For Investment Professionals Only Not for Retail Clients. Neptune Global Technology Fund Ali Unwin, Fund Manager & Chief Technology Officer

Transcription

1 For Investment Professionals Only Not for Retail Clients Neptune Global Technology Fund Ali Unwin, Fund Manager & Chief Technology Officer

2 Neptune Global Technology Fund 1. The technology market Performance Valuation Outlook 2. Three things consensus is missing 3. The Neptune Global Technology Fund These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. 1

3 Technology sector performance Performance YTD in GBP - indexed to 100 2yr performance in GBP - indexed to MSCI World Tech MSCI World MSCI World Tech MSCI World S&P 500 FTSE All Share S&P 500 FTSE All Share yr performance in GBP - indexed to 100 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 MSCI World Tech MSCI World S&P 500 FTSE All Share Aug-13 Oct-13 5 yr performance in GBP - indexed to 100 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 MSCI World Tech S&P 500 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 MSCI World Dec-15 FTSE All Share Feb-16 Apr-16 Jun-16 Tech has outperformed YTD and over past 2, 3 and 5 years Source: Bloomberg, July Indexed to 100. Returns in GBP. Past performance is not a guide to future performance. References to specific sectors are for illustration purposes only and should not be taken as a recommendation to buy or sell these sectors. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. 2

4 Is the technology sector overvalued? Versus other sectors: Mar-04 Nov-04 S&P 500 Sector EV/T12M EBITDA Multiples Jul-05 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-15 Mar Tech Sector vs S&P 500 P/E Ratio Staples Info Tech Utilities Discretionary S&P Tech companies P/E ratio S&P Overall P/E Ratio US Technology sector is not overvalued versus other US sectors Source: Neptune, Bloomberg, July Past performance is not a guide to future performance, These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific sectors are for illustration purposes only and should not be taken as a recommendation to buy or sell these sectors. 3

5 Is the technology sector overvalued? Versus history: MSCI World IT EV/EBITDA Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 MSCI World Tech EV/T12m EBITDA +1 STD -1 STD MSCI World IT EV/EBITDA MSCI World Tech EV/T12m EBITDA +1 STD -1 STD Technology sector is neither cheap nor expensive versus its history Source: Neptune, Bloomberg, July Past performance is not a guide to future performance. These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific sectors are for illustration purposes only and should not be taken as a recommendation to buy or sell these sectors. 4

6 Outlook: we are all tech companies now We are a technology company with a banking license Michael Corbat, Citigroup CEO* Fortune 500 CEOs cited the rapid pace of technological change as the single biggest challenge facing companies.** The case for holding tech is strategic rather just cyclical Source: *Citi (March 2015) **Fortune (June 2016). These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. 5

7 Three things consensus is missing

8 Three things consensus is missing 1. The internet is in its infancy 2. Corporate IT spending is not coming back 3. Hybrid cloud is not a strategy These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. 6

9 1. The internet is in its infancy Consensus: the internet is maturing Growth rates will slow Scale of disruption will fade Our view: Early phase of internet s growth Millennials now largest generation in US* EMs may lead DMs China online shopping GMV likely to double US E-Commerce Retail Sales as % of Total Sales Projected population by generation Boomer Silent Millennial Gen X Source: Federal Reserve Economic Data (St Louis Fed). Seasonally adjusted data (Q216). *Pew Research Centre (2015). These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. Neptune does not give investment advice and only provides information on Neptune products. 7

10 The internet is in its infancy Market share in domestic market % Industry economics highly attractive Network effects means winner-takesmost market structure 60 Competition is for the market not within the market 40 High (and growing) ROIC 20 0 Google Facebook Baidu Naver Kakao Talk Source: BAML Report (Jan 2016). These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. Neptune does not give investment advice and only provides information on Neptune products. 8

11 2. Corporate IT spending is not coming back Consensus: Corporate IT spending will return to old x GDP growth rate Sustained underinvestment post-2008 will mean-revert Lack of productivity improvement necessitates IT investment 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% IT spending growth YoY 8.0% 8.5% 8.0% 6.5% 5.1% -7.0% 9.4% 3.7% 3.7% 2.1% 1.7% 2.0% 0.2% Our view: Deflationary forces overwhelming Speed of change favours opex over capex Cloud spend more efficient than on premise (mainly utilization) 0% -10% -20% -30% Average selling price decline CAGR Servers per core Storage per TB IP routers per port We believe expectations for a rebound in corporate IT spending are misguided Source: Gartner (May 2016), Bernstein (May 2016). These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. 9

12 Corporate IT spending digital enterprise What does digital mean? The creation of new business models and processes by integrating technology with the physical world * Internet of Things Software eating the world Big data AI and self-optimization X-as-a-service As digital disrupts everything, IT is no longer just a part of the enterprise it is the enterprise Source: *Gartner, May These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. Forecasts are not a reliable indicator of future performance. 10

13 3. Hybrid Cloud is not a long-term strategy Consensus: enterprises will adopt a hybrid cloud approach Complexity Security Stasis Our view: Hybrid cloud unsustainable DevOps becomes dominant Public Cloud more secure than hybrid Percentage of compute in cloud (% average response)* Today 1 year from now Hybrid cloud is a staging post on the way to public cloud Source: Morgan Stanley 2Q16 CIO Survey*. These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. 11

14 Public cloud looks set to inflect S-curve adoption about to kick in Cloud adoption likely to accelerate as we move up the S-curve Source: Morgan Stanley 2Q16 CIO Survey; Infrae.com; Rogers: Diffusion of Innovations, (2003). These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. 12

15 Neptune Global Technology Fund

16 Fund Process: >4000 to Industry research Technological disruption Models of innovation/adoption Pricing power Industry structure Stock screening Analyst research Quant/Qual screens Company meetings Portfolio construction Diversification Index Aware Factor models Valuation DCF of base, bull, bear Relative to history/peers/market % risk/reward These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. Neptune does not give investment advice and only provides information on Neptune products. 13

17 Global Technology Fund key views Fund split by market cap (%) Region positioning versus index (%) >$100bn $15-$99bn <$15bn Cash Neptune Global Technology Fund MSCI World Information Technology North America Asia Pacific Europe Cash Sector positioning versus index (%) Neptune Global Technology Fund MSCI World Information Technology Internet Software Hardware Semiconductors Networking Cash Source: Neptune as at Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the benchmark quoted. For this reason the comparison index should be used for reference only. 14

18 Current top 10 holdings Absolute % Microsoft 9.6 Alphabet 9.6 Apple 8.7 Facebook 4.5 Visa 3.8 Amazon 3.3 SAP 3.2 Oracle 2.9 Cisco 2.7 Sabre 2.5 Total 50.8 Relative Portfolio % Index %* Active Amazon Sabre Alibaba Taiwan Semiconductor Mellanox Ringcentral Baidu Tencent JD Pegasystems We are not index trackers: 51.7% active share Source: Neptune and Bloomberg as at *Index: MSCI World Technology Index. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. 15

19 How exposed are you to technology? FTSE All Share MSCI World Health Care 10% Telecoms 5% Industrials 10% Utilities 4% Materials 7% Consumer Discretionary 10% Consumer Staples 17% Information Technology 15% Industrials 11% Telecoms 3% Utilities 3% Consumer Discretionary 13% Consumer Staples 11% Energy 7% Financials 23% Information Technology 3% Energy 11% Health Care 13% Materials 5% Financials 19% The UK is particularly underexposed to technology Source: FTSE, MSCI, Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. 16

20 How exposed are you to technology? Name Tech exposure (%) IA UK Equity Income 2.6 IA UK All Companies 4.9 IA Europe ex UK 6.4 IA Global Equity Income 7.7 IA Global 12.1 IA North America 16.7 Your funds may not be giving you the tech exposure you would expect or want Source: Morningstar, These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of our views. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. 17

21 Neptune Global Technology Fund Global Technology Fund Manager IA Sector Ali Unwin Technology and Telecoms Launch Date 15 December 2015 Benchmark MSCI World Information Technology Fund size 6m Active share 51.3% No. of stocks Unconstrained approach aiming to deliver outperformance Source: Neptune as at Subject to prescribed regulatory limits. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the original amount invested. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. 18

22 Neptune Investment Management Limited has produced this presentation for private circulation to Investment Professionals only and is not for onward distribution. This document is issued by Neptune Investment Management Limited ( Neptune ), 3 Shortlands, London, W6 8DA which is authorised and regulated by the Financial Conduct Authority, FCA number Details of Neptune s regulatory status and authorisation by regulators in other countries are available from us on request. The Neptune web address is Neptune has 23 United Kingdom (UK) domiciled open-ended collective investment company funds authorised for public distribution in the UK by the FCA of which the Neptune China Fund, Neptune European Opportunities Fund, Neptune Global Equity Fund, Neptune Japan Opportunities Fund, Neptune Russia & Greater Russia Fund and Neptune US Opportunities Fund have been authorised by the following regulatory bodies: the Financial Market Authority (FMA) for public distribution in Austria; the Commission Bancaire Financiere et Des Assurances (CBFA) (which has now been succeeded by the Financial Services and Markets Authority ( FSMA )) for public distribution in Belgium; the Autorité des Marchés Financiers (AMF) for public distribution in France; the Federal Financial Supervisory Authority (BaFin) for public distribution in Germany; the Commission de Surveillance du Secteur Financier (CSSF) for public distribution in Luxembourg; the Netherlands Authority for the Financial Markets (AFM) for public distribution in the Netherlands; and the Swiss Financial Markets Supervisory Authority (FINMA) for public distribution in Switzerland. Further details can be found on the relevant regulatory authority s website. The presentation may contain information about other Neptune funds which are not contained within the list of registered funds above and which are therefore not registered for sale outside of the UK. This presentation is designed for UK and current investors only. All attendees have been made aware of this as part of the registration process and by attending this session it is assumed that you have requested further information about these funds and are aware that they are not for sale in European jurisdictions. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are Neptune s views and as such this document is deemed to be impartial research. We do not undertake to advise you as to any change of Neptune s views. All information is given in good faith but without any warranty. Neptune Funds are available to any persons that may be marketed to under the Financial Services and Markets Act (Promotion of Collective Investment Schemes) (Exemptions) Order This communication is only intended for persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. The provision of investment services may be restricted in certain jurisdictions. You are required to acquaint yourself with any local laws and restrictions on the availability of any services described. Please check whether such products are available in the country in which your clients are resident. None of the Neptune products are available to residents in the United States. Some Neptune funds may have a high historic volatility rating and past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the original amount invested. Forecasts are not a reliable indicator of future performance. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. References to specific securities are for illustration purposes only and should not be taken as a recommendation to buy or sell these securities. Investing in emerging markets are potentially higher risk than those in developed markets. A majority of investments made by the funds may be in smaller and medium sized companies which can be higher risk than those in larger companies. The current Prospectus, Key Investor Information and Supplementary Information Documents and most recent annual and semi-annual reports can be obtained by calling or downloaded from Any past performance data that has not been shown is due to the information not being available. Neptune does not give investment advice and only provides information on Neptune products.