Pictet-Global Megatrend Selection

Pictet-Global Megatrend
Selection
A smart way to invest in global megatrends
October 2014
Pictet Asset Management
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
Table of contents
1
Why thematic investing?
4
2
Megatrends? Why? And How?
7
3
Portfolio construction
14
4
Portfolio characteristics
18
5
Conclusions
26
6
Technicals
29
Appendices
31
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
The development of sector & theme investing at Pictet
Over USD 20 bn in assets under management
REPOSITIONED
Pictet-Digital Communication
Pictet-Telecom
A pioneering fund
focusing on lowcost drug makers
Invests in companies
in the physical and IT
security business
(excludes weapons and
nuclear energy)
1997
2004
2006
1998
1995
2000
Pictet-Leisure
Pictet-Biotech
The world’s first
biotech-focused fund
Interactivity as a key driver in
communication, explores
opportunities of the digital
world for business and
individuals
Pictet- Security
Pictet-Generics
Pictet-Water
The first fund to
invest in the value
chain of the world’s
most critical
resource, Water
REPOSITIONED
2005
Pictet-Timber
Investments span across the
full timber value chain, a
scarcely researched resource of
major relevance for the world
Focus on companies with
the ability to distribute
attractive and sustainable
dividends
2008
2007
2010
Pictet-Global
Megatrend Selection
2009
Exposure to all of our
thematic equity
strategies
High income fund
focusing on utilities and
infrastructure companies
Focuses on the strong
consumption trend of
luxury and aspirational
goods and services
Strategic exposure to Water,
Clean Energy, Timber &
Agriculture
Pictet- High Dividend
Selection
PGSF- Global Utility
Pictet-Premium Brands
Pictet-Env. Megatrend
Selection
Pictet-Agriculture
Pictet-Clean Energy
Invests in the global energy
transition, favoring carbonfree or low-carbon energy
sources and energy efficiency
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Focuses on the world’s
food value chain
Source: Pictet Asset Management, as at Octobre 2014
3
1
Why thematic investing?
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4
New mindset to overcome the traditional allocation straightjacket
Traditional Investing Versus…
… Thematic Investing
›
›
Benchmark driven
›
Non-benchmark view : focus on future
winners
Exposure to secular pockets of growth
›
Regions easy to invest (e.g. developed)
›
›
›
›
›
Broaden diversification
Market Cap constraints : focus on past
winners
No geographical constraints
No market cap constraints
No sector constraints : Thematic
investing is a cross-sector, is looking
for thematic purity
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5
Traditional VS Thematic Equity Allocation
Thematic: A broader set of opportunities
Market cap allocation
Small
Medium
Traditional allocation
Thematic allocation
Large
Domestic
Developed
Emerging
Geographical allocation
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Frontier
Source: Pictet Asset Management
6
2
Megatrends? Why? And How?
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7
Megatrends as drivers of secular growth
›
Megatrends are large, social,
economic, political, environmental or
technological changes.
›
They impact society, the economy,
business, and our everyday lives.
›
They represent seismic shifts,
providing long term investment
opportunities.
10-15
Years
Time Horizon
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Effect is
LARGE
Broad
in scope
8
Megatrends shape the world
Network Economy
Demographic Development
Sustainability
Knowledge & Production Society
Focus on Health
Immaterialization
Polarization
Democratization
Globalization
Commercialization
Acceleration & Complexity
Technology Development
Individualization
Economic Growth
Source: Copenhagen Institute for Futures Studies
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9
So, make the megatrends work for you
Network Economy
Demographic Development
Sustainability
Knowledge & Production Society
Focus on Health
Immaterialization
Polarization
Globalization
Democratization
Premium Brands
Commercialization
Acceleration & Complexity
Technology Development
Individualization
Economic Growth
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10
… and find the right themes to invest in
Network Economy
Demographic Development
Sustainability
Knowledge & Production Society
Focus on Health
Biotech
Immaterialization
Polarization
Security
Generics
Globalization
Digital Communication
Democratization
Water
Timber
Premium Brands
Commercialization
Agriculture
Clean Energy
Acceleration & Complexity
Technology Development
Individualization
Economic Growth
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11
Benefits from including themes in a portfolio
›
›
›
Global equity risk premium
Individual risk / return profiles compared to MSCI World since inceptions
Investment thesis based on
future expectations, not past
winners
Water
Security
Diversification - no benchmark
Generics
Megatrend
Enduring secular performance
Attractive risk/return profiles
compared to global equities
Biotech
Digicom
Premium Brands
Timber
Volatility
›
›
MSCI
Agriculture
Clean Energy
Return
Source: Pictet Asset Management, GIPS, MSCI, Bloomberg, as at 30 September 2014
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12
One investment opportunity in a single fund solution
Combination of nine investment ideas in one single investment fund
AGRICULTURE
With 80m extra people to be fed each year and the human
population increasingly living in urban areas far from sources of
food, companies involved in food production, storage and
distribution offer compelling opportunities for investors.
BIOTECH
With life expectancy and health spending
increasing throughout the developed world, the
demand for more sophisticated, effective and
innovative healthcare solutions will be a major
theme for the future.
TIMBER
With increased demand for building materials and wood pulp
from developing nations, especially China, we seek to capture
capital growth from companies involved in the planting and
management of forests and woodland, and the processing
and supply of timber products.
Internet technology is transforming the way we live, work,
play and communicate. The number of internet users alone is
expected to reach 2.8bn by the end of 2014†. From online
advertising and games, e-commerce, cable and satellite
networks to interactive software and portable smart devices,
we aim to identify the strongest opportunities in this fastgrowing sector.
Water is an irreplaceable and essential commodity. Water use has
increased 9x since 1900 and is set to grow, driven by increased
agriculture, industrial usage and urbanisation*. With over $1trn
in global infrastructure investment needed each year, this sector
offers highly attractive risk-adjusted returns**.
Even in a difficult macro environment, companies making highquality, aspirational goods can show sustainable revenue growth,
superior profitability and strong cash flow. We invest exclusively in
high quality, sought after aspirational goods across a wide range of
sectors including autos, luxury products, food and drink, hotels,
sports, healthcare and fitness.
Driven by rising energy demand and increased
government legislation, this theme invests in
companies poised to benefit from the transition
from fossil fuels to carbon-free and low-carbon
energy – not just solar, hydroelectric and
biomass fuels, but related sectors such as
energy efficiency, storage and transportation.
DIGITAL COMMUNICATION
WATER
PREMIUM BRANDS
CLEAN ENERGY
GENERIC DRUGS
SECURITY
In less developed countries, the urban population is set
to double by 2050^ – and tomorrow’s megacities will
need massive investment to protect public transport,
power plants and other vital infrastructure. IT and
commercial security, increased health and safety
regulations, surveillance and personal security needs
are other key trends we aim to exploit.
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As people in emerging markets demand better healthcare
and greater access to pharmaceuticals, we expect huge
growth in generics – re-badged versions of famous-name
drugs, now off-patent, that offer cheaper but still
effective medicines to consumers.
* Source: FAOSTAT UN and UNESCO & WSSCC, WASH Facts
and Figures and Water Atlas
** Source: OECD/Morgan Stanley/Pictet Asset Management
† Source: IDC, December 2013
^ Source: United Nations, Department of Economic and Social
Affairs, Population Division: World Urbanisation Prospects, the
2009 Revision, 2010
13
3
Portfolio construction
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14
Two steps investment process
Straightforward access to
nine megatrend themes
1
2
Replace outperforming by
underperforming themes
Strategically weighted asset
allocation among themes with
monthly rebalancing
STRATEGIC WEIGHTS AMONG THEMES
BOTTOM-UP STOCK SELECTION AT THEME LEVEL
Strategic support by
Advisory Board
Purity and liquidity
analysis
Invest in stocks with
most attractive riskreward potential
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Optimise portfolio
profile for long-term
investors
15
Step 1 – Monthly rebalancing strategy
› Typically equal-weighted combination of nine investment ideas in one fund
› No fund-of-funds
› Abandon focus on cap weighting
› Broaden diversification
› Extend investment horizon and embrace significant trends
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16
Step 2 – bottom-up stock selection at thematic level
Example: Pictet-Water investment process
850
companies
$1,850bn market cap
c.300
companies
$315bn market cap
STRATEGIC
DEFINITION
OF INVESTMENT
THEMES
Semi-annual advisory
board meeting
› review of recent fund
performance
› update of industry
growth trends
› topical discussions
related to the
themes
IDENTIFICATION
OF INVESTMENT
UNIVERSE
Database screening
› identification of
companies with
relevant theme-related
activities
› qualitative screening
of world equity
database of 40’000
companies
CREATION AND
MAINTENANCE OF
INVESTABLE
UNIVERSE
Quantitative screening
Screen of the investment
universe for net sales,
EBIT, EBITDA to determine
the percent enterprise
value of the overall group
related to the theme and
thus creating the
investable universe of
stocks
› one formal review of
the investment
universe each year
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c.110
stocks
c.60-80
MANAGEMENT
OF INVESTMENT
PORTFOLIO
PICTET-WATER
FUND
stocks
Portfolio construction
and stock selection
› screen & calibrate
investable universe for
purity, trading liquidity
and share price vol. to
determine initial
portfolio weights
› score all stocks with
initial weight > 0
› screen top quartile, then
score stocks with initial
weight ≤ 0
17
4
Portfolio characteristics
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18
Portfolio Metrics
21,72%
1,5%
4,9%
5,33%
0,33%
1,25%
4,15%
4,19%
Small-mid caps bias
Almost no Financials and
Energy
-20%
-30%
-40%
-3,0%
-2,9%
-17,53%
Overweight in Utilities and
Materials
-10%
-2,65%
Strong overweight in
Healthcare
-2,20%
0%
-30,12%
›
10%
-8,17%
›
20%
4,29%
›
›
Higher Emerging markets
exposure
30%
6,71%
›
Sectors, Market Cap and Geographies vs. MSCI World
6,86%
Significant differences compared
with investment along MSCI
World
Source: Pictet, Pictet-Global Megatrend Selection vs. MSCI World, as at 30 September 2014.
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19
Portfolio structure
Breakdown by sector
3%
3%3%
7%
Breakdown by countries
Health Care
Consumer Discretionary
19%
United States
3%
Japan
19%
Industrials
United Kingdom
Information Technology
8%
France
Materials
Utilities
16%
12%
3%
3%
3%
4%
4%
Consumer Staples
Financials
14%
4%
Others
15%
Cash
53%
China
Canada
Brazil
India
4%
Others
Cash
Breakdown by market cap
3%
5%
Cash
24%
68%
Small Cap (<1bn USD)
Mid Cap (incl. MktCap
n/a)
Big Cap (>5bn USD)
Source: Pictet, as at 30 September 2014; small cap < 1bn USD; mid cap 1 - 5bn USD; large cap > 5bn USD
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20
Top 10 holdings September 2014 (433 holdings)
Company
Domicile
% in fund
Strategy
Mkt cap
($ bn)
Segment
USA
0.89%
Biotech
48.60
Life Science Tools
Israel
0.87%
Generics
46.06
Generic
Ireland
0.87%
Generics
63.76
Generic
USA
0.87%
Generics
13.59
Generic
South Africa
0.86%
Generics
17.02
Generic
US
0.81%
Premium brands
77.45
Luxury Goods
USA
0.70%
Agriculture
20.54
Farm Inputs
USA
0.67%
Premium brands
29.39
Apparel
USA
0.67%
Digital communication
70.29
Online Retailing
USA
0.66%
Water
34.41
Water Technology
Source: Pictet, Bloomberg, September 2014
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21
Thematic rotation are difficult to time!
YTD
2013
2012
2011
2010
2009
Generics
Biotech
Timber
Water
Premium Brands
Timber
26%
54%
30%
-6%
32%
58%
Biotech
Digi Com
Biotech
Premium Brands
40%
26%
MSCI World
-6%
Security
11%
27%
52%
MSCI World
3%
Clean Energy
Premium Brands
Digi Com
Generics
Clean Energy
35%
23%
-7%
22%
47%
Digi Com
GMS
Generics
Biotech
Digi Com
Generics
3%
28%
21%
-7%
20%
44%
GMS
Premium Brands
GMS
Premium Brands
Agriculture
Digi Com
2%
27%
19%
-9%
18%
44%
Security
MSCI World
27%
Water
Security
GMS
Security
1%
16%
-10%
17%
39%
Water
Generics
Security
GMS
Water
GMS
0%
25%
16%
-11%
13%
37%
Agriculture
Security
Agriculture
Timber
Timber
-1%
24%
16%
-15%
12%
MSCI World
30%
Clean Energy
Water
Generics
17%
-15%
MSCI World
12%
Water
-1%
MSCI World
16%
Timber
Timber
Digi Com
Agriculture
Biotech
Biotech
-7%
10%
13%
-19%
8%
-1%
Premium Brands
Agriculture
Clean Energy
Clean Energy
Clean Energy
-11%
4%
4%
-21%
9%
23%
Source: Pictet Asset Management as at 30 September 2014, P share classes in USD.
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22
Review of performance
Cumulative Performance
09/09 - 09/14
180
Growth of $100
160
140
120
100
80
09/09
12/09
03/10
06/10
09/10
12/10
03/11
06/11
09/11
12/11
03/12
06/12
5th to 25th Percentile
M edian to 75th Percentile
Pictet-Global M egatrend Selection-I USD
Pictet-Global Megatrend Selection-I USD
MSCI World
Peer group Median
Peer group Average
09/12
12/12
03/13
06/13
09/13
12/13
03/14
06/14
09/14
25th to M edian
75th to 95th Percentile
M SCI World
YTD
2.36
3.89
1.21
1.61
1M
-3.39
-2.71
-2.87
-2.96
3M
-3.00
-2.16
-3.14
-3.06
6M
0.11
2.59
0.92
0.78
1Y
9.59
12.20
9.12
9.13
Ann. 3Y
18.36
17.93
16.08
14.89
Ann. 5Y
11.54
10.86
8.37
7.96
The pe rfo rm a nc e disc lo se d in this do c um e nt is ne t o f c o m m issio ns c ha rg e d to the Fund. The da ta do e s no t ta ke into a c c o unt the subsc riptio n a nd re de m ptio n fe e s
tha t c a n be c ha rg e d by o ur inte rm e dia rie s w ithin the lim its se t fo rth in the pro spe c tus o f the Fund.
So urc e : Lippe r m o nthly da ta , c re a te d w ith MPI Stylus as of 30.09.2014
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23
Historical performance analysis
On average, GMS outperformed MSCI World in up and down markets
Outperformance of GMS according to the amplitude of market
movements
Performance of Pictet-Global Megatrend Selection relative to MSCI World
Relative performance of GMS in up and down markets
15 out of 25: 60%
29 out of 45: 64%
4%
Percentage of times Pictet-Global Megatrend Selection outperformed MSCI World
100%
3%
80%
2%
65%
1%
60%
57%
0%
-15%
-10%
-5%
0%
5%
10%
15%
50%
-1%
-2%
-3%
10 out of 25: 40%
16 out of 45: 36%
-4%
0%
<-5%
Performance of MSCI World
[ -5% ; 0% [
[ 0% ; 5% [
>5%
Performance of MSCI World
Source: Pictet, monthly data in in USD of Pictet-Global Megatrend Selection Gross USD and MSCI World TR Net dividend reinvested, data as at 30/09/2014
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24
24
5
Conclusions
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
25
Conclusions
Why global megatrends?
Why now?
Why Pictet?
›
›
Benefit from exposure to
pockets of growth in the
current low growth
environment.
›
Provides straightforward
access to limited range
of outstanding
investment ideas
›
Long-term growth
through themes
›
Dedicated investment
teams, supported by
experts from the field
›
Pictet is a proven
specialist in theme fund
investments
›
›
Unconstrained
methodology focusing
on future winners
Exposure to secular
growth, little
dependency on cyclical
growth
Favorable risk – return
pattern
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
26
Conclusion
High conviction investments
Choice of thematic investment strategies is agnostic to
›
›
›
Regions & sectors
Market capitalisation
Benchmark
Significant structural differences compared to conventional
global equity portfolio (e.g. MSCI World)
›
›
›
›
›
›
Higher Emerging markets exposure
Growth
Small-mid caps
Strong overweight in Healthcare
Overweight in Utilities and Materials
Strong underweight in Financials and Energy
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27
6
Technicals
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28
Technical data
Name:
Pictet-Global Megatrend Selection
Law:
Sicav part I of Luxembourg Law of December 20, 2002
Consolidation currency:
USD
Fund launch:
November 3, 2008, at USD 100 NAV
Calculation:
daily; settlement NAV + 3
Assets under management:
USD 3.2bn as per September 30, 2014
Cut-off:
1:00 pm
Dividend:
reinvesting (I, P, R) or distributing (P dy)
Reference index:
MSCI World (net div reinvest)
Share classes:
Class
ISIN
MF(%)
Admin /
custody (%)
TER(%)
I USD
LU0386856941
0.80
0.33
1.16
I EUR
LU0386875149
0.80
0.33
1.17
I dy GBP
LU0448837244
0.80
0.33
1.16
P USD
LU0386859887
1.60
0.33
1.96
P dy USD
LU0386863137
1.60
0.33
1.95
P EUR
LU0386882277
1.60
0.33
1.96
P dy EUR
LU0386885296
1.60
0.33
1.95
P dy GBP
LU0386899750
1.60
0.33
1.95
P CHF
LU0386891260
1.60
0.33
1.96
R USD
LU0386865348
2.50
0.33
2.85
R EUR
LU0391944815
2.50
0.33
2.85
I-Shares: minimum investment USD 1,000,000, resp. the equivalent in EUR, TER as of February 28, 2013
Source: Pictet
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Appendices
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30
The pursuit of happiness – Premium Brands
›
›
›
Global financial wealth has
doubled over last 10 years.
Number of rich people on the
rise, in particular in China and
India. The youngest
billionaires live in China and
Russia
Women today have better
access to high paid careers,
marry later and have less
children
Consumers in emerging
countries, like Russia and
China, still do spend much
less on premium brands than
people in North-America or
Western Europe
Rising consumption in emerging markets (estimate)
70
EMs as a % of global luxury market
60
% of global luxury demand
Status symbols as distinction
50
40
30
17
17
17
18
18
18
19
20
10
23
25
26
27
28
30
31
19
19
33
34
20
21
36
37
21
39
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
EM demand (destination)
EM demand (tourists)
Source: Altagamma, Bernstein Estimates
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31
Safety for everybody is vital – Security
›
›
Growing wish for safety and
protection in our everyday lives
Urban population is set to
double by 2050, megacities
will require gigantic
investments to secure the
infrastructure
Traffic and communication
network, vital for social and
economic prosperity, needs
increasing efforts for
protection
World urban population forecast, less developed countries
6.000.000
Urban/Rural population (thousands)
›
5.000.000
4.000.000
3.000.000
2.000.000
1.000.000
0
1950
1960
1970
1980
1990
2000
Rural population
2010
2020
2030
2040
2050
Urban population
Estimated annual growth 2009 to 2014 by region
North America
Western Europe
Asia Pacific
Latin America
Africa / Mideast
Eastern Europe
0%
2%
4%
6%
8%
10%
12%
14%
Sources: United Nations, Department of Economic and Social Affairs, Population Division: World Urbanization Prospects, the 2009 Revision, 2010 - Freedonia 2011, Company estimates, IMF April 2011. Image from Jupiter image
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32
The new connectivity – Digital Communication
1500
1000
500
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
1994
Digital migration will
accelerate - it is cheap for
consumers, cost efficient for
companies and it is a real
ecological alternative
2000
1993
With only 2.3 bn users of the
world wide web, the world still
is at an early stage of a big
demographic and social
megatrend - virtualization and
interactivity will grow strongly
2500
1992
›
Globalisation of internet
infrastructure boosts
emergence of new interactive
business models, such as ecommerce, online advertising
and education, interactive
software
Number of internet users worldwide continues to grow fast
1991
›
New ways to interact and work
1990
›
›
Bn Users
Source: ITU
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High-end health care – Biotech
The search for innovative
Solutions
Increasing need for better and
more powerful therapies. More
people receive better
treatment, and once fatal
diseases become chronical or
curable diseases (e.g.
diabetes)
20.0%
3'500
Healthcare spending
18.0%
Healthcare spending as % of GDP
3'000
16.0%
2'500
14.0%
12.0%
2'000
10.0%
1'500
8.0%
6.0%
1'000
4.0%
500
2.0%
0.0%
2014E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1993
1990
1980
1970
›
Ageing population in western
and emerging world. People
over 65 years old on average
need four times more drugs
than younger; and the number
of people older than 65 is
expected to double by 2060
USD bn
1960
›
US healthcare expenditures, 1960-2014e
Source: Centers for Medicare and Medicaid Services
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
34
Cost conscious health care – Generics
›
›
›
›
Cost efficient solutions
Healthcare costs risk are
spiralling out of control all
across the world
Spending on healthcare is still
low in emerging countries,
compared with industrialised
countries. However, demand
for more and cheaper health
care solutions is on the rise
In several industrialised
countries, prescription of
generic drugs are below 2 (e.g.
Japan)
Worldwide sales of expiring pharmaceutical drugs
60
Biopharmaceuticals will play an
increasing role in the future
52
50
6
42
40
30
35
11
4
44
44
20
22
24
22
2013
2014
41
16
46
20
31
31
10
25
0
2010
2011
2012
Conventional products
2015
Biotech products
Source: Novartis, data in USD bn
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
35
The essential resource for life – Water
The blue gold is irreplaceable
Drivers for growth:
1. Water is scarce and cannot be
replaced by anything else
2. Growing population, by 2050
up to 9 bn, will drive demand
for water
3. Outdated and lacking
infrastructure as a huge
challenge to cope with
4. Governments seek to
outsource water service
responsibility
Steady growth and low volatility
600%
500%
400%
300%
200%
100%
0%
1989
1991
1993
1995
1997
1999
2001
Water
Oil
2003
2005
2007
2009
2011
Sources: American Water Works - Pictet
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
36
Energy transition – Clean Energy
Requiring an energy shift
›
›
›
Current energy mix is
inadequate to address
rising demand, energy
security needs and tighter
environmental constraints
Renewables and natural
gas will be the winners of
the energy transition
Energy efficiency also
offers economic
opportunities in industry,
buildings and transport
sectors
12,300 Mtoe
10%
1%
10%
2%
16,800 Mtoe (+36%)
4%
12%
3%
21%
6%
27%
25%
7%
22%
33%
2008
Other renewables
Biomass
Hydro
0.4%
Natural Gas
Nuclear
Coal
Oil
27%
2035e
Source: International Energy Agency, “Golden Age of Gas, 2011”, GAS scenario. “Other renewables” includes wind, solar, geothermal
Mtoe = Million tons of oil equivalent
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
37
The century old, yet “new” resource – Timber
Demand growth
– Demand fueled by economic & demographic growth: more and richer
people consume ever more wood fibres
Supply squeeze
– Biological limits of production
– Net loss of forest surface and increasingly difficult access
8%
3%
Energy supply
26%
14%
Industry
Global CO2e
emission
Forestry
13%
17%
Transportation
Environmental factors
– Wood as an old and new CO2-neutral energy source
– Carbon storage of forests to play a key role in climate change debate
Agriculture
Buildings
19%
Waste
Source: FAO, 2006; *energy-wise
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
38
Investing in solving global agricultural imbalances – Agriculture
›
McKinsey: “…about 1.1
billion people will join middle
class income groups in China
and India alone between 2005
and 2025”
Investments in agriculture
chain is an integral part to
solving the global food
problem
Around 80m extra people have to be fed each year
10
0.45
9
0.4
8
0.35
7
0.3
6
0.25
5
0.2
4
0.15
3
2
0.1
1
0.05
0
0
Ha of arable land per capita
›
Direct human consumption of
grains and vegetables is
similar irrespective of income;
especially protein and
vegetable oil consumption
grows with increase in wealth
Population in bn.
›
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
World population (lhs)
Arable land in ha/capita (rhs)
Source: U.N., World Population Prospects, FAO, Pictet, The Mosaic company - ML Agri conference, 2008
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
39
Decision parameters
Thematic purity and liquidity
Low overlap
Attractive risk return
Materiality
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
40
Bottom-up stock selection at thematic level
Copenhagen Institute
for Futures Studies
Product development
& Investment Team
Monitoring of
megatrends
Investment Team&
Advisory Board
Find investment
themes
›
›
Brainstorming
Investment Team
Define and review
investment universe
›
Screening for
liquidity, purity,
volatility
›
Scenario analysis
Checklist
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
›
Portfolio
construction
Fundamental
research
41
Check list for theme assessment
Criteria
Definition
Liquidity & Thematic purity
Pure and liquid portfolio
Feasible investment portfolio with assets > USD bn 1 @
thematic purity > 20% where 50% of the assets can be
liquidated in five trading days @ 20% of average trading
volumes
Diversification
Low overlap with traditional indices
Overlap with MSCI World < 20%
Expected outcome
Robust & attractive risk-return profile
Expected risk return profile beats MSCI World (Sharpe ratio)
Theme withstands stress test through different scenarios
Materiality
Measurable thematic drivers with material
impact on value drivers
Materially accretive and measureable megatrend related impact
value drivers (growth, margins, risk premium)
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Decision parameters – Purity, liquidity and overlap @ USD 1bn
Purity %
Liq 5 days %
20
50
Generics
92
Biotech
100
Digital Communication
85
Timber
Biotech
95
91
Premium Brands
Agriculture
68
Agriculture
Clean Energy
66
Clean Energy
Water
66
Water
20 40 60 80 100
85
1,2
Digital Communication
8,2
Security
1,8
Premium Brands
1,8
Timber
54
88
84
68
0
0,2
Biotech
84
Timber
58
0
Generics
45
Security
63
Premium Brands
Generics
Digital Communication
71
Security
Overlap %*
20 40 60 80 100
1
Agriculture
1,3
Clean Energy
1,4
Water
0,6
0
2
4
6
8
10
* Overlap = sum of all overlapping fund holdings with index, adding up the minimum of the two weights
Source: PAM, MSCI, Bloomberg
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Decision parameter – Risk return profiles
Fund
Start
date
Annualised return
Volatility
rf*
Fund
MSCI
Fund
MSCI
Biotech
Nov 95
14.30
6.44
29.35
15.58
Water
Jan 00
9.10
3.49
15.63
Generics
Jun 04
10.65
6.74
Premium Brands
Jun 05
9.71
Security
Jan 06
Clean Energy
Sharpe ratio
Fund
MSCI
3.6
0.48
0.18
15.98
3.1
0.58
0.03
16.70
15.87
2.6
0.63
0.26
6.40
22.16
16.43
2.5
0.44
0.24
8.51
4.13
16.79
17.54
2.1
0.50
0.12
May 07
-0.92
2.81
25.88
18.11
1.9
-0.04
0.05
Digicom
Jun 08
12.77
5.29
18.10
18.70
1.6
0.70
0.20
Timber
Nov 08
13.44
12.42
25.09
16.49
1.5
0.53
0.66
Agriculture
Jun 09
11.32
13.54
17.89
14.52
1.5
0.63
0.83
Source: PAM, MSCI, Bloomberg, as of 30th September 2014
Composite, Gross, USD
*rf calculated using US Govt 5 Year Yield since fund inception on Bloomberg
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44
Why thematic investing?
The performance speaks
for itself….
Performance of MSCI World versus the Nine Pictet Theme Strategies since November 1995* (in USD)
1600,00%
1400,00%
1200,00%
1000,00%
800,00%
600,00%
400,00%
200,00%
0,00%
Index
MSCI Wrld
Biotech
Water
Generics
Premium Brand
Clean Energy
Digicom
Timber
Agriculture
GMS
Security
Source: Pictet, as of August 31, 2014, in USD; performance of Agriculture, Timber, Generics, Clean Energy,
Premium Brands and Digital Communication index with MSCI World at date of their respective launch
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
45
Performance analysis
Thematic contribution since fund inception* vs MSCI World
225
March 2009
200
175
Biotech
Clean Energy
Digicom
Generics
Security
Water
Agriculture
Digital Com
Generics
Premium Brands
Security
Timber
Water
Clean Energy
Premium Brands
Timber
-
Biotech
Clean Energy
Digital Com
Premium Brands
Biotech
Generics
Premium Brands
Timber
Agriculture
Biotech
Clean Energy
Generics
Water
150
125
Agriculture
Biotech
Clean Energy
Digital Com
Generics
Premium Brands
Security
Timber
Water
100
75
PremiumBrands
Timber
Biotech
Clean Energy
Digital Com
Security
Water
Biotech
Clean Energy
Agriculture
Generics
Security
Timber
Water
Agriculture
Clean Energy
Digital Com
Security
Water
Digital Com
Premium Brand
Security
Timber
50
03.2009
09.2009
03.2010
09.2010
03.2011
09.2011
Pictet-Global Megatrend Selection
03.2012
09.2012
03.2013
09.2013
03.2014
MSCI World (NR)
Funds that have outperformed the MSCI World over the
period (based on daily return calculation in USD)
Funds that have underperformed the MSCI World over
the period (based on daily return calculation in USD)
*Pictet-Global Megatrend Selection, inception date: 31.10.2008. Source: Pictet, Performance in USD, data as at 30 June 2014
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
46
Relative theme contributions to the performance
Quarterly relative contributions to Pictet-Global Megatrend Selection’s performance in USD
20%
15%
10%
5%
0%
-5%
-10%
Biotech
Clean Energy
Digital Communication
Generics
Security
Timber
Water
Premium Brands
Q2/2014
Q1/2014
Q4/2013
Q3/2013
Q2/2013
Q1/2013
Q4/2012
Q3/2012
Q2/2012
Q1/2012
Q4/2011
Q3/2011
Q2/2011
Q1/2011
Q4/2010
Q3/2010
Q2/2010
Q1/2010
Q4/2009
-15%
Agriculture
Source: Pictet, Chronos. Data as at 30 June 2014 in USD
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
47
Diversified allocation strategies – example world equities
Compare diversity weighted
portfolio of developed countries
in MSCI World to its market cap
weighted analogue
“Diversity” vs market cap weighted portfolio
120%
›
›
›
›
Diversity weight w
Market cap weight mi
Parameter p ∼ 0: equal weighting
Parameter p ∼ 1: market cap weighting
Cumulative Outperformance
100%
80%
60%
40%
20%
0%
1970
1975
1979
p=0.9
1984
1988
p=0.5
1992
1997
2001
2005
p=0.1
Source: Datastream
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48
Diversity concept
›
Concept of diversity: an asset allocation is diverse, if it avoids concentrating
all capital into a single stock; diversity increases, the more uniformely (simply
equally weighted) capital is spread across assets.
›
Portfolio diversification can be quantified by means of the diversity measure
›
−
High diversity portfolios distribute capital evenly among market
components
−
Low diversity portfolios concentrate capital on large cap market
components
Various studies show:
1. High diversity portfolios outperform low “diversity” ones
2. Simple equally weighted asset allocation strategies provide similar or
even higher Sharpe ratios than “optimized” allocations
3. The portfolio turnover is significantly lower
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
49
Risk management overview
Our main principle = avoid active bets where risks cannot be estimated
Investment Team
›
›
›
Purity, volatility and liquidity risk integrated in the investment process
Portfolio management system gives access to all the raw risk figures that are needed by the investment team
Portfolio liquidity monitoring
Performance analysis & risk control (10 FTE)
›
Monitors all positions and risk metrics on daily basis
and provides monthly risk reports to top management
Compliance Team (10 FTE)
›
Daily compliance monitoring for pre- & post-trade
checks : compliance with investment guidelines and
statutory regulations & quarterly updates to top
management
Review by Company Partner & Chief Investment Officer
›
›
Semi-annual formal quality review meetings with Partner and CIO
focusing on performance, risk, style, purity, exposure, positioning
and portfolio construction
Frequent informal updates
Source: Pictet Asset Management
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Investment practice & guidelines for underlying strategies
Investment practice:
›
›
›
›
›
Targeted number of holdings 40-60
No short sells, no leverage, no hedging, no derivatives
Cash < 5%
No TE limits
No sector or regional constrains
Selected compliance checks (investment guidelines):
›
›
›
Sum of positions of over 5% must be less than 40% of portfolio
Largest position < 5% of portfolio (no formal limitation but a consequence of the process)
Own <10% of issuer’s capital (PAM-wide)
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
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Primary research & knowledge transfer of underlying strategies
What
When
Formal investment team meetings to discuss portfolio activities
weekly
Morning video-conference calls with Pictet AM sector analysts
daily
Company meetings
>400 / year
Participation to bespoke field research trips, factory visits, conferences, trade fairs
regular
Tools and resources at disposal include but are not limited to:
Bloomberg, Credit Suisse HOLT, Factset, Style Research Skylines™, MAER (Oppenheimer Monitor of analysts’ earnings revisions),
internally developed analysis and portfolio management software suites, as well as access to 60+ global and specialized research
providers
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
52
Our investment teams and credentials
A dedicated team of 18 seasoned investment managers with on average 13 years of experience supported
by 50 other investment professionals
INVESTMENT TEAMS
AWARDS LIST
Agriculture
Gertjan van der Geer, CEFA
Cédric Lecamp
Biotech
Michael Sjöström, CFA
Clean Energy
Luciano Diana
Xavier Chollet
Digital Communication
Sylvie Séjournet
Nolan Hoffmeyer
Generics
Stephan Patten, CFA
Premium Brands
Caroline Reyl
Laurent Belloni
Alice de Lamaze
Security
Yves Kramer
Frédéric Dupraz
Timber
Gabriel Micheli
Christoph Butz
Water
Hans Peter Portner, CFA
Philippe Rohner
Arnaud Bisschop
Biotech
69 awards from Lipper, Morningstar, Sauren etc
Water
6 awards from Lipper, Milano Finanza etc
RATINGS LIST
Biotech
Feri Trust:
Lipper:
Morningstar:
A-rating
Leader with consistent return and Preservation (5/5)
5-star rating
Digital Communications
Lipper:
Leader with consistent return and Preservation (4/5)
Morningstar: 3-star rating
Premium Brands
Lipper:
Leader with consistent return and Preservation (5/5)
Water
Lipper:
Morningstar:
Leader with consistent return and Preservation (5/5)
5-star rating
Source: Pictet Asset Management
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
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Mapping global megatrends with Pictet funds (1)
PictetBiotech
PictetWater
PictetGenerics
PictetPremium
Brands
Pictet-Security
Launch
1995
2000
2004
2005
2006
AUM
USD 1.4bn
EUR 2.6bn
USD 772m
EUR 818m
USD 494m
› Increasing
› Rising
› Patent
› Polarisation
› Growing security
age-related
diseases
demand
in water
› Numerous unmet › Global warming
medical needs
› Need in more
efficient
medicine
increasing
water scarcity
› Lack of efficient
expirations
of demand
› Rising healthcare › Rising
costs
› Politic pressure
for controlling
healthcare costs
and adapted
infrastructure
purchasing
power
› Importance of
social identity
and lifestyle
concerns
› Tightening rules
for safety of
consumer goods
› Higher
complexity
in IT threats
Source: Pictet Asset Management, as of 30 September, 2014
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
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Mapping global megatrends with Pictet funds (2)
PictetClean Energy
PictetDigital
Communication
Pictet- Timber
PictetAgriculture
Pictet-Global
Megatrend
Selection
PictetEnvironmental
Megatrend
Selection
Launch 2007
2008
2008
2009
2008
2010
AUM
USD 455m
USD 485m
USD 552m
EUR 286m
USD 3.2bn
EUR 32m
› Increasing
› New waves of › Limited forest › Population
response to
climate
change
globally
comm.
technologies
gain
acceptance
› Energy supply › Broadband
constraints
› Reducing
dependence on
imported
energy
development
› High price
elasticity
across
economic
cycles
resources
› Wood
consumption
linked to
economic &
demographic
growth
› Wood as a CO2
neutral energy
substitute
growth,
urbanization
and climate
change
decrease
arable land
› Changing
dietary pattern
› Biofuels
demand
› Nine long-term › Four long-term
investment
themes
› Typically
equally
weighted
basket
› Specific long
term driver for
each theme
environmental
themes
› Strategic
weights
› Growing
environmental
responsibility
› Active
shareholding
Source: Pictet Asset Management, as of 30 September, 2014
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
55
Advisory board members (1)
PICTET-BIOTECH
Prof. Kenneth Randall Chien
Director, Wallenberg-Karolinska
Cardiovascular Initative
Dept. Cell & Molecular Biology &
Medicine Karolinska Institutet
Stockholm, Sweden)
PICTET-DIGITAL
COMMUNICATION
PICTET-WATER
PICTET-GENERICS
Dr. Torsten G. Kreindl
Partner of Grazia Investment
GmbH, Member of Board of
Directors of Swisscom AG
(Bern, Switzerland)
Dr. David Owen
Independent Water Sector
Analyst, Founder & CEO of
Envisager Ltd
(Ceredigion, UK)
Dr. Hardy Chan
Co-founder and CSO of
Scinopharm (Taiwan)
Duncan Clark
Founder & Chairman of BD
Advisors (BDA)
(Beijing, People’s Republic of
China)
Prof. Michel Aguet
Director, ISREC (Epalinges,
Switzerland)
Prof. Pascal Nicod (Honorary
Member)
Chairman of Dpt Medicine , CHUV
(Lausanne, Switzerland)
James Hotchkies
Co-founder of JWH Consulting
GmbH
(Magden, Switzerland)
Michael Deane
Executive Director of National
Association of Water Companies
(Washington DC, USA)
Dr. Dave Gershon
Senior Partner Gershon Capital &
Cie
Mr Vishar Vasudevan
Ex-Managing Director of Dr
Reddy’s subsidiaries in Germany
and UK
Prof. Asit K. Biswas
President of Third World Centre
for Water Management (Atizapán,
Mexico)
Dr. Gianni Gromo
Former Global Head of Metabolic
& Vascular Disease, F. HoffmannLa Roche (Basel, Switzerland)
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
56
Advisory board members (2)
PICTET-PREMIUM
BRANDS
Sebastian Escarrer
Vice Chairman Sol Mélia Group
(Palma de Mallorca, Spain)
Michel Perraudin
Former President of the W.F.S.I.
(Lausanne, Switzerland)
Former Executive Vice President
Adidas-Salomon
(Herzogenaurach, Germany)
Sandrine Zerbib
Executive Director of Full Jet Ltd.
(China), Former President of
Adidas, Greater China
Robert Bensoussan
Member of the Board of Jimmy
Choo
(London, UK)
and Inter Parfums Inc. (New York,
USA)
PICTET-SECURITY
PICTET-CLEAN ENERGY
PICTET-TIMBER
PICTET-AGRICULTURE
Jules Trocchi
Research Manager Industrial
Automation & Electronic
Practises
Frost & Sullivan
(London, UK)
Prof. Vaclav Smil
Distinguished Professor,
University of Manitoba
(Manitoba, Canada)
Prof. Michael Köhl
World Forestry Professor
University of Hamburg
Head of Institute for World
Forestry
German Research Centre for
Forestry and Forest Products
(Hamburg, Germany)
Prof. Aalt Dijkhuizen
President & CEO of Wageningen
University Research Centre,
Wageningen, (Wageningen,
Netherlands)
Doron Bergerbest
Founder and CEO
Asero Worldwide
(Washington DC, USA)
Vince Pérez
CEO of Alternergy Partners and
chairman of Merritt Partners
(Philippines)
Steve Elliot
Global Head of Corporate Security
at SGS
François van Hoydonck
CEO & Board Member, Société
Internationale de Plantations et
de Finance (SIPEF),
(Brussels, Belgium)
Dr. James Fry
Chairman LMC International
(London, UK)
Prof. Hans B. (Teddy) Puttgen
Former Professor, School of
Electrical and Electronic
Engineering,
and Senior Director, Energy
Research Institute at NTU
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
57
What is done on each level in terms of ESG
Exclusion
Inclusion
Active Ownership
›
Avoid investments in companies
that constitute unacceptable risk
of contributing to violations of
fundamental humanitarian
principles, serious violations of
human rights, gross corruption or
severe environmental damage
›
Invest only in companies with
clear and strategic exposure to
the underlying theme
›
›
Minimum exposure varies from 20
to 50% depending on the
particular fund (average exposure
is much higher)
Voting rights are exercised
systematically, based on PAM’s
own voting guidelines and using
the ISS proxy voting platform
›
Maintenance of a PAM Blacklist
with controversial companies,
based on the most authoritative
sources in the field, such as the
Council on Ethics for the
Government Pension Fund of
Norway
›
Engage companies in a dialogue
with the aim to improve business
standards and best practices in a
particular industry
›
In the field of active engagement,
Pictet cooperates with Hermes
EOS, a renowned actor with a
long-standing track record in this
area. The engagement takes place
through Hermes’ engagement pool
in function of our holdings or on a
bespoke basis
›
›
Pictet’s investment managers
integrate environmental, social
and/or corporate governance
issues and controversies, which
may negatively impact
companies’ long-term ability to
generate cash flow
Regular review and update of
Blacklist by Pictet Sustainable
Investment Board (SIB)
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
58
For more information,
please contact
Pictet Asset Management
www.pictet.com
www.pictetfunds.com
This marketing material is issued by Pictet Funds (Europe) S.A. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any
locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, regulations, annual and semiannual reports may be relied upon as the basis for investment decisions. These documents are available on www.pictetfunds.com or at Pictet Funds (Europe) S.A., 15, avenue J. F. Kennedy L-1855 Luxembourg.
The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Funds (Europe) S.A. has not taken any steps
to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment
depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable
for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk
factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This
marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in
the fund or funds mentioned in this document.
Pictet Asset Management | For professional investors only | Pictet-Global Megatrend Selection
59