DSP BlackRock World Energy Fund

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DSP BlackRock Mutual Fund World Energy Fund!

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DSP BlackRock World Energy Fund

  1. 1. DSP BlackRock World Energy FundApril 2011 FOR PROFESSIONAL INTERMEDIARIES ONLY
  2. 2. DSP BlackRock World Energy Fund USD 6.9 billion 50-100% Allocation BlackRock Global Funds (BGF) World Energy Fund Indian Investors USD 2.9 billion 0-30% Allocation BlackRock Global Funds (BGF) New Energy FundSource: BlackRock; AUM of BGF funds as on March 31, 2011 2
  3. 3. Our energy expertise – we manage two different types of energy funds(1) BGF World Energy – investing globally in traditional energy (2) BGF New Energy – investing globally in alternative energy companies of all sizes. companies of any size. 3
  4. 4. BGF World Energy: Agenda1. The Macro Backdrop: Oil and natural gas price outlook2. The Opportunity: Why now is an interesting time for the energy sector3. Our Approach: Positioning the BGF World Energy Fund4. Fund Statistics 4
  5. 5. (1) The Macro: Witnessing a structural change in energy demand Development of OECD/non-OECD energy demand* Change in daily oil demand by region (mb/d)** OECD North America OECD Pacific OECD Europe E.Europe Africa Latin America Other Asia Middle East India China -4 -2 0 mb/d 2 4 6 8 Non-OECD countries are the drivers of long term oil demand growthSources: BP Statistical Review.**International Energy Agency World Energy Outlook, November 2010. New Policies Scenario (NPS). 5
  6. 6. The Macro: The global economic recovery is increasing oil demand today % Change in global GDP (QoQ, annualised) Robust demand growth across all regions (Δmb/d) 8% 4 OECD Non-OECD World % change (QoQ, annualised) 6% 3 4% 2 2% 1 m b /d 0% 0 -2% -1 -4% -2 -6% -3 -8% 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 2007 2008 2009 2010 2011E 2012E Oil demand is now robust across all regionsSource: BlackRock, IMF Jan 2011. Source: IEA February 2011, 6
  7. 7. Japan: Potential demand impact• Japan represents ~5% of global oil demand. Since 2005, total oil demand has fallen every year• 11 reactors representing 9.7GW of capacity are offline. 8.5 GW of oil, gas and coal capacity is also shut in• Following an earthquake in 2007, one 8.2 GW of nuclear capacity was offline for 21 months and fuel oil and direct crude burningrose by ~250,000 b/d• There is sufficient oil fired power capacity to make up nuclear shortfall. This could add 200,000 b/d to incremental oil demand.• All things being equal this would increase 2011 world oil demand growth to ~1.9% from 1.6%• However, Some of the power requirement also likely to be met by LNG & coal (although utilisation rates at gas fired power plantsare currently high) Impact of 2007 nuclear outage on fuel oil demand Impact of 2007 nuclear outage on crude demandSource: IEA, March 2011 & BP Statistical Review 7
  8. 8. The Macro: Oil supply growth has not kept pace – spare capacity is set to fall World Oil Supply Growth by Region (mb/d) OPEC Spare Capacity as a % of World Oil Demand 2.5 10% 2.0 9% 8% 1.5 2011E Demand Growth 7% 1.0 6%mb/d 0.5 5% 0.0 4% 3% * Analyst Range of Forecasts -0.5 2% -1.0 1% 2009 2010 2011 2012 2013 2014 2015 0% Non-OPEC crude capacity growth Global Biofuels Growth 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E OPEC NGLs Growth OPEC Growth (ex Biofuels) Total Net Change Total ex-Libya growth OPEC spare capacity has peaked Source: IEA/Wood Mackenzie Source: Blackrock/IEA/Estimates range of ultimate spare capacity using bank analysts 8
  9. 9. Libyan Oil market analysis Pre-crisis production profile by basin Country Sustained Current Spare Production supply (% Capacity (% Capacity global global (mb/d) production) production) 1.31 0.0% Algeria 1.4% Iran 3.70 4.1% 0.0% Iraq 2.75 3.0% 0.1% Kuwait 2.55 2.7% 0.2% Pre-crisis planned capex by company Libya 1.80 1.6% 0.5% Qatar 1.00 0.9% 0.2% Saudi 12.10 10.0% 3.6% UAE 2.70 2.8% 0.3%Source: IEA March 2011, Wood Mackenzie 9
  10. 10. Potential for long-term supply impact: lessons from history Iran Iraq 000 bbl/day 000 bbl/day 7000 4000 Iranian Start of Gulf War II 6000 3500 Iran/Iraq war Revolution 3000 5000 Gulf War I 2500 4000 2000 3000 1500 2000 1000 1000 500 0 0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Iran oil production Iraq oil production Russia Venezuela 000 bbl/day 000 bbl/day Chavez 14000 Collapse of the 4000 Oil industry presidency Soviet Union nationalised begins 12000 3500 3000 10000 2500 8000 2000 6000 1500 4000 1000 2000 500 0 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Russia oil production Venezuela oil productionSource: BP Statistical Review 2010 10
  11. 11. The Macro: Impact of higher oil prices on demand• Price acts as the balancing mechanism between supply & demand Global energy consumption as a % of GDP• Over the medium term, demand is highly inelastic. The majority of oil demand is from the transportation sector. There are limited alternatives – 98% of the world’s transportation uses fuels derived from oil.• Oil demand growth is largely being driven by China and the Middle East which subsidise or control fuel prices. Demand in these regions is less impacted by higher oil prices but it is painful for governments.• In the US, low natural gas prices are cushioning the impact of rising oil prices, as is rising GDP• Energy consumption as a proportion of World GDP reached as high as 12% in mid-2008 yet demand remained relatively inelastic. Currently at 7.9%.• Some economists cite that a $10 change in oil prices impacts global GDP by 25-50bps.• The environment today is very different from the “energy crisis” of the 70s: • Gradual demand led price rises rather than sudden supply shock? • Low interest rates, weak USD make oil more affordableSources: BlackRock, BOAML. *Price is for Brent Crude. 11
  12. 12. The Macro: US Natural Gas markets experiencing a structural change in supply A huge unconventional gas resource US Natural gas break even by basin for a 15% return ($/Mcf) 8 7 6 5 Henry Hub gas price 4 3 2 1 0 P w e R rC M F ye ville re H rn R r r a llu W a a o d rd in d le re B rn tt - S liq id rich o d rd rko a P a ce E g F rd - L u s rich E M rce s - S liq id rich G n te W sh - L u s rich E g F rd - d g s l o n a y o n l B rn tt ive /B ssie C tto V lle V rtica o n l C tto V lle - h rize ta u n G n te W sh - h rize ta W o fo - A m ry a a e M rce s - N H yn sville - co o d r ive B P ea C n W o fo B rn tt - co H ro M rce s S ice n a tte u s H yn sville o W u s o n a y e iq id iq id a llu o a e a e a le o a e a a le o a a e a llu ra a ra aWhat would make us more constructive on US natural gas? Outside the US, gas prices are more robust1. Producers need to reduce investment US UK Japan LNG 162. Wall Street/JV partners have to stop funding capital expenditure programs 143. Hedging needs to roll off and/or futures curve flattens so that there is less 12 incentive to drill $ M tu 10 /M B4. Rig count needs to fall 85. Increased demand for natural gas due to coal to gas switching 66. Government policy change/LNG export 4 2 0Source: US DOE/CS using oil credit/BlackRock. Sep-07 Sep-08 Sep-09 Sep-10 12
  13. 13. (2) The Opportunity: Oil price Oil & Energy Equities lagged other commodities in 2010 Analysts’ Oil Price Expectations vs. the Forward Curve 120 110 160Rebased to 100 100 90 80 120 70 60 50 80 40 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 2004 2005 2006 2007 2008 2009 2010 2011 2012 Gold Silver Historic average BRENT Forward curve Consensus Copper Tin Crude Oil MSCI World Energy Index Agricultural ETF MSCI Metals and Mining Oil price has lagged other commodities Source: DataStream/Internal December 2010. * Morgan Stanley/Credit Suisse/BOAML Estimates Source: DataStream 14 February 2011 13
  14. 14. The Opportunity: Valuation Price of DataStream Oil Shares Index divided by average real earnings over previous 10 years 30x 25x P/E ratio 20x 15x 10x Apr-91 Apr-94 Apr-97 Apr-00 Apr-03 Apr-06 Apr-09 Market does not appreciate the sector’s earnings potentialSource: BlackRock, Bloomberg* as at 5th April 2011. 14
  15. 15. (3) Our Approach: Portfolio Positioning – focus on E&PAs the energy cycle reset in 2008 and rebounded in 2009, we changed the shape of the portfolio:• Increased the oil price sensitivity within the integrated oil company category e.g. Suncor over Exxon• Invested further in the Exploration & Production and the Oil Service subsectors• Current positioning focuses on conviction plays with growth catalysts e.g. ~3% in pre-IPO companies Evolution of sub-sector allocation within BGF World Energy Fund 60% 50% 40% 30% 20% 10% 0% Integrated Oil Exploration & Oil Services Refining & Coal & Distribution Cash Production Marketing Uranium Jun-09 Mar-11 MSCI World Energy Mar 11Source: BlackRock, as at end March 2011. subject to change. 15
  16. 16. Our Approach: Stock examplesOil Services: US strong, international set to improveHalliburton• Oil service companies profit from increased spending by majors, national oil companies and independent exploration and production companies• Global capex expected in increase 11% in 2011 to ~$490 billion• Currently benefiting from spending on US shales which are very service intensive. In 2005 N. American Revenue/Rig ~$600/rig, now around $1,200/rig• Potential for significant margin improvement in the international business driven by expanded market position, mix and supply chain management Value opportunities with catalysts that could lead to a re-rating Marathon • Integrated oil company that plans to break up to create a stand alone upstream company and a refining & marketing company • ConocoPhillips, Tesoro and arguably BP and Rowan have shown that oil companies can have higher break up values than their market valuations • Competitive US refining assets that are currently benefiting from improved US product demand and discounted crudes • Low growth but high ROCE upstream business compared with peersSource: Marathon, Halliburton Corp, Barclays CapitalReference to the company names mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investmentrecommendation of that company.* From Halliburton analyst day slides, number is 2010 Sep YTD ROCE 16
  17. 17. (4) The Stats: BGF World Energy Fund - Top 10 holdings Company Sector Country Assets % of Fund Anadarko Exploration & Production USA USA 4.9 Schlumberger Oil Services USA Global 4.2 National Oilwell Varco Oil Services US Global 3.6 Cairn Energy* Exploration & Production UK Global 3.2 Talisman Energy Exploration & Production Canada Global 3.2 BG Group Integrated Oil UK Global 3.0 Halliburton Oil Services USA Global 3.0 Suncor Energy Integrated Oil Canada Canada 3.0 Occidental Integrated Oil USA Global 2.8 Marathon Integrated USA USA 2.8 Total 33.7% Total number of holdings: 77 Number of unquoted holdings: 5Source: Holdings data as end March 2011, subject to change. * Combined Cairn Energy and Cairn IndiaBGF World Energy Fund is the abbreviated name of BlackRock Global Funds – World Energy Fund 17
  18. 18. The Stats: Biggest Overweight/Underweight Portfolio Positions Overweight Fund MSCI World Active Position Underweight Fund MSCI World Active Holding Energy Holding Energy Position Anadarko 4.9 1.3 3.6% Exxon Mobil 2.1 14.0 -11.9% National Oilwell 3.6 1.1 2.5% RD Shell 1.4 7.5 -6.1% Varco Talisman Energy 3.2 0.8 2.4% Chevron 2.0 7.1 -5.1% Cash 2.4 0.0 2.4% Total 0.0 4.2 -4.2% Green Dragon Gas 2.2 0.0 2.2% BP 1.9 4.5 -2.6% Technip 2.5 0.3 2.2% ENI 0.0 2.1 -2.1% Lukoil 2.0 0.0 2.0% Conocophilips 2.5 3.7 -1.2% Newfield 2.3 0.3 2.0% Statoil Asia 0.0 1.0 -1.0% Exploration Noble Energy 2.4 0.6 1.8% Woodside Petroleum 0.0 1.0 -1.0% Niko Resources 1.9 0.1 1.8% Transcanda Corp 0.0 0.9 -0.9%Source: BlackRock as at end March 2011. Indicative of portfolio only. Subject to change 18
  19. 19. The Stats: BGF World Energy - Geographical exposure Geographical Exposure by Listing Geographical Exposure by Risk Region Latin America Australasia Africa China 1% 4% Cash 1% 1% Australasia 2% Asia 1% Cash Latin America 1% 2% 2% Europe Ex UK Europe 5% 3% Asia 11% Canada World 18% 45% USA Canada 55% 15% UK USA 16% 17%Source: BlackRock as at end March 2011. Indicative of portfolio only. Subject to change 19
  20. 20. The Stats: BGF World Energy: Performance• Launched in 2001 as successor to 350 Energy International• Fund Managers: Robin Batchelor/ 300 Poppy Allonby• AUM of approx $ 6.9 bn 250 Percent• Open-ended SICAV• 50 – 80 holdings 200• AA rated – S&P Fund Research 150• AA rated – OBSR• Superior rated - Morningstar 100 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10• Benchmark – MSCI World Energy Index (Total Return) BGF World Energy 7yr performance MSCI World Energy (TR) Source: DataStream, data to 30th March 2011 US$ (net of fees) YTD* 2010 2009 2008 2007 2006 2005 2004 2003 2002 BGF World Energy Fund 12.1 16.8 36.3 -46.4 40.2 8.1 49.5 36.6 29.5 -4.8 MSCI World Energy Index 13.8 9.5 22.9 -39.4 27.5 15.8 26.2 25.3 22.9 -8.4 (total return)Source: Datastream. *Performance shown net to 31st March 2011 20
  21. 21. Global Energy Conclusions• Following a downturn due to the Global Financial Crisis, we are now in the upward stage of the next energy cycle• The major headwinds facing the energy sector in 2009/2010 have gone away or are receding: – oil demand is now robust across all regions – OPEC spare capacity has peaked and is falling• US Natural gas prices will remain subdued in the near term but European and Asian gas markets are attractive• The energy sector has lagged the recovery of other commodities and equity valuations are attractive• This is a supportive stock-picking environment• BlackRock’s energy funds are managed by a well resourced and dedicated investment team 21
  22. 22. BGF New Energy: Agenda1. Macro tailwinds2. End market improvement3. Our Approach: Positioning the BGF New Energy Fund4. Fund Statistics 22
  23. 23. Macro tailwinds – The return of $100+ oil prices • Unrest in the MENA region has exacerbated an already tightening oil market, helping drive oil prices above $100/bbl • Disruption of both oil (Libya accounts for 1.7% of global supply) and gas supplies has renewed energy security concerns in many countries • Historical relationship between oil prices and New Energy equities has broken down. Is there potential for it to re-couple? Energy security – a rebel guard outside a Libyan refinery Will oil prices and New Energy re-couple? 160 24 140 19 120 100 14 80 9 60 40 4 20 0 -1 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Brent Crude BGF New EnergySource: The Guardian Source: DataStream, to 31st March 2011 A triple digit oil price moves energy security up the political agenda 23
  24. 24. Macro tailwinds – Japan and the outlook for the nuclear industry • Nuclear accounts for 14% of world electricity generation. In North America and Western Europe it contributes 20% and 26%, respectively. Over 25% of the world’s nuclear facilities were built before 1980. • Life extension and expansion plans are already being reviewed: • Germany has shut 7GW of nuclear capacity built pre 1980 for a safety review. This represents ~8% of their generation capacity. • China has temporarily suspended approval of new nuclear power plants. 2020 target is for 80-90GW vs. 10GW current capacity. • The US Nuclear Regulatory Commission is conducting a safety review of the fleet. ~20GW of capacity is currently awaiting life extension approvals. Global nuclear power additions Outlook for Central European reserve margins 300,000 30% 250,000 25% 200,000 20% MW 150,000 15% 100,000 10% 50,000 5% 0 1960 - 1970 - 1980- 1990 - 2000 - 2010 - 2020 - 0% 1970 1980 1990 2000 2010 2020 2030 -5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 At risk of At risk of Without nuclear life ex tensions With nuclear life ex tensions early cancelation/ retirement delay Any delay (or reversal) of nuclear expansion will benefit renewables and energy efficiencySource: Exxon, CLSA, IAEA, Bank of America Merril Lynch, BlackRock 24
  25. 25. Regulatory support – The start of renewed momentum? 2009/10 2011 Nuclear jitters brighten solar industry’sLow targets, goals dropped: pathCopenhagen ends in failure European ministers callUS energy bill stalls despite spill for bolder climate emissions cut Spain renewables industry fears subsidy cuts 80% of US Energy to be made from clean energy by 2035 Climate Bill R.I.P Oil hungry China needs energy security rethink 25
  26. 26. Regulatory support – China is leading the wayNew Energy is helping to solve China’s energy challenge• China has accounted for 64% of incremental world energy China’s thirst for energy consumption and 71% of energy-related carbon emissions since 2000 Mtoe• China’s share of world primary energy consumption has grown 2500.0 25.0% from 10% in 1998 to over 20% today 2000.0 20.0%• China is adding a power grid the size of France every single year 1500.0 15.0% 1000.0 10.0%12th Five Year Plan (2011-15) 500.0 5.0%• 15% of primary energy from New Energy by 2020 (150GW in wind, 20GW in solar) 0.0 0.0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008• Reduce energy intensity by 16% and carbon intensity by 17% China primary energy consumption* China as a % of World• Announced seven ‘Strategic Emerging Industries’ (SEI), of which five relate to New Energy• Target is for SEIs to increase their share from 3% of GDP in Source: BP Statistical Review of World Energy, 2010. * Primary energy includes electricity generation, transportation fuel and heating 2009 to 8% in 2015 and 15% in 2020 China• State Grid to invest $2.1 billion over next 5 years to support EVs. $60 billion to be invested in the ‘smart grid’ by 2020 China China will be a major growth market for renewables, energy infrastructure and energy efficiency 26
  27. 27. Developed markets continue to recover from the financial crisis • Most of the companies in the new energy sector focus on ‘clean’ sources of electricity generation or ways to reduce electricity consumption. Consequently, electricity demand levels and prices are important. • The Global Financial Crisis propagated the biggest fall off in energy demand since World War II • Whilst still below peak levels, electricity demand and prices in developed markets are trending back up US Electricity Demand Wholesale Electricity PricesBillion kWh/yr US$/MWh4,000 140 Peak3,950 Peak 1203,900 1003,850 803,800 603,750 403,7003,650 203,600 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10Source: EIA, rolling 12 month net electricity generation, as at December 2010 US (PJM base) Spain (base) Germany (1-yr forward) Source: Thomson Financial DataStream, rolling 12 week average prices, as at 25th March 2011 Developed markets are recovering 27
  28. 28. Subsidy independent – The increasing cost competitiveness of New Energy Falling cost of renewable power Today’s cost of producing electricity (with no CO2 cost) • Continual research and development has increased the size and efficiency of wind turbines • Cost of wind power has fallen dramatically: – 1980: >40 ¢ per kWh – 2011: <8 ¢ per kWh Clean sources of power generation are economicSource: EIA, Vestas, Barclays Capital 28
  29. 29. Innovation and advances – Energy efficiency• Approximately 40% of the world’s energy is consumed by buildings, making them the largest target for energy efficiency• LEDs are now on the cusp of mass market adoption as a viable alternative to traditional lighting Commercial building energy use LED costs ($/klm) Other 20% HVAC 31% Cooking 2% Refrigeration 4% Water heating 6% Electrical components 12% Lighting 25% Source: DOE - Buildings Energy Data Book Source: Philips Color Kinetics & DOE, Freedonia Energy efficiency offers quick paybacks and is typically not dependent on subsidies 29
  30. 30. BGF New Energy Fund Sector growing from an annual market of $0.74 Trillion to $2.2 Trillion in next ten years Energy Generation Energy Efficiency Renewable Energy, Enabling Energy 36% Technology, 28% Materials Technology, Alternative Fuels, 19% 11% Automotive & Energy Storage, 0.2% On-site Power, 1%As at end March 2011 Source HSBC 30
  31. 31. Portfolio positioning • A portfolio of high quality companies: – predominantly earnings positive/commercial sales bias/strong balance sheet/attractively valued • Continued exposure to government-mandated growth • Limited exposure to loss making companies with unproven technology (>90% net income positive) • Over 50% of companies have market caps above $5bn Evolution of sub-sector allocation within BGF New Energy Fund 60% 50% 40% 30% 20% 10% 0% Renewable Enabling Alternative Materials Automotive/ Energy Cash Energy Energy Fuels Technology On Site Storage Technology Generation Dec-09 Mar-11Source: BlackRock, as at end March 2011. 31

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