TABLE OF CONTENTS. 1. Introduction: The Case for Thematic Investing. 2. Global Mega Themes

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1 Global Merces Funds Management Ltd AFSL ACN Level 5, 201 Leichhardt Street BRISBANE QLD 4000 P: +61 (2) MEGA TRENDS GLOBAL THEMATIC RESEARCH

2 Disclaimer This document has been issued by Global Merces Funds Management Ltd (Global Merces, GMFML, us, we, our) ACN This document is intended only for wholesale clients and this document must not be relied or acted upon by retail clients. This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. Any potential investor should consider the latest disclosure document in deciding whether to acquire, or to continue to hold, an investment in any Global Merces fund. This document includes information marked as illustrations that are strictly for illustrative and educational purposes only and is subject to change. Such information does not represent the actual current, past or future holdings or portfolio of any client. No Global Merces fund or product is sponsored, endorsed, issued, sold or promoted by the provider of the index referred to in this document. No index provider makes any representation regarding the advisability of investing in Global Merces funds. The indices used herein are an indication of historical performance of various asset classes and are not meant to represent the performance of any investment. It is not possible to invest directly in an index. Indices are unmanaged and cannot be used to predict the future results of any investment. An index s returns may not reflect the deduction of any sales charges or other fees and expenses, which could be substantial for alternative investments and would reduce actual returns. While any forecasts, estimates and opinions in this document are made on a reasonable basis, actual future results and operations may differ materially from the forecasts, estimates and opinions set out in this document. GMFML does not guarantee the repayment of capital or the performance of any product or rate of return referred to in this document. Past performance is not a reliable indicator of future performance. Utilising alternative investments involves substantial risk and presents the opportunity for significant losses including the loss of your total investment. Alternative investments have experienced periods of extreme volatility and in general, are not suitable for all investors. Alternative investments incorporate speculative strategies which may subject an investor to greater volatility than traditional securities, and in some cases of extreme volatility, market conditions may result in rapid and substantial valuation increases and/or decreases. Alternative investments take on higher costs and risks in return for the potential of higher returns. If this allocation were suitable to the investor the information in this document should not be substituted as professional advice, but for educational purposes only. This document is not a securities recommendation. This document is not intended as an offer or solicitation with respect to the purchase or sale of any securities in any jurisdiction. 2

3 TABLE OF CONTENTS 1. Introduction: The Case for Thematic Investing 4 2. Global Mega Themes 5 3. Wave 1: People - Population Demographic and Consumption Trends 3.1. Longevity 3.2. Healthcare: Genomics 3.3. Millennials 3.4. Education 3.5. Globesity 3.6 Luxury Wave 2: Challenges - Geopolitical Stress and Urbanisation 4.1. The Bottom Billions 4.2. Climate Change 4.3. Water Scarcity 4.4. Food Security 4.5. Waste Management Wave 3: Technology - Advancement and Innovation 5.1. Energy Efficiency 5.2. Disruptive Technology 5.3. Internet of Things (IoT) 5.4. Robotics 5.5. Cybersecurity 5.6. E-Commerce Conclusion: Population Demographics, Urbanization & Technology 43 3

4 Introduction: The Case for Thematic Investing In the past decade the world has shifted away from traditional forms of investing towards more complex products including an increase in the use of derivatives, Smart-Beta products, quantitative-driven Algorithmic investing and High-Frequency Trading. This has created a lot of noise and short-term volatility in the global financial markets. Against this frenetic backdrop, there have been some consistent themes playing out over the past two decades in population demographic shifts, urbanisation, climate change and the continued disruption of all forms of businesses by technology. These themes have sustained growth in consumer-driven companies and created many new industries and commensurate opportunities. They have also caused structural decline in many old industries such as oil, mining and manufacturing. These themes will continue to gather momentum over the coming decade and we believe that an investment philosophy predicated on exploiting these themes is very well positioned to outperform the short-term unpredictability of global markets and achieve above average risk-adjusted returns in the medium to long term. (3-5 years). 4

5 Global Mega Themes. We have identified the following seventeen themes that will shape the world s economic and financial markets over the coming decades, and grouped them into the following categories shown in the figure on the right. We have classified the following three waves that contain the seventeen themes that will shape the world s economic and financial markets over the coming decades: Population Demographic and Consumption Trends Longevity Healthcare Millenials Education Globesity Luxury Geopolitical Stress and Urbanization The Bottom Billions Climate Change Water Scarcity Food Security Waste Management Technological Advancement and Innovation Energy Efficiency Disruptive Technology: AI, machine learning, cloud, big data, data centers, wearables Internet of Things Robotics: mobile payments, robo financial planning, precision agriculture, drones Cybersecurity E-Commerce: gaming, mobile gaming, social gaming, digital journalism, live 5

6 These themes are expected to gather momentum over the next few decades, driven by innovation in technology and the resultant changes in global population demographics as seen by the continual and sustained global urbanisation and formalisation of previous thirdworld economies. This has resulted in the biggest disruptor witnessed since the Industrial Revolution as the world s workforce shifts from the "old economy" to services. This process is nearly complete in the developed world, while still in full swing in the emerging markets. With an ever-aging population even in emerging markets, social spending will have to increase, and we believe that new world sectors such as education, healthcare, information technology and leisure will come into investors' focus. 6

7 Wave 1: People - Population Demographic and Consumption 3.1. Longevity Ageing populations are becoming a virtually universal phenomenon, and the number of older persons (60+) is expected to more than double from 841m in 2013 to 2bn+ by 2050 as per the chart below (Source: UN). People aged 65+ will outnumber children under 5 for the first time in human history in 2047 (Source: UN), and falling birth rates mean that some countries are heading towards a potentially catastrophic decline in population. We therefore believe that all aspects of society and the economy need to be viewed through the lens of this demographic transformation. Indeed, the spending power of 60+ consumers is expected to reach US$15tn by 2020, and they are the fastest growing demographic in the world over the next two decades. As per the chart below, it took us 4 million years to add 11 years to our life expectancy, and then in the last 100 years we have added 40 years. This number is expected to continue rising due to rapid improvements in healthcare, nutrition and education. World Life Expectancy In addition, genomics and DNA sequencing platforms are dramatically cheaper and faster than those used to sequence the first human genome due to nextgen DNA sequencing (NGS) technologies which will play a pivotal role in curing age-related diseases, especially cancer. Emerging markets (EM) will lead the way going forward with 80% of older people in EM regions by While the speed of change in developed regions is impressive (growing 3x between 1950 and 2013 from 94mn to 287mn), the global ageing trend is dominated by the fast growth of the older population in less developed regions, particularly Asia- Pacific which will account for 63% of the world s seniors by 2050 or 1.2bn older people out of a total of 2bn worldwide by the year 2050 (Source: ESCAP). China will see the fastest increase in the world with +15.7% in the proportion aged 60+, from 12.4% to 28.1% by 2050 as per the map on the next page. It will see its 60+ population soar from 180mn today to 220mn by 2015 and reach 500mn in 2050E, which will constitute 1/3 of its expected population of 1.5bn (Source: UN, KPMG). China s Silver Generation will increase by 200 million, India s by 136 million and America s by 38 million by 2050 as per the map on the next page. 7

8 Global 60+ Population Source: UN (BAML Thematic Primer) If we factor in the future improvements expected in healthcare globally, this will further add to the growth in the EM over 60 population. Silver Generation Growth by

9 The sectors that we believe will benefit from this longevity dividend globally will be: ``Pharmaceutical/Healthcare as age-related illness accounts for 66% of deaths. ``Financials/Insurance/Asset management as $30tn in assets is to be transferred over next years. ``Consumer/Senior-living/Managed Care as this sector of the population grows. ``Leisure and travel as baby boomers are the one of the most active demographics in travel and leisure and spend $120bn per year (Source: World Travel Monitor). ``Vanity (including Retail as older adults are making up a greater proportion of retail fashion spend. Ageing populations want to look and feel their best and are the primary driver of the global anti-aging industry, including anti-wrinkle skincare, aesthetic dermatology, plastic surgery, and hair restoration (Source: Transparency Market Research). 9

10 3.2. Healthcare: Genomics A potential healthcare revolution is developing within the field of genomics, which is a genetics discipline that applies recombinant DNA, sequencing methods to sequence and assemble genome structures. According to BAML research, genetic factors play a role in 9 of the 10 leading causes of death in the USA. There is vast potential for profitable novel gene therapies for heritable diseases. Particular biotech and pharmaceutical companies are concentrating on certain diseases such as; acute lymphoblastic leukemia, breast cancer, cystic fibrosis, heart disease and diabetes, all of which have genetic components which could be addressed with a genomic approach. Cost of Sequencing a Genome 10

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