Thematic Investments

1
Thematic Investments
Philippe ROHNER FIAP Seminar, Warsaw, May 28th
2009
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Agenda

• Identifying megatrends
• Two thematic investments opportunities
• - Water
• - Clean Energy
• Conclusions

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Table of contents

1. Identifying megatrends

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Investment opportunities
Clean Energy
1. Knowledge
Water
2. Environment
15. Ageing
Generics
Timber
3. Acceleration
14. Democratisation
4. Hyper complexity
13. Health
Biotech
12. Globalisation
5. Networks
Digital Communication
6. Commercialisation
11. Individualisation
Premium Brands
7. Affluence
10. Dematerialisation
8. New Technology
9. Polarisation
Security
Sources CIFS Copenhagen, Pictet
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How to invest in the water industry

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Water a basic resource
Source K.S.B. Treatment Group
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1. Outdated or non-existent infrastructure

• Worldwide water infrastructure is completely
  outdated
• Operational issue
• Thames Water with 20000 miles of water pipes
• 1100 miles to be replaced in 2005-2010 gt
  equivalent of 91 years for the entire network.
• 50 of mains over 100 years old30 of mains over
  150 years old
• Financial issue
• USD 485-896 bn of capital spending needed between
  1999-2019
• Legal issue
• EU current and anticipated legislation
  (2006-2025) will trigger capital expenditure up
  to EUR 350 bn

SUBSTANTIAL AND INEVITABLE INVESTMENTS HUGE
OPPORTUNITY FOR EQUIPMENT MANUFACTURERS
Sources Thames Water, Evidence to the
House of Lords , 4th October 2006 The Clean
Water and Drinking Water Infrastructure Gap
Analysis US EPA, Office of Water, Sept. 2002
David Owen, Independent Water Sector Analyst
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2. Outsourcing of water services

• Municipal level
• Outsourcing of water business with
  Public-Private-Partnership (PPP)
• PPPs operate with up to less than 30 costs than
  pure public suppliers
• Better quality through performance targets
• Ever stronger water quality standards
• Ever scarcer financing
• Industry level
• Reduction of operating costs due to margin
  erosion
• Focus on core business
• Need for reliable water supply (semiconductor,
  tourism)
• Liberalisation of service markets worldwide
• General Agreement on Trade in Services (GATS)

HUGE BUSINESS OPPORTUNITY FOR WATER SERVICE
COMPANIES
Source The Hudson Institute, The NAWC
Privatization Study A Survey of the Use of
Public-Private Partnerships in the Drinking Water
Utility Sector June 1999
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Water services outsourcing - forecasts
Market potential 2003-2015
Population (2003)
Potential 2015
Already completed privatisation ()
389m
316m
301m
44
15
1398m
9
Western Europe
North America
Central Eastern Europe
1954m
1
6092m
459m
12
16
721m
World
Middle South Asia
19
5
Middle- South America
South East Asia
11
Middle East Africa
A 260 BN MARKET GROWING AT 6 PER ANNUM
Source David Owen, Managing Director Envisager
Ltd, 2007
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Dynamics of water prices (1989-2008)
HISTORICAL WATER PRICES IN CALIFORNIA
  AVERAGE PRICE INCREASE VOLATILITY
Water 6.1 3.9
Oil 4.8 43.2
Source SEC filing American States Water 2008,
Bloomberg Opec crude oil basket
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Sector characteristics

• Market still underprices strategic importance of
  the water industry
• Strong fundamentals- under supply- rising
  demand- sustainable growth for contributors
  water value chain for water supplyand
  infrastructure
• Still highly fragmented industry,consolidation
  continuing
• Attractive risk return profile

SECTOR CHARACTERISTICS RELATIVE TO WORLD EQUITY
MARKET

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8.0
Water portfolio
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MSCI World
7.8
rising prices
7
6
5.4
5
4.8
4
3.8
3
2.9
2.2
2
2.1
1.6
1
0
Cashflow growth
Price to Cashflow
Price to Book
Div Yield FY1
relative average
(FY0-FY2)
FY1
market cap
Source MSCI, IBES, Worldscope, Pictet Asset
Management, as of 04/02/09
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Table of contents
How to invest in clean energy
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Historical evolution of the energy mix
ENERGY CONSUMPTION BY TYPE
Source U.S Department of Energy
ENERGY HAS BEEN IN A CONTINOUS TRANSITION SINCE
THE INDUSTRIAL REVOLUTION
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Investment in renewable energy
CLEAN ENERGY HAS FELT THE IMPACT OF THE CREDIT
CRISES BUT 2010 LOOKS PROMISING
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Clean energy defined
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Drivers for Clean Energy

1. Environment There is increasing consensus on
   climate change, the world is responding
2. Energy supplyTodays energy resources are
   finite
3. Energy independence Concerns over dependence on
   imported energy

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Clean energy presents opportunities
TRANSITION TO CLEAN ENERGY WILL DRIVE GROWTH IN
DIVERSE AREAS
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Clean Energy portfolio characteristics
CLEAN ENERGY IS MORE EXPENSIVE THAN GLOBAL
EQUITIES BUT GROWS MUCH FASTER
Source FactSet, as of 27/02/09
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3. Conclusions
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Theme based Investing - Summary Remarks

• Pricing in Externalities Identifies new
  investment themes
• Traditional Investment Sectors are not theme
  based
• Indices neglect theme based investment
  opportunities
• Theme based investing is process and not
  benchmark driven

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Diversification benefits
CORRELATION MATRIX (MAR 02 MAR09)
MSCI World Pharma MSCI World Telco Svcs MSCI World Utilities MSCI World Cons Discr MSCI Europe USD MSCI World Financials SP 500 MSCI World USD NASDAQ Biotech
MSCI World/Pharmaceuticals 1 0,62 0,61 0,63 0,62 0,61 0,74 0,69 0,62
MSCI World/Telecommunication Services 0,62 1 0,6 0,72 0,77 0,66 0,81 0,8 0,58
MSCI World/Utilities 0,61 0,6 1 0,66 0,75 0,64 0,71 0,76 0,43
MSCI World/Consumer Discretionary 0,63 0,72 0,66 1 0,88 0,86 0,94 0,95 0,66
MSCI Europe USD 0,62 0,77 0,75 0,88 1 0,89 0,88 0,95 0,54
MSCI World/Financials 0,61 0,66 0,64 0,86 0,89 1 0,88 0,9 0,56
SP 500 0,74 0,81 0,71 0,94 0,88 0,88 1 0,97 0,71
MSCI World USD 0,69 0,8 0,76 0,95 0,95 0,9 0,97 1 0,65
NASDAQ Biotechnology 0,62 0,58 0,43 0,66 0,54 0,56 0,71 0,65 1
Source MPI Stylus in USD
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Return benefits

• Equal weighting with monthly rebalancing
• Out performance against the MSCI World after
  management fees

Source Pictet in EUR historical performance
over 5 years from January 31, 2004 to January 30,
2009, monthly rebalancing
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Conclusions

• Why Pension Funds ?
• Thematic investments offer a very attractive
  growth and return profile aligned with Pension
  Funds investment objectives
• Global Equity Exposure regardless of MSCI
  traditional sectorisation
• Access to a group of companies not reflected in
  traditional indexes and unresearched
• Why Now ?
• The investment framework is in constant evolution
  and fully supported by governments and Capital
  markets, creating new opportunities for long term
  Institutional Investors

THEMATIC INVESTMENT APPROACH ALLOWS PENSION FUNDS
TO BENEFIT FROM MEGATRENDS, MEANING LONG TERM
SUSTAINABLE INVESTMENT THEMES
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MANY THANKS FOR YOUR ATTENTION
Gonzalo Rengifo Abbad Country Head - Iberia and
Latin America Pictet Cie (Europe) S.A.,
Sucursal en España Madrid - Spain
Philippe Rohner Senior Investment Manager Sector
Theme funds Team Pictet Asset Management
Geneva - Switzerland