8118.2112.4616.6213.2113.4710.1716.4117.8218.93
3.824.225.007.615.663.412.623.965.121.541.983.842.942.03
3.833.803.988.713.643.541.512.401.832.505.503.992.564.129.27
1.951.712.483.441.641.74
2.226.304.929.68
1.511.86
1.441.732.921.474.14
3.233.972.672.43
4.402.712.62
0.970.880.890.750.881.060.791.120.960.550.881.010.521.15
0.720.620.900.621.240.640.811.090.870.980.830.761.051.060.56
163.9093.681574.00105.30126.82181.2073.6955.8631.6022.358.6734.75132.59404.20
42.9569.4457.8696.3540.7932.5832.2529.6922.6534.4237.7970.1546.4045.7647.59
EURUSDGBPEURUSDEURUSDUSDHKDHKDHKDHKDUSDCHF
USDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSD
Luxu
ry p
rodu
cts
Bran
ds
Source: Bloomberg, Rietumu Asset Management
«BRANDS & LUXURY»:
HISTORICAL PERFORMANCE OF THE MODEL PORTFOLIO
8«BRANDS & LUXURY» PORTFOLIO
Backtesting of «Brands & Luxury» model portfolio from 01.01.2005. Past performance does not guarantee future profitability.
Rietumu Asset Management experts ran model portfolio «Brands & Luxury» historical performance simulation for 10 years , from January 1, 2005.
Calculated value appreciation equaled +16, 9% annualy. Consequently, portfolio historic return exceeded the benchmark by 7 times.
Model Por tfol io Character ist ics (01.01.2005-01.07.2015)
ModelPor tfol io
Benchmark(MSCI ACWI)
Average return – 3 monthsAverage outperformance – 3 monthsAverage annual returnAverage annual outperformanceReturn since 01.01.2005Outperformance 01.01.2005Annualized volatilityMaximum drawdownSharpe ratio (annualized)Information ratio (annualized)Jensen's Alpha (annualized)BetaTracking errorCorrelationAverage number of portfolio holdings
4.23%2.88%16.92%11.51%345.95%296.21%22.32%-47.72%0.651.085.56%1.1310.67%88.43%31
1.35%-5.41%-49.73%-17.45%-50.66%-------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Historical performance of«Brands & Luxury» model portfolio (01.01.2005 = 100)
Performance versus the Benchmark
0
100
200
300
400
500
Model portfolio Benchmark
+345.95%
+49.73%
-20%
0%
20%
40%
60%
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Current price correctionoffers an excellent opportunityfor investment in growing trend
Source: Bloomberg, Rietumu Asset Management
«BRANDS & LUXURY»:
TERMS
9«BRANDS & LUXURY» PORTFOLIO
Volatility – a statistical measure characterizing the size of changes in an asset's value. A higher volatility means that an asset's value can be spread out over a larger range of values and, consequently, implies higher risk level.
Correlation – a statistical relationship between a portfolio and a benchmark. The correlation coefficient ranges between -1 (-100%) and +1 (+100%). The correlation coefficient of +1 or +100% implies that changes in a portfolio value perfectly duplicate a benchmark changes. The correlation coefficient of -1 or -100% implies that a portfolio value moves with the same strength as a benchmark value but in the opposite direction. The correlation coefficient of 0 implies that there is no relationship between a portfolio and a benchmark.
Beta – a measure of market risk, or systematic risk. The Beta coefficient shows the volatility, as well, asset correlation to a benchmark. The Beta coefficient of1 implies that an asset will move with a benchmark. The Beta coefficient of less than 1 implies that an asset will be less volatile than a benchmark (lower market risk). Thus, the Beta coefficient higher than 1 implies higher price volatility and higher market risk.
Information ratio – a ratio of risk-adjusted portfolio returns. The information ratio shows portfolio returns above the returns of a benchmark adjusted by the volatility of those returns.
Jensen's Alpha – a portfolio performance measure adjusted by market risk, the average market return and risk-free interest rate. The coefficient describes the ability of portfolio manager to generate excess risk-adjusted returns over a benchmark, i.e. manager’s efficiency. The higher the coefficient, the more efficient portfolio management is.
Sharpe ratio – a measure of portfolio returns adjusted by the risk-free rate. The Sharpe ratio describes how portfolio returns compensate the additional risk an investor is forced to take. The Sharpe ratio is calculated as the excess return (portfolio returns less the risk –free rate) divided by Standard deviation of portfolio returns.
Tracking error – a measure of a divergence between the price changes of a portfolio and the price changes of a benchmark. The lower the coefficient, the smaller the divergence.
Equity ratio – total shareholder’s equity to total assets ratio.
Maximum Drawdown – the maximum decline in a portfolio value, quoted as the percentage, from the previous price peak to the consequent price bottom during the specific period of time.
Price-to-book ratio (PB ratio) – a company’s market capitalization to it’s book value.
Price-to-earnings ratio (PE ratio) – a company’s market capitalization to it’s net income.
Return on equity ratio (ROE ratio) – a company’s net profit to it’s total shareholder’s equity.
DISCLAIMER
10«BRANDS & LUXURY» PORTFOLIO
DISCLAIMER: This overview (including any attachment (-s)) does not constitute a request, offer, recommendation or invitation of any kind to buy, sell or redeem any finan-
cial instruments or to conclude and/or to perform other transactions of any kind.
The authors of the information presented in this overview, as well as JSC “Rietumu Asset Management" IMF, registered in the Commercial Register of Republic of Latvia on Janu-ary 29, 2014, registration number 40103753360, legal address: 7 Vesetas Street, Riga, LV-1013, Latvia, hereinafter referred to as “RAM” , both together and individually, are not liable for possible use of the information presented in this overview, including any direct or indirect damages (including lost profits), as well as any penalties. Evaluations, opinions and forecasts presented in this overview are based solely on the RAM’s special-ists' conclusions regarding financial instruments and issuers considered in this overview. While the information contained in this overview is obtained from sources believed to be reliable, the RAM does not guarantee its accuracy and completeness. Any of your invest-ment decision should be fully based on your assessment of your personal financial circumstances and investment objectives. The RAM draws your attention to the fact that transactions in the securities and financial instruments market involve risk and require
appropriate knowledge and experience.