PROCESS

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 3 PART PROCESS

How Brandes Works

PORTFOLIO

Part 1 Part 2 Part 3

ANALYSIS VALUATION CONSTRUCTION

• 25 Analysts • Investment Committee • Investment Committee makes

decisions for an entire strategy
• 8 Global sector teams • Seasoned professionals
• Aim to build portfolios with high
• Search for value • Value each business in
margin of safety
conjunction with the Analyst
• Produce a research
• Client portfolio management
report that recommends
and trading implement portfolio
a company valuation
decisions at the client level

AS OF JUNE 30, 2016 | Margin of Safety: The margin of safety for any security is defined as the discount of its market price to what the firm believes is the intrinsic value of that security.
Brandes has six equity investment committees: Large-Cap International, Large-Cap Global, Emerging Markets, Small-Cap, Small-Mid Cap and All-Cap.
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 Part 1: Analysis — Global Focus
Experienced Analysts Cover the Globe

25 Research Analysts in 8 Sector Teams:

1. Basic Materials
2. Consumer Products
3. Financial Institutions
4. Healthcare
5. Industrials
6. Technology
7. Telecommunications
8. Utilities

Cover Companies Across

All Market Caps
AS OF JUNE 30, 2016
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 Part 1: Analysis — Understanding a Business
Companies Operate in Context
Industry Factors
 Threat of New Entrants
 Threat of Substitutes
 Buyer Power
 Supplier Power
 Rivalry

Country Factors
 Regulation
 Politics
 Fiscal Stability

Macro Factors
 Business Cycle
 Currencies
 Demographics
Fundamental, Company-Focused

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 Part 1: Analysis — Disciplined Research Process
Objective: Estimate a Company’s Value

Identifying Undervalued Companies

Typical  Attractive valuation

characteristics
 Proven ability to generate
free cash flow
 Record of growing
shareholder wealth
Targets  Sufficient financial history  Adequate liquidity  Bias for conservative
capitalization structures

Determining Value of the Business

Focus on
 Sustainable profits  Competitive advantage  Market position
Underlying  Brand strength  Barriers to entry  Differentiated product or service
Business  Downside risks  Governance issues  Regulatory/policy environment
Value

Intrinsic Values Assessed/Updated by Analysts

*Intrinsic Value: The actual value of a company or an asset based on an underlying perception of its true value.

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 Part 1: Analysis — Fundamental Research
Screening Metrics & Valuation Methods Vary by Sector

Sector Name Sector-Specific Examples

1. Basic Materials NAV of Commodity Reserves, P/B, P/E

2. Consumer Products P/E, Sales/Square Foot, P/FCF

3. Financial Institutions P/TBV, Deposit Premium, P/Pre Provision Income

4. Healthcare P/E, DCF, Book Value + Capitalized R&D

5. Industrials P/E, P/B, DCF

6. Technology P/FCF, DCF, P/E

7. Telecommunications P/FCF, DCF, P/E

8. Utilities P/B, P/E, EV/Regulatory Asset Base

Adjustments to book value and normalization of earnings or cash flow vary by sector.
Deposit Premium: valuing a bank as a percentage of (or at a premium to) its deposits. Discounted Cash Flow: discounting future cash flow using a discount rate/cost of capital to calculate its
present value. Enterprise Value: a measure of a company’s total value. Net Asset Value of Reserves: the value of a company’s commodity assets less any associated liabilities. Price/Book: price
per share divided by book value per share. Price/Earnings: price per share divided by earnings per share. Price/Cash Flow: price per share divided by cash flow per share. Price/Free Cash Flow:
market capitalization divided by free cash flow. Price/Pre-Provision Income: price per share divided by the pre-provision income for financial institutions. Price to Tangible Book Value: Share price
divided by tangible book value per share
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 Part 2: Valuation — Intrinsic Value
Investment Committee (IC) Establishes Intrinsic Value Estimate

Analyst/Investment Committee Interaction

 IC formally meets weekly
 IC establishes intrinsic value estimate for each company based on:
 Analyst’s comprehensive report
 Other publicly available information
 Knowledge and experience
 IC scrutiny process - analysis from multiple points of view:
 Key drivers specific to company/industry
 Risk factors
 Cyclical vs. secular risks

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 Part 3: Construction — Portfolios
Based on Margin of Safety

 Portfolios typically hold 35 to 85 positions: depends on strategy and

opportunity set
 Allocations to individual securities primarily depend on margin of safety
 Other allocation factors include:
 Correlated risks
 Liquidity
 Diversification guidelines
 Range of intrinsic value estimates

Monitoring Portfolios
 Investment Committees review weekly reports and large moves daily
 Reports show current margin of safety and allocation for every holding based
on latest share price

Margin of Safety: The margin of safety for any security is defined as the discount of its market price to what the firm believes is the intrinsic value of that security.

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 Part 3: Construction — Margin of Safety

BUY BUY

This is a hypothetical illustration of value investing concepts. It does not represent the performance of any specific security. It assumes intrinsic value changes over time. Actual results will vary. No
investment strategy can assure a profit or protect against loss.*Intrinsic value: “In general terms it is understood to be that value which is justified by the facts, e.g., the assets, earnings, dividends,
definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excess”— Security Analysis, 1934, page 17. **The margin of safety
for any security is defined as the discount of its market price to what the firm believes is the intrinsic value of that security.
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 Part 3: Construction — Allocation Factors

MODERATE HIGH AGGRESSIVE

ALLOCATION ALLOCATION ALLOCATION
Margin of Safety/Potential Return*

LOW / NO MODERATE HIGH

ALLOCATION ALLOCATION ALLOCATION

Other Factors

LOW / NO MODERATE 
PASS / SELL Correlated risks
ALLOCATION ALLOCATION
 Liquidity
 Diversification guidelines
Unfavorable Favorable  Range of intrinsic
value estimates**
Other Factors

*The margin of safety for any security is defined as the discount of its market price to what the firm believes is the intrinsic value of that security.
**Intrinsic value estimates can change over time.
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 Part 3: Construction — Equity Sell Discipline
Investment Committee Decision

 Full sale when a security’s price reaches estimate of intrinsic value

 Full or partial sale may occur if our estimated intrinsic value declines,
making the margin of safety unattractive
 Partial or full sale may occur to free up cash for other securities with
estimated higher margin of safety

Average Annual Portfolio Turnover Typically = 20 - 40%

Margin of safety: The margin of safety for any security is defined as the discount of its current market price to what we believe is the intrinsic value of that security.
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 Part 3: Construction — Assembling Portfolios

Client Portfolio Managers

 Implements Investment Committee decisions according to client investment
policy statements/requirements:
 Social restrictions
 Country/industry prohibition
 Cash limitations

Strategic Trading
 Integrated into decision making
 24 hour trading desk, access to liquidity through multiple global relationships
 Ongoing communication with ICs on price and liquidity opportunities
 Proactive on U.S. market-structure issues, with client benefits in mind
 Focus on best execution: price, minimizing trading costs/market impact

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 3 PART PROCESS

Active, Fundamental Risk Management

Part 1 Part 2 Part 3

ANALYSIS VALUATION CONSTRUCTION

Screening Level Security Level Portfolio Level

• Seeks to find compelling Intrinsic value estimate* Margin of safety** is
areas and avoid expensive considers spectrum of risks primary risk control:
ones using global insights • Company-level risks • Further considerations
− Business, balance sheet, − Correlated risks
corporate governance and − Liquidity
regulatory risk − Diversification
• Macro-level risks − Intrinsic value estimate
− Sensitive to economic or
specific cycles and events
− Foreign exchange

ORGANIZATION LEVEL
∙ Investment Oversight Committee monitors exposures across multiple strategies
∙ Conservative business management of the firm ∙ Team approach ∙ Co-investment

*Intrinsic value estimates can change over time.

**The margin of safety for any security is defined as the discount of its market price to what the firm believes is the intrinsic value of that security.
Diversification does not assure a profit or protect against loss in a declining market.
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 Investment Oversight Committee

The Investment Oversight Committee (IOC) works with our Investment

Committees to ensure the Graham-and-Dodd value process is applied
consistently to portfolios. The IOC also provides additional risk
monitoring and checks/balances, including:
 Monitoring style characteristics and portfolio exposures
 Examining key process and structure issues
 Challenging views on portfolio positioning and significant exposures
 Viewing the portfolio from the perspective of a client/consultant
 The IOC uses third-party tools that include:
Style Research, MorningStar, FactSet and eVestment

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 The Brandes Difference
Purpose-Built to Find Value
 Started as a value investor and maintains this focus 4 decades later
 Cap size
Global Reach and Insight  Sectors
 In-depth research crossing:  Geographies

3-Part Fundamental Process

1. Analysis
2. Valuation
3. Construction

Risk Management Integrated into Process

 Security analysis and valuation
 Portfolio management
 Business management

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 Disclosures
This material is intended for informational purposes only. 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 profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein.
Portfolio holdings and allocations are subject to change at any time. Strategies discussed herein are subject to change at any time by the investment manager in its discretion due to market conditions or opportunities. Market
conditions may impact performance.

Unlike bonds issued or guaranteed by the U.S. government or its agencies, stocks and other bonds are not backed by the full faith and credit of the United States. Stock and bond prices will experience market fluctuations. Please
note that the value of government securities and bonds in general have an inverse relationship to interest rates. Bonds carry the risk of default, or the risk that an issuer will be unable to make income or principal payment. There
is no assurance that private guarantors or insurers will meet their obligations. The credit quality of the investments in the portfolio is no guarantee of the safety or stability of the portfolio. Investments in Asset Backed and
Mortgage Backed Securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.
International and emerging markets investing is subject to certain risks such as currency fluctuation and social and political changes; such risks may result in greater share price volatility.

Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.

The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.

11988 El Camino Real, Suite 600

P.O. Box 919048
San Diego, California
VALUE SPECIALISTS SINCE 1974
CALL 800.237.7119 92191-9048
BRANDES.COM

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