Themes for TomorrowJan VH LuthmanProfessional Investors and Advisers only
1. Global Health                   2
Pharmaceuticals  Market perception  – Mature markets           – Low growth  – Political interference   – No pricing power...
Pharmaceuticals  Reality  – Global population is expanding  – Everyone will get sick, grow old and die  – More and more ca...
Pharmaceuticals  Research and Development  – NCATS - National Centre for Advancing Translational Sciences  – Will work wit...
Pharmaceuticals          How big a theme?          We have all seen a similar transformation of business model and        ...
Pharmaceuticals  Tobacco 2004               Pharmaceuticals 2012  – Mature markets           – Mature markets  – Low growt...
Pharmaceuticals  Compare the performance of the Tobacco sector with two  infamously powerful sectors – Mines and Banks    ...
Pharmaceuticals600%                                                             Mines & Banks (relative to FTSE All-Share)...
Pharmaceuticals            Tobacco eclipses Mines & Banks600%                                                     Mines, B...
Pharmaceuticals600%                                                     Re-rating of Pharmaceuticals has barely begun500%4...
Pharmaceuticals  Tobacco re-orientated to new geographic markets  Pharmaceuticals are re-orientating to new geographic mar...
2. UK Utilities                  13
UK Utilities          Priced as growth stocksBut...          Austerity & low economic growth          No growth in industr...
UK Utilities   Valuations depend on dividend yield premium   BoE may abandon inflation target   Broader ‘economic health’ ...
UK UtilitiesAnd finally...    Renewables obligations – who will pay?    Investment in 30 new gas power stations    Require...
Utilities relative to the FTSE All-Share1.151.101.051.000.950.90   Jan 12             Feb 12         Mar 12            Apr...
3. Asset Managers                    18
Asset Managers          Economic recovery          Improving corporate earnings          Rising equity valuations         ...
Aberdeen relative to the FTSE All-Share1.601.501.401.301.201.101.000.90   Jan 12             Feb 12         Mar 12        ...
4. Global Readjustment of   Currencies and Wages                            21
Global Readjustment of Currencies and Wages          We live in a globalising, competitive world          Over the long te...
Global Readjustment of Currencies and Wages  We are all human  We like wage increases  We don’t like wage cuts            ...
Global Readjustment of Currencies and Wages  High-cost economies  – Prefer lower currencies, not wages  Low-cost economies...
Global Readjustment of Currencies and Wages  China 12th Five Year Plan  – Commitment to expand domestic consumption  – Sus...
Global Readjustment of Currencies and Wages  High cost economies  – Sustained imported inflation  – Slow wage growth  – De...
Unilever relative to the FTSE All-Share1.101.051.000.950.900.85   Jan 12             Feb 12         Mar 12            Apr ...
Strictly private and confidential informationLiontrust Macro Equity Income Fund, Liontrust Macro UK Growth FundImportant n...
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Transcript of "Liontrust"

  1. 1. Themes for TomorrowJan VH LuthmanProfessional Investors and Advisers only
  2. 2. 1. Global Health 2
  3. 3. Pharmaceuticals Market perception – Mature markets – Low growth – Political interference – No pricing power – High litigation risk – Costs & risks of R&D 3
  4. 4. Pharmaceuticals Reality – Global population is expanding – Everyone will get sick, grow old and die – More and more can afford access to medicines – Pharmaceutical companies refocusing on emerging markets, lifestyle, over-the-counter, branded generics – growth, pricing power, less political interference, less litigation risk 4
  5. 5. Pharmaceuticals Research and Development – NCATS - National Centre for Advancing Translational Sciences – Will work with pharmaceutical industry – R&D more efficient, more effective, less financially risky 5
  6. 6. Pharmaceuticals How big a theme? We have all seen a similar transformation of business model and investor perceptions Macro Equity Income Fund Weighting GlaxoSmithKline 4.3% AstraZeneca 3.0% Bristol-Myers Squibb 2.8% Pfizer 3.7% Merck 3.1% Shire 2.1% Vectura 0.7%Source: Liontrust Fund Partners LLP. Data as at 31.12.2012. 6
  7. 7. Pharmaceuticals Tobacco 2004 Pharmaceuticals 2012 – Mature markets – Mature markets – Low growth – Low growth – No pricing power – No pricing power – Political interference – Political interference – Litigation risk – Litigation risk 7
  8. 8. Pharmaceuticals Compare the performance of the Tobacco sector with two infamously powerful sectors – Mines and Banks 8
  9. 9. Pharmaceuticals600% Mines & Banks (relative to FTSE All-Share)500%400%300%200%100% 0%-100% Nov-98 Apr-93 Nov-99 Mar-94 Jan-97 Apr-08 Feb-95 Feb-96 Sep-01 Sep-02 Mar-09 Mar-10 Jan-12 Aug-03 Jul-04 Feb-11 May-92 Dec-97 Oct-00 Jun-05 Jun-06 May-07 Dec-12 FTSE 350 Index Mining TR in GB FTSE 350 Index Banks TR in GB FTSE All Share TR in GB Source: Financial Express as at 31.12.2012. 9
  10. 10. Pharmaceuticals Tobacco eclipses Mines & Banks600% Mines, Banks – and Tobacco (relative to FTSE All-share)500%400%300%200%100% 0%-100% Feb-95 Apr-93 Jan-97 Nov-98 Nov-99 Apr-08 Jan-12 Mar-94 Feb-96 Sep-01 Sep-02 Aug-03 Jul-04 Mar-09 Mar-10 Feb-11 May-92 Dec-97 May-07 Dec-12 Oct-00 Jun-05 Jun-06 FTSE 350 Index Tobacco TR in GB FTSE 350 Index Mining TR in GB FTSE 350 Index Banks TR in GB FTSE All Share TR in GB Source: Financial Express as at 31.12.2012. 10
  11. 11. Pharmaceuticals600% Re-rating of Pharmaceuticals has barely begun500%400%300%200%100% 0%-100% Aug-03 Apr-93 Nov-98 Nov-99 Apr-08 Mar-94 Feb-95 Feb-96 Jan-97 Sep-01 Sep-02 Mar-09 Mar-10 Feb-11 Jan-12 Jul-04 May-92 Dec-97 May-07 Dec-12 Oct-00 Jun-05 Jun-06 FTSE 350 Index Tobacco TR in GB FTSE 350 Index Mining TR in GB FTSE 350 Index Pharmaceuticals & Biotechnology TR in GB FTSE 350 Index Banks TR in GB FTSE All Share TR in GB Source: Financial Express as at 31.12.2012. 11
  12. 12. Pharmaceuticals Tobacco re-orientated to new geographic markets Pharmaceuticals are re-orientating to new geographic markets, to new product markets and to a lower risk business model Transformation of investor rating of pharmaceuticals could be even more powerful than that of tobacco 12
  13. 13. 2. UK Utilities 13
  14. 14. UK Utilities Priced as growth stocksBut... Austerity & low economic growth No growth in industrial power demand Falling real wages & rising utility bills No growth in retail power consumption Weighting to Utilities Liontrust Macro Equity Income Fund 0.0% FTSE 100 Index 4.3% FTSE All-Share Index 3.9%Source: Liontrust Fund Partners LLP. Data as at 31.12.2012. 14
  15. 15. UK Utilities Valuations depend on dividend yield premium BoE may abandon inflation target Broader ‘economic health’ remit Inflation expectations rise Interest rates rise Dividend yield premium shrinks Undermines utilities’ valuations 15
  16. 16. UK UtilitiesAnd finally... Renewables obligations – who will pay? Investment in 30 new gas power stations Requires long-term institutional funding But, if interest rates are rising What return on capital will be required? Implications for power prices & profits? 16
  17. 17. Utilities relative to the FTSE All-Share1.151.101.051.000.950.90 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Utilities GWMSource: Bloomberg. Data from 31.12.2011 – 19.12.2012 17
  18. 18. 3. Asset Managers 18
  19. 19. Asset Managers Economic recovery Improving corporate earnings Rising equity valuations Investor confidence returns Rising bond yields Falling bond prices Switch from bonds to higher-fee equities Rising inflows, rising fees & fee rates Macro Equity Income Fund Weighting Aberdeen 5.0% Invesco 0.8% Hargreaves Lansdown 2.4% Polar Capital 1.4% Henderson 0.8% London Stock Exchange 0.8%Source: Liontrust Fund Partners LLP. Data as at 31.12.2012. 19
  20. 20. Aberdeen relative to the FTSE All-Share1.601.501.401.301.201.101.000.90 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Aberdeen FTSE All-ShareSource: Bloomberg. Data from 31.12.2011 – 19.12.2012 20
  21. 21. 4. Global Readjustment of Currencies and Wages 21
  22. 22. Global Readjustment of Currencies and Wages We live in a globalising, competitive world Over the long term, unit costs of production will trend towards approximate, risk-adjusted parity This trend will follow different paths in different parts of the world Macro Equity Income Fund Weighting Unilever 4.7% Reckitt Benckiser 4.6% Heinz 2.1% Kimberly Clark 0.8% Pepsico 0.9%Source: Liontrust Fund Partners LLP. Data as at 31.12.2012. 22
  23. 23. Global Readjustment of Currencies and Wages We are all human We like wage increases We don’t like wage cuts 23
  24. 24. Global Readjustment of Currencies and Wages High-cost economies – Prefer lower currencies, not wages Low-cost economies – Prefer higher wages, not currencies 24
  25. 25. Global Readjustment of Currencies and Wages China 12th Five Year Plan – Commitment to expand domestic consumption – Sustained, accelerated rises in minimum wage (13%pa) – Major expansion of welfare and healthcare programmes – Less need to save (savings ratio currently 30%) – Greater freedom to spend 25
  26. 26. Global Readjustment of Currencies and Wages High cost economies – Sustained imported inflation – Slow wage growth – Depressed consumer consumption Low cost economies – Accelerated growth in capacity – and inclination – to spend – Particularly amongst low and middle income earners 26
  27. 27. Unilever relative to the FTSE All-Share1.101.051.000.950.900.85 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Unilever FTSE All-ShareSource: Bloomberg. Data from 31.12.2011 – 19.12.2012 27
  28. 28. Strictly private and confidential informationLiontrust Macro Equity Income Fund, Liontrust Macro UK Growth FundImportant notice: This presentation is the property of Liontrust Fund Partners LLP (“LFP”) authorised and regulatedby the Financial Services Authority, and is strictly confidential. It contains information intended only for the person towhom it is addressed or presented, and is intended for evaluation purposes only, with no licence to use the content ormaterials within. In receiving this presentation, the recipient acknowledges and agrees that: i) in the event the recipientdoes not wish to pursue this matter, this presentation will be returned as soon as possible; ii) the recipient will not copy,fax, reproduce, divulge or distribute this confidential presentation, in whole or in part, without the express writtenconsent of LFP; iii) all of the information herein will be treated as confidential material with no less care than thatafforded to the addressee’s own confidential material of the most sensitive nature; iv) information herein mayconstitute material non-public information, disclosure of which may be prohibited by law, and the legal responsibility forits use is borne solely by the recipient. This presentation in no way constitutes an offer to sell, nor a solicitation topurchase securities in any company or investment product.The value of units in a unit trust and the income generated from them can fall as well as rise and are not guaranteed;investors may not get back the amount originally subscribed. Past performance is not a guide to future performance.The issue of units may be subject to an initial charge, which will have an impact on the realisable value of theinvestment, particularly in the short term. Equity investment should always be considered as long term.The Prospectus or Key Investor Information Documents (KIIDs) for Liontrust’s unit trusts are available direct fromLiontrust or from our website, www.liontrust.co.uk. 28
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