Transcript Presentation title here in Arial 32pt

Schroder International Selection Fund*
Global Energy
John Coyle
Fund Manager / Equity Analyst
May 2008
For professional advisers only. Not suitable for retail clients.
* Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation
Schroder global energy research
Seven specialists with >70 years of investment experience
London:
John Coyle (13)
Ben Stanton (6)
Tom Wilson (6)
Tokyo:
Junichi Minami (8)
New York:
Joanna Shatney (12)
Singapore:
Chalit Masoodi (16)
Sao Paolo:
Dan Kwiatowski (10)
Team manages and advises on a total of over USD 21 billion of energy investments worldwide
Source: Schroders January 2008
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Why invest in energy?
Too much demand, not enough supply
OPEC spare capacity
Global refining capacity
The long-term supply challenge
Kbbl/d
MBDOE
200
Spare OPEC capacity mbbl/d
Spare OPEC capacity mbbl/d
% World oil demand
9
9
90000
8
8
80000
7
7
70000
6
6
60000
5
5
50000
4
4
40000
3
3
30000
2
2
20000
1
1
10000
0
0
0
World oil and gas demand
150
Required new
production
100
99
01
03
Spare capacity
05
07E
09E
50
65
As % world demand, rhs
70
75
80
85
World refining capacity
Source: BP Statistical Review 2007, Exxon Outlook to 2030, Schroders estimates
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90
95
00
World oil demand
05
Existing producing fields
Decline 4-6% per year
0
1980
1990
2000
2010
2020
2030
Why invest in energy?
Resource nationalism rising
Alaskan State Government
implements progressive oil
taxation at higher prices
Corporate Tax raised from
30% to 50% since Labour
came to power
Arctic exploration banned off
Lofoten Islands
65% export tax above $35/bl in addition to Mineral
Extraction Tax and Income Tax. West Siberian assets of
Yukos seized by state. Sibneft taken by Gazprom. Russneft
assets in question. Total’s Vankor project lost to Rosneft.
Imperial’s licences under investigation
BP Kovytka licence seized
by state
Alberta has made
significant changes to
royalty rates
Chavez increases royalty
tax from 1% to 35%, raises
corporate income tax from
35% to 50% and forces all
operators to cede 50%
control to PDVSA.. Further
windfall tax >$70/bl
Morales government
renationalises all hydrocarbon
licences in Bolivia
Shell Sakhalin Project
renationalised, Exxon
project under review
Algeria windfall tax
above $30/bl
implemented
Kazakhstan changes
contractual terms on Kashagan
Nigeria proposes increased Petroleum
Profits Tax from 50% to 80%. Local
delta people fighting for increased profit
share
Indian CESS Royalty tax
increasing quickly from
R900/t to R4200/ton
Access increasingly difficult for major international oil companies
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Why invest in energy?
How long do we have…?
Our guess is that this cycle
started ~2002
Forward curve points to
Brent >$100/bl to 2020
This cycle could be longer than
previous cycles - mature
reservoirs, access, China
Investment cycles in energy, USA
Brent oil futures curve
Log Capital Stock
$/bl
Log Energy Investment
13.50
11.5
13.25
11.0
13.00
10.5
12.75
10.0
12.50
9.5
12.25
9.0
12.00
8.5
11.75
8.0
11.50
7.5
11.25
7.0
1901
1909
1917
1925
1933
1941
1949
1957
1965
1973
1981
1989
1997
2005
Previous investment cycles
have lasted 15, 13 and 10
years respectively
Log (Real Stock)
Log Real investment
Source: Goldman Sachs, Schroders estimates
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120
110
100
90
80
70
60
50
40
30
20
10
0
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Brent $/bl
Portfolio construction
Characteristics/controls
Invests worldwide in
companies connected with
production and provision of
energy
Stock level
Maximum position of 10% of
fund NAV in any single issuer
Sub-sector level
No constraints
No shorting, no leverage
Country level
Not monitored
Principally a product of stock
selection
Unconstrained, targets capital
appreciation in USD
Cash
Max. 30%
For capital protection in down
markets
No direct commodity
exposure
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Investment process
Clear and repeatable process
Stock ideas
Global Energy universe
900+ stocks
Focus list
Approx. 80 stocks
Global Energy Fund
20-30 stocks
Macro/themes
Companies > $200mn market
cap
Detailed long-term financial
models
Over 250 1:1 meetings in 2006
Live valuation data for focus
list
Fair value upside ranked
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“Best ideas”
High conviction portfolio
Fund positioning
What do we own today?
Top 10 positions by load %
Asset allocation by sub-sector
MSCI classification – Load %
+3.1
2. Natco
+3.0
80
3. Suncor
+3.0
60
4. Noble Corp
+3.0
40
5. Venture
+2.9
6. Dana Petroleum
+2.9
0
7. Tanganyika
+2.8
-20
8. Maire Tecnimont
+2.7
-40
9. Ultra
+2.7
-60
10. SBM Offshore
+2.7
23.24
12.25
20
1.1
-0.2
-1.9
-2.8
Load %
Source: Schroders PRISM system, all data as at May 6 2008, based on unaudited data
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Index
Oil & Gas
Refining &
Marketing
Oil & Gas
Exploration &
Production
Oil & Gas
Equipment &
Services
Oil & Gas
Drilling
Integrated Oil
& Gas
Coal &
Consumable
Fuels
-39.7
Fund
Oil & Gas
Storage &
Transportation
1. Niko
Theme 1 - Unconventional resources
Quicksilver Resources – Barnett Shale
Family-owned group, 40%
controlled by Darden family of Fort
Worth
Production profile
Horizontal approach unlocks gas
mmcfed
900
Unconventional gas company
focused on Barnett Shale. Highest
level of acreage per share of any
mid-large cap Barnett operator
ATROR > 100% at base
assumptions, with 2 year payback
on all wells. Forecast volume Δ of
38% p.a. compound 2005-2010 –
cheapest stock we follow
Clear candidate for take-out
800
700
600
500
400
300
200
100
0
2000
2002
2004
USA Liquids
USA Gas (Non-Barnett)
Barnett Shale T2
Source: Company reports, Schroder estimates
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2006F
2008F 2010F
Canada Gas
Barnett Shale T1
Theme 2 – Offshore production
Prosafe - explosive FPSO growth
As oil becomes harder to find,
exploration has had to move into
deeper water
Schematic of floating production
unit
Global FPSO fleet
250
38 FPSO vessels added to fleet
2000-2005
2000
1800
200
IMA forecast 60-90 vessels to be
added over 2006-2010 time period
1600
1400
150
1200
100
1000
Market also consolidating
800
50
Prosafe is leading owner and
operator of Floating Production
Storage Offtake (FPSO) vessels
600
400
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007E
2009E
2012E
0
No.of FPSOs
Avg Exploration Water Depth (m) (RHS)
Source: SBM Offshore, International Maritime Associates, Schroders estimates
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Theme 3 – Global gas market integration
Geopark – key beneficiary
Global oil demand growth to 2015
2% p.a. Global gas demand growth
3% p.a. Global LNG demand
growth 10% p.a.
Geopark earnings growth
Trends in global gas prices
$/mcf
160
$/mcf
2.5
7.0
140
Structural demand growth coming
from USA, China and India
Geopark is a play on LatAm
natural gas prices converging to
world price levels
6.0
2.0
120
5.0
100
1.5
80
60
3.0
1.0
40
2.0
20
Geopark has extensive low-risk gas
assets in Chile and Argentina
4.0
0.5
1.0
0
0.0
-20
2005
2006
2007
2008
2009
Net Income $mn (Schroders Estimates)
0.0
2001
2004
2007
2010
Argentina $/mcf
Australia $/mcf (rhs)
Source: Company reports, Schroder estimates
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2013
Fund performance
Periods to 31 December 2007
Fund transferred to London team in August 2005
Schroder ISF Global Energy performance in USD %
1m
3m
6m
12m
Since transition
August 5th 2005
Schroder ISF Global Energy A Share
+5.8
+11.3
+19.4
+45.6
+76.4
MSCI World Energy
+5.6
+3.7
+9.0
+30.4
+58.9
Blackrock ML Energy
+5.7
+7.3
+18.2
+40.2
+63.1
Investec Guinness
+7.5
+8.9
+12.7
+37.6
+64.1
Clariden Energy
+5.3
+4.0
+8.8
+29.6
+73.5
Credit Suisse Energy
+4.7
+6.1
+14.0
+33.1
+63.8
Schroders rank
7/18
1/18
1/18
1/18
1/16
Source: All numbers taken from Lipper.
Lipper, bid to bid, net income reinvested, USD
Schroders shows this data for illustration only, data is not audited
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Fund performance
Periods to 30 April 2008
Fund transferred to London team in August 2005
Schroder ISF Global Energy performance in USD %
1m
3m
6m
12m
2008 ytd
Since transition
August 5th 2005
Schroder ISF Global Energy A Share
+11.4
+19.6
+15.8
+42.6
+10.1
+94.8
MSCI World Energy
+12.3
+17.6
+4.0
+25.6
+3.6
+62.7
Blackrock Energy
+10.7
+14.7
+2.4
+30.9
+1.3
+65.2
Investec Energy
+14.0
+21.1
+10.2
+34.0
+7.7
+76.6
Clariden Wellington Energy
+11.1
+19.6
+1.7
+27.1
+4.2
+80.8
Credit Suisse Energy
+10.1
+17.2
+3.3
+30.7
+3.9
+70.2
Schroders Rank
9/17
4/17
1/17
1/17
1/17
1/15
Source: All numbers taken from Lipper
Lipper, bid to bid, net income reinvested, USD
Schroders shows this data for illustration only, data is not audited
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Portfolio construction
Key risk metrics
Higher returns for similar risk
and volatility as benchmark
Lower correlation to
benchmark
Active risk and individual stock
contribution monitored on daily
basis
Risk metrics from Schroders Prism Report – May 2008
Schroders ISF Global
Energy Fund
MSCI World Energy
Absolute volatility (Barra)
20.9%
20.5%
Absolute VAR (1 month, 95% interval)
9.8%
9.6%
Top 10 stocks concentration
43%
56%
Beta
0.95
-
Tracking error (Barra)
7.6%
-
Active share %
83.5%
-
Information ratio
1.50
-
Sharpe ratio
1.16
-
Source: Schroders PRISM, Fund Analyser Report May 2008
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Repeatability
Liquidity / volume constraints
Schroder ISF Global Energy
Fund size $mn
2% Fund position
Minimum market cap *$mn
$250mn
$5.0mn
$67mn
$500mn
$10.0mn
$133mn
$750mn
$15.0mn
$200mn
$1000mn
$20.0mn
$267mn
$1250mn
$25.0mn
$333mn
$1500mn
$30.0mn
$400mn
$1750mn
$35.0mn
$467mn
$2000mn
$40.0mn
$533mn
~85% of Energy Fund currently in companies with market cap > $1bn
~2.5% of fund < $250mn market cap
~6.6% of fund < $500mn market cap
*Assumes 75% average free float, maximum 10% of free-float owned - Source: Schroders May 2008
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Fund positioning
Upside to target prices ~44% average (6 May 2008)
Current positions % Upside
1
Stock 1
155%
12
Stock 12
48%
23
Stock 23
19%
2
Stock 2
119%
13
Stock 13
46%
24
Stock 24
19%
3
Stock 3
85%
14
Stock 14
37%
25
Stock 25
17%
4
Stock 4
75%
15
Stock 15
36%
26
Stock 26
16%
5
Stock 5
74%
16
Stock 16
36%
27
Stock 27
16%
6
Stock 6
72%
17
Stock 17
34%
28
Stock 28
15%
7
Stock 7
67%
18
Stock 18
28%
29
Stock 29
7%
8
Stock 8
63%
19
Stock 19
24%
30
9
Stock 9
60%
20
Stock 20
21%
10
Stock 10
54%
21
Stock 21
20%
11
Stock 11
50%
22
Stock 22
20%
Source: Schroders, all positions as at May 6th 2008
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Why invest in Schroder ISF Global Energy?
Structural themes and depth of experience
Energy sector has severe capacity shortages due to lack of investment
Problem will take at least five, possibly ten years to solve
Schroders voted top 3 team in Europe in 2005, 2006 & 2007 Extel surveys
Concentrated fund driven by bottom-up fundamental research
Highly experienced team supported by regional analysts
Target of capital appreciation, not simply relative returns
Opportunity has not gone – ~ 40-45% average upside potential today in fund
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Important information
For professional advisers only. This material is not suitable for retail clients.
This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the “Company”). Nothing in this presentation
should be construed as advice and is therefore not a recommendation to buy or sell shares.
Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if
published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A.
In accordance with the current prospectus, other than for Schroder ISF Global Property Securities, Schroder ISF Asia Pacific Property Securities, Schroder ISF European Defensive and Schroder ISF
Middle East, the Company will seek UK distributor status for all distribution A and C shares and I shares of Schroder ISF Taiwanese Equity.
An investment in the Company entails risks, which are fully described in the prospectus.
Past performance is not a guide to future performance and may not be repeated. Investors may not get back the full amount invested, as prices of shares and the income from them may
fall as well as rise.
The value of Schroder ISF Global Energy Fund may fluctuate more than other funds due to the greater potential volatility of share prices of smaller companies. Small companies may be less liquid
than larger companies and price swings may therefore be greater than in larger company funds.
Third party data is owned by the applicable third party identified above and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create
any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this
presentation can be held liable for any error. The terms of the third party's specific disclaimers are set forth in the Important Information section at www.schroders.lu
The forecasts included in this slide should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change.
We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected
by external economic or other factors.
Exchange rate changes may cause the value of any foreign investments to rise or fall.
Schroders has expressed its own views and opinions in this presentation and these may change.
The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use.
Schroder ISF Global Energy is not within the scope of the European Union Directive 2003/48/EC (Taxation of Savings Income in the Form of Interest Payments), as implemented in Luxembourg Law.
This presentation is issued by Schroder Investment Management (Luxembourg) S.A., R.C.S. Luxembourg: B 37.799, 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg.
Issued in May 2008 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered Number 2015527 England. Authorised and regulated by the Financial Services
Authority.
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