for the year ended 31 July 2015 Investment objective and policy
The Fund may invest in investment grade, non investment grade and unrated debt securities. The Fund may hold more than 30 per cent of its net assets in debt securities rated below investment grade.
Share class A Hedged Accumulation (EUR share class)
Share class A Hedged Income (EUR share class)
Share class B Hedged Income (EUR share class)
Share class B Accumulation (USD share class)
Share class B Gross Accumulation (USD share class)
Share class Z Gross Hedged Accumulation Share class A Hedged Accumulation Share class A Hedged Income Share class B Hedged Accumulation Share class B Hedged Income
Share class Z Gross Hedged Accumulation (USD share class)
• The synthetic risk reward indicator (the SRRI) rating is not a measure of the risk of you losing your investment but describes how much the value of the Fund went up and down in the past;
• The SRRI rating is based on historical data which may not be a reliable indication of the future risks and rewards of the Fund;
• We cannot guarantee that the rating of the Fund will remain the same, it may change over time;
• Even the lowest rating 1 does not mean a risk free investment;
Interest rate risk: interest rates affect the Fund's investments. If rates go up, the value of investments fall and vice versa.
Credit risk: the issuers of bonds or similar investments that the Fund buys may not pay income or repay capital to the Fund when due.
• On a scale of 1 (less risky) to 7 (more risky), this Fund has a rating of 4 due to its past performance and the nature of its investments. Shares with a rating of 4 might have higher risks, but also higher returns;
• Risk is taken in order to make a higher potential return, the more risk a fund takes, the higher the potential return but the greater the risk of loss;
and
• The value of the Fund and its return is not guaranteed and may fall as well as rise. You may get back less than you originally invested.
The Fund might also experience the following risks:
Emerging market risk: emerging markets may not provide the same level of investor protection as a developed market; they may involve a higher risk than investing in developed markets.
*The SRRI changed from 5 to 4 on 21 July 2015.
For further information on risks, please refer to the risk factors section in the Company's prospectus.
(continued)
First State Emerging Markets Bond Fund Authorised Fund Manager's Report
for the year ended 31 July 2015
Time 3 6 1 3 5 10 Since
period mths mths yrs yrs yrs yrs launch
(1.6) 0.3 (0.1) - - - 1.5
(0.9) 0.8 0.4 - - - 2.7
(2.9) (2.3) (6.7) - - -
-1 2 1 - - -
-12 mths to 12 mths to 12 mths to 12 mths to 12 mths to 31/07/15 31/07/14 31/07/13 31/07/12 31/07/11
(0.1) 7.6 (0.3) -
-Performance
Over the 12 months to July 2015 the fund lost 0.1%.
The emerging market (EM) debt index (JPM Global Diversified) returned 0.4% during the 12 months to 31 July 2015. Steep falls in commodity prices weighed on the market, as many EM countries in the benchmark are commodity exporters. Among the worst performing countries were therefore the oil exporters such as Venezuela (-37.6%) and Ecuador (-10.3%).
Ukraine was the second worst performer (-28%) as the conflict in the Eastern part of the country continues and as the funding needs make a debt restructuring very likely. The Ukrainian government has indicated that it is looking for a 40% haircut in a debt restructuring.
Jamaica (+14.6%), Honduras (+13.1%) and Argentina (+7.5%) were among the top performers. Jamaica has very high debt levels, but has been complying with the fiscal targets of an IMF agreement which aims to restore sustainable debt levels. In Argentina, despite the default on restructured debt, investors are looking forward to a more market-friendly government after the October 2015 election when the current President Cristina Kirchner cannot be a candidate.
Portfolio
The fund maintained an overweight position to Eastern Europe throughout the period as we anticipated the region would outperform. Central and Eastern Europe is a region of commodity importers, and manufacturing exporters to the EU, with increased competitiveness. We also retained an underweight in Latin American credits, as we think the yields on these do not compensate us for the risk from volatility in US Treasuries. We hold selective overweight positions in high-quality credits in the Middle East and North Africa, but we reduced overall exposure to Corporates which we do not believe to be attractively priced.
Outlook
We anticipate further bouts of market volatility in the run-up to the first interest rate increase by the Federal Reserve. In EM we expect continued differentiation between the economic and asset price performance of individual countries. Country selection will therefore remain an important driver of performance.
Cumulative performance as at 31 July 2015
Fund return % Benchmark return %
period Fund return %
Benchmark: JP Morgan EMBI Global Diversified Sector: Global Emerging Markets Bond Average Sector return %
Quartile ranking
Discrete performance as at 31 July 2015 Time
Past performance should not be used as a guide to future performance, which is not guaranteed.
(continued)
First State Emerging Markets Bond Fund Authorised Fund Manager's Report
for the year ended 31 July 2015
31 July 2015 31 July 2014
% of Fund % of Fund
3.00 1.93
2.02 1.90
1.90 1.85
1.83 1.73
1.77 1.58
1.73 1.55
1.54 1.50
1.49 1.47
1.49 1.44
1.45 1.43
Stock name Stock name
Argentina Boden Bonds 7% 03/10/2015 Ivory Coast Government International Bond 5.75%
31/12/2032 Ten largest holdings
Petrobras Global Finance 3.25% 17/03/2017 Republic of Latvia 2.75% 12/01/2020
Petroleos Mexicanos 5.5% 27/06/2044 Instituto Costarricense de Electricidad 6.95% 10/11/2021 Sri Lanka Government International Bond 5.875%
25/07/2022
Venezuela Government International Bond 7.75%
13/10/2019
United States Treasury Bill 0% 20/08/2015 Lithuania Government International Bond 7.375%
11/02/2020 Hungary Government International Bond 5.375%
21/02/2023
Ecuador Government International Bond 7.95%
20/06/2024
Republic of Serbia 6.75% 01/11/2024 Russian Foreign Bond - Eurobond 7.5% 31/03/2030
Types of shares
Income and Accumulation.
Republic of Armenia 6% 30/09/2020 Slovenia Government International Bond 4.125%
18/02/2019
Instituto Costarricense de Electricidad 6.95% 10/11/2021 KazMunayGas National 7% 05/05/2020
KazMunayGas National 6.375% 09/04/2021 Croatia Government International Bond 6% 26/01/2024
Nominal
UNITED STATES (0.00%*) 1,926 2.02
3,000,000 United States Treasury Bill 0% 20/08/2015 1,926 2.02
IRELAND (0.93%*) 353 0.37
600,000 Vnesheconombank Via VEB Finance 6.8% 22/11/2025 353 0.37
LUXEMBOURG (0.88%*) -
-NETHERLANDS (1.69%*) 2,503 2.62
2,700,000 Petrobras Global Finance 3.25% 17/03/2017 1,689 1.77
1,000,000 Petrobras Global Finance 3% 15/01/2019 581 0.61
450,000 Petrobras Global Finance 6.85% 05/06/2115 233 0.24
CHINA (2.06%*) 1,037 1.09
1,250,000 Alibaba Group Holding 3.125% 28/11/2021 782 0.82
395,000 The Export-Import Bank of China 2.5% 31/07/2019 255 0.27
HONG KONG (1.00%*) 847 0.89
1,400,000 CNOOC Finance 2013 3% 09/05/2023 847 0.89
INDIA (1.66%*) 927 0.97
1,400,000 Indian Railway Finance 3.917% 26/02/2019 927 0.97
INDONESIA (4.60%*) 4,200 4.42
540,000 Indonesia Government International Bond 11.625% 04/03/2019 453 0.48
700,000 Indonesia Government International Bond 3.75% 25/04/2022 445 0.47
600,000 Indonesia Government International Bond 5.875% 15/01/2024 428 0.45
850,000 Indonesia Government International Bond 4.125% 15/01/2025 538 0.56
1,000,000 Indonesia Government International Bond 5.125% 15/01/2045 616 0.65
1,200,000 Pelabuhan Indonesia II 4.25% 05/05/2025 722 0.76
1,500,000 Pertamina 5.25% 23/05/2021 998 1.05
PAKISTAN (1.55%*) 529 0.55
600,000 Pakistan Government International Bond 6.75% 03/12/2019 391 0.41
200,000 Pakistan Government International Bond 8.25% 15/04/2024 138 0.14
PHILIPPINES (2.02%*) 749 0.79
800,000 Philippine Government International Bond 7.75% 14/01/2031 749 0.79
SRI LANKA (1.29%*) 1,465 1.54
2,300,000 Sri Lanka Government International Bond 5.875% 25/07/2022 1,465 1.54
VIETNAM (0.00%*) 833 0.87
1,300,000 Vietnam Government International Bond 4.8% 19/11/2024 833 0.87
ARMENIA (1.12%*) 1,423 1.49
2,251,000 Republic of Armenia 6% 30/09/2020 1,423 1.49
AZERBAIJAN (0.83%*) 1,423 1.50
900,000 Republic of Azerbaijan International Bond 4.75% 18/03/2024 569 0.60
1,300,000 State Oil Company of the Azerbaijan Republic Bond 6.95% 18/03/2030 854 0.90