During a netwealth educational webinar on Nov 17 2016, Theo Maas from Arnhem Investment Management shared his thoughts on a couple of interesting global growth industries and companies worth investing in, and highlighted two growth industries in their portfolios: ‘Automotive’ and ‘Augmented Reality’.
Semelhante a Netwealth educational webinar - It’s not all about FANGA: Why advisers need to consider other global growth industries for client portfolios
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Semelhante a Netwealth educational webinar - It’s not all about FANGA: Why advisers need to consider other global growth industries for client portfolios (20)
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Housekeeping
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3. | Netwealth
Meet today’s speaker
Theo Maas
Portfolio Manager Global SMA
Arnhem Investment Management
theo.maas@arnhem.com.au
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4. Agenda
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1. The FANGA stocks: Alphabet rules
2. The world is bigger: Cars go wild
3. The world is bigger: A new reality
4. Arnhem Global SMA’s
5. Q & A
6. The FANGA stocks
www.arnhem.com.au 6
• These 5 stocks seem to dominate most global equity
related news stories
• With a combined market cap of US$2 trillion, they are
bigger than Italy and only marginally smaller than the
UK economy
• Since Jan-15 they have added 91% on average, or
US$600bn of market cap in total
• We do not believe that this run will continue and have
just 1 of the 5 in our global SMA portfolios: Alphabet
50
100
150
200
250
300
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
FANGA Share Price Performance since
Dec ‘14
Amazon Alphabet (Google)
Netflix Facebook
Apple
Source: Capital IQ
7. Alphabet
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Industry Analysis
• Unique position in Search based advertising with close to
100% market share
• Video Advertising (YouTube) and Mobile Advertising are
the two main growth segments
• Social Media remains the missing piece of the puzzle
Company Analysis
• 90% of revenues comes from Advertising
• Large portfolio of potential profit pools (Cloud, Assistant)
• New CFO is cleaning up the excessive cost structure and
‘Other Bets’ portfolio
• P/E multiple has expanded, but still underestimates the
growth profile
Source: BBC, Capital IQ
$0.0
$20.0
$40.0
0x
20x
40x
60x
Forward P/E (LHS)
Nov-06 Nov-11
8. Apple
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Industry Analysis
• The smartphone industry is very competitive with high returns
attracting new entrants – particularly from China
• Smartphone replacement cycles are lengthening (2 years +) due
to lack of innovation
• IOS is losing share against Android
Company Analysis
• Apple’s profitability is very (70%+) dependent on the iPhone
• New products (Watch, Car) or Services (iCloud) are not material
• How will Apple use its US$250bn of cash?
• With Revenue/EPS going backwards (10% in FY2016), Apple has
‘value trap’ written all over it
$0.0
$5.0
$10.0
0x
20x
40x
60x
Forward P/E (LHS)
Source: Statista, Capital IQ
Nov-06 Nov-11
Nov-16
9. Amazon
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Industry Analysis
• Online Retail market is highly competitive; low barriers to
entry yet high barriers to be competitive
• Penetration of e-commerce is still low (<10%) in most
developed markets
• The Cloud market is growing exponentially (the Netflix
effect), is highly profitable and capex intensive
Company Analysis
• If we could only buy AWS (Amazon Web Services)…
• The online retail business is either growth or margin. Prime
membership might change this
• Omni-channel favours the bricks-and-mortar players
-$1.0
$0.0
$1.0
$2.0
$3.0
0x
100x
200x
300x
400x Forward P/E (LHS)
Nov-06 Nov-11 Nov-16
Source: Statista, Capital IQ
10. Facebook
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Industry Analysis
• Social Media is the fastest growing advertising medium
• Facebook (WhatsApp, Instagram) dominates, but
Snapchat and the Chinese players are coming
• Given its short existence (less than 5 years), we do not
know the willingness of users to endure advertising
Company Analysis
• Facebook has done a brilliant job in acquiring potential
competitors
• The market is pricing in a significant step-up in revenue
per user for Instagram and WhatsApp
• Where does the ‘cool crowd’ go when this happens?
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
0x
20x
40x
60x
80x Forward P/E (LHS)
Nov-06 Nov-11 Nov-16
Source: Statista, Capital IQ
11. Netflix
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Industry Analysis
• The SVOD (subscription video on demand) has been
created by Netflix
• It has created a significant strain on telco infrastructure
and pressure on Pay TV (cord cutting)
• Rising competition (Amazon, Hulu, HBO) and demand for
original content has put pressure on content costs
Company Analysis
• The company continues to leak cash outside the US
• Apple and Google are flexing their muscles
• What if Netflix actually has to pay one day for the
bandwidth they consume?
$0.0
$0.2
$0.4
$0.6
$0.8
0x
100x
200x
300x
400x Forward P/E (LHS)
Source: Statista, Capital IQ
Nov-06 Nov-11 Nov-16
12. 2. The world is
bigger: Cars go
wild
www.arnhem.com.au 12
13. Automotive related trends:
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1. Emission control
• Government driven shift to cleaner and more efficient cars
• Combustion engine remains a major contributor to greenhouse gas
emissions
2. Safety
• Government driven requirement for improved safety
• Despite seat belts and airbags, cars continue to kill and injure
3. Autonomous Cars & On Demand Mobility
• (Semi) Autonomous driving is fast becoming a reality
• The Uber model is changing driving habits and car ownership
14. Emission Control
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• Cars are material contributors to Greenhouse Gas emissions
(29% in the US, just behind electricity generation)
• Most developed countries have developed emission targets
• Fuel efficiency is the easiest way to reduce emissions (Direct
Injection, Turbocharging, Advanced Transmissions, 48 Volt
Battery)
• Electrification of the powertrain is likely to be the most
effective tool to reduce emissions (hybrids, fully electric,
fuel cell)
• Weight reduction has less impact, but easier to achieve
(new material like carbon fibre reinforced plastic)
Tesla is a direct play on electrification, but:
- Can they really deliver on the 500,000
units they promised?
- Are battery costs dropping fast enough
to make the Model X profitable?
- Is the Giga Factory going to
economically produce enough
batteries?
- Are they able to fill the cash gap at
Solar City?
- Is the market far too optimistic on all
these questions? Yes!
15. Continental AG is one of the leaders in
ADAS systems:
- The tyre business is now less than half
of the overall business
- Continental have signed up nearly every
car manufacturer in the world
- The growth in ADAS will shift the
portfolio further towards higher growth
- The market is still valuing the stock as
an old industrial (11x FY16 earnings)
Safety
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• Over 1.25m people die in road accidents every year (The US
has twice as many fatalities when compared to Europe)
• While seatbelts and airbags have brought these numbers
down, there is a view that smartphones are the new danger
• Assisted Braking Systems (ABS), Electronic Stability Control
(ESC) are now mandated in many countries
• Advanced Driver Assistance Systems (ADAS) are the next
step, with technologies like 360 degree camera/sensors
• As a result, electronic componentry will be moving up
rapidly from $300 a car to likely $1000+
16. Autonomous Cars & On Demand Mobility
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• Fully Autonomous (Google, Tesla) cars are available, but still
not commercially and legally viable
• Various forms of semi-autonomous cars will rapidly be rolled
out (Volvo Autopilot)
• Furthering the need for even more ‘smarts’ in the car
• Uber has dramatically changed driver behaviour and the
need for car ownership
• On demand models significantly increase car utilisation and
make electrification more economic
• The ultimate goal is creating fully autonomous shared cars
• The media industry would love to fill that newly freed up
time “behind the wheel”
Nvidia is a leading graphical processing unit
GPU provider:
- Nvidia dominates GPU market for PC’s
- A GPU is however an ideal candidate as
the ‘brain’ of the car
- This is a new and fast growing market
for Nvidia
- The recent deal they signed with Tesla
demonstrates a superior product
17. 3. The world is
bigger: A new
reality
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18. A new reality
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Augmented Reality v Virtual Reality
• What is the difference?
• Which technology has the most potential?
Is Pokémon Go the beginning or the end?
• Did Nintendo discover gold?
• What’s next in mobile apps?
Consoles or game content?
• Lessons from history
• Playstation or Call of Duty?
Memory, CPU’s and GPU’s
• A deeper look at the food chain
• Capex intensity, profitability and sustainable growth
19. Augmented Reality v Virtual Reality
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• Augmented Reality (AR) blurs the line between the real and
the digital world. It augments reality with a digital layer. Like
playing Pokémon Go, it typically needs a smart screen
• Virtual Reality (VR) replaces the real world with a digital
one. To be fully immersed in this world, you will need to
typically cover your eyes and ears with a special headset
• The biggest difference between the two technologies is the
amount of hardware that is needed
• AR is here and now. Smartphones or car windows are ideally
suited to project additional information
• VR is still in its early days. Either the experience is subpar
(Google Cardboard) or you need to hook your headset up to
a supercomputer (Occulus). Faster, more efficient chips are
needed to make it affordable and take the experience
mobile.
Source: Samsung
20. Is Pokémon Go the beginning or the end?
www.arnhem.com.au 20
Source: Pokémon Go app (Screenshot iPhone Theo Maas)
• Pokémon Go is the surprise hit of 2016. It was the fastest (7
days) application ever to reach 10m downloads
• In a tulip-like bubble, investors made the mistake of assigning
all the benefit to Nintendo and the share price doubled. The
problem is that Nintendo is a minority shareholder in
Pokémon and Niantic (a Google spin-out), were the
developers
• What the game did show is the power of AR combined with
the power of the current generation of smartphones. All you
need is a camera, GPS and a smart application to get tens of
millions of consumers off the couch
• Furthermore, it showed that successful content can be
repackaged for a new experience. Nintendo still has Super
Mario up its sleeve
21. Consoles or game content?
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• The console market has a long history of non-profitability.
Sony, Microsoft and Nintendo have used the hardware as
loss leaders to compensate with selling their software
• The current consoles (Playstation, Xbox) have introduced
elements of VR and AR, but its early days
• The gaming content market has grown into a US$100bn
market and continues to benefit from new platforms
• Activision and Electronic Arts dominate this industry and
have launched many successful franchises
• VR and AR open up a whole new market, where current
content will be repackaged (like Pokémon Go)
• Smartphone apps will be driver of growth
22. Memory, CPU’s or GPU’s
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• AR, but especially VR demands a lot from the hardware, i.e.
fast chips and lots of memory
• The Memory market is the worst of two worlds: highly
commoditised and very capital intensive. Due to this, the
industry is very cyclical. While demand for data capacity is
growing rapidly, price per gigabyte is coming down just as
rapidly
• The CPU (central processing unit) market is currently
dominated by Intel. While VR demands a lot of raw
processing power, the CPU is not the weakest link. We
expect other competitors to enter (ARM-based)
• The GPU (graphical processing unit) market is dominated by
Nvidia. This chip is the key driver of performance and users
are more than happy to pay for the latest and greatest
24. Arnhem’s SMA Solutions on Netwealth
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Delivering true equities diversification to Australian investor portfolios
Global
Equities
Growth
Australi
an
Equities
Franked
income
Global Equities
Growth
Arnhem Australia+
Balanced Exposure
Arnhem Global
Growth
Complementary Exposure
Income and growth portfolio designed for
investors who need to balance income
requirements with longer term capital growth
demands.
The portfolio targets a 4% gross yield.
Growth portfolio designed for investors with an
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Provides capital growth potential with genuine
equities diversification.
26. Disclaimer
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This presentation may not be copied or distributed or passed on, directly or indirectly, to any person without the
express consent of Arnhem Investment Management Pty Limited ABN 17 129 606 775, AFSL 332484 (Arnhem). This
presentation is produced for general information only and shall not constitute an offer to sell or any type of
solicitation or form the basis of or be relied upon in connection with any contract or commitment whatsoever or be
taken as investment advice. You should seek your own professional advice in relation to investments in the funds
presented.
In New Zealand, Arnhem is an exempt provider under the Financial Advisers Act 2008 that is permitted to provide
financial adviser services to wholesale clients as overseas financial advisers as it does not have places of business, and
does not provide any financial adviser services to retail clients. In New Zealand this document is only being provided
to institutional investors whose principal business is in the investment of money or persons who, in the course of, and
for the purpose of their business habitually invest money, or are wealthy and experienced in investing money or are
experienced in the industry or business to which the securities relate, or are otherwise not members of the public for
the purposes of the Securities Act 1978.
The information contained in this presentation has been compiled to furnish you with an opportunity to examine and
evaluate the funds mentioned. Arnhem has not considered the specific investment objectives, financial position or
needs of any specific recipient. While great care has been taken to ensure that the information is accurate, Arnhem,
to the extent permitted by law, disclaims all responsibility and liability for any omission, error, or inaccuracy in the
information or any action taken in reliance on the information and also for any inaccuracy in the information
contained in the presentation which has been provided by third parties. Past performance is not necessarily indicative
of future performance.
27. Thank you
Disclaimer
This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090
569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared
without taking into account the objectives, financial situation or needs of any individual. The information provided is not
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While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate),
no person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for
any loss suffered by any person arising from reliance on this information.
