Sundaram World Brand Fund October 2014 1
World’s Top 100 Brands, compiled by The Daily Mail, UK Logos and images used for illustrative purposes only, and are the properties of the respective companies / persons. 2
Why is BRAND important? Apple vs HTC over the last 10 years – Sales and Profits 1,80,000 Sales HTC, despite having an 1,60,000 Apple Inc (USD) 1,40,000 early mover advantage HTC Corp 1,20,000 and a comparable 1,00,000 product range in the 80,000 60,000 smartphone market, 40,000 lost out to Apple. 20,000 - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 45,000 Net Profit 40,000 (USD) Apple 35,000 Apple Inc 30,000 HTC Corp Sales increased 21x 25,000 20,000 Profits increased 108x 15,000 10,000 5,000 - Source: Bloomberg and in house analysis 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -5,000 3
How are BRANDS built? Iconic brands are not just about advertising. It’s about obsession with design, quality, service, motivated employees, and ultimately customer delight. 4
How are BRANDS built? Steve Jobs was a perfectionist. There are many stories about his focus on the smallest detail and his attention to execution excellence. A few weeks before the iPhone was to be launched, Jobs told his top team, “I didn’t sleep last night because I realise I just don’t love the design of our iPhone” . He was referring to the fact that the initial design had glass set into an aluminium case, which took a lot away from the display Jobs wanted. “Guys, you’ve killed yourself over this for the last nine months, but we’re going to change it”, said Jobs. The entire design had to be redone – the circuit boards, the antenna and the processor. Other companies would have just shipped the product, but Jobs pressed the reset button and started over because he was not happy. The details he went into included designing a case that no one could open. When Apple found that repair shops were opening up the iPhone 4, it replaced the screws with tamper resistant pentalobe screws that were impossible to open with a commercially available screwdriver. How many CEOs would bother themselves with such tiny details and aspire for perfection? Small wonder that Apple is a synonym for design excellence. 5
How are BRANDS built? Samsung today is a household name in all parts of the world. Since Chairman Lee Kun Hee took office in 1987, sales have grown 5775% to $141 billion last year. That makes Samsung Electronics the world’s largest electronics company by revenue. Samsung has a manic quality obsession. In 1995, Chairman Lee was disappointed that the cell phones he gave away as New Year’s gifts were found to be inoperable. He asked his people to assemble a pile of 150,000 devices outside the factory. More than 200 staff members gathered around the pile. Then it was set on fire. When the fire died down, bulldozers razed whatever was remaining. The Chairman said, “ If you continue to make poor quality products like this, I’ll come back and do the same thing”. The bit that appeals to me most though is their approach to success and lack of complacency. Chairman Lee’s response to a tremendous performance by the Group in 2010 was, “ Our major businesses can disappear in 10 years”. He believes that there is perpetual crisis and companies need to constantly be on the edge and nimble or else they will perish. After a record- breaking year he said, “ We are in danger. We are in jeopardy”. 6
Why BRANDS outperform? Great brands : A strong BRAND = • Span borders Competitive advantage • Span categories + Improved earnings • Sustain pricing power across economic cycles • Build a competitive moat • Generate durable cash flows and high returns on capital 7
Why BRANDS outperform? Strong competitive positioning typically results in build-up of substantial cash balances Cash and Market Investments (US$Bn as of 30 June 2014) Cash and Market Investments as a % of current market-cap 180 60 160 50 140 40 120 100 30 80 20 60 40 10 20 0 0 Apple Inc General Microsoft Google Inc Coca Cola Apple Inc General Microsoft Inc Google Inc Coca Cola Electric Inc Electric Data as of 24 Oct 2014. Source: YCharts and third-party research; Past performance may or may not indicate future performance. 8
BRANDS deliver high Return On Equity (RoE) Sales Net Income RoE (USD Billion) (USD Billion) Growth Growth 2008 2013 2008 2013 2013 (%) (%) Coca-Cola 31.9 46.9 46.7 5.8 8.6 47.8 26.7 Google 21.8 59.8 174.5 4.2 12.3 205.7 15.2 Apple 37.5 170.9 355.9 6.1 37 505.3 30.6 America 31.9 34.9 9.4 2.7 5.4 98.6 27.9 Express United Parcel 51.5 55.4 7.7 3 4.4 45.6 77.4 Services Nike 18.6 25.3 35.9 1.9 2.5 31.3 22.5 All data as of 30 Sep 2014. Source: Bloomberg and in house analysis. INR/USD conversion rates: Bloomberg WBF Model Portfolio Inception – 1 Oct 2002. Past performance may or may not indicate future performance. 9
Stock markets appreciate this!!! Strong competitive positioning leads to exceptional returns for shareholders Sales Net Income Market Cap RoE (USD Billion) (USD Billion) (USD Billion) Growth Growth 2008 2013 2008 2013 2013 2008 2013 Growth (%) (%) (%) Coca-Cola 31.9 46.9 46.7 5.8 8.6 47.8 26.7 104.7 182.4 74.2 Google 21.8 59.8 174.5 4.2 12.3 205.7 15.2 96.9 374.4 286.5 Apple 37.5 170.9 355.9 6.1 37 505.3 30.6 75.9 504.8 565.3 America 31.9 34.9 9.4 2.7 5.4 98.6 27.9 21.5 97.2 351.7 Express United Parcel 51.5 55.4 7.7 3 4.4 45.6 77.4 54.9 97.6 77.7 Services Nike 18.6 25.3 35.9 1.9 2.5 31.3 22.5 24.8 69.9 182.7 All data as of 30 Sep 2014. Source: Bloomberg and in house analysis. INR/USD conversion rates: Bloomberg WBF Model Portfolio Inception – 1 Oct 2002. Past performance may or may not indicate future performance. 10
Sundaram World Brand Fund 11
Portfolio Construction overview • Extensive back testing of data from 2002 has led to the development of a proprietary portfolio allocation and re-balancing methodology • A list of 50 leading brands will be created using publicly available annual rankings of leading brand rating agencies such as Methodologies Adopted Brand Strength Brand Loyalty Agencies Financial Analysis Analysis Analysis Interbrand BrandZ Forbes At industry level X 12
Brand Rating process • Measure economic profits • Forecast future values over 5 years and arrive at terminal value Financial • Capital charge – Reference to Industry weighted average cost of capital Analysis • Role of Brand Index (RBI) • Determined by: • Primary research Demand • Review of historical roles of brand for companies in that industry Analysis • Expert panel assessment • Brand strength Score (measures the ability of the brand to create loyalty ) • Score from 1-100 • Evaluation across 10 key factors Competitive • Performance on these factors is judged relative to other brands in the industry Analysis • Proprietary formula used to connect the Brand Strength Score to a brand-specific discount rate • Rate is used to discount brand earnings back to a present value 13
Investment Process • Portfolio will consist of listed equities of 30 leading global brands • Preference for brands with geographically diversified revenues in order to reduce portfolio risk • The chosen 30 brands split into 3 bands – Band 1 consists of the top 10 brands – Band 2 consists of the next 10 brands – Band 3 consists of the residual 10 brands • Individual stock weighting to depend on the band the stock belongs to – Band 1 stocks will have a weighting allocation of 5% each – Band 2 stocks will have a weighting allocation of 3% each – Band 3 stocks will have a weighting allocation of 2% each • Portfolio changes triggered by – Movement of brands within the 3 bands – Exit or entry of a brand from the top 30 list • Risk control – Single stock limit of 10% – Single sector limit of 50% – Intervention in instances of significant corporate governance issues 14
Model Portfolio 2009 Model Portfolio American Express Hewlett-Packard (HP) Nokia Apple Honda Motor Oracle BMW HSBC Pepsi Philip Morris International Cisco Systems Intel (Marlboro) Citigroup IBM Procter & Gamble (P&G) Coca-Cola LVMH (Louis Vuitton) Samsung Electronics Daimler (Benz) McDonald's Sony General Electric Microsoft Toyota Motor Google Nestle United Parcel Service (UPS) Hennes & Mauritz (H&M) NIKE Walt Disney 15
Back Testing Actively-run model portfolio has consistently beaten benchmark Annualised Performance (%) in USD WBF Model Portfolio MSCI ACWI (Benchmark) Excess Returns 2014 YTD 3.3 2.0 1.3 1-Year 13.5 9.1 4.4 2-Years 14.9 12.0 2.9 3-Years 18.8 14.0 4.8 4-Years 14.1 8.0 6.1 5-Years 14.1 7.7 6.4 6-Years 11.4 5.9 5.5 7-Years 6.6 0.2 6.4 All data as of 30 Sep 2014. Source: Bloomberg and in house analysis. INR/USD conversion rates: Bloomberg WBF Model Portfolio Inception – 1 Oct 2002. Past performance may or may not indicate future performance. 16
Recommend
More recommend
