Liontrust macro presentation citywire southwest

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Liontrust macro presentation citywire southwest

  1. 1. Professional Investors and Advisers onlyThemes for TomorrowStephen Bailey and Jan VH Luthman
  2. 2. 21. Global Health
  3. 3. 33Pharmaceuticals– Mature markets– Political interference– High litigation risk– Low growth– No pricing power– Costs & risks of R&DMarket perception
  4. 4. 44PharmaceuticalsReality– 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, pricingpower, less political interference, less litigation risk
  5. 5. 55PharmaceuticalsResearch and Development– NCATS - National Centre for Advancing Translational Sciences– Will work with pharmaceutical industry– R&D more efficient, more effective, less financially risky
  6. 6. 66PharmaceuticalsHow big a theme?We have all seen a similar transformation of business model andinvestor perceptions
  7. 7. 77PharmaceuticalsTobacco 2004– Mature markets– Low growth– No pricing power– Political interference– Litigation riskPharmaceuticals 2012– Mature markets– Low growth– No pricing power– Political interference– Litigation risk
  8. 8. 88PharmaceuticalsCompare the performance of the Tobacco sector with twoinfamously powerful sectors – Mines and Banks
  9. 9. 99PharmaceuticalsMines & Banks (relative to FTSE All-Share)-100%0%100%200%300%400%500%600%May-92May-93Apr-94Apr-95Apr-96Apr-97Apr-98Apr-99Apr-00Apr-01Apr-02Apr-03Apr-04Apr-05Apr-06Apr-07Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13FTSE 350 Index Mining TR in GB FTSE 350 Index Banks TR in GB FTSE All Share TR in GBSource: Financial Express as at 31.03.2013.
  10. 10. 1010PharmaceuticalsTobacco eclipses Mines & BanksMines, Banks – and Tobacco (relative to FTSE All-share)-100%0%100%200%300%400%500%600%May-92May-93Apr-94Apr-95Apr-96Apr-97Apr-98Apr-99Apr-00Apr-01Apr-02Apr-03Apr-04Apr-05Apr-06Apr-07Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13FTSE 350 Index Tobacco TR in GB FTSE 350 Index Mining TR in GBFTSE 350 Index Banks TR in GB FTSE All Share TR in GBSource: Financial Express as at 31.03.2013.
  11. 11. 1111PharmaceuticalsSource: Financial Express as at 31.03.2013.Re-rating of Pharmaceuticals has barely begun-100%0%100%200%300%400%500%600%May-92May-93Apr-94Apr-95Apr-96Apr-97Apr-98Apr-99Apr-00Apr-01Apr-02Apr-03Apr-04Apr-05Apr-06Apr-07Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13FTSE 350 Index Tobacco TR in GB FTSE 350 Index Mining TR in GBFTSE 350 Index Pharmaceuticals & Biotechnology TR in GB FTSE 350 Index Banks TR in GBFTSE All Share TR in GB
  12. 12. 1212PharmaceuticalsTobacco re-orientated to new geographic marketsPharmaceuticals are re-orientating to new geographic markets, tonew product markets and to a lower risk business modelTransformation of investor rating of pharmaceuticals could be evenmore powerful than that of tobacco
  13. 13. 132. UK Utilities
  14. 14. 1414UK UtilitiesPriced as growth stocksBut...Austerity & low economic growthNo growth in industrial power demandFalling real wages & rising utility billsNo growth in retail power consumption
  15. 15. 1515UK UtilitiesValuations depend on dividend yield premiumBoE may abandon inflation targetBroader ‘economic health’ remitInflation expectations riseInterest rates riseDividend yield premium shrinksUndermines utilities’ valuations
  16. 16. 1616UK UtilitiesAnd finally...Renewables obligations – who will pay?Investment in 30 new gas power stationsRequires long-term institutional fundingBut, if interest rates are risingWhat return on capital will be required?Implications for power prices & profits?
  17. 17. 1717Utilities - Electricity relative to the FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.900.951.001.051.101.15Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Electricity FTSE All-Share
  18. 18. 183. Asset Managers
  19. 19. 1919Asset ManagersEconomic recoveryImproving corporate earningsRising equity valuationsInvestor confidence returnsRising bond yieldsFalling bond pricesSwitch from bonds to higher-fee equitiesRising inflows, rising fees & fee rates
  20. 20. 2020Aberdeen relative to the FTSE All-ShareSource: Bloomberg. Data from 03.04.2011 – 03.04.20130.901.001.101.201.301.401.501.60Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Aberdeen FTSE All-Share
  21. 21. 214. Global Readjustment ofCurrencies and Wages
  22. 22. 2222Global Readjustment of Currencies and WagesWe live in a globalising, competitive worldOver the long term, unit costs of production will trendtowards approximate, risk-adjusted parityThis trend will follow different paths in different parts of the world
  23. 23. 2323Global Readjustment of Currencies and WagesWe are all humanWe like wage increasesWe don’t like wage cuts
  24. 24. 2424Global Readjustment of Currencies and WagesHigh-cost economies– Prefer lower currencies, not wagesLow-cost economies– Prefer higher wages, not currencies
  25. 25. 2525Global Readjustment of Currencies and WagesChina 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
  26. 26. 2626Global Readjustment of Currencies and WagesHigh cost economies– Sustained imported inflation– Slow wage growth– Depressed consumer consumptionLow cost economies– Accelerated growth in capacity – and inclination – to spend– Particularly amongst low and middle income earners
  27. 27. 2727Unilever relative to the FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.900.951.001.051.101.151.201.25Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 1Unilever FTSE All-Share
  28. 28. 285. Banks
  29. 29. 2929BanksThreats to Asset ValuesEurozone exposure to non-bank private sectorRetail mortgagesUK commercial propertySecondary commercial property market has collapsedLoans to ‘zombie’ companiesBanks must admit debts that will never be repaid – King
  30. 30. 3030BanksThreats to ProfitsFunding for lendingIncumbents are using to rebuild capitalChallengers are using to build SoMAusterity & low growthSecuritisation to require more capitalInvestors’ unrealistic expectations – Vincent Cable
  31. 31. 3131BanksRegulatory ThreatsOld tripartite regime discreditedNew regime under Bank of EnglandBoE under new non-UK GovernorPrudence is now set in concreteExpand lending through new, prudent banksNot by relaxing prudence of incumbentsVickers/Haldane – ring-fence or dismemberBanks to become utilities
  32. 32. 3232Banks relative to the FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.900.951.001.051.101.151.201.25Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Banks FTSE All-Share
  33. 33. 33Appendix
  34. 34. 3434Pharmaceuticals relative to the FTSE All-Share0.900.951.001.051.10Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Pharma FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.2013
  35. 35. 3535Specialist Financials relative to BanksSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.870.890.910.930.950.970.991.011.031.05Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Specialist financials BANKS
  36. 36. 3636Food relative to the FTSE All-Share0.900.951.001.051.101.151.201.25Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13FOOD FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.2013
  37. 37. 3737Tobacco relative to the FTSE All-Share0.850.900.951.001.051.10Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 1Tobacco FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.2013
  38. 38. 3838Specialist financials relative to the FTSE All-Share0.850.900.951.001.051.101.151.20Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Specialist financials FTSE All-ShareSource: Bloomberg. Data from 03.04.2012 – 03.04.2013
  39. 39. 3939HeinzSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.900.951.001.051.101.151.201.251.301.35Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Heinz S&P500
  40. 40. 4040Kimberly ClarkSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.900.951.001.051.101.151.201.25Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Kimberly Clark S&P500
  41. 41. 4141MerckSource: Bloomberg. Data from 03.04.2012 – 03.04.20130.850.900.951.001.051.101.151.201.25Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13Merck S&P500
  42. 42. 4242Strictly 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 Conduct 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.

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