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FINDING CLARITY FOREWORDAUSTRALIA 2016 Four global themes driving investments
FINDING CLARITY
FOREWORDAUSTRALIA 2016
Four global themes driving investments
PRESENTATION: JOINING THE DOTS – HOW GLOBAL TRENDS ARE SHAPING EQUITY PORTFOLIOS William Low, Nikko AM Head of Global Equity
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 63
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
High conviction stock picking
Portfolio of high conviction holdings
0 0.5 1 1.5 2 2.5 3Active weight
2.4
2.6
2.8
3
3.2
3.4
3.6
3.8
4
4.2
Res
earc
hA
lpha
Sco
re
AT&T Inc.AbbVie, Inc.
Advance AutoParts, Inc.
AmericanTower
Corporation
AvalonBayCommunities,
Inc.
BAE Systemsplc
BT Group plc
C.H. RobinsonWorldwide,
Inc.
CRH Plc
CaltexAustraliaLimited
CelgeneCorporation
Coca-ColaCompany
CooperCompanies,
Inc.
Daiwa HouseIndustry Co.,
Ltd.
Facebook, Inc.Class A
GeelyAutomobileHoldingsLimited
HD SupplyHoldings, Inc.
Hankook TireCo., Ltd. Henkel AG &
Co. KGaA Pref
HuntingtonBancsharesIncorporated
ICON PlcIchigo Inc.
IntactFinancial
Corporation
JohnsonMatthey Plc
KeyCorp
LaboratoryCorporation of
AmericaHoldingsMEDNAX, Inc.
MerlinProperties
SOCIMI S.A
MicrosoftCorporation
Nokia Oyj
OccidentalPetroleumCorporation
RyanairHoldings Plc
SYNNEXCorporation
SchneiderElectric SE
ScottsMiracle-GroCompanyClass A
Shire PLC
ShiseidoCompany,Limited
SinopharmGroup Co.,Ltd. Class H
SonyCorporation
Suncor EnergyInc.
TaiwanSemiconductorManufacturing
Co., Ltd.
TencentHoldings Ltd.
Treasury WineEstatesLimited
Tyson Foods,Inc. Class A
VeoliaEnvironnement
SA
WhitbreadPLC
©FactSet Research Systems
Portfolio Weights- vs. MSCI All Country World
9/02/2016Securities
Top 20 holdings by active weight
Top 20 Holdings Active weight
Facebook, Inc. Class A 2.86LivaNova Plc 2.79Laboratory Corporation of America Holdings 2.62American Tower Corporation 2.60AbbVie, Inc. 2.59Scotts Miracle-Gro Company Class A 2.52Microsoft Corporation 2.48CRH Plc 2.40Huntington Bancshares Incorporated 2.31Henkel AG & Co. KGaA Pref 2.30Shire PLC 2.24AT&T Inc. 2.22Cooper Companies, Inc. 2.20ICON Plc 2.16Sony Corporation 2.12Tencent Holdings Ltd. 2.10Caltex Australia Limited 2.09Taiwan Semiconductor Manufacturing Co., Ltd. 2.05SYNNEX Corporation 2.04Tyson Foods, Inc. Class A 2.03
As of 31/8/16
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Source: NikkoAM, Factset. As at August 2016. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Stock picks drive broader allocation
Notable allocation exposures within Global Equity portfolio (as at end August 2016)
Nikko AM Global Equity
Active weights (end August 2016) USA CanadaUnited
Kingdom Europe ex Uk Australasia Japan HK/SingEmerging
AsiaEmerging LA
& EMEA Total
Total -6.42 0.30 4.61 1.18 1.43 -0.82 -1.53 2.65 -3.04 --
Consumer Staples -1.1 -0.2 -1.2 0.3 1.6 1.4 -0.0 -0.5 -0.0 -0.1Energy -1.5 0.8 -0.8 -0.6 2.0 -0.1 -- -0.4 -0.3 -1.0Consumer Discretionary -4.9 -0.2 0.6 -1.7 -0.1 0.6 -0.1 2.7 -0.3 -3.5Financials -4.3 0.7 -1.2 -0.8 -1.0 -1.0 -0.5 -1.6 -0.5 -10.8Health Care 4.2 -0.0 4.5 0.0 -0.2 -0.6 -- 1.7 -0.0 9.5Industrials -1.8 -0.2 1.4 1.4 -0.2 -1.5 -0.2 -0.5 -0.0 -1.8Information Technology -1.9 -0.1 -0.1 1.0 -0.0 -0.8 -0.0 2.4 -- 0.4Materials 0.9 -0.4 1.3 1.3 -0.4 -0.5 -- -0.4 -0.1 1.6Real Estate 4.2 -0.0 -0.1 -0.2 -0.2 2.4 -0.4 -0.2 -0.1 5.4Telecommunication Services 1.5 -0.1 0.7 -0.6 -0.1 -0.5 -0.1 -0.5 -0.1 0.1Utilities -1.7 -0.1 -0.3 1.1 -0.1 -0.2 -0.1 -0.2 -0.0 -1.7
Emerging marketsDeveloped markets
Source: NikkoAM, Factset. As at August 2016. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
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Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
What do you see – healthcare overweight?
Source: Google, Reuters 66
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
We expect growth for firms providing efficient cost solutions
Industry grouping Active Weight
Healthcare solutions 9.8
Health Care Equipment & Supplies 3.2Health Care Providers & Services 4.9Health Care Technology -0.1Life Sciences Tools & Services 1.7
Drug producers -0.4
Biotechnology 5.5Pharmaceuticals -5.9
Holdings in Healthcare solutions • Labcorp – medical tests
• ICON plc – CRO
• Mednax – Physician management services
• Sinopharm – Drug distribution in China
Source: Bloomberg, ICON plc. As at September 2016
Source NikkoAM, Factset– August 2016
80100120140160180200220
2013 2014 2015 2016
ICON PLC (USD) / MSCI ACWI Index (USD)
Focus on Healthcare solutions providers Example holding – ICON plc
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Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Facebook – we saw secular growth
Growth cycle independent of GDP Despite performance, profit upgrades have kept valuations attractive
Source: KPCB Source: Bloomberg
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Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Treasury wine – listed when nobody wanted wine companies
Source: Google
Remember the headlines back in 2013?
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
We identified quality asset base with turnaround potential
We saw:
• Halt to planting of vines • Growth in demand from Emerging Markets • Spin off and new management team and
strategy • Better brand management • Higher margins from premium wine sales
……Had management implementation issues along the way…..
But thesis has proved correct
50
75
100
125
150
175
200
2011 2012 2013 2014 2015 2016
Treasury Wine Estates Ltd (USD) / MSCI ACWIIndex (USD)
70
Source: Bloomberg– September 2016. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Country views or stock views?
Messages from country views? It’s where we find our favoured stock picks?
Active weight % Holdings
US Consumer Discretionary -4.9 Advance Auto PartsEmerging Asia Consumer Discretionary 2.6 Geely Auto, Hankook Tire
Active weight %
% Sales United Kingdom
LivaNova Plc 2.8 <35%Shire PLC 2.3 3%BAE Systems plc 1.9 23%Johnson Matthey Plc 1.6 33%Whitbread PLC 1.1 97%BT Group plc 0.9 78%
Source Bloomberg, Company, Livanova Europe sales 34.6%
Geographic region Active weight
United Kingdom 4.7Emerging - Asia 2.6[Cash] 1.8Australasia 1.4Europe ex Uk 1.2Canada 0.3Israel -0.2Japan -0.6Emerging Latin America -1.4HK/Sing -1.5Emerging EMEA -1.6United States -6.6
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Source: NikkoAM, Factset. As at August 2016. Stock, sector and country mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Central Banks
QE manipulation is the new market normal Deflation bad for valuations – unless QE distorts behaviours
Search for yield driving investor choices Market Cap Low Vol & Dividend ETFs United States
Equity Discount rate
Inflation
Source: Credit Suisse Holt, 29 July 2016
Typical History
QE outcome
Schematic of market valuations and inflation, Source: NikkoAM Global Equity
Cumulative growth in AUM Low volatility & dividend only
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Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
QE has influenced intra-market valuations Investors preferring to pay up for persistent and high profitability rather than growth
EV/EBITDA versus market over time for higher return on capital and superior growth companies
Source: Credit Suisse Holt – data for 2,215 US public companies, 2016 Q1
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Safety premium vulnerable – warning signs of pending inflection?
Valuation premium for safe ‘bond proxies’ is high Signals of change from Gold and Emerging Markets?
Source: Credit Suisse Holt – July 2016 Source: Bloomberg– September 2016
050
100150200250300350400
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Gold Spot $/Oz (USD) / MSCI World Index (USD)
MSCI Emerging Markets Index / MSCI World Index
Median MIDRs – Europe top 1000 ex. Financials
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Future quality – deflation versus inflation
Sold utilities such as UGI Bought Industrials such as Schneider
60
110
160
210
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Schneider Electric SE (USD) / MSCI World Index (USD)
50
100
150
200
250
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
UGI Corp (USD) / MSCI World Index (USD)
75
Source: Bloomberg– September 2016. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Summary
We search for Future Quality companies Using experience and stock picking skills
• Current views
– Growth surprise key given valuations
– Governments set to become more interventionist?
– Relative attraction of Asia/GEM exposure
– QE creating valuation distortions
– Opportunities for active stock picking
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Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page 77
Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page
Important information
This material was prepared and is presented by Nikko AM Limited ABN 99 003 376 252, AFSL 237563 (Nikko AM Australia). Nikko AM Australia is part of the Nikko AM Group. It is for the use of researchers, licensed financial advisers and their authorised representatives. This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs, and is not intended to constitute personal advice, and must not be relied upon as such. Past performance is not an indicator of future performance. Any economic or market forecasts are not guaranteed. Whilst we believe the information contained in this material to be correct as at the date of presentation, no warranty of accuracy or reliability is given and no responsibility is accepted for errors or omissions. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided as to the positions.
