Old Club New Ideas

Friday 21st August 2015

Presented by Jim Mellon

Edinburgh Red Bus

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• Macro Outlook

• Medium to Long Term Themes

• Portfolio Ideas

• Summary

Today’s Talk

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Macro Outlook

• World – deflationary but uncertain

• US – still greatest innovator but priced to perfection

• Japan – still best upside

• Eurozone – mixed bag

Macro Outlook

• Australia – rentier economy & commodity dependent

• Emerging Markets – in for hard landing but…

• China – tricky period of transition

half

U.S.A.

8

2.30%

2.80%

1.40%

2.60%

0.70%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Pro

du

ctiv

ity

Gro

wth

Rat

e

Nonfarm Labour Productivity Growth Rates

Source: Irrational Exuberance, Bureau of Labour Statistics

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0.0 x

5.0 x

10.0 x

15.0 x

20.0 x

25.0 x

30.0 x

35.0 x

40.0 x

45.0 x

50.0 x

Lon

g Term In

terest Rate

CA

PE

Rat

io

Irrational Exuberance

CAPE Ratio (LHS) Long Term Interest Rates (RHS)

Japan

• Abenomics -> rising inflation

• Weakening yen will stimulate exports

• Nuclear restart will provide further stimulus

• Local investors allocating out of bonds into equities due to zero interest rates

9

Europe

• Euro has weakened sufficiently

• Banking system still not fixed - capital adequacy ratios assume sovereign bonds sacrosanct

• Greek problem deferred others will follow

• UK – equities fairly valued

• Switzerland – CHF massively overvalued

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U.K.

• UK running twin deficits = vulnerable

• A consumer driven economy

• GBP remains overvalued

• Smaller domestic companies favoured

11

0%

50%

100%

150%

200%

250%

300%

2000 2007 2014

Deb

t to

GD

P R

atio

Epic Credit Boom

Government Financial Institutions

Non-financial Corporates Households

China

12 Source: McKinsey Global Institute, Bloomberg

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Ind

ex

Leve

l

Shanghai Composite Index

40%

50%

60%

70%

80%

90%

100%

110%

Iron Ore WTI Crude Copper

Commodity Slump

13 Source: Bloomberg

Emerging Markets • China - stock market speculative & confidence shaken -

more Yuan devaluation to come.

• Many exposed to excessive USD debt

• Reforms still needed

• Emerging Iran and Vietnam are top picks

• India - Good market but expensive

• Africa – overhyped 14

Switzerland

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Dangerous Game of Pass the Parcel

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Bonds and Negative Yields • ECB QE program buy > €1

trillion in bonds

• 23% of EU bonds have negative yields - literally a RETURN FREE RISK

• World first - Switzerland ISSUED USD 242m in 10 YEAR bonds with a negative yield

17 Source: Bloomberg

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Yie

ld t

o M

atu

rity

Sovereign Bond Yields

18

19

20

Technological Advance is Accelerating

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20 years later and all of these gadgets now fit in your pocket

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1956 - IBM 5 megabyte hard drive weighing nearly one tonne

23

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Five Great Changes

IoT

Social Communication • The sharing

economy and peer to peer

• Unlocking previously idle assets

• Uber, Lyft, Airbnb, Just Park

• Facebook, Twitter, LinkedIn, SnapChat, Whatsapp, Tinder

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Transport Revolution

• One billion vehicles on the road today – majority with just a single passenger

• Driverless cars will: – Use roads efficiently - Reduce congestion – Increase car sharing - Reduce energy requirements – Improve safety - Disrupt insurance industry – Free up time – NO PARKING!

• 2.5m driving jobs in the U.S. alone

• Drones – Amazon & DHL starting trials

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Communications

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Energy Efficiency

• Energy conversion of fossil fuels is ~13%

• Significant production efficiency gain possible

• Solar power cost is at grid parity in southern US and southern Europe and many parts of Asia

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• Not talking about fridges talking to supermarkets

• Logistics and industrial applications

• Virtual reality

• Artificial Intelligence

• Robots coming ‘out of the cage’

Internet of Things

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Current Robot Capabilities

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31

32

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But the biggest

change of all!

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Life Sciences • Area of greatest change

• Disease categories being knocked down one by one

• NASH & Hepatitis B next to be cured

• Cancer to become a chronic condition – IO key

• Robotic surgery, stem cell therapy and printing of organs

• Gene editing

35

36

37

UN Regional Population Projections

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Africa

Asia

Europe

Latin America and the Caribbean

Northern America

Oceania 0.0

1.0

2.0

3.0

4.0

5.0

6.0

2015 2025 2035 2045 2055 2065 2075 2085 2095

Po

pu

lati

on

(b

illi

on

s

Africa Asia Europe Latin America and the Caribbean Northern America Oceania

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Unicorns 1. Xiaomi

2. Uber

3. Palantir

4. Airbnb

5. Flipkart

6. Dropbox

7. Snapchat

8. SpaceX

9. Theranos

10. Meituan

11. Square

12. Pinterest

13. Snapdeal

14. WeWork

15. Cloudera

16. Spotify

17. Kuaidi Dache

18. Pure Storage

19. Stripe

20. Atlassian

21. Fanatics

22. Bloom Energy

23. Jawbone

24. Legendary Entertainment

25. Moderna Therapeutics

26. Vancl

27. Powa

28. Box

29. Houzz

30. Coupang

31. Dianping

32. InMobi

33. Instacart

34. Magic Leap

35. Nutanix

36. SurveyMonkey

37. Trendy Group

38. DocuSign

39. Intarcia Therapeutics

40. MongoDB

41. Adyen

42. IronSource

43. Living Social

44. Deem

45. Koudai Shopping

46. Sunrun

47. Jasper Technologies

48. Actifio

49. AppNexus

50. Automatic

51. Evernote

52. Good Technology

53. Lazada

54. Proteus Digital Health

55. Sogou

56. App Dynamics

57. Eventbrite

58. JustFab

59. Lashou Group

60. MediaMath

61. Slack

62. Pivotal Software

63. Shazam

64. Olacabs

65. CloudFlare

66. Credit Karma

67. Delivery Hero

68. GrabTaxi

69. Hootsuite

70. Kabam

71. Lookout

72. Lynda

73. Mogujie

74. Plurasight

75. Qualtrics

76. Razer

77. Sapphire Energy

78. Shopify

79. Shopify

80. Tango

81. Tinder

40

41

Stratasys Share Price

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$0

$20

$40

$60

$80

$100

$120

$140

Shar

e P

rice

Conviction Ideas • Long:

– FANUC Corp – Hewlett-Packard Co – Hellenic Petroleum Ag – Kuka AG

• Short: – CHF against EUR and USD – Apple Inc. – Raven Russia – S&P 500 – Developed market NEGATIVE yielding bonds

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Long Recommendations

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Instrument Dividend

Yield USD Market

Cap (m) P/E Ratio EV to

EBITDA

Hitachi Ltd 1.8%

29,542 11.4x 7.2x

First Quantum Minerals Ltd 1.0%

4,447 81.2x 20.9x

KUKA AG 0.7%

2,977 29.9x 11.3x

Sunny Optical Technology Group 1.8%

1,992 22.0x 14.0x

HSBC Holdings PLC 5.9%

168,827 12.9x N/A

Hiscox Ltd 2.6%

4,148 12.5x N/A

Portage Biotech Inc 0.0%

37 N/A N/A

Source: Bloomberg

Long Recommendations

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Instrument Dividend

Yield USD Market

Cap (m) P/E Ratio EV to

EBITDA

Ladbrokes PLC 3.1%

1,670 25.1x 24.1x

Canon Inc 3.8%

43,500 19.5x 6.4x

Summit Therapeutics PLC 0.0%

155 N/A N/A

Condor Gold PLC 0.0%

39 N/A N/A

Nikkei Index 1.6% N/A 21.5x 10.8x

Silver/US DOLLAR N/A N/A N/A N/A

Magna Biopharma Income Fund N/A N/A N/A N/A

Source: Bloomberg

Short Recommendations

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Summary • Unconventional monetary policy has created

dangerous imbalances and misallocations

• The world today looks primitive

• Disruption will happen quickly but should not be feared

• Most significant change AND opportunity in life sciences

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Technological transformation will touch everyone

More Information Don’t forget to buy your copy of FAST FORWARD at www.fastforwardbook.com and download your copy of Master Investor Magazine at www.masterinvestormagazine.co.uk !

49 Enquiries to william@mannbio.com