NAVIGATING THIS BRAVE NEW WORLD Multi-Manager Forum, May 2016 Amanda Sillars, FCSI David Lewis, CFA, FCSI Jupiter Independent Funds Team

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NAVIGATING THIS BRAVE NEW WORLD

Learning objectives

Advisers should leave the presentation with:

■ ■ ■

An understanding of the major long-term challenges faced by investors today and henceforth An understanding of the investment opportunities available to investors An understanding of how to capture these opportunities and overcome the long-term structural challenges

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NAVIGATING THIS BRAVE NEW WORLD

Agenda

● ●

It is a tough environment for investors – the challenge of the ‘3D’s’ Where are the greatest investment opportunities henceforth?

●

How to capture this brave new world?

●

Conclusion

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NAVIGATING THIS BRAVE NEW WORLD

What is not changing? The first ‘D’; Debt Familiar and persistent long-term trends A global mountain of debt…

The views expressed are those of the presenter at the time of preparation and may change in the future. Image source: Gary Varvel Editorial Cartoon used with the permission of Gary Varvel and Creators Syndicate. All rights reserved.

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NAVIGATING THIS BRAVE NEW WORLD

What is not changing? The first ‘D’; Debt Global debt has more than doubled since 2000 Total debt as percentage of GDP (constant 2013 exchange rates)*

GLOBAL DEBT

■

Since 2007, global debt has increased by $57tn

2

246%

269%

286% $199tn

+$57tn Household $142tn Corporate Govt

$87tn

Financial

Q4 2000

Q4 2007

Q2 2014*

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Haver Analytics, national sources, World Economic Outlook, IMF, BIS, McKinsey Global Institute analysis. Chart published in ‘Debt and (Not Much) Deleveraging’ by McKinsey Global Institute, February 2015. *Q2 2014 data for advanced economies and China; Q4 2013 data for other developing economies.

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What is not changing? The second ‘D’; Deflation Deflation – of commodities, soft and hard… exacerbated by automisation “Cost of breakfast drops to a five-year low”

DEFLATION

2 “Of over 700 US job types, nearly 50% of jobs will ultimately be susceptible to full machine automation” Researchers at the University of Oxford’s Martin School in 2013

The views expressed are those of the presenter at the time of preparation and may change in the future. Milk up 2%, orange juice down 10%, wheat down 23%, pork down 16%, coffee down 28% and sugar down 22%. Source : FT.com, 10.09.15. Automation quotation from ‘Rose of the Robots’, by Martin Ford. Image source: iStock.com. Note: Jupiter has purchased the copyright to use this image.

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NAVIGATING THIS BRAVE NEW WORLD

What is not changing? The third ‘D’; Demographics Falling fertility rates, globally Fertility rates in 1970

DEMOGRAPHICS >8 children 7–8 children 6–7 children 5–6 children 4–5 children 3–4 children 2–3 children 1–2 children No data

The views expressed are those of the presenter at the time of preparation and may change in the future. Image source: brilliantmaps.com.

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NAVIGATING THIS BRAVE NEW WORLD

“Demographics is the future that has already happened” – Peter Drucker 72 countries now have fertility rates below replacement levels of 2.1 babies / woman vs just 2 countries in 1970

Fertility rates in 2014

DEMOGRAPHICS >8 children 7–8 children 6–7 children 5–6 children 4–5 children 3–4 children 2–3 children 1–2 children No data

By 2050, those aged over 65 will outnumber children under 14 for the first time in human history Image source: brilliantmaps.com.

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The impact of the ‘3D’s’ is low growth

Implied real global GDP growth, 3m moving average 4.5% 4.0% 3.5%

YoY

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Jan-14

Mar-14 May-14

Jul-14

Sep-14 Nov-14

Jan-15

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: OAM Research, Haver Analytics, March 2016.

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Mar-15 May-15

Jul-15

Sep-15 Nov-15

Jan-16

Mar-16

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NAVIGATING THIS BRAVE NEW WORLD

Don’t despair! Hunt for the greatest investment opportunities Massive disruption across multiple industries Consumption in the Emerging Markets

Telecommunications / Technology

■ Average wages in China (CNY) per annum

■ Global smartphone penetration

2010

37,000

2015

57,000

+54%

2010

19%

2015

75%

+56%

Pharma / biotechnology

Retail disruption

■ Sequencing of the human genome

■ Airbnb guests (000’s, over the summer)

2010

$46,774

2015

$1,363

-97%

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Goldman Sachs Macroeconomic Insights, 2016.

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2010

47

2015

17,000

362x

NAVIGATING THIS BRAVE NEW WORLD

Investment opportunities; Emerging Market consumption Well established pattern: as household income rises, consumption changes

The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Philippine Statistics Authority, Goldman Sachs Global Investment Research. Charts published in ‘Philippines Inc’ by Goldman Sachs Equity Research on 16.03.16.

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Terry Smith – Fundsmith Equity Fund As earnings rise, consumers favour higher quality and aspirational brands

■ Asia is in the sweet spot ■ Asian consumers will pay for provenance ■ Fundsmith Equity ■ 30% of revenue from Emerging Markets* ■ Nestlé – sales in China +2.5x since 2010: Greater China is 2nd biggest market after US and home to 30 Nestlé factories

■ L’Oréal – in 2014, e-commerce sales of cosmetics in China grew 87%

The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. Source: Fundsmith Equity, 31.03.16. *As at 31.12.15.

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Investment opportunities; Telecommunications / Technology Explosion in smartphone penetration and data consumption

■ Smartphone penetration rates*: ■ US 78% ■ UK 60% ■ China 60% ■ India 29% ■ Higher revenues from data via bundling ■ Faster broadband speeds attracts more eyeballs

■ Revenues from streaming music digitally overtook physical formats in 2014

The views expressed are those of the presenter at the time of preparation and may change in the future. *Source: UBS, 2014. Image source: iStock.com. Note: Jupiter has purchased the copyright to use this image.

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Oliver Kelton – Odey European Focus Fund Smartphone / data consumption explosion

■ Revenues from European data and infrastructure providers now rising

■ Yet Telcos still priced as Utilities ■ Odey European Focus Equity: ■ 24.1% exposure to telcos / content providers* ■ Vivendi owns Universal Music Group, the biggest music supplier in the industry. Global digital streaming revenues up 45% in 2015, having fallen 75% over the last 15 years

■ Orange sales recovering as deregulation abates. Bundled packages and premium services

Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. *Source: Odey Asset Management, 29.02.16.

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Investment opportunities; the human genome, decoded Over 10 years of R&D has spawned a plethora of new technologies, which alter our DNA What is different about immuno-oncology therapies?

They target the body’s immune system, not the tumour itself

They enable the immune system to selectively recognise and attack cancer cells

The views expressed are those of the presenter at the time of preparation and may change in the future. Image source: iStock.com. Note: Jupiter has purchased the copyright to use this image.

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They give long-lasting memory to the immune system, so that it can continually adapt to the cancer over time and provide durable, long-term response to the cancer

NAVIGATING THIS BRAVE NEW WORLD

Mark Barnett – Invesco Perpetual UK Strategic Income Fund Terminal diseases are now critical

■ Explosion of cancer drugs / therapies now being developed

■ Sustainable, effective therapies, tailored to each patient

■ Invesco Perpetual UK Strategic Income Fund: ■ 16.7% exposure to the Health Care sector* ■ Multiple capture, by owning selected: − Incumbent large caps − Leading edge micro caps − Invests in ‘portfolios of companies’, alongside specialist PHD’s

The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. *Source: Invesco Perpetual, 31.03.16.

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NAVIGATING THIS BRAVE NEW WORLD

Investment opportunities; retail disruption Brutal change in market leadership

■ Shift from bricks and mortar, to online

10-year share price *

■ Change in habits from DIY to outsourcing

2,000 Woolworths

WHSmith

1,800

■ Switch from UK mainstream supermarkets

1,600

to discounters

1,400 Price in pence

■ Force change in business models to survive

HMV

1,200 1,000 800 600 400 200 0 Mar-06

Mar-08

Mar-10

Mar-12

Mar-14

The views expressed are those of the presenter at the time of preparation and may change in the future. Any company examples are used for illustrative purposes only and should not be viewed as investment advice. *Source: Bloomberg, 31.03.16.

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NAVIGATING THIS BRAVE NEW WORLD

Steve Davies – Jupiter UK Growth Fund Aiming to identify tomorrow’s winners which are not priced as winners… yet

■ Steve was a retail equity analyst before joining Jupiter

■ Exposure to retail is 14.3%* ■ Determined to identify the ‘second derivatives’ and the unexpected beneficiaries

■ Dixons Carphone: unexpected winner ■ Customers research electronic options online and buy in the stores

■ Products can be tested and compared ■ Products are complex and need connectivity ■ Applications involve tariff and / or bespoke software applications

The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. *Source: Jupiter, 31.03.16.

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NAVIGATING THIS BRAVE NEW WORLD

Learning objectives

Advisers should leave the presentation with:

■ ■ ■

An understanding of the long-term major challenges faced by investors today and tomorrow An understanding of the investment opportunities available to investors An understanding of how to capture these opportunities, to overcome the long-term structural challenges

JUPITERAM.COM For professional investors only. Not for retail investors.

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NAVIGATING THIS BRAVE NEW WORLD

Invest in the right people Long-term performance is what matters to our clients

■ All the Jupiter Merlin Portfolios are packed with

Jupiter Merlin Growth Portfolio**

these outstanding active managers*

■ For example, Jupiter Merlin Growth: ■ Fundsmith Equity: 7.7% ■ Odey European Focus: 9.2% ■ Jupiter UK Growth: 2.6% ■ Jupiter Merlin Income: ■ Invesco Perpetual UK Strategic Income: 10.8%

300%

Jupiter Merlin Growth Portfolio Acc 242.8%

270%

IA Flexible Investment 96.2%

240% 210% 180% 150% 120% 90% 60% 30% 0% -30% Sep-99

Jan-03

May-06

Aug-09

Dec-12

Past performance is no guide to the future. The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. *Source: Jupiter, 31.03.16. **Source: FE, bid to bid, net income reinvested, in GBP, from 30.09.99 to 31.03.16. Manager inception: 30.09.99. IA = The Investment Association. The Jupiter Meriln Growth Portfolio was managed by John Chatfeild-Roberts and his team at Lazard from 1 October 1999 until March 2001. In March 2002, the management of the funds was fully transferred to Jupiter Unit Trust Managers Limited, under the same management team.

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Mar-16

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NAVIGATING THIS BRAVE NEW WORLD

Invest in the right people “If you can keep your head when all about you are losing theirs…”*

■ Focus on absolute and relative returns

Drawdowns vs FTSE All-Share**

■ Avoid permanent destruction of capital

120%

■ Simple and transparent at every level

100%

■ Concentrated portfolio construction

80%

■ Stability of team

60%

■ Wholesale pricing and low turnover

40%

■ Shared fiduciary duty

Upside

Downside 96.2%

75.8% 58.6%

40.6%

20%

0% Jupiter Merlin Income Portfolio

Past performance is no guide to the future. The views expressed are those of the presenter at the time of preparation and may change in the future. *Quote from ‘If –’ by Rudyard Kipling. **Source: Jupiter / FE, 31.03.16.

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Jupiter Merlin Growth Portfolio

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NAVIGATING THIS BRAVE NEW WORLD

The Jupiter Merlin Portfolios Jupiter Merlin: 5 strategies each with a different risk / reward profile to suit your clients

Jupiter Merlin Conservative Portfolio

IA sector parameters Equities 0-35% Fixed Income & Cash – Minimum 45%

IA sector parameters Equities 20-60% Fixed Income & Cash – Minimum 30%

Jupiter Merlin Balanced Portfolio

IA sector parameters Equities 40-85%

Jupiter Merlin Growth Portfolio

IA sector parameters Equities – Maximum 100%

Jupiter Merlin Worldwide Portfolio

IA sector parameters Equities – Maximum 100%

Return

Higher

Jupiter Merlin Income Portfolio

Equities 33.7%

Equities 58.3%

Equities 82.5%

Equities 95.0%

Equities 98.0%

Fixed Interest 60.2%

Fixed Interest 34.1%

Fixed Interest 7.9%

Other 2.5%

Other 0.0%

Other 2.1%

Other 6.6%

Other 5.8%

Cash 2.5%

Cash 2.0%

Cash 4.0%

Cash 0.9%

Cash 3.8%

Lower

Risk

Source: Jupiter, 31.03.16. Distribution Technology risk profiles: The risk profile for the Jupiter Merlin Portfolios are produced and supplied by Distribution Technology and are not certified by Jupiter. The Portfolios are not managed to a risk profile. The risk profile of the Portfolios may change over time. Distribution Technology risk profiles as at Q4 2015. IA = The Investment Association.

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Higher

NAVIGATING THIS BRAVE NEW WORLD

Conclusions

■

This brave new world has major challenges but also offers attractive opportunities for investors!

■

The ‘3D’s’ present long term challenges to global growth

■

However the pace of change is explosive in many sectors

■

The art of investing is to identify and capture beneficiaries of change – which can be achieved most effectively through owning the right active managers

The views expressed are those of the presenter at the time of preparation and may change in future.

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Disclosure

This presentation is intended for investment professionals and not for the benefit of retail investors. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Awards and ratings should not be taken as a recommendation. Jupiter Merlin Portfolios: Higher charges apply. The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. These portfolios can invest more than 35% of their value in securities issued or guaranteed by an EEA state. All of the Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolio’s expenses are charged to capital, which can reduce the potential for capital growth. This document contains information based on the FTSE All-Share Index. ‘FTSE®’ is a trade mark owned by the London Stock Exchange Plc and is used by FTSE International Limited (‘FTSE’) under licence. The FTSE All-Share Index is calculated by FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE. For your security we may record or randomly monitor all telephone calls. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority. No part of this presentation may be reproduced in any manner without the prior permission of JAM or JUTM.

8368_60062_MMF_MERLIN_AS_0516

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