emerging markets 04242007

Managing Risk in Emerging Markets : 

Managing Risk in Emerging Markets Julian Mayo Investment Director Charlemagne Capital (UK) Ltd April 2007

Agenda: 

Agenda What is risk? How Charlemagne Capital manages risk Fundamentals in emerging markets

What is risk?: 

What is risk? Risk is relative (verses benchmark) and absolute (volatility) Volatility creates opportunity As prices move, stocks may become more attractive or reach target prices Defining risk

Risk factors: 

Risk factors Diversification Concentrating on best ideas Liquidity Important part of the process Volatility Emerging markets are long term investments – volatility is part of the analysis Currency Emerging currencies have strengthened against the US$ Multifactor approach to risk

Risk factors: 

Risk factors Political Democracy is spreading Electorates, and therefore leaders, are driven by self-interest, even in illiberal countries Accounting/disclosure/regulatory US GAAP v IFRS v local standards Local market regulations based on global best practices Problems often larger in mature markets Sector concentration Commodities, financials – but look at the UK! Turnover risk We focus on ‘best ideas’. Turnover therefore depends on movements of the underlying stocks; and idea generation Analysing risk factors

Accounting standards: 

Accounting standards Use of IFRS as primary GAAP Russia: starting adoption from 2006 Compulsory for Poland, Hungary, Czech and Turkey HK listed China stocks Brazil: starting 2010 for banks Varies in other emerging markets Increased harmonisation of standards

Risk management at Charlemagne Capital: 

Risk management at Charlemagne Capital Fully integrated risk process Match risk to skill Manage risk towards our strengths: Stock risk, not country or sector risks Controlling unintended risk: Style, F/X Ensuring compliance with risk guidelines: Diversification, marginal contribution to risk

Risk management at Charlemagne Capital: 

Risk management at Charlemagne Capital Portfolio optimisation: continuous risk analysis Understanding sources of risk Allocation of risk budget Research idea Position size Portfolio risk characteristics Predicted volatility Tracking error Risk manager continuously and actively monitors the entire process Risk manager recommends change if risk characteristics are out of line

Strong external balance: 

Strong external balance Source: UBS December 2006 Build up of foreign reserves Reserves – sign of economic strength

Emerging Markets - Superior Growth: 

Emerging Markets - Superior Growth Source: UBS 16 April 2006 Growth creates opportunity

Emerging Markets - Strong Currencies: 

Emerging Markets - Strong Currencies Source: UBS 16 April 2006 Currency risks? Or opportunities?

Emerging Markets - Falling Inflation: 

Emerging Markets - Falling Inflation Source: UBS 16 April 2006 Improving fundamentals

Emerging Markets - Strong External Balances: 

Emerging Markets - Strong External Balances Source: UBS 16 April 2006 Surpluses – sign of strength

Valuations still attractive: 

Valuations still attractive * Price index shown is MSCI Emerging Markets Source: UBS February 2007 The case for emerging markets remains strong Markets driven by earnings, not PER expansion

Conclusion: 

Conclusion Risks create opportunities Informed management of risk Emerging markets – the long term case remains Risk of not being diversified

Eastern European Fund: 

Eastern European Fund *Gross expense ratio as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any fees described in the fund's prospectus (e.g. short-term trading fees) which, if applicable, would lower your total returns. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS, option 5. Please keep in mind that high double-digit and triple-digit returns are highly unusual and cannot be sustained. Recent returns were achieved during favorable market conditions, especially within the emerging markets sector.

Global Emerging Markets Fund: 

Global Emerging Markets Fund *Gross expense ratio as stated in the most recent prospectus. The Adviser has contractually limited total fund operating expenses to not exceed 2.50% for the Global Emerging Markets Fund on an annualized basis through February 28, 2008, and until such later date as the Adviser determines. Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any fees described in the fund's prospectus (e.g. short-term trading fees) which, if applicable, would lower your total returns. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS, option 5. Please keep in mind that high double-digit and triple-digit returns are highly unusual and cannot be sustained. Recent returns were achieved during favorable market conditions, especially within the emerging markets sector.

Volatility—Standard Deviation (as of 3/31/07) based on 5-Year Data : 

Volatility—Standard Deviation (as of 3/31/07) based on 5-Year Data

Disclosure: 

Disclosure For more complete information about the Eastern European Fund (EUROX) and Global Emerging Markets Fund (GEMFX) or any U.S. Global fund, including charges and expenses, obtain a fund prospectus by visiting us at www.usfunds.com or call 1-800-US-FUNDS (1-800-873-8637). Please consider carefully the fund’s investment objectives, risks, charges and expenses. Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc. All opinions and estimates in this report constitutes U.S. Global Investors’ judgment as of the date of this report and are subject to change without notice and provided in good faith, fairness and reasonableness but without legal responsibility. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Diversification does not protect an investor from market risks and does not assure a profit. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Morningstar Principia is an investment advisory and consulting resource that ranks mutual funds and other investment products using ranking metrics.  It ranks funds among distinct portfolios and excludes index funds.  Morningstar rankings are not intended to predict future results.  More information is available at www.morningstar.com.

The Disclaimer: 

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 Financial Regulator as a UCITS, recognised by the FSA under section 264 of the Financial Services and Markets Act 2000 for marketing to persons in the UK, registered for public distribution in Germany and Luxembourg, authorised for public distribution in Austria, registered by the Autoriteit Financiële Markten in The Netherlands , authorised for public offering and solicitation in and from Switzerland by the Swiss Federal Banking Commission (the Fund is not subject to supervisions by the Swiss Federal Banking Commission or other Swiss public authority) and has notified Finanstilsynet (the Danish Financial Supervisory Authority) of its intention to market its shares in Denmark.  This document must not be relied on for the purposes of making any investment decisions.  Before investing in any fund(s) recipients who are not professional investors should contact their independent financial adviser and should read all documents relating to the particular fund(s) such as any report and accounts and offering memorandum/prospectus, which specifies 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 fund’s prospectus/ offering memorandum which can be obtained from the address below. An investor in the United Kingdom 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 or completeness.  The information and any opinions expressed herein may change at any time.  This document and shares in the fund shall not be distributed, offered or sold in any jurisdiction in which such distribution, offer or sale would be unlawful and until the requirements of such jurisdiction have been satisfied.  The purchase of shares in the fund constitutes a high risk investment and investors may lose a substantial portion or even all of the money they invest in the fund. Issued by Charlemagne Capital (UK) Limited - Authorised and Regulated by the FSA. Charlemagne Capital (UK) Limited 39 St. James‘s Street London SW1A 1JD United Kingdom Tel: + 44 (0)20 7518 2100 Fax: + 44 (0)20 7518 2198/9 www.charlemagnecapital.com marketing@charlemagnecapital.com