Global Value Investing

1. Global Value Investing Thomas P. Wittwer Managing Director Member Investment Review Committee

2. Fund Managers’ Dilemmas • Absolute vs. Relative Returns • Long only vs. Short • Active vs. Passive • Bottom-up vs. Top-down • Risk vs. Reward • Growth vs. Value • Concentrated vs. Diversified • Long-term vs. Short-term

3. What Really Matters: The Importance of Capital Preservation • Investment opportunities come again and again, but your principal comes only once! • It is not about how much money you make that is important. What is important is how much money you keep!

4. -75 % 100 % 300 % -50 % The Importance of Capital Preservation: Seek To Avoid Permanent Loss €100.000 €100.000 -75 % -50 % €25.000 €50.000

5. The Power of Compounding Assuming an initial investment of $100,000

6. The Magic of Compounding • Albert Einstein: “Compound interest is the greatest invention of modern times!” 􀁻 • Compound interest means that you earn interest on the original amount you have saved, and then you continue to earn interest on the interest. 􀁻 • Rule 72 shows how long it will take to double your money. Divide 72 by the interest rate/portfolio return you’ll earn on your investment. • Example: A 6% investment 72 divided by 6% = 12 years

7. $672 $700 $600 $500 $418 $400 Gain $572 46% Value ($USD) $259 46% $300 28% $200 $161 Chart to be added when updated correctly 11% 17% 28% $100 Original $100 $0 17% 11% 0 5 10 15 20 Year The Power of Compounding: Time is Your Greatest Ally! • The miracle of compounding depends on the passage of time. • For instance, of the increase in the value of a 10% compounding portfolio held for 20 years, 11% of the total gain occurs in the first five years, 17% in the second five years, 28% in the third five years and fully 46% occurs in the final five years!

8. Long-term Compounding: Vontobel Advantage Source: Vontobel Asset Management, Inc., GIPS compliant composites. For full details on the composites and impact of fees please see full composite disclosure at the end of presentation.

9. Are All Rational Investors Value Investors? Many Ways to Speculate… “Engagement in risky business transactions on the chance of quick or considerable profit” Webster’s Dictionary • Speculation may be rational, but it carries more risk with it • You may profit but if unsuccessful, you may lose part of your principal

10. Are All Rational Investors Value Investors? … But only one way to invest “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.” Benjamin Graham • You ensure safety of principal by doing your homework and establishing intrinsic value • “Satisfactory” return is left undefined • Margin of safety also required

11. True Value Your Cost Potential profit Your Risk $1.25 Lose Money High $1.00 Break Even None $0.50 Double money Low $0.25 Quadruple money Lower $1.00 Margin of safety "[To] have a true investment, there must be a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience." – Ben Graham

12. Is the Difference between Growth and Value Both Exaggerated and Misunderstood? • Most academic studies use low P/E or low Price-to-Book as a proxy for value and high P/E or high Price-to-Book as a proxy for growth. • These metrics are not necessarily reflective of Growth and Value: a stock selling at 15x 2005 Earnings can be cheaper than a stock selling at 7x 2005 Earnings; it depends on Future Value added. • Example: Ford Motor vs. Wrigley’s • Companies have long life cycles and only a small portion of a company’s value is captured in any one year’s earnings. • Also, a company could generate high growth in sales and actually destroy value if the firm’s cost of capital exceeds the rate of return it earns on new capital employed.

13. Is the Difference between Growth and Value Both Exaggerated and Misunderstood? • “In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.” Warren Buffett, 1992 Annual Report • “The whole concept of dividing it up into "value" and "growth" strikes me as twaddle. It's convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing. That's a very simple concept. And I don't see how anybody could really argue with it. “ Charlie Munger, 2000 Berkshire Hathaway AGM

14. The Value of Growth in Value Investing • “Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.” • “Business growth per se, tells us little about value. It’s true that growth often has a positive impact on value, sometimes one of spectacular proportions”. • Every stock is worth the present value of its future free cash flow.

15. Summary: How To Invest? • Capital growth and capital preservation • Absolute mindset and long term focus (“power of compounding”) • Growth and value are indeed joined at the hip • Growth creates more value as long as the return on capital exceeds the cost of capital (“Profitable Growth”) • Beware of overpayment risk (“Margin of Safety): “Its far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

16. Best Businesses To Own … • Have production advantages (outperform on the cost side – economies of scale) • Have consumer advantages (habit, experience, high switching cost) • Have government related advantages (subsidies, tariffs, quotas, environmental regulation) • The best businesses to own are those that can employ large amounts of incremental capital at very high rates of return • Desirable companies can pay out cash to shareholders even as they fund their growth • Most high return businesses need relatively little capital

17. Businesses to Avoid … • Are selling a non-differentiated product • Operate in a competitive marketplace • Have no pricing power • Are dependent on economic cycles • Constant upgrading needed ( low free CF) • Generally, high debt levels

18. Bottom-up Investing – Finding the Right Company

19. In Search of Investments Quality Business + Good Management + Sensible Valuation = Investment Quality Business Understandable Established Profitability Sound Financials Free Cash Flow Generation Competitive Advantage Pricing Power Good Management Focused and incentivised Capable Capital Allocators Shareholder oriented Sensible Valuation Margin of Safety of 25% Conservative forecasting

20. Bottom-up Investing – Finding the Right Company • Screening for quality: Consistency and Profitability • Bottom-up research: Predictability and Sustainability • Valuate: Margin of Safety

21. Finding The Right Company – Four Companies World’s 2nd largest producer of cars and trucks, also has automotive financing and insurance Share price $8.76 Book Value NM Market cap $18.4bn P/E NM Div. Yield Nil LTD to Cap 39.8%STD to Cap 22.7% 6th largest US airline, offers discounted fares, primarily for short-haul, point-to- point flights Share price $14.33 Book Value $8.03 Market cap $10.7bn P/E 22.4 Div. Yield 0.13% LTD to Cap 11.6%STD to Cap 0.91% World’s #2 producer of tobacco products with portfolio over 300 brands which are sold in 180 countries Share price $36.43 Book Value $6.11 Market cap $74bn P/E 16.8 Div. Yield 3.30% LTD to Cap 31.8%STD to Cap 6.0% HKE operates the only stock exchange and futures exchange in Hong Kong and their related clearing houses. Share price HK$252.6 Book Value HK$4.93 Market cap $34.9bn P/E 48.3 Div. Yield 1.2% LTD to Cap 0%STD to Cap 0.02% Source: Factset and Bloomberg

22. Screening for Quality: Sound Financials, Established Profitability Source: Vontobel Asset Management, Inc., Bloomberg, Standard and Poors

23. Bottom-up Research: Predictability and Sustainability

24. Valuate: Margin of Safety Source: Vontobel estimates, detailed calculation at the end of presentation Assuming a 5-year constant growth rate of 10% (vs. 19% actual during prior 5-years), terminal multiple of 16.7 for year 5 earnings and discount rate of 6% Assuming a 5-year constant growth rate of 15% (vs. 25% actual during prior 5-years), terminal multiple of 16.7), discount rate of 6%

25. Portfolio Manager’s Decision • Consumer Exposure • Stability of the tobacco business • Predictable Profits • Attractive Valuation • Share buy-backs leading to capital effectiveness • Progressive dividend policy over the last years

26. British American Tobacco Plc Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation Source: Factset

27. VONTOBEL GLOBAL EQUITY EX US FUND Top ten holdings per 09/30/07: • British American Tobacco Plc 4.7% • Bharti Airtel Ltd. 4.7% • HDFC Bank Ltd 4.7% • Roche Holding AG 3.6% • Tesco Plc 3.5% • Nestle SA 3.4% • Millea Holdings Inc. 3.1% • InBev 3.0% • Orkla Asa 3.2% • Canadian Natural Resources 2.5% The Top Ten Holdings are based on a representative portfolio, and are shown as supplemental information to the Global ex US Equity Composite presentation, which is available upon request.

28. Bharti Airtel Ltd • Leading provider of telecommunications services throughout India • Part of Bharti Enterprises, largest manufacturer and exporter of telecom terminals • Offers also access, long-distance and broadband services to consumers as well as corporate enterprise services • Dominates the Indian wireless sector with a leading subscriber market share of 21.5% • Wireless sector in India is the fastest growing wireless market in the world adding 6.5m subscribers per month • Well positioned to benefit from strong wireless growth which is being driven by rising discretionary incomes and price deflation • Tariffs in India one of the lowest in the world • EPS 3 year compound annual growth rate 89% • Market capitalization INR 1,935bn (USD 49bn), Est 03/2008 P/E Ratio 30

29. Bharti Airtel Ltd No dividends have been paid yet Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

30. Canadian Natural Resources Ltd. • One of the largest independent oil & gas exploration and production companies in Canada • Focusing on exploration, development & production • Operates in Western Canada, the U.K. portion of the North Sea and Offshore West Africa • One of the best Oil Sands assets in the world • Have over 20m acres of territory, 7m of which where they are already operating and the other 13m where they haven’t even explored yet • High insider ownership • Good track record of capital allocation by management • Well run company with solid long term track record • EPS 10 year CAGR 32.1% • Estimated 12/2008 P/E Ratio 17.4 • Market Capitalization CAD 40.7bn, USD 41.8bn

31. Canadian Natural Resources Ltd. Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

32. HDFC Bank Ltd. • Principal activities are to provide banking and other financial services • Operates through 3 segments: Retail banking, Wholesale banking and Treasury services. Incorporated in 1994 and headquartered in Mumbai • Track record in India as well as in international markets • Healthy growth to remain the market leader in mortgages • Wide network of over 535 branches and 1,323 ATMS across 228 cities in India • One of the best-run banks in Asia (named as “Best Bank” in India in 2006 by Euromoney magazine) • Ventured successfully into other businesses like Life and Non-life insurance • Maintains one of the best asset quality with high ROE • EPS 8 year compound annual growth rate 31.5% • Book value per share 8 year compound annual growth rate 36.3% • Market capitalization INR 487bn (USD 12bn) • Estimated 03/2008 P/E Ratio 31

33. HDFC Bank Ltd. Source: Factset Source: Factset Source: Factset

34. Largest brewer in the world with an estimated 15% global market share, domiciled in Belgium • Extensive brewery, distribution and sales networks • Production plants in Europe, North American and Asia • Very well positioned in emerging markets to capture growth • 75% of its sales come from the emerging markets with more than half of its earnings coming from Brazil • Brewer’s main international brands: Stella Artois, Beck’s and Brahma • Estimated 10-11% annualized earnings growth over the next five years • EPS 10 year compound annual growth rate 13.9% • Market capitalization EUR 40.5bn • Estimated 12/2008 P/E Ratio 19 InBev NV

35. InBev NV Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

36. Millea Holdings Inc. • Insurance holding company whose subsidiaries include Tokyo Marine & Nichido with headquarters in Tokyo, Japan • Japan’s biggest insurance group • Tokyo Marine & Fire Insurance Co. took over Nichido Fire & Marine Insurance Co. to form Millea in 2002 • Core businesses: non-life and life insurance • Steadily taking initiatives in major markets such as China, India, Taiwan etc. • Premium growth at highest level in recent years • History of share buybacks and high level of dividends • Stable management • EPS 3 year compound annual growth rate 20.1% • Selling at 12x of book value • Market capitalization JPN 3,669bn

37. Millea Holdings Inc.

38. Nestle S.A. • World's biggest food and beverage company with operations in almost every country in the world employing around 250,000 people • Food manufacturer with activities in coffee, bottled water, milk products, prepared dishes and pet food, chocolate & confectionery and pharmaceuticals • Brands include Nestlé, Nescafé, Perrier, Maggi, Purina, Friskies, PowerBar, Coffee-Mate, Poland Spring • Holds an indirect 26% stake in L’Oreal and has joint venture agreements with several companies • Attractive Health and Wellness markets • Push into higher margin nutritional products (new nutritional division) • Significant growth potential in the developing world • Nestlé is rated AAA for long term debt • EPS 10 year CAGR 10.6% • Market Capitalization USD 173bn, CHF 203bn • Estimated 12/2008 P/E of 17.1

39. Nestle S.A. Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

40. Orkla ASA • Leading Norwegian industrial conglomerate • Operates in three areas: branded consumer goods, materials and financial investments • Consumer goods includes profitable Unilever license franchise for home and personal care in Norway • Investment portfolio is at approx NOK 18bn (USD 3bn) • Has exposure to solar energy business through its subsidiary, Elkem Solar • Consistent growth rate in the low teens while paying a 2% dividend yield • Exceptionally high quality company • EPS 10 year compound annual growth rate 15.7% • Market capitalization NOK 96bn (USD 18bn) • Estimated 2008 P/E Ratio 12

41. Orkla ASA

42. Roche Holding AG • One of the world’s largest pharmaceuticals companies, develops, manufactures and markets pharmaceutical and diagnostic products • In 2005 pharmaceuticals accounted 77% and diagnostics 23% of revenues • Pharmaceutical division is the world leader in anti-cancer medicine • Owns 56% of Genentech (largest and most advanced oncology biotech portfolio) Owns majority of Chugai (biggest Japanese biotech company) -> backbone for innovation network • Owns a number of drugs under biological patents (stronger patent protection) • Worldwide distribution rights of most Genentech products • Collection of cancer drugs is set to underpin strong sales growth for next 5 years • Novartis holds 33% of voting shares (investment and strategic purposes) • Has increased dividend for the last 19 consecutive years • Strong balance sheet and operational cash flow • EPS 15 year compound annual growth rate 12.5% • Market capitalization CHF 184bn, Est 2008 P/E Ratio 16

43. Roche Holding AG Source: Factset Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

44. 4th largest retailer in the world after Wal-Mart, Carrefour and Home Depot • Largest British retailer by market share and global sales (80% of profits come from the UK business) • Operates 2,365 stores and employs 380,000 around the world • Focus on 4 strategies: Core UK, International, Non-Food and Retailing Services • Most important overseas markets in Thailand, Japan, Poland and Ireland • Joint venture in China with Ting Hsin (one of China’s leading consumer food and beverage producers) since 2004 • Low operating cost structure (S,G,+ A as a % of sales 200bps lower than competitors • Increasing market share, especially in the non-food segment • Stable operating margins • One of the strongest EPS growth rates in the sector • EPS 10 year compound annual growth rate 11.6% • Market capitalization GBP 37bn, Estimated 2/2008 P/E Ratio 19 Tesco Plc

45. Tesco Plc Value creation by investing capital at rates of return that exceed their cost of capital, value according to VAMUS calculation

46. Questions?Thank you! Thomas P. Wittwer Managing Director Member Investment Review Committee

47. Valuation is an Approximation

48. Valuation is an Approximation

49. International Equity Composite For full disclosure, see last page Past performance is not indicative of future results

50. US Value Equity Composite Past performance is not indicative of future results For full disclosure, see last page