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21st Century
Investment
Themes
21st Century Themes: Investing in the future
The world has changed immeasurably over the last 30 years
The future is likely to yield even more dramatic changes
We have identified some long-term themes likely to have a significant impact over
the next decade
“Turning points in markets are often associated
with the emergence of a new story or the
widespread adoption of an existing one. Time taken
understanding the narratives driving current and
future investment thinking is well spent.”
Amit Lodha
Portfolio Manager, Fidelity Global Equities Fund
Shale
Demographics Healthcare
Active stock pickers can take advantage of
these evolving themes
The power shift
Advanced Manufacturing
4
2 Shale
3 Advanced manufacturing
4
5
Demographics
Healthcare
1 The power shift
5
The power shift
1. Higher-trend growth in emerging and frontier markets
2. Continuing globalisation and rapid growth of consumer middle class
3. The steady transfer of wealth from West to East
Absolute GDP levels 2010 and 2050 (projected)
0
10,000
20,000
30,000
40,000
50,000
60,000
China US India Brazil Russia Japan UK France Germany Italy
US$bn 2010 GDP
2050 GDP
Source: Goldman Sachs, Dec-2011
The global investment landscape will change
6
The power shift: EM wealth
Still huge scope for emerging markets (EM) wealth to ‘catch up’
Rising EM wealth is creating an emerging consumer class
Selected countries by GDP per capita 2010 and 2050 (projected)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
US UK France Germany Japan Korea Russia Italy Turkey Mexico Brazil China India
GDP per capita 2010
GDP per capita 2050
US$ per capita
Source: Goldman Sachs, Jan-2012. Note: actual and forecast figures for real GDP Growth (Purchasing Power Parity - PPP) to 2013
7
The power shift: stock example Nigerian Breweries
The biggest brewer in Nigeria
Operates in attractive market structure: the top two brewers have >80% market share
A good operator with high returns and a strong portfolio of brands backed by Heineken,
which owns 54% of the company
0
50,000
100,000
150,000
200,000
250,000
300,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Revenue (Nigerian nairas, millions)
Source: FIL Limited, Colgate-Palmolive, 20.10.2011. Reference to specific securities is for illustration purposes only and does not constitute a recommendation to buy or sell.
8
2 Shale
3 Advanced manufacturing
4 Demographics
5 Healthcare
1 The power shift
9
Shale – some facts
Shale gas now accounts for 30% of total US gas consumption compared to just 1% in
2000 1
The US has gone from being the world’s largest importer of gas (in 2007) to being
largely self sufficient 2
1. Longview Economics, Commodities Monthly No 32, April 2012
2. ‘On the shale trail’. Goldman Sachs Equity Research, Fortnightly Thoughts, March 2012
10
Shale: the economic benefits
Lower energy prices → rising consumption
Higher disposable income
New job creation
It’s similar to an interest rate or tax cut
Improved external accounts
The US could become an energy net exporter
It may result in lower trade/current account deficits
This would provide support for the US dollar
11
Shale: the economic benefits (cont.)
Rising industrial competitiveness
Cheaper energy could boost industrial competitiveness
Rising investment
It’s capital-intensive and requires significant
investment
Investment may help boost US economic output and
benefit secondary industries linked to shale
Disinflationary effect
By lowering direct and indirect energy costs it could
have a disinflationary effect
12
Shale: other beneficiaries
Shale demand is rippling downstream
Freight
A lack oil and gas pipeline
infrastructure in shale
areas is increasing demand
for railroad transport
Utilities
Coal power-stations will be
replaced by cleaner gas
power-stations
Union Pacific:
a major US
railroad operator
Road transport
20% of buses in the US now
run on LNG. Haulage truck
engine conversions to LNG
are also on the rise
Cummins Westport:
produces gas engines
for trucks and buses
General Electric:
a leader in power
generation
13
2 Shale
3 Advanced manufacturing
4
5
Demographics
Healthcare
1 The power shift
14
Advanced manufacturing
Innovation has also led to advances in automation and additive manufacturing
These advances along with cheap energy and ‘big data’ concepts are driving a
renaissance in Western manufacturing…
15
US manufacturing set to grow in importance? Manufacturing as % of US GDP
Source: US Bureau of Economic Analysis, data as at 25 April 2013.
Cheap energy and onshoring could reinvigorate the US industrial base
5
10
15
20
25
30
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
16
Advanced manufacturing: automation
Machines can operate 24 hours a day
They reduce costs associated with training,
health and safety and employee administration
They can produce high-quality products to
consistent and precise standards
There is no additional cost for complexity
Labour costs could be dramatically lowered
17
Advanced manufacturing: 3D-printing
Additive manufacturing could shrink assembly line and supply chains
Additive manufacturing (3D-printing) builds objects by
laying down successive layers of material
Helps to improve efficiency and cut waste
Allows the mass production of different and tailored
components, i.e. hearing aids
Allows for shorter supply chains to end markets
18
Dassault Systems develops, sells and supports software used to plan the
manufacturing process
A world leader in 3D design software that is used in additive manufacturing
2008 2009 2010 2011 2012 2013
0
10
20
30
40
50
60
70
80
90
100 Share price, euros
Dassault enjoys significant
market share in ‘high end’
design for manufacturing
65% of its revenue base is
reoccurring
It has strong potential to grow
revenue and earnings, which
supports the current share
price
Source: Datastream, 31.05.2013
Advanced manufacturing
19
2 Shale
3 Advanced manufacturing
4 Demographics
5 Healthcare
1 The power shift
FIL Investment Management (Australia) Limited 2013 20
Key demographic themes
Population growth
Ageing population
Growth of middle classes
Rising demand for resources
Emergence of new middle classes
Changes in consumption
behaviour/lifestyle Ageing population
Rising dependency ratio
Source: FIL Limited, March 2012.
20
21
Demographics: global population growth
1
2
3
4
5
6
7
8
9
0
1490 1550 1610 1670 1730 1790 1850 1910 1970 2030
World population- billions
2000 2002 2004 2006 2008 2010 2012
Food Price Index
Meat Price Index
Cereals Price Index
Index (2002-04 = 100)
0
50
100
150
200
250
300
Increasing the cost of finite resources
The world’s population is growing exponentially … … this is pushing up food prices
Source: FAO, United Nations, Mar-2013 Source: Goldman Sachs Investment Research, Nov-10
22
Demographics: a new middle class
Europe
$8,138
$11,337
N. America
$5,602
$5,837
$796
$1,966
Middle East and
North Africa
$1,534 Central/South America
$3,117
The composition of global wealth is changing
Source: OECD Development Centre, 'The Emerging Middle Class in Developing Countries', 2010
Middle class consumer spending 2009 to 2030, billions of 2005 PPP dollars
$4,952
Asia Pacific $32,596
+482% growth
2030 2009
Sub-Saharan Africa
$827
$256
“Demographics is one of the most important long-term themes that no sensible long-term investor can afford to ignore.”
Nicky Stafford
Portfolio Manager,
Fidelity Global Demographics Fund
FIL Investment Management (Australia) Limited 2013 23
Emergence of new middle classes
Emerging Markets ~88% of world population by 2015
Low penetration in categories such as toothpaste, deodorant, pet food
Rising disposable income & urbanization are resulting in changing consumption
patterns
Demographic Driver
Market Leaders in Core Categories
Rankings based on
markets where
Colgate-Palmolive
compete and
purchase shares
Greater Asia Latin
America
Africa/Middle
East
Toothpaste #1 #1 #1
Mouthwash #2 #2 #2
Toothbrushes #1 #1 #2
Bar Soap #2 #1 #2
Body Wash/Gel #2 #2 #4
Deodorants #2 #2 #3
Household
Cleaners #1 #1 #2
Fabric Conditioners #1 #1 #1
Hand Dishwashing #1 #1 #2
Source: FIL Limited (31 December 2011) and Colgate-Palmolive Annual Report and accounts (2010/2011). References to specific securities should not be
taken as recommendations and may not represent actual holdings in the portfolio at the time of this viewing.
23
Demographics: Stock example Colgate-Palmolive
24
Demographics: ageing populations
Populations are ageing even in emerging markets
China – 2013
-15 -10 -5 0 5 10 15
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90-94
95-99
100+ Age group (years)
% of population
-10 -5 0 5 10
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90-94
95-99
100+ Age group (years)
% of population
China – 2050
Source: United States Census Bureau, International Data Base
25
2 Shale
3 Advanced manufacturing
4
5
Demographics
Healthcare
1 The power shift
26
Healthcare: meeting the needs of the elderly
The elderly are the largest users of healthcare
They are at increased risk of a range of diseases, heart disease, cancer, diabetes, Alzheimer’s
In emerging markets, better access to healthcare means more people are living into old age
Stocks
DaVita: kidney dialysis equipment
Endologix: coronary stents
Essilor: corrective lenses
Populations are ageing – life expectancies are increasing
“The trend of global population ageing is creating some serious policy headaches for national governments. But it can also give rise to some attractive opportunities for both businesses and
investors.” Hilary Natoff
Portfolio Manager
Global Equities
27
Healthcare: personalised medicine
A genomic revolution could benefit healthcare
A better understanding of the human genome could improve preventative treatment for
patients at risk of cancer and heart disease
Personalised medicines based on genetics, could drastically change the way illnesses are
treated
It could help treat illnesses earlier, save money during the drug development process and
reduce the need for trial-and-error prescriptions during treatment
Stock examples: Roche, Novartis
28
Healthcare: affordable healthcare
24%
40%
41%
46%
50%
51%
52%
59%
65%
71%
73%
75%
81%
89%
0% 20% 40% 60% 80% 100%
Japan
Italy
Spain
Hungary
Australia
Turkey
France
Czech Rep.
Brazil
UK
Poland
Germany
Canada
US
Market share of generic drugs, %
Demand for generic drugs is likely to increase
The need to make savings
during these austere times
has increased demand for
affordable healthcare in
developed markets
Surging demand for affordable
healthcare in emerging markets
is also driving demand for
generics
Stock examples
Dr Reddy’s Laboratories
Hikma
Source: IMS Health, 'Generic Medicines:
Essential contributors to the long-term health of
society'; 2010
29
21st Century Themes: Investing in the future
The world has changed immeasurable over the last 30 years, the future is likely
to yield even more dramatic changes
Some long-term themes that are likely to have a significant impact over the next
decade include:
The power shift towards emerging markets
Shale energy revolution
Advanced manufacturing
Shifting global demographics
Increasing demand for affordable healthcare
Active stock pickers can take advantage of these evolving themes.
FIL Responsible Entity (Australia) Limited 2013 30
Fidelity - Global Investment Resources
* Research Professional numbers include fixed income analysts and equity (including technical and shorting) analysts.
** Fixed Income Research includes quantitative and credit analysts and traders.
*** Other Research includes multi-manager, quantitative and derivatives experts. Portfolio Managers include equity, fixed income, real estate and multimanager teams.
Source: Fidelity Worldwide Investment 31 December 2013. Data is unaudited.
London
Frankfurt
Milan
Singapore
Sydney
Hong Kong Taipei
Shanghai Tokyo
Sao Paulo
Seoul
Mumbai
Delhi
Dalian
75 Portfolio Managers
71 Equity Research
40 Fixed Income Research**
2 Real Estate Research
6 Other Research***
Pan Europe and Americas
9 Portfolio Managers
22 Equity Research
Japan
23 Portfolio Managers
53 Equity Research
11 Fixed Income Research**
Asia Pacific (ex Japan)
Emerging Markets
395 Total Investment Professionals
109 Portfolio Managers
207 Research Professionals*
24 Traders (ex Fixed Income)
27 Divisional Management
28 Equity Research Support
Global
Europe
United Kingdom
United States
Sector and Country
Paris
FIL Responsible Entity (Australia) Limited 2013
Core international fund with a “go-anywhere” approach
Aims to beat MSCI All Country World Index by 3% p.a. over rolling five year periods
Tracking error is generally between 3% and 7%
Generally 80 to 120 stocks (from a universe of approx. 2,400 stocks in MSCI ACWI Index)
Fidelity Global equities – fund snapshot
31
*Index is MSCI All Country World (ACWI) Index
Guidelines:
Stock positions +/-5% of index*
Sector positions +/- 10% of index*
Regional positions +/- 20% of index*
Cash 0 to 10%
Active money >80%
FIL Investment Management (Australia) Limited 2013 32
Ageing
Hearing aids
Eye care
Orthopaedics
Dialysis
Cancer care
Laboratories
Travel/Cruises
Life insurance
Savings products
Dependency Ratio
Automation
Migration & capital movements
Affordability (generics, PBMs, HC distributors)
Nursing homes
Death care
Changes in Consumption
Behaviour
Internet/online
Global Brands
Diabetes
Dialysis
Healthy living
Emergence of New Middle
Classes
Luxury Brands
Staples
Autos
Mobility/ infrastructure
EM utilities
Property / building materials
EM financial services/insurance
EM Telecoms
EM Healthcare
Education
Rising Demand for Resources
Agricultural productivity
/enzymes
Water
Resource exploration &
services
Alternative power generation &
alternative fuels
Alternative
energy
technology
Chemicals
32
Dem
og
rap
hic
Th
em
es
Op
po
rtu
nit
y S
et
in
term
s o
f S
ec
tors
Healthcare
Cons Staples
Cons Disc
Telecom Services
Materials
IT
Industrials
Energy
Utilities
Financials
The ‘Demographic’ opportunity set – around 1,000
companies
Source: FIL Limited, March 2012
32
33
Important information
This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No.
409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies
commonly known as Fidelity Worldwide Investment.
This document is intended for use by advisers and wholesale investors. Retail investors should
not rely on any information in this document without first seeking advice from their financial
adviser.
This document has been prepared without taking into account your objectives, financial situation or
needs. You should consider these matters before acting on the information. You also should consider the
Product Disclosure Statements (“PDS”) for respective Fidelity products before making a decision whether
to acquire or hold the product. The relevant PDS can be obtained by contacting Fidelity Australia on 1800
119 270 or by downloading from our website at www.fidelity.com.au . The issuer of Fidelity’s managed
investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details about
Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services
Guide, a copy of which can be downloaded from our website at www.fidelity.com.au.
© 2013 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity Worldwide Investment and the Fidelity
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