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Thematic Investing Pictet Asset Management | For professional investors only | Can thematic investments deliver consistent returns? FT Investment Management.

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Presentation on theme: "Thematic Investing Pictet Asset Management | For professional investors only | Can thematic investments deliver consistent returns? FT Investment Management."— Presentation transcript:

1 Thematic Investing Pictet Asset Management | For professional investors only | Can thematic investments deliver consistent returns? FT Investment Management Summit, 17 September 2014 Luca Paolini, Chief Strategist, Pictet Asset Management

2 Very low returns in traditional asset classes in the years ahead … 2 Source: Pictet Asset Management, as of June 2014 Pictet Asset Management | For professional investors only | Expected annual return over the next 5 years (p.a.)

3 … force investors to look for sources of additional return … 3 Pictet Asset Management | For professional investors only | ASSET CLASS INVESTMENT STYLE PRODUCTS TACTICAL (<6 months) EMOpportunistic Market Neutral Absolute Return Smart Beta STRATEGIC EM Valuation anomalies SECULAR (>5 years)EM, Alternatives Structural growth Mega and macro- trends Thematic investing

4 4 … and to overcome the traditional allocation straightjacket Thematic Investing Traditional Investing Non-benchmark view : focus on future winners Exposure to secular pockets of growth No geographical constraints No market cap constraints No sector constraints : Thematic investing is a cross-sector, is looking for thematic purity Broaden diversification Benchmark driven Market Cap constraints : focus on past winners Regions easy to invest (e.g. developed) Pictet Asset Management | For professional investors only |

5 From Megatrends to Investment Themes 5 Pictet Asset Management | For professional investors only | Network Economy Sustainability Knowledge & Production Society Demographic Development Focus on Health Immaterialization Polarization Democratization Acceleration & Complexity Globalization Commercialization Individualization Technology Development Economic Growth Digital Communication Biotech Agriculture Clean Energy Security Timber Premium Brands Water Generics Source: Copenhagen Institute for Futures Studies

6 Premium Brands - From Megatrends to Investment Themes 6 Pictet Asset Management | For professional investors only | Spending is growing fastest at the two extremes of the consumer spectrum: cheap and luxury brands are thriving. Polarization Globalization Demand for branded goods has spread far beyond the developed world: emerging markets now account for over 40% of premium brands demand; Chinese consumers will account for almost half of global luxury goods spending by Individualization Growing sophistication of local consumers and emergence of new heavy spender segments (empowered women, entrepreneurs, celebrities). Economic Growth Demand for luxury goods is expected to rise by c6-8% CAGR , boosted by the economic growth across emerging markets. The evolution from the traditional to “new luxury”brand, which is more diversified, creative and aspirational and targets a broader consumer base. Immaterialization Rapid growth of the middle class in emerging- market consumers, keen to adopt western lifestyle standards; consumption also fuelled by both the growth and the ageing of the world’s population as over 50s will be wealthier and more leisure oriented than ever. Demographic Development Premium Brands opportunity Source: Copenhagen Institute for Futures Studies

7 Water - From Megatrends to Investment Themes 7 Pictet Asset Management | For professional investors only | Poor water quality as a result of lack of sanitation infrastructure and waste water treatment facility is a major health threat to humans Focus on Health Urbanisation As the world’s population grows, so too will the number of and size of its urban areas. Currently, just under half of the world’s population lives in cities; by 2030, the UN predicts that 53% of us will be living in cities – that’s close to 4 billion people Of the world’s total water supply, only 3% is fresh water. And of that 3%, only a quarter is useable – or unpolluted – water. The supply could be further reduced by changes in the world’s climate. Shifts in rainfall patterns, the steady disappearance of glaciers and changing river flows will each have a negative effect on the availability of fresh water, the UN says. Sustainability Economic Growth Demand for water is expected to rise by over 50% as population growth increases water use among farmers, industry and households. In the period 2000 to 2050, consumption of water among both farmers and municipalities is expected to have risen threefold; in industry water use is set to double. Water availability is a necessary condition for economic growth. The process of increasing the efficiency of a sector by transforming it into a commercial business. For Water this megatrend is referring to the team up of private companies and public bodies (called Public private partnerships) to provide water services to households and businesses. Commercialization Water Opportunity Source: Copenhagen Institute for Futures Studies

8 Performance of Investment Themes 8 Source: Pictet, as of September 8 th, 2014, in USD, gross of fees Performance of MSCI World Versus Pictet Theme Strategies since September 2009 (in USD, gross of fees) Pictet Asset Management | For professional investors only |

9 Benefits from including themes in a portfolio 9 Individual risk / return profiles compared to MSCI World since inceptions Source: Pictet Asset Management, GIPS, MSCI, Bloomberg, as at 31 July 2014 Pictet Asset Management | For professional investors only | Volatility Return

10 Investment Themes in a Global Portfolio 10 Advantages Constraints Thematic overlay (higher active weights in core portfolio) Simple No change in portfolio construction Unwanted biases Inconsistency of investment horizon Core-satellite approach (thematic baskets) Variable weights – themes and sub- themes Fixed weights Longer investment horizon Stronger focus Reduced biases Requires thorough knowledge of themes Requires dedicated teams Multi-asset thematics (equities, fixed income, alternatives) Bigger pool of available securities More refined risk/return profile Complexity Requires sophisticated asset allocation capabilities Pictet Asset Management | For professional investors only |

11 Check list for theme assessment 11 CriteriaDefinition Liquidity & Thematic purity Pure and liquid portfolioFeasible investment portfolio with assets > USD bn thematic purity > 20% where 50% of the assets can be liquidated in five trading 20% of average trading volumes DiversificationLow overlap with traditional indices Overlap with MSCI World < 20% Expected outcome Robust & attractive risk- return profile Expected risk return profile beats MSCI World (Sharpe ratio) Theme withstands stress test through different scenarios MaterialityMeasurable thematic drivers with material impact on value drivers Materially accretive and measureable megatrend related impact to value drivers (growth, margins, risk premium) Pictet Asset Management | For professional investors only |

12 Investment Themes in a Global Portfolio – Passive or Active? 12 › Megatrends known but … › Megatrends are not per se value-creating (e.g. democratization) › Long investment horizon = low turnover = low transaction costs › Exposure to themes (“Thematic Purity”) and shifts between sub-themes are key › Megatrends often implies disruptive technologies: pick winners and losers (e.g Apple vs. Nokia) … Active portfolio management is required! Pictet Asset Management | For professional investors only |

13 Evolution of portfolio – Clean Energy 13 Thematic breakdown by fund Source: Pictet Asset Management Pictet Asset Management | For professional investors only |

14 Conclusions 14 › Intersection of megatrends define thematic investment strategies › Exposure to a scarce resource: secular growth › Thematic investing improves risk/return profile › Core-satellite approach preferred › Active management required: shifts between themes and identification of thematic purity Pictet Asset Management | For professional investors only |

15 Biography Luca Paolini joined Pictet Asset Management in 2012 as Chief Strategist. Before joining Pictet, Luca worked as an Equity Strategist at Credit Suisse Securities, responsible for asset, regional and sector allocation. From 2005 to 2007, he was Investment Strategist at Union Investment. Luca started his career in 2001 at Allianz Dresdner Asset Management as a trainee then assistant vice president, covering asset allocation and investment strategy. Luca holds a Master degree in International Economics and Management from SDA Bocconi School of Management in Milan, and a Laurea Magistrale in Political Sciences from the University of Bologna. Chief Strategist Strategy team Luca Paolini Pictet Asset Management | For professional investors only | 15

16 For more information, please contact This marketing material is issued by Pictet Funds (Europe) S.A. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on or at Pictet Funds (Europe) S.A., 15, avenue J. F. Kennedy L-1855 Luxembourg. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments. Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Funds (Europe) S.A. has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document. Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document. Pictet Asset Management 16 Pictet Asset Management | For professional investors only |

17 APPENDICES Pictet Asset Management | For professional investors only |

18 The Development of Thematic Investing at Pictet Asset Management Pictet-Leisure Pictet-Biotech The world’s first biotech-focused fund 2000 Pictet-Water The first fund to invest in the value chain of the world’s most critical resource, Water Pictet- Security Invests in companies in the physical and IT security business (excludes weapons and nuclear energy) Pictet- Telecom Pictet-Generics A pioneering fund focusing on low- cost drug makers Pictet-Premium Brands Focuses on the strong consumption trend of luxury and aspirational goods and services Pictet-Digital Communication Interactivity as a key driver in communication, explores opportunities of the digital world for business and individuals Leading thematic investor with over USD 20bn in assets under management Pictet-Clean Energy Invests in the global energy transition, favoring carbon-free or low-carbon energy sources and energy efficiency Pictet-Agriculture Focuses on the world’s food value chain Pictet-Env. Megatrend Selection - Strategic exposure to Water, Clean Energy, Timber & Agriculture Pictet-Global Megatrend Selection Exposure to all of our thematic equity strategies Pictet-Timber Investments span across the full timber value chain, a scarcely researched resource of major relevance for the world Repositioned Source: Pictet Asset Management, (includes AUM from Japanese utility funds, but excludes thematic mandates) Pictet Asset Management | For professional investors only |

19 Decision parameter: Risk return profiles 19 Source: Pictet, as of September 8 th, 2014, in USD Pictet Asset Management | For professional investors only | Fund Start date Annualised returnVolatilityrfSharpe ratio FundMSCIFundMSCIFundMSCI BiotechNov WaterJan GenericsJun Premium BrandsJun SecurityJan Clean EnergyMay DigicomJun TimberNov AgricultureJun

20 Themes sales exposure 20 No Geographical constraints Pictet Asset Management | For professional investors only | FundsEuropeNorth AmericaEmerging MarketsRoW* Premium Brands30% 40%0% Security25%48%15%8% Digital Communication 15%60%20%5% Clean energy14%52%34%0% Agriculture17%43%30%10% Timber15%50%30%5% Water32%38%26%3% Biotech24%65%8%3% Generics10%40% 10% Source: PAM, May 2014, * mainly Japan


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