Edinburgh Partners’ Research Papers

1. Valuing an EquityThe importance of time horizon

Sandy Nairn, BSc, PhD, ASIP, CFAInvestment Partner and Chief Executive

Edinburgh Partners

Summary

n Returnsfromequitiesaredrivenbyfuture,nothistoric,profits

n Forecastingthoseprofitsisattheheartofsuccessfulstockselection

n Ourresearchprocessaimstocapturefive-yearforwardP/Eratios

n Fiveyearscanbeempiricallyshowntobetheoptimalforecastingtimehorizonforequities

n Theprocessworksacrossallmarketsandallperiodssince1970

Introduction

Attheheartofourphilosophyasequity investors liesasimpleproposition:webelievethatthestockmarketisrationalandlogical,butonly–acrucialdistinction–inthelongrun,notintheshortterm.Bythiswemeanthatcompaniesareultimatelyvaluedonthebasisoftheirabilitytogenerateafter-taxprofitsoveraperiodofyearsandthisperiodofyearsextendstocoverthefulleconomiccycle.Ifyoucanbuysharesincompanieswhicharecheaprelativetotheprofitstheyaredestinedto deliver over the long term, it is systematically possible to generate exceptional returns. That is whatourinvestmentprocessisdesignedtoenableustoachieve.

The importantcaveathowever is thatoverperiodsof less than threeyears, sharepricesmoveinwayswhichare,toallintentsandpurposes,random.Youcannotconsistentlymakemoneybypickingstocksyouthinkaregoingtooutperformoversuchashorttimehorizon.Mostprofessionalfundmanagersarepaidtoattemptjustthat,whichiswhythemajorityofactivelymanagedfundsunderperformtheirbenchmarks,asscoresofacademicstudieshavedemonstrated.

Inthispaper,Isetouttheempiricalevidencethatunderpinsourlong-terminvestmentphilosophy,andexplainwhy,givensufficienttime,weareconfidentofachievingaboveaverageandconsistentrisk-adjustedreturnsfromourequityportfolios.Theanalysisisbasedonanexhaustivestudyoftherelationshipbetweenvaluationsandsubsequentsharepriceperformanceoverawiderangeofdifferenttimeperiods.Ourproprietarydatasetcoversalltheworld’sleadingstockmarketsandalltimeperiodssince1970,theyearwhentherelevantglobalmarketdatafirstbecameavailable.

Edinburgh PartnersValuing An Equity 2

Sandy Nairn Investment Partner and Chief Executive March2013

The stock market is rational - but only in the long term.

Theory and Hypothesis

It is intuitivelyobviousthatarelationshipexistsbetweenthevalueofabusinessandthereturnthat itcanearnfor itsultimateowners,theshareholder.Thereisnodisputeinanyinvestmenttextbookthatwhatdrivestheultimatereturntoshareholdersisthelong-termstreamofafter-taxprofits.Thisprinciplewasfirstestablishedmorethan60yearsagobyJamesBurrWilliamsinhisclassic study “The Theory of Investment Value”.

Thereturntoshareholderscomesintheformof(a)distributions(dividendsandsharebuybacks);and(b)capitalappreciation.Thelatterisbasedonexpectationsoffuturegrowthinearnings,whichinturnaredependentonthelevelofretainedandre-investedprofitsacompanycanbeexpectedtogeneratefromitsactivities,appropriatelydiscountedbacktothepresentday.

Itisimportanttonotethatfuturesharepriceperformance,whileitislikelytoberelatedtoacompany’spreviousperformance,isbothintheoryandinpracticedeterminedbythefuturebehaviourofprofits,nottheirpastpattern.Mostpopularguidestostock-pickingmethodsholdoutthepromisethatthereisa‘magicroute’toinvestmentreturnsbasedsolelyonananalysisofacompany’shistoricperformance.Byanalysingsuchvariablesasprice-earnings(P/E)ratios,dividendyieldsandbookvalues,theassumptionisthattheinvestorwillbeabletodiscernfuturevaluewithouttheneedtoforecastexplicitlywhatmighthappeninthefuture.

Thisbeliefismisguided.Theobservedpatternshaveanunfortunatehabitofprovingtobenon-repeatingstatisticalquirks,or–toparaphraseDrJohnsononthesubjectofremarriage–“atriumphofhopeoverexperience”.Manyfallvictimtothedangersofdatamining,thepracticeoffindingwhatappeartobefirmcausalrelationshipsinpastdatathatdonotinpracticepersistintothefuture.

Itistruethatsomecommonsenserelationshipsarediscernibleinthepastbehaviourofstockprices.Forexample,thecheaperstocksarewhentheyarepurchased,thebettertheirsubsequentreturnswillturnouttobe.Butthesegeneralisedfindings,thoughtrueatanaggregatelevel,areoflimitedpracticalvaluewhentryingtopickindividualstockportfoliosfromthethousandsofpotentialinvestmentsatanygivenpointoftime.Aswellasonlyholdingtrueovertheverylongterm,theyarepronetobeingswampedbyshortertermcyclicalinfluences,suchasstyleeffects.Thedangersthatliebehindillusoryhistoriccorrelationsareofcoursethebasisforregulators’insistencethatallinvestmentmarketingmaterialscarrytherubric:“pastperformanceisnotaguidetothefuture.”

The Evidence

Naturalcuriositydrovemetoseeiftherewasanyempiricalevidencetodemonstratetherelationshipbetweencurrentvaluationmeasuresandfuture(asopposedtopast)totalreturns?Ifirstsetouttostudythisissueover20yearsago,whileworkingasananalystandportfoliomanagerforthefamousprofessionalinvestorSirJohnTempleton.SirJohnhadformanyyearsbelievedthatfiveyearswastheoptimaltimehorizonforshareevaluation.Heaskedmetoseewhetherhisintuitionwascorrect.

Myresearchbeganwithanexaminationoftherelationshipbetweenlong-termearningsgrowthandrealisedtotalreturnsoverasinglefive-yearperiodbetween1990and1995.Theresultsshowedthattherewasindeedaclearrelationshipbetweenthetwovariablesatfiveyears,butalso–justasstrikingly–theabsenceofanyrelationshipatalloverperiodsoflessthanthreeyears.

Fiveyearsisindeedtheperiodoverwhichtherelationshipbetweenstartingvaluationandsubsequenttotalreturnsismostmarked.It is not a coincidence that this period also typically covers a full economic cycle.

Sincethen,withmycolleaguesatEdinburghPartners,Ihaverepeatedandextendedthescopeofthestudyonmanyoccasions,totakeinwiderdatasetsandlongertimeperiods.Eachtimetheresultshaveproducedasimilarresult.Thereisastrongandpersistentrelationshipbetween starting valuations and subsequentfive-year returns to shareholders. It isworthemphasising that ineachreiterationofthestudy,thetotalreturntoshareholdersismeasuredinrealterms,toallowfortheimpactofinflation.

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The key is analysing future, not historic, performance.

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Clearly,anysingletimeperiod,likethefiveyearscoveredbymyinitialresearch,wasindicativeatbest.Thefindingsrequirefurthervalidation.Thatinvolvesrigorouslyexaminingdifferentinvestmentcyclestomakesurethattheoriginalanalysiswasnotbiasedbyhavingchosenaperiodthatwasparticularlyfavourabletothehypothesisbeingtested(oneoftheproblemsthatshowupindataminingexercises).Asaconsequence,theoriginalstudywaswidenedprogressivelysoastoincorporatealltheavailabledataforglobalequitiesforeveryyearbackto1970.Inturnthatcreatedtheopportunitytomakeseparatestudiesofhowtherelationshipmight change between companies in different sectors; between different country and regionalmarkets (both developed andemerging);andbetweendifferentmarketcapitalisationranges(fromlarge-captosmall-cap).

Whenback-testinganykindofhistoricaldata,itisimportanttoanalysetheentireuniverseofstocksthatwouldhavebeenavailabletoinvestorsatthespecificstartingpointchosenforanalysis,andnotjustthosestockswhichhappenedtosurvivethroughouttheentireperiodbeingstudied.Theriskotherwiseisthatasignificantdegreeof‘survivorshipbias’isintroducedintothedata.Ashasbeenshownwith,forexample,theanalysisofhedgefundperformanceinrecentyears,failingtoadjustforsurvivorshipbiascanhavea material impact on the results, particularly for returns. Removing the performance of funds that have disappeared or been closed downsincethestartingpointofanalysiscangiveasystematicupwardbiastoreportedreturns.

Theanalysiswehavenowcoversmorethan40yearsofdataandmorethan25,000individualcompanyhistories.Wouldbeingabletoincludemoredatafrombefore1970materiallychangetheresults?Wedonotbelieveso.Thedataweusecovereveryfive-yearperiodsince1970,aperiodwhichincludesexamplesofalmosteveryconceivableeconomicandstock-marketcycle:hyper-inflationinthe1970s,deflationinJapansince1990,periodsofbothstronggrowthandsharprecession,andbothbullandbearmarkets.

Themethodologyofthestudyisasfollows.Foranygivenperiodofhistoricaldata,theactualearningsachievedbytheuniverseofcompaniesbeingstudiedarecomparedtothepriceatwhichthesharesofthosecompaniestradedatoneofanumberofearlierpointsintheirhistory:oneyearbefore,thentwoyearsbefore,thenthreeyearsandsoonupto10years.Thepurposeistoestablishwhatafundmanagerwithperfectforecastingabilityshouldhavebeenprepared,orwouldhaveneeded,topaytoobtainacertainlevelofreturnoverthesubsequentperiod.(Wewillconsiderinasubsequentpaperthebestwaytopredictearningsovertheseforward-lookingtimeperiods).Theimpliedprice/earningsratioattheoriginaldatecanthenbeplottedagainst,andcomparedwith,theeventualreturnthatwasachieved.Forthesakeofcompleteness,returnsarecalculatedinbothlocalandcommoncurrency(USD)andinbothnominalandreal(inflation-adjusted)terms.P/E’sareroundedandaveragerealreturnscalculated.

Valuing An Equity 4

The absence of a relationship up to three years was striking.

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Study Findings

Thestudydemonstratesconclusivelythatthereisaclearandunambiguousrelationshipbetweenfive-yearforwardlookingP/Eratiosandthesubsequenttotalreturnachievedbyinvestors.Thisstrongandpositiverelationshipholdsovereverykindofeconomicandstock-marketcycle,andacrossallsectorsandgeographies.Justasclearfromtheempiricalevidence,andequallyrobustinastatisticalsense,isthelackofanyrelationshipovermuchshortertimeperiods.

Theeasiestwaytoillustratethestrengthoftherelationshipistoplotonachartthetotalreturndeliveredbyarangeofreallifestocksoverfiveyears(shownontheverticalaxis)withtheimpliedfive-yearforwardP/Eratioatthetimethesharesinquestioncouldbebought(thehorizontalaxis).ThedatafromourstudyisvisuallyrepresentedinthestylisedversionshowninFigure1,andunambiguouslysupportsthevalueinvestor’scorebelief:thatthehighertheP/Eratioatthestart,thelowerthesubsequentfive-yearreturn. Note that the study examines total returns, meaning capital appreciation and income return combined.

Figure 1 – Study curve

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Theobviousquestiontheniswhetherthisrelationshipholdswithinthediscretefive-yearperiodsofourstudy.Asanexample,Figure2showstheactualaveragerealreturnsandimpliedfive-yearforwardP/Esforover3,400stocksfrom50countriesoverallsectorsfrom2003to2008.Thedownwardslopingcurveofthegraphisexactlyasexpected.Thegradientisameasureofthestrengthoftherelationship.WiththeexceptionoftheverylowestP/Ebandwherethenumberofdatapointsisverylowandslightlydistortstheresults,thelowertheimpliedYear5P/E,thehigheronaveragetheeventualreturn–or,toputitinsimplerlanguage,thecheaperastockwhenyoubuyit,thegreaterthereturnfiveyearslater.

*Currentprice/Earningspershareinfutureyear5#Total return includes dividends reinvested plus capital changes

Year5realP/E*Source: Edinburgh Partners

5yearrealtotalreturninUSDp.a.(%)

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The higher the year five P/E, the lower the subsequent return.

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Thedottedlinewehaveaddedtothechartmarksthederivedbreakevenpointforinvestorsoverthis2003-08period.Thisline,whichmarksthelevelbelowwhichinvestorsfailtomakeapositiverealreturninthisparticularperiod,crossestheP/Edataataround11.Whatthismeans is that ifyouhadboughtshareswhichwerepricedatmorethan11timestheearningsachievedfiveyearslater,youweremorelikelythannottohavelostmoneyontheinvestment.Payinglessthan11timesfive-yearforwardearnings,ontheotherhand,gaveyouanaboveaveragechanceofmakingapositiverealreturn.Theyears2003-08happentohavebeenaperiodwithoneofthelowestaveragereturns(toillustratejusthowdepressedreturnswere,aP/Eof11overtheentirestudywouldhavegeneratedonaverageareturnof6%,consideredbymanythelong-termaveragerealreturnfrominvestinginequities).Nevertheless,andimportantly,theshapeofthecurveremainsconsistentwiththecurvepresentedinFigure1.

Figure 2 – Valuation and return over 5 years, 2003-2008

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Figure3showsingraphicformthatthesamerelationshipdoesindeedholdforalldiscretefive-yearperiodssince1977.Asbefore,thechartshowstherelationshipbetweentheannualisedtotalrealreturninUSdollars(theverticalaxis)andthefive-yearforward-lookingrealP/Eratio(onthehorizontalaxis)foreachfive-yearperiodsince1977,asdiscoveredbyperfectforesight.ThegreylinethatrunsacrosseachchartrepresentsthemeanrealtotalreturninUSdollarsforallstocksovereachfive-yearperiod.Ithencegivesanindicationofthemarketvaluationfortheperiodinquestion.Onecanseefromthechartsthattheaveragereturnvariedbetweendifferentperiods(notethatthishasbeencalculatedonanequalweightedbasis).

Valuing An Equity

5yearrealtotalreturninUSDp.a.(%)

Year5realP/E

Source: Edinburgh Partners, Thomson ReutersMarketmean Breakevenpoint Valuation return

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A year five P/E of 11 times was the breakeven point for 2003-2008.

Figure 3 – Valuation and return over 5 years, all 5 year periods, 1977-2011

Importantly,theaveragereturnwasconsistentwiththeaveragevaluation.Ingeneral,cheapaveragevaluationstranslatedintohigheraveragereturns,withtheconverseholdingforexpensiveaveragevaluations.To illustratethis,wehaverankedthe30five-yearperiods by their average valuation, separated them into quartiles, and display the average valuation and return by quartile in Figure 4below.Whilstthereturnsvaryaccordingtothe initialmarketvaluation,theyareallconsistentwiththeempiricalrelationshipdescribedearlier.Inotherwords,theempiricaldatadonotsuggestthatmarketswillalwaysreturntofairvalueinanyfive-yearperiod.Whatthedatadosuggestisthatthereturnswillbecommensuratewithwhateverthefive-yearvaluationwas.

Figure 4 – Average valuation and return over 5 years, per quartile of average valuation, 1980-2011

Quartile AverageYear5realP/E Average5yearrealtotalreturninUSDp.a.(%)

1 5.1 22.9

2 8.8 10.6

3 10.8 7.0

4 12.4 5.8

Asistobeexpected,theaveragerealreturnvariesbyfive-yearsegment:insomeyearsitishigherandinotheryearsitislower.Thefive-yearperiodwiththestrongestaveragerealreturnswas1981-1986;thosewiththelowestare1997-2002and2003-08.Whatmattersmosthoweveristhatinallthesedifferentperiods,thenatureandthedirectionoftherelationshipremainsessentiallythesame. The cheaper the starting valuation, the higher the subsequent return.

Edinburgh Partners Valuing An Equity

Year5realP/E

5yearrealtotalreturninUSDp.a.(%)

Source: Edinburgh Partners, Thomson Reuters

Source: Edinburgh Partners, Thomson Reuters

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Marketmean Valuation return

All five-year periods produce a similar sloping result.

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Outofinterest,althoughweareunabletoreplicatetheglobalscopeofourrecentstudiesgiventheshortageofdatainearlierperiods, the samepattern also appears tobe visible if you look at amuch longer timeperiod.Thedata setbehind Figure5,for reasonsalreadygiven, is less reliableas it covers justone stockmarket, thatof theUS, and suffers fromsurvivorshipbias.Neverthelessthepatternoverthislongerperiod,whichextendsfrom1870tothepresentisbroadlysimilar.Thedatafurthestfromthecurveincludesyearsthatweretypicallyeitheratthepeakortroughofaneconomiccycle,whenearningsaremostlikelytobeunrepresentativeofthelonger-termtrend.

Figure 5 – Valuation and return over 5 years for the S&P 500 index, 1870 to present

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Asalreadynoted,theclearrelationshipthatexistsbetweenstartingP/Esandsubsequentfive-yearreturnsbreaksdownwhenyoulookatshorterperiods.Overtimehorizonsofbetweenoneandfouryears,thereisnoformalidentifiablestatisticalrelationshipbetweenearningsmultiplesandreturns.Bywayofanexample,Figure6showstherelationshipbetweentherealP/EratioandthetotalrealreturninUSdollarsfortwoverydifferenttwo-yearperiods.Inthefirsttwo-yearperiod,1985to1987,therelationshipactuallyworkstheotherwayround,withhigherP/Esproducingonaveragehigherreturns,whereas inthesecond, thenormalinverserelationshipreappears.Thefirstperiodmarkedtheendofaverylongandsustainedbullmarketforshares,culminatinginthe1987stockmarketcrash.Inthisperiod,thehighestaveragereturnswereachievedbystockstradingontwo-yearforwardP/Eratiosofmorethan30.Thesecondsetofdataincludedtheworsteffectsoftheglobalfinancialcrisis.

Valuing An Equity

Year5realP/E

5yearrealtotalreturninUSDp.a.(%)

Source: Edinburgh Partners, GFD Global Database

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The relationship also appears valid in pre 1970 data.

Figure 6 – Valuation and return over 2 years, 1985-1987 and 2006-2008

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Thisexampleclearlyillustratesthedangersofextrapolatingafive-yearrelationshipintoauniversaltruththatholdsovershortertimeperiods.Thestudyconfirmsthatovershorterperiodstherelationshipbetweenvaluationsandreturnsisclosertobeingrandom,asstockmarketacademicshavelongsuspected.Fundmanagerswhoattempttooutperformtheirbenchmarksbypickingstockswithaone-ortwo-yeartimehorizonarefatedthereforetodowellinsomeperiodsandbadlyinothers.Whiletheirmethodsmayproducegood,orevenspectacular,resultsfromtimetotime,theycannotbesaidtobebasedonareliableorwell-foundedinvestmentphilosophy.Forgenuine longer-terminvestors,whoseanalysis isgearedtoatimehorizonwheretherelationship isknowntoexist,thesamecannotbesaid.

OurresearchthereforeconfirmsthatpickingstocksonthebasisofforwardP/Eratiosrequireschoosingafive-yeartimehorizon.Stickingtoadisciplinedvalueapproachrepresentsademonstrablysystematicallyconsistentandreliablebasisforbuyingwhensharesarecheaponalong-termbasisandavoidingthosethatarenot.ThestudyhastheaddedbenefitofprovidingasetofbenchmarksforthelevelofforwardP/Eratiosthatareworthpayingintheexpectationofgeneratingpositiverealreturns.

Figure1setsouttherelationshipbetweenrealtotalreturnandlong-termvaluation,whichallowsvaluationparameterstobederivedforparticularreturns.Forexample,moststudiessuggestthatthelong-termaveragerealreturnfrominvestinginequitiesisaround6%perannum.Figure1showedthattoachievethiswithabasketofequities,theaveragefive-yearvaluationofthebasketshouldbeapproximately11x(notethatthisfigureshouldnotbeconfusedwiththe11xratiointhediscreteperiod2003-08,whichasaperiodofdepressedreturns,happenedtobethebreakevenpointinthoseyears).

Edinburgh Partners Valuing An Equity

2yearrealtotalreturninUSDp.a.(%)(1985-1987) 2yearrealtotalreturninU

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Year2realP/E 1985to1987(LHscale) 2006to2008(RHscale)

Source: Edinburgh Partners, Thomson Reuters

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Two year periods can produce wildly different outcomes.

Determining Future Profits

Havingfoundaclearrelationshipbetweenlong-termP/Esandrealtotalinvestmentreturns,whatisthebestwaytocapitaliseonthisimportantempiricalfinding?Thelogicalconsequenceisthatanyonewhohasabetterthanrandomsuccessinforecastingfive-yearearningshasthecapacitytoproduceaboveaveragereturns.Assharepricesinthelongrunaredeterminedbyprofits,italsofollowsthatthecentraltaskoftheinvestoristoseektoforecasttheseprofits.Ourstudyshowsthateveryinvestmentcarrieswithitanimplicitassumptionaboutfuturelong-termprofits.

Bymakingourforecastingexplicit,ithelpsusappreciatetheimportanceofunderstandingrisk–theriskofgettingtheforecastwrongandasaconsequencegettingareturnsignificantlydifferentfromtheinitialexpectation.Ormoresimply,buyingastockthatonethoughtwascheap,onlyforittoturnouttobeexpensive.Howtoapproachthetaskofforecastingfutureprofits,includingtheprobabilityandimpactofforecastingerrors,willbeaddressedindetailinalaterpaper.

Toprofit fromthefindingsof thestudy,ofcourse, requiresmorethan justanappreciationof thestrengthof therelationshipbetween starting valuations and realised returns. In practice few investors have the patience, or are allowed the freedom, toimplementaninvestmentstrategywithafive-yeartimehorizonforassessingresults.Inaworldthattendstobefixatedwithshort-termresults,afundmanagerneedscourageaswellasdisciplinetoputsuchaphilosophyintopractice.Holdingyournerveiseasierwhentheempiricalsupportforyourmethodsandphilosophycanbeunequivocallydemonstratedwithresearch,aswenowknowthemtobe.Weexaminetheseissuesofimplementationintwofurtherstudiesinthisseries.

Conclusion

It isnotnews that the returnyoucanexpect fromowninga security isdeterminedby its futuregrowth inearnings.Thekeydeterminantsofreturnarethesustainablefuturerateofgrowthandthepricethataninvestoriswillingtopayforthatgrowth.Neitheronitsownsayswhetherastockisabargainornot.Itisthetwoincombinationthatmatter.Thatdoesnot,however,stopahugeamountoftimeandeffortintheinvestmentworldbeingdevotedtoanalysinganinvestor’sstyle,andinparticulartoseekingtoclassifythatstyleaseither‘value’or‘growth’.

Whilevalueinvestorsdohaveatendencytofocusonhistoricmeasuressuchasprice/book,price/sales,orprice/earnings,growthinvestorsconcentrateinsteadonfutureprofitsorcash-flowgrowth.Thesearenotmutuallyexclusiveandbothapproachesarecentraltothetaskofvaluingastock.Thekeyistodevelopasimplecoherentapproachthatdetermineshowmuchoneshouldbewillingtopayforfuturegrowthandtobeconfidenttostepbackfromownershipifthepriceistoohigh.

Theempiricalevidencesupportsboththeacademicliteratureandwhatcommonsensewoulddictate.Namely,thestockmarketwilleventuallyvalueabusinessbaseduponboththequantumandthegrowthinitslong-termprofitstream.Judgingthisprofitstreamrequirestakingaccountofthedurationandimpactoftheeconomiccycle.Researchanalysisisthereforeaboutseekingtousetheopportunitiescreatedbyshort-termvolatilitytoidentifyandinvestincompaniesatasubstantialdiscounttothevaluationimpliedbytheirlong-termprofitspotential.Fundmanagementisaboutrecognisingtheindividualandcollectiverisksininvestmentsandtryingtobalancetheriskrewardprofileoftheindividualinvestmentstobalancetheserisks.

Whilstthisisnotasimpletask,itisanunavoidableone.Assuch,thecriticalelementsincludemaximisingtheprobabilityofachievingaccurate forecast scenarios by having a team of experienced analysts. It involves minimising errors by employing a robust and transparentinvestmentprocess.Finally,asmarketsrepeatedlydemonstrate,itrequiresholdingontothecourageofyourconvictionswhensharepricesmovetoinappropriatelevelsforextendedperiods.

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Value and growth are both misleading terms.

About the Author

Dr Sandy Nairn, Investment Partner and Chief Executive researches global telecommunications and manages several client portfolios, includingEdinburghPartnersGlobalOpportunitiesFund.HeisamemberoftheBoardofDirectorsandoneofthefoundersofEdinburghPartners.HewasCIOofScottishWidowsInvestmentPartnership(2000-2003).AtTempletonInvestmentManagementhewasExecutiveVicePresidentandDirectorofGlobalEquityResearch(1990-2000).HeisanAssociateoftheUKSocietyofInvestmentProfessionalsandaCFAcharterholderwithAIMRintheUnitedStates.Hehaswonmultipleperformanceawardsforthemanagementofglobalequityportfolios.In2001hepublishedthebook“EnginesthatMoveMarkets:TechnologyInvestingfromRailroadstotheInternetandBeyond”.Healsoco-authoredthebook“Templeton’sWayWithMoney”withJonathanDavisofIndependentInvestorLLP,publishedin2012.

About Edinburgh Partners

EdinburghPartners isan independent fundmanagementcompanywhich ismajority-ownedby itsstaff.Weinvestgloballywithanemphasisonabsolutereturnsoveralong-termtimehorizon.Ourgoal istoprovideclientswithsuperiorlong-termreturns. Webelievethecreationofvalueforourclientsdependsuponthequalityandexperienceofourinvestmentteam.Combiningahigh-qualityteamwiththeabilitytotakealong-termviewprovidesthebasisforcreatingsuperiorreturnsforclients.

Contact Information

EdinburghPartnersLimited27-31MelvilleStreetEdinburghEH37JFTelephone:01312703800Facsimile:01312703801Website:www.edinburghpartners.com

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This document does not constitute or form part of, and should not be construed as, a recommendation, offer, invitation or inducement to purchase or subscribe for securities mentioned herein. The information and opinions contained in this document are subject to change without notice.

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The information contained in this document has been compiled by Edinburgh Partners from various sources and has not been independently No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. The information set out herein may be subject to updating, completion, revision, and amendment and such information may change materially.

Past performance is not a guide to the future and the value of investments and the income from them can go down as well as up. Investors may not get back the amount originally invested. Exchange rates can also cause the value of underlying overseas investments to go down as well as up.

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