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Transcript of Liontrust
3 3
Pharmaceuticals
– Mature markets
– Political interference
– High litigation risk
– Low growth
– No pricing power
– Costs & risks of R&D
Market perception
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
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
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.
7 7
Pharmaceuticals
Tobacco 2004
– Mature markets
– Low growth
– No pricing power
– Political interference
– Litigation risk
Pharmaceuticals 2012
– Mature markets
– Low growth
– No pricing power
– Political interference
– Litigation risk
8 8
Pharmaceuticals
Compare the performance of the Tobacco sector with two infamously powerful sectors – Mines and Banks
9 9
-100%
0%
100%
200%
300%
400%
500%
600%
May
-92
Ap
r-9
3
Mar
-94
Feb
-95
Feb
-96
Jan
-97
Dec
-97
No
v-9
8
No
v-9
9
Oct
-00
Sep
-01
Sep
-02
Au
g-0
3
Jul-
04
Jun
-05
Jun
-06
May
-07
Ap
r-0
8
Mar
-09
Mar
-10
Feb
-11
Jan
-12
Dec
-12
FTSE 350 Index Mining TR in GB FTSE 350 Index Banks TR in GB FTSE All Share TR in GB
Pharmaceuticals
Source: Financial Express as at 31.12.2012.
Mines & Banks (relative to FTSE All-Share)
10 10
-100%
0%
100%
200%
300%
400%
500%
600%
May
-92
Ap
r-9
3
Mar
-94
Feb
-95
Feb
-96
Jan
-97
Dec
-97
No
v-9
8
No
v-9
9
Oct
-00
Sep
-01
Sep
-02
Au
g-0
3
Jul-
04
Jun
-05
Jun
-06
May
-07
Ap
r-0
8
Mar
-09
Mar
-10
Feb
-11
Jan
-12
Dec
-12
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
Pharmaceuticals
Source: Financial Express as at 31.12.2012.
Tobacco eclipses Mines & Banks
Mines, Banks – and Tobacco (relative to FTSE All-share)
11 11
-100%
0%
100%
200%
300%
400%
500%
600%
May
-92
Ap
r-9
3
Mar
-94
Feb
-95
Feb
-96
Jan
-97
Dec
-97
No
v-9
8
No
v-9
9
Oct
-00
Sep
-01
Sep
-02
Au
g-0
3
Jul-
04
Jun
-05
Jun
-06
May
-07
Ap
r-0
8
Mar
-09
Mar
-10
Feb
-11
Jan
-12
Dec
-12
FTSE 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
Pharmaceuticals
Source: Financial Express as at 31.12.2012.
Re-rating of Pharmaceuticals has barely begun
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
14 14
UK Utilities
Priced as growth stocks
But...
Austerity & low economic growth
No growth in industrial power demand
Falling real wages & rising utility bills
No growth in retail power consumption
Source: Liontrust Fund Partners LLP. Data as at 31.12.2012.
Weighting to Utilities
Liontrust Macro Equity Income Fund 0.0%
FTSE 100 Index 4.3%
FTSE All-Share Index 3.9%
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
16 16
UK Utilities
And 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?
17 17
Utilities relative to the FTSE All-Share
0.90
0.95
1.00
1.05
1.10
1.15
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 GWM
Source: Bloomberg. Data from 31.12.2011 – 19.12.2012
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.
20 20
Aberdeen relative to the FTSE All-Share
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
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-Share
Source: Bloomberg. Data from 31.12.2011 – 19.12.2012
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.
23 23
Global Readjustment of Currencies and Wages
We are all human
We like wage increases
We don’t like wage cuts
24 24
Global Readjustment of Currencies and Wages
High-cost economies
– Prefer lower currencies, not wages
Low-cost economies
– Prefer higher wages, not currencies
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
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
27 27
Unilever relative to the FTSE All-Share
0.85
0.90
0.95
1.00
1.05
1.10
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-Share
Source: Bloomberg. Data from 31.12.2011 – 19.12.2012
28 28
Strictly private and confidential information
Liontrust Macro Equity Income Fund, Liontrust Macro UK Growth Fund
Important notice: This presentation is the property of Liontrust Fund Partners LLP (“LFP”) authorised and regulated by the Financial Services Authority, and is strictly confidential. It contains information intended only for the person to whom it is addressed or presented, and is intended for evaluation purposes only, with no licence to use the content or materials within. In receiving this presentation, the recipient acknowledges and agrees that: i) in the event the recipient does 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 written consent of LFP; iii) all of the information herein will be treated as confidential material with no less care than that afforded to the addressee’s own confidential material of the most sensitive nature; iv) information herein may constitute material non-public information, disclosure of which may be prohibited by law, and the legal responsibility for its use is borne solely by the recipient. This presentation in no way constitutes an offer to sell, nor a solicitation to purchase 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 the investment, 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 from Liontrust or from our website, www.liontrust.co.uk.