Q1

Quarterly
Commentary
April 2015

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reviews:
GLOBAL INSIGHTS 2015

Seeking Pockets of Value in Divergent Markets

During a tour of duty for the United States Army Air Corps in World War II, Nobel laureate and economist
Kenneth Arrow was asked to evaluate mathematical models to predict the weather one month ahead. He told
his superiors that the models werent accurate. They responded: The Commanding General is well aware that
the forecasts are no good. However, he needs them for planning purposes. 1
Realizing that forecasting the near-term direction of global equity markets can be as difficult as predicting the
weather, Brandes looks at investment conditions not to forecast if markets are going up or down in the near
term but to help us determine where value exists.
Our global perspective enables us to assess relative valuations around the world and see investment flows
between regions, sectors and companies. These flows often create an environment where companies can be
mispricedsometimes to levels that are extremely low or highand where valuations can diverge significantly
from one market to another. This global perspective and our company-level research combine to serve as the
foundation of Brandes portfolio construction process.
This quarterly commentary highlights our insights on key investment themes gleaned from company-level
research, and which have driven recent portfolio decisions:
1. Europe and Emerging Markets: Conditions Conducive for Value Investors
2. Selectivity Is Key in the United States and Japan Following Broad-Based Gains

Exhibit 1: Valuations Lend Insights into Opportunities

Valuations by Country/Region, December 31, 2014
24x

Forward P/E Ratio

LESS VALUE

Europe and Emerging Markets: Conditions Conducive for Value Investors

Select European and emerging markets appear attractive to us, based on our company-by-company research,
in part because declining share prices in these markets have created attractive valuations, as shown in Exhibit 1.

20x
16x
12x
8x
4x
0x

Russell
2000

United
States

France

MSCI Australia
World

MSCI
EAFE

Japan

United China
Kingdom

Brazil

MSCI
MSCI Russia
Emerging Frontier
Markets Markets

Source: FactSet, Forward P/E is Price / Next 12 Months. Time-weighted annual estimates via FactSet market aggregates as of December 31, 2014.

The Wall Street Journal, Lessons From a Year of Market Surprises,

Dec. 30, 2014: http://www.wsj.com/articles/lessons-learned-from-the-year-of-surprise-1419957058;

VALUE SPECIALISTS SINCE 1974

CALL BRANDES 800.237.7119
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PAGE 2

Europe: Opportunity Despite the Malaise

Were seeing attractive opportunities in Europe against the backdrop of continued concerns on euro zone
economic growth as well as on how Greece and its euro zone neighbors will address Greeces sovereign debt
problems, comments Jeffrey Germain, CFA, Senior Analyst, Brandes Investment Partners.
We believe value investing is often an effective strategy in that it periodically leads to areas of the world that
have been written off at a macro level. Despite the tendency among many investors to paint the entire European
investment picture as dark and foreboding, Brandes continues to see opportunity at the company level.
As we analyze companies around the world, four features stand out that indicate solid value opportunities exist
in Europe:
1. Attractive Valuations and Higher Dividend Yields vs. the U.S. Market
In Exhibit 2 (on page 3), the European markets valuations remain fairly attractive to us, especially when
compared to the U.S. market, as measured by cyclically adjusted price-to-earnings (CAPE).2 Additionally,
Europes 3.3% dividend yield as of March 31, 2015, was higher than its own 20-year average, as well as 60%
higher than the dividend yield on U.S. stocks as of March 31, 2015.3 Although dividend yield is not a primary
criterion for how we select value stocks at Brandes, it can contribute to long-term performance.
The European
markets valuations
remain fairly
attractive to us,
especially when
compared to the
U.S. market.

2. Depressed Corporate Profits

Corporate profits in Europe were about 14% below their 10-year inflation-adjusted average.4 While
depressed profits may appear to be a near-term negative, given our view that profitability is cyclical we
believe the current situation presents an opportunity for long-term value investors. In our view, the current
combination of low valuations and low profits could provide investors with an opportunity to benefit from
potential capital appreciation if both measures revert toward historical averages.
3. Diversified Revenue Streams
Many Europe-domiciled corporations are quite diversified. For instance, European corporations derive
about a third of their revenue from emerging-market regions,5 which represent 39% of global gross domestic
product (GDP)6 and are forecasted to deliver over 70% of global GDP growth in 2015.7 The recent weakness
of the euro has helped make many of these European companies more competitive with U.S. peers. A lower
euro versus the U.S. dollar could, in time, provide a tail wind to profits for many European companies.
4. Signs of Progress
Austerity has helped balance primary budgets in the euro zone. Additionally, some countries have made
progress on other structural reforms. In Spain, for example, these include pension reforms and streamlined
government administration.
Despite economic and political uncertainties in the region, our bottom-up fundamental research has led us to
uncover a number of attractively valued companies in Europe, Mr. Germain points out. Companies that look
particularly attractive include those in food & staples retailing and integrated oil & gas sectors.
Among our holdings in the European food & staples retailing sector, we view those domiciled in the United
Kingdom as being particularly attractive. While we appreciate the headwinds that have been pressuring
these retailers over the last number of years (e.g., depressed U.K. economy and market share losses to hard
discounters), we believe, over the long term, these represent attractive businesses trading at significant discounts
to their true worth, with value in their property ownership and the capacity to improve and restructure
their operations.

As of 3/31/2015. Sources: Morgan Stanley, MSCI, S&P and other national sources. CAPE (cyclically adjusted P/E) attempts to show the relationship between price
and multi-year average company earnings. This valuation measure seeks to smooth out earnings uctuations caused by business cycles while also reecting the
long-term effects of ination.
3
Source: Brandes Investment Partners, MSCI via FactSet as of 3/31/2015. 20-year average: 3.03%. Europe represented by the MSCI Europe Index. The declaration
and payment of shareholder dividends are solely at the discretion of the issuer and are subject to change at any time.
4
Source: SG Cross Asset Research/Equity Quant, MSCI as of 3/31/2014. European companies represented by the MSCI Europe Index.
5
Source: Morgan Stanley Research, Global Exposure Guide 2014, May 2014
6
Source: International Monetary Fund, World Economic Outlook Database, October 2014
7
Source: Deutsche Bank, January 2015. There is no assurance that a forecast will be accurate. Because of the many variables involved, an investor should not rely
on forecasts without realizing their limitations.
2

PAGE 3

Exhibit 2: Europe Among Its Cheapest Ever vs. the United States
MSCI Europe Index CAPE Divided by U.S. stocks CAPE, March 31, 1985 March 31, 2015

1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
Mar-15

Mar-13

Mar-11

Mar-09

Mar-07

Mar-05

Mar-03

Mar-01

Mar-99

Mar-97

Mar-95

Mar-93

Mar-91

Mar-89

Mar-87

Mar-85

0.5

Source: Morgan Stanley, MSCI, S&P, various national sources; CAPE (cyclically adjusted price/earnings ratio) dened as ination adjusted price to 10Y
average EPS from continuing operations. CAPE attempts to show the relationship between price and multi-year average company earnings in order
to better estimate long-term earnings power. This valuation measure seeks to smooth out earnings uctuations caused by business cycles while also
reecting the long-term effects of ination. In this chart, a reading above 1.0 indicates that prices for Europe stocks are more expensive than U.S. stocks
in relation to their underlying long-term company earnings. A reading below 1.0 indicates U.S. stocks are more expensive on a long-term price/earnings
basis. Past performance is not a guarantee of future results. Please note that all indices are unmanaged and are not available for direct investment. U.S.
market represented by S&P 500 composite. The CAPE is based on prices from the Standard & Poors Composite Stock Price Index, now known in its current
form as the S&P 500 Index.

In the European oil & gas sector, there continues to be a number of attractive investment opportunitieseven
after accounting for the recent fall in oil prices, Mr. Germain adds. As shown in Exhibit 3, the European
oil sector is trading at a historically wide earnings valuation discount to the overall European market. Our
holdings are concentrated in the large integrated oil & gas businesses that operate globally across many parts
of the hydrocarbon value chain. Along with their compelling valuations, the companies hand-selected by
Brandes feature a geographically diverse resource base, solid balance sheets and good cost positions.
However, the current excess supply is clearly weighing on oil prices and to the extent that this imbalance
continues, these investments will likely underperform the market, Mr. Germain notes.
The European oil
sector is trading at
a historically wide
earnings valuation
discount to the
overall European
market.

Exhibit 3: Attractive Valuations in European Oil

Mean Industry Valuations Relative to Market, January 31, 1990 February 28, 2015
1.5x
1.4x

Industry Valuation* Relative to Market

>1.0 = premium

1.3x
1.2x
1.1x
1.0x
0.9x
0.8x
0.7x

<1.0 = discount

Feb-15

Feb-14

Feb-13

Feb-12

Feb-11

Feb-10

Feb-09

Feb-08

Feb-07

Feb-06

Feb-05

Feb-04

Feb-03

Feb-02

Feb-01

Feb-00

Feb-99

Feb-98

Feb-97

Feb-96

Feb-95

Feb-94

Feb-93

Feb-92

Feb-91

0.5x

Feb-90

0.6x

Source: Worldscope via FactSet. Market dened as the top 25% of companies in developed Europe based on market cap, after exclusion of securities with free
oat market cap <US$100 million. As of 2/28/2015, this generally included all companies with market caps in excess of US$500 million. Past performance is
not a guarantee of future results. *Valuations measure based on earnings yield, average earnings over trailing four years divided by price.

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PAGE 4

Emerging Markets: Diering Regional Opportunity Sets

The poor performance of many emerging markets over the past three years has led to an increased number of
value opportunities.
A variety of concerns have contributed to market declines, including the dramatic slide in oil prices in the
fourth quarter of 2014, the Russia-Ukraine conflict, as well as Chinas slowing economic growth and currency
depreciation in a number of important markets. Due to these factors, emerging-market valuations have moved
closer to levels last seen during the 2008 global financial crisis, as shown in Exhibit 4 (on page 4).

The differing regional opportunity sets can also be observed from each countrys forward price-to-earnings
(P/E) ratios, as shown in Exhibit 1 on page 1, with Russia and Brazil showing much more attractive valuation
multiples compared to most other countries.
In times of macroeconomic dislocation when many investors are running for the exits, we often uncover
pockets of value by focusing on companies with attractive valuations, comments Louis Lau, CFA, Director,
Investments Group, Brandes Investment Partners.
Investors using an index approach to emerging-market investing will likely miss the opportunity offered by
individual companies that remain fundamentally sound against the macroeconomic and geopolitical upheaval,
Mr. Lau points out. While valuations are attractive in emerging markets, it is important to discriminate at the
company level.
For example, Brazil, which has been affected by alleged corruption at a state-run oil company, fiscal austerity,
political gridlock, drought and a depreciating currency, has presented value opportunities in industries
such as food & staples retailing, apparel and construction services. Companies in these industries were
previously not inexpensive enough for Brandes to get involved. In addition, we have invested in utilities, banks,
telecommunications and packaged food companies with attractive valuations.
Exhibit 4: Emerging-Market Valuations Near 2008 Crisis Levels
MSCI EM Index P/B, March 31, 1995 March 31, 2015
3.5x

MSCI Emerging Markets Index P/B

Investors using an
index approach to
emerging-market
investing will
likely miss the
opportunity offered
by individual
companies.

Equity performance across emerging markets has diverged considerably, as shown in Exhibit 5 (on page
5). Over the last few quarters, we have found incremental value opportunities in Latin America, Russia and
Eastern Europe, as these regions have already factored in a more challenging backdrop. In contrast, the Asian
markets have not corrected as much nor offered as many new value ideas.

MSCI EM
Performance
1999: +66%

3.0x

MSCI EM
Performance
2009: +79%

MSCI EM
Performance
2003: +56%

2.5x
2.0x
1.5x
1.0x

Asian Crisis
1997-1998

Latin America Crisis

2000-2002

Global Financial
Crisis 2008

Current
(3/31/2015)

0.5x

Mar-95

Mar-00

Mar-05

Mar-10

Mar-15

Source: MSCI. Past performance is not a guarantee of future results. Please note that all indices are unmanaged and are not available for direct investment.

PAGE 5

In Russia, many market participants seem to currently view investing there as a binary decision, which means
they are either in or out of the market with no regard for individual company merits or valuations. Political
instability, economic sanctions and a sharp drop in oil prices have contributed to the difficult investing
environment in Russia. However, although the magnitude of the recent decline in oil prices and the ensuing
weakening of the ruble were unexpected, we continue to invest in a hand-selected group of companies that are
relatively resilient and offer an attractive risk/reward tradeoff for the patient, long-term investor.
For example, we continue to hold one of Russias largest oil producersa vertically integrated company
with operations at all levels of gas and oil exploration, production and refining. Market sentiment toward
the company declined significantly in the latter half of 2014 due to geopolitical concerns around Russia,
particularly the situation in Ukraine, as well as the global oil-price decline.
In our view, the company is actually a fairly defensive business in a declining oil-price environment. The
company has a healthy oil reserve life of 20 to 27 years (as of December 31, 2014), higher than many oil
companies around the world. Its historical profitability per barrel of oil has also been quite stable and less
volatile than the oil market price, due partly to Russias progressive export tariff on oil. Furthermore, much of
the companys revenue is generated in U.S. dollars, while a portion of its costs are paid in rubles. As a result,
the weaker ruble could potentially have a positive net impact on the company.
We have found
incremental value
opportunities in
Latin America,
Russia and
Eastern Europe.

Exhibit 5: Divergent Performance: Emerging-Market Regions

Price Indexed to 3/31/2012=100
120

MSCI EM (Emerging-Market) Asia

MSCI EM
MSCI EM Eastern Europe
MSCI EM Latin America

115
110
105
100
95
90
85

Mar-15

Dec-14

Sep-14

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

80

Source: FactSet; as of 3/31/2015

Past performance is not a guarantee of future results. One cannot invest directly in an index.

Selectivity Is Key in the United States and Japan Following Broad-Based Gains

United States: Select Company Level Research

The U.S. market in general appears fully valued when viewed over the long term, in part due to profit margins
near all-time highs. The cyclically adjusted P/E of U.S. stocks is 27.2x vs. the long-term (1871-2014) median of
16.0x. (See Exhibit 6 on page 6).
While its difficult to find value in the United States, select areas of opportunity exist, especially among U.S.
banks, as companies have improved their balance sheets and decreased leverage, says Brent Fredberg, Director,
Investments Group, Brandes Investment Partners. A number of U.S. banks continue to build capital, trade at
low valuations, and demonstrate potential for increased capital return, he adds.

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PAGE 6

While U.S. banks are better capitalized than theyve been historically, valuations are low in part due to depressed
earnings. We believe earnings are depressed for two primary reasons:
1. Abnormally low interest-rate environment, which makes it dicult for banks to earn adequate profits
on their substantial deposit bases, and
2. Heightened level of compliance and litigation expense that should ease with time.
Exhibit 6: U.S. Market No Longer Inexpensive
Cyclically Adjusted P/E (CAPE), January 1880 March 31, 2015

50
45
40

27.2x
at 3/31/15

35

We are also
seeing opportunity
arise from a
refreshing increase
in valuation
dispersion.

30
25
20

Median
16.0x

15
10
5
0
1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2015

Source: Prof. Robert Shiller online data: http://www.econ.yale.edu/~shiller/data.htm. Past performance is not a guarantee of future results. CAPE attempts
to show the relationship between price and multi-year average company earnings in order to better estimate earnings power. This valuation measure
seeks to smooth out earnings uctuations caused by business cycles while also reecting the long-term effects of ination. U.S. market represented by
S&P 500 composite. The CAPE is based on prices from the Standard & Poors Composite Stock Price Index, now known in its current form as the S&P 500
Index. Professor Shiller uses monthly dividend and earnings data computed from the S&P four-quarter totals for the quarter since 1926; Professor Shiller
uses dividend and earnings data before 1926 from Cowles and Associates.

Not only could earnings significantly increase if these factors normalize, but the return of shareholder capital
through share buybacks and increased dividends could contribute to higher valuation levels as well, Mr.
Fredberg explains.
The recently completed Comprehensive Capital Analysis and Review (CCAR) process supports our underlying
thesis that capital levels among the largest U.S. banks are building steadily and are making the return of capital
to shareholders a reality, Mr. Fredberg adds. The CCAR, a U.S. Federal Reserve program now in its fifth year,
evaluates the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies,
including the firms planned capital actions such as dividend payments and share buybacks and issuances.
Strong capital levels act as a cushion to absorb losses and help better ensure that banking organizations have
the ability to lend to households and businesses even in times of stress, according to the Federal Reserve.8
We are also seeing opportunity arise from a refreshing increase in valuation dispersion, with intra-sector
differences expanding. For example, while investors have been enamored with the biotech portion of the
healthcare sector over the last two years, potential value opportunities exist in less exciting areas such as
healthcare services and medical products. Similarly, while the cloud and social networking areas of technology
are all the rage, a large number of boring technology stocks still are selling at what we view are discounted
valuations. These one-time market favorites typically have had high returns on capital, healthy growth
rates, high customer switching costs, and have returned a significant portion of their ample free cash flow
to shareholders.
Some of these companies, with their large international presence, have seen their stock prices come under
pressure recently with the financial statement translation of weaker foreign currencies back into the U.S. dollar,
but their strong balance sheets have allowed them opportunistically to repurchase shares at attractive discounts
to our estimates of fair value.

Source: U.S. Federal Reserve, as of March 2015 http://www.federalreserve.gov/newsevents/press/bcreg/20150311a.html

PAGE 7

Finally, we look forward to more opportunities arising as we expect the near record-high U.S. profit margins
to return to more normal levels. We dont profess to know exactly what will drive this normalization to occur,
whether its the stronger U.S. dollar, the eventual increase in real wages as unemployment continues to decline,
or simply competitive pricing dynamics within a number of industries, Mr. Fredberg points out. However,
what we do know is that our continued commitment to a bottom-up company analysis will enable us to
be readyamid changing market conditionsto take advantage of further potential mispricings when they
do arrive.

Japan: Signs of Progress

Japan Prime Minister Shinzo Abe, who took office in 2012, introduced a three arrows approach to revitalize
the economy following two decades of sluggish growth. The three arrows consist of fiscal stimulus, monetary
policy easing and structural reforms9 including a plan to reduce the corporate tax rates in stages, from 35%
to below 30%, which is set to begin in the 2015 fiscal year.10 These government reform initiatives and growing
investor optimism on Japans economic prospects helped drive Japans equity market higher starting in late
2012, following the governments announcement of its economic revitalization plan.
While the Japanese equity market as a whole no longer appears deeply undervalued to us due to the
sustained rise in equity prices, we continue to find clusters of opportunity in a wide range of companies
exhibiting attractive valuationsfrom small-capitalization, domestically focused and cash-rich firms to largecapitalization, globally competitive auto companies.
We view the Japanese governments focus on improving corporate governance and return on equity (ROE) as
positive signs for companies in Japan and their investors. We continue to invest in what we believe are attractively
priced, fundamentally sound companies in Japan, including some domestically and globally facing companies
with strong balance sheets, says Shingo Omura, CFA, Director, Investments Group, Brandes Investment Partners.
We remain optimistic about the long-term potential of corporate profitability in Japan, as benefits from cost
reduction programs initiated during the 2008 financial crisis and during the long period of a strong Japanese
yen begin to bear fruit. Additionally, we are encouraged by the increased attention placed by the Japanese
government on improving corporate governance and implementing structural reforms with the intention of
revitalizing the economy and improving overall returns on capital.

Our continued
commitment to a
bottom-up company
analysis will enable
us to be ready to
take advantage of
further potential
mispricings.

There have been a number of notable initiatives that appear to be paving a path for improved corporate
governance, which we believe is key for Japanese companies in their efforts to raise returns on equity to global
standards. These initiatives include:
1. Introduction of the Japanese Stewardship Codewhich calls on shareholders to disclose how they vote
at annual general meetings and engage more actively with company management, with the ultimate goal of
promoting sustainable growth in the corporate sector; 127 institutions have signed the code.11
2. Introduction and adoption of the JPX-Nikkei Index 400this new index, which started in January 2014,
includes 400 companies that meet global investment standards such as efficient use of capital and investorfocused management.12
3. Implementation of the Corporate Governance Code comply-or-explain provision13this requires
companies subject to the code to comply with its principles or explain why they cannot do so.
Over the past two decades, ROEs in Japan have been hampered by low operating margins brought on by a
high cost structure and deflation, in addition to the buildup of excess capital following the banking crisis
in the late 90s. The aforementioned initiatives, plus the improvement in the long-term outlook of the Japanese
economy, appear to be positively impacting many Japanese companies as they are now beginning to have
a stronger focus on shareholder returns. Dividends and share buybacks have been on the rise, as shown in
Exhibit 7 (on page 8), in an effort to reduce excess capital. Additionally, operating profitability has been
improving as cost reduction plans are starting to gain traction. We believe these are significant developments
and ROEs over the long term will continue to improve. Exhibit 8 (on page 8) shows operating margins and
ROE have been improving for companies in the Tokyo Stock Price Index (TOPIX).

T he Wall Street Journal blogs, For Abenomics, Third Arrow is the Hardestand Most Needed http://blogs.wsj.com/economics/2014/02/25/for-abenomicsthird-arrow-is-the-hardest/tab/print/
10
The Wall Street Journal, Japan to Lower Corporate Tax Rates, December 30, 2014 http://www.wsj.com/articles/japan-to-lower-corporate-tax-rate-1419935308
11 
Reuters, Almost 130 institutional investors adopt Japan shareholder code, June 10, 2014 http://www.reuters.com/article/2014/06/10/japan-stocksstewardshipcode-idUSL4N0OR2CC20140610;
12
Source: Tokyo Stock Exchange, http://www.tse.or.jp/english/market/topix/jpx_nikkei.html
13 
Tokyo Stock Exchange, Japans Corporate Governance Code, page 5, March 5, 2015 http://www.tse.or.jp/english/listing/cg/cg-code/b7gje60000024vhl-att/
b7gje60000029gfh.pdf
9

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PAGE 8

Witnessing such progress in Japan is a good reminder that it may not take a lot in the way of good news for
fundamentals to come to the forefront.

Exhibit 7: Capital Return Policies Are Improving

Improved Capital Return Policies, 2001 2014e
12
10

Buyback

8
Yen (trillions)

6
4
2
0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014*

*Estimated: Total dividend amount is estimated with dividend yield and market cap. Equity issuance shown as negative. Past performance is not
a guarantee of future results. The declaration and payment of shareholder dividends are solely at the discretion of the issuer and are subject to
change at any time.
Sources: Nikkei Astra, BofA Merrill Lynch Global Research. Data based on companies listed on the Tokyo Stock Exchange.

Exhibit 8: Corporate Japan: Improving Operating Margin and Return on Equity

March 31, 1995 March 31, 2015

16%
14%

Operating Margin

ROE

12%
10%
8%
6%
4%

Source: FactSet; as of 3/31/2015. Japan represented by TOPIX Index.

Mar-15

Mar-14

Mar-13

Mar-12

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Mar-04

Mar-03

Mar-02

Mar-01

Mar-00

Mar-99

Mar-98

Mar-96

0%

Mar-97

2%
Mar-95

Operating
protability has
been improving as
cost reduction
plans are starting
to gain traction.

Dividend

PAGE 9

Two years ago in this quarterly commentary, we cited some of the challenges Japan has faced, including its
sovereign debt and demographic issues, as well as the prolonged bearish sentiment on the equity market and
the economy at that time. We noted then that despite the uncertainties, there were still meaningful fiscal,
monetary and policy options available to the Japanese government to combat serious macroeconomic issues.
Not surprising to us, the Japanese equity market rebounded following the governments move to implement
such policies starting in late 2012.
Over the years, the market has taken a negative view of Japan for many macroeconomic reasons, as the firms
founder and Chairman Charles Brandes points out in his recently published book, Brandes on Value: The
Independent Investor. Notwithstanding the economic uncertainties and market view on Japan in the last
few decades, we never let these factors overshadow the unique opportunities that many Japanese companies
presented to the rational, long-term value investor, he stated.

Conclusion: Throughout changing investment climates, markets across the globe may offer
pockets of value for investors who know where and how to look.
As value investors, we see investment conditions that are conducive to value equity investingespecially in
Europe and emerging markets.
As the short-term performance cycles of global markets have historically changed leadership, it is important to
remember that over the long term, we believe valuations remain key drivers of returns.14

Look to Brandes to
pursue value in all
types of investment
conditions.

Look to Brandes to pursue value in all types of investment conditions. Our global analysts scan the globe for
companies with the potential to deliver market-beating returns. We believe this is the best way we can help
clients pursue their long-term financial goals.

This phenomenon is thoroughly examined in a Brandes Institute paper, Value vs. Glamour: A Long-Term Worldwide Perspective.
Using data from 1980 to 2014, the study showed that over the long term, the value premium was evident across valuation metrics, regions and market capitalizations.
http://www.brandes.com/docs/default-source/brandes-institute/value-vs-glamour-worldwide-perspective.pdf

14 

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PAGE 10

Dividend Yield: Dividend per share divided by price per share.

Price/Book: Price per share divided by book value per share.
Price/CF: Price per share divided by cash ow per share.
Price/Earnings: Price per share divided by earnings per share.
Return on equity: Earnings per share divided by equity value per share.
Not all investment strategies are suitable for all investors.
The information provided in this material should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that
any security transactions, holdings, or sectors discussed were or will be protable, or that the investment recommendations or decisions we make in the future will
be protable or will equal the investment performance discussed herein. Portfolio holdings and allocations are subject to change at any time and should not be
considered a recommendation to buy or sell particular securities. Strategies discussed herein are subject to change at any time by the investment manager in its
discretion due to market conditions or opportunities. Indices are unmanaged and are not available for direct investment. Market conditions may impact performance.
The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain
regulatory environment may have a negative impact on future performance.
International investing is subject to certain risks such as currency uctuation and social and political changes which may result in greater share price volatility;
such risks are increased when investing in emerging markets. Additional risks associated with emerging markets investing include smaller-sized markets, liquidity
risks, and less established legal, political, social, and business systems to support securities markets. Some emerging-market countries may have xed or managed
currencies that are not free-oating against the U.S. dollar. Certain of these currencies have experienced, and may experience in the future, substantial uctuations
or a steady devaluation relative to the U.S. dollar. Emerging markets investments can experience substantial price volatility in the short term and should be
considered long-term investments. Investments in small and medium capitalization companies tend to have limited liquidity and greater price volatility than large
capitalization companies.
The MSCI Emerging Markets Asia Index measures equity market performance of emerging markets in Asia.
The MSCI Emerging Markets Eastern Europe Index captures large-and mid-cap representation among companies in the Czech Republic, Hungary, Poland and Russia.
Source: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-eastern-europe.pdf
The MSCI EAFE (Europe, Australasia, Far East) Index with net dividends measures equity market performance of developed markets in Europe, Australasia, and the Far East.
The MSCI Europe Index with net dividends measures equity market performance of developed markets in Europe.
The MSCI Emerging Markets Index with gross dividends measures equity market performance of emerging markets.
The MSCI Frontier Markets Index includes large, mid and small cap representation and covers approximately 99% of the investable equity universe across all Frontier
Markets countries. Source: http://www.msci.com/products/indexes/country_and_regional/fm/
The MSCI Emerging Markets Latin America Index measures equity market performance of emerging markets in Latin America.
The MSCI World Index with net dividends measures equity market performance of developed markets.
The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component
of any nancial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain
from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any
future performance analysis, forecast or prediction. The MSCI information is provided on an as is basis and the user of this information assumes the entire risk of
any use made of this information. MSCI, each of its afliates and each other person involved in or related to compiling, computing or creating any MSCI information
(collectively, the MSCI Parties) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness,
non-infringement, merchantability and tness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any
MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost prots) or any other damages.
(www.msci.com)
The Russell 2000 Index with gross dividends measures the performance of the small-capitalization segment of the U.S. equity universe. The Russell 2000 Index is a
subset of the Russell 3000 Index.
The S&P 500 Index with gross dividends measures equity performance of 500 leading companies in industries of the U.S. economy.
The S&P Developed Ex-U.S. SmallCap Index with gross dividends measures the equity performance of small-capitalization companies from developed markets
excluding the United States.
The Tokyo Stock Price Index (TOPIX) with gross dividends is calculated based on the performance of all domestic common stocks listed on the Tokyo Stock Exchange
First Section. The total returns for the index prior to 12/31/1998 are not available; therefore returns are derived by combining the price index returns and corresponding
month-end yields (the source of this index information is FT Interactive Data Corporation). From 12/31/1998 to present time, the returns for the TOPIX are calculated
on a total return basis.
The foregoing reects the thoughts and opinions of Brandes Investment Partners exclusively and is subject to change without notice.
Brandes Investment Partners is a registered trademark of Brandes Investment Partners, L.P., in the United States and Canada.

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