A guide to investing

in Emerging markets
F&C: Pioneering experience in emerging markets

Expect excellence
“ You would not ignore an economy the size of the US when
“
constructing an investment portfolio so it is a surprise that
so many investors, from the largest to the smallest, seem
to overlook the potential of the emerging economies.
“Emerging
Richard Wilson, Head of Equities, F&C Investments.
markets still
offer us vast
potential”

“
“Emerging markets represent 30% of
the Group’s profits and generate
two-thirds of its growth” The changes underway are seeing
countries such as China, India
and Brazil shifting from agrarian or
resource based economies, tied to
the economic cycles of the developed
‘western’ economies, to genuine self
“
sustaining industrial powerhouses.
Jeff Chowdhry,
Head of Emerging Equities,
“Our centre of gravity will shift to the F&C Investments.
developing markets”

“ In a matter of a couple of decades emerging economies are achieving an

“
economic revolution that took Europe some 200 years to achieve.
Sam Mahtani, Fund Manager, Indian Investment Company, F&C Investments.
The case for
Emerging Markets
The big picture greater flexibility in exchange rates and targets for inflation. All
Emerging markets have come of age. The extensive of these elements have helped in the formulation of a more
dismantling of political and technological barriers to entry has constructive macro policy.
promoted a levelling of the international economic playing
Improvements have been seen across a broad swathe
field whereby developed and developing countries are
of emerging markets countries but have probably been
competing in an integrated world.
most dramatic in Asia. It is the Asian economies that have
The integration of economies, in various stages of generally been the ones generating fiscal budget and
development, is part and parcel of the globalisation process external surpluses, reducing the leverage in their financial
that has transformed the world economy in the last couple systems, leaving them with one of the strongest sets of
of decades. Developing economies such as Brazil, India and fundamentals at the start of this new economic growth cycle.
China have opened up their economies and invited foreign
In terms of individual countries elsewhere, Brazil is worthy
companies to share their knowledge and technological
of note having managed to upgrade its credit rating to
expertise in return for a share of their resources and profits.
‘investment grade.’ Turkey and Mexico have also made good
Investors have been actively encouraged to participate in the
progress.
growth potential and capital has flowed from the developed
to the developing world.
Potential for further growth
Starting with a clean slate, emerging market communities For those that have not yet invested in emerging economies
are leapfrogging fixed telephone lines to enjoy the is it too late? Not according to John Lomax, GEM Equity
immediate benefits of mobile phone technology and strategist at HSBC. “We think the potential growth rate for
broadband. Similarly factories are opening up utilising the the emerging world as a whole is about 5.5% in the medium-
latest technology, giving them an efficiency edge over their term and within that we expect some countries will have
developed market counterparts. As economic expansion has noticeably higher growth rates.”
exploded and earnings grown, emerging market countries
have seen their contribution to global GDP rise, reaching an
estimated 35% at the end of 2009. Furthermore, nearly all of
“China could grow by 8% and India
the global growth in 2009, a period of deep global downturn,
was attributed to the emerging economies. A trend set to
6-7% over the next 3-5 years…
continue.
compared to around 2% in the
Breaking from the past developed economies.”
Emerging economies have experienced periods of growth
before but in a break from history this time the expansion is
fundamental and set to be sustained. Why? Because it has
He forecasts China could grow by around 8% and India
its foundations in structural rather than cyclical factors for
by between 6-7%, over the next 3 to 5 years. These rates
one thing. In addition, governments in many of the emerging
would be deemed attractive even in their own right but when
economies have instilled new tighter financial management to
you compare them against what is forecast for developed
provide a framework capable of affording long-tem economic
economies over the same period (around 2%) they look
management. They have introduced much greater fiscal
especially strong.
discipline, which has secured domestic budgets and current
account surpluses, more responsive monetary policies,

F&C Investments 01
 Long-term thematic opportunities
Differentiating the emerging markets in the current
environment are long-term thematic drivers of growth. The
most important of these and from which other things lead, is
demographics.
Emerging economies have faster growing and younger
populations than their developed peers. “If you look at where
the labour supply is increasingly coming from over the next
20 to 30 years, it is really coming from emerging markets,”
says Michael Wang, Global Emerging Markets Strategist,
Morgan Stanley. “This has implications not only for the world
but also the emerging countries themselves.”
What it implies is that there will be a higher share of the local
population in employment. This, in turn, means there will be
more people in receipt of an income. The wealth created will
drive an advance in living standards and consumption and
increase domestically focused employment.
Share of global nominal US$ GDP
35
� EM (incl Middle East)
30
25
behind a large part of the increase in economic activity in the
last decade. Building, steel and cement companies have all
benefited from increased investment as a result.
The next phase of the process of urbanisation, which will
drive economic growth in the next decade, will be the
growing consumer appetite of the rising urban population.
Wang estimates spending attributed to urbanisation could be
as high as $1trillion over the next 10 years.
Rising standards of living
In the next decade the popular perception of emerging
markets as a supplier of goods and services to developed
countries should be comprehensively knocked on the
head as the rapidly growing working and middle classes
increasingly become the end purchasers of the goods and
services they are producing.
Taking the automotive industry as an example, the per capita
car ownership in China is set to reach 59 per 1,000 people in
2010, while the equivalent figure in the US is estimated at 826
� US per 1,000. This huge disparity translates into an enormous
investment opportunity as the gap between developed and
developing market consumers closes.

20 “If you look at consumption, across a lot of different product

% 15
categories from cars to PCs and mobile handsets, the key
marginal consumers of these products are currently from the
10
BRICs,” says Lomax
5

0
The number of cars on the road
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

in China would top a

“The labour supply for the next billion if car ownership reached
20-30 years is set to come from US proportions.
emerging markets.” (Source: IMF and World Bank)

It is not just cars, mobile telephones, refrigerators, television

Urbanisation sets and computers of course. Financial products and
Concurrent to the big rise in consumption is the trend of services are also on the consumption horizon of the
urbanisation. The new jobs tend to be located in urban emerging markets consumer. Mortgages, insurance and
areas and accompanying the development of industrial other financial services are only just becoming accessible
transformation is the migration of a work force from the on a mass basis and the penetration rates of such products
countryside to the city. is so low as to not register in any meaningful way.
As part of the development process it would be expected
Governments have begun preparing for this with huge
that the penetration rate of these products and services will
infrastructure projects and this has been to create new
rise over time.
housing, roads, schools, hospitals and other necessary
pre-requisites for a massive population shift, have been

02 F&C Investments
The role of leverage
Consumption financed by the newly earned salaries of a
rapidly growing labour force, would create a phenomenal
wave of demand but when you are also bringing into the
equation the possibility of leverage, in the form of loans and
mortgages, that potential is magnified.
Leverage is not an emerging markets concept. In these
countries consumption is normally saved for. As a result,
the international financial crisis did not have quite the same
devastating impact on developing market consumption
patterns as was witnessed in the developed world. The
‘top- end’ analysts’ estimate about 10% leverage exposure
among consumers in developing markets compared with
100% leverage in the UK. While the very conservative
approach to debt of most emerging market consumers
means they are unlikely to ever approach the UK’s level of
leverage, there is still potential for leverage to play a role in
driving demand. This will be both by individuals increasing
their levels of debt and through an increase in the number
of consumers accessing debt finance.
Corporate leverage is not quite so restrained, but is still very
low compared to the developed markets.
Valuations
The bull market seen since 2000 has witnessed a superior
return on equity (ROE) from companies within emerging
markets, driven by the more efficient use of capital at the
micro level. In the years ahead rising consumption will be
another positive element in the mix. The ROE can then be
expected to increase further.
Valuations in aggregate have potential for improvement.
Using parameters like price/earnings (p/e) or price-to-book,
they are in line with historical levels. On a trailing earnings
basis they are actually at about a 20% discount to developed
countries, trading at around 17.5 times p/e, (16x is the long-
term average). “With the 40% growth in earnings that we are
expecting for 2010,” says Wang “that multiple will drop down
to 14x.”
MSCI EM vs. MSCI World
40
MSCI WORLD trailing PE
35
MSCI EM trailing PE
30
25
P/E Multiple
20
15
10
5 5
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Jan
1995 1995 1995 1995 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
F&C Investments 03
An important aspect to remember is that we are just coming
out of a global recession and in the first year of a recession
the p/e multiple always gets re-rated because earnings are
depressed and so investors buy the market in expectation
of an earnings recovery, making the p/e look artificially high.
Once genuine earnings growth starts to become effective,
however, valuations should move back to more normal levels.
Wang believes that within markets there are some quite big
differences, however. “Amongst the BRIC countries, Brazil,
India and China seem to have attracted disproportionate
liquidity flows and those three markets seem rather more
highly valued than Russia, which we think looks cheap by
comparison”. Outside of the BRIC group there may be even
greater value potential, in countries such as Indonesia, Egypt
and Turkey.
He forecasts a strong earnings recovery for emerging Europe
next year because of a steep contraction in earnings in 2009.
In Asia, the rebound is likely to be more modest as these
economies saw less of a correction in 2009.
Outside of BRIC
Mexico is closely locked into the US economic cycle and
was left behind in 2009 as a result. A more robust upswing
in the US than is presently expected could catch investors by
surprise and lead Mexico higher in its wake.
In EMEA, while Russia is an obvious beneficiary of a rising
oil price, the region as a whole has lagged. If the oil price
continues to accelerate and the Russian economy gathers
further momentum this will have spill over benefits for
neighbouring economies.
As an example, Hungary is another country that has perhaps
been overlooked. It has been a casualty of macro economic
policy, operating a big current account deficit, which left it
exposed to the global financial crisis, causing the exchange
rate to come under downward pressure, forcing interest rates
to be raised. But looking ahead, Hungary is well positioned
to take advantage of the cyclical recovery expected in
developed Europe, especially Germany, which is the recipient
of a high proportion of Hungary’s (mostly manufacturing)
exports. Hungarian interest rates are still quite high (a base
40
rate of a 6.5%) but inflation is quite well contained, so there
is a good
35 possibility of rates coming down and boosting
domestic
30
consumption also.
Technology
25 sector earnings have been depressed in 2009
and if the
20
global economy recovers as expected Taiwan
could be one of the fastest growing markets in Asia in 2010
15
given its big exposure to technology as companies start to
increase10 their IT investment.
MSCI WORLD trailing PE MSCI EM trailing PE
0
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Jan
1995 1995 1995 1995 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
 Technical drivers
In 2002 emerging market economies accounted for just 4%
of the MSCI World equity index, today they make up around
13%. This contrasts sharply with their contribution to world
GDP, which is over 30%. In time, their weighting in the index
will increase to catch up and reflect their importance to the
global economy. The flow of privatisations is also a trend set
to continue as governments increasingly look to the capital
markets to raise funds, which further increases the pool of
companies available to investors and the weighting of the
emerging market companies to the total market cap of the
global economy.
Emerging markets as a % of MSCI All World Index
15
12
EM as % of total
% 9
6
3
2002 2003 2004 2005 2006 2007 2008
As this happens, investors with global mandates will be
required to increase their exposure to emerging markets,
thereby providing a further underpinning of valuations.
Emerging Market Debt
Many of the positive arguments above, particularly those
around fiscal and monetary discipline apply equally to
emerging market debt. Indeed, this is probably an asset
class with an even lighter representation within most
portfolios than emerging market equities.
The emerging debt universe, small and largely fragmented
in its infancy, received a boost by the implementation of the
Brady Bond program implemented by the US Treasury in the
1980s. The program was designed to help emerging market
economies (mostly Latin American at the time) restructure
their debt, and eventually helped boost overall debt issuance
that was primarily US dollar denominated. However, despite
a spate of crises and the odd default episode, the advent
of globalisation, accelerating growth in emerging markets
and implementation of structural reform programs eventually
played a key role in firmly establishing the asset class. The
exponential growth in currency reserves also helped mitigate
currency devaluation risk and helped boost issuance in
local currencies as well. Local currency debt is in increasing
demand today as developing countries find themselves
favourably placed relative to developed countries in terms of
growth outlook and fiscal positions.
04 F&C Investments
“The short-term risks are
cyclical not structural”
Sam Mahtani, F&C Investments
The robustness of the public finances of many emerging
economies means that the risk of default is probably lower than
it has ever been. This is reflected in narrowing spreads and
improving sovereign debt ratings based on favourable views
taken by various ratings agencies (S&P, Moody’s and Fitch).
After the recent upgrades to Brazil, more than 50% of the
standard Emerging Bond Index is now rated investment grade.
The range of opportunities within emerging market debt also
continues to expand. In the past exposure has primarily been
through government issues, but there are now a growing
number of corporate issuers as well, illustrating an improving
maturity and depth to the market as a whole.
Emerging Debt Yield vs. US Treasury Yields
16.0
14.0
EMBI+ Yield UST 10-year Yield UST 2-year Yield
12.0
2009
10.0
% 8.0
6.0
4.0
2.0
0.0
Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Risks and pitfalls
Investing in emerging markets is a long-term commitment
and investors should be prepared for more volatility
compared to the more developed markets. Political risks
tend to be greater during the process of development and
short-term issues may arise from time to time.
At the present time the most obvious risks are more short-
term and generally more cyclical than structural. One risk
is that growth in the US is actually quite a bit stronger than
the markets are assuming. This could result in a rise in the
dollar and US interest rates rising sooner than expected,
dampening liquidity flows into the emerging economies.
Conversely, if US growth retraced and a double-dip
recession ensued, this would result in a weaker export profile
for emerging markets.
More specifically, the emerging markets have enjoyed a good
run over the last 10 years, even rebounding more strongly
than many expected from the international credit crisis of
2008. It would not be out of character for there to be some
increased volatility in 2010. But it is the medium to longer-
term structural drivers that should underpin investment
decisions. So a strong uptrend looks set to continue.
Commodity prices
For Russia and Brazil, a change in the value of the dollar
would impact the price of commodities and hence economic
prospects from export earnings.
India too would feel the effect of a change in the oil price.
High oil prices would hit it disproportionately hard as it is
a net importer of oil and while a country like China with its
high fiscal surpluses can afford to subsidise its users, India’s
fiscal position would not afford it such an option. On the flip
side, however, we also need to remember that most of the
increase in demand for oil, which leads to a rise in the oil
price, stems from growth in emerging economies.
Rising interest rates
If interest rates in the US were raised sooner than expected,
that could hurt emerging economies as the US acts as
the benchmark for global rates, and especially for
emerging markets where currencies are frequently pegged
to the dollar.
There is also the possibility that Europe could tighten interest
rates before the Federal Reserve, impacting consumption
and imports from developing countries, although with an
already strong Euro they may be more cautious about
doing this.
Viewed in context, however, there are no signs yet that US
growth is accompanied by a build up in inflationary pressure.
Furthermore with US rates at virtually zero when they do
start to rise they would only be starting a journey back to
‘normal’ levels.
Other pitfalls
Recent events in Dubai were a reminder that investing in
emerging markets is not without risk. However, Dubai is not
a typical emerging market, and its lack of transparency is in
contrast to many emerging economies that have more long
standing disclosure investor relations. Contagion from Dubai
should be viewed as overreaction, given that most emerging
markets investors have little exposure to the market.
The Investment case
Traditionally many investors have avoided investing in
emerging markets due to the greater risk and higher volatility
they have demonstrated historically when compared
against the mature developed markets. Consequently, most
portfolios are underweight to emerging market equities and
probably even more so to emerging market debt.
As we can see from the discussions above, the investment
landscape has changed significantly in recent years and
there are now sound and fundamental reasons why investors
need to consider increasing their exposure to the undoubted
potential of emerging market assets.
F&C Investments 05
n They are underpinned by long-term structural drivers
n They will lead global growth for years to come
n This is not an export driven cyclical upswing, though
exports should recover at some stage
n The domestic economies have increasingly taken over
from export markets as the drivers of growth
n Falling risk of default amongst bond issuers
n Mature markets are likely to deliver more muted returns
as the fall out from the credit crunch and financial crisis
continues to take its toll
Diversification is the key to any successful investment
strategy and adding or increasing emerging market exposure
will improve the diversification of most portfolios. This
will provide a portfolio with increased growth potential to
compensate for the more muted returns expected from the
mature markets, while they deal with the issues facing their
economies and seek a return to a more normal
growth footing.
Conclusions
Emerging markets have rebounded strongly as investor
sentiment recovered from the lows of 2008. This is also a
clear reflection of the fundamental changes that have taken
place within emerging market economies in recent years
and indicates the strength and robustness of the investment
case, be it in emerging market equities or debt.
Positive structural factors now underpin emerging market
economies and they should no longer simply be regarded
as a geared play on the cyclical swings of the US, Europe
and Japan.
“It is the positive, long-term,
structural factors that
should underpin investment
decision making.”
Jeff Chowdhry, F&C Investments
In the coming years global growth is set to be driven by the
emerging economies and those of China, India, Indonesia,
Egypt and Latin America. Importantly, even when the mature
developed economies re-establish their normal patterns of
growth, emerging markets will continue to play an important
role in the development of the world economy. As such, they
also have an important role to play in driving the returns from
any investment portfolio.
“
Eight of the world’s
ten largest cities are
in emerging economies.
F&C Investments.
“
“In 2009 China overtook Germany
as the world’s largest exporting
economy ”

“In 2010 Chile is set to become

the 31st member of the OECD
and the first from South America”

“China, India and Brazil are

already amongst the world’s ten largest economies.” July 2009
World Bank

“By 2050 it is estimated that the

working population in emerging
economies will be over 4bn
“ Over 90% of the world’s
population live in emerging
economies.
F&C Investments.
“
compared to less than 750m in
developed economies”

 “In 2010 its estimated that sales

of mobile handsets in emerging
markets will be over 1.1bn
 Investment pioneers
for over 140 years
At F&C, investment management is all we do, so we are not
distracted by other interests. We are active managers with a
multi specialist approach. This means small entrepreneurial
and performance driven teams supported by extensive
resources in terms of analytical research, investment
strategy, risk controls and dealing.
Unparalleled experience in emerging
markets
We can point to an unparalleled heritage in investing in
emerging markets along with a record of innovation in
meeting the investment needs of our clients. Through
managing the Foreign & Colonial Investment Trust, the
world’s first collective investment scheme, we have been

F&C has over 2000 relationships investing in emerging markets for over 140 years, which
means they are part of F&C’s DNA.

in over 20 countries and manages Our experience started with fixed income securities and
evolved rapidly to include equity investments in 1905.
money for over 3 million people.
F&C Emerging Market Milestones
F&C has over 2000 relationships in over 20 countries and n 1868 Foreign & Colonial Investment Trust launched
manages money for over 3 million people, and with over n 1868 first investments in Europe, South America, the
£97.8 billion under management*, is a broadly diversified Middle East and the US
global investment manager. n 1881 first investments in Asia and Australia
n 1883 first investments in Africa
n 1932 first investment in Taiwan
n 1934 first investment in Hong Kong
n 1952 first investment in Israel
n 1961 first investment in Japan
n 1984 first Ethical Fund launched

1932 n 1987 launches first Latin American Fund

1868 Taiwanese investments
First ever pooled
investment fund
n 1991 launches Emerging Markets Fund
1961
Japanese investments n 1993 launches specialist Indian Fund
n 1996 launches first Russian Fund
1984
Ethical Fund n 2006 launches high alpha emerging markets fund

1988 n 2010 launches first emerging markets ESG fund

Multi-manager Fund

Indeed, the launch of the Indian Investment Company saw

1994
F&C become only the third company to be awarded Foreign
Middle East investments
Investor status in India.
2007
Lifestyle range
Climate Opportunities 2009
Independence
2006
LDI pioneers

*As at 30 December 2009

F&C Investments 07
 Managing emerging
market equities
F&C’s current Emerging Market Equities team was
Years in Years at
established in 1993. Jeff Chowdhry and Sam Mahtani have Name
industry F&C
been instrumental in devising its strategy and have worked
together at F&C since 1994. Jeff took over as Head of Research & Portfolio Construction
Emerging Markets Equities in December 2005 and the team
was strengthened adding Urban Larson and Gareth Morgan, Jeff Chowdhry 27 15
two key senior individuals, to the team. Sam Mahtani 16 17
The current team of 12 professionals, with an average Urban Larson 15 4
experience of 14 years in the industry, has a great depth
and breadth of experience of investing in global emerging Gareth Morgan 15 4
markets through all market cycles.
Martha Reyes-Hulme 11 2
The team is London based and combines a detached
Claire Franklin 6 3
assessment of emerging markets with regular research
trips to obtain a closer hands-on feel of the drivers in these Research
dynamic economies. Sitting alongside our other equity and
fixed income investment teams provides a resource and Mike Hanbury-Williams 25 19
alternative viewpoint to aid decision making.
Ben Akrigg 14 4
As the table to the right shows, we combine the roles of
Peter Dalgliesh 15 3
research and fund management our emerging markets team.
Anthony Linehan 5 5
Performance Jorry Noeddekaer 9 2
Delivering investment performance that meets or exceeds
the expectations of clients is the key to our approach. A June Lui 11 3
significant restructuring of the emerging markets process in
2006 and the recruitment of additional resources has seen a Average years of
14 7
experience
strong and consistent recovery in investment returns.

Country responsibility

Emerging China
Europe Korea
Taiwan
India TIMP*
Africa

Jeff Chowdhry n n n
Sam Mahtani n n n
Urban Larson n n
*Thailand, Indonesia, Malaysia, Philippines
Latin
America
Gareth Morgan n n Mike Hanbury-Williams n Jorry Noeddekaer n n n
Martha Reyes-Hulme n Ben Akrigg n n n June Lui n
Claire Franklin n Peter Dalgliesh n n n n

08 F&C Investments
Investment process
Our investment process has been designed to deliver such as ‘value’ or ‘growth’. All companies are therefore
outperformance throughout the cycle by being active and potential investments. Our style is not a driver of our process,
pragmatic and not bound to a single investment style but a result.

Country

Co
research

un
n
w

try
do

ra
p

nk
To

in
g
Investment Investment Portfolio
themes construction Portfolio
universe

g
in
Bo

nk
ra
tto

Company
k
m

oc
up

research
St

Our process can be broken down into three key
components.
1. Country research – The cornerstone of our approach
is that the superior economic growth taking place in
the emerging markets is most clearly discernible within
individual countries as they embrace free market principles
and begin investing in both human and physical capital.
Country analysis is therefore our starting point because the
political and economic reform processes are the drivers of
change. We also believe that individual stock markets have a
tendency to become mispriced as a result of sentiment and
liquidity flows on their fundamental valuation.
2. Investment themes - We assess investment themes
that could have a country, regional or global impact and
how they may offer investment opportunities. Themes
are regularly discussed across the team to ensure that
they remain valid and new ones are also considered.
These investment themes direct the focus of company
analysis within each country. Examples of themes include
infrastructure spending, the rising power of domestic
consumers and low penetration of financial products
3. Stock selection - All members of the team are involved
in company analysis, with specific countries assigned to each
individual. Considerable emphasis is placed on one-to-one
company meetings and we have around 800 each year, both
in our London offices and during research trips to the various
regions. We also use broking and industry research to get a
comprehensive view of each company we are analysing. We
address the following issues in the diagram below.
The fund managers draw upon this pool of research to
construct a portfolio designed to meet the investment needs
of our clients. Flexibility is key to our approach but with
flexibility comes accountability, and our managers are fully
accountable for all investment decisions made in respect of
their portfolios.
We also use an advanced risk modelling tool Sunguard APT,
to monitor risk within our portfolios. This ensures that the
areas of greatest risk match up with those of our highest
investment conviction.

Themes Management Growth Financials Catalysts Value

Key investment Track record, Strong market Balance sheet and Company restruc- Measured in Ranking
themes on a secular shareholder position, niche cash flow analysis turing; governance both absolute and
basis; significance orientation and players, visible is particularly changes; new relative terms.
(1-4)
of sectors within strategy and sustainable important where management; new Measures include: and
countries earnings stream reporting standards plant; new product; P/E Yield; P/B; price
are low acquisitions/dispos- EV/EBITDA;
als; new legislation; P/Operating target
cyclicality; interest cash flow;
rate sensitiv- P/Free
ity; exchange rate cash flow
sensitivity

F&C Investments 09
 Managing emerging
market debt
F&C’s Emerging Market Debt team has been in place since
1991 and they developed the F&C Emerging Markets Fixed
Income philosophy and process in its current form in 1995,
a development in which Helene Williamson, now Head of
Emerging Market Debt, was instrumental. The six-strong
team has an average of 14 years investment experience,
which also means experience in managing assets across the
economic cycle.
Within the emerging market debt team, the fund managers
also undertake research as we believe this delivers a
flatter structure and improves communication across the
team. There are also three dedicated research analysts
who support the fund managers due to the breadth of the
countries to be covered.
We operate a top-down fundamental process designed
to identify relative value primarily between countries,
and highlight market distortions of country spreads and
currencies. The process makes the optimum use of the in-
depth knowledge and expertise of the Emerging Market Debt
team and builds research into the investment process as a
whole. Our investment approach is unique in its emphasis on
identifying ‘country value’, through the systematic, research-
based process we have developed.
We believe that emerging bond markets are often priced
inefficiently and undergo spread and currency fluctuations
that have a weak relationship with the actual political,
economic and repayment risk of a country. Our three stage
investment process therefore starts by researching these
aspects.

Name Country expertise Country Responsibility Years in industry Years at F&C

Helene Williamson Head of Emerging Debt Russia, Argentina, Venezuela, 32 14

Middle East
Jonathan Mann Senior Fund Manager Asia, Mexico, Brazil 17 4
Will Nef Fund Manager Africa, Georgia, Malaysia, 6 3
Kazakhstan, Ukraine, Sri
Lanka, Lebanon, Pakistan,
Qatar
Sonya Dilova Analyst Corporate, CIS 10 4
Miguel Gandolfo Analyst Ecuador, Peru, Columbia, 9 3
Risk Analysis
Philip Ladstaetter Analyst Turkey, EMEA, 3 3
Local currency bonds
Average Years of experience 14 5

10 F&C Investments
 1
Stage 1
Analysis and spread forecast
n Analysis of the market environment and
forecast of market spread
n Country risk analysis and forecast of
individual country spreads
n Analysis of individual country yield curves
Stage 1: Research and spread forecast
We start with an analysis of the market environment,
including the outlook for global GDP growth, liquidity, risk
appetite, commodity prices and global bond markets. We
then undertake a forward-looking analysis of individual
country fundamentals and it is the country selection and
allocation stage that produces the majority of our expected
outperformance. Our analysis focuses on six primary
factors that tend to drive asset prices and a scoring matrix is
used to quantify and systematically compare each country
assessment:

1) Political and institutional backdrop

2
Forecast 2) Structural reform process and growth

3) Monetary and exchange rate policies

4) Fiscal policy
Stage 2
5) External sector (e.g. balance of payments)
Portfolio construction
6) Technical (new issuance, repayments) and other market-
n Definition of interest rate spread duration and specific factors (investor base, investor positions, etc)
beta of the portfolio
The composite score of each country serves as the basis
n Individual country allocations in the portfolio
for forecasting the likely change in the spread at which the
n Bond selection individual country’s bonds would trade over US Treasuries in
the absence of market factors. Emerging market corporates
are used as complementary positions to existing views on
the sovereign credit. The outcome of this analysis is then
used to derive a model portfolio for emerging market debt.
Portfolio

3
Stage 2: Portfolio construction
We define the spread duration, interest rate duration and
beta of the desired portfolio, assess the required country
Stage 3 weightings and then select the individual bonds. This is
based on a model portfolio over which the whole team have
Portfolio analysis ownership through their research input and investment
recommendations. The model portfolio is implemented
n Risk analysis
as far as possible in each individual client’s portfolio; any
differences principally reflect mandate differences, especially
n Performance attribution with regards to risk tolerance; country and issuer limits;
n Performance measurement
turnover limits; minimum credit rating specifications; and
restrictions on local currency and corporate exposure.

Stage 3: Portfolio analysis

Portfolio managers ensure that the strategy of the model
portfolio is implemented in their portfolio according to
the investment objectives and client restrictions. This is
monitored on a daily basis. The mangers review on an
ongoing basis the performance of their active positions and
depending on market movements, changes in outlook and or
market events decide if active positions need to be adjusted.

F&C Investments 11
 Accessing
emerging markets
At F&C we are committed to providing the vehicles to enable our clients to
access the potential of the emerging economies from pooled vehicles to
bespoke segregated mandates. We also provide a range of fund solutions
from global and regional mandates to single country funds. Listed below are
the fund capabilities currently available. Alternatively, through constructing a
segregated portfolio, we can provide you with a bespoke investment vehicle
to meet your own specific needs.

This provides our clients with flexibility in accessing the emerging

economies. They can either outsource all asset allocation and stock
selection decisions to our fund managers, or they can select specific regions
or countries as part of constructing their own diversified portfolio.

Pooled Segregated
Global Emerging Markets
- core 4 4

GEM High Alpha 4 4

Emerging Markets Debt 4 4

Latin America 4

Russia 4

Emerging Asia 4 4

India 4 4

12 F&C Investments
 Winning gold with
F&C
Delivering highly effective investment
strategies is just one part of the
service we provide. As principled asset
managers, we are determined to lead our
industry in all aspects of our business.
Products
F&C offers a wide range of investment opportunities for pension funds,
charities, financial institutions, corporations and other organisations.
We offer segregated and pooled portfolio management through a range
of onshore and offshore vehicles. These cover developed and emerging
markets in equity, bond, cash, property and alternative investment funds.

In 2006 – 2008, F&C were voted Please contact us for further details or visit our website at
winners of the ‘Gold Standard’ in the or visit our website at www.fandc.com
Fund Management category. Only a few
companies have been privileged enough
to win a Gold Standard award, and as
such, this is an exceptional achievement.

The Gold Standard Awards aim to

identify financial services companies that
excel not just in service but in five key
areas important to consumers of financial
products and services:

Financial strength
Ability to meet and exceed customer
expectations

Capability
Outstanding expertise and aptitude as a Contact us
fund manager
Head Office Institutional Business
Service Tel: +44 (0) 20 7011 4444
Ability to maintain and grow an effective Email: institutional.enquiries@fandc.com
post-sales relationship
Global Wholesale
Fair value Tel: +44 20 7011 5111
Assessing whether customers receive Email: mail@fandc.com
great value for money
Broker Support
Trust Tel: 0845 799 2299
Ability to instil confidence in consumers Email: adviser.enquiries@fandc.com

As a result, the Gold Standards are

one of the hardest, most sought after Offices United Kingdom Ireland
awards in the financial market place. Tel: +44 (0) 20 7628 8000 Tel: +353 (0) 1 436 4000

Netherlands Portugal
Tel: +31 (0) 20 582 3000 Tel: +351 (0) 21 003 3200

France Germany
Tel: +33 (0) 1 78 42 40 92 Tel: +49 (0) 69 308 55 098

United States Switzerland

Tel: +1 (0) 617 426 9050 Tel: +41 (0) 22 747 7714

Spain Hong Kong

Tel: +44 (0) 20 7011 5398 Tel: +(852) 3965 3160

Sweden
Tel: +46 (0) 850 901276

Important information. All data is as at 31 December 2009 unless otherwise stated.

This document has been produced for information only and should not be construed as investment advice. Past performance should not be seen as an indication of
future performance. Stockmarkets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not
get back the amount they originally invested. Where investments are made in emerging markets, unquoted securities or smaller companies, their potential volatility may
increase the risk to the value of, and the income from, the investment. All sources F&C Management Limited unless otherwise stated. F&C Management Limited is
Authorised and regulated by the Financial Services Authority (FSA) FRN:119230. Limited by shares. Registered in England and Wales, No. 517895.
Registered address and Head Office: Exchange House, Primrose Street, London EC2A 2NY F&C Asset Management plc is the listed holding company of
the F&C group. F&C Management Limited is a member of the F&C Group of companies and a subsidiary of F&C Asset Management plc. F&C, the F&C
logo, reo and the “reo” logo are registered trade marks of F&C Asset Management plc. F&C INVESTMENTS and the F&C INVESTMENTS logo are trade
marks of F&C Management Limited. © F&C Management Limited 2009. F&C6887 02/10

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