Thematic investing in an increasingly uncertain world. Jamie Horvat, Fund Manager

Transcription

1 Thematic investing in an increasingly uncertain world Jamie Horvat, Fund Manager November 2016

2 Jamie Horvat Biography Lead fund manager of the M&G Global Basics Fund. Also manages the Vanguard Precious Metals and Mining Fund, which he has managed since joining M&G in December 2013 Previously employed by Canadian asset managers, Sprott Asset Management and AGF Management, as well as Stifel Nicolaus Canada where he was a director in the Metals & Mining practice Holds a diploma in mechanical engineering technology from Mohawk College and an Honours B Comm (Finance) from McMaster University in Canada 2

3 Investment process Blend approach top down and bottom up Top down: 20% - 30% of time Thematic and macroeconomic context for sectors and industries Focus on sectors/industries poised to benefit Bottom up: 70% - 80% of time Quality Growth Value 3

4 China GDP Growth China secondary sector has already crash landed Nominal GDP growth, % YOY 30% 25% 20% 15% 10% 5% Tertiary Total 0% Secondary Secondary = manufacturing & construction Tertiary = services 4 Source: SG, September 2016

5 Annual change % Annual change % The real reason why China is slowing % Chinese real GDP (LHS) US household debt as a % of disposable income (RHS) No recovery China industrial production* *Shown as a 3-month moing average. Source: National Bureau of Statistics of China Less consumption within the US 5 Source: BCA, September 2016

6 China represents the lion s share of global metals demand China s share of global demand for each major mineral commodity 70% 60% 50% % 30% 20% 10% % Iron ore Nickel Aluminium Zinc Copper Met Coal Thermal Coal 6 Source: Wood Mackenzie, AME Group and Bernstein analysis. 2 September 2016

7 Is fiscal stimulus about to go global? *We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals Lagarde hoping Ottawa s stimulus plan goes viral 7 Source: Financial Post, 14 September 2016, Financial Times. *Trump Acceptance Speech: CNN. Image source: Vbar/Shutterstock. By James Montgomery Flagg - Library of Congress, Public Domain,

8 Infrastructure spend? The current status of the United States 8 Source: Bureau of Economic Analysis

9 Infrastructure An important driver of economic growth A 10% increase in infrastructure investment contributes to a 1% growth in GDP 1 An increase in infrastructure investment equal to one percent of a country s GDP could add millions of jobs 2 1% Million jobs in India Million jobs in Brazil Thousand jobs in Indonesia Appropriate investments increase overall productivity 1 Scott, Andrew and Prachi Seth Infrastructure services post ODI 2 Dobbs, Richard et.al Infrastructure productivity: how to save $1 trillion a year McKinsey Global Institute 9 Source: McKinsey Global Institute, 5 October 2016

10 Index: 100 = 0 years Infrastructure adds to the long term productivity of a nation Improvement in per capita GDP by year of birth forecast forecast forecast Years from birth Birth year year growth in per capita GDP multiplier 2.54x 2.04x 1.96x 1.78x 1.63x Without it, future generations will experience slower increases in their standard of living 1 We assume 1.7% productivity growth in line with the historical rate from 2015 on. The share of the working-age population will decline with UN projections (66% in 2009; 60 in 2030). Source: US Bureau of Economic Analysis; US Census Bureau; Moody s Economy.com; McKinsey analysis 10 Source: McKinsey Global Institute, 5 October 2016

11 A 2 degree pathway Requires more investment, innovation and policy ambition Paris agreement signed to enter into force on 4 Nov Source: World Energy Investment 2016, IEA

12 Low carbon sources and networks now dominate investments in the power sector Electricity demand growth has slowed along with the decline in the Chinese manufacturing sector 12 Source: World Energy Investment 2016, IEA

13 2008 = 100 Declining costs of new technologies Solar PV and onshore wind: move from big incentives to regulatory framework Cost developments across the energy system Upstream oil and gas Onshore wind Grid scale batteries Solar PV utility scale LEDs Infrastructure investments required for smart grid, load leveling, network upgrades and battery storage 13 Source: World Energy Investment 2016, IEA

14 Electricity networks Global investment in electricity transmission and distribution Replacing old distribution with new systems and smart technologies is taking a rising share of grid spending 14 Source: World Energy Investment 2016, IEA

15 The world needs infrastructure US$3.3 trillion needed annually through 2030 in order to keep pace with projected growth Average annual need, $trillion, constant 2015 dollars Roads Rail Ports Airports Power Water Telecom Total Annual spending % of GDP Aggregate spending , $trillion Numbers may not sum due to rounding: the estimate of total demand is lower than the $57 trillion projection in previous MGI research. It has been adjusted for the following reasons: this projection covers a 15-year period ( ) rather than an 18 year period ( ); lower water capex due to changes in the exact category definitions applied and updates to estimates by Global Water Intelligence; base year prices have been revised from 2010 to 2015; and GDP growth forecasts have been revised downward by HIS Economic infrastructure largely roads and power 15 Source: McKinsey Global Institute, 5 October 2016 HIS Global Insight, ITF, GWI, National Statistics; McKinsey Global Institute analysis

16 China spends the most on economic infrastructure pa More than the United States and Western Europe combined A more focused spend on water, telecoms and power to increase 16 Source: McKinsey Global Institute, 5 October 2016

17 Forwardlooking Historical The US faces a significant gap in infrastructure funding Projected US infrastructure spending gap 1 % of GDP ( ) 4% 3% 3% 2% % 3.1 As US infrastructure needs grow, funding must increase to keep pace The US faces a projected infrastructure spending gap of -0.7% of national GDP over the coming 15 years (an average of ~$135B/year2) Infrastructure spending needs can be estimated in 3 ways that give similar results 3 2% 1% Spending on infrastructure (~3.8% of GDP) Value of stock of infrastructure and cost to maintain it (value of infrastructure is generally ~70% of GDP) 1% 0% Infrastructure spend ('08-'13) Projected infrastructure needs ('16-'30) Calculations of independent projections of future need by asset class from OECD, International Energy Agency, Global Water Institute, etc 1 infrastructure includes roads, rail, ports, airports, power, water and telecom; GDP from OECD Economic Outlook; Statistics and projections. 3 Infrastructure needs estimated by historical and forward looking analyses, see McKinsey Global Institute Infrastructure productivity: How to save $1 trillion a year for methodology, updated estimate in McKinsey Global Institute, Bridging Global Infrastructure Gaps Public/Private Partnerships increasingly being used to meet projected needs 17 Source: McKinsey Global Institute, 5 October 2016

18 Case study: Siemens Themes: Environment, Safety, Ageing population, Infrastructure Diversified industrial with power & gas, healthcare, energy management, digital factory, process industries, mobility, building technologies and renewable energy divisions Healthcare makes up one quarter of group profit Quality Growth Valuation Successful cost reduction programme Ownership culture 6% + top line growth, >20 years of dividend growth 14.4x P/E 2016 estimates 18 Source: Bloomberg, SocGen, November 2016

19 Areas of focus Assisted living Oncology Fiscal stimulus Historical underspending Obesity related diseases Healthcare Infrastructure Energy Efficiency Food safety Cloud computing Safety/ Security Environment Clean air Electric vehicles Cyber security Connectivity CO2 commitment Water Clean air 19

20 Basics team Jamie Horvat Lead Fund Manager Randeep Somel Fund Manager Investment experience Industry: 17 years Firm: 3 years Investment experience Industry: 11 years Firm: 11 years Filipe Martins Analyst James Doogan Analyst Henrietta Walker Investment Specialist Samuel Ibrahim Fund Manager Assistant Investment experience Industry: 5 years Firm: 1 year Investment experience Industry: 8 years Firm: 8 years Investment experience Industry: 23 years Firm: 4 years Investment experience Industry: 4 years Firm: 4 years 20 Source: M&G, 31 October 2016

21 Performance in sterling M&G Global Basics Fund 6 months % YTD % 1 year % 3 years % pa 5 years % pa Fund manager tenure 18 Dec 15 % pa Since launch 17 Nov 00* % pa M&G Global Basics Fund FTSE Global Basics Composite Index** IA Global Equity Sector average Quartile ranking *(17/11/2000 )This is the date that the fund changed its name and objective ** The fund s comparative index comprises all subsectors of the FTSE World Index except media, IT, telecommunications, financials and healthcare 21 Source: Morningstar Inc., UK database, 31 October 2016, sterling I class shares, net income reinvested, price to price. The fund s sterling I class shares launched on 03/08/2012. Performance data shown prior to this date is that of the fund s sterling A share class.

22 The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No