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transcript
Thematic Investments
Philippe ROHNER FIAP Seminar, Warsaw, May 28th 2009
2
Agenda
1. Identifying megatrends
2. Two thematic investments opportunities
- Water
- Clean Energy
3. Conclusions
3
Table of contents1.Identifying megatrends
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Investment opportunities
8. New Technology
3. Acceleration
4. Hyper complexity
12. Globalisation
6. Commercialisation
7. Affluence
14. Democratisation
9. Polarisation
10. Dematerialisation
11. Individualisation
5. Networks
13. Health
2. Environment
15. Ageing
1. Knowledge
Sources: CIFS Copenhagen, Pictet
Biotech
WaterClean Energy
Security
TimberGenerics
Digital Communication
Premium Brands
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How to invest in the water industry
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Water – a basic resource
Source: K.S.B. Treatment Group
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1. Outdated or non-existent infrastructure
Worldwide water infrastructure is completely outdated Operational issue:
– Thames Water* with 20’000 miles of water pipes: 1’100 miles to be replaced in 2005-2010 =>
equivalent of 91 years for the entire network. 50% of mains over 100 years old
30% of mains over 150 years old
Financial issue: – USD 485-896 bn of capital spending needed between
1999-2019**
Legal issue: – EU current and anticipated legislation (2006-2025) will
trigger capital expenditure up to EUR 350 bn ***
SUBSTANTIAL AND INEVITABLE INVESTMENTS
HUGE OPPORTUNITY FOR EQUIPMENT MANUFACTURERS
Sources:* Thames Water, Evidence to the House of Lords , 4th October 2006** ‘The Clean Water and Drinking Water Infrastructure Gap Analysis’ US EPA, Office of Water, Sept. 2002*** David Owen, Independent Water Sector Analyst
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2. Outsourcing of water services
Municipal level Outsourcing of water business with Public-Private-Partnership
(PPP)– PPPs operate with up to less than 30% costs than pure public suppliers*– Better quality through performance targets
Ever stronger water quality standards Ever scarcer financing
Industry level Reduction of operating costs due to margin erosion Focus on core business Need for reliable water supply (semiconductor, tourism)
Liberalisation of service markets worldwide General Agreement on Trade in Services (GATS)
HUGE BUSINESS OPPORTUNITY FOR WATER SERVICE COMPANIES
* Source: The Hudson Institute, The NAWC Privatization Study; A Survey of the Use of Public-Private Partnerships in the Drinking Water Utility Sector; June 1999
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Water services outsourcing - forecasts
A $260 BN MARKET GROWING AT 6% PER ANNUM
Source: David Owen, Managing Director Envisager Ltd, 2007
Market potential 2003-2015
389m
301m
1’398m
1’954m
316m
459m
NorthAmerica
Middle- &South America
Middle East & Africa
Middle & South Asia
Western Europe
South East Asia
Population (2003)
Already completedprivatisation (%)
15%
19%
44%
9%
1%
5%
12%721m
19%
27%
54%
18%
3%
9%
19%
Potential2015
World
16%
11%
6’092m
Central &Eastern Europe
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Dynamics of water prices (1989-2008)
Source: SEC filing American States Water 2008, Bloomberg Opec crude oil basket
AVERAGE PRICE
INCREASE
VOLATILITY
Water 6.1% 3.9%
Oil 4.8% 43.2%
HISTORICAL WATER PRICES IN CALIFORNIA
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Sector characteristics
Market still underprices strategic importance of the water industry
Strong fundamentals- under supply- rising demand- sustainable growth for contributors water value chain for water supplyand infrastructure
Still highly fragmented industry,consolidation continuing
Attractive risk – return profile
rising prices
Source: MSCI, IBES, Worldscope, Pictet Asset Management, as of 04/02/09
SECTOR CHARACTERISTICS RELATIVE TO WORLD EQUITY MARKET
4.8
1.6
5.4
2.1
2.9
8.0
2.2
3.8
7.8
0
1
2
3
4
5
6
7
8
9
Cashflow growth(FY0-FY2)
Price to CashflowFY1
Price to Book Div Yield FY1 relative average market cap
Water portfolio
MSCI World
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Table of contentsHow to invest in clean energy
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Historical evolution of the energy mix
ENERGY CONSUMPTION BY TYPE
Source: U.S: Department of Energy
ENERGY HAS BEEN IN A CONTINOUS TRANSITION SINCE THE INDUSTRIAL REVOLUTION
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1850
1855
1860
1865
1870
1875
1880
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Con
sum
ptio
n of
pro
duct
s as
a %
of U
S e
nerg
y co
nsum
ptio
n
Wood Coal Petroleum Natural Gas Hydroelectric Power Nuclear Electric Power
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Investment in renewable energy
$14$28
$50
$85$97 $94
$119$127
$147
$0
$50
$100
$150
$200
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E
NEW INVESTMENT IN RENEWABLE ENERGY: NEW BUILD ASSET FINANCE
Source: New Energy Finance, February 2009(Forecasts for 2009-2012 are preliminary numbers)
Billions of $
`04-12 CAGR: 34%
CLEAN ENERGY HAS FELT THE IMPACT OF THE CREDIT CRISES BUT 2010 LOOKS PROMISING
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Clean energy defined
CLEAN ENERGY INVESTMENT THEMES
Environment
Energy
Water
Natural Gas
Wind
Solar
Hydroelectric
Geothermal
Ocean
Energy Efficiency
Coal
Oil
Biomass
Nuclear
WasteManagement
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Drivers for Clean Energy
1. Environment: There is increasing consensus on climate change, the world is responding
2. Energy supply:Today’s energy resources are finite
3. Energy independence: Concerns over dependence on imported energy
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Clean energy presents opportunities
Carbon Free Energy
Low Carbon Energy
Energy Efficiency
Su
pp
lyD
em
an
d
- Solar - Wind- Hydroelectric- Geothermal- Tidal/Wave
- Natural Gas- Biomass- Waste to energy- CO2 Capture & Storage
- Lighting- Batteries - Power monitoring & control - Heating, cooling & insulation- Appliances- Flywheels - Fuel cell
TRANSITION TO CLEAN ENERGY WILL DRIVE GROWTH IN DIVERSE AREAS
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Clean Energy portfolio characteristics
Source: FactSet, as of 27/02/09
CLEAN ENERGY IS MORE EXPENSIVE THAN GLOBAL EQUITIES BUT GROWS MUCH FASTER
P/E VS EPS GROWTH
FY1
P/E
MSCI World
x
5x
10x
15x
20x
-20% -10% 0% 10% 20%
FY1 EPS Growth
Clean Energy portfolio
EV/EBITDA VS EBITDA GROWTH
Clean Energy portfolio
MSCI World
x
5x
10x
15x
20x
0% 5% 10% 15% 20% 25%
FY1 EBITDA Growth
FY
1 E
V/E
BIT
DA
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3. Conclusions
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Theme based Investing - Summary Remarks
Pricing in Externalities: Identifies new investment themes
Traditional Investment Sectors are not theme based
Indices neglect theme based investment opportunities
Theme based investing is process and not benchmark driven
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Risk/return profile
Source: Pictet Asset Management, FactSet
RISK/RETURN PROFILE OF A WATER INVESTED PORTFOLIO (JAN 2000 – MAR 2009)
-20%
-15%
-10%
-5%
0%
5%
10%
0% 5% 10% 15% 20% 25% 30% 35%
Volatility p.a.
Retu
rn p
.a.
Tech
Telco Services
Cons Discretionary
World
Utilities
Industrials
Consumer staples
Energy
Health Care
Water Portfolio
Materials
Financials
MSCI Composite
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CORRELATION MATRIX (MAR 02 – MAR09)
Source: MPI Stylus in USD
MSCI World Pharma
MSCI World Telco Svcs
MSCI World Utilities
MSCI World Cons Discr
MSCI Europe USD
MSCI World Financials
S&P 500 MSCI World USD
NASDAQ Biotech
MSCI World/Pharmaceuticals 1 0,62 0,61 0,63 0,62 0,61 0,74 0,69 0,62
MSCI World/Telecommunication Services
0,62 1 0,6 0,72 0,77 0,66 0,81 0,8 0,58
MSCI World/Utilities 0,61 0,6 1 0,66 0,75 0,64 0,71 0,76 0,43
MSCI World/Consumer Discretionary
0,63 0,72 0,66 1 0,88 0,86 0,94 0,95 0,66
MSCI Europe USD 0,62 0,77 0,75 0,88 1 0,89 0,88 0,95 0,54
MSCI World/Financials 0,61 0,66 0,64 0,86 0,89 1 0,88 0,9 0,56
S&P 500 0,74 0,81 0,71 0,94 0,88 0,88 1 0,97 0,71
MSCI World USD 0,69 0,8 0,76 0,95 0,95 0,9 0,97 1 0,65
NASDAQ Biotechnology 0,62 0,58 0,43 0,66 0,54 0,56 0,71 0,65 1
Diversification benefits
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Return benefits
Source: Pictet; in EUR; historical performance over 5 years from January 31, 2004 to January 30, 2009, monthly rebalancing
1. Equal weighting with monthly rebalancing
2. Out performance against the MSCI World after management fees
Simulation of historical performance of an equally weighted theme fund portfolio
Δ=+4.08%
Past performance is no guarantee of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares.
80
90
100
110
120
130
140
150
160
02.0
2.20
04
19.0
7.20
04
03.0
1.20
05
20.0
6.20
05
05.1
2.20
05
22.0
5.20
06
06.1
1.20
06
23.0
4.20
07
08.1
0.20
07
24.0
3.20
08
08.0
9.20
08
MSCI World Theme fund basket
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Why Pension Funds ?
Thematic investments offer a very attractive growth and return profile aligned with Pension Funds investment objectives
Global Equity Exposure regardless of MSCI traditional sectorisation
Access to a group of companies not reflected in traditional indexes and unresearched
Why Now ?
The investment framework is in constant evolution and fully supported by governments and Capital markets, creating new opportunities for long term Institutional Investors
Conclusions
THEMATIC INVESTMENT APPROACH ALLOWS PENSION FUNDS TO BENEFIT FROM MEGATRENDS, MEANING LONG TERM & SUSTAINABLE
INVESTMENT THEMES
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MANY THANKS FOR YOUR ATTENTION
Gonzalo Rengifo Abbad
Country Head - Iberia and Latin AmericaPictet & Cie (Europe) S.A., Sucursal en EspañaMadrid - Spain
Philippe Rohner
Senior Investment ManagerSector & Theme funds TeamPictet Asset Management Geneva - Switzerland