Opportunities in Global Emerging Markets Charlemagne Capital

Opportunities in Global Emerging MarketsCharlemagne CapitalJulian Mayo, Director of Investments

February 24, 2005

2Charlemagne CapitalSpecialists in Emerging Markets

Global Emerging Markets Fund

Inception Date: February 24, 2005Investment Objective: The fund seeks long-term growth

of capital by investing in global emerging markets. General Account: $5,000 minimumIRA Account: No MinimumBusiness Account: $5,000 minimumTrust Account: $5,000 minimumUGMA/UTMA: $1,000 minimumABC Investment Plan: $1,000 minimum w/$100

minimum per monthExpense Ratio: Capped at 2.0%

The SubadviserCharlemagne Capital


The Subadviser: Charlemagne Capital

Independent emerging markets investment management group

Entrepreneurial, with significant institutional backing

Funds under management approx. $2.0 billion*

Strong debt-free balance sheet

Subadviser to US Global Investors Accolade Eastern Europe Fund (ticker: EUROX) – “12-month winner”, Wall Street Journal Best Performing Mutual Fund, as well as the US Global Investors Global Emerging Markets Fund

*as at 31 Dec 2004


The Subadviser : Charlemagne Capital Assets under management US$ m

Source: Charlemagne Capital

334446

940

2016

0

500

1000

1500

2000

2001 2002 2003 2004

US$

Dynamic growth: all in emerging markets


The Subadviser : Charlemagne Capital

Charlemagne Capital

Hedge funds$ 154m

Institutional mandates$ 1019m

Private equity$ 217m

OCCO rangeSegregated accounts Private equity portfolios

Long only funds$ 626m

Magna range / Offshore funds

Diversified institutional client base


The Subadviser : Charlemagne Capital Investment team

High quality, dedicated professionals Significant emerging market experience Alignment of interest with investors Blue chip, institutional backgrounds Strong internal performance driven culture


Investment Process

Exploit inefficiencies in emerging markets

via a disciplined bottom-up process

focused, low risk portfolios

consistent returns

low volatility

+

=The goal


Investing in Emerging Markets

The Investment Process: How we invest in emerging markets

The Investment Case: Global emerging markets

Did you know:

Over 80% of people in the world live in emerging markets!

Only 10% of Indians have even seen a telephone!

Investment Process


Investment Process

OCCO Eastern European Fund

Stefan Böttcher

Lead Manager

17 years experience

Yvonne Yeoh

Manager

Asia

10 years experience

Julian Mayo

Manager

Asia

20 years experience

Andrew Wiles

Manager

EMEA

10 years experience

Samir Patel

Manager

Latam

9 years experience

Stefan Herz

Head of Research

EMEA / Latam

13 years experience

James Hanson

Risk Manager

11 years experience

Clear Ownership Structure - Cover (4 Eyes Principle)


Investment Process

Listed companies

80% of market cap Best opportunities Special situation

Detailed analysis Quarterly management meetings Propriety database

Risk management

Low volatility High tracking error

Macro Overlay

Focus Stock List

Charlemagne Capital Universe

Portfolio

Emerging Markets Universe

Structured, consistent process


Check List What it means

Management quality

Corporate governance, track record, strategy, shareholder value focus

Top line growth Market leadership, innovative products

Earnings growth/quality

Lean cost management, consistent operating earnings growth

CF-generation Sufficient internally generated CF

Balance sheet strength

Easy access to finance, low solvency risk

Investment Process: Qualitative Checklist

Focus stock list

Checklist What it means

Disciplined bottom-up research


Investment Process: Company Research

Forecast periods

Short term cyclical

Normalised / Sustainable

Valuation analysis

Focus stock list: Detailed corporate database

Rigorous stock analysis


Investment Process: Valuation Analysis

Absolute value

DCF / DDM

Sum of the parts

Relative value

Traditional ratio analysis

vs. Sector

vs. Market

Price target

Price-driven valuation analysis


Investment Process

Political risk Currency risk

Risk: Significant valuation shift

Avoid

Macroeconomic risk overlay


Investment Process: Special Situations

Local Offices Corporate Events Local ContactsPrivate Equity

Special situations qualitative screening by fund managers

Company visit by fund manager

Risk adjusted return target

Portfolio(Max. 25% of NAV)

Delivering alpha


Country, sector and cash limits determined by a maximum tracking error of 15%

Special situations + illiquid stocks maximum 25% of NAV

Stock positions: Core: 3% Max: 9% Min: 1%

Large positions: indication of conviction

Investment Process - Portfolio Construction

Focused, concentrated portfolios managed within risk limits


Administrative risk Markets must meet criteria such as security of ownership,

currency convertibility, custody, taxation, liquidity

Market risk ‘Four-eyes’ principle – each decision is seconded Constant price screening by dedicated dealer Weekly stock/sector review meetings Monthly macroeconomic reviews Quarterly company visits

Portfolio risk Informed management of risk

Risk management

Investment Process


Sell triggers: Price change Change of fundamental assessment Superior alternative investment opportunity

Instant implementation

Investment ProcessSell discipline


OTP: well placed for convergence Banking sector penetration will increase

towards EU levels as interest rates decline OTP is the market leader in all products Expect a further $2bn in mortgage loans to

be added over the next couple of years

Investment Process: Best Team Ideas

P/E ’04E Earnings growth ’04E

OTP 9.5 20%

EU retail banks avg 10.6 10%

Source: Charlemagne Capital / Brunswick UBS Warburg / Merrill Lynch OTP / IMF

0%20%40%60%80%

Deposits RetailLending

Mortgages

OTP

0%

20%

40%

60%

80%

100%

120%

Hungary European Union

Hungary Gross Loans/ GDP 2002

The strategy: example OTP

OTP: Market Share (2003)


0

2

4

6

8

10

12

14

16

18

1998 1999 2000 2001 2002 2003

m to

nnes

Korean Shipbuilding Backlog

Korean steel mill, dominant domestic steel plate producer Strong core product demand from shipbuilding and construction Management addressing corporate governance discount Stock trading at 3x2004 earnings, 5% dividend yield

Investment Process: Best Team Ideas


2004 Dongkuk POSCO Global average

EV/EBITDA 1.9x 3.0x 5.8x

3 ½ yrs backlog

The strategy: example Dongkuk Steel


Leading Mexican home builder Large and growing housing deficit in Mexico Management enhancing margins through better working capital

and better revenue mix Strong cash flow generation due to low capex Valuations justified by its better growth prospects

Forecasts 2004 2005

P / E 13.9 11.5

EV / EBITDA 7.7 6.9

Investment Process: Best Team IdeasThe strategy: example URBI



Summary

Fundamental bottom-up approach Lean decision making Disciplined portfolio construction Rigid sell discipline Informed risk management

Investment Process

Investment CaseGlobal Emerging Markets

Politics: better economic management

Economics

Valuations


Investment Case: Global Emerging Markets

Source: UBS

International reserves now exceed external debt

0

200

400

600

800

1000

1200

1400

1600

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04E 05E

U$bn

Cum Chg in Gross External Debt

Cum Chg in International Reserves

Cum Chg in Short Term Debt


-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

Current Account + FDI % GDP Current Account % GDP REER (rhs)

Source: UBS


Exchange rates seem undervalued


GEMs vs Developed mkt cap weighted sovereign yields

Source: UBS


Spreads narrowed but still room to fall

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

EM Market Cap Weighted Bond Yield US 10 Year T-Bill Yield


Source: UBS


Real GDP Growth Current Account (% GDP)

04E 05E 04E 05E

Latin Average 4.6 3.9 0.3 -0.4

EMEA Ave. 5.7 4.7 0.8 -0.8

Asian Average 7.4 6.2 2.6 3.0

GEM 6.4 5.3 1.6 1.3

High GDP Growth

30Charlemagne CapitalSpecialists in Emerging Markets Source: UBS


Sound fundamentals

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

$bn

EMEA LatAm Asia ex China China GEM

E E

Current account + FDI: surpluses across the board

31Charlemagne CapitalSpecialists in Emerging Markets Source: UBS


Cheap relative to world

GEMs vs global 12 month forward consensus P/Es

0

5

10

15

20

25

30

Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

MSCI EMF 12 month forward P/E MSCI World 12 month forward P/E


Investment Case: Global Emerging MarketsGEMs: Earnings yield gap

Source: Charlemagne

Equities more attractive than bonds

-10%

-5%

0%

5%

10%

15%

Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04

Yiel

d

Earnings Yield Gap Bond Yield Earnings Yield



Equities look cheap on price to bookSource: UBS

0.00.51.01.52.0

2.53.03.54.04.5

1989 1991 1993 1995 1997 1999 2001 2003

GEM P/BV

World P/BV

GEMs vs Developed P/BV



Source: UBSCountry and sector volatility falls – stock selection counts!

0%

10%

20%

30%

40%

50%

60%

Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04

sectors

countries

Standard deviation of country vs sector


* Top and bottom performance out of largest 25 GEMs stocks by market capitalisation

Investment Case: Global Emerging MarketsStock selection matters – yearly performance 2003

Top 5 Worst 5

-50%

0%

50%

100%

150%

200%

Petroc

hina

Relianc

e

Petrob

ras P

N

Petrob

ras O

N

America

Mov

il

Sasol

Yukos

Kookm

in Ban

k

Telefon

os Mex

ico

SK Tel.

+188%

-13%



P/E P/BV EV/EBITDA05E 06E 05E 06E 05E 06E

Latin America 9.2x 8.4x 1.8x 1.6x 4.8x 4.5x

EMEA 9.4x 9.5x 1.51x 1.36x 5.0x 4.8x

Asia 10.1x 9.6x 1.68x 1.50x 5.5x 5.1x

GEM 9.7x 9.3x 1.65x 1.47x 5.2x 4.9xUS 16.7x 15.5x 2.66x 2.58x 9.1x 8.7x

Global 14.4x 13.2x 2.08x 1.89x 7.5x 7.2x

GEM discount

-32.4% -29.4% -20.6% -22.0% -30.8% -32.4%

Source: UBS

Model PortfolioGlobal Emerging Markets


Source: Charlemagne Capital / Bloomberg – 31 Dec 2004

Model PortfolioGeographic allocation

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Other Colombia Russia Thailand Hungary

Magna GEMs MSCI EM Free Total Net Return Index

Geographic Allocation: Top 5 overweights

Actively managed portfolios


Source: Charlemagne Capital / Bloomberg – 31 Dec 2004

Model PortfolioGeographic allocation

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Indonesia China Turkey Taiwan Malaysia


Sector Allocation: Top 5 Underweights



0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Energy Banks Insurance Property Telecoms


Sector Allocation - Top 5 Overweights

Source: Charlemagne Capital / MSCI – 31 Dec 04

Model PortfolioSector allocation

Overweight

Financials



0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Materials Food &Beverage

Capital Goods Transportation IT


Sector Allocation - Top 5 Underweights

Source: Charlemagne Capital / MSCI – 31 Dec 04

Model PortfolioSector allocation

Underweight

Materials



Thank You!For more complete information about the

Global Emerging Markets Fund and/or Eastern European Fund (EUROX)

or any U.S. Global fund, obtain a prospectus by visiting us at www.usfunds.com or call 1-800-US-FUNDS. Please consider carefully the fund’s investment objectives, risks, charges

and expenses, and read the prospectus carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. This article should not be considered a recommendation for the securities of any company mentioned.

Holdings as a percentage of net assets as of 12/31/04:

Eastern European Fund: OTP Bank Rt. (8.34%)

Although mentioned none of the following companies are held in the Eastern European Fund as of 12/31/04: America Movil, Dongkuk Steel, Kookmin Bank, Petrochina, Petrobras, Posco, Reliance, Sasol, SK Telecom, Telefonos Mexico, URBI and Yukos.

The MSCI EM Free Total Net Return Index measures the market performance, including price performance and income from dividend payments.

http://www.usfunds.com/


The Disclaimer

This document is issued by Charlemagne Capital (UK) Limited which is authorised and regulated by the Financial Services Authority (“FSA”). 'Magna Umbrella Fund plc is an open ended investment company authorised by the Irish Financial Services Regulatory Authority as a UCITS. It is recognised by the FSA under section 264 of the Financial Services and Markets Act 2000 for marketing to persons in the UK. This document must not be relied on for purposes of any investment decisions. Before investing in any fund(s) recipients who are not professional investors should contact their independent financial adviser and all documents relating to the particular fund(s) such as report and accounts and offering memorandum/prospectus should be read, which specify the particular risks associated with the fund(s), together with any specific restrictions applying and the basis of dealing. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. The information in this document does not constitute investment, tax, legal or other advice and is not a recommendation or, an offer to sell nor a solicitation of an offer to buy shares in the fund(s), which may only be made on the basis of the Prospectus/Fund’s Offering Memorandum which can be obtained from the address below. A United Kingdom investor who enters into an Investment Agreement to acquire an interest in the fund will not have the right to cancel the agreement under any cancellation rules made by the FSA. Charlemagne Capital (UK) Limited reasonably believes that the information contained herein is accurate as at the date of publication but no warranty or guarantee (express or implied) is given as to accuracy. The information and any opinions expressed herein may change at any time.

Issued by Charlemagne Capital (UK) Limited - Authorised and Regulated by the FSA.

Charlemagne Capital (UK) Limited39 St. James‘s StreetLondon SW1A 1JDUnited KingdomTel: + 44 (0)20 7518 2100Fax: + 44 (0)20 7518 2198/[email protected]

http://www.charlemagnecapital.com/

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Opportunities in Global Emerging Markets Charlemagne Capital