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Thematic equities

Investment strategies powered by

global megatrends

2 3

Recent market events suggest that uncertainty is likely to be a key feature of the investment landscape for much of the next decade and beyond. For investors willing to take on the challenge of navigating economic cycles, a turbulent journey awaits.

At Pictet Asset Management (Pictet AM), we believe there is a less volatile way to secure attractive long-term returns – one that requires investors to focus instead on the structural forces shaping our world: megatrends. These are powerful global forces a�ecting the world economy in a pervasive, persistent, and profound manner, and no investor can afford to ignore them.

There is no doubt the world is currently experiencing a period of upheaval. Monumental shifts in geopolitics, the environment, economies, society and populations are forcing people to adapt and evolve. Major transitions, such as population growth, will present considerable challenges for governments, private companies and individuals over the years to come. How we react to these changes will determine not only our futures, but those of the coming generations.

To safeguard our future, national governments are increasingly adopting multilateral frameworks, such as global regulations to mitigate climate change. Meanwhile, evolving consumer behaviour is revolutionising how businesses operate, resulting in, for example, the rapid transmission of information via digital networks. Consequently, companies that are able to adapt by creating innovative products and services that meet the new demands of this changing world economy should benefit from unrivalled growth potential. In turn, investors in these companies are likely to be the winners of tomorrow’s world.

At Pictet Asset Management, with the help of advisers including the Copenhagen Institute for Futures Studies, we have identified 14 megatrends that we believe are shaping the world. Based on our findings, we have developed 10 single-themed equity strategies and 2 multi-themed strategies that aim to pick out the companies best positioned to benefit from these megatrends. With over 20 years’ experience in thematic investing, we believe thematic investing is a strategy for the future.

Mud rivers near Vestmannaeyjar Islands, South-West Iceland.

Traditional investment approaches are based on indices that list companies by their market value – in other words, firms that have succeeded in the past. Pictet AM’s thematic strategies, on the other hand, aim to harness the potential of the companies that will succeed in the future. By identifying the megatrends changing the world, we believe we can select the long-term winners in the global stock markets.

Hans Peter PortnerHead of Thematic Equity Investments

DISCOVER THE STRUCTURAL FORCESTRANSFORMING OUR WORLD

OUR THEMATIC STRATEGIES ARE POWERED BY THE MEGATRENDS SHAPING OUR WORLD

4 5Pictet Asset Management

NETWORK ECONOMY The increasing connectedness of business processes and economic activity, enabling the transfer of knowledge and goods directly from provider to receiver

SUSTAINABILITY The ability to meet current needs without compromising the ability of future generations to meet theirs

KNOWLEDGE SOCIETY Knowledge is becoming an economic resource in the way raw materials, labour and capital have traditionally been, as society transitions from the industrial age to the information age

IMMATERIALISATION Consumers are increasingly focusing on the intangible qualities of products and services, such as their ethical or aesthetic appeal, rather than their material attributes

DEMOCRATISATION More power to the people – politically, economically and culturally

ACCELERATION & COMPLEXITY The increase in the rate of technological progress over time, resulting in products having a shorter shelf life

TECHNOLOGY DEVELOPMENT The application of science and knowledge to commercial or industrial processes

ECONOMIC GROWTH The increase in the world’s capacity to produce goods and services

INDIVIDUALISATION The evolution of a society once characterised by collective norms to one in which freedom of choice and the expression of one’s individuality are more dominant

COMMERCIALISATION The process of increasing the efficiency of a sector by transforming it into a commercial business

GLOBALISATION The increasing global connectedness and flow of people, capital, products, services, information, technology and culture

POLARISATION When extremes grow at the expense of the middle ground

FOCUS ON HEALTH Ageing populations, rising wealth and technological advances are making health a major source of expenditure for governments, organisations and individuals across the world

DEMOGRAPHIC DEVELOPMENT The widening demographic divide between countries with younger workers and those, mostly in the West, with an ageing and shrinking workforce

From ideas to investments At Pictet Asset Management, we take a highly disciplined approach that helps us distinguish a truly enduring megatrend from a temporary fad. Having identified these megatrends, with the help of advisers, we have created thematic strategies that enable investors to capitalise on the opportunities that they present. We adopt a global thematic approach that both ignores the constraints of benchmarks and seeks to capitalise on the secular trends shaping our world.

ECONOMIC

INDIVIDUALISATION COMMERCIALISATION

GLOBALISATION

POLARISATION FOCUS ON HEALTH DEMOGRAPHIC

GROWTH

DEVELOPMENT

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SUSTAINABILITY ECONOMY

NETWORK ECONOM

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TECH

NOLO

GY

ACCE

LERA

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&

NETWORK

NETWORK ECONOMY

In developing our thematic strategies we looked for opportunities and ideas where several megatrends meet. We construct focused thematic strategies at the intersection of a number of megatrends, as the graphic below shows for our Clean Energy strategy. The more megatrends at play in any area, and the stronger their influence, the more compelling the investment theme becomes.

For us, tomorrow started yesterdayWe’ve been pioneers in thematic investing for over 20 years. We saw the potential of a thematic approach to investing during the 19 9 0 s, and were one of the first asset managers to launch a biotechnology product. This was followed by our water strategy, which remains one of the very few dedicated to this unique resource.

Each of our thematic strategies is managed by a team of dedicated specialist investment managers. To make sure our ideas are as robust as possible, each strategy benefits from a dedicated advisory board made up of eminent scientists, business leaders and academics. This enables us to test our views against those of experts in their fields, providing us with a deeper understanding of the structural trends transforming our world.

Our actively managed thematic strategies seek to deliver a compelling risk-adjusted return over the long run. What’s more, they typically focus on companies providing solutions to global challenges and aim to deliver better outcomes not just for investors, but for everyone.

Where megatrends connect, powerful themes emerge

Clean Energy

ECONOMIC GROWTH

GLOBALISATION

FOCUS ON HEALTH

SUSTAINABILITY

TECHNOLOGY DEVELOPMENT

Our range of thematic strategies:— Aim to deliver capital growth by investing in

companies likely to benefit from powerful global trends.

— Adopt an active management investment process built on high conviction portfolios.

— Could be suitable for investors who are prepared to invest over the longer term and are willing to take a potentially higher risk with their investment.

— May invest in emerging markets. Investments in emerging markets can potentially be of higher risk and volatility than those in developed markets.


MULTI- THEMED STRATEGY

Our Biotech strategy identifies the companies that are best-placed to thrive in an innovative sector, in which breakthroughs that lead to effective treatments for diseases can save people’s lives and prove profitable for investors.


ECONOMIC GROWTH

FOCUS ON HEALTH

DEMOGRAPHIC DEVELOPMENT

Page 10–13

Biotech

Our Clean Energy strategy offers investors the opportunity to profit from the structural changes underway in the global energy industry, such as the gradual transition to a lower-carbon economy.

SUSTAINABILITY


ECONOMIC GROWTH

GLOBALISATION

FOCUS ON HEALTH

Page 14–17

Clean Energy

Our Digital strategy aims to capture the growth opportunities resulting from the increasing ubiquity of digital technology, an area in which constant innovation is disrupting established business models to create a digital revolution.

NETWORK ECONOMY

DEMOCRATISATION

ACCELERATION & COMPLEXITY


INDIVIDUALISATION


Page 18–21

Digital

Our Global Environmental Opportunities strategy capitalises on the increasing importance consumers and governments are placing on protecting the environment. It invests in companies helping to safeguard the world’s natural resources.

SUSTAINABILITY

IMMATERIALISATION


ECONOMIC GROWTH

COMMERCIALISATION

GLOBALISATION

FOCUS ON HEALTH


Page 22–25

Global Environmental Opportunities (GEO)

Our Global Megatrend Selection strategy invests equally across nine of our investment themes. It aims to benefit from the most attractive investment opportunities across a diverse range of regions, industries and companies.

NETWORK ECONOMY

SUSTAINABILITY

KNOWLEDGE SOCIETY

IMMATERIALISATION

DEMOCRATISATION



ECONOMIC GROWTH

INDIVIDUALISATION

COMMERCIALISATION

GLOBALISATION

POLARISATION

FOCUS ON HEALTH


Page 26–27

Global Megatrend Selection (GMS)

SINGLE-THEMED STRATEGIES

Page 28–31

Health

Our Health strategy invests in an industry modernising its products and services to meet the demands of a growing and ageing population. We seek out the companies that will be instrumental in improving the global health landscape over the decades to come.


ECONOMIC GROWTH

INDIVIDUALISATION

FOCUS ON HEALTH



Page 36–39

Premium Brands

Our Premium Brands strategy capitalises on the investment potential of companies producing high-end goods and services with strong pricing power, loyal customers and resilience to economic cycles. Growth areas include firms providing experiential luxury products and services to wealthy consumers in emerging markets.

IMMATERIALISATION

ECONOMIC GROWTH

INDIVIDUALISATION

GLOBALISATION

POLARISATION


Page 40–43

Robotics

Our Robotics strategy invests in companies at the forefront of technological innovation. Robotic products are revolutionising many industries by, for example, increasing their productivity and energy efficiency.

SUSTAINABILITY

KNOWLEDGE SOCIETY


ECONOMIC GROWTH


Page 48–51

Timber

Our Timber strategy invests in companies operating in the plantation, financing & management of forests/ wooded regions and/or the production, processing & distribution of timber and other services & products derived from wood.

SUSTAINABILITY

ECONOMIC GROWTH

GLOBALISATION


Page 52–55

Water

Our Water strategy invests in companies involved in the global water industry, from those improving water infrastructures to those developing new products and services that are helping to overcome global water scarcity.

SUSTAINABILITY

ECONOMIC GROWTH

COMMERCIALISATION

FOCUS ON HEALTH


Page 44–47

Security

Our Security strategy invests in companies helping to safeguard the integrity, health and freedom of individuals, companies and governments by providing physical and IT security in a socially responsible manner.



ECONOMIC GROWTH

GLOBALISATION


SINGLE-THEMED STRATEGIES

Our Nutrition strategy invests in companies aiming to help secure the world’s future food supply through sustainable farming practices, technological improvements in machinery and transport, and the maximisation of nutritional content.

SUSTAINABILITY


GLOBALISATION

FOCUS ON HEALTH


Page 32–35

Nutrition

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Pictet Asset Management 11

TECHNOLOGY DEVELOPMENTBiotechnology stands at the cutting edge of scientific innovation, and the discoveries made by this industry can offer benefits that impact every aspect of our lives and environment. Benefits include biotechnologically developed toothpaste we use in the morning, to the medicines we take at bedtime to keep us healthy or control lifestyle diseases such as diabetes.

ECONOMIC GROWTH Rising disposable incomes and people’s increased willingness to spend more on their health will incentivise biotechnology and pharmaceutical companies to continue the often-expensive process of bringing new medicines to market.

FOCUS ON HEALTHHealthy living is increasingly important to people the world over. Developing medicines that will help people maintain a high quality of life throughout their ever-increasing lifespans is becoming a necessity.

DEMOGRAPHIC DEVELOPMENTBy 20 5 0, people aged 6 5 years and older will account for around 20 per cent of the world’s 9 billion population1. Compared to 8 per cent in 2015, this significant demographic shift will require major investment in medicines to help relieve the extra pressure on already-strained healthcare systems that will result from the higher number of elderly citizens.

Harness the power of medical innovation

With a growing population and increasing life expectancy, the world must find new ways to reduce healthcare costs and keep patients out of hospital. Biotechnology companies, using biological processes to manufacture products intended to improve the quality of our lives, will play a pivotal role in making new discoveries that can help solve these issues.

The ageing population challenge

Population ageing* is an increasingly global phenomenon. Although the issue is currently most pronounced in developed countries such as Italy, Japan, Portugal and Sweden, the proportion of people aged 6 5 and over is increasing in almost all countries1. As the prevalence of age-related and lifestyle diseases, such as cardiovascular disease and diabetes, grows, national healthcare budgets will come under increased pressure (see FI G .1). For example, the United States spends more than twice as much on healthcare as the average developed country (see FI G . 2). The need to reduce costs and ease pressure on the healthcare system is encouraging greater innovation.

Innovation is keyInnovation in biotechnology is driving the development of increasingly targeted therapies that offer enormous potential health benefits for patients with cancer, HI V/AID S and many other serious diseases. Currently, there are more than 25 0 biotechnology health care products and vaccines available to patients, many for previously untreat- able diseases, with many more being developed2.

A supportive regulatory environment

New drugs take many years to develop, require extensive research and are expensive to produce. Fortunately, companies developing treatments for illnesses such as diabetes and Alzheim- er’s are receiving assistance from a more supportive global regulatory environment. By offering incentives to these companies, governments are encouraging the development of new therapies for conditions that are currently unmet or expensive to treat.

Mergers & acquisitionsThe biotechnology industry remains highly fragmented, with nearly 8 0 per cent of companies in the sector having a market capitalisation of less than USD 2 billion3.

Most biotech firms are early-stage companies focusing on research in niche areas. Successful discoveries often result in deals with larger pharmaceutical companies that have the capital to fund expensive clinical trials of new medicines.

Biotech companies can also represent attractive takeover targets for larger cash-rich pharmaceutical firms, as their expertise in research and innovation is highly valued. This creates the potential for consolidation and take-overs, which could help generate strong returns for investors.

Healthcare costs per capita**

Note: **Based on respective country’s 2014 figures.Reference: Organisation for Economic Co-operation and Development

Reference: Centers for Disease Control and Prevention, 2 014

Note: *Defined as population aged 65 and above.Reference: (1) United Nations, World Population Prospects, 2015 (2) Biotechnology Innovation Organization, 2017 (3) InvestSnips, 2018

Mean annual healthcare expense per US citizen (USD, 2011)

Biotech

Reference: Pharmaceutical Research and Manufacturers of America,

Rare Diseases Report, 2 013

There are 7,0 0 0 rare diseases, of which

can be treated

fewer than 5% FI G .1

A N AG E IN G P O PU L ATI O N PU T S HU G E PRE S SU RE O N HE A LTH BU D G E T S

FI G . 2

G OV ERNM ENT S NEED TO RED U C E HE A LTH C A RE C O S T S

Source: American Medical Association Research; Long-Acting Injectable Risperidone for Relapse Prevention and Control of Breakthrough Symptoms After a Recent First

Episode of Schizophrenia A Randomized Clinical Trial. JA M A Psychiatry. 2 015 ;72(8) :8 2 2-8 2 9 oi:10.10 01 /jamapsychiatry.2 015 .0 270. Published online June 24, 2 015.

Daily pill 33% Long-acting injection 5%

FI G . 3

% O F PATIENT S W ITH P SYC H OTI C REL A P S E S AT 1 Y E A R


Biotech: finding new solutions to the world’s medical problemsWe invest in biotechnology firms focusing on innovation and developing new medicines. We analyse both smaller biotechnology companies and larger global biotechnology firms, aiming to capture the best opportunities in an industry with a predicted growth rate of 15–20 per cent per year1.

1 New mechanisms of action

Scientific progress and the increased understanding of disease pathology have led the way to finding new mechanisms of action for drugs. This has shifted the drug development process from trial and error to "drugs by design" based on the knowledge of a biological target.

2 Technology platforms

Technological advances are revolutionizing the way we treat diseases. New technologies allow us to tweak fundamental biological processes at the level of cells, genes or even proteins. They can also provide new ways of delivering a therapy, via a dif ferent route, with a dif ferent administration frequency or with fewer side effects.

New screening tools are more efficient in finding new drug candidates or discovering new drug targets.

Old medicines may have shortfalls that can now be addressed thanks to new insights. For instance, therapy efficacy can be improved by better targeting the area in the body where it is needed. Drugs can also become safer by limiting certain side effects.

3 Improving old medicines

Meeting tomorrow’s healthcare challengesBiotechnology companies are playing a vital role in the future development of medicines that could help patients survive what are currently fatal diseases and improve the quality of life of people suffering from debilitating conditions. Our strategy aims to find the most innovative companies developing drugs that can help combat lifestyle diseases and fatal illnesses, thereby helping ease the pressures on healthcare systems. A fertile corporate environment and on-going scientific innovation mean the biotechnology industry is home to a large number of compelling opportunities for long-term investors.

Biotech

PROBLEMHepatitis C

Hepatitis C, a blood-borne virus that targets the liver, currently has no vaccine. The World Health Organization estimates that as much as 1 per cent of the world’s population is infected with the hepatitis C virus2. It often has no identifiable symptoms, which helps its spread.

PROBLEMAntibiotic-resistant bacteria

Some bacteria are now resistant to antibiotics that used to kill them or inhibit their growth, making the drugs ineffective. Currently around 70 0,0 0 0 people die each year from diseases derived from antibiotic-resistant infections such as MRS A and tuberculosis. If nothing is done, up to 10 million people a year could be affected and the potential cumulative cost to the global economy could be up to USD 10 0 trillion by 20 5 0 5.

SOLUTIONInnovation

There are currently only 19 FDA*-approved treatments for hepatitis C3. One successful treatment, released in 2013, was the first available as a daily-dose pill. It was originally discovered by a small, loss-making biotechnology company, which was then acquired by a larger pharmaceutical firm for USD 11 billion – 8 9 per cent more than its market value based on its share price – and then brought to market4. It recorded sales of over USD 10 billion in its first year4.

SOLUTIONRegulation

Most companies developing new antibiotics are outside the top 5 0 pharmaceutical companies in the world by sales, highlighting the importance of early-stage biotech companies in discovering new drugs6. The FDA now offers incentives to companies developing new medicines, such as by giving firms a five-year monopoly on sales to help them recoup the investment they made to bring the drug to market3.

90%of patients in its

Phase III trial over a 12-week time scale

Reference: Sovaldi, 2 013

The drug cured around

Note: *US Food and Drug Administration. Reference: (1) IBISWorld, Global Biotechnology: Market Research Report, 2015 (2) World Health Organization, 2017 (3) US Food and Drug Administration, 2017 (4) Gilead Sciences, 2015 (5) UK Department of Health, Review on Antimicrobial Resistance, 2014 (6) The PEW Charitable Trusts, 2017 (7) The antibiotic is called teixobactin. Ling LL, Schneider T, Peoples AJ et al. A new antibiotic kills pathogens without detectable resistance. Nature 2015; 517: 455–9.

Whole genome sequencing and genetic manipulation have increased research efficiency and the speed at which we understand biology, while big data analysis has brought together bioinformatics companies and labs in an effort to identify new drug targets.

25 yearswas discovered

in 2015 by an early-stage

biotechnology company7

The first new antibiotic for

Reference: Nature Journal, 2 015

100%of mice infected with

resistant bacteria that previously caused

a 9 0 % mortality rate

It cured

Therapies can become more convenient through less frequent or easier administration (oral/ dermal versus I V, or at home vs doctor’s office), while costs are reduced through shorter hospital stays, less doctor visits, and lower side effects.

FROM TO

Lifestyle diseases

Fatal diseases

Debilitating age-related diseases

Prevention of diseases such as diabetes through lifestyle changes and medication

Chronic diseases, such as cancer

Manageable age-related diseases, such as cardiovascular disease

Pharmacotherapy – medical treatment using pharmaceutical drugs – is changing the nature of disease

Did you know?

The average human is host to about 100 trillion microbes, more than the number of human cells.

Scientists are now exploring ways to manipulate these micro-organisms to help fight disease.

Reference: Human Microbiome Project

USD 1.9bn

China

USD 1.4bn

USD 1.0bn

EuropeUS

USD 0.8bn

Asia / Oceania*

FI G .1

C O U NTRIE S / REG I O N S W ITH THE M O S T G OV ERNM ENTA L RENE WA BL E ENERGY R&D S PEND IN G IN 2016

15Pictet Asset Management

SUSTAINABILITYThe continued use of fossil fuels, and the carbon and particle emissions that result from this, is harmful to both people and the environment. The environmental effects of burning fossil fuels, such as air pollution and climate change – which contributes to millions of premature deaths every year – are leading governments, private companies and consumers to adopt clean energy solutions.

TECHNOLOGY DEVELOPMENT Rapid advances in technology are improving energy efficiency, and the resultant energy savings lead to reduced demand – which is just as important as improving energy supply. Technological innovations are also reducing the cost of clean energy, making it increasingly competitive with traditional fossil fuels.

ECONOMIC GROWTHRising energy use as a result of economic growth means it is essential that governments secure their countries’ future supplies. This is leading to changes in energy policy and, in many cases, an overall energy mix favouring clean and renewable sources that will not add to pollution.

GLOBALISATIONAs living standards in emerging nations approach those of developed countries, the world’s resources are coming under increased stress from growing demand. Significant improvements in energy efficiency are necessary to sustain global growth. At the same time, global free trade is driving down the costs of renewable energy.

FOCUS ON HEALTHThe continued use of fossil fuels is increasing the prevalence of many diseases, such as the respiratory problems that can result from air pollution. Health problems arising from air pollution already cost China over USD 4 0 0 billion1 – the equivalent of 4 per cent of its GDP – each year, leading researchers to focus their efforts on developing less damaging sources of energy.

Growing demand The world is consuming more and more energy. But traditional energy supplies – dirtier fossil fuels such as oil and coal – directly contribute to climate change and pollution. What’s more, reserves of these fuels, which many nations have to import, are finite.

The only way to meet the world’s growing demand for energy is to adopt more energy-efficient technologies, during its production and consumption. The switch from higher carbon emitting fossil fuels to lower – or zero – carbon energy alternatives, such as natural gas and renewables, will also help nations secure their future energy supplies.

Reference: (1) International Monetary Fund, Getting Energy Prices Right, 2014 (2) BP, Statistical Review of World Energy, 2014, International Energy Agency, World Energy Outlook, 2014 (3) Reference: aqicn.org, December 2017 (4) World Health Organization, 2014

Health awarenessBy embracing cleaner energy solutions, we can limit further environmental pollution and the health complications it leads to. By burning huge quantities of coal, countries such as China are currently experiencing serious particulate pollution3.This has been shown to have an adverse effect on health, in particular on the respiratory system.

According to the World Health Organ- ization, only 12 per cent of the world’s monitored urban population breathe air whose quality is in compliance with safety guidelines4.

Note: *Excluding China and IndiaReference: Frankfurt School - UNE P Collaborating Centre for Climate & Sustainable Energy Finance

Join the transition to a lower-carbon economy 48%

higher than 2012

Reference: U S Energy Information Administration,

2 016

By 20 4 0, global energy consumption is

expected to be

Increasing energy usage per capita2, coupled with rapidly growing populations and economic expansion in emerging markets such as China and India, means demand for energy will continue to rise long into the future. In addition, there is a drive to establish secure supplies or to become more energy-independent within developed countries. What’s more, since fossil fuels are a finite resource, cleaner energy sources can fulfil future requirements and reduce their dependency on energy imports from abroad.

Broad supportThere is a growing consensus about the collective need to act. Despite tight budgets and competition for resources, many governments, private companies and consumers are supporting the move towards low – or zero – carbon fuels. The cost of producing clean energy is also converging towards that of ‘dirtier’ sources, such as coal, due to technological improvements. The transition to a sustainable and clean energy future has become a reality.

Clean Energy

35%Only

of the energy produced from fossil fuels to generate electricity is actually used,

the rest is lost

Reference: International Energy Agency

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FI G . 3

S O L A R IND US TRY: NE W INSTALL ATIONS BY REGION

FI G . 2

C HIN A’S US E O F N AT U R A L G A S C O U L D A L M O S T TRIPL E BY 20 20


Clean energy: a growth opportunity as the world transitions to a lower-carbon economyOur Clean Energy strategy aims to identify the most attractive investment ideas in three key areas: energy efficiency, low-carbon energy and renewables. All these areas have a vital role to play in helping the world move towards a low-to-zero carbon future.

1 Increasing energy efficiency

2 Low-carbon energy

SMART BUILDINGSBuildings in urban centres are responsible for around 70 per cent of our C O 2 emis- sions1. With the proportion of the world’s population living in towns and cities set to increase from over 5 0 per cent today to almost 70 per cent by 20 5 0 2, this is a growing cause for concern. By optimising our energy consumption through smart cities and buildings, urban centres can play a pivotal role in creating a more energy-efficient future.

NATURAL GAS China and Europe are aiming to cut C O 2 and other greenhouse gas emissions by up to 6 5 per cent over the next 10 to 15 years*. Natural gas will play a major role in this respect, as burning it emits just half the C O 2 released by coal and oil, 6 0 per cent less nitrogen oxides and negligible amounts of particulates3. To this end, Beijing has closed the last of its coal power plant in 2017. The city

Note: *In 2015, China’s government pledged a 65% reduction by 2030. In 2014, the European Commission pledged a reduction of 40% by 2030.Reference: (1) United Nations Development Programme, 2018 (2) United Nations, World Urbanization Prospects, 2014 (3) Intergovernmental Panel on Climate Change; US Department of Energy; National Renewable Energy Laboratory, Macknick (4) South China Morning Post, 2015 (5) The Economic Times India, Nov 25, 2017 (6) Japan’s Ministry of Economy, Trade and Industry, 2015

Clean Energy

40%

By 20 4 0, cleaner forms of energy are predicted to

account for up to

of the world’s energy supply

Reference: International Energy Agency, 2 017

over the four years to 2014

Reference: Whitehouse, Solar Progress Report, 2014

The cost of solar energy dropped by

â50%

3 Renewables

SOLAR, WIND & HYDROELECTRICGovernments are realising that clean energy policies and economic growth are not mutually exclusive. They are aiming to reduce both their greenhouse gas emissions and the costs associated with environmental degradation, while raising their consumption of renewable energy. As FI G . 3 shows, demand for solar energy – the unlimited carbon-free energy from the sun – is being led by India, China and the US. For example, India is predicted to expand its installed base of solar power capacity from 3 ,0 0 0 megawatts in 2014 to 175 ,0 0 0 megawatts by 20 2 2 5.

Renewables such as wind and hydro-electric power are also taking on increasing importance in both developed and developing nations. For instance, Japan is planning to almost triple the amount of power it generates from renewables by 20 3 0 compared with 2010 levels6.

SMART GRIDSSupporting the development of smart cities are innovations such as smart grids, which, by incorporating the latest IT systems in the electricity network, will greatly increase urban energy efficiency. Instead of physically gathering information about usage, voltage and maintenance problems, ‘smart’ devices, such as power meters, can monitor live consumption, collect the resultant data and enable the automatic adjustment and control of millions of devices from one location.

now relies exclusively on cleaner energy sources such as natural gas and wind farms4. Initiatives such as these will also help reduce the number of people who die from or who are physically affected by air pollution. Another major benefit is that producing electricity from natural gas could save billions of tons of water each year, as the process uses just half as much water as producing electricity from coal3. Reference: BP, Statistical Review of World Energy, 2 013,

National Development Reform Commission

of total global deaths – 7 million people – was linked to air pollution

Reference: World Health Organization, 2 014

1 in 8In 2012

Reference: Credit Suisse, Pictet Asset Management, 2 015

Example of a smart home The winners of the future will be those who save itWe believe there are some excellent reasons to invest in the pioneering companies that are participating in the transition to clean energy. Not only could they help save our planet by limiting climate change, but they have very real potential to deliver strong, sustainable returns – making clean energy one of the most compelling investment opportunities of all.

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Digital mobility & cloud computing

The globalisation of the internet is the main factor driving growth in this sector. The power of the web, smartphones and tablets and the growth of cloud computing have opened up new markets worldwide, removing barriers to entry and creating whole new industries. The growing spending power and influence of digitally-aware Millennials, together with increasing urbanisation, are accelerating this trend.

Smart software & big data

In our increasingly connected world, billions more people and devices are going online, creating an exponential rise in the demand for interactive services.

More people, using multiple devices, will generate more data. This is encouraging digital companies to develop increasingly intelligent software offering individualised services and effective storage solutions.

The use of Big Data techniques – finding trends and patterns in hugely complex data sets – will have a significant impact on businesses such as insurance, banking, advertising and healthcare in the future.

Disruptive innovation

The next decade looks set to be one of the landmark periods for innova-tion, with established ideas being disrupted by new exciting ideas. This will offer huge scope for companies to grow and unprecedented opportunities for investors. Unlike before 20 0 0, we now have the infrastructure, technology and a user-base to support a digital world. The advent of the matrix of connections between consumer devices and everyday appliances known as the Internet of Things (IoT) is opening up a variety of opportunities for companies developing innovative products and services.

Digital technology has revolutionised the global economy, especially through the growth of mobile internet access. It is providing faster, cheaper and more personalised solutions for businesses and consumers.

NETWORK ECONOMYEconomic activity is increasingly taking place online. E-commerce, cloud computing, social networks and mobile devices are changing the nature of business across the world.

DEMOCRATISATIONAccess to information, knowledge and resources is more widely available than ever before. Internet penetration is stimulating access to information and the take-up of interactive services across the world.

ACCELERATION & COMPLEXITYThe amount of information generated is growing by the day. Big Data, the term used to describe the vast volumes of information that are now available, can be analysed with sophisticated tools to extract commercially valuable insights.

TECHNOLOGY DEVELOPMENTTechnological innovations are changing nearly every aspect of our lives, and boosting the popularity of interactive services.

INDIVIDUALISATIONThe trend towards greater personalisation is helping to drive the demand for highly customised services and products. Individualisation of a service greatly increases customer loyalty and usage.

DEMOGRAPHIC DEVELOPMENTMillennials – the generation born between 19 8 0 and 20 0 0 – are ‘digital natives’ driving the trend to look to the web for solutions to their lifestyle and consumer needs, helping to speed up the global adoption and usage of interactive services.

Internet penetration rates (%), 2017 Projected number of smartphones

Reference: IH S Markit, 2 017

Join in the digital revolution that’s transforming the way we live, work and communicate

The digital economy is growing

faster than the global economy

Reference: International Monetary Fund, World Economic Forum, 2 015

3x

Digital 6The average person

will have over

devices connected to the Internet of Things by 20 20

Reference: Cisco IB S G , ‘How the next evolution

of the internet is changing everything’

Reference: Internet World Stats, June 2 017

FI G .1

M O S T O F THE WO RL D IS Y E T TO G E T O NL INE

FI G . 2

M O RE M O BIL E D E V I C E S ME A N S G RE ATER C O NNEC TI V IT Y

Entertainmentsystems

Securitysystems

Trafficmanagement

Building & street lighting

Smartfactories

Robotics

Autonomous vehicles

Smartparking

Wearables

Supply &distribution

E-commerce

Mobile payments& banking

Heatingsystems

Cloud

E-healthcare

Smartgrids

Household appliances

Consumer devices

Consumer to consumer

Socialmedia

2O14

2O2O(e)

USD 1.5trn

USD 3trn

25bn50bn

The number of devices connected to the internet

will rise from around

in 2014 to

Reference: Cisco IBSG, 'How the next evolution

of the internet is changing everything'

by 20 20

FI G . 3

RE V ENUE F RO M T HE INTERNE T O F T HIN G S M A RK E T IS E X PEC TED TO D O U BL E BY 20 20


New companies based on collaboration and information rather than physical products are changing the relationship between consumers and suppliers. This is affecting everything from hotels, to travel, to retailing and music. In finance, meanwhile, peer-to-peer lending is offering a compelling alternative to traditional banks.

This sharing economy is powered by the popularity of social media. Reviews and ratings from other users add value by creating an extra layer of trust, and helps promote customer service.

A new breed of digital pioneers have the innovation and potential to create new industries as well as upset established business models, aided by the spread of smartphone use.

The IoT is a prime example of the growth and sophistication of the digital world – connecting people, data, systems and services across the world at greater speed than ever before. Wearable devices, smart homes, transport systems and digitally controlled utilities will soon all be communicating with each other as part of one gigantic global network. The vast amounts of data derived from this network will offer ground-breaking social and economic benefits to an increasingly information-driven society.

For example, your car insurance premi- ums could be based on your individual driving habits, while your ‘smart’ fridge could automatically add items to your shopping list when they are running low and then remind you to buy them when you pass the right shop. Your phone, linked to GP S, is already a digital assis- tant, providing you with real-time information on whether your train is late and helping you avoid traffic jams.

The collection and utilisation of data from this global network will revolutionise the efficiency of our daily lives.

Business-to-consumer has become person-to-person

Cheaper rates for passengers, higher profits for drivers

Better rates for borrowers and lenders

Cheaper and more flexible accommodation

1 The Internet of Things

2 The rise of the sharing economy

3 Businesses must invest to survive

The impact of the digital revolution will reverberate far beyond the confines of the technology, media and telecommunication industries. Companies will have to invest heavily in digital services to protect their market position and profits. Retailing, for example, is being transformed by the rise in e-commerce, while advertising and media companies are adopting digital techniques such as on-demand streaming and programmatic content.

Elsewhere, banking and payment providers are working with specialist FinTech firms to offer stronger encryption and greater convenience to their customers. In healthcare, the ability to map users’ health profiles and predict disease has considerable commercial value, while computer simulation is an essential tool for manufacturers and designers. Innovation will continue to drive new technologies that attract more users with even higher levels of technological interest, engagement and expectation.

Digital: services will grow in size, scale and sophisticationOur Digital strategy aims to capture opportunities linked to the new interactive solutions that are enhancing all aspects of our daily lives. Global interaction will be streamlined through the rise of innovative sharing platforms, cloud-based transmission and social media. Additionally, the relationships between consumers and businesses will be revolutionised through e-commerce, automated distribution and instant customer relations.

The IoT – a world of opportunities

Digital

Reference: ID C Research, 2 015

in every industry will be disrupted by competition

if they fail to embrace interactive platforms

Reference: ID C Research, 2 015

By 20181/3 of leading companies

5bnThe number of rides already

fulfilled by the leading car pool app, which launched in 2010 and is now available in 6 0 countries.

Reference: Fortune Magazine, June 2 017

The digital economy has come of age Sophisticated artificial intelligence, wearable technology, crypto-currencies and the expansion of the IoT are just some of the developments testifying to the pace of change in digital technology. Many digital companies are now supported by solid business models, balance sheets and earnings. In this period of unprecedented technological innovation, we aim to identify the most compelling opportunities in this fast-growing theme.

0 2 4 6 8 10 120

0.2

0.4

0.6

0.8

1.0

Environmental footprint (hectares per capita)

Hu

man

Dev

elop

men

t In

dex

(H

DI)

India

Indonesia

ChinaTurkey

Brazil

France

United StatesGermany

Qatar

UK


SUSTAINABILITYThe need to integrate a focus on environmental sustainability into how we manage the economy, society and the natural environment, and increase the productivity of natural resources such as energy, water and land.

IMMATERIALISATIONIndividuals and businesses are gradually replacing physical activities with virtual ones, which is helping to separate economic activity from resource usage.

TECHNOLOGY DEVELOPMENTTechnological innovations in agriculture, water use and energy are increasing the efficiency with which we are using ever-scarcer resources.

ECONOMIC GROWTHProducers and consumers are shifting from quantity to quality by increasingly integrating the true cost of economic production and services.

COMMERCIALISATIONGovernment stretched balance sheets increasingly lead to a need for private sector participation in the development of economically sustainable solutions.

GLOBALISATIONThe economic development to emerging regions is increasing the size of the global middle class, leading to higher consumption and further strain on natural resources.

FOCUS ON HEALTHGrowing awareness of the link between environmental pollution and health complications has led to a proliferation in the number of environmental policies across the world.

DEMOGRAPHIC DEVELOPMENTUrban populations typically consume more per capita than their rural counterparts1, and further urbanisation will have another significant environmental impact through the increased dislocation between consumers and the resource base.

Harness growth opportunities whilst safeguarding the environment

By 2030, the world will have an extra three billion middle-class consumers2. Their demands and aspirations will put further pressure on the world’s finite natural resources, intensifying their scarcity.

Attitudes are changingUnprecedented growth in global wealth has led to unsustainable increases in the consumption of resources – there was a five-fold increase in primary energy usage*, for example, between 19 5 0 and 2010 3. However, improved living standards also serve to promote environmental awareness. Information sharing through the internet and social media platforms means today’s consumers are more informed about environmental issues than ever before. Growing global concern means the environment has risen up the political agenda, with most governments around the world adopting eco-friendly policies.

The cost of pollution Awareness about the health complications resulting from pollution is growing. New research has shown the devastating effects of particulate matter on the Earth’s atmosphere and its inhabitants: some of the particulates emitted by vehicles and industrial plants are now believed to cause illnesses including cancer and lung disease. Furthermore, influential research bodies such as the World Economic Forum have described adverse ecological change as one of the major risks to future economic expansion.

How companies can help In China, tests on the Yangtze river basin, which runs the breadth of the country, indicated that over 10 0 toxic pollutants were present in the water4. There as a result of improper waste disposal, these pollutants have severely reduced the quality of drinking water and increased the growth of algae, forcing fish and plant life to compete for oxygen and sunlight.

The private sector is rising to challenges such as these, with many companies aiming to become better stewards of the environment. Firms that minimise their environmental impact and develop products to help maximise resource efficiency and reduce pollution have the scope to provide sustainable long- term returns for investors.

Note: *Primary energy is energy that has not been subject to conversion.Reference: (1) United Nations Environment Programme (2) Ernst and Young, 2011 (3) The Anthropocene Review, The trajectory of the Anthropocene: the great acceleration, 2015 (4) China Water Risk, 2016

Reference: United Nations Human Development Programme, Global Footprint Network, 2 012

Removing government subsidies to fossil fuel

companies would have reduced global carbon emissions by

in 2013

Reference: Science Direct, 2 017

21%

The environmental market looks set to grow to

by 20 20, at a rate of 6 –7 % p.a.

USD 3trn

Reference: Pictet Asset Management, 2 017

Global Environmental Opportunities

FI G .1

A S C O UNTRIE S D E V ELO P, THE IR EN V IRO NMENTA L IMPAC T G ROW S

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0201020082006200420022000 2012

China USJapanEU

Num

ber

of pat

ents

010

50

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125

25

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FI G . 2

EN V IRO NMENTA L PATENT S BY REG I O N


1 Consumers’ increasing awareness

Public opinion is forcing governments and private companies to make large-scale changes to their strategies. With over 5 0 per cent of the world connected to the internet1, the transmission of thought-provoking information has never been faster or more wide-reaching. Bearing testimony to this is the global social phenomenon that is “Under the Dome”, a film documenting the scale of China’s urban pollution, which was viewed online 20 0 million times within days of its release in 2015. Soon after, China pledged to cut its C O 2 emissions to between 6 0 – 6 5 per cent of 20 0 5 levels by 20 3 0 2.

2 Private sector innovation

Private companies are seeking to benefit from the shift in consumer focus. For instance, the development of advanced analytics and services in the waste management and recycling sector is helping alleviate the wasteful use of natural resources. Meanwhile, innovations such as better fluid dynamics modelling technology have greatly improved the quality and efficiency of water treatment and wastewater reuse technologies.

In another example, companies can now analyse minute concentrations of pollutants, such as oestrogen from birth control tablets, in rivers. This can help them understand these chemicals’ effects on fish populations, and as a result bring about positive environmental change.

Between 20 0 0 and 2012, global annual applications for environmental patents more than doubled (see FI G . 2). This is indicative of the increased focus private companies are placing on providing innovative solutions to environmental issues.

3 Government actions

Global Environmental Opportunities

Global Environmental Opportunities: invest in solutions to worldwide challengesProtecting the environment is now a priority for consumers, companies and governments. Their converging interests, driven by increased global awareness, technological advances and health concerns, are underpinning a global drive to safeguard the world’s natural resources.

Note: *Landfills are the third-largest man-made source of methane.Reference: (1) Internet World Stats, 2017 (2) United Nations Framework Convention on Climate Change, 2015 (3) World Health Organization (4) International Environmental Agreements Database

Companies are also responding to consumer demands, and are increasingly factoring in environmental considerations into their thinking. The rising supply of organic produce in agriculture is a prime example of a sector benefiting from a shift in consumer habits.

Environmental sustainability is also benefiting from governments’ policy changes, such as the recent pledges by China and the United States to reduce C O 2 emissions. This is in part being driven by new monitoring technologies, which are helping in the production of reports such as The World Health Organization’s Air Quality Index (see FI G . 3).

Reference: World Intellectual Property Organization statistics database, 2 014

Recent reports have stated that over 7 million people died prematurely as a result of air pollution in 2012 3. Such statistics have contributed to the rise of multilateral environmental agreements, of which the cumulative total reached 1,10 0 by the end of 2012 4. Companies that recognise and support consumers’ and governments’ environmental shifts are likely to benefit and represent attractive long-term opportunities for investors.

Energy efficiency

EU Member states have committed to roll-out

20 0 million smart meters for electricity and 45

million for gas by 20 20

Reference: European Commission, 2 016

Water quality

China’s water treatment market saw a 13 % rise to

USD 31 billion in 2016 and should keep that pace

through 20 20

Reference: Forbes, 2 017

Irrigation In Australia, drip irrigation

technology counters the impact of droughts

by using 5 0 % less water than traditional irrigation

Reference: Irrigation Australia 2 0 0 6

Waste management Landfills in the US

supplied 16 bn kilowatt hours of electricity in

2015, enough to power 1. 3 million homes

Reference: U S Environmental Protection Agency, 2 016

Sustainable forestry

Over 4 0 % of Brazil’s forests are now protected –

twice the area that was protected in 19 9 0

Reference: Food and Agriculture Organization

2 015

Renewables One of the world’s

largest solar power plants began production in

Morocco in 2015

Reference: Chartered Institute of Building 2 015

*Air quality is represented by annual mean concentration of particulate matter, smaller than 2.5 micrometers, per m3

Reference: World Health Organization, 2016

The global organic food & beverage market

is expected to reach

by 20 20

USD 211bn

Reference: Grand View Research, 2 016

Investing for a sustainable future Environmental issues are now a matter of global importance. Companies that provide effective products and services that increase resource efficiency and minimise pollution are well placed to grow strongly. In our view, by investing in these firms, investors can make a positive contribution towards a more sustainable world, as well as generating attractive capital gains.

FI G . 3

G LO BA L L E V EL S O F U RBA N A M BIENT P O L LU TI O N*

2012 2014

Percentage of new cars connected to the internet

2016 2018(e) 2020(e)

10% 98%

(Litres required per kg)

Beef15,000

Butter5,500

Rice2,500

250

200

150

100

50

01995 2015(e) 2040(e)

Coal

Petroleum and other liquids

Natural gas Renewables

Nuclear

Qua

drill

ion

Btu

*

1995 1,260

2015 4,770

2022(e) 6,730

1995 2015 2030(e)

6571

75

USD 67bn

USD 87bn

Sodium Sugar Fruits Vegetables

+89% -87%+70% -75%

WHO recommendationsConsumption


Whatever happens to individuals, companies or countries in the future, key drivers including urbanisation, technology, resources, and healthcare are likely to have a continual and significant impact on the global economy. Our multi-theme strategy o�ers exposure to nine investment themes, covering a huge range of ideas, companies and sectors, from today’s well-established companies to the success stories of tomorrow – in a single investment.

NETWORK ECONOMY

SUSTAINABILITY

KNOWLEDGE SOCIETY

IMMATERIALISATION

DEMOCRATISATION



ECONOMIC GROWTH

INDIVIDUALISATION

COMMERCIALISATION

GLOBALISATION

POLARISATION

FOCUS ON HEALTH


Global Megatrend Selection

Nutrition

Reference: UN World Population prospects, U S DA , FAO,

Pictet Asset Management, 2 016

% of US population intake above/below recommended limit

SecurityIncreasingly complex technology

requires better security measures

Reference: Statista, 2 017

Water

Protein-rich foods require more water

Reference: Water Footprint Network

Clean Energy

Note: *British Thermal Units **Includes solar, wind, hydro, biomass and natural gas

Reference: International Energy Outlook, 2 017

The world is switching to cleaner energy

GLOBAL MEGATREND SELECTION

Timber

Recycling a ton of paper could save the following:

Reference: All Recycle Facts

17 trees

HealthGlobal life

expectancy (years)

Reference: World Health Organization

Digital

Devices connected to the Internet

Reference: Cisco Systems, Brookings, PTC Inc.

1995 2030(e)

5m500bn

Premium BrandsGD P per capita

in emerging markets (USD)

Reference: International

Monetary Fund, 2017

Robotics

20 25 projection for Robotic market

2014

2017

Reference: Boston Consulting Group, 2 017

226,000 litres of water

1 week of a US citizen’s

energy usage

GDP per capita (USD)

Hea

lthca

re e

xpen

ditu

re p

er c

apita

(U

SD)

0 10,000 20,000 30,000 40,000 50,000 60,0000

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

India

MexicoChina

Japan

France

UnitedStates

Switzerland

Germany

KoreaUK


Reference: Organisation for Economic Co-operation and Development, World Bank, 2 014

All around the world, people are demanding a higher standard of living, including better healthcare, for themselves and their families. Pharmaceutical, medical, insurance and healthcare companies are finding new ways to meet this global challenge.

Support solutions that improve people’s quality of life

The rising cost of health Between 20 0 5 and 20 5 0, the global population is set to increase from 6 billion to over 9 billion2, and the number of people aged 6 0 and over is expected to grow almost three times faster than the number of those under 6 0 3. Healthcare costs for the elderly are three times those for younger generations4, and nearly two-thirds of current US healthcare spending is on people aged 6 0 or over5.

Health budgets continue to grow more quickly than the economies of most O ECD countries. For non-EU countries, health spending has been increasing by around 2.5 per cent per year since 2010 6. To safeguard the future of the world’s health services, better prevention and more effective treatments are going to be necessary.

Advances in medicineThe mounting pressure to control healthcare costs and keep patients – particularly the elderly – out of hospital wherever possible is driving a range of innovations. For instance, over half of all new drugs being developed target diseases that typically affect older people5.

The use of robots within the healthcare system will continue to improve care for the elderly, while in the operating theatre, they are increasing efficiency through faster and more precise surgical techniques. They will also help to shorten recovery times by helping to prevent infections and complications that could arise from human error, such as the incomplete sterilisation of instruments.

An emerging middle class What were once diseases of the West or rich are increasingly becoming global problems. Obesity is one of the top three social burdens of our time, detracting an estimated USD 2 trillion per year from global GDP 7. Eight of the 10 countries with the highest number of diabetics are actually in the developing world8, despite this condition usually being associated with countries in the West.

Emerging nations will see the fastest rates of growth in healthcare spending. This is largely due to increased urbanisation and a rise in wealth, which have led to a much-increased incidence of diseases caused by sedentary lifestyles and diets high in fat and sugar. Funding treatments for the chronic illnesses affecting the growing middle classes will be a long-term challenge for the governments of developing countries.

Reference: Deloitte, ‘Healthcare and Life Sciences predictions 20 20 ,’ 2 014

TECHNOLOGY DEVELOPMENTHealth is an innovation-led industry. Genetic research, advanced drugs and personalised medicine are achieving results that could not have been imagined 3 0 years ago.

ECONOMIC GROWTHA shift in consumption patterns, especially those of the rapidly growing middle classes in developing countries, will lead to increased demand for preventative measures for, and treatments of, lifestyle and age-related diseases.

INDIVIDUALISATIONAs populations age, the ability of public budgets to cover healthcare costs is becoming increasingly constrained, shifting greater responsibility to the individual. Prevention and cost-effective treatment will be essential for people to enjoy a prolonged period of good health.

FOCUS ON HEALTHAverage life expectancy has more than doubled since 19001. A good quality of life, especially in old age, has become increasingly important to people across the world.

DEMOGRAPHIC DEVELOPMENTPopulations and life expectancy are rising more quickly than investment in healthcare systems across the world. In order to contain costs, more must be done to encourage healthy lifestyles and find better ways to combat disease.

Reference: (1) World Health Organization (2) United Nations, World Population Prospects, 2015 (3) United Nations, World Bank (4) Centers for Disease Control and Prevention, 2013 (5) JP Morgan Research (6) Organisation for Economic Co-operation and Development Health Statistics, 2015 (7) McKinsey & Company, World Health Organization, 2014 (8) International Diabetes Federation, 2017

Health

330mBy 20 5 0, over

people in China will be aged 6 5 or above – roughly 1 in every 4 people

Reference: United Nations, World Population Ageing,

2 015

of the global population

15% 75%of global healthcare spending

but account for

FI G .1

D E V ELO PED C O U NTRIE S REPRE S ENT…

FI G . 2

HE A LTH C A RE S PEND IN G IS HI G HLY C O RREL ATED TO G D P

Payer/regulator

Supp

liers

Providers

Patients

Hospitals

Integrated

Outpatient

networks

Phar

mac

eutic

al

equip

ment

Biotech

Med

ical

agency

payer

Employer

Regulatory

Third-party

2013 2015


Home emergency rooms Sensors in the home automatically detect a health incident and alert support services

Process automation Seamless exchange of data between insurance providers and suppliers of medicine via an online portal

Digital healthcare card Cards store patient information for use in an emergency

Better health through better technology

1 Producers of medicines

The producers of medicines include small early-stage biotech companies and generics manufacturers as well as large pharmaceutical and biotechnology companies. This is therefore a segment providing a wide variety of opportunities in terms of size and research focus.

We estimate that two-thirds of drugs being developed by biotech firms relate to immunology and rare diseases – harnessing the power of the human immune system to combat diseases such as cancer – as well as central nervous system disorders, such as Alzheimer’s and Parkinson’s.

The biotech industry conducts very high levels of research and development in defined areas, ensuring a steady flow of innovation. A sub-set of companies is also improving patients’ quality of life by developing more accessible generic drugs (lower-cost versions of brand- name medicines) to combat chronic or age-related diseases.

2 Equipment & services

While 10 –15 per cent of US healthcare expenditure is on drugs, over 8 0 p er cent is spent in hospitals and medical facilities1. With a growing population and rising average life expectancy, the resulting increase in visits to healthcare facilities is a major contributor to a spiralling health budget. Increased efficiency of health facilities, equipment and services will be crucial in managing costs going forward. Ensur- ing the efficient operation of hospitals and clinics using new products such as Point of Care Testing will require continual investment and improvement.

IT HEALTHIT is a fast-growing sector within the healthcare industry. Currently, up to 8 0 per cent of healthcare data is not easily accessible by patients or medical professionals2. More efficient Electronic Health Records (EHR) are necessary to streamline communications between patients, doctors and pharmaceutical and insurance companies, such as in e-prescriptions. These cloud-based systems can aggregate all relevant patient data, reducing medical errors and increasing doctor efficiency as well as supporting new techniques such as DNA mapping, which can help provide warnings about future health problems.

E-HEALTHIncreasing digital interconnectedness can help facilitate the growth in virtual consultations. Rather than making a time-consuming trip to the doctor or emergency waiting room, a patient can receive a consultation from the comfort of their own home via video. Forecasts suggest that the number of telehealth video consultation sessions will increase from 20 million in 2014 to 15 8 million per year by 20 20 3. These include consultations with specialists in many fields, including mental health. This will maximise efficiency by eliminating travelling time, as well as reducing the chance of infections spreading in waiting rooms.

3 Tools & technology

Health

Health: a global industry that benefits us allOur Health strategy aims to identify the most attractive investment ideas in three areas: innovation in the production of new medicines and biotech-generics; further modernisation of equipment and services; and the development of more effective tools and technology.

Physicians in the US report use of electronic medical records has nearly tripled between 2013 and 2015

Reference: Bain & Company, Front Line of Healthcare Report, 2 015

Reference: Bernstein Research, IMS Health

US drug spending projected to increase by 7% a year between 2013 and 2020

Reference: (1) Pictet Asset Management, 2015 (2) IBM, 2015 (3) Tractica, 2015

Innovation in medical technology can also help reduce the number and length of hospital visits. Companies that provide new technological solutions, such as miniature intravenous pumps that remotely administer medication, will benefit from investment aimed at containing costs.

Reference: Deloitte, Healthcare and Life Sciences predictions 20 20 , 2 014

Mobile healthcareSmartphone apps can measure and monitor blood pressure, body temperature and weight

Diabetics portalDiabetics can enter their vital signs into an online portal to monitor how their condition is developing

TelemedicinePatients can receive remote medical consultations via video-link

165k health apps available

Reference: The Guardian, February 2 017

In 2017, there are over

1 in every 10 patentapplications globally in 2014

was in pharmaceuticals, representing over 110,0 0 0

applications

Reference: Thomson Reuters, State of Innovation

USD 3.2tn

In 2015 US healthcare spending increased 5 . 8 percent to reach

– equivalent to the 2015 G D P of Germany

Reference: National Health Expenditures, 2 015

2020$530bn

2013$329bn

Helping the world enjoy better health Our Health strategy has an attractive long-term potential through its focus on the companies most likely to meet the future needs of patients, healthcare professionals and society. Our approach aims to exploit opportunities across the entire healthcare industry, with a strong focus on firms involved in innovation and increasing efficiency.

People per grocery store*

South L.A. West L.A.

Farmers markets

Of restaurants are fast food**

Liquor stores per square mile

3,7635,957

166

41%72%

29

+89%

Sodium

+70%

Sugar

-75%

Vegetables

-87%

FruitsWHO recommendationsConsumption

FI G .1

M A L N U TRITI O N IS THE #1 C AUS E O F WO RL D ’S D ISE A SE BURD EN

FI G . 2

IN C O M E D IS PA RIT Y D E TERMINE S AC C E S S TO A D EQ UATE N U TRITI O N A ND L IK EL IH O O D O F D IS E A S E


SUSTAINABILITYUp to 3 0 per cent of all the food the world produces goes to waste1, at a loss of over USD 75 0 billion – more than Switzerland’s GDP in 2014 2. A sustainable solution must be found to produce, distribute and store food more effectively.

TECHNOLOGY DEVELOPMENT Technological innovation supports supply-side production increases through the development of precision agriculture, new seed varieties and more environment-friendly crop protection chemicals.

GLOBALISATION Global interconnectedness and people’s growing taste for foods from dif ferent cultures are driving increased worldwide trade in food produce. The value of global exports of agricultural products has risen at twice the rate of economic growth since the 19 6 0 s3.

FOCUS ON HEALTH In 2013, around 20 per cent of all deaths across the globe could be attributed to poor diets*4. The increased focus of both governments and consumers on the benefits of food with higher nutritional value is having a positive global impact on health.

DEMOGRAPHIC DEVELOPMENTBy 20 3 0, the world’s urban population is predicted to reach 8 .6 billion, led by increases in China and India5. Although urbanisation can improve people’s quality of life, offer economies of scale and reduce the cost of delivering basic services, the dislocation of food production from where it is needed could lead to new challenges when it comes to feeding humanity.

Improving food qualityOver the past 4 0 years, we have gone from a world in which there were twice as many underweight people as obese, to one in which more people are obese.

Across the globe, people want higher quality food, which is produced in a more transparent way. In both developed and developing countries, there is increasing scrutiny on how diets affect people’s quality of life, and this is changing global consumption patterns. In North America, for instance, organic foods are increasingly moving into the mainstream, where sales in the region grew by over 10 per cent in 2015 to over USD 4 3 billion7.

Access to nutritionThe way we eat has changed dras- tically over the last decades. Eating away from home has become the new normal, driving growth in food services and distribution. However, there is often unequal access to quality nutrition even within the same city (F I G . 2).

At the same time, digitalisation means consumers are shifting their habits. Standard retail stores find their margins increasingly under pressure – as re- plenishment purchases currently represent between 3 0 and 4 0 per cent of shopping habits, much of which will likely be done online in the future. This shift will mean retail stores will have to focus on food as an experience rather than a service.

Help prevent and cure disease with nutrition6

Malnutrition – either eating too little, or too much – is one of the main social burdens of our time.

Vast investment is needed to provide a growing global population with nutritionally high-quality food and deliver this in an e¡cient and sustainable way.

Sustainable food chains Agriculture is the largest user of critical resources – water, energy and land – and, as such, will be at the forefront of innovations designed to use them more efficiently. Sustainable inten- sification is required in order for us to produce more food from the same land with less environmental impact.

Much of the food needed to meet the growing global population's demands can be provided by improving efficiency along the food production chain. From farm to fork, over a billion tons of food is wasted each year1. A more efficient food supply chain could support demand without incurring greater environmental costs.

Note: * store of 44k sqft or larger. ** or limited serviceReference: Community Coalition South L.A., 2 014

Note: *Poor diets include chronic hunger (800m) and obesity (500m). Reference: (1) Food and Agriculture Organization, 2015 (2) Food and Agriculture Organization, International Monetary Fund, 2015 (3) Food and Agriculture Organization Database, Pictet Asset Management, 2015 (4) Institute for Health Metrics and Evaluation (5) United Nations World Population Prospects: The 2017 Revision, 2017 (6) “The doctor of the future will no longer treat the human frame with drugs, but rather will cure and prevent disease with nutrition” – Thomas Edison (7) Organic Trade Association, State of the Industry, 2016

Reference: W H O, U S Health gov. Dietary guidelines

Nutrition

of the food produced for human consumption gets wasted worldwide

1/3Every year, about

Reference: Food and Agriculture Organization,

2 015

Farming Transformation & distribution Food


Smart farmingNew technology is creating ‘connected farms’, helping to maximise productivity through precise analysis, monitoring and crop management.

Nutrition: investing in solutions helping to feed the worldOur Nutrition strategy invests in companies that are developing solutions to help secure the world’s future food supply. These solutions include innovations to improve productivity in farming, increase efficiency in food transportation and processing, and maximise the nutritional content of the food we eat.

Nutrition

Continued improvements in agricultural practices, such as using land more efficiently, will be essential to produce the required quantity and quality of food over the years to come. Yet this must not come at the cost of sustainability. Soil, for instance, is an essential resource for 9 5 per cent of the food that we produce. But today, 3 3 per cent of soil has been degraded, and this is not easily reversible: it can take up to 1,0 0 0 years to produce just 2– 3 cm of fertile top soil1. Dealing with this will be a major challenge, but it also represents an opportunity for companies able to provide solutions, such as precision monitoring tools enabling the accurate application of fertilisers to correct soil imbalances.

Delivering high quality nutrition where it is needed is critical in a world where consumer eating habits are dramatically changing. Today, 5 0 % of time spent eating in the US is dedicated to snacking, making it challenging to maintain a balanced diet.2

From food producers to distributors, all the way through to the consumer, all will have a role to play. And nowhere is change more necessary than when it comes to increasing efficiency to reduce waste.

Plant health

Farm production

Farm technology

Animal health

Commodity processing

Packaging & recycling

Transport & wholesale

Food ingredients

Food staples

Testing & certification

Reference:(1) Food and Agriculture Organization, 2016 (2) Hartman Group, The future of snacking, 2016

AB

CE

Advances in farming productivity and food distribution have disproportionately focused on producing calories, with little regard for quality. This has led to increased consumption of processed food, with unintended consequences – most notably the excess consumption of sugar, widely regarded as a major cause of the increase in global obesity levels. Global hunger, poor nutrition and obesity are costing the world trillions of dollars in health costs and lost productivity. Nutrient loss is not just averted through better efficiency in the supply chain, but also through fortifying foods with nutrients, improving awareness through better labels and even modernizing food safety regulations. In both developed and emerging countries, a greater focus on health is changing consumer and regulatory attitudes towards improving the nutritional content of food. Companies involved in this transition through the development of high-quality food products, whether that be through better ingredients, reformulation, testing, quality control or certification, are all set to benefit from the growing global focus on health, sourcing and treatment of food.

3 Food1 Farming

2 Transformation & distribution

At the same time, rising incomes in the developing world are boosting demand for higher nutrient-content food products such as animal protein, which tend to require significantly more critical resources to produce them. Better farming machinery and food production systems are essential and our strategy supports on-going technological innovation in this area. Investing in companies that adopt best-practice farming techniques will lead to increased efficiency, less waste and lower costs due to economies of scale.

60 years of top soil left

At current rates of degradation, we have

Reference: Food and Agriculture Organization, 2015

20%of the global population suffer from a poor diet

Around

Reference: Food and Agriculture Organization

Technical innovation is improving quality and e�ciency across the food chain

DF

G H IJ

A

B

C

D

E

F

G

H

I

JVariable-rate seeding increases productivity by adjusting for soil conditions

Variable-rate fertiliser spreaders are more e©cient and reduce costs

Real-time yield monitors track variability across farmland

IT-based crop scouting creates more accurate field records

Every year, food loss amounts to an estimated economic cost of USD 75 0 billion1.

With food losses occurring during harvest, processing, transport and storage, there are many opportunities for companies to increase efficiency. Innovations include anti-microbial packaging that helps to prevent damage during transport and maintain food safety, while innovative sensors on food packaging can help avoid confusion about ‘use-by dates’, reducing the vast amount of food thrown away by consumers.

Food for thoughtOur Nutrition strategy takes a wholly positive approach, aiming to benefit from solutions, not problems – we do not invest in commodities or speculate in shortages in food. Rather, we focus on companies involved in helping to secure the world’s future food supply and that therefore represent sustainable long-term opportunities for investors.


Premium brands represent a special case within the retail universe, occupying a unique place within the consumer market and enjoying a range of distinct advantages. These high-end, prestigious companies have a reputation for delivering outstanding quality. This has helped them achieve strong market positions, powerful customer loyalty and consistent pricing power. High barriers to entry mean they are less vulnerable to new competition, while their global reputation make them attractive to affluent consumers across the world.

A wide range of sectors Premium brands encompass a highly diverse range of products and ser- ices, from ultra-premium car brands to high-end fragrances. Our strategy, which aims to capitalise on growth prospects linked to consumer aspirations, focuses on the brands of superior-quality companies across a wide range of consumer sectors – autos, hotels, fashion, leisure, food & drink, and fitness & health.

Why they’re special Premium brands are high-end brands, offering exceptional quality products and services that are aspirational in nature. They tend to be associated with quality, exclusivity and crafts-manship, and enjoy a strong reputation. Once the preserve of the ultra-rich, high-quality goods and services have gained traction among a broader range of affluent consumers.

Premium brands also tend to be less affected by downturns in the global economy than other consumer products. In times when the lower paid and middle earners are dealing with falling wages and uncertain employ- ment prospects, the spending habits of High Net Worth Individuals (HN W I) typically remains undiminished. The number of HN W I has grown by 7.5% in 2016, reaching 16 .5 million people3.

Share in the potential growth of the global aspirational brands market

Reference: Credit Suisse,

2 016

33mmillionaires worldwide

in 2016

There were over

IMMATERIALISATIONThere has been an evolution away from traditional towards ‘new luxury’ brands and experiential luxury products, which are increasingly innovative, creatively driven, and target a broader group of consumers.

ECONOMIC GROWTHIncreased wealth is driving expensive consumer habits and expectations. Demand for premium brands in emerging markets, particularly the Asia Pacific region, is expected to grow rapidly until at least 20 20 1.

INDIVIDUALISATIONConsumers are increasingly sophisticated and selective in their choice of brands and they are often facilitated by digitisation, which is enabling the development of more customised products and services.

GLOBALISATIONDemand for branded goods has spread far beyond the developed world. Emerging markets now account for over 4 0 per cent1 of premium brand sales, with Chinese consumers alone representing 3 0 per cent of current global spending2.

POLARISATIONSpending is growing fastest at the two extremes of the consumer spectrum: while the middle of the market may be suffering, the cheapest and the most aspirational brands are doing well.

DEMOGRAPHIC DEVELOPMENTThe rapid growth of the middle class in emerging markets is driving the increased adoption of Western lifestyles. The consumption of premium brands is also increasing across generations, with the youth buying leisure and sporting goods and older generations focusing on experiential and wellness products.

Growth in asia Emerging countries, especially in the Asia-Pacific region, are set to be the major drivers of growth in this sector. This region had the highest increase in HN W I population in 2014, overtaking North America for the first time in terms of its total HN W I population3. As a result of this trend, emerging markets are predicted to be responsible for 6 0 per cent of global luxury goods expenditure by 20 20 4. This is a result of these countries’ rapid economic development, increasing urbanisation and expanding middle classes.

Reference: (1) Euromonitor International (2) Bain & Company, 2014 (3) Reference: The Telegraph, September 2017 (4) Altagamma, Bernstein estimates

Premium Brands

Downtown Dubai

World’s HNWI population grew by 7. 5% in 2016 ,

reaching 16 . 5 million people with a collective fortune of

Reference: The Telegraph, September 2 017

USD 63.5tn

BOUTIQUE

TECH COSMETICSRESTAURANT

HOTEL JEWELLERY

China 31%

Russia 13%

US 4%


1 Growing demand from emerging markets

While traditional high-end brands have typically targeted affluent consumers from developed countries, the industry is now fuelled to a much greater extent by consumers in emerging markets as their spending on high-end items is rising quickly. In particular, Asian consumers – especially the Chinese – have been voracious consumers of premium brands in recent times. Their tourist spending power is expected to increase further over the coming years, with per head’s trip spending projected to grow by nearly 75 per cent in nominal terms by 20 231. By then, China is predicted to have the second-largest number of people in the world with an annual gross income of more than USD 15 0,0 0 0 2, behind only the United States.

3 Experiential luxury

The definition of what constitutes luxury has shifted in recent years. Affluent consumers are becoming keener to ‘experience’ luxury than own it, and the market for luxury occasions, from safaris to spas, is growing. For instance, wealthier tourists are increasingly gravitating towards boutique hotels and those that offer innovative, bespoke services. As a result, premium hotel groups such as W, Sheraton and Westin have recorded the strongest growth in the five years to 2015 4 across the experiential category.

The growth of the leisure cruise industry also owes much to the rise of experiential luxury. To attract younger generations, newer cruise liners now offer a broad range of luxury experiences including rock climbing, flying trapeze and professional-standard entertainment. These new-generation ships tend to make higher earnings and profits and cost less to run through improved fuel efficiency.

2 Digital technology

Many traditional premium brands companies have previously resisted the allure of e-commerce. However, their approach is gradually changing as the digital revolution is now impacting how consumers relate to brands and the way they shop. Although web sales only accounted for 6 per cent of luxury companies’ turnover in 2014, it is estimated that nearly 4 0 per cent of luxury market growth will come from online sales by 20 20 3. Many companies have already prepared themselves, with some firms spending as much as 6 0 per cent of their

USD 70k+

Reference: McKinsey Global Institute, Urban world: Cities and the rise of the consuming

class, 2012

By 20 2 5 there will be 3 x as many emerging

markets households with incomes of

than there were in 2012

28,500In 2016 , ultra-premium car brands have sold a record

units worldwide, up 16 % from 2015

50%

of luxury sales are from tourism

Reference: Global Blue statistics, 2015

Tourism spending on Premium BrandsTop 3 nationalities (% of total tourism spending in 2014)

Reference: (1) InterContinental Hotels Group & Tourism Economics, 2015 (2) Euromonitor International (3) Exane BNP Paribas, Digital and Physical Integration: Luxury Retail’s Holy Grail, 2016 (4) STR, 2015

Premium Brands: benefit from the spending power of a¨uent consumers Our premium brands strategy aims to capture the investment opportunities arising from long-term trends such as the shifting geographic composition of the affluent consumer base, the growth of e-commerce and the new ‘experiential luxury’ phenomenon – products and services that offer unique experiences and lifestyles.

Reference: Forbes Magazine, March 2 017

of millennials say their purchase decisions are

influenced by social media

In 2017,

47 %

Reference: Deloitte, Forbes, May 2 017

The average Chinese person’s budget for spending

on premium brands is

per trip abroad, compared with a global average of USD 5 5 0

Reference: Bain & Company, Global Blue Statistics 2 015

USD 850

Reference: Bain & Company, 2 015

The number of luxury goods consumers has increased by

250%worldwide over the last 15 years

marketing budget on digital. Furthermore, the accessibility of product reviews, facilitated by the rise of social media, is changing consumer habits.

50

40

20

10

0

USD

(bn

)

2004 2012 2016(e)

2020(e)

2008

Online market share

1% 2%

4%

8%

12%

FI G .1

G ROW TH O F O NL INE S H O PPIN G FO R PREMIUM BR A ND S

Reference: Bain, Deutsche Bank, 2 015

Annual average growth of up to 25%

Premium Brands

Invest in some of the world’s most profitable companiesOur Premium Brands strategy seeks to capture the strong growth potential of high-end companies, especially those with a proven ability to generate high cash flows and preserve their market share whatever the economic climate. With the number of affluent consumers increasing steadily across the world, the premium brands strategy represents a compelling opportunity for long-term investors.

Automated, high-precision manufacturing uses less energy and raw materials, thereby reducing waste and pollution

Advanced sensors enable action to be taken quickly in the event of water contamination, impaired air quality or other environmental threats

Machines can greatly increase the speed and efficiency of waste sorting and processing; for example, using spectroscopy to identify recyclable plastic

Cheaper and more effective robots mean goods can now be produced nearer to consumers, saving on transport costs and reducing CO2 emissions

Industryefficiency

Early hazarddetection

Waste management

Think globally, act locally

FI G .1

MIND THE D EM O G R A PHI C G A P

FI G . 2

H OW RO B OTI C S HEL P S SUS TA IN A BIL IT Y


Reference: Pictet Asset Management

Note: *We apply an exclusion filter that is independently monitored by InRate, a sustainability rating agency based in Switzerland.Reference: (1) United Nations, World Population Prospects, 2015

Significant advances in the Internet of Things (IoT) and artificial intelligence, such as the emergence of deep learning algorithms, are revolutionising robotics and automation technologies. Robots are no longer confined to the factory floor – they are becoming part of our day-to-day lives.

Discover the next frontier of technological achievement

New era, new challenges From the industrial revolution of the 18th century, powered by water and steam, to the internal combustion engine in the 19 th century and the information age of the 20 th, improvements in productivity and wealth have always been driven by innovative technologies. Today, we are on the cusp of a new technological revolution: a transformation that is being led by robotics and artificial intelligence.

One of the biggest challenges to resolve over the coming decades is how the world’s shrinking workforce will support its growing ageing and dependent population. With falling birth rates and increasing life expectancy, the number of people aged 6 5 and over is predicted to double between 2015 and 20 5 0 1. Against this kind of demographic shift, robots will play an important role in helping to counteract lost productivity and assisting elderly people in need of long-term support.

Innovation is keyThe depletion of natural resources, coupled with increasing pollution, means the world must find new ways to use resources more efficiently and to increase productivity.

Technological development is providing many of the solutions to these issues. Businesses in several industries are using robots to help boost their output, improve the quality of their goods and services, and reduce their impact on the environment. What’s more, consumers’ increased expectations of customised products can be met through the flexibility and responsiveness of new automated technologies, such as 3D -printing, as well as smart factories and efficient logistics.

More opportunities Modern robotic devices are now equipped with a remarkable capacity to gather, process and act on information. In the healthcare industry, for example, robots are already working alongside surgeons, helping with delicate and complex procedures such as laparoscopic keyhole surgery.

Meanwhile, improvements in facial and voice recognition are creating opportunities in the services and security industries. Their increased capabilities, coupled with their diversification away from their traditional base in manufacturing, are indicative of the wider role that robots will play throughout the economy in the near future.

Reference: United Nations World Population Ageing, 2 015

Decreasing global workforce relative to elderly population

SUSTAINABILITYScarcity of natural resources and the world’s growing carbon footprint are forcing businesses to make better use of resources and bring production closer to consumers.

KNOWLEDGE SOCIETY Because today’s consumers expect the goods and services they buy to be tailored to their needs, mass customisation is replacing mass production.

TECHNOLOGY DEVELOPMENT As robots become cheaper, smarter and safer, they are increasingly being deployed across a broader range of service and manufacturing industries.

ECONOMIC GROWTHGlobal economic growth can be improved by increasing productivity. Automation will play an important role in boosting productivity by helping developed markets to become more efficient and developing markets to address rising labour costs.

DEMOGRAPHIC DEVELOPMENTThe combination of falling birth rates and an ageing population is creating significant investment opportunities for companies that develop robotic and automation solutions aimed at industrial processes as well as service applications for everyday life.

1950

2050

Robotics

USD 239bn

The industrial control and factory automation market is expected to

reach

by 2023, up from USD 155bn in 2017

Reference: Medical Developments,

October 2 017

12 working people per person aged 65+

4 working people per person aged 65+

2017(e)

2020(e)

9.1

5.5

3.6

Service robots

Market value(USD bn)

Professional service robots

Personal/household service robots

Potential if breakthroughs are made

20.4

11.7

8.6

14.6

8

6.7

2014

6.0

4.0

2.0

20–25% annual growthexpected over the 5 years to 2020

FI G . 3

THE RO B OT RE VO LU TI O N G ATHERS PAC E


Sonar

Inertia sensor

to control balance

Two cameras and WiFi-embedded

computer

Reference: International Federation of Robotics (IFR), China International Capital Corp (CICC) research, 2 015

Smart, capable, co-ordinated

Tactile sensors

Reference: da Vinci surgery, 2 015

3m To date, a single type

of robotics system has been used on over

patients for minimally invasive surgical

procedures

Pressure sensors

Microphones for sound localisation

and voice recognition

300%

Over the past 3 0 years, robots’ efficiency has increased by

and their cost has decreased by

80%

Reference: Aldebaran Robotics

Robotics: invest in a theme a©ecting all aspects of everyday life Our Robotics strategy aims to capture opportunities in three main areas. In industrial automation, companies are building new generations of smart robots to support industrial processes. Robotic solutions are increasingly aimed at consumer and services applications that help with people’s everyday lives. The growth of enabling technologies will provide robots with the ability to communicate and respond to situations with a greater level of intelligence.

Robots are fast becoming a part of our day-to-day lives in places as diverse as homes, factories and hospitals. Unmanned aerial vehicles, with automated commercial drones, are ben-efiting from an improving regulatory environment. The Federal Aviation Administration, which regulates civil aviation in the US , is phasing in the commercial use of drones after giving out almost 4,0 0 0 exemptions to restriction between late 2014 and March 2016 alone2.

Meanwhile, virtually all robotics devel- opers – from innovative start-ups to industry leaders – are working on new medical applications. Robots are being developed to assist in the operating theatre, monitor vulnerable patients in their homes and help stroke patients walk again through the use of robotic exoskeletons.

Innovation is helping robots to carry out complex processes. Machine vision systems equip robots with the eyes (cameras) and the brains (software and sensors) they need to perceive their environment and become autonomous. Due to accelerating demand for applications such as medical imaging and intelligent traffic surveillance, the machine vision market is expected achieve growth of over 10 per cent annually and be worth an estimated USD 10 billion by 20 20 3. These technologies are helping to ensure robotics products are of high quality, as well as helping them meet safety standards and increase productivity.

Growth in enabling technologies is being further stimulated by robotics development programmes. In 2014 the European Com- mission launched the SPARC Robotics initia- tive – the world’s largest civilian robotics programme – which is injecting USD 75 0 million to encourage the development of robotic applications across a variety of industries. In addition, the private European Ro- botics Association has pledged over USD 2 billion4 to ensure the continual development of future applications, such as sensors for driverless cars.

Robotics

Reference: iRobot, 2 015

Approximately 15m home robots have been sold by a

single company over the last decade

Finding opportunities across three key segments

1 Industrial automation

This is a fast-growing and global market. Robots are already used extensively in Japanese and European industries, but as they become cheaper, smarter and more energy-efficient, countries such as China and the United States will increasingly deploy robots to improve productivity and reduce labour costs. In 20 25, countries such as South Korea are expected to reduce their manufacturing costs by up to a third by using robots1.

The revolutionary manner in which industrial robots, such as the new generation of automated ‘Cobots’, can collaborate with human workers is a result of technological improvements and enabling sensors that increase safety. This, coupled with increased affordability, leads us to anticipate a rapid expansion in the use of robots by smaller companies as well as larger firms.

3 Enabling technologies

Note: *Robot with a ten-year life cycle.Reference:

(1) The Boston Consulting Group, The Robotics Revolution, 2015 (2) Federal Aviation Administration (3) MarketsandMarkets, Machine Vision Market Report, 2015. (4) EU Robotics, 2015

Consumer & services applications2

Reference: S G Cross Asset Research Equity, 2 014

2 years In 20 0 8 , the investment recovery period for an industrial robot* was

12 years. In 2015 , it was

Reference: Goldman Sachs Research 2 015

Robotics – the future of technology Because of its ability to increase productivity, reduce costs and help solve the challenges linked to an increasingly elderly population, the robotics sector is set to grow significantly faster than the broader economy. Our strategy may suit investors seeking long-term growth by investing in a theme that will increasingly become a part of everyday life.

FI G .1

G LO BA L S ECU RIT Y – A FA S T- G ROW IN G M A RK E T

0

20,000

40,000

60,000

80,000

100,000

120,000

2015 20252020

Africa & Middle East

Asia Pacific

Western Europe

Latin America Eastern Europe

North America


New threats, new opportunities

The world is increasingly connected, and this is bringing about new security challenges. Societies around the world will need to do much more in the future to safeguard the well-being of their citizens and take action against security risks, both physical and virtual.

Technological innovation is providing a raft of new opportunities for criminal activity, and consequently for those providing security solutions to counter them. Cloud computing, data storage, biometric systems to identify people and online payment systems all require security measures that will need constant updating.

Protecting tomorrow’s cities

Urbanisation continues apace, particularly in less-developed nations, where the number of people living in cities is predicted to almost double by 20 5 0 2, which will require huge investments to safeguard growing cities’ infrastructure. New mass transit networks, power stations and utilities will all require means of protection, as will the personal security of citizens. This focus on security will not only benefit those living and working in the world’s urban centres, but will also provide attractive opportunities for investors.

Greater health & safety The growing focus on safety across many aspects of life, such as transportation, appliances, construction, food sourcing and occupational health, will create increased demand for testing and inspecting equipment and services. In particular, globalisation, developments in technology and a dramatic shift in living standards have led to much greater expenditure on food safety testing throughout the world, and especially in Asia.

ACCELERATION & COMPLEXITYToday’s complex societies are demanding bespoke, highly reliable security solutions.

TECHNOLOGY DEVELOPMENT Innovations such as cloud computing and mobile payments are creating the need for more sophisticated IT security.

ECONOMIC GROWTHDeveloping economies' security market will continue to grow more rapidly than in developed areas. China and India alone will represent 15% of global demand by 20 20.1

GLOBALISATIONThe movements of people, goods and services around the world are creating safety challenges such as terrorism, cyber-attacks and outbreaks of disease.

DEMOGRAPHIC DEVELOPMENTAs the number of people living in cities grows, major investment in infrastructure will be required. This will drive increased spending on security, including guard services, C CT V and access control technologies.

Support the solutions that create a safer world

Reference: (1) Freedonia Group, 2017 (2) United Nations, World Urbanization Prospects, 2014

Global security market by region 2015 -20 25 (USD million)

Feeling safe and secure is a fundamental human need.

Security is becoming increasingly important to governments, businesses and individuals around the globe. From protecting against cyber-attacks and guarding vital infrastructure to food safety and personal security, companies able to meet challenges linked to security will represent attractive long-term opportunities for investors.

Security – impacting our lives throughout the day

Heating and hot water from secured utilities

Baby bottle tested for harmful chemicals

Active and passive car safety features

Tablet connects over secure network

Safer food from tracing and testing

Shopping via secure e-payment

Scanners and biometric passports

Secure downloads from the Cloud

Home protected by alarm system

Reference: MarketsandMarkets,

2 017

by 20 2 2 1

The global security market is predicted to be worth around

USD 370bn

Security

Source: G 4 S , Freedonia World Security Services report January 2 017

excluding residential security

Reference: Pictet Asset Management

FI G . 2

THE F REQ U EN CY A ND SIZE O F CY BER- AT TAC KS A RE O N THE IN C RE A S E AC RO S S S EC TO RS

Production

Retail

Homeconsumer

Restaurant

ProcessingDistribution

22001144

220001122

2200011000000

FiFinance & & Innsurancee

ReRettail & Merchant

Technologology

Healthcare &GovernmentGovernment

MilitaryMilitary


USD 1.5trn expected to be

invested in smart city projects by 20 20

14% of which will be security-related

spending

Security: opportunities across all aspects of human activity

Opportunities by investment segment

Providers of physical and IT-based security products and services help maintain the integrity, health and safety of individuals, companies and governments. Constant innovation in mobile technology and e-commerce means cyber security must be continually upgraded, while urbanisation is leading to the need for more investment to protect infrastructure and the well-being of city-dwellers. Meanwhile, more stringent safety legislation is resulting in higher spending on security services, such as food testing and inspection equipment. Because security companies operate across many di�erent areas, this sector o�ers exposure to a diverse range of opportunities.

2

1 Physical security products

Security services

3 IT security products

Food safety testing takes place at many stages

AIRBAGS & NIGHT VISION SYSTEMS

HELMETS & PROTECTIVE LENSES

CCT V & VIDEO SURVEILL ANCE CAMERAS

POLICE & FORENSIC TOOLS & KITS

TESTING & CONTROLLING

RECALL MANAGEMENT

HAZARDOUS WASTE MANAGEMENT

GUARD SERVICES & PERSONAL PROTECTION

SURVEILL ANCE & ACCESS CONTROL SYSTEMS

SECURE ELECTRONIC PAYMENT

BIOMETRY

INTERNET SECURIT Y

By 2030, the number of devices connected to the Internet should reach 5 0 0 billion3. But the greater the number of connected devices, the more data breaches there are likely to be. The number of detected cyber-attacks has increased steadily over the years, such that there are currently up to 118 ,0 0 0 attacks per day4.

New technology in IT security products such as biometrics, surveillance systems as well as secured electronic payment will help fight crime and terrorism through large-scale data mining, which can detect anomalies and provide advance warning of threats.

Three million people across the globe are moving to urban areas every week1. To make sure they are seen as desirable places to live and work, cities must prioritise safety – and this will require increased spending on infrastructure and personal security.

Specialised companies offering innovative security solutions such as electromagnetic locks or comprehensive home security systems could see their earnings grow by over 10 per cent a year over the next five years2.

Cities: securing the future

Reference: IF S EC Global/Frost & Sullivan, 2 015

Reference: Pictet Asset Management Note: *Includes Guard-services & person protection, Hazardous waste management, Recall management and Testing & controlling.Reference: (1) International Organization for Migration (2) Pictet Asset Management estimate (3) Cisco Systems, Brookings, PTC Inc (4) PricewaterhouseCoopers, 2014

Reference: Bloomberg, Data Breaches, 2 014

USD 18.5bn

The global food testing market is expected to be worth

by 20 2 2

Reference: MarketsandMarkets, 2 017

Security

Security service companies* are growing in importance, as demand for their services is being driven by increasing urbanisation and a perception that the safety measures being taken by public bodies are insufficient. Equally, companies that provide innovative solutions to safeguard the quality of essential everyday products, such as those involved in food

testing and safety, have strong growth potential. Driven by rising living standards in the developing world and an increasing number of international quality guidelines, private companies are developing tools and techniques to detect contamination faster and more effectively across the food production chain.

More than

data records were stolen globally in 2016

4 billion

Reference: NB C, January 2 017

Help safeguard the health, privacy and well-being of people everywhere The security sector is essential to modern life, helping to promote well-being and protect against rapidly- changing threats. Our Security strategy aims to find the best investment opportunities in this highly innovative and fast-moving sector wherever they are in the world. With so many opportunities still at an early stage of development, we believe the long-term case for investing in our Security strategy is highly compelling.

2020200519901965 2030

Western and central Asia Asia PacificEuropeNorth AmericaSouth America

Africa

Vol

um

e (m

illio

n m

3)

0

100

200

300

400

500

600

700

800

900

Hei

ght (m

etre

s)

BigBen96m

Hyperiontree

115m

Male giraffe6m

Leaning Tower of Pisa 56m

120

110

100

90

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60

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D EM A ND FO R RO UNDWO O D IS RISIN G WO RL DW ID E

FI G . 2

THE ‘HYPERION’ TREE – ONE OF THE NATURE’S SK YSCR APERS


SUSTAINABILITYTrees play an essential part in countering climate change by absorbing carbon as they grow and storing it in the wood they produce. Sustainably managed forests can also protect soil and water sources as well as promoting biodiversity.

ECONOMIC GROWTHGlobal demand for timber and wood pulp is being driven by a combination of population growth and higher incomes per person. The growing, richer population will use increasing amounts of wood and wood-fibre-based products.

GLOBALISATIONWhile demand is rising, especially from the US and Asia, there is decreasing supply from Canada, one of the main producers of timber. Furthermore, sustainable forestry opportunities are becoming more limited due to an increase in global conservation measures and difficulties in accessing remote woodlands.

DEMOGRAPHIC DEVELOPMENTRising living standards in emerging markets, combined with the evolving demands of ageing, wealthy populations in developed markets, have led to robust growth in global demand.

One of the world’s most environmentally friendly, renewable resources

Wood is a highly versatile commodity. It is an excellent building material and the basis for a wide variety of packaging, board and paper products. Traditionally, this valuable resource has only been accessible through private equity schemes or direct investment in timberland. By investing in publicly listed companies, our strategy o�ers the opportunity to invest across the wider timber sector for a more diversified approach.

Source: Campbell Global, FAO, 2 0 0 9, 2 015

Historical and projected consumption of industrial roundwood by major consuming region

Economic demandGiven its versatility as a commodity, timber as a resource is coming under increasing pressure to meet demand. The growing global population and greater spending power, in Asia in particular, is predicted to drive an increased demand for paper, board and hygiene products as a consumption-based economy takes hold.

There is also significant pent-up demand for new homes. In the US, for example, housing construction has reached its highest level in a decade, requiring vast amounts of wood1.

Supply squeeze The production of many traditional timber-producing regions such as Canada, which has traditionally supplied most of the US’s wood, is likely to peak in the next few years due to significantly reducing its annual allowable cut as well as its problems with pests. Many of the world’s remaining major sources of trees are either difficult to access or are in ecologically sensitive areas. Therefore, demand needs to be met through a sustainable long-term solution.

Mitigating climate changeThe UN Climate Change (C O P 21) conference in Paris in 2015 confirmed that unsustainable management of forestland will threaten both the future timber supply and the vital role that forests play as carbon sinks. Forests provide significant storage for excess atmospheric carbon (C O 2), so the use of timber and how it is cultivated are playing key roles in environmental discussions and in the mitigation of climate change.

Note: *Please note that this strategy does not invest in companies operating in ecologically sensitive areas. Reference: (1) Bloomberg Economics, 2017

Reference: National Geographic

Arguably the tallest living organism on Earth. (Height – up to 115m, and can live up to 2,000 years.)*

Every year 1 acre of trees absorbs the same amount of CO2 as is produced by

a car driving

26,000 miles.

That’s more than once around the world.

Reference: Arbor Environmental Alliance

Timber

90ft

75ft

60ft

35ft

Price

per

ton

(U

SD

)

8 13 19 24final harvest

Pre-merchantable

Years

35

30

25

20

15

10

5

0

FI G . 3

THE VA LU E O F FO RE S T S IN C RE A S E S W ITH AG E


Reference: Plum Creek, Pictet Asset Management

Pulp for paper

380 mT*

Virgin fibre

610 million m3

Sawdust and chips250–300 million m3

Post-consumer recycling for

recycled paper190 mT

Recycled pulp120 mT

(e.g. cardboard)

Mixed pulp200 mT

(e.g. corrugated packaging) Virgin pulp

60 mT (e.g. writing paper)

Sawlogs and other wood products

930 million m3

Woodfuel

1,850 million m3

Non-paper pulp usage150–200 million m3

By-products and loss during

conversion140 mT

Pulpwood

490 million m3

Any discrepancies in numerical values are the

result of rounding.

Reference: World Economic Forum,

Towards the Circular Economy, 2014

Wood harvested

3,270 million m3*

Opportunities for investment across the entire timber chain

Note: *million m3 refers to volume, and mT refers to weight. **Timberland performance data refers to private equity timberland investments, and therefore the inflation characteristics of such investments may differ from those of listed investments in which our Timber strategy is invested.Reference: (1) Persistence Market Research, Tissue and Hygiene Market: Global Industrial Analysis (2012-2016) and Forecast (2017-2025), 2017 (2) Food and Agriculture Organization

By 2050annual demand for wood to be used

to produce energy alone could be

2 times more than the total amount of

wood used in 2013

Timber: invest in a key strategic natural resource Our Timber strategy invests in companies across the wider timber sector including those involved in the use of woodland, from growing trees and forests to processing them for construction, industrial and consumer needs. We focus primarily on firms that own or manage forests and timberland. We aim to capture opportunities linked to three key long-term drivers – demand growth, supply squeeze and the environmental significance of trees.

Timber

Timberland represents an attractive long-term investment because the productivity of woodland is typically unaffected by downturns in the global economy. Should demand slow down, trees continue to grow and increase in value (see FI G . 3). In other words, profits are simply deferred to a later date, when the trees are even more valuable.

What’s more, over the past 3 0 years, investing in timberland has provided a degree of protection against inflation and generated above-average returns versus global equities**. It also contributes to the sustainable management of forests – which is the best way of protecting them from deforestation or conversion to other uses.

The value of timberland3

1 Demand for wood products is growing

There is likely to be a steady increase in global demand for timber for most of the 21st century, fuelled by economic and population growth. With higher disposable incomes, paper-based hygienic and sanitary products will benefit from increased consumer spending, and the tissue and hygiene sector is predicted to approach USD 5 5 billion in market size by the end of 20 25 1.

2 The supply of timber is under pressure

The extent of the world’s forested areas continues to decline as human populations grow and the demand for agricultural land increases. Although diminishing supply from mature growing areas, such as Canada, could eventually be substituted by other regions, forests in these areas are often unsustainably managed, resulting in a net decline in woodland area.

Efforts to protect biodiversity will also reduce the area available for supplying timber. Currently, around 15 per cent of the world’s forested areas come under priority conservation legislation2.

Finally, the pledges made by global governments at the C O P 21 conference placed significant emphasis on the use of ‘carbon sinks’ – anything that absorbs more carbon than it releases. Forests, one of our key carbon sinks, are set to come under greater protection, further reducing the proportion of forestland available for timber production. In order to meet future demand, additional investment will be required to secure the timber supply chain through sustainable forest management, as well as by increasing the efficiency with which we use available timber.

Reference: World Wide Fund For Nature

Up to 170 m hectares of forest could be lost

globally by 2030 – equivalent to7x

the area of the UK

Reference: World Wide Fund for Nature

Investment in timber is essential for a sustainable futureDemand for wood and wood products is increasing, but protecting forests is becoming a strategic priority for governments across the world. This means that forests and timber are likely to become increasingly valuable. Investing in our Timber strategy provides investors with the potential to achieve attractive returns and the opportunity to play a part in sustain-able forest management.

9876543210

1900 2025(e)

1900 2025(e)

Ind

exed

*

World population

World water consumption


Increasing demand Water is a renewable, but finite, resource. Global economic growth is boosting personal wealth, especially in developing nations, but it is also leading to higher demand for water. This is not just limited to the visible water we use for drinking and wash- ing, but extends to the ‘virtual’ water footprint incurred through the production of the food we eat and the paper and cotton we use. Our esca- lating consumption will only add further strain to an already-limited resource.

InaccessibilityDespite water covering around two-thirds of the planet’s surface, very little of it is fit for consumption. The majority is salt water, and much of the world’s fresh water is either locked up in polar icecaps, glaciers and permafrost or is heavily polluted.

Infrastructure inefficiency To keep pace with demand, over USD 1 trillion will need to be invested in water infrastructure globally each year3. With governments under pressure to cut spending, the private sector will have a major role to play in providing the world with the water it needs. Technological innovations will help drive new solutions in areas such as desalination, ultraviolet filtration and water reuse, helping people and com- munities to use water more efficiently.

Water.

Next to oxygen, it’s the most important life support system of all. It has no substitutes, and although its supply is finite, demand is growing.

SUSTAINABILITYShifts in rainfall patterns, melting glaciers and the overuse of groundwater are creating serious challenges in terms of the sustainability of our water supply.

ECONOMIC GROWTHCompared with 20 0 0, consumption of water in global manufacturing will increase five times by 20 5 0, and water needs for electricity and domestic use will more than double1. A sustained programme of investment will be required to meet this growing demand as water availability is essential for economic growth.

COMMERCIALISATIONGovernments and regulators are increasingly recognising the importance of private sector involvement in the water services industry, partly due to overstretched public balance sheets.

FOCUS ON HEALTHPolluted water and a lack of sanitation infrastructure in many regions represent a major challenge to public health. Governments and private companies will need to work together to find long-term solutions to these issues.

DEMOGRAPHIC DEVELOPMENTAs the world’s population grows, so will its urban areas. By 20 5 0, almost 70 per cent of humans are predicted to live in cities – over 6 billion people2. Decades of investment will be needed to provide adequate water supply, sewers and wastewater treatment.

Water

Reference: (1) Organisation for Economic Co-operation and Development (2) United Nations, World Urbanization Prospects, 2014 (3) Organisation for Economic Co-operation and Development, Morgan Stanley, Pictet Asset Management

1,000bn

Globally, water will be a

industry by 20 2 5 , based on expected growth

of 4 – 6 % a year

Reference: Global Water Intelligence, Global Water Market 2 015

USDWater is an essential natural resource – and demand is rapidly increasing

Note: *1900 values indexed to the value of 1.Reference: The Food and Agriculture Organization

of United Nations Statistical Programme, United Nations Educational, Scientific, & Cultural Organization,

Water Supply & Sanitation Collaborative Council Facts & Figures and Water Atlas.

the world’s human population is expected to have quadrupled, while global water use is expected to have increased almost ninefold.

Expected percentage change in water availability from 19 61–19 9 0 (average) to 20 5 0.

Gain of more than +20%

Gain of 0 to +20%

Loss of 0 to -20%

Loss of more than -20%

Based on Intergovernmental Panel on Climate Change (IPCC) climate change scenario A1. Reference: The Guardian

0.25% of the planet’s

water is usable. The rest is salt

water, polluted or locked up in polar ice caps, glaciers

and permafrost

Only

Reference: United Nations Educational, Scientific &

Cultural Organization

FI G .1

BE T W EEN 19 0 0 –20 2 5

FI G . 2

WATER A ND IT S IN C RE A SIN G S C A RC IT Y


45%

expected growth in the number of people around the world

served by private companies over the next decade

Reference: Envisager, 2 015

Water: invest in solutions to the global challengeOur Water strategy invests across all areas of the global water industry, with a particular focus on water supply, water technology and environmental services. As the role of private companies in the management of the human water cycle increases, long-term investment opportunities will abound.

1 Water supply

WATER INFRASTRUCTURE The private water supply sector consists of companies serving the population through the supply and storage of drinking water. By 20 5 0, up to 4 billion people across the world could be living under ‘severe’ water stress, up from 1. 2 billion today1. Economic growth is exacerbating the water shortage as it boosts personal wealth, leading to increased consumption of products that require more water to produce, such as animal protein. For example, producing a kilogram of beef requires 15 ,0 0 0 litres of water, six times more than is needed to produce the same amount of rice2.

Despite this looming issue, governments are increasingly unable to maintain supply due to tight budgets and ageing infrastructure. This means that private companies will play an ever-more important role throughout the human water cycle, especially in North America and Central & Eastern Europe, where they are expected to increase their market share by more than 10 per cent between 2013 and 20 25 3. With other regions, such as South America and Asia, requiring up to USD 14 trillion of investment by 2030 to secure their water supply, there will be countless opportunities for companies involved in innovative water supply solutions, such as water recycling and desalination4, to profit.

Identifying opportunities across the water industry

2 Water technology

WATER TREATMENT PROVIDERSThe water technology sector consists of companies developing the tools and systems to improve the efficiency with which we use water. For instance, as much as 75 per cent of the world’s available freshwater supply is unsafe for consumption due to contamination or pollution5. Governments can enact measures to safeguard water sources from pollutants, but it is private companies involved in the development of innovative filtration systems, such as permeable membranes or U V filtration, that will provide solutions to these issues.

PREVENTING LEAKAGESIn developing countries, more than 45 million cubic metres of water6 are lost through leaks every day. The cost of improving existing public infrastructure globally is predicted to exceed USD 20 trillion between 20 0 5 and 20 3 0 4. Companies producing innovative water technology solutions, such as next-generation sensors and monitoring equipment that can increase the efficiency of water usage and help avoid wastage through leaks, represent compelling investment opportunities.

Filtration plant

Desalination plant

Reservoir

Wastewater treatment plant

Water recycling plant

Irrigation

Biosolids Agriculture

Reference: (1) Organisation for Economic Co-operation and Development (2) Water Footprint Network (3) Envisager (4) Organisation for Economic Co-operation and Development, Morgan Stanley, Pictet Asset Management (5) The United Nations Educational, Scientific and Cultural Organization (6) World Bank (7) United Nations Environment Program, Pictet Asset Management (8) China Ministry of Environmental Protection, 2016 State of the Environment report, 2017 (9) China Water Risk, State Council (10) Nomura

Water

3 Environmental services

WASTE MANAGEMENTThere is growing awareness, especially within developing countries, about the need to deal with the water supply problems arising from improper solid waste disposal, which in China has led to nearly 6 0 per cent of the country’s underground water and a third of its surface water being classed as ‘unfit for human contact’8. The Chinese government is determined to improve this situation, with its 2015 ‘Water Ten Plan’ putting in place tough targets on polluting industries to provide ecological and environmental protection9. With industrial wastewater treatment in China reaching around 9 0 per cent penetration, the focus will shift to tackling the rise of domestic waste output10. Companies operating in the environmental services sector and providing solutions to waste water collection and its treatment are predicted to benefit.

IRRIGATION With 70 per cent7 of the world’s available freshwater used to support agricultural production, governments are now tackling the wasteful use of water in this sector, such as through the fines California has imposed on those who irrigate their crops in daylight hours during droughts. This focus on waste is creating opportunities for companies making advances in agricultural water technology, such as drip irrigation, which only intermittently wets the soil that is closest to the crop, and thus provides higher moisture levels while using less water.

60%

of groundwater and 2 9 % of key rivers are

classified as unsuitable for human contact

Reference: China Ministry of Environmental Protection, 2016 State of the Environment report,

2 017

In China,

Equipment manufacturers

Treatment solutions providers

Monitoring equipment

Drinking water network

Water storage

Wastewater collection

Decentralised water supply

Engineering

Waste management

Tap into the most fundamental resource of all Water is an essential resource for life – no one can live without it. But despite being renewable, it is also finite. What’s more, global challenges such as urbanisation, population growth and climate change, are putting existing water resources under increased stress. This means that the need to secure the current water supply, and increase its capacity through new technology and services, will be a major theme over the years to come – one that benefits from trillions of dollars of investment. Companies able to provide solutions to the global water challenge are likely to represent attractive opportunities for investors for several decades.

3

Megatrends are a discrete group of powerful social, demographic, environmental and technological forces of change that are reshaping our world.

Megatrends

Pictet Asset Management

Craze/fads

Microtrends

Trends

Megatrends

Time

Abi

lity

to e

ffect

Low

Hig

h

1 yr 1–5 yrs 5–10 yrs 15+ yrs

Smart phones

Web

Mobile Phone

PC

Television

Radio

Telephone

Electricity

0

Years taken until adopted by 25% of the US population

10 20 30 40 50

Megatrends Pictet Asset Management

What makes understanding and investigating megatrends especially important is the fact that all of these changes are unfolding at the same time.

Nobody has adored their cars over the years as much as Americans. The US’s love affair with the open road has long been one of the country’s defining features, romanticised in classic movies such as Thelma and Louise, and Bonnie and Clyde. But there are signs that the chemistry is not as powerful as it once was.

Since the early 2000s, individual vehicle travel in the US has been falling. Having risen every year since the Second World War, driving among individuals in the US has fallen by some 10 per cent over the past decade.

On average, Americans now drive 500 fewer miles every year than they did in 2000, while under 70 per cent of 19-year-olds now have driving licences, compared with around 90 per cent 20 years ago.

The allure of the auto looks set to diminish further, with US car sales predicted to drop by some 40 per cent over the next 25 years. In time, there could be fewer than 100 million vehicles on US roads, compared with 250 million today1.

4 5

Reference: (1) Barclays

Reference: Copenhagen Institute of Futures Studies Reference: US Census, Wall Street Journal

Megatrends evolve independently of the economic cycle... they each possess the capacity to redraw the financial landscape.

Megatrends are a discrete group of powerful social, demographic, environmental and technological forces of change that are reshaping our world. These trends evolve independently of the economic cycle, and while they may develop in different ways and at a different pace, they each possess the capacity to redraw the financial landscape (see Fig 1).

Using this framework as our vantage point, we find that the auto industry is being buffeted by three of the structural trends that form part of our model. For more details, please refer to page 4 and 5 of the reverse brochure – Thematic Equities.

The first of these is sustainability, or the increased importance that individuals, businesses and policymakers are placing on protecting the world’s environment and natural resources. As cars cause environmental damage, they are simultaneously subject to tighter regulations and losing their appeal among younger segments of the population.

The second is technological development, or the unprecedented pace at which technology is now evolving (see Fig 2). In the auto industry, this trend manifests itself in a number of ways, most obviously via the development of self-driving vehicles and the electric vehicles being developed by Tesla.

The third trend shaping the car industry is the growth of the network economy – the increased interconnectedness of individuals and businesses that is enabling the speedier transfer of goods and services from provider to receiver. Some would describe this phenomenon as the sharing economy, and one company that has harnessed this trend to good effect is car-sharing service Uber.

Technological progress, the world’s increased concern about the sustainability of our planet and the network economy are, however, just three of the many enduring trends that will have a profound effect on the interactions between individuals, organisations and the environment over the years and decades to come.

There are many others. One of the less intuitive but nevertheless powerful drivers of change is individualisation. This is the process through which individuals are exerting ever-greater influence on their own environments, aided by the rise of social media.

Another is demographic change – profound shifts in the world’s populations, including higher life expectancy and the expansion of urban centres.

Focusing on megatrends has not only proved invaluable during times of financial and economic uncertainty and change – it has also been a source of investment success.

What makes understanding and investigating megatrends especially important is the fact that all of these changes are unfolding at the same time.

According to Rudolph Lohmeyer, consultant and director at the Global Business Policy Council of A.T. Kearney, a global management consulting firm, the rate of change the world is experiencing is unprecedented. You can read his thought-provoking article on megatrends at www.mega.online

FI G .1

FO RC E S W ITH THE A BIL IT Y TO IM PAC T S O C IE T Y, THE EC O N O M Y A ND O U R L I V E S

FI G . 2

TEC HN O LO GY A D O P TI O N R ATE S A RE IN C RE A SIN G R A PID LY

ADVISORY BOARDSIndustry practitioners and leading academics

INVESTMENT EXPERTSPictet AM’s investment managers

Identify future trends

Evaluate the regulatory environment

Assist in defining key sub-themes

Megatrends Pictet Asset Management

This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet or at Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg.

The information and data presented in this document are not to be considered as an o²er or solicitation to buy, sell or subscribe to any securities or financial instruments.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management (Europe) S.A. has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.

The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.

Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.

© Copyright 2017 Pictet Asset Management – Issued in December 2017

Analysing and understanding megatrends is a complex task, and one that requires a broad range of skills. At Pictet Asset Management, we have tackled this problem by working in collaboration with several megatrends experts, a distinguished group of industry practitioners and academics who have developed a deep understanding of the structural trends transforming our world (see Fig 3).

Their role is to shed light on megatrend dynamics and how they might shape the prospects of the industries in which our investment managers invest on behalf of our clients – they do not dictate which stocks we should include in our portfolios.

Having managed thematic investments for more than 20 years, we have discovered that by focusing on megatrends, we have been able to help our clients develop a longer-term perspective.

This, they tell us, has not only proved invaluable during times of financial and economic uncertainty and change – it has also been a source of investment success.

We work closely with a distinguished group of industry practitioners and academics who have developed a deep understanding of the trends transforming our world.

The big ideas shaping all of our futuresThe views of some of our megatrends experts can be found on www.mega.online

In partnership with Pictet Asset Management, pioneers in thematic investments since 1995

the big ideas shaping all our futures

6 7

FI G . 3

T HE INT ER AC T I O N BE T W EEN PI C TE T A S SE T M A N AG EMENT A ND IT S A DV IS O RY BOA RD

Megatrends

Global trends thatpower our

thematic strategies