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Opportunities in Global Emerging
Markets
Charlemagne Capital
Julian Mayo, Director of Investments
February 24, 2005
Global Emerging Markets Fund
Inception Date:
February 24, 2005
Investment Objective:
The fund seeks long-term growth
of capital by investing in global
emerging markets.
General Account:
$5,000 minimum
IRA Account:
No Minimum
Business Account:
$5,000 minimum
Trust Account:
$5,000 minimum
UGMA/UTMA:
$1,000 minimum
ABC Investment Plan:
$1,000 minimum w/$100 minimum
per month
Expense Ratio:
Capped at 2.0%
Charlemagne Capital
Specialists in Emerging Markets
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The Subadviser
Charlemagne Capital
The Subadviser: Charlemagne Capital

Independent emerging markets investment management
group

Entrepreneurial, with significant institutional backing

Funds under management approx. $2.0 billion*

Strong debt-free balance sheet

Subadviser to US Global Investors Accolade Eastern Europe
Fund (ticker: EUROX) – “12-month
winner”, Wall
Street Journal Best Performing Mutual Fund,
as well as the US Global Investors Global Emerging Markets
Fund
*as at 31 Dec 2004
Charlemagne Capital
Specialists in Emerging Markets
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The Subadviser : Charlemagne Capital
Assets under management US$ m
US$
2016
2000
1500
940
1000
500
446
334
0
2001
2002
2003
2004
Dynamic growth: all in emerging markets
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne Capital
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The Subadviser : Charlemagne Capital
Charlemagne Capital
Institutional mandates
$ 1019m
Long only funds
$ 626m
Hedge funds
$ 154m
Private equity
$ 217m
Segregated accounts
Magna range /
Offshore funds
OCCO range
Private equity
portfolios
Diversified institutional client base
Charlemagne Capital
Specialists in Emerging Markets
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The Subadviser : Charlemagne Capital
Investment team
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Charlemagne Capital
Specialists in Emerging Markets
High quality, dedicated professionals
Significant emerging market experience
Alignment of interest with investors
Blue chip, institutional backgrounds
Strong internal performance driven culture
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Investment Process
Exploit inefficiencies in emerging markets
via a disciplined bottom-up process
+
focused, low risk portfolios
=
consistent returns
low volatility
Charlemagne Capital
Specialists in Emerging Markets
The goal
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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!
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process
OCCO Eastern European Fund
Investment Process
Clear Ownership Structure - Cover (4 Eyes Principle)
Stefan Böttcher
Andrew Wiles
Julian Mayo
Lead Manager
Manager
Manager
EMEA
Asia
10 years experience
20 years experience
17 years experience
Yvonne Yeoh
Samir Patel
Stefan Herz
Manager
Manager
Head of Research
Asia
Latam
EMEA / Latam
10 years experience
9 years experience
13 years experience
James Hanson
Risk Manager
11 years experience
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process
 Listed companies
Emerging Markets Universe
 80% of market cap
 Best opportunities
 Special situation
Charlemagne Capital Universe
 Detailed analysis
 Quarterly management meetings
 Propriety database
Focus Stock List
Macro Overlay
Portfolio
 Risk management
 Low volatility
 High tracking error
Structured, consistent process
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process: Qualitative Checklist
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
Checklist
What it means
Focus stock list
Disciplined bottom-up research
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process: Company Research
Focus stock list: Detailed corporate database
Forecast periods
Short term cyclical
Normalised / Sustainable
Valuation analysis
Rigorous stock analysis
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process: Valuation Analysis
Relative value
Absolute value
Traditional ratio analysis
DCF / DDM
vs. Sector
Sum of the parts
vs. Market
Price target
Price-driven valuation analysis
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process
Currency risk
Political risk
Risk: Significant valuation shift
Avoid
Macroeconomic risk overlay
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process: Special Situations
Private Equity
Corporate
Events
Local Offices
Local Contacts
Special situations qualitative screening by fund managers
Company visit by fund manager
Risk adjusted return target
Portfolio
(Max. 25% of NAV)
Delivering alpha
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process - Portfolio Construction

Country, sector and cash limits determined by a maximum
tracking error of 15%

Special situations + illiquid stocks maximum 25% of NAV

Stock positions:
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

Core:
Max:
Min:
3%
9%
1%
Large positions: indication of conviction
Focused, concentrated portfolios managed within risk limits
Charlemagne Capital
Specialists in Emerging Markets
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Investment Process
Risk management

Administrative risk
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Market risk
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‘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

Charlemagne Capital
Specialists in Emerging Markets
Markets must meet criteria such as security of
ownership, currency convertibility, custody, taxation,
liquidity
Informed management of risk
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Investment Process
Sell discipline

Sell triggers:

Price change
Change of fundamental assessment
Superior alternative investment opportunity
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Instant implementation
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Charlemagne Capital
Specialists in Emerging Markets
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Investment Process: Best Team Ideas
The strategy: example OTP
Hungary Gross Loans/ GDP 2002
120%
100%
OTP: well placed for convergence
Banking sector penetration will increase
towards EU levels as interest rates decline
80%

OTP is the market leader in all products
40%

Expect a further $2bn in mortgage loans to
be added over the next couple of years

60%
20%
0%
Hungary
OTP: Market Share (2003)
European Union
OTP
80%
60%
P/E ’04E
40%
20%
0%
Deposits
Charlemagne Capital
Specialists in Emerging Markets
Retail
Lending
Mortgages
Earnings
growth ’04E
OTP
9.5
20%
EU retail banks avg
10.6
10%
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Source: Charlemagne Capital / Brunswick UBS Warburg / Merrill Lynch OTP / IMF
Investment Process: Best Team Ideas
The strategy: example Dongkuk Steel

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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
Korean Shipbuilding Backlog
18
16
3 ½ yrs backlog
14
m tonnes
12
10
8
6
2004
4
Dongkuk
POSCO
Global
average
1.9x
3.0x
5.8x
2
EV/EBITDA
0
1998
1999
Charlemagne Capital
Specialists in Emerging Markets
2000
2001
2002
2003
Source: Charlemagne Capital
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Investment Process: Best Team Ideas
The strategy: example URBI
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Charlemagne Capital
Specialists in Emerging Markets
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
Source: Charlemagne Capital
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Investment Process
Summary
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Charlemagne Capital
Specialists in Emerging Markets
Fundamental bottom-up approach
Lean decision making
Disciplined portfolio construction
Rigid sell discipline
Informed risk management
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Investment Case
Global Emerging Markets
 Politics: better economic management
 Economics
 Valuations
Investment Case: Global Emerging Markets
1600
Cum Chg in Gross External Debt
Cum Chg in International Reserves
1400
Cum Chg in Short Term Debt
U$bn
1200
1000
800
600
400
200
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04E 05E
International reserves now exceed external debt
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
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Investment Case: Global Emerging Markets
4.0%
110.0
3.0%
105.0
100.0
2.0%
95.0
1.0%
90.0
0.0%
85.0
-1.0%
80.0
-2.0%
75.0
-3.0%
70.0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Current Account + FDI % GDP
Current Account % GDP
REER (rhs)
Exchange rates seem undervalued
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
27
Investment Case: Global Emerging Markets
14.0
12.0
GEMs vs Developed mkt cap weighted sovereign yields
10.0
8.0
6.0
4.0
2.0
0.0
Jan-98
Jan-99
Jan-00
Jan-01
EM Market Cap Weighted Bond Yield
Jan-02
Jan-03
Jan-04
US 10 Year T-Bill Yield
Spreads narrowed but still room to fall
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
28
Investment Case: Global Emerging Markets
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
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
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Investment Case: Global Emerging Markets
Current account + FDI: surpluses across the board
250.0
EMEA
LatAm
Asia ex China
China
GEM
200.0
$bn
150.0
100.0
50.0
0.0
-50.0
E
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
E
Sound fundamentals
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
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Investment Case: Global Emerging Markets
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GEMs vs global 12 month forward consensus P/Es
25
20
15
10
5
0
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
Cheap relative to world
Charlemagne Capital
Specialists in Emerging Markets
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Source: UBS
Investment Case: Global Emerging Markets
15%
GEMs: Earnings yield gap
Earnings Yield Gap
Bond Yield
Earnings Yield
10%
Yield
5%
0%
-5%
-10%
Jan 99
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04
Equities more attractive than bonds
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne
32
Investment Case: Global Emerging Markets
GEMs vs Developed P/BV
GEM P/BV
4.5
4.0
3.5
World P/BV
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1989
1991
1993
1995
1997
1999
2001
2003
Equities look cheap on price to book
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
33
Investment Case: Global Emerging Markets
Standard deviation of country vs sector
60%
50%
countries
40%
30%
20%
sectors
10%
0%
Jan 96
Jan 97
Jan 98
Jan 99
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04
Country and sector volatility falls – stock selection counts!
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
34
Investment Case: Global Emerging Markets
Stock selection matters – yearly performance 2003
Top 5
Worst 5
+188%
200%
150%
100%
50%
0%
-13%
Charlemagne Capital
Specialists in Emerging Markets
Te
l.
SK
in
Ba
Te
nk
le
fo
no
s
M
ex
ic
o
Ko
ok
m
Yu
ko
s
Sa
so
l
Pe
tro
br
as
PN
Pe
tro
br
as
O
N
Am
er
ica
M
ov
il
ia
nc
e
Re
l
Pe
tro
ch
in
a
-50%
* Top and bottom performance out of largest 25 GEMs stocks by market
capitalisation
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Investment Case: Global Emerging Markets
P/E
P/BV
EV/EBITDA
05E
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
4.9x
US
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%
Charlemagne Capital
Specialists in Emerging Markets
Source: UBS
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Model Portfolio
Global Emerging Markets
Model Portfolio
Geographic allocation
Geographic Allocation: Top 5 overweights
Magna GEMs
MSCI EM Free Total Net Return Index
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Other
Colombia
Russia
Thailand
Hungary
Actively managed portfolios
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne Capital / Bloomberg – 31 Dec 2004
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Model Portfolio
Geographic allocation
Sector Allocation: Top 5 Underweights
Magna GEMs
MSCI EM Free Total Net Return Index
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Indonesia
China
Turkey
Taiwan
Malaysia
Actively managed portfolios
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne Capital / Bloomberg – 31 Dec 2004
39
Model Portfolio
Sector allocation
Overweight
Financials
Sector Allocation - Top 5 Overweights
Magna GEMs
MSCI EM Free Total Net Return Index
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Energy
Banks
Insurance
Property
Telecoms
Actively managed portfolios
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne Capital / MSCI – 31 Dec 04
40
Model Portfolio
Sector allocation
Underweight
Sector Allocation - Top 5 Underweights
Magna GEMs
14.00%
Materials
MSCI EM Free Total Net Return Index
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Materials
Food &
Beverage
Capital Goods
Transportation
IT
Actively managed portfolios
Charlemagne Capital
Specialists in Emerging Markets
Source: Charlemagne Capital / MSCI – 31 Dec 04
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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.
Charlemagne Capital
Specialists in Emerging Markets
42
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) 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
[email protected]
Charlemagne Capital
Specialists in Emerging Markets
43