Goldman Sachs BRICs Portfolio

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Equity Monthly Report

August 2013






Past performance does not guarantee future results, which may vary.
For existing
investors only
.

This information 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 investment decisions made in the future will be

profitable or will equal the
performance of investments discusse
d in this document. Any mention of a past investment decision is intended only to illustrate our investment approach or
strategy, and is not indicative of the performance of our strategy as a whole. Any such illustration is not necessarily repr
esentative

of other investment
decisions. A complete list of past recommendations may be available on request. Please see additional disclosures.



G
oldman
S
achs

BRICs Portfolio

Market review


Growth and Emerging Equity Market performance in August reflected rising geopolitical tensions, depreciating currencies and
increasing
foreign outflows.

The MSCI BRIC Index declined by 1.2% in August, leaving year to date returns at
-
12.4%. China
was the only BRIC market
that

posted gains during the month, which was driven by positive macro data, particularly

better
than expected PMIs, wh
ich contri
buted to sentiment improvement. India posted the lar
gest declines during the month.
The
Indian Rupee

declined 9% during the month despite a number of policy initiative to defend the local currency. Finally, a
slowdown in GDP growth as well as higher than expected inflation also weighed on the equity market.
Worsening situations in
Egypt and Syria weighed

on global equity markets and oil prices responded accordingly, with the international Brent index
hitting a six
-
month high. Gold prices also spiked to a three
-
month high.
The Materials and Information Technology sectors
outperformed, while the Utilities a
nd Health Care sectors underperformed the broader market.


(All index returns in USD)

P
erformance attribution

The
G
oldman
S
achs

BRIC
s

Portfolio
underperformed

its benchmark, the MSCI BRIC Index,
on a net of fee
s

basis,
during
August
.
India and Brazil contributed to the portfolio’s relative performance, while China was the largest detractor from
relative
returns.


At the country level,
Brazil

contributed

to the portfolio’s relative performance during August. Our holding in
Klabin
, a
leading paper and pulp producer in Brazil, contributed to relative performance as the company benefited from a stronger than
expected pricing environment, which should lead to upward margin revisions for the rest of the year.


While our overall positioning

in
China

detracted from relative performance, our holding in
Zhuzhou CSR
,
who are engaged
in the manufacture of electrical components for the rail industry, was the largest contributor to relative performance at the

stock level. The stock re
-
rated after t
he central government increased railway fixed asset investment and China Railway
Corporation started its equipment procurement. We believe that the railway construction will accelerate by 2015 and railways
equipment
demand will see stable growth, which should benefit Zhuzhou CSR.



Russia

was a
detractor from relative performance as our holding in
Magnit
, the largest retailer in Russia, underperformed
during the month. This was partially driven by profit taking after
strong July performance and a good trading update. Local
shares that we hold also underperformed global depositary receipts as the reforms of the stock exchange were delayed until th
e
second quarter of 2014.


Finally, although
India

was the largest contributor to the portfolio’s relative performance, our holding in
Titan Industries
, a
jewelry company, underperformed during the month after the Reserve Bank of India stipulated 100% upfront cash margin for
gold imports. In addition, a w
eaker jewelry demand and sharp Rupee depreciation raised concerns of margin compression for
the company and the name detracted from relative performance.


Outlook


Growth and Emerging markets underperformed developed markets during the first half of the year, as many of
developing

markets faced macroeconomic headwinds

and negative headlines.
We fully acknowledge
the
se
medium
-
term

macro

Past performance does not guarantee future results, which may vary.
For existing investors
only
.

This information 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 investment decisions made in the future will be

profitable or will equal the
performance of investments discussed in this
document. Any mention of a past investment decision is intended only to illustrate our investment approach or
strategy, and is not indicative of the performance of our strategy as a whole. Any such illustration is not necessarily repr
esentative of other
investment
decisions. A complete list of past recommendations may be available on request. Please see additional disclosures.



headwinds

and incorporate them
in our bottom up fundamental analysis
, including

downside risks to economic growth in
China, potential impacts of QE tapering on broader equity markets, as well as
some
country specific challenges.
As bottom
-
up
fundamental investors, we constantly look acr
oss 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 will outperform over the
market cycle. In particular, we look for companies w
ith 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 Growth and Emerging
m
arkets. Finally, we seek to invest in compa
nies 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 or improving fundamentals

and secular growth opportunities will serve us well
.



The macro concerns that have driven down
Growth and Emerging M
arkets

equities
recently

have not changed our positive
view of EM equity fundamentals.

We believe the structural story is still intact

and

the domestically
-
focused growth of the
Growth
and Emerging Markets

will continue to drive strong returns in their equity markets over the long term.

Finally, we
believe that the sell off we have seen in the Growth and Emerging markets equities, which curr
ently trade at almost
a
25%
discount to developed markets on forward looking P/E basis
1
, forms a very attractive entry point for long
-
term investors.














1

Source: Factset, as at 28
-
Jun
-
2013.



Equity Monthly Report

August 2013








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data will vary and may n
ot be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordin
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these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimat
e
d, based on
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