Investment Commentary
2Q 2015
Goldman Sachs BRICs Portfolio
Market review
The MSCI BRIC Index returned -2.86% in June, as many global equity markets declined during the month. The index retains
gains for 2Q of 4.57%, and is up 8.29% year-to-date (all returns in USD). The uncertainty and rising intensity of the Greece’s
negotiations with European Union (EU) leaders weighed on global financial markets in June. In addition, a sharp correction in
China’s domestic equity market pressured the offshore Chinese equities as well as other Asian markets, as concerns grew
about margin financing and high valuations. India notably outperformed during the month on a 25 bps repo rate cut to 7.25%
and a better-than-expected monsoon season. Brazil’s market also rose, largely on currency appreciation following a further 50
bps interest rate increase to 13.75%, which is the highest level since December 2008. Gains in the local Russian equity market
were lost in translation to dollars as the ruble weakened about 5% on the extension of European Union sanctions. The South
African equity market also outperformed during the month. All sectors except Consumer Staples declined during the month,
led by Industrials, Utilities and Healthcare.
Performance attribution
The Goldman Sachs BRICs Portfolio underperformed its benchmark, the MSCI BRIC Index, by 87 bps1 on a net of fee basis
during the second quarter of 2015. Strong stock selection in China contributed to the portfolio’s relative returns, whereas our
positioning in the other three countries detracted from performance.
China was a notable contributor to performance on both an absolute and relative basis during the quarter, driven by our
superior stock selection. Financials was one of the best performing sectors in the benchmark as well as a large contributor to
alpha, driven by Hong Kong Exchange. The main market operator for securities and derivatives trading and clearing in HK
was also the top contributor at the stock level. HKEx’s stock price went up sharply during the quarter as average trading
volume surged on the back of the Shanghai Hong Kong Stock Connect and heightened volatility. While we like its dominant
position in the market and steady cash flow generating capability, we trimmed our holding during the quarter to manage
position size.
The Health Care sector was another large contributor driven by our position in SinoBiopharm. The company is primarily
engaged in the R&D, manufacture and sale of generic drugs and is the market leader in drugs for hepatitis and cardio-cerebral
diseases. The stock outperformed during the quarter after reporting better-than-expected earnings growth on back of strong
sales of its key products. We maintain our overweight position in the stock.
The Consumer Staples sector, and most notably, Kweichow Moutai also contributed to returns. The largest hard liquor
maker reported a strong set of numbers for 1Q and the stock, which some investors like for its historical defensiveness,
outperformed during a volatile quarter for Chinese equities. Given valuations are at a discount to peers, we see re-rating
potential driven by sequential earnings improvement, enforcement of A-H shares through-train, and the ongoing SOE reform
process and added to our position.
On the other hand, the Consumer Discretionary sector was a large detractor during the quarter driven by our positions in
Vipshop Holdings and Great Wall Motor. Vipshop, a leading online discount retailer, had a strong 1Q and has outperformed
the market 40x since its IPO in 2012. In what was a challenging quarter for Chinese equities, the stock gave up some of its
gains, correcting more than proportionately. Nevertheless, we maintain our position in the stock as we believe the company
has carved out a niche for itself in the Chinese e-commerce market giving it the potential to grow volumes and expand margins.
Great Wall Motor is an automobile manufacturer specializing in the sport utility vehicles (SUV) segment. The company
disappointed on volume growth due to industry-wide weakness and rising competition, even as it announced two price cuts.
1
Returns for the institutional accumulation share class.
Past performance does not guarantee future results, which may vary. For existing investors only. Any mention of an investment decision is intended
only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. It should not be assumed that
any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the
performance of the investments discussed herein. A complete list of past recommendations is available upon request. Please see additional disclosures.
Investment Commentary
2Q 2015
The negative wealth-effect from the stock market correction and the muted demand outlook for the summer, which is usually a
lean period, have weighed on near term performance.
India was the only country to end the quarter in negative territory and our overweight allocation detracted from performance.
The Consumer Discretionary sector and Bosch, in particular, was a notable detractor during the quarter. The supplier of
automotive components took a breather after very strong share price performance in 1Q, following a pick-up in the passenger
cars and heavy commercial vehicle segments. However, the stock price bounced back in June after reporting strong 1Q results,
prompting us to book some profits.
Positioning
During the quarter, we initiated a position in Aurobindo Pharma within the Health Care sector in India. We maintain a
positive view on the mid-cap generic drug manufacturer due to its vertically integrated model and strong US formulations
business. Even as the company attempts to turnaround its Europe business, it continues to execute well in a challenging
environment of pricing pressure amidst a slowdown in new US approvals. As mentioned earlier, in the Consumer Staples
sector, we added to our holding in Kweichow Moutai, China’s largest hard liquor maker. Sequential earnings improvement,
enforcement of A-H shares through-train and the ongoing SOE reform process may all be catalysts for the stock in the coming
quarters.
During the quarter, we trimmed our position in BB Seguridade within the Brazilian Financials space. While the insurance and
brokerage company continued to report strong results in a tough environment, we opted to book profits on the name due to
narrowing relative upside potential. As mentioned earlier, we also reduced our position in Bosch, an Indian supplier of
automotive components. Despite maintaining a positive view on the company’s fundamentals, we trimmed our holding to
crystallize gains and reallocate to more attractive opportunities elsewhere.
Outlook
Having a single, cohesive view on the macro environment in the emerging markets is difficult as country, sector and most
importantly stock specific forces, as opposed to shared issues, have and will continue to drive the asset class. Consistent with
this philosophy, we believe it is important to look at each of these countries, and the opportunities within these countries,
independently rather than group them together into a single asset class. Truly understanding the businesses in which one is
invested; recognizing where the market is mispricing companies; and being willing to accept near-term noise and volatility that
macroeconomic forces can influence; will, in our opinion, underpin long-term success within emerging markets. As bottom-up
fundamental investors, we constantly look across a broad range of sectors, countries and market capitalisations in order to
identify the most compelling investment opportunities that are trading at attractive valuations and may outperform over the
market cycle. In particular, we look for companies with strong or improving cash flows and sustainable competitive
advantages that are able to withstand inflationary pressures on their margins while taking advantage of secular growth themes
in these markets. Finally, we seek to invest in companies with strong corporate governance track records, especially with
respect to their treatment of minority shareholders. With the uncertainty in the markets, we believe our focus on companies
with strong fundamentals and secular growth opportunities will serve us well.
Growth and Emerging markets underperformed developed markets in 2014, as many developing markets faced
macroeconomic headwinds and negative headlines. We fully acknowledge these medium-term macro headwinds and
incorporate them in our bottom up fundamental analysis, including the end of Chinese double-digit growth, the impact of the
Fed hiking rates, as well as some country-specific challenges. These macro concerns have not changed our view that emerging
markets represent a core asset class for any well diversified portfolio. As investors consider their emerging markets equity
allocations, we believe our purist stock selection based approach and compelling long-term track record make the GS BRICs
Portfolio one of the strongest contenders within the emerging markets equity funds universe.
Past performance does not guarantee future results, which may vary. For existing investors only. Any mention of an investment decision is intended
only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. It should not be assumed that
any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the
performance of the investments discussed herein. A complete list of past recommendations is available upon request. Please see additional disclosures.
Investment Commentary
2Q 2015
DISCLOSURES
This material is provided at your request solely for your use.
This marketing material has been issued by Goldman Sachs International authorised by the Prudential Regulation Authority and regulated by the
Financial Conduct Authority and the Prudential Regulation Authority.
Offering Documents
This material is provided at your request for informational purposes only and does not constitute a solicitation in any jurisdiction in which such a
solicitation is unlawful or to any person to whom it is unlawful. It only contains selected information with regards to the fund and does not constitute an
offer to buy shares in the fund. Prior to an investment, prospective investors should carefully read the latest Key Investor Information Document (KIID) as
well as the offering documentation, including but not limited to the fund’s prospectus which contains inter alia a comprehensive disclosure of applicable
risks. The relevant articles of association, prospectus, supplement, KIID and latest annual/semi-annual report are available free of charge from the fund’s
paying and information agent and/or from your financial adviser.
Distribution of Shares
Shares of the fund may not be registered for public distribution in a number of jurisdictions (including but not limited to any Latin American, African or
Asian countries). Therefore, the shares of the fund must not be marketed or offered in or to residents of any such jurisdictions unless such marketing or
offering is made in compliance with applicable exemptions for the private placement of collective investment schemes and other applicable jurisdictional
rules and regulations.
Investment Advice and Potential Loss
Financial advisers generally suggest a diversified portfolio of investments. The fund described herein does not represent a diversified investment by itself.
An investor should only invest if he/she has the necessary financial resources to bear a complete loss of this investment.
This material must not be construed as investment or tax advice. Prospective investors should consult their financial and tax adviser before investing in
order to determine whether an investment would be suitable for them.
An investor should only invest if he/she has the necessary financial resources to bear a complete loss of this investment.
Swing Pricing
Please note that the fund operates a swing pricing policy. Investors should be aware that from time to time this may result in the fund performing
differently compared to the reference benchmark based solely on the effect of swing pricing rather than price developments of underlying instruments.
This material contains information that discusses general market activity, industry or sector trends, or other broad-based economic, market or political
conditions. It also pertains to past performance or is the basis for previously-made discretionary investment decisions. This information should not be
construed as a current recommendation, research or investment advice. It should not be assumed that any investment decisions shown will prove to be
profitable, or that any investment decisions made in the future will be profitable or will equal the performance of investments discussed herein. Any
mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our
strategy as a whole. Any such illustration is not necessarily representative of other investment decisions.
This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research. . It was not
prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on
trading following the distribution of financial research. The views and opinions expressed may differ from the views and opinions expressed by Goldman
Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their
financial advisors before buying or selling any securities. This information should not be relied upon in making an investment decision. GSAM has no
obligation to provide any updates or changes.
Portfolio holdings and/or sectors shown above are as of the date indicated and may not be representative of future investments. The holdings and/or
sectors shown may not represent all of the portfolio's investments. Future portfolio investments may or may not be profitable.
Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will
fluctuate and can go down as well as up. A loss of principal may occur.
References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information
only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed.
While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the
benchmark.
Index Benchmarks
Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any
fees or expenses which would reduce returns. Investors cannot invest directly in indices.
The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the
Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader
market described herein. The exclusion of “failed” or closed hedge funds may mean that each index overstates the performance of hedge funds
generally.
Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks, including but not limited to currency
fluctuations and political instability.
Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We
have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.
Economic and market forecasts presented herein reflect our judgment as of the date of this presentation and are subject to change without notice. These
forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual
data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly,
these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on
assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no
obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.
Investment Commentary
2Q 2015
For RHBIM’s Use Only and Not For Distribution To The General Public
Please note that Goldman Sachs Asset Management does not maintain any licenses, authorizations or registrations in Asia ex Japan, except that it
conducts businesses (subject to applicable local regulations) in and from the following jurisdictions: Hong Kong, Singapore, Malaysia, Korea, and India
Goldman Sachs (Malaysia) Sdn Bhd is licensed in Malaysia to undertake the regulated activity of fund management. Goldman Sachs has no GSAM
funds registered in Malaysia and securities may not be offered or sold in Malaysia unless it comes within the ambit of its licensed activities in Malaysia.
Confidentiality
No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed
to any person that is not an employee, officer, director, or authorized agent of the recipient.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security.
Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.
© 2015 Goldman Sachs. All rights reserved. Compliance Code: 166360.OSF.OTU.