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>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a sing le factor in making their investment decision. Refer to important disclosures on page 81 to 82. Analyst Certification on page 80. 11666136
Theme Watch
Put people (themes) first
Equity | 12 September 2016
Theme Watch Navigating a Transforming World Theme Watch is a monthly report to help investors consider their tactical thematic asset allocations in light of current market conditions and macroeconomic events. It offers insights on performance, positioning, BofAML equity client trading flows, and the BofAML Beat Factor across the following ATW themes: ageing, bottom billions, climate change, education, energy efficiency, food security, millennials & centennials, obesity and health & wellness, robots & AI, safety & security, virtual, augmented & mixed reality, waste, and water.
Green themes push higher, valuation remains steady Risky assets including solar, wind, security, waste, and Chinese eCommerce companies rallied this month, leading to 6 out of 12 themes outperforming the benchmark MSCI AC World (+1.92%): Safety (+3.65%), Climate Change (+3.19%), Waste (+3.14%), Energy Efficiency (2.93%), Water (2.69%), and Millennials (+2.67%). The only theme in the red was Obesity (-1.38%), caused by a selloff in healthy eating and pharmaceuticals. Valuation across themes ticked lower (16.3x 12m forward PE vs 16.5x last month), widening the discount to the benchmark (17x). Both flows (-US$6.6bn) and positioning (10 out of 12 themes down or flat) indicate conservative client exposure. Despite strong performance of riskier themes, we remain cynically bullish. The BofAML Bull & Bear indicator remains at 5.5. We stay long risk until it reaches 8.0, an unambiguous evidence of “greed” in the market. High quality themes remain attractive in this environment.
People first: bottom-up prefers Millennials & Longevity Bottom-up analysis using the BofAML proprietary Global Beat Factor model shows that our analysts are out-of-consensus bullish on EM consumers (4th consecutive month) and health consumables. Our People-focused themes Millennials & Centennials, Longevity, and Bottom Billions are the most widely represented in this model. The Beat Factor screen identifies the most out-of-consensus stocks using BofAML analysts' price objectives and EPS estimates and comparing it with consensus estimates on the sell-side. A Beat Factor score of 100 = most upbeat vs consensus.
Table 1: Thematic Beats Top 20 most out-of-consensus thematic longs (new additions shaded)
BBG Code Name
Beat Factor
(100=Most Upbeat) BBG Code Name
Beat Factor
(100=Most Upbeat)
DABUR IN Dabur India 100 CPLE6 BZ COPEL 95
VLID3 BZ Valid 100 GFPT TB GFPT 95
853 HK MicroPort 99 HUVR IN Hindustan Unilever 95
TWE AU Treasury Wine 99 ALQ AU ALS Limited 94
270 HK Guangdong Invest 98 CSR AU CSR Limited 94
SIRI US Sirius XM Radio 98 6361 JP EBARA 93
COH AU Cochlear Ltd 97 7649 JP Sugi Holdings 93
IMI LN IMI 97 AMCX US AMC Networks 92
MTD US Mettler-Toledo 96 035720 KS Kakao 92
TLKM IJ Telkom 96 4452 JP Kao 91
Source: BofA Merrill Lynch European Quantitative Strategy, iQdatabase, Bloomberg, (as of September 4, 2016)
Global Thematic Investing Beijia Ma, CFA >> Equity Strategist MLI (UK)
Sarbjit Nahal >> Equity Strategist MLI (UK)
Manish Kabra, CFA >> Quantitative Strategist MLI (UK)
Felix Tran >> Equity Strategist MLI (UK)
A Transforming World
2 Theme Watch | 12 September 2016
Contents Theme Watch 3
BofAML Thematic Investing Stock Lists & Primer Picks 4
Performance – how themes fared 5
Thematic Beats – most out-of-consensus thematic stocks 9
Ownership – where are you invested 10
Equity Flows – Recent trading 23
Themes 25
Ageing – The Silver Economy 25
Bottom Billions – Moving on Up 29
Climate Change – A Call to Action 32
Education - Stay in School 36
Energy Efficiency – Efficient Frontier 40
Food Security – Feed the World 44
Millennials & Centennials – New Kids On The Block 48
Obesity and Health & Wellness - Globesity 52
Robotics & AI – Robot Revolution 56
Safety & Security - Safer World 59
Waste - No Time to Waste 63
Water - Blue revolution 67
Methodology Appendix 71
Theme Watch | 12 September 2016 3
Theme Watch Theme Watch is designed to help investors consider their strategic thematic asset allocations in light of current market conditions and macroeconomic events. It offers insights on performance, positioning, BofAML equity client trading flows, and the BofAML Beat Factor across the following themes: ageing, bottom billions, climate change, education, energy efficiency, food security, millennials & centennials, obesity and health & wellness, robots & AI, safety & security, virtual, augmented & mixed reality, waste, and water.
Four key attributes In this new monthly research product, we review our themes on performance, positioning, BofAML equity client trading flows, and the BofAML Thematic Beats model.
Performance how our Primer Picks (BUY-rated names with material thematic exposure) have fared. This measures the performance of our Primer Picks lists since inception (December 6, 2013, and June 6 2014 for Longevity) to the present.
Positioning where are you actually invested. We look at investor positioning in which we assess the FactSet snapshot of where 13k traditional long only funds/money is invested in our themes. This highlight crowded and neglected trades in the thematic investing sphere.
BofAML equity client trading flows recent trading trends. We provide an aggregated view of BofA Merrill Lynch client trading flows into and out of our stock lists (executed by the cash equities business of the firm). It is not meant to be predictive of the market, but aims to provide a view of trading flows within the thematic space.
Thematic Beats – most out-of-consensus thematic stocks. Thematic Beats is modelled after Beat Factor, a proprietary BofAML model produced by our Quant Research Team. consensus estimates on the sell side. This quantifies the most out-of-consensus stock ideas within the BofAML thematic universe, highlighting stock-picking opportunities regardless of the macro investing environment.
Chart 1: Thematic Primer Picks annualized performance since inception (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Benchmark = MSCI AC World TR Gross (GDUEACWF). Past performance should not and cannot be viewed as an indicator of future performance. A complete performance record
is available upon request *Longevity inception date = 6-June-2014; **Food Security inception date = 31-March-2015; ***Millennials inception date = 26-May-2015
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
Safety
Education
*Longevity
Energy Efficiency
MSCI AC World TR
Climate Change
Obesity
Waste
**Food Security
***Millennials
Water
Absolute Annualized
4 Theme Watch | 12 September 2016
BofAML Thematic Investing Stock Lists & Primer Picks
Thematic Investing: A Transforming World Q3 2016 Primer Picks 05 September 2016
Since December 5 2013, we have been publishing a number of BofA Merrill Lynch Global 13 equity themes:
ageing, bottom billions, climate change, education, energy efficiency, food security, millennials & centennials, obesity and health & wellness, robots & AI, safety & security, virtual, augmented & mixed reality, waste, and water. Our strategic view has been longer term and the names we have selected in each of these thematic stock lists are those which we believe should benefit in the long run from the theme. The aim of our stock lists has been to provide investors with information to understand company and sub-theme opportunities and risks inherent in the themes.
For each theme since the inception of each specific list, we have mapped a number of sector -For each entry point, we have mapped opportunities and risks as we understand them to highlight a diverse range of entry points for investors wishing to invest in the theme.
efficiency themes, and the role of the themes as long-term drivers. We have
Low Theme-related products, technologies, services, and solutions are not material to global revenues and/or growth but are one factor, among others, for the business model, strategy and R&D of the company.
Medium Theme -related products, technologies, services, and solutions are an important factor for the business model, strategy and R&D of the company; material to sales and/or growth.
High Theme-related products, technologies, services, and solutions are core to the business model, strategy and R&D of the company; material sales and/or growth driver; pure play (i.e., 100% of sales).
Since the inception of our Thematic Investing Stock Lists, each quarter we have published: (i) a broader list mapping out the full universe of stocks exposed to a theme based on our Low/Medium/High methodology and (ii) which are those stocks which have both a Buy rating from our fundamental equity team and that have Medium to High exposure to the theme under our methodology. Although it is difficult to accurately gauge the link between such exposure and share price performance (as many factors outside the scope of this analysis are likely to play a role in short- and long-term price development), we still consider its thematic exposure as an important and positive point to track given twith a 25Y+ lifespan.
A company can be in more than one theme stock list, sub-theme, or Primer Picks.
Thematic stock lists are not a recommended list either individually or as a group of
stocks. Investors should consider the fundamentals of the companies and their own
individual circumstances / objectives before making any investment decisions. The
recommendations on each stock is contained in the most recent report on the
company, which we urge you to read.
Theme Watch | 12 September 2016 5
Performance how themes fared We began publishing our thematic stock lists and Primer Picks on December 5 2013. In
- either High or Medium - exposure to the relevant theme and our fundamental analyst have a Buy rating. We assess them on an equal-weighted, total return basis. Although our medium- to long term strategic view focuses on the significance of the links between our themes and the business development and environment facing our covered companies, we caution investors that it is difficult to accurately gauge the link between such exposure and share price performance (as many factors outside the scope of this analysis are likely to play a role in short- and long-term price development), Investors should consider the fundamentals of the companies and their own individual circumstances / objectives before making any investment decisions. Moreover, past performance should not and cannot be viewed as an indicator of future performance. A complete performance record is available upon request. For a complete description of our performance methodology, please see the Methodology Appendix on page 71).
We use the MSCI AC World index because it represents equities within both developed and emerging markets, spanning large, mid and small cap segments. It is one of the most widely tracked indices in the world, and commonly used as a proxy for global equity. It is the index which best reflects our BofAML thematic universe, in our view. We use the gross, total return, USD-denominated version (GDUEACWF), in line with our performance representation
Stock lists are rebalanced both quarterly and published as A Transforming World - Quarterly Primer Picks, as well as when thematic primers and accompanying Primer Picks reports are updated (See Appendix of historical changes to stock lists on page 71).
Chart 2: Thematic Primer Picks 1M performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. BofA Merrill Lynch Global Research. Past performance
should not and cannot be viewed as an indicator of future performance. A complete performance
record is available upon request. Benchmark = MSCI AC World TR Gross (GDUEACWF)
Chart 3: Thematic Primer Picks annualized performance since inception (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Benchmark = MSCI AC World TR Gross (GDUEACWF). Past
performance should not and cannot be viewed as an indicator of future performance. A complete
performance record is available upon request *Longevity inception date = 6-June-2014; **Food
Security inception date = 31-March-2015; ***Millennials inception date = 26-May-2015
Safety remains on top +9.95%, Education +6.7%, and Obesity +5.5% As of September 4 2016, 4 out of the 10 BofAML thematic Primer Picks lists outperformed our benchmark MSCI AC World (GDUEACWF Index) since on an annualized basis since inception Dec 4 2013 (we note that inception for Longevity was June 6 2014, Food Security March 31 2015, Millennials May 22 2015; Robots and Bottom Billions Primer Picks lists have <12m data, hence we cannot currently report performance). On an annualized basis, Safety & Security is the best performer since inception, +9.95%, followed by Education, +6.70%, Longevity, +5.51%, and Energy Efficiency (+5.02%), vs +4.61% for MSCI AC World). Underperformers include Climate Change, +4.41%, Obesity and Health & Wellness, +4.39%, Waste, +3.67%, and Food Security, +0.24%, The themes in the red are Millennials -0.77%, and Water, -1.92%.
-2%
0%
2%
4%
Saf
ety
Clim
ate
Cha
nge
Was
te
Ene
rgy
Effi
cien
cy
Wat
er
***M
illen
nial
s
MS
CI A
C W
orld
TR
**F
ood
Sec
urity
*Lon
gevi
ty
Edu
catio
n
Obe
sity
-10%
-5%
0% 5% 10%
15%
20%
25%
30%
35%
Safety
Education
*Longevity
Energy Efficiency
MSCI AC World TR
Climate Change
Obesity
Waste
**Food Security
***Millennials
Water
Absolute Annualized
6 Theme Watch | 12 September 2016
Table 2: Thematic Primer Picks performance (through October 4 2015)
1M 3M 1Yr Since Inception Annualized Since Inception
Climate Change 3.19% 6.28% 12.99% 12.78% 4.41%
Education 0.83% 12.55% 17.36% 19.79% 6.70%
Energy Efficiency 2.93% 4.56% 14.04% 14.64% 5.02%
**Food Security 1.43% 3.82% 9.82% 0.35% 0.24%
*Longevity 1.28% 3.33% 5.86% 13.02% 5.51%
***Millennials 2.67% 8.83% 10.93% -1.00% -0.77%
Obesity -1.38% 5.98% -0.88% 12.72% 4.39%
Safety 3.65% 8.76% 14.76% 30.26% 9.95%
Waste 3.14% 0.78% 0.18% 10.56% 3.67%
Water 2.69% 3.97% 8.05% -5.25% -1.92%
MSCI AC World TR 1.92% 4.69% 12.23% 13.38% 4.61%
Source: BofA Merrill Lynch Global Research, Benchmark = MSCI AC World TR Gross (GDUEACWF), Inception date = 06-Dec-2013. Past performance should not and cannot be viewed as an indicator of future performance. A
complete performance record is available upon request. *Longevity inception date = 6-June-2014
Green (solar, wind, and waste) driving outperformance This month we saw strong performance of risk assets including solar, wind, security, waste, and Chinese eCommerce companies. This led to 6 out of 12 themes to outperform benchmark MSCI AC World: Safety (+3.65%), Climate Change (+3.19%), Waste (+3.14%), Energy Efficiency (2.93%), Water (2.69%), and Millennials (+2.67%). The only theme in the red was Obesity, caused by a selloff in healthy eating and pharmaceutical & healthcare.
Cynically bullish
The Thundering Word: Ace in the Hole 24 August 2016 The Flow Show: Bond proxies are passé 08 September 2016
Despite strong performance of riskier thematic names, global risk assets up 15-20% since Feb, and we are looking ahead to another big “policy month” in Sep. Our chief investment strategist Michael Hartnett recommends buying volatility. Tactically, the 3P’s (Positioning, Policy, Profits) still argue for upside, but with BAML positioning data is close to giving a contrarian sell signal for EM and shows EU, Japan, cyclicals & banks as contrarian longs.
The BofAML Bull & Bear Indicator remains at 5.5 this week, indicating we stay long risk until unambiguous evidence of “greed”, e.g. B&B approaches “complacent” territory of 8.0
Chart 4
Source: BofAML Global Investment Strategy
Theme Watch | 12 September 2016 7
Relative valuation lower while market ticks higher Thematic primer picks valuation have been ticking higher in the last two quarters, but still remains below benchmark. The median 12m forward PE of thematic Primer Picks is now as 16.3X, versus 16.5X last month. The valuation of the overall market has hovering around 6m highs, with MSCI AC World at 17X versus 14.6X 7 months ago. 8 out of 12 themes are currently trading at a discount to the broader market. Education (13.3x median 12m forward P/E), Climate Change (14.6x), Energy Efficiency (15.7x), Water (15.8x), Food Security (16.2x), Waste (16.2x), Robots & AI (16.5x), and Safety (16.6x) all cheaper vs MSCI AC World.
Table 3: Theme Median P/E valuation
Current -1M -3M -6M
Forward PE Forward PE Forward PE Forward PE
Sub-Theme Universe
Primer
Picks Universe
Primer
Picks Universe Primer Picks Universe
Primer
Picks
Bottom Billions 17.6x 18.9x 17.7x 18.3x 16.6x 17.6x NA NA
Climate Change 15.4x 14.6x 14.9x 14.1x 14.7x 14.6x 14.3x 14.0x
Education 13.5x 13.3x 13.1x 12.8x 13.3x 16.0x 13.1x 16.1x
Energy Efficiency 15.8x 15.7x 15.4x 15.1x 15.1x 14.6x 14.7x 14.3x
Food Security 16.6x 16.2x 15.4x 15.3x 15.2x 15.0x 14.6x 13.6x
Longevity 16.3x 17.8x 16.6x 18.0x 15.5x 15.4x 15.0x 14.8x
Millennials 17.3x 19.2x 17.4x 19.0x 16.5x 18.3x 16.6x 17.8x
Obesity 17.9x 18.0x 18.0x 18.8x 16.8x 17.2x 16.7x 16.7x
Robotics 16.1x 16.5x 15.6x 16.7x 15.7x 16.2x 14.8x 14.0x
Safety 15.8x 16.6x 15.6x 16.9x 15.8x 17.0x 14.8x 16.0x
Waste 16.1x 16.2x 15.3x 15.8x 14.3x 15.0x 14.5x 13.6x
Water 16.1x 15.8x 15.3x 15.2x 15.3x 15.3x 14.8x 15.9x
Total Universe 16.4x 16.3x 16.0x 16.5x 15.5x 15.8x 14.9x 15.2x
MSCI AC World 17.0x 16.8x 16.5x 15.7x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and
High/Medium exposure. Some sub-themes do not have Primer Picks companies within them.
Environmental themes (Water) have been a drag on performance, while demographic themes (Safety, Longevity, Education) have been generating alpha.
Table 4: Thematic Primer Picks beta relative to the market
Raw Beta Adjusted Beta Alpha Correlation
Climate Change 1.16 1.11 -0.01 0.90
Education 1.17 1.12 0.04 0.80
Energy Efficiency 1.14 1.09 0.00 0.93
Food Security 0.98 0.99 -0.02 0.91
Longevity 1.01 1.00 0.08 0.90
Millennials 1.04 1.03 0.00 0.95
Obesity 0.84 0.89 0.01 0.83
Safety 1.13 1.09 0.09 0.89
Waste 0.96 0.98 -0.01 0.86
Water 1.12 1.08 -0.12 0.78
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
8 Them
e Watch | 12 Septem
ber 2016
Chart 5: Thematic Primer Picks performance since inception (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks rebalances. The themes have a base of 100 starting on December 6 2013, T+1 from the first publication of the Primer Picks list. Benchmark = MSCI AC World TR Gross (GDUEACWF)
Past performance should not and cannot be viewed as an indicator of future performance. A complete performance record is available upon request
*Longevity inception date = 6-June-2014; **Food Security inception date = 31-March-2015; *** Millennials inception date = 26-May-2015
****Black lines indicate quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Globesity primer update 03-Dec-2014
-30%
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Per
form
ance
****
Education Energy Efficiency Climate Change Obesity Safety Waste
Water MSCI AC World TR *Longevity **Food Security ***Millennials
Climate Change Update
27-Nov-2015
Safety Primer update
12-Feb-2014
Water primer update
04-Apr-2014
Longevity primer initiation
06-Jun-2014
Energy Efficiency
primer update 04-Sep-2014
Energy Efficiency
primer update 04-Sep-2014
Safety Primer update
03-Sep-2015
Food Security primer initiation 31-Mar-2015
Millennials primer initiation
26-Apr-2015
Water primer update
10-Jul-2015
Theme Watch | 12 September 2016 9
Thematic Beats most out-of-consensus thematic stocks Beat Factor is a proprietary BofAML model produced by our Quant Research Team. It screens for BofAML analysts’ most out-of-consensus ideas, using a purely quantitative approach involving price objectives and earnings estimates. We run the Beat Factor model using our Thematic Universe of stocks as a starting point. BofAML estimates come from our internal data maintained in iQdatabase® and use I/B/E/S consensus estimates available in Factset. We will be publishing the updated version every month.
Beat Factor score is an equal-weighted measure based on our analysts’ price objectives, FY1 earnings and FY2 earnings estimates relative to consensus. Both FY1 and FY2 earnings are compared to avoid any single period bias. Scores are standardised to minimise any cyclical/defensive or high Risk/low Risk bias. The score is used to rank stocks from -100 (most downbeat) to +100 (most upbeat), which we then use to arrive at the ‘PO Beat Factor’, ‘Earnings Beat Factor’, and composite ‘Beat Factor’. (see Methodology Appendix on page 78).
Beat Factor Global iQanalytics®: Out-of-consensus ideas 17 August 2016
Table 5: Thematic Beats Top 20 most out-of-consensus thematic longs (new additions shaded)
BBG Code Name
Beat Factor (100=Most
Upbeat) Theme Description DABUR IN Dabur India 100 Bottom Billions India consumer goods (hair/oral/skin/home care, foods), 60 countries, expanding African presence
VLID3 BZ Valid
100
Bottom
Billions/Millennials/Safety
Global digital provider of secure identification, mobile payment methods, and telecommunication products and
services
853 HK MicroPort 99 Longevity/Obesity China's Medtronic in the making, leading high-end medical device manufacturer in orthopaedics and CVDs
TWE AU Treasury Wine 99 Millennials Leading international wine business, operates globally across ANZAC, Americas, EMEA and Asia.
270 HK Guangdong Invest 98 Food Security/Water Exclusive water supplier to Hong Kong; provides around 55% of water needs in Shenzhen and Dongguan
SIRI US Sirius XM Radio 98 Millennials US satellite radio streaming co, more than 140 channels of music and talk programming with over 30mn subscribers
COH AU Cochlear Ltd 97 Longevity #1 hearing devices implant co; transitioning from Medtech to consumer, bone conduction & acoustic implants
IMI LN IMI 97 Robots & Ai International engineering co, precision, critical & hydronic divisions, supplies products for energy efficient buildings
MTD US Mettler-Toledo 96 Safety Manufacturer & supplier of precision weighing & analytical instruments for labs, industrial, and food safety applications
TLKM IJ Telkom 96 Bottom Billions Indonesian #1 integrated telecoms operator, providing local fixed-line, mobile and data service
CPLE6 BZ COPEL 95 Climate Change Integrated utility with generation, transmission and distribution activities through 15 hydroelectric plants
GFPT TB GFPT
95
Food Security Thailand's #6 largest chicken producer and #3 largest exporter, divisions span feed, breeding, processing &
distribution
HUVR IN Hindustan
Unilever 95
Bottom Billions #1 Indian FMCG co, portfolio of over 50 brands across categories such as soaps, detergents, foods, ice cream and
water purifiers
ALQ AU ALS Limited
94
Safety/Waste Global provider of TIC services for a range of end markets including environmental, food, pharma, mining, oil & gas
and industrial sectors
CSR AU CSR Limited 94 Climate Change/EE Diversified conglomerate, building products include lightweight concrete and insulation materials
6361 JP EBARA 93 Food Security/Water Global leader in pumps and compressors, products are sold to water utilities companies
7649 JP Sugi Holdings
93
Longevity Japanese drugstore/pharmacy co, beneficiary of govt efforts to contain medical spending, spread of generics, and at-
home medical care
AMCX US AMC Networks 92 Millennials US cable network provider, makers of hit shows such as Breaking Bad, Mad Men, The Walking Dead
035720 KS Kakao 92 Millennials Korea's #1 mobile SNS content platform operator, with free mobile IMs, mobile games, mobile advertising, and SNS
4452 JP Kao 91 Longevity Japan's #1 domestic comprehensive consumer products maker, makers of adult diapers
Source: BofA Merrill Lynch European Quantitative Strategy, iQdatabase, Bloomberg, (as of September 4, 2016)
*The Stock Beat screens are not a recommended list either individually or as a group of stocks. Investor should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decisions
10 Theme Watch | 12 September 2016
Ownership where are you invested To look at investor positioning, we looked at publicly disclosed fund holdings of over 13,000 institutions, 30,000 unique mutual fund portfolios, and 200,000 non-institutional
Universe and assessed their positioning relative to the active benchmark. (see Methodology Appendix on page 75).
Investors increase exposure to People themes 10 out of 12 themes saw their allocation decline or remain flat this month as investors took down exposure. Investors added positions to 2 people-focused themes, Obesity and Bottom Billions. Environmental themes saw their exposure decline across the board, including Energy Efficiency, Food Security, Water, and Waste.
Chart 6: Positioning and ownership across all themes
Source: BofA Merrill Lynch Global Research
Exhibit 1: 3M change in ownership
Source: BofA Merrill Lynch Global Research
Increased OW to IT and Technology, decreased exposure to Cleantech Delving into sub-themes, investors continued to trim exposure to high volatility high risk Cleantech, including Solar and Water-friendly Energy, which moved further U/W. They added to O/W in tech related sectors such as ICT, IT, and Technnology.
Water Waste
Longevity
Climate Change
Safety Energy Efficiency
Education
Food Security
Millennials
Robotics
Bottom Billions
Obesity
Water
Waste
Longevity Climate Change
Safety Energy Efficiency
Education
Food Security Millennials
Robotics
Bottom Billions
Obesity
25%
30%
35%
40%
45%
50%
55%
60%
65%
85 90 95 100 105 110 115 120 125
% o
f to
p 5
0 F
Ms
Ove
rwei
gh
t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
UNDERWEIGHT UNDERWEIGHT
Weightings
% top
holders
overweight
Weightings
% top
holders
overweight
Longev ity 111 58% 1 0%
Safety 106 52% 0 6%
Obesity 105 52% 3 -2%
Water 100 52% 2 -4%
Waste 98 52% 3 -2%
Energy Efficiency 114 50% 8 -4%
Climate Change 111 50% 8 -2%
Education 118 44% 5 -4%
Robotics 110 44% 3 -10%
Millennials 114 40% 12 -10%
Food Security 98 40% 2 -8%
Bottom Billions 89 34% 7 -20%
3M ChangeSep-2016
Theme Watch | 12 September 2016 11
Ageing: Consumer over HealthTech and Drug Stores Investors are overweight Consumer, which includes beauty, travel and vitamins. The underweights are in areas including drug stores and HealthTech, which specializes in data analytics, big data, and information services for healthcare.
Table 6: Longevity sub-themes
Sub-themes Description Biotech Biotech companies developing therapies for age related conditions Pharmaceuticals Companies treating cancer, cardiovascular disease, dementia, diabetes, osteoporosis
etc. Medical Technology Devices used in treatment, diagnosis and monitoring HealthTech Data analytics, big data, information services for healthcare Managed Care Managed care organizations that provide and administer health insurance Drug stores Stores retailing prescription drugs Genetics & Genome DNA analysis, sequencing, genotyping etc. Age-related Conditions Hearing aids, vision care, incontinence etc. Aged Care Senior living, nursing centres etc Insurance Life and general insurance, pensions and annuities Wealth Management Mutual funds, wealth mgmt, estate planning & private wealth Consumer Beauty, Travel and Vitamins
Source: BofA Merrill Lynch Global Research
Increased Exposure to Medtech, Aged Care, Genetics & Genome, decreased
exposure to Pharmaceuticals, Biotech, HealthTech
Chart 7: Longevity - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Genetics & Genome
Biotechnology
Medical Technology
Pharmaceuticals
HealthTech
Age-related Conditions
Consumer
Drug stores
Aged Care
Wealth Management
Insurance
Genetics & Genome
Biotechnology
Medical Technology
Pharmaceuticals
HealthTech
Age-related Conditions
Consumer
Drug stores
Aged Care
Wealth Management
Insurance
0%
10%
20%
30%
40%
50%
60%
70%
35 55 75 95 115 135
% o
f to
p 5
0 F
Ms
Ove
rwei
gh
t
Relative weight of top 50 FMs (100=neutral)
Today Last Month
UNDERWEIGHT
OVERWEIGHT
12 Theme Watch | 12 September 2016
Bottom Billions: Consumer and Financials over Healthcare Investors are overweight Consumer, which includes appliances, eCommerce, media, and FMCG. They are also overweight Financials, including Retail Banks, Fintech, and Microfiance. The underweights are EM healthcare, including pharmaceuticals, generics, and retail pharmacies.
Table 7: Bottom Billions sub-themes Sub-theme Description Consumer Appliances, eCommerce, media, FMCG, food and two-wheelers
Financials Retail Banks, Fintech, Microfinance etc.
ICT/Technology Mobiles, smartphones, the internet and the Internet of Things (IoT)
Healthcare Pharma, generics, pharmacies etc.
Source: BofA Merrill Lynch Global Research
Increased exposure to ICT/Technology, decreased exposure to Financials
Chart 8: Bottom Billions - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
ICT / Technology
Financials
Consumer
Healthcare
ICT / Technology
Financials
Consumer
Healthcare
0%
10%
20%
30%
40%
50%
60%
20 30 40 50 60 70 80 90 100 110 120
% o
f to
p 5
0 F
Ms
Ove
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Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 13
Climate Change: IT over infrastructure Investors appear to be overweight IT solutions cloud computing, data centres, power management, virtualization, and semis. They appear to be relatively underweight Water Infrastructure engineering, construction, equipment.
Table 8: Climate change sub-themes
Sub-theme Description Solar Solar Panels, solar power arrays, solar glass, polysilicon, wafers etc.
Wind Wind power generation, turbine manufacturers, wind farm operators etc.
YieldCo Companies formed to own and operate cleantech assets
Nextgen Vehicles, Batteries & Storage Energy storage, lithium producers, EV’s etc.
Hydro Generation of Hydro electricity
Nuclear Generation of electricity from Nuclear power
Diversified Cleantech Companies with mixed electricity generation capacity (Solar+Hydro+Nuclear+FF)
Other Cleantech Biofuel, biodiesel etc.
Auto Autocatalysts, EVs, engine components etc.
Buildings Appliances; building materials; home renovation; HVAC; insulation materials etc.
Inds. & Integ. Automation, controls, heat transfer, T&D etc.
IT Cloud computing, data centres, heating and cooling, power management,
semiconductors etc.
IoT Sensors, middleware, platform software, Cloud-based applications, and wireless
technology.
LED & Lighting Chips, CFLs, CCFLs, LEDs, lighting management, luminaries, process equipment
etc.
Smart Grid Automatic meter reading; grid storage; distributed grid mgmt; EV charging
infrastructure; ICT etc.
Transport Lightweighting, rail & bus services, jet engines etc.
Source: BofA Merrill Lynch Global Research
Increased exposure to IT, Autos, YieldCos, Nuclear, Div. Cleantech, Decreased
exposure to Solar
Chart 9: Climate Change - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Solar
Wind YieldCo
Nextgen Vehicles, Batteries & Storage
Hydro
Nuclear
Div. Cleantech
Other Cleantech
Auto
Buildings
Industrials & Integrated
IoT
IT
LEDs & Lighting
Smart Grid Transport
Solar Wind
YieldCo
Nextgen Vehicles, Batteries & Storage
Hydro
Nuclear
Div. Cleantech
Other Cleantech
Auto
Buildings
Industrials & Integrated
IoT
IT
LEDs & Lighting
Smart Grid
Transport
0%
10%
20%
30%
40%
50%
60%
70%
80%
0 20 40 60 80 100 120 140
% o
f to
p 5
0 F
Ms
Ove
rwei
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t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
14 Theme Watch | 12 September 2016
Education: Edtech over K-12 & childcare Investors appear to be overweight Education Technology (EdTech) sub-theme, including digital and online learning. The biggest underweight is K-12 & childcare.
Table 9: Education sub-themes
Sub-themes Description EdTech Products, technologies and services which facilitate and
enable the shift from print to digital and from classroom to on-
line learning
K-12 & childcare & Misc. K–12 is a designation for the sum of primary and secondary
education.
Post-secondary, Colleges & Universities This encompasses higher, post-secondary, tertiary or third
level education.
Publishing & content Includes academic publishing (books and journals), textbooks /
course books, academic research and scholarship, preparatory
materials, training materials, other educational materials – as
well as retailers and distributors of such materials.
Source: BofA Merrill Lynch Global Research
Increased exposure to Publishing & Content, and K-12 & Childcare
Chart 10: Education - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
EdTech
K-12 & childcare & Misc
Post-secondary, Colleges & Universities
Publishing & content
EdTech
K-12 & childcare & Misc
Post-secondary, Colleges & Universities
Publishing & content
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
25 35 45 55 65 75 85 95 105 115
% o
f to
p 5
0 F
Ms
Ove
rwei
gh
t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 15
Energy Efficiency: IT and IoT over Transport Investors appear to be overweight IT solutions including cloud computing, data centres, power management, virtualization, and semis. They appear to be underweight Transports including bus and lightweighting, as well as Autos and Industrials.
Table 10: Energy Efficiency sub-themes
Sub-themes Description Auto Autocatalysts, electric vehicles (EVs), engine and transmission
components etc.
Buildings Stocks involved in appliances; building materials; home
renovation; HVAC; insulation materials etc.
Inds. & Integ. Stock involved in automation, controls, heat transfer, T&D etc.
Internet of Things Sensors, middleware, platform software, Cloud-based
applications, and wireless technology.
IT Cloud computing, data centres, power management,
semiconductors etc.
LED & Lighting Chips, CFLs, CCFLs, LEDs, lighting management, luminaries,
process equipment etc.
Smart Grid Automatic meter reading; grid storage; distributed grid mgmt;
EV charging infrastructure; ICT etc.
Transport Lightweighting, rail services, public bus and coach operators,
aircraft engines etc.
Source: BofA Merrill Lynch Global Research
Increased exposure to IT, Autos, LEDs & Lighting, decreased exposure to
Transport, Smart Grid, Internet of Things
Chart 11: Energy Efficiency - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Auto
Buildings
Industrials & Integrated
Internet of Things
IT
LEDs & Lighting Smart Grid & Storage
Transport - rail, bus, shipping & lightweighting
Auto
Buildings
Industrials & Integrated
Internet of Things
IT
LEDs & Lighting
Smart Grid & Storage
Transport - rail, bus, shipping & lightweighting
10%
20%
30%
40%
50%
60%
70%
60 70 80 90 100 110 120
% o
f to
p 5
0 F
Ms
Ove
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Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
16 Theme Watch | 12 September 2016
Food Security: Food Safety over Farming Investors appear to be overweight Food Safety & Animal Health solutions including Medical devices, medicines and vaccines, supplements and pathogen testing. They appear to be underweight Farming including plantations, palm oil, sugar, soybean, canola, etc.
Table 11: Food security sub-themes
Sub-themes Description Agricultural Equipment Application equipment, big data analytics, harvesters, engines, nutrient application,
power generation, precision Ag, tillage and tractors.
Agricultural Inputs Agronomy, crop protection, enzymes, fertilizers, seeds (conventional and GM).
Agribusiness, Protein & Dairy Ag services, crop sourcing, dairy, exporters, feed, food ingredients, meat (beef,
chicken, pork, poultry) , oilseeds, processing, storage and transportation.
Farming Plantations, palm oil, sugar, soybean, canola, processing and corn.
Food Safety & Animal Health Medical devices, medicines and vaccines, supplements and pathogen testing.
Healthy Eating H&W-centred product portfolios (e.g., naturally healthy, organic produce etc.) and
reformulating the nutritional profile of portfolios (i.e., less fat, sugar etc.).
Reducing Food Waste Aseptic packaging, biodegradable packaging, bottles, boxes, cans, cold chain.
Water Water treatment, water management, water Infrastructure and supply, and
waterfriendly energy.
Source: BofA Merrill Lynch Global Research
Increased exposure to Water, Agribusiness, Protein & Dairy, Decreased exposure to
Reducing Food Waste, Food Safety & Animal Health, Healthy Eating
Chart 12: Food Security - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Agribusiness, Protein & Dairy
Agriculture & Food Equipment
Agriculture Inputs
Food Safety & Animal Health
Healthy Eating
Reducing Food Waste
Water
Agribusiness, Protein & Dairy
Agriculture & Food Equipment
Agriculture Inputs
Food Safety & Animal Health
Healthy Eating
Reducing Food Waste
Water
0%
10%
20%
30%
40%
50%
60%
75 85 95 105 115 125 135 145
% o
f to
p 5
0 F
Ms
Ove
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gh
t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 17
Millennials: Tech and Education over Dining & Wellness Investors appear to be overweight Education, and Technology, including devices, eCommerce, apps, media, dating, games and wearables. They appear to be underweight Drinking, Dining and Health & Wellness, including healthy eating, quick-casual & online dining, and beverages.
Table 12: Millennials sub-themes
Sub-themes Description Consumers Clothing & apparel, affordable premium, beauty & cosmetics, travel & leisure
Drinking, Dining and Health & Wellness Healthy eating, quick-casual & online dining, beverages, physical activity
Education Post-secondary, publishing & content, EdTech, childcare
Financials EdTech, childcare FinTech, low-cost, mBanking, wealth management, cashless
society
Households & Housing Household formation, homebuilders, DIY, white goods
Technology Devices, eCommerce, apps, media, dating, games, wearables
Women Child care, clothing & apparel, affordable premium, beauty & cosmetics
Source: BofA Merrill Lynch Global Research
Increased exposure to Education, Financials, Decreased exposure to Tech,
Household
Chart 13: Millennials - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Tech
Education
Consumer
Drinking, Dining & Health & Wellness
Household
Financials
Tech
Education
Consumer
Drinking, Dining & Health & Wellness
Household
Financials
0%
10%
20%
30%
40%
50%
60%
70%
65 75 85 95 105 115 125
% o
f to
p 5
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Ms
Ove
rwe
igh
t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
18 Theme Watch | 12 September 2016
Obesity: Pharma over Sports Apparel Investors appear to be overweight Pharmaceuticals & Healthcare, which have involvement in cardiac care, diabetes, dialysis, bariatric devices, and patient handling systems. They appear to be underweight Spots apparel & equipment, as well as Commercial weight management, diet & nutrition.
Table 13: Obesity sub-themes
Sub-themes Description Pharmaceuticals & Health Care Cardiac care/cardiovascular devices, dialysis services, emergency medical
equipment, gastric bands/balloons, orthopaedic devices, ostomy, patient-handling
equipment, wound care etc.
Food H&W product portfolios (e.g., naturally healthy, fortified/functional, better for you,
organic, fresh produce, fresh juices, etc.) and reformulating the nutritional profile of
portfolios (i.e., less fat, sugar and sodium, fewer calories and artificial ingredients, and
more beneficial ingredients)
Cmcl weight mgmt, diet & nutrition Commercial weight-loss centre chains, dietary and weight-management supplements,
meal replacement products, multi-level marketers that sell weight management
products, nutrition, and the VMS industry
Sports apparel & equipment Fitness, footwear, gyms, leisure, manufacturers and retailers of sports apparel,
recreational sports and activities, specialty sports, sports apparel, sports clothing,
sports lifestyle products, sports retailers and sports venues
Source: BofA Merrill Lynch Global Research
Increased exposure to Food, Cmcl Weight Management, Decreased exposure to
Pharmaceuticals & Healthcare, Sports Apparel & Equipment
Chart 14: Obesity - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Pharmaceuticals & Health Care
Food
Cmcl weight mgmt, diet & nutrition
Sports apparel & equipment
Pharmaceuticals & Health Care
Food
Cmcl weight mgmt, diet & nutrition
Sports apparel & equipment
0%
10%
20%
30%
40%
50%
60%
90 95 100 105 110 115
% o
f to
p 5
0 F
Ms O
verw
eig
ht
Relative weight of top 50 FMs (100=neutral)
Today
Last month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 19
Robotics: Semis over Services and Ag & Mining Investors appear to be overweight Semiconductors, which is a required component is nearly all robotics applications. They appear to be underweight Domestic service robots, and robots used in Agriculture & Mining.
Table 14: Robotics sub-themes
Sub-themes Description Agriculture & Mining Self driving trucks, agri drones etc. Services (Domestic) Home robots AI & Software Automation Machine learning, NLP, deep learning, Big Data analysis, software, facial recognition Auto Autonomous cars, ADAS tech, software and connectivity systems etc. Aerospace & Defense Drones, robotic platforms for soldiers Financials Robo advisors, robo trading etc. Healthcare Robo surgery, telehealth, exoskeletons etc. Industrial Automation Industrial robots, machine vision, automation & control systems etc. Semiconductors Suppliers and manufacturers of integrated circuits
Source: BofA Merrill Lynch Global Research
Increased exposure to Healthcare, Services (Domestic), Decreased exposure to
Autos, Aerospace & Defense
Chart 15: Robotics - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Agriculture & Mining
Services (Domestic)
AI & Software Automation
Auto
Aerospace & Defense Financials
Healthcare
Industrial Automation
Semiconductors
Agriculture & Mining
Services (Domestic)
AI & Software Automation
Auto
Aerospace & Defense
Financials Healthcare
Industrial Automation
Semiconductors
5%
15%
25%
35%
45%
55%
65%
35 55 75 95 115 135
% o
f to
p 5
0 F
Ms
Ove
rwei
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t
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
20 Theme Watch | 12 September 2016
Safety: Workplace and Commercial/Residential over TIC Investors appear to be overweight Commercial/Residential and Workplace Security, including workwear, protective gloves and glasses, and body armour. They appear to be underweight the Testing Inspection Certification (TIC) sector.
Table 15: Safety sub-themes
Sub-themes Description Auto ABS, airbags, braking, crash avoidance, parking assist, passenger restraints,
proximity detectors, seatbelts, tyres etc.
Commercial & Residential Access control, alarm protection, armoured transport, cash handling, fire safety
and security, intrusion protection, cybersecurity, locks, security guards etc.
Homeland Critical infrastructure, CBRNE threats, biometric identification, airports, ports and
borders, counterterrorism intelligence etc.
Cybersecurity Antivirus, back-up & recovery, cloud, data encryption, enterprise security,
firewalls, ID management, mobile security, networks, SaaS, virtualisation, VPN
etc.
Life Sciences
Providers of analytical instruments and lab equipment etc.
Medical Providing medical services and associated products
Oil & Gas Rig builders, drillers, drilling equipment, pipeline infrastructure, insurance etc.
TIC Testing, inspection, verification, audit, accreditation and consulting services, etc.
Workplace Workwear, protective gloves, footwear, headgear, protective glasses, breathing
appliances, fall protection, life jackets, body armour etc.
Source: BofA Merrill Lynch Global Research
Increase exposure to Workplace, Commercial & Residential, Oil & Gas, Decreased
exposure to Homeland, TIC, Chart 16: Safety - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Auto
Commercial & Residential
Homeland
Cybersecurity
Life Sciences
Oil & Gas
TIC
Workplace
Auto
Commercial & Residential
Homeland
Cybersecurity Life Sciences
Oil & Gas
TIC
Workplace
10%
20%
30%
40%
50%
60%
30 50 70 90 110 130
% o
f to
p 5
0 F
Ms
Ove
rwei
gh
t
Relative weight of top 50 FMs (100=neutral)
Today
Last month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 21
Waste: Treatment over TIC, Sewage and E&C Investors appear to be overweight waste Treatment, including chemical and industrial companies that deal with waste generated in the industrials, energy, medical, and residential space. They appear to be Underweight E&C, TIC, and Wastewater & Sewage which mainly encompass the utilities that process wastewater.
Table 16: Waste sub-themes
Sub-themes Description E&C Provides of engineering & construction services to the waste industry
Life Sciences Waste & wastewater analysis tools and solutions
Management & other Facility operators and provides of collection, treatment & disposal services
O&G Drilling waste and produced water treatment
Recycling Scrap metal and e-waste recyclers
Sustainable Packaging Waste paper recyclers & collectors, solution provides and lightweighting
TIC Quality assurance, monitoring, water and wastewater analysis etc.
Treatment Waste collection and transport, industrial waste treatment & recycling and chemicals
Waste-to-Energy Incineration, landfills, treatment facilities and utilities making use of WTE technology
Wastewater & Sewage Wastewater & Sewage collection and treatment
Source: BofA Merrill Lynch Global Research
Increased exposure to Oil & Gas
Chart 17: Waste - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Engineering & Construction
Life Sciences
Management & other Oil & Gas Recycling
Sustainable Packaging
TIC
Treatment
Waste-to-Energy
Wastewater & Sewage
Engineering & Construction
Life Sciences
Management & other
Oil & Gas
Recycling
Sustainable Packaging
TIC
Treatment
Waste-to-Energy Wastewater & Sewage
0%
10%
20%
30%
40%
50%
60%
70%
50 70 90 110 130 150 170
% o
f to
p 5
0 F
Ms
Ove
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t
Relative weight of top 50 FMs (100=neutral)
Today
Last month
UNDERWEIGHT
OVERWEIGHT
22 Theme Watch | 12 September 2016
Water: Treatment over Equipment and Utilities Investors appear to be overweight Water Treatment wastewater, desalination, PV solar, and bottled water. They are underweight makers of water equipment like Pipes, Pumps & Valves, as well as water Utilities.
Table 17: Water sub-themes
Sub-themes Description Engineering & Construction Engineering, procurement, construction and consulting of water infra and supply
Management Irrigation, drought resistant seeds and crops, precision agriculture, smart meters
etc.
Pipes, pumps & valves Companies involved in water pipes, pumps & valves
Treatment Wastewater, industrial treatment, chemicals, desalination, water quality, bottled
water, TIC etc.
Utilities Water, wastewater and sewage treatment utilities
Water-Friendly Energy Wind, solar and geothermal energy, CHP, smart irrigation and precision
agriculture
Source: BofA Merrill Lynch Global Research
Increased exposure to Water management, Pipes, Pumps & Valves, Water Utilities,
decreased exposure to Water Treatment, Water-friendly Energy, E&C
Chart 18: Water - Positioning and ownership by sub-themes
Source: BofA Merrill Lynch Global Research
Engineering & Construction
Management
Pipes, pumps & valves
Treatment
Utilities
Water-Friendly Energy
Engineering & Construction
Management
Pipes, pumps & valves
Treatment
Utilities
Water-Friendly Energy
10%
20%
30%
40%
50%
60%
70%
80%
90 92 94 96 98 100 102 104 106 108 110
% o
f to
p 5
0 F
Ms O
verw
eig
ht
Relative weight of top 50 FMs (100=neutral)
Today
Last Month
UNDERWEIGHT
OVERWEIGHT
Theme Watch | 12 September 2016 23
Equity Flows Recent trading We define BofAML equity net trading flows as USD notional buys minus sells executed by BofAML equity trading platform for our clients. The August 5 2016 through September 4 2016 period showed -US$6.6bn of outflows from the thematic universe.
Last month period (August flows) is August 5 2016 September 4 2016
Table 18: BofAML client net trading flows by theme (US$mn)
Theme Last month
ending Sep 4 2016
Aug 4 2015 July 4 2016 June 4 2016 May 4 2016 Apr 4 2016 Cumulative Net
flows 3 month avg.
Bottom Billions -172 1,049 296 3,638 -167 -1,085 3,558 391
Climate Change 305 1,917 -891 1,411 -852 -621 -5,182 444
Education -862 698 417 1,299 -612 -323 -2,569 84
Energy Efficiency 205 1,644 -713 1,364 -821 -483 -3,592 379
Food Security 310 275 -230 -571 -633 -797 1,069 118
Longevity -3,438 -351 -934 -652 -3,179 -2,428 -28,286 -1,574
Millennials -198 762 809 7,875 -1,401 -1,083 -302 458
Obesity -1,481 -638 -482 -943 -2,014 -1,293 -10,342 -867
Robotics -529 986 128 5,885 -974 -89 3,638 195
Safety -205 -351 -662 1,537 111 311 10,485 -406
Waste -256 -151 -317 427 -399 -316 870 -241
Water -289 64 48 165 -180 -224 3,164 -59
Total -6,611 5,905 -2,531 21,433 -11,121 -8,432 -27,489 -1,079
Source: BofA Merrill Lynch Global Research; Cumulative net flows with Sep 5 2014 as starting point. Average flows=average net flow between specified period.
Chart 19: MSCI AC World TR performance and BofAML client net trading flows in thematic universe
Source: BofA Merrill Lynch Global Research
-20
-15
-10
-5
0
5
10
15
-20%
-15%
-10%
-5%
0%
5%
10%
15%
05-S
ep-2
014
05-N
ov-2
014
05-J
an-2
015
05-M
ar-2
015
05-M
ay-2
015
05-J
ul-2
015
05-S
ep-2
015
05-N
ov-2
015
05-J
an-2
016
05-M
ar-2
016
05-M
ay-2
016
05-J
ul-2
016
05-S
ep-2
016
Net
flo
ws
US
$ b
n
MS
CI A
C p
erfo
rman
ce s
ince
Sep
5 2
014
Net inflows (US$ mn)
Net outflows (US$ mn)
MSCI AC World TR Performance
24 Theme Watch | 12 September 2016
Demographic themes continues to see selling 9 out of 12 themes were sold. Demographic themes including Longevity (-US$3.4bn) and Obesity (-US$1.5bn) and saw the highest selling (7th consecutive month of outflows), and also have the highest cumulative outflows (-US$28bn, -US$10bn respectively). All three themes with inflows were environmentally-related, including Food Security (+US$310mn), Climate Change (+US$305mn), and Energy Efficiency (+US$205mn).
Chart 20: BofAML client net trading flows by theme (US$mn)
Source: BofA Merrill Lynch Global Research; September Flows signify the period from Aug 5 2016 to
Sep 4 2016
Chart 21: Cumulative net flows by region
Source: BofA Merrill Lynch Global Research, Cumulative net flows with Sep 5 2014 as starting point.
Table 19: BofAML client net trading flows by region (US$mn)
Theme Last month
ending Sep 4 2016
3 month avg. Cumulative Net
flows
AMRS -9,934 -3,577 -52,694
APAC 771 574 344
EMEA 2,553 1,924 24,860
Total -6,611 -1,079 -27,489
Source: BofA Merrill Lynch Global Research, Cumulative net flows with Sep 5 2014 as starting point,
Average flows = average flows between specified period
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
3 month avg. September Flows
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
(US
$bn
) AMRS APAC EMEA
Theme Watch | 12 September 2016 25
Themes Ageing The Silver Economy
Thematic Investing: The Silver Economy Global Ageing Primer 09 May 2016
Age wave: peak youth (2020E), 2.1bn aged 60+ (2050E). We are living in the midst of the most remarkable demographic transition in history with life expectancy to reach 77.1 by 2050E (vs. 48Y in 1950), the global 60+ population to grow to 2.1bn by 2050E (vs. 901mn today); the median age worldwide to hit 36 by 2050E (vs. 29.6 today); and life expectancy increasing by 1Y every 5Y. We are arriving at “peak youth” for the first time in human history with the number of persons aged 65+ expected to outnumber children under-5 by the end of this decade. Ageing has also become a universal phenomenon, and by 2050E, 80% of older people will live in EMs. Life expectancies of 300-400Y or even an infinite extension of life expectancy may be within reach in our lifetimes.
Longevity risk: we’re not prepared for the coming tidal wave. Preparing for this demographic tidal wave is a pressing imperative for governments, businesses and individuals alike as people outlive assets. Global annuity and pension-related longevity risk exposure today is already up to US$25tn. Age-related spending makes up 40% of government budgets in DMs, and rising age-related costs are likely to push 60% of sovereigns into speculative grade. QE and low interest rates are exacerbating longevity risk for the one in five corporate pension funds that are already underfunded. Individuals are also inadequately prepared for the coming crisis, with nearly two out of three employees globally not saving for retirement. Women, the young, and poorly educated are at greatest risk.
Multi $tn silver lining: healthcare, financials, care, consumer. We believe the private sector will play a pivotal role in addressing longevity challenges, while catering to the unmet needs of an older population. From an investment perspective, we see multiple entry points to access the silver economy theme: 1) Pharma & Healthcare (80% of older adults have at least one chronic condition, elderly account for c75% of healthcare spending, up to US$3tn of spending is wasted each year, focus shift to better and smarter solutions); 2) Financials (ushering in the age of saving: growing importance of asset income in retirement, and role of insurers and wealth managers in accumulation/decumulation phases, a tailwind for asset management); 3) Aged-Care (87% of Boomers want to age in place, US$500bn senior living market); and 4) Consumer (Boomers account for 50-60% of DM consumer spending, and 60+ spending will reach US$15tn by 2020E).
26 Theme Watch | 12 September 2016
Primer Picks performance Chart 22: Longevity Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-2015, 4-Sep-2015, 4-Dec-2015,
4-Mar-2016, 4-Jun-2016
Chart 23: Longevity Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Jun 6 2014.
Table 20: Longevity Primer Picks beta relative to the market
Raw Beta 1.01
Adjusted Beta 1.00
Alpha 0.08
R^2 (Correlation^2) 0.80
Correlation 0.90
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 24: 1M top/bottom total return performance of Longevity Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 25: 3M top/bottom total return performance of Longevity Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-30
-20
-10
0
10
20
30
40
-30%
-20%
-10%
0%
10%
20%
30%
40%
04-J
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04-A
ug-2
014
04-O
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014
04-D
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014
04-F
eb-2
015
04-A
pr-2
015
04-J
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015
04-A
ug-2
015
04-O
ct-2
015
04-D
ec-2
015
04-F
eb-2
016
04-A
pr-2
016
04-J
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016
04-A
ug-2
016
21D
Rea
lized
Vo
l.
Per
form
ance
*
*Longevity MSCI AC World TR Longevity 21D Realized Vol.
Primer update 9-May
+1.28%
+3.33%
+5.86%
+13.02%
0%
2%
4%
6%
8%
10%
12%
14%
1M 3M 1Yr SinceInception
Per
form
ance
Mylan Novo Nordisk Davita Inc Genmab Acadia Pharma
Civitas Ain Holdings Inc Prothena
Regeneron Pharm
Celgene
Axa Lincoln Natl. Radius Health Philips Morgan Stanley Cytomx
Puma Bio. Delta Lloyd
Regenxbio
Cynapsus
-20% 30% 80% 130%
Performance
Leaders
Laggards
Tokai Pharma Pronai Therapeut
Esperion American Renal
Azimut Hld Ain Holdings Inc
Cellectis
Matsumotokiyoshi
Novo Nordisk Davita
Glaukos Astrazeneca Advisory Board Penumbra Wright Med Microport Scient
Qualicorp Radius Health
Puma Bio. Cynapsus
-85% -35% 15% 65% 115% 165%
Performance
Leaders
Laggards
Theme Watch | 12 September 2016 27
Flows In our wider Longevity thematic stock list, BofAML global equity trading showed outflows of -US$3,438mn for the August period. Longevity has experienced the most outflows since we began observing in September 2014, and its cumulative net flows are now at -US$28mn in the past 24 month period.
Chart 26: Longevity – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 21: Longevity BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -3,438
Aug 4 2016 -351
Jul 4 2016 -934
Jun 4 2016 -652
May 4 2016 -3,179
Apr 4 2016 -2,428
Mar 4 2016 -723
Feb 4 2016 1,758
Jan 4 2016 -2,176
Dec 4 2015 -1,132
Nov 4 2015 -3,201
Oct 4 2015 -491
Cumulative Net flows -28,286
YTD flows -12,123
3 month avg. -1,574
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 22: Longevity Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Genetics & Genome 21.3x 20.4x
Biotechnology 15.1x 21.4x
Medical Technology 19.0x 18.7x
Pharmaceuticals 18.3x 17.5x
HealthTech 19.2x 17.9x
Age-related Conditions 20.1x 20.8x
Consumer 16.2x 17.9x
Drug stores 18.3x 18.5x
Aged Care 18.7x 16.2x
Wealth Management 13.4x 11.9x
Insurance 10.0x 10.0x
Longevity 16.3x 17.8x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
05-S
ep-2
014
05-N
ov-2
014
05-J
an-2
015
05-M
ar-2
015
05-M
ay-2
015
05-J
ul-2
015
05-S
ep-2
015
05-N
ov-2
015
05-J
an-2
016
05-M
ar-2
016
05-M
ay-2
016
05-J
ul-2
016
05-S
ep-2
016
Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
28 Theme Watch | 12 September 2016
Positioning of longevity stocks Exhibit 2: Top Overweight and Underweight stocks in Longevity
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Aetna Inc. 121 40% NA NA Resmed Inc CHESS Depositary Interests on
a ratio of 10 CDIs per ord.sh
0 0% NA NA
MetLife, Inc. 92 40% -1 -2% Cy napsus Therapeutics Inc. 0 0% NA NA
Pfizer Inc. 81 40% NA NA Hutchison China MediTech Limited
Sponsored ADR
0 0% NA NA
Ventas, Inc. 110 36% -1 6% Shanghai Pharmaceuticals Holding Co. Ltd.
Class A
1 0% NA NA
Centene Corporation 98 36% NA NA Japan Post Insurance Co., Ltd. 1 0% NA NA
Merck & Co., Inc. 92 36% -26 -10% Jiangsu Hengrui Medicine Co., Ltd. Class A 3 0% -2 0%
Biogen Inc. 110 34% -12 -12% MicroPort Scientific Corp. 4 0% -6 -2%
Celgene Corporation 85 34% -12 -12% Regis Healthcare Ltd. 4 0% -1 0%
Kimberly -Clark Corporation 76 34% NA NA Platinum Asset Management Ltd 5 0% NA NA
Anthem, Inc. 95 32% NA NA Amundi SA 7 0% NA NA
Welltow er, Inc. 94 32% -3 4% Luy e Pharma Group Ltd. 8 0% 0 0%
Home Depot, Inc. 91 32% -24 -16% Ramsay Health Care Limited 11 0% NA NA
Affiliated Managers Group, Inc. 87 32% 9 2% AMP Limited 14 0% NA NA
Low e's Companies, Inc. 86 32% -19 -6% Amplifon S.p.A. 14 2% -15 -6%
Abbott Laboratories 80 30% -18 -10% Cellectis SA Sponsored ADR 20 2% NA NA
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
Theme Watch | 12 September 2016 29
Bottom Billions Moving on Up
Thematic Investing: Moving on Up Bottom Billions Primer 25 February 2016
The next big growth engine: 4.5bn at base of the pyramid. In a world starved for growth, we believe that the answer lies in uplifting the 4.5bn people at the base of the economic pyramid. These ‘Bottom Billions’ earn only US$1-10/day, but have US$5tn in purchasing power and US$7.4tn in wealth. They are young (60% <30 years), urban (+180k city residents/day), connected (2bn EM Internet users), educated (12 years of expected schooling) and have more disposable income than ever before. Driven by strong demographics (90% of population growth to 2050E will be in EMs) and LT GDP growth in EMs (the ‘sweet spot’ of c.US$3-6,000 per capita income) – 3bn will join the 4.9bn-strong global middle class by 2030E, the biggest growth story since the post-WW2 boom.
#1 potential market in history of commerce: US$5tn today. The Bottom Billions spend US$2.3tn on food and beverages, US$508bn on housing, US$328bn on clothing, footwear and personal care, US$243bn on health and US$206bn on education a year. We anticipate fast growth for spaces like ICT (can increase EM GDP by US$2.2tn and create 140mn new jobs); banking the 2bn unbanked (financial inclusion is a US$380bn annual revenue opportunity); Consumer goods (25-year runway for growth); and Healthcare (EMs to account for 50% of additional spend by 2022E). We also see opportunities around the US$5-7tn/year in investments needed to realise the UN’s Sustainable Development Goals.
It won’t be easy: Need inclusive growth to reduce instability. Despite this potential, in 2015, 14% of people still lived in extreme poverty (<US$1.25/day), 795mn went chronically hungry, 780mn adults were illiterate, and 2.4bn lacked access to proper sanitation. The Bottom Billions also lie at the heart of the world’s top risks, and the 2016 economic growth outlook for EMs is weak. However, we believe that governments, businesses and stakeholders need to act together to tackle growing inequality (poorest 20% receive 6% of income vs richest quintile attracting 50%), social unrest and instability, which is reaching the highs of the 1980s. Inclusive growth – reducing extreme poverty and sharing prosperity (boosting the incomes of the poorest 40%) – is key to alleviating growing risks around disempowerment, unrest, instability, migration and the collapse of nation-states.
US$56tn opportunity (2030E): entry point for investors. As the Bottom Billions move up the economic ladder, middle-class spending could increase to US$56tn by 2030E and US$84tn by 2050E (vs US$21tn in 2009). We highlight four entry points for investors looking to play the theme: (1) Consumer; (2) Information & Communication Technologies (ICT); (3) Financials; and (4) Healthcare. We believe investors should also focus on closely related solutions like Climate Change, Education, Food Security, Green Bonds, Pandemics, Safety, Waste, and Water which we also explore in the report.
30 Theme Watch | 12 September 2016
Flows In our wider Bottom Billions thematic stock list, BofAML global equity trading showed net flows of -US$172mn for the August period. This brings its cumulative net flows to -US$3,730mn in the past 6 month period.
Chart 27: Bottom Billions BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Mar 5 2016 as starting point
Table 23: Bottom Billions BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -172
Aug 4 2016 1,049
Jul 4 2016 296
Jun 4 2016 3,638
May 4 2016 -167
Apr 4 2016 -1,085
Cumulative Net flows 3,558
YTD flows 3,558
3 month avg. 391
Source: BofA Merrill Lynch Global Research Cumulative net flows with Mar 5 2016 as starting point.
Average flows=average net flow between specified period
Table 24: Bottom Billions Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
ICT / Technology 15.8x 15.9x
Financials 11.7x 12.2x
Consumer 20.1x NA
Healthcare 19.3x 18.7x
Bottom Billions 17.6x 18.9x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-1,500
-500
500
1,500
2,500
3,500
-1,500
-500
500
1,500
2,500
3,500
05-M
ar-2
016
05-A
pr-2
016
05-M
ay-2
016
05-J
un-2
016
05-J
ul-2
016
05-A
ug-2
016
05-S
ep-2
016
Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 31
Positioning of bottom billions stocks Exhibit 3: Top Overweight and Underweight stocks in Bottom Billions
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings % top holders overweight Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Alphabet Inc. Class C 111 46% -13 2% Guangzhou Baiy unshan
Pharmaceutical Holdings
Company Limited Class A
0 0% 0 0%
Visa Inc. Class A 101 40% 2 8% Shanghai Fosun
Pharmaceutical (Group)
Co., Ltd. Class A
0 0% 0 0%
Microsoft Corporation 82 36% -19 0% Dali Foods Group Co., Ltd. 2 0% 0 0%
Amazon.com, Inc. 129 34% -19 -2% Foshan Haitian Flav ouring
& Food Co., Ltd. Class A
2 0% -3 -2%
Facebook, Inc. Class A 88 34% -21 0% Jiangsu Hengrui Medicine
Co., Ltd. Class A
4 0% -18 -2%
MasterCard
Incorporated Class A
84 34% -5 2% Adv anced Info Serv ice
Public Co., Ltd.
4 0% -149 -12%
General Mills, Inc. 80 34% -23 2% Globe Telecom Inc. 5 0% -1 0%
Mondelez International,
Inc. Class A
79 34% -11 0% Arca Continental SAB de
CV
6 0% -3 -4%
Colgate-Palmoliv e
Company
92 30% -21 4% Compania Cerv ecerias
Unidas S.A.
7 0% -1 0%
McDonald's Corporation 83 30% -28 -12% Grupo Bimbo SAB de CV
Class A
7 0% -2 0%
Domino's Pizza, Inc. 125 28% -3 2% Banco de Chile 7 0% 0 0%
Mead Johnson Nutrition
Company
105 28% 6 4% DiGi.Com Bhd 8 0% 0 0%
Coca-Cola Company 92 28% -39 -6% Ax iata Group Bhd. 8 0% 0 0%
PepsiCo, Inc. 71 28% -15 -6% Coca-Cola Amatil Limited 11 0% -11 -4%
Kimberly -Clark
Corporation
70 26% -21 -2% Bharti Infratel Ltd. 13 0% -2 -2%
Top Overweight Top Underweight
Sep-2016 3M Change Aug-2016 3M Change
32 Theme Watch | 12 September 2016
Climate Change A Call to Action
Thematic Investing: A Call to Action Climate Change Solutions Primer 27 November 2015
Climate change: it’s real, it’s now and it’s scary - We view climate change as one of the defining issues of our time. 2015 is the hottest year since records began in 1880, and 14 out of 15 warmest years have occurred since 2000. Extreme weather is the #2 global risk today and affects 10% of the globe (vs. 0.1-0.2% in 1951-80). Global average temperatures are entering uncharted territory with +1°C of warming (vs pre-industrial levels) by the end of 2015, midway to the +2°C warning sign, seen as the threshold of catastrophic climate change. Levels of atmospheric CO2 concentrations are the highest in 800,000Y and there is broad consensus that global surface temperatures will rise by 1.5-4.5°C by 2100E.
Costs: potentially unprecedented damage to financial stability - Climate change and the carbon-intensive economy are already causing unprecedented damage to financial stability via physical, liability and transition risks, in our view, as well as up to 5mn deaths a year. Weather-related losses have hit US$4tn over the past 30Y, and have averaged US$200bn p.a. over the past 10Y. Without action, the global mean cost of climate change could rise to 1-5% of GDP/year – with EMs and the poor to be hit hardest. For investors, climate change risk will have an impact at the level of asset class, industry sector and sub-sector. Global investment portfolios could lose up to 45% of their value to 2020E, and investors could see average annual returns erode by 26-138% by 2050E. Sectors at greatest long-term risk include agriculture, energy, financial services, insurance, and travel and tourism.
A low carbon future: clean energy transition is underway - Few issues are uniting world leaders like the war on climate change. We are seeing positive signs that economic growth and energy-related emissions have decoupled for the first time in 40Y. Investments in cleantech have grown 3.5x in 10Y to US$300-350bn/year in the past 5Y, with another US$130-300bn/year being invested in energy efficiency. Renewables now account for c.50% of all new power generation, and we estimate they will represent 70-80% of capacity additions from 2015-30E. By 2030E, low carbon energy will account for c.60% of the global energy mix while fossil fuels decline to c.40%. Coal has become a stranded asset, in our view, while both oil and gas face growing risk over the next 10-25Y.
US$13.5tn+ to 2030E: multiple entry points for investors - We forecast at least US$13.5tn in low carbon energy investments to 2030E and highlight 9 entry points for investors wishing to play the climate change and low carbon solutions theme: 1) Energy Efficiency; 2) Wind; 3) Solar; 4) YieldCos; 5) Nextgen Vehicles, Batteries & Storage; 6) Nuclear; 7) Hydro; 8) Diversified Cleantech; and 9) Other Cleantech. We believe investors should also focus on closely related solutions like Food Security, Water and Green Bonds.
Theme Watch | 12 September 2016 33
Primer Picks performance Chart 28: Climate Change Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 29: Climate Change Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 25: Climate Change Primer Picks beta relative to the market
Raw Beta 1.16
Adjusted Beta 1.11
Alpha -0.01
R^2 (Correlation^2) 0.81
Correlation 0.90
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 30: 1M top/bottom total return performance of Climate Change Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 31: 3M top/bottom total return performance of Climate Change Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-15
-9
-3
3
9
15
21
27
33
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
04-D
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04-F
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04-A
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04-A
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04-O
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04-D
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04-F
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04-A
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04-J
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015
04-A
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015
04-O
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015
04-D
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015
04-F
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016
04-A
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016
04-J
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016
04-A
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016
21D
Rea
lized
Vo
l.
Per
form
ance
*
Climate Change MSCI AC World TR Climate Change 21D Realized Vol.
Primer update
+3.19%
+6.28%
+12.99% +12.78%
0%
2%
4%
6%
8%
10%
12%
14%
1M 3M 1Yr SinceInception
Per
form
ance
Sunpower NRG Energy
Inox Wind Metal Leve LG Innotek
CSR Ltd Nabtesco
Salesforce.Com
Teco Elec & Mach
Whirlpool
Sumitomo Chem Stagecoach Skyworks Sol Schaeffler
Vestas Go-Ahead Kingspan
Sunrun Senvion
China Singyes
-30% -20% -10% 0% 10% 20% 30% 40%
Performance
Laggards
Leaders
Sunpower NRG Energy
Go-Ahead Inox Wind
Integrated Dev CPFL Re
Stagecoach Salesforce.Com
Wilmar Kyushu Elec
Gea Grp Vestas Gamesa
CPFL Energia Alarm.Com
Copel Cemig
China Singyes Arm Holdings
Light SA
-40% -20% 0% 20% 40% 60% 80%
Performance
Laggards
Leaders
34 Theme Watch | 12 September 2016
Flows In our wider climate change thematic stock list, BofAML global equity trading showed net flows of +US$305mn for the August period. Cumulative net flows are at -US$5,182mn in the past 24 month period. Chart 32: Climate change – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as starting point
Table 26: Climate change & extreme weather BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 305
Aug 4 2016 1,917
Jul 4 2016 -891
Jun 4 2016 1,411
May 4 2016 -852
Apr 4 2016 -621
Mar 4 2016 -15
Feb 4 2016 1,604
Jan 4 2016 -1,876
Dec 4 2015 -165
Nov 4 2015 -2,497
Oct 4 2015 -8
Cumulative Net flows -5,182
YTD flows 982
3 month avg. 444
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 27: Climate Change Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Solar 8.7x 7.8x
Wind 14.0x 14.9x
YieldCo 16.9x 15.8x
Nextgen Vehicles, Batteries & Storage 14.0x 12.4x
Hydro 11.6x 9.6x
Nuclear 13.0x 10.3x
Diversified Cleantech 14.5x 11.9x
Other Cleantech 13.1x 11.7x
Auto 12.2x 11.7x
Buildings 15.1x 15.8x
Industrials & Integrated 17.8x 16.2x
IoT 18.7x 18.3x
IT 18.4x 18.4x
LEDs & Lighting 23.2x 19.0x
Smart Grid 15.7x 16.8x
Aircraft Engines 16.2x 16.2x
Bus 9.8x 9.8x
Lightweighting 13.0x 14.1x
Rail & Rail Equipment 12.5x 12.5x
Climate Change 15.4x 14.6x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-8,500
-6,500
-4,500
-2,500
-500
1,500
3,500
-8,500
-6,500
-4,500
-2,500
-500
1,500
3,500
05-S
ep-2
014
05-N
ov-2
014
05-J
an-2
015
05-M
ar-2
015
05-M
ay-2
015
05-J
ul-2
015
05-S
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05-N
ov-2
015
05-J
an-2
016
05-M
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016
05-M
ay-2
016
05-J
ul-2
016
05-S
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016
Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 35
Positioning of climate change stocks Exhibit 4: Top Overweight and Underweight stocks in Climate Change
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Valero Energy Corporation 82 42% -16 -2% Inox Wind Ltd. 0 0% 0 0
Delphi Automotiv e PLC 104 38% -1 -2% MLS Co., Ltd. Class A 0 0% 0 0
Union Pacific Corporation 92 38% -22 -18% BYD Company Limited Class A 0 0% 0 0
Intel Corporation 78 38% -36 -22% CPFL Energias Renov av eis SA 0 0% 0 0
Nex tEra Energy , Inc. 88 36% -25 -14% China National Nuclear Pow er Co. Ltd.
Class A
0 0% -4 0
Home Depot, Inc. 88 36% -30 -16% Sanan Optoelectronics Co., Ltd. Class A 0 0% 0 0
Cisco Sy stems, Inc. 80 36% -21 -22% Renesas Electronics Corporation 1 0% 1 0
salesforce.com, inc. 115 34% -7 0% NHPC Limited 2 0% 0 0
Ex elon Corporation 106 34% -27 -6% Shenzhen Inov ance Technology Co., Ltd
Class A
3 0% -2 0
Eaton Corp. Plc 87 32% -26 -14% Siemens Limited 4 0% 0 0
AES Corporation 104 30% -8 -2% Cosan Limited Class A 6 0% NA NA
Honey w ell International Inc. 86 30% -24 -16% CPFL Energia S.A. 6 0% -1 0
Low e's Companies, Inc. 86 30% -23 -16% ENGIE Brasil Energia S.A. 9 0% 1 0
Linear Technology Corporation 79 30% -2 -4% Bombardier Inc. Class B 12 0% -56 0
Alphabet Inc. Class C 106 28% -18 -8% Adv antech Co., Ltd. 15 0% -7 0
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
36 Theme Watch | 12 September 2016
Education - Stay in School
Thematic Investing: Global Education Primer - Stay in school 01 November 2013
One of the most pressing socio-economic challenges - We believe that education presents one of the most pressing socioeconomic challenges today, with 100m children never having attended school, tens of millions of dropouts, 800m illiterate adults, and major gaps in lifelong skills and training in both emerging and developed markets. We also believe that education for all (EFA) offers a once-in-a-generation investment opportunity to build healthy, prosperous and equitable societies, with every dollar invested in education generating US$10-15 in economic returns (source: UN).
US$4.5-5.1tn market today, US$5.9-7.8tn by 2017E - The global education sector is worth US$4.5-5.1tn today, encompassing K-12, post-secondary, corporate and government learning, e-learning, child care and language learning. Going forward, we see the fastest growth coming from e-learning and for-profit education, as well as from
global education is on target to become a US$5.9-7.8tn market (source: GSV Advisors, BofA Merrill Lynch estimates).
Strong growth drivers, EMs leading the way - Growth drivers include strong spending (c5% of global GDP), increasing enrolment rates (90% for primary completion, 71% for secondary enrolment), demographic opportunities (booming population of 5-17 year olds in EMs), more women in education, EMs upping their spend on education (disposable spending on education in China, India and Brazil is 10-13%), increasing global mobility, and a growing realisation of employment, earnings and economic development needs and opportunities (developed market graduates earn >US$1m more than high school dropouts over their lifetime).
Structural shifts, for-profit/private & EdTech - We believe the high cost of education is placing a burden on cash-strapped governments and households, which means increasing dependence on private spending (32% of funding for higher education in the OECD, 62% in the US), a growing role for for-profit education companies, and an increasing focus on affordability and results. Further, we think the integration of ICT and the shift to EdTech (from print to digital and from classroom to online learning) means e-learning is set to become a US$250bn+ market by 2017E, posing threats and opportunities for many incumbents.
Four major entry points for investors - We have mapped education across a number
wishing to invest in the theme: 1) K-12, 2) post-secondary, 3) content and 4) EdTech.
Theme Watch | 12 September 2016 37
Primer Picks performance Chart 33: Education Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 34: Education Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 28: Education Primer Picks beta relative to the market
Raw Beta 1.17
Adjusted Beta 1.12
Alpha 0.04
R^2 (Correlation^2) 0.64
Correlation 0.80
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 35: 1M top/bottom total return performance of Education Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 36: 3M top/bottom total return performance of Education Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-10
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21D
Rea
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Vo
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Per
form
ance
*
Education MSCI AC World TR Education 21D Realized Vol.
+0.83%
+12.55%
+17.36%
+19.79%
0%
5%
10%
15%
20%
25%
1M 3M 1Yr SinceInception
Per
form
ance
G8 Education
Kroton
Grand Canyon Edu
Alphabet
Advisory Board
Relx
Intel
Adobe
Bright Horizons
-20% -15% -10% -5% 0% 5% 10%
Performance
Leaders
Laggards G8 Education
Grand Canyon Edu
Bright Horizons
Adobe
Informa
Relx
Estacio
Advisory Board
Ser Educacional
-25% -15% -5% 5% 15% 25% 35% 45%
Performance
Leaders
Laggards
38 Theme Watch | 12 September 2016
Flows In our wider Education thematic stock list, BofAML global equity trading showed net flows of -US$862mn for the August period. This brings cumulative net flows to -US$2,569mn in the past 24 month period.
Chart 37: Education – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 29: Education BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -862
Aug 4 2016 698
Jul 4 2016 417
Jun 4 2016 1,299
May 4 2016 -612
Apr 4 2016 -323
Mar 4 2016 -458
Feb 4 2016 269
Jan 4 2016 -865
Dec 4 2015 -534
Nov 4 2015 -564
Oct 4 2015 -145
Cumulative Net flows -2,569
YTD flows -437
3 month avg. 84
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 30: Education Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
EdTech 13.3x 18.6x
K-12 & childcare 19.3x 11.2x
Miscellaneous 18.9x NA
Post-secondary, Colleges & Universities 9.9x 9.7x
Publishing & content 15.6x 17.0x
Education 13.5x 13.3x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-4,200-3,700-3,200-2,700-2,200-1,700-1,200-700-2003008001,3001,8002,3002,8003,3003,800
-4,200-3,700-3,200-2,700-2,200-1,700-1,200
-700-200300800
1,3001,8002,3002,8003,3003,800
05-S
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S$
mn
Net
flo
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US
$ m
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Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 39
Positioning of Education stocks Exhibit 5: Top Overweight and Underweight stocks in Education
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Alphabet Inc. Class C 90 28% -14 -2% Ser Educacional SA 6 2% -1 0%
Cisco Sy stems, Inc. 67 26% -18 -28% Nav itas Limited 6 2% -2 0%
Adobe Sy stems Incorporated 88 22% -10 -4% G8 Education Limited 7 2% -9 -2%
Intel Corporation 66 22% -27 -32% Care.com, Inc. 17 2% 0 0%
HP Inc. 83 20% -22 -20% Wolters Kluw er NV 17 2% -5 -10%
Capella Education Company 76 20% -1 -6% GAEC Educacao SA 8 4% -6 -2%
New s Corporation Class A 88 18% 5 0% Lenov o Group Limited 14 4% -2 -2%
eBay Inc. 64 18% 2 -4% Lagardere SCA 17 4% -13 -6%
Amazon.com, Inc. 101 16% -20 -8% Apple Inc. 57 4% -38 -54%
Pearson PLC 34 16% -5 0% DeVry Education Group Inc. 49 6% -8 -4%
3M Change
Top Underweight
Sep-2016
Top Overweight
Sep-2016 3M Change
40 Theme Watch | 12 September 2016
Energy Efficiency Efficient Frontier
Thematic Investing: The Efficient Frontier - Energy Efficiency Primer 04 September 2014
Global energy crisis: the current path is unsustainable - Primary energy demand accounts for more than 7% of global GDP, and with demand set to grow by up to 40% by 2035E, the world needs US$48-53tn in energy investments over the period (source: IEA).
same as it was 25Y ago, leaving much of the world dependent on energy imports and associated geopolitical risks. The current energy path is also putting us on a CO2 emissions trajectory consistent with long-term global temperature increases of 2.0°C -4.5°C, making irreversible climate change a reality.
- An energy-secure future for all will require a balanced energy mix, encompassing clean coal, gas, nuclear and renewables as well as energy efficiency. Historical energy savings from efficiency have exceeded the output from any other single fuel source, and efficiency could halve the energy needed to power the world by 2035E (source: IEA). We believe that efficiency is the cheapest and easiest way to reduce energy demand and CO2 emissions, and that the combination of increasingly effective policies and high energy prices means that it will transition from hiding in plain sight to becom
Invest for the future: up to US$14tn in investments (2035E) - Global investments in energy efficiency have ranged from US$130bn-300bn/pa in recent years. By 2035E, we are anticipating US$8-14tn in investments or US$550bn+ in annual spending both to meet growth in demand and make the transition to a lower-carbon economy (source:
energy is lost along the value chain, every dollar spent means US$2-4 in lifetime cost savings, and two-thirds of the economic potential to improve energy efficiency remains untapped (source: ABB, IEA). Investing in efficiency will also reduce mid- to long-term exposure to the risk of stranded assets vis-à-vis fossil fuels.
Eight major entry points for investors - We have mapped energy efficiency exposure
investors wishing to play the energy efficiency theme: (1) Autos; (2) Buildings; (3) Industrials; (4) Internet of Things (IoT); (5) ICT (incl. cloud, data centres, semis); (6) Lighting & LEDs; (7) Smart Grid & Energy Storage; and (8) Transport (incl. bus, plane, rail, shipping).
Theme Watch | 12 September 2016 41
Primer Picks performance Chart 38: Energy Efficiency Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 39: Energy Efficiency Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 31: Energy Efficiency Primer Picks beta relative to the market
Raw Beta 1.14
Adjusted Beta 1.09
Alpha 0.00
R^2 (Correlation^2) 0.87
Correlation 0.93
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 40: 1M top/bottom total return performance of Energy Efficiency Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 41: 3M top/bottom total return performance of Energy Efficiency Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-15
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25
30
35
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-10%
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*
Energy Efficiency MSCI AC World TR
Energy Efficiency 21D Realized Vol.
Primer update
+2.93%
+4.56%
+14.04% +14.64%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1M 3M 1Yr SinceInception
Per
form
ance
Metal Leve LG Innotek
CSR Ltd Nabtesco
Salesforce.Com
Teco Elec & Mach
Whirlpool Lowe's Cos Alarm.Com
Sanan Opto
Delphi Automotiv FirstGrp Philips Daikin
Sumitomo Chem Stagecoach
Skyworks Sol Schaeffler
Go-Ahead Kingspan
-15% -5% 5% 15% 25%
Performance
Leaders
Laggards
Go-Ahead Integrated Dev Stagecoach Salesforce.Com
Nabtesco NGK Insulators
Sanan Opto
NXP Semiconductor
Spie Byd Co
Siemens Delta Elect Johnson Matthey Advantech Synopsys Intel
Gea Grp Qingdao Haier
Alarm.Com Arm Holdings
-15% 5% 25% 45% 65%
Performance
Leaders
Laggards
42 Theme Watch | 12 September 2016
Flows In our wider Energy Efficiency thematic stock list, BofAML global equity trading showed net flows of +US$205mn for the August period. Cumulative net flows is now up to -US$3,592mn in the past 24 month period.
Chart 42: Energy efficiency – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 32: Energy Efficiency BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 205
Aug 4 2016 1,644
Jul 4 2016 -713
Jun 4 2016 1,364
May 4 2016 -821
Apr 4 2016 -483
Mar 4 2016 -5
Feb 4 2016 463
Jan 4 2016 -2,014
Dec 4 2015 -538
Nov 4 2015 -2,219
Oct 4 2015 11
Cumulative Net flows -3,592
YTD flows -359
3 month avg. 379
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 33: Energy Efficiency Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Aircraft Engines 16.2x 16.2x
Auto 12.2x 11.7x
Buildings 15.0x 15.6x
Bus 9.8x 9.8x
Industrials & Integrated 17.7x 16.2x
IoT 18.7x 18.3x
IT 18.4x 18.4x
LEDs & Lighting 23.2x 19.0x
Lightweighting 13.0x 14.1x
Rail & Rail Equipment 12.9x 12.5x
Smart Grid & Storage 15.0x 14.6x
Energy Efficiency 15.8x 15.7x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-6,100
-4,100
-2,100
-100
1,900
3,900
5,900
-6,100
-4,100
-2,100
-100
1,900
3,900
5,900
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S$
mn
Net
flo
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US
$ m
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Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 43
Positioning of energy efficiency stocks Exhibit 6: Top Overweight and Underweight stocks in Energy Efficiency
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Delphi Automotiv e PLC 102 42% -1 4% MLS Co., Ltd. Class A 0 0% 0 0%
Cisco Sy stems, Inc. 78 36% -21 -22% BYD Company Limited Class A 0 0% 0 0%
salesforce.com, inc. 112 34% -7 0% Sanan Optoelectronics Co., Ltd. Class A 0 0% 0 0%
Union Pacific Corporation 89 34% -22 -20% Renesas Electronics Corporation 1 0% 1 0%
Eaton Corp. Plc 85 34% -25 -14% Siemens Limited 4 0% 0 0%
Intel Corporation 76 34% -35 -26% Qingdao Haier Co., Ltd. Class A 4 0% -4 -2%
Home Depot, Inc. 86 32% -30 -22% Bombardier Inc. Class B 11 0% -55 -12%
Alphabet Inc. Class C 104 30% -18 -8% LG Chem Ltd. 13 0% -5 -2%
AES Corporation 101 30% -7 -2% Adv antech Co., Ltd. 15 0% -6 -4%
Honey w ell International Inc. 83 30% -23 -14% Delta Electronics, Inc. 17 0% -13 -10%
Linear Technology Corporation 77 30% -2 -4% Airtac International Group 10 2% -7 -4%
Analog Dev ices, Inc. 105 28% -15 -12% HIWIN Technologies Corp. 12 2% -15 -6%
Ingersoll-Rand Plc 82 28% -12 -16% Alfa Lav al AB 12 2% -3 -2%
Ow ens Corning 78 28% -7 -4% Epistar Corporation 17 2% -85 -10%
Cognizant Technology Solutions
Corporation Class A
78 28% -7 0% China Railw ay Group Limited Class H 19 2% -29 -10%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
44 Theme Watch | 12 September 2016
Food Security Feed the World
Thematic Investing: Feed the World: global food security primer 30 March 2015
Food security: 805mn going hungry & GDP hit by 3%. Food security exists when all people have access to sufficient, safe and nutritious food. While global per capita calorie supply has improved to reach 2,868kcal per day - 805mn people are chronically undernourished, and hunger and under-nutrition reduces global GDP by c2-3% (cUS$2tn). The global population is expected to grow from 7.2bn today to 9.6bn by 2050E and 11-12bn by 2100E. The combination of rising incomes and changing diets mean that by 2050, the world needs to produce 70% more food globally.
9.6bn to feed by 2050E: 70% more food production needed. In our view, all potential food security solutions should be considered given that we may have already arrived at peak production for many food categories. Global challenges include: declining yields (1.4% pa today vs. 3.2% in 1960), limited land remaining to be cultivated (1.4bn ha), the protein challenge (+2% meat demand to 2030E), food waste (30% of edible food), peak water (Ag is 70% of water use), and extreme weather and climate change (25% of wheat yields at risk), among others.
$2.3tn food & Ag market: $220bn in annual investments. The food & Ag sector accounts for 3% of global GDP, making the sector worth US$2.3tn. Annual investments in food security & Ag are estimated at US$220bn with 75% coming from the private sector. Every dollar invested in Ag R&D creates US$20 in economic activity, with Ag-related growth 2-4x more effective at reducing poverty than other sectors. That said, annual investments from 2015-30E would need to reach US$480bn to rea
Fast growth areas: protein, inputs, BioAg, tech, EMs, H&W. We believe that positive industry fundamentals support long-term growth beyond the current down-cycle. Short-term, we anticipate fast growth for areas like: inputs, protein plays, BioAg, precision Ag and the Internet of Things (IoT), EMs including Brazil and China, and healthy eating/wellness.
Eight major entry points for investors. We highlight eight entry points for investors wishing to play the food security theme: (1) Agricultural Equipment; (2) Agricultural Inputs; (3) Agribusiness, Protein & Dairy; (4) Farming; (5) Food Safety & Animal Health; (6) Water; (7) Healthy Eating; and (8) Reducing Food Waste.
Theme Watch | 12 September 2016 45
Primer Picks performance Chart 43: Food Security Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 4-Jun-2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 44: Food Security Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is 31-March-2015.
Table 34: Food Security Primer Picks beta relative to the market
Raw Beta 0.98
Adjusted Beta 0.99
Alpha -0.02
R^2 (Correlation^2) 0.83
Correlation 0.91
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 45: 1M top/bottom total return performance of Food Security Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 46: 3M top/bottom total return performance of Food Security Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-60
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Per
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ance
*
**Food Security MSCI AC World TR
Food Security 21D Realized Vol.
+1.43%
+3.82%
+9.82%
+0.35%
0%
2%
4%
6%
8%
10%
12%
1M 3M 1Yr SinceInception
Per
form
ance
Hain Celestial Inner Mong
Beijing Ent American Wtr.
Nampak Ros Agro
Marfrig China Bluechem
Thai Union Grp Almarai
DSM Kubota
Graphic Packaging
DS Smith Agrium JBS
Berry Plastics Bj Ent Water
Charoen Pok GFPT
-30% -20% -10% 0% 10% 20%
Performance
Leaders
Laggards
Hain Celestial Marfrig
SIIC Env. Tractor Supply
Kroger Adecoagro Sa
China Bluechem Wilmar
Sprouts Farmers Alfa Sab
DSM Berry Plastics Bj Ent Water Gea Grp
Metro Pacific Wolseley
Pi Industries Whitewave Food
Lee & Man Paper GFPT
-30% -20% -10% 0% 10% 20% 30%
Performance
Leaders
Laggards
46 Theme Watch | 12 September 2016
Flows In our wider Food Security thematic stock list, BofAML global equity trading showed net inflows of +US$310mn for the August period. This brings cumulative net flows to +US$1,069mn after 17 months of observations.
Chart 47: Food Security – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Apr 5 2015 as starting
point
Table 35: Food Security BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 310
Aug 4 2016 275
Jul 4 2016 -230
Jun 4 2016 -571
May 4 2016 -633
Apr 4 2016 -797
Mar 4 2016 731
Feb 4 2016 54
Jan 4 2016 23
Dec 4 2015 -976
Nov 4 2015 2,001
Oct 4 2015 -304
Cumulative Net flows 1,069
YTD flows -838
3 month avg. 118
Source: BofA Merrill Lynch Global Research Cumulative net flows with Apr 5 2015 as starting point.
Average flows=average net flow between specified period
Table 36: Food Security Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Agribusiness, Protein & Dairy 15.2x 12.9x
Agriculture & Food Equipment 18.1x 15.4x
Agriculture Inputs 16.9x 16.9x
Food Safety & Animal Health 21.9x 24.6x
Healthy Eating 20.2x 17.9x
Reducing Food Waste 16.0x 16.5x
Water 16.2x 16.2x
Food Security 16.6x 16.2x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
05-A
pr-2
015
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05-J
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05-A
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05-J
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05-A
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05-J
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016
05-A
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05-S
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016
Cu
mu
lati
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ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 47
Positioning of food security stocks Exhibit 7: Top Overweight and Underweight stocks in Food Security
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Thermo Fisher Scientific Inc. 109 42% -15 -2% Beijing Dbn Technology Group Co., Ltd. Class
A
0 0% 0 0%
American Water Works Company , Inc. 88 40% -15 -2% Henan Shuanghui Inv estment & Dev elopment
Co., Ltd. Class A
0 0% 0 0%
CF Industries Holdings, Inc. 117 36% 4 2% Roka Bioscience Inc 1 0% 0 0%
Mosaic Company 93 34% -2 0% Ros Agro Plc GDR RegS 1 0% NA NA
Agilent Technologies, Inc. 98 32% -20 -6% Inner Mongolia Yili Industrial Group Co., Ltd.
Class A
3 0% -11 -6%
Archer-Daniels-Midland Company 94 32% -28 -4% PhosAgro PJSC Sponsored GDR RegS 3 0% -30 -12%
Dow Chemical Company 75 32% -29 -8% Charoen Pokphand Foods Public Co. Ltd. 4 0% -3 0%
WestRock Co. 112 30% -15 -2% China Modern Dairy Holdings Ltd. 4 0% -2 -2%
Kroger Co. 97 30% -20 -8% Grupo LALA SAB de CV Class B 4 0% -1 0%
Dov er Corporation 90 30% 0 -4% Thai Union Group Public Company Limited 6 0% -7 -2%
Packaging Corporation of America 83 30% -10 -4% Wilmar International Limited 6 0% -1 0%
Ingersoll-Rand Plc 81 30% -12 -8% Samsung Engineering Co., Ltd. 7 0% -11 -2%
Whirlpool Corporation 78 30% 1 -2% Alfa Lav al AB 11 0% -5 0%
General Electric Company 70 30% -51 -24% Aguas Andinas S.A. Class A 12 2% -4 -2%
United Technologies Corporation 91 28% -21 -12% Almarai Co. Ltd. 79 2% 78 2%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
48 Theme Watch | 12 September 2016
Millennials & Centennials New Kids On The Block
Thematic Investing: New Kids On The Block - Millennials & Centennials Primer 30 August 2016
- --
collectively accounting for 59% of the global population. There are 2bn Millennials worldwide and they have overtaken Boomers to become the largest living generation in US history. But we need to prepare for the rise of the 2.4bn Centennials born at the turn of the century and set to live to over 100Y. They are embracing diversity, sustaand entrepreneurialism like no generation before them and they are economically optimistic to boot. Together Gen Y and Gen Z will account for c60% of the global workforce by 2020E.
Digital natives: disruptive technology is the new normal - Technology is the defining
penetration. Young cohorts check their phones 150x per day, 50bn IMs and 6bn emojis are sent every day, and human attention spans are falling below those of goldfish. Gen Y and Z are mainstreaming disruptive technologies and both corporates and investors need to step up to the challenge, including via smartphones and apps, social media,
things shareable.
Peak youth: worrying 21st century demographic reality - For the first time in history, people aged 65Y+ will outnumber children <5Y before 2020E. Total fertility rates have dropped to near or below replacement rates in all regions except Africa. The downside risk is that both generations may end up poorer than their parents and grandparents, with the demographics having profound long-term effects on the viability of economic growth, housing, pensions, health and long-term care, labour markets, education and public finances.
US$21tn income today: five entry points for investors - We estimate the total income of Millennials and Centennials at US$21tn in 2015 35% of global gross income. The US, China, India, Japan, and Germany are the largest markets. We forecast that this number could grow to US$62tn by 2030E, US$32tn for Millennials and US$30tn for Gen Z. We highlight five entry points for investors wishing to play the theme: 1) Technology, Media & Entertainment; 2) Consumer; 3) Household Formation; 4) Education; and 5) Financials.
BofAML stocks with exposure and Primer Picks - We present a list of 200+ global stocks covered by BofAML that have exposure to Millennials and Gen Z-related solutions. Our Buy-rated stocks with material exposure to the theme are detailed in an accompanying Primer Picks report, as is our full list of stocks.
Theme Watch | 12 September 2016 49
Primer Picks performance Chart 48: Millennials Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 4-Jun-2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 49: Millennials Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is 26-May-2015.
Table 37: Millennials Primer Picks beta relative to the market
Raw Beta 1.04
Adjusted Beta 1.03
Alpha 0.00
R^2 (Correlation^2) 0.90
Correlation 0.95
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 50: 1M top/bottom total return performance of Millennials Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 51: 3M top/bottom total return performance of Millennials Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-60
-50
-40
-30
-20
-10
0
10
20
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
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Per
form
ance
*
***Millennials MSCI AC World TR
Millennials 21D Realized Vol.
+2.67%
+8.83%
+10.93%
-1.00% -2%
0%
2%
4%
6%
8%
10%
12%
1M 3M 1Yr SinceInception
Per
form
ance
Hain Celestial Wayfair Inc G8 Education
Kakao Garmin Loen Ent
Soufun Hld. 21st Cet. Fox.
Whirlpool Lowe's Cos
Yoox Naspers Alibaba Naver Corp
On Deck Treasury Wine Ocado Urban Outfitter
Sina Baozun
-30% -10% 10% 30% 50% 70% 90%
Performance
Laggards
Leaders
Windeln Hain Celestial G8 Education
Kakao 21st Cet. Fox.
Capcom Square Enix
Amc Net. OVS
CJ E&M Ser Educacional
Finish Line Ebay
Nvidia Dick'S Sporting Makemytrip
Linkedin Grubhub
Sina Baozun
-35% 15% 65% 115%
Performance
Laggards
Leaders
50 Theme Watch | 12 September 2016
Flows In our wider Millennials thematic stock list, BofAML global equity trading showed net flows of -US$198mn for the August period. Total cumulative net flows moved to flat at -US$302mn after 15 months of observations.
Chart 52: Millennials – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with June 5 2015 as
starting point
Table 38: Millennials BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -198
Aug 4 2016 762
Jul 4 2016 809
Jun 4 2016 7,875
May 4 2016 -1,401
Apr 4 2016 -1,083
Mar 4 2016 407
Feb 4 2016 1,865
Jan 4 2016 -1,424
Dec 4 2015 -1,380
Nov 4 2015 -1,792
Oct 4 2015 975
Cumulative Net flows -302
YTD flows 7,614
3 month avg. 458
Source: BofA Merrill Lynch Global Research Cumulative net flows with Jun 5 2015 as starting point.
Average flows=average net flow between specified period
Table 39: Millennials Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Tech 19.5x 20.5x
Education 13.4x 13.3x
Consumer 17.0x 17.6x
Drinking, Dining & Health & Wellness 19.0x 21.3x
Household 16.2x 18.5x
Financials 16.1x 17.6x
Millennials 17.3x 19.2x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
05-J
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Cu
mu
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s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 51
Positioning of millennials stocks Exhibit 8: Top Overweight and Underweight stocks in Millennials
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings % top holders overweight Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Ross Stores, Inc. 106 40% NA NA United Electronics Co. 0 0% 0 0%
Comcast Corporation
Class A
90 40% -17 -12% Leju Holdings Ltd.
Sponsored ADR
0 0% -1 0%
Cisco Sy stems, Inc. 76 40% -21 -12% Feiy u Technology
International Company Ltd.
0 0% 0 0%
NVIDIA Corporation 116 36% -7 2% Heilan Home Co. Ltd.
Class A
1 0% 0 0%
Electronic Arts Inc. 96 36% 1 0% Jarir Marketing Co. 1 0% -1 0%
Chipotle Mex ican Grill,
Inc.
107 34% -10 -4% Baozun Inc Sponsored
ADR Class A
1 0% 1 0%
Adobe Sy stems
Incorporated
106 34% -14 -6% Changy ou.com Ltd.
Sponsored ADR Class A
3 0% -5 -4%
Whole Foods Market,
Inc.
91 34% -13 -6% Loen Entertainment Inc. 4 0% 0 0%
Target Corporation 90 34% NA NA Kakao Corp. 7 0% -4 -2%
TJX Companies, Inc. 83 34% -8 -6% LPP S.A. 9 0% -6 -4%
NIKE, Inc. Class B 82 34% -27 -12% ANTA Sports Products Ltd. 9 0% -2 -2%
Abbott Laboratories 72 34% NA NA Cielo 11 0% -4 -2%
Av alonBay
Communities, Inc.
108 32% NA NA Giant Manufacturing Co.,
Ltd.
12 0% -8 -6%
Essex Property Trust,
Inc.
103 32% NA NA Belle International Holdings
Limited
13 0% -12 -10%
Alphabet Inc. Class C 102 32% -20 -14% Eclat Tex tile Co., Ltd. 19 0% -27 -14%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
52 Theme Watch | 12 September 2016
Obesity and Health & Wellness - Globesity
Thematic Investing: Globesity and Health & Wellness primer 03 December 2014
Pressing global health challenge - We believe that the obesity epidemic may be the most pressing health challenge facing the world today. The number of overweight or obese people has tripled since 1980 with not a single country making progress in reducing these rates. Today, almost one-tare now overweight, including 671mn who are obese (source: The Lancet 2014). By
#5 cause of death & US$2tn in annual costs Obesity is the fifth-leading global risk for death, accounting for 3.4mn adult deaths a year. Obesity can raise the risk of cardiovascular disease, diabetes, osteoarthritis, and cancer, among many other health-threatening conditions, Total health care costs are more than 40% higher for obese patients than normal-weight patients. The global economic impacts of obesity are estimated at US$2.0tn or 2.8% of global GDP, on par with the impacts of smoking or armed violence, war and terrorism (source: McKinsey). The future costs could be overwhelming, especially given high levels of global childhood obesity and growing obesity in EMs.
US$932bn food & beverage health & wellness market Over the past two years, 10+ countries have passed fat/sugar taxes with the two being increasingly heralded as the
and healthy foods in recent years. The global health and wellness (H&W) food market is estimated at US$932bn in 2014. It is both high growth and high margin and is set to reach US$1.1tn by 2019 (source: Euromonitor), while fresh produce is expected to reach US$736bn by 2015 (source: Companiesandmarkets.com). We anticipate a shift in business model focus from product volumes alone to the quality of food & beverage portfolios from an H&W perspective.
US$365bn global athletic market along with the US$78bn gym, fitness and health club market, we view both as long-term beneficiaries of the fight against Globesity. These factors are likely to result in growing numbers engaging in sports and demand for affordable equipment and apparel to engage in physical activity or sports. The industry continues to see strong growth in North America and EMs. Trends are also favourable, including: rise of the shift to more active lifestyles.
Four major entry points for investors - We have mapped the global fight against obesity across a number of sector value chains to highlight the diverse range of entry points for investors wishing to play the global fight against obesity theme: 1) Pharmaceuticals, Health Care & Medtech; 2) Food, Food Retail, Quick Casual & Beverages; 3) Weight Loss, Diet, Nutrition & VMS; and 4) Sports Apparel & Equipment.
Theme Watch | 12 September 2016 53
Primer Picks performance Chart 53: Obesity Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 54: Obesity Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 40: Obesity Primer Picks beta relative to the market
Raw Beta 0.84
Adjusted Beta 0.89
Alpha 0.01
R^2 (Correlation^2) 0.68
Correlation 0.83
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 55: 1M top/bottom total return performance of Obesity Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 56: 3M top/bottom total return performance of Obesity Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Primer update 03-Dec
-10
-5
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30
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15%
20%
25%
30%
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21D
Rea
lized
Vo
l.
Per
form
ance
*
Obesity MSCI AC World TR Obesity 21D Realized Vol.
-1.38%
+5.98%
-0.88%
+12.72%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1M 3M 1Yr SinceInception
Per
form
ance
Hain Celestial Novo Nordisk
Davita Inc Garmin Sun Pharma
American Renal Eli Lilly
Sanofi Luye Pharma
Fitbit Inc
Kroger Medtronic Stryker
Givaudan Eisai Co
DSM Microport Scient
Finish Line Foot Locker
Dick'S Sporting
-30% -20% -10% 0% 10%
Performance
Leaders
Laggards
Esperion Hain Celestial
American Renal Novo Nordisk
Davita Kroger
Sprouts Farmers Roche
Sanofi Fresenius Se
Zimmer Givaudan
DSM Garmin
Foot Locker Whitewave Food
Astrazeneca Microport Scient
Finish Line
Dick'S Sporting
-40% -20% 0% 20% 40%
Performance
Leaders
Laggards
54 Theme Watch | 12 September 2016
Flows In our wider Obesity thematic stock list, BofAML global equity trading showed outflows of -US$638mn for the July period. This brings cumulative net flows down to -US$8,861mn in the past 23 month period.
Chart 57: Obesity – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 41: Obesity BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -1,481
Aug 4 2016 -638
Jul 4 2016 -482
Jun 4 2016 -943
May 4 2016 -2,014
Apr 4 2016 -1,293
Mar 4 2016 -1,933
Feb 4 2016 2,220
Jan 4 2016 512
Dec 4 2015 212
Nov 4 2015 -2,238
Oct 4 2015 -798
Cumulative Net flows -10,342
YTD flows -6,052
3 month avg. -867
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 42: Obesity Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Cmcl weight mgmt, diet & nutrition 14.4x 17.9x
Food 20.8x 24.6x
Food Ingredients 14.9x NA
Food Retail 18.5x 16.9x
Pharmaceuticals & Healthcare 17.3x 18.1x
Sports apparel & equipment 17.4x 15.9x
Obesity 17.9x 18.0x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-10,500
-8,500
-6,500
-4,500
-2,500
-500
1,500
-10,500
-8,500
-6,500
-4,500
-2,500
-500
1,500
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Cu
mu
lati
ve fl
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s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Theme Watch | 12 September 2016 55
Positioning of obesity and health & wellness stocks Exhibit 9: Top Overweight and Underweight stocks in Obesity
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Medtronic Plc 102 36% -20 -4% Resmed Inc CHESS Depositary
Interests on a ratio of 10 CDIs per
ord.sh
0 0% NA NA
Merck & Co., Inc. 89 36% -26 -4% MicroPort Scientific Corp. 4 0% -5 0%
General Mills, Inc. 83 36% -26 2% China Dongx iang (Group) Co., Ltd. 7 0% -3 -2%
Abbott Laboratories 79 34% -21 -4% Feng Tay Enterprise Co. Ltd. 8 0% NA NA
GNC Holdings, Inc. Class A 102 30% 13 4% Luy e Pharma Group Ltd. 8 0% 0 0%
Foot Locker, Inc. 74 30% 6 4% Sun Pharmaceutical Industries Limited 12 0% -5 -4%
Panera Bread Company Class A 105 28% 4 4% Coloplast A/S Class B 11 2% -12 -4%
Chipotle Mex ican Grill, Inc. 93 28% -10 -2% ANTA Sports Products Ltd. 11 2% -2 0%
PepsiCo, Inc. 71 28% -19 -6% Shenzhou International Group
Holdings Ltd.
12 2% -30 -4%
Archer-Daniels-Midland Company 91 26% -25 -2% Mitsubishi Tanabe Pharma
Corporation
15 2% 4 2%
ConAgra Foods, Inc. 79 26% -17 2% DAVIDsTEA, Inc. 15 2% -1 0%
HeartWare International, Inc. 68 26% -21 8% Belle International Holdings Limited 15 2% -15 -6%
AstraZeneca PLC 59 26% -28 -4% Orex igen Therapeutics, Inc. 17 2% -43 -12%
Dollar General Corporation 83 24% 0 -6% Giant Manufacturing Co., Ltd. 18 2% -10 -2%
Allergan plc 81 24% NA NA American Renal Associates Holdings,
Inc.
23 4% NA NA
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
56 Theme Watch | 12 September 2016
Robotics & AI Robot Revolution
Thematic Investing: Robot Revolution Global Robot & AI Primer 03 November 2015
Next industrial revolution: rise of the intelligent machines Robots and AI are becoming an integral part of our daily lives as providers of labour, mobility, safety, convenience, and entertainment. 2014 was the third consecutive year for record sales of robots worldwide (229,000, +29% YoY). The IoT, big data, cloud computing and 3D printing have meant exponential advancements in the space, while global structural drivers, such as demographics, energy efficiency, productivity, urbanisation, and wage inflation, suggest long-term sustained growth. Robots are likely to be performing 45% of manufacturing tasks by 2025E (vs. 10% today).
US$153bn mkt (2020E): US$14-33tn in disruptive impact We estimate the robots and AI solutions market will grow to US$153bn by 2020E, comprising US$83bn for robot and robotics, and US$70bn for AI-based analytics. We anticipate US$14-33tn in annual creative disruption impact in 10Y, including US$8-9tn of cost reductions across manufacturing and healthcare, US$9tn cuts in employment costs via AI-enabled automation of knowledge work and US$1.9tn in efficiency gains via autonomous cars and drones. Adoption of robots and AI could boost productivity by 30% in many industries, while cutting manufacturing labour costs by 18-33%.
Paradigm shifts bring challenges: inequality, labour, safety We are facing a paradigm shift which will change the way we live and work. We anticipate the greatest potential challenges arising from our ATW theme of People, notably the possible displacement of human labour (with 47% of US jobs having the potential to be automated) and growth in inequality (with a 10% supply and demand gap between skilled and non-skilled workers by 2020E). We also anticipate issues around cybersecurity (50bn connected devices by 2020E), privacy (#1 concern in human-tech interactions), and longer-
Eight entry points for investors: fast growth areas We highlight eight entry points for investors wishing to play the robots and AI theme: 1) AI; 2) Aerospace & Defence (incl. drones); 3) Autos & Transport; 4) Financials; 5) Healthcare; 6) Industrials; 7) Services (domestic); and 8) Ag & Mining. We anticipate fast growth for the likes of agribots, AI, automation, care-bots, cobots, drones (commercial and military), fintech, industrial robots, medical robots & computer-assisted surgery, self-driving cars, service robots, software and telehealth.
Theme Watch | 12 September 2016 57
Flows In our wider Robotics thematic stock list, BofAML global equity trading showed net flows of +US$986mn for the July period. Total cumulative net flows moved to +US$4,168mn after 9 months of observations.
Chart 58: Robotics BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Nov 5 2015 as starting point
Table 43: Robotics BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -529
Aug 4 2016 986
Jul 4 2016 128
Jun 4 2016 5,885
May 4 2016 -974
Apr 4 2016 -89
Mar 4 2016 -307
Feb 4 2016 -431
Jan 4 2016 -34
Dec 4 2015 -996
Cumulative Net flows 3,638
YTD flows 4,635
3 month avg. 195
Source: BofA Merrill Lynch Global Research Cumulative net flows with Nov 5 2015 as starting point.
Average flows=average net flow between specified period
Table 44: Robotics Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Agriculture & Mining 19.7x NA
Services (Domestic) 10.9x NA
Artificial Intelligence 13.4x 11.0x
Software Automation 19.2x 51.7x
Auto 12.0x 11.7x
Aerospace & Defense 15.4x 17.5x
Financials 20.1x 29.8x
Healthcare 18.2x 21.5x
Industrial Automation 16.4x 16.2x
Semiconductors 18.5x 18.4x
Robotics 16.1x 16.5x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
05-N
ov-2
015
05-D
ec-2
015
05-J
an-2
016
05-F
eb-2
016
05-M
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016
05-A
pr-2
016
05-M
ay-2
016
05-J
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05-J
ul-2
016
05-A
ug-2
016
05-S
ep-2
016
Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
58 Theme Watch | 12 September 2016
Positioning of robotics stocks Exhibit 10: Top Overweight and Underweight stocks in Robotics
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Cisco Sy stems, Inc. 78 44% -20 -8% BYD Company Limited Class A 0 0% 0 0%
QUALCOMM Incorporated 78 40% -13 -6% Hangzhou Hikv ision Digital
Technology Co., Ltd Class A
1 0% NA NA
Delphi Automotiv e PLC 99 38% -1 -2% Autoliv Inc Shs Sw edish DR 1 0% 1 0%
Intel Corporation 76 38% -35 -22% Wipro Limited Sponsored ADR 2 0% -62 -16%
Medtronic Plc 100 36% -15 -6% ABB India Limited 2 0% 0 0%
Northrop Grumman Corporation 96 36% -16 -4% Aselsan Elektronik Sanay i v e Ticaret
A.S.
4 0% -2 0%
Eaton Corp. Plc 87 36% -25 -8% Adv antech Co., Ltd. 15 0% -7 -2%
NVIDIA Corporation 118 34% -6 -2% Delta Electronics, Inc. 18 0% -13 -10%
Ray theon Company 76 34% -22 -4% Shenzhen Inov ance Technology
Co., Ltd Class A
3 2% -2 0%
Tex as Instruments Incorporated 117 32% -12 -4% Renesas Electronics Corporation 6 2% 1 0%
Analog Dev ices, Inc. 108 32% -14 -6% Daew oo Engineering & Construction
Co., Ltd
6 2% -1 0%
Dov er Corporation 87 32% -9 -4% Airtac International Group 9 2% -8 -4%
Parker-Hannifin Corporation 74 32% -15 -6% HCL Technologies Limited 11 2% -3 0%
Lockheed Martin Corporation 114 30% -25 -8% HIWIN Technologies Corp. 12 2% -15 -6%
Agilent Technologies, Inc. 92 30% -15 -8% Infosy s Limited 20 2% -14 -6%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
Theme Watch | 12 September 2016 59
Safety & Security - Safer World
Been Hacked! Global Cybersecurity Primer 03 September 2015
every year 2.3mn people are killed at work (Source: ILO), 1.3mn lose their lives in road accidents, and 15,000+ die in terrorist attacks (Source: NCTC). Globalisation is driving the need for safety and posing new challenges from EM growth to outsourcing, the food supply chain, a degrading environment, and new diseases. We believe some corporates may push the boundaries of safety in their efforts to exploit new resources.
Cybersecurity: one of the top global risks today: 90mn+ attacks per year - There are 80-90mn+ cybersecurity events per year, with close to 400 new threats every minute, and up to 70% of attacks going undetected. All companies are being hit: finance & insurance is the most targeted sector, followed by ICT, manufacturing and retail. Cybersecurity has become a homeland security threat with rapid growth in attacks against critical infrastructure and manufacturing. Americans worry about falling victim to cyberattacks more than any other type of crime with 1bn data records compromised in the US alone in 2014. We believe cybersecurity poses a key threat to the three pillars of creative disruption: the Internet of Things (IoT), the Sharing Economy and Online Services.
- The average cost of cybercrimes for US companies reached a record US$12.7mn in 2014, with cybercrime costing the global economy up to US$575bn annually. Cyberattacks are the #1 source of economic assaults against governments, and the #1 source of IP theft for corporates. The rise in disruptive technologies including IoT with 50bn+ devices connected to the internet by 2020 means that we are facing a potential worst-
created by the internet, meaning that as much as US$3tn of global economic value could be at risk by 2020E. Investors need to play safe - Public opinion has become more sensitive to issues of quality, security, health & safety, environmental protection and social responsibility, which has led to the proliferation, strengthening and convergence of regulation and the development of non-regulatory standards. As a result, corporates are increasingly being forced to adapt to new best practices on safety & security. We believe that investors need to focus on this shift and look for long-term solutions to the ever-growing raft of threats against people, governments, infrastructure and society as a whole.
Eight entry points for investors, US$1.5tn+ market (2020e) - We have mapped efforts to promote safety & security across a number of global sector value chains to highlight the diverse range of entry points
Life Sciences; 6) Oil & Gas; 7) Testing, Inspection & Certification (TIC); and 8) Workplace. We believe these entry points will represent a combined US$1.5tn+ market by 2020.
60 Theme Watch | 12 September 2016
Primer Picks performance Chart 59: Safety Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 60: Safety Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 45: Safety Primer Picks beta relative to the market
Raw Beta 1.13
Adjusted Beta 1.09
Alpha 0.09
R^2 (Correlation^2) 0.79
Correlation 0.89
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 61: 1M top/bottom total return performance of Safety Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 62: 3M top/bottom total return performance of Safety Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-10
-5
0
5
10
15
20
25
30
35
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
04-D
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04-A
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21D
Rea
lized
Vo
l.
Per
form
ance
*
Safety MSCI AC World TR Safety 21D Realized Vol.
Primer update 12-Feb
Primer update 3-Sep
+3.65%
+8.76%
+14.76%
+30.26%
0%
5%
10%
15%
20%
25%
30%
35%
1M 3M 1Yr SinceInception
Per
form
ance
Garmin Assa Abloy Hangzhou Hik
Thermo Fisher Secureworks
Cyberark Softwar Keppel
Trend Micro Splunk
Raytheon
Mando Metaldyne Perfor
Wendel
Barracuda Networ
Fortinet Nvidia
Palo Alto Delphi Automotiv
G4S A10 Netwrk
-15% -5% 5% 15% 25%
Performance
Leaders
Laggards
Check Point Soft Trend Micro
NXP Semiconductor
Keppel Thermo Fisher
Juniper Net. Metaldyne Perfor Honeywell Continental Splunk
Hangzhou Hik Garmin Cyberark Softwar Greenbrier Mando
Experian G4S
Nvidia Barracuda Networ
A10 Netwrk
-50% -30% -10% 10% 30% 50%
Performance
Leaders
Laggards
Theme Watch | 12 September 2016 61
Flows In our wider Safety & Security thematic stock list, BofAML global equity trading showed net inflows of -US$205mn for the August period. Cumulative net flows for Safety also remains on top at +US$10,485mn in the past 24 month period.
Chart 63: Safety – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 46: Safety BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -205
Aug 4 2016 -351
Jul 4 2016 -662
Jun 4 2016 1,537
May 4 2016 111
Apr 4 2016 311
Mar 4 2016 997
Feb 4 2016 1,333
Jan 4 2016 1,801
Dec 4 2015 613
Nov 4 2015 1,175
Oct 4 2015 -341
Cumulative Net flows 10,485
YTD flows 4,873
3 month avg. -406
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 47: Safety Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Auto 12.0x 11.7x
Commercial & Residential 15.4x 15.7x
Cybersecurity 15.9x 21.8x
Homeland 15.8x 17.5x
Life Sciences 20.8x 19.0x
Oil & Gas 14.7x 9.4x
TIC 19.7x 19.1x
Workplace 18.7x 20.4x
Food Safety NA NA
Safety 15.8x 16.6x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-3,000
-1,500
0
1,500
3,000
4,500
6,000
7,500
9,000
10,500
12,000
-2,000
-1,000
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1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
05-S
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05-N
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05-J
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05-M
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05-M
ay-2
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05-J
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05-J
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05-M
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05-J
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05-S
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Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
62 Theme Watch | 12 September 2016
Positioning of safety & security stocks Exhibit 11: Top Overweight and Underweight stocks in Safety
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Delphi Automotiv e PLC 99 40% 1 4% Shenzhen O-Film Tech Co., Ltd.
Class A
0 0% 0 0%
Ray theon Company 85 38% -23 -8% Roka Bioscience Inc 1 0% 0 0%
Intel Corporation 77 38% -33 -24% Autoliv Inc Shs Sw edish DR 1 0% -2 -2%
Northrop Grumman Corporation 97 36% -12 -6% Aselsan Elektronik Sanay i v e
Ticaret A.S.
4 0% -2 -2%
Honey w ell International Inc. 86 34% -23 -8% Sembcorp Marine Ltd 5 0% -1 0%
Cisco Sy stems, Inc. 79 34% -19 -28% Metaldy ne Performance Group,
Inc.
8 0% 1 0%
Thermo Fisher Scientific Inc. 106 32% -10 -4% Bureau Veritas SA 13 0% -10 -10%
Lockheed Martin Corporation 113 28% -23 -12% Mando Corp 9 2% NA NA
NVIDIA Corporation 109 28% 0 -2% Valeo SA 19 2% NA NA
United Technologies Corporation 93 28% -19 -8% Atos SE 19 2% -23 -10%
Spectra Energy Corp 85 28% -31 -10% A10 Netw orks, Inc. 31 2% -8 -4%
3M Company 73 28% -31 -14% FireEy e, Inc. 36 2% -23 -12%
Greenbrier Companies, Inc. 106 26% 1 2% SecureWorks Corp. Class A 37 2% NA NA
L-3 Communications Holdings,
Inc.
95 26% -14 -4% BlackBerry Limited 40 2% -22 -6%
Palo Alto Netw orks, Inc. 77 26% -9 2% Hangzhou Hikv ision Digital
Technology Co., Ltd Class A
109 2% NA NA
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
Theme Watch | 12 September 2016 63
Waste - No Time to Waste
Thematic Investing: No time to waste - global waste primer 05 April 2013
Global waste crisis - Poor waste management is a global reality, with only 25% of the 11bn tonnes collected annually recycled or recovered and 3.5 bn people lacking access to basic waste management services. The situation will get worse with waste volumes growing faster than urbanisation rates and GDP growth and waste volumes set to double to 2025 (vs. 2005), and double again from 2025-50.
US$1tn+ market today - Waste management is a US$1tn market today that includes municipal solid waste (MSW), industrial waste, waste-to-energy (WtE), and sustainable packaging, among other areas. Growth drivers are increasing volumes, changing variety and complexity of waste streams, urbanisation, income growth (GDP-waste link), reducing environmental and social risks and costs, resource scarcity, commodity prices, growing private sector involvement, stakeholder pressure, and tightening regulation.
- We are seeing a shift away from waste as a mandatory public service to waste management as a sustainable business opportunity. We see the fastest growth in the next decade coming from diversion, recycling, recovery of valuable secondary raw materials, waste-to-energy, e-waste, and sustainable packaging as well as from EMs. We see considerable low hanging fruit potential given that 70%+ of global
recycling by a factor of 3.5x and doubling industrial waste recycling.
Multiple entry points for US$2tn market (2020E) - We believe that the global dynamics of waste management mean that the sector offers numerous growth opportunities for those with exposure to the value chain. By 2020, we estimate that the waste industry could be worth up to US$2tn, with Europe facing the toughest strategic challenges, and Asia and South America seeing the fastest growth. We see opportunities across waste management, industrial treatment, WtE, wastewater & sewage, E&C, recycling, and sustainable packaging among other areas.
64 Theme Watch | 12 September 2016
Primer Picks performance Chart 64: Waste Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 65: Waste Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 48: Waste Primer Picks beta relative to the market
Raw Beta 0.96
Adjusted Beta 0.98
Alpha -0.01
R^2 (Correlation^2) 0.74
Correlation 0.86
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 66: 1M top/bottom total return performance of Waste Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 67: 3M top/bottom total return performance of Waste Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
-15
-9
-3
3
9
15
21
27
33
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
04-D
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21D
Rea
lized
Vo
l.
Per
form
ance
*
Waste MSCI AC World TR Waste 21D Realized Vol.
+3.14%
+0.78% +0.18%
+10.56%
0%
2%
4%
6%
8%
10%
12%
1M 3M 1Yr SinceInception
Per
form
ance
Nucor Steel Dynamics
Lee & Man Paper Severn Trent Rentokil Republic Svcs
Ecolab SIIC Env. Veolia Env Conch Venture
Aguas Metro. Sealed Air Amcor
ACS
Graphic Packaging
Klabin DS Smith Mitie Group
Suzano Pa Fibria Celulose
-10% -5% 0% 5% 10% 15% 20% 25%
Performance
Leaders
Laggards
Fibria Celulose Suzano Pa
SIIC Env. ACS
Ferrovial Suez
Steel Dynamics Conch Venture
Amcor Nucor
Ecolab Sealed Air Republic Svcs
Graphic Packaging
Severn Trent DS Smith Aguas Andinas
Aguas Metro. Rentokil
Lee & Man Paper
-30% -20% -10% 0% 10% 20%
Performance
Leaders
Laggards
Theme Watch | 12 September 2016 65
Flows In our wider Waste thematic stock list, BofAML global equity trading showed net flows of -US$256mn for the August period. This brings cumulative net flows to +US$870mn in the past 24 month period.
Chart 68: Waste – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as starting point
Table 49: Waste BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -256
Aug 4 2016 -151
Jul 4 2016 -317
Jun 4 2016 427
May 4 2016 -399
Apr 4 2016 -316
Mar 4 2016 345
Feb 4 2016 831
Jan 4 2016 150
Dec 4 2015 -350
Nov 4 2015 1,504
Oct 4 2015 -38
Cumulative Net flows 870
YTD flows 313
3 month avg. -241
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 50: Waste Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Engineering & Construction 10.5x NA
Life Sciences 16.6x NA
Management 19.0x 20.3x
Management (Transport) 14.6x NA
Oil & Gas 24.6x NA
Recycling 13.1x 13.2x
Sustainable Packaging 13.2x 16.0x
TIC 21.7x NA
Treatment 15.8x 11.4x
Waste-to-Energy 17.7x 10.3x
Wastewater & Sewage 16.2x 17.0x
Waste 16.1x 16.2x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-1,600
-1,100
-600
-100
400
900
1,400
1,900
-1,600
-1,100
-600
-100
400
900
1,400
1,900
05-S
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Cu
mu
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ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
66 Theme Watch | 12 September 2016
Positioning of waste stocks Exhibit 12: Top Overweight and Underweight stocks in Waste
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
Thermo Fisher Scientific Inc. 103 30% -8 -4% SIIC Env ironment Holdings Ltd. 4 0% 0 0%
WestRock Co. 106 28% -12 0% China Conch Venture Holdings Ltd. 9 0% -16 -2%
E. I. du Pont de Nemours and
Company
92 28% -28 -6% Fibria Celulose S.A. 10 0% -5 -2%
Dow Chemical Company 73 28% -23 -16% Alfa Lav al AB 11 0% -4 0%
Nucor Corporation 99 24% -14 -10% ICL-Israel Chemicals Ltd. 6 2% -3 0%
Commercial Metals Company 93 24% 2 2% Manila Water Co. Inc. 7 2% -2 0%
Ecolab Inc. 83 22% -6 0% Doosan Heav y Industries &
Construction Co., Ltd.
10 2% -4 -2%
Packaging Corporation of
America
79 22% -3 -4% Aguas Andinas S.A. Class A 12 2% -3 0%
Graphic Packaging Holding
Company
78 22% 7 2% Lee & Man Paper Manufacturing
Limited
13 2% -1 0%
Klabin SA Ctf de Deposito de
Acoes Cons of 1 Sh + 4 Pfd
Shs
131 20% -5 4% Beijing Enterprises Water Group
Limited
13 2% -3 -2%
AECOM 93 18% -14 -2% China Ev erbright International Limited 15 2% -4 -2%
Waste Management, Inc. 85 18% NA NA Keppel Corporation Limited 16 2% -13 -2%
CSX Corporation 77 18% -27 -18% Activ idades de Construccion y
Serv icios SA
17 2% -10 -6%
General Electric Company 67 18% -45 -32% Mondi Limited 20 2% -3 0%
Sealed Air Corporation 65 16% -12 -6% Ferrov ial, S.A. 54 2% -41 -4%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
Theme Watch | 12 September 2016 67
Water - Blue revolution
July 2015
California drought: a sign of things to come globally. We view the unprecedented drought in California as a harbinger of the coming global water crisis. California is in its 4th straight year of drought, with the last 3Y being the driest in recorded history. Groundwater levels have plunged up to 15-30m (50-100ft) and the Sierra Nevada snowpack is at 5% of historical levels. The drought is expected to cost California agriculture alone US$2.7bn in economic costs in 2015, with disruption extending to mandatory water restrictions, wildlife, land subsidence, seawater intrusion, wildfires, and human health. In a business as usual scenario, California water demand will outstrip supply by 50bn m3 (1tn gallons) by 2060E, with an 80% chance of multi- -
Globally: water is the #1 risk facing the planet. Water is recognised as the #1 global risk for 2015 in terms of impacts to economies, environments and people. Globally, 750mn people lack access to safe drinking water source and 2.4bn have no access to proper sanitation facilities. Close to 50 countries are officially classified as being water
Global water demand is set to overshoot supply by 40% by 2030E, and by 2050E, 3.9bn on cost
the global economy US$260bn per year or c1.5% of global GDP. By 2050E, 45% of projected GDP is at risk, with as many as 50 countries at risk of conflict over water.
Four major entry points, US$1tn market (2020E). We have mapped efforts to tackle the global dynamics of water supply and demand to highlight four entry points for investors wishing to invest in the global or California water theme: 1) Water Treatment; 2) Water Management; 3) Water Infrastructure & Supply; and 4) Water-friendly Energy. We believe these entry points will represent a US$1tn+ market by 2020E
High growth: treatment, efficiency, tech, solar, EMs, desal. We see the fastest 3-5Y growth coming from the low hanging fruits of water treatment and recycling, more efficient water usage (smart meters, high efficiency irrigation, surface and groundwater storage), technology (precision Ag, IoT, drought resistant seeds and crops), EMs (China), water-friendly energy (solar and wind), and desalination.
BofAML Global & California stock lists & Primer Picks. We highlight 50+ global stocks covered by BofAML that have material exposure to California water solutions. We have also updated our Global Water stock list to include over 100+ covered stocks with exposure to the water theme. Our 40+ Global Water primer picks (Buy-rated stocks with material exposure) are detailed in an accompanying Primer Picks report.
68 Theme Watch | 12 September 2016
Primer Picks performance Chart 69: Water Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. See Appendix on Page 65 for list of Primer Picks
rebalances. Past performance should not and cannot be viewed as an indicator of future
performance. A complete performance record is available upon request. 21D Realized Vol is the
rolling 21-day (business day) realized volatility of the Primer Picks performance. Past performance
should not and cannot be viewed as an indicator of future performance. *Black lines indicate
quarterly rebalances on 14-Feb-2014, 13-May-2014, 4-Sep-2014, 4-Dec-2014, 4-Mar-2015, 4-Jun-
2015, 4-Sep-2015, 4-Dec-2015, 4-Mar-2016, 4-Jun-2016
Chart 70: Water Primer Picks performance (through September 4 2016)
Source: BofA Merrill Lynch Global Research. Inception is Dec 6 2013.
Table 51: Water Primer Picks beta relative to the market
Raw Beta 1.12
Adjusted Beta 1.08
Alpha -0.12
R^2 (Correlation^2) 0.60
Correlation 0.78
Source: BofA Merrill Lynch Global Research. Relative index=MSCI AC World TR (GDUEACWF Index). Weekly observations since inception,
through September 4 2016
Leaders and laggards Chart 71: 1M top/bottom total return performance of Water Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Chart 72: 3M top/bottom total return performance of Water Primer Picks
Source: BofA Merrill Lynch Global Research; Bloomberg
Primer update 04-Apr
Primer update 10-Jul
-90
-70
-50
-30
-10
10
30
50
-30%
-20%
-10%
0%
10%
20%
04-D
ec-2
013
04-F
eb-2
014
04-A
pr-2
014
04-J
un-2
014
04-A
ug-2
014
04-O
ct-2
014
04-D
ec-2
014
04-F
eb-2
015
04-A
pr-2
015
04-J
un-2
015
04-A
ug-2
015
04-O
ct-2
015
04-D
ec-2
015
04-F
eb-2
016
04-A
pr-2
016
04-J
un-2
016
04-A
ug-2
016
21D
Rea
lized
Vo
l.
Per
form
ance
*
Water MSCI AC World TR Water 21D Realized Vol.
+2.69%
+3.97%
+8.05%
-5.25% -6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1M 3M 1Yr SinceInception
Per
form
ance
Sunpower NRG Energy
Inox Wind Beijing Ent
American Wtr. China Longyuan
Metro Pacific Nextera Energy
Guangdong Invest
Byd Co
Xinyi Solar CPFL Energia Wolseley
Kubota Gamesa
Bj Ent Water Vestas
Sunrun Senvion
China Singyes
-30% -20% -10% 0% 10% 20% 30% 40%
Performance
Leaders
Laggards
Sunpower NRG Energy
SIIC Env. Inox Wind
Suez Byd Co Gcl-Poly
American Wtr. Kubota
Veolia Env
Severn Trent Aguas Andinas
Aguas Metro. Bj Ent Water
Metro Pacific Vestas Wolseley Gamesa
CPFL Energia
China Singyes
-40% -20% 0% 20% 40% 60%
Performance
Leaders
Laggards
Theme Watch | 12 September 2016 69
Flows In our wider water thematic stock list, BofAML global equity trading showed net flows of US$289mn for the August period. This brings cumulative net flows to +US$3,164mn in the past 24 month period.
Chart 73: Water – BofAML client monthly net flows and cumulative flows
Source: BofA Merrill Lynch Global Research, cumulative net flows with Sept 5 2014 as
starting point
Table 52: Water BofAML client net trading flows (US$ mn)
Last month ending Sep 4 2016 -289
Aug 4 2016 64
Jul 4 2016 48
Jun 4 2016 165
May 4 2016 -180
Apr 4 2016 -224
Mar 4 2016 859
Feb 4 2016 1,212
Jan 4 2016 166
Dec 4 2015 -108
Nov 4 2015 1,744
Oct 4 2015 14
Cumulative Net flows 3,164
YTD flows 1,820
3 month avg. -59
Source: BofA Merrill Lynch Global Research Cumulative net flows with Sep 5 2014 as starting point.
Average flows=average net flow between specified period
Table 53: Water Theme and Sub-theme P/E valuation
Forward PE
Sub-Theme Universe Primer Picks
Engineering & Construction 11.0x 7.8x
Management 18.1x 15.7x
Pipes, pumps & valves 16.5x 12.2x
Treatment 16.6x 16.9x
Utilities 16.6x 17.0x
Water-Friendly Energy 15.8x 15.1x
Water 16.1x 15.8x
MSCI AC World 17.0x
Source: BofA Merrill Lynch Global Research. Forward P/E is based on consensus analyst earnings estimates for the next four quarters as
compiled by Bloomberg, NA - Primer Picks includes stocks only with Buy and High/Medium exposure. Some sub-themes do not have Primer
Picks companies within them.
-2,000
-1,000
0
1,000
2,000
3,000
4,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
05-S
ep-2
014
05-N
ov-2
014
05-J
an-2
015
05-M
ar-2
015
05-M
ay-2
015
05-J
ul-2
015
05-S
ep-2
015
05-N
ov-2
015
05-J
an-2
016
05-M
ar-2
016
05-M
ay-2
016
05-J
ul-2
016
05-S
ep-2
016
Cu
mu
lati
ve fl
ow
s U
S$
mn
Net
flo
ws
US
$ m
n
Net inflows (US$ bn)
Net outflows (US$ bn)
Cumulative flows (US$ bn)
70 Theme Watch | 12 September 2016
Positioning of water stocks Exhibit 13: Top Overweight and Underweight stocks in Water
Source: BofAML Global Research. BofAML Thematic stock lists are not a recommended list either individually or as a group of stocks.
Weightings% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweightWeightings
% top holders
overweight
American Water Works Company ,
Inc.
86 40% -13 -2% Inox Wind Ltd. 0 0% 0 0%
Nex tEra Energy , Inc. 87 38% -26 -6% BYD Company Limited Class A 0 0% 0 0%
Thermo Fisher Scientific Inc. 102 28% -12 -8% SIIC Env ironment Holdings Ltd. 4 0% 0 0%
Dow Chemical Company 72 28% -27 -14% ICL-Israel Chemicals Ltd. 5 0% -2 0%
Danaher Corporation 113 24% -12 -6% Xiny i Solar Holdings Ltd. 6 0% -1 -2%
AES Corporation 97 24% -12 -6% CPFL Energia S.A. 7 0% 0 0%
Pentair plc 106 22% -3 4% Enphase Energy , Inc. 8 0% -17 -2%
NRG Energy , Inc. 95 22% 11 -2% Doosan Heav y Industries &
Construction Co., Ltd.
10 2% -4 -2%
E. I. du Pont de Nemours and
Company
91 22% -32 -10% Duratex S.A. 11 2% -2 0%
Adv anced Energy Industries, Inc. 82 20% -16 -2% Aguas Andinas S.A. Class A 12 2% -4 -2%
Parker-Hannifin Corporation 68 20% -21 -12% Alfa Lav al AB 12 2% -4 0%
AECOM 89 18% -15 -4% GCL-Poly Energy Holdings
Limited
13 2% -7 -2%
Ecolab Inc. 82 18% -12 -8% Beijing Enterprises Water Group
Limited
14 2% -4 -2%
Wolseley plc 58 18% -9 -2% Hong Kong & China Gas Co. Ltd. 94 2% -77 0%
General Electric Company 66 16% -50 -38% Bureau Veritas SA 96 2% -59 -8%
Top Underweight
Sep-2016 3M Change
Top Overweight
Sep-2016 3M Change
Theme Watch | 12 September 2016 71
Methodology Appendix Thematic Investing Stock Lists & Primer Picks We have previously created a BofA Merrill Lynch Global Research list of stocks which have exposure to our equity themes Climate Change & Extreme Weather, Education, Energy Efficiency, Longevity, Obesity and Health & Wellness, Safety & Security, Waste, and Water. They lists are part of BofAML Thematic Investing Stocks Lists.
- either High or Medium -- exposure to the relevant theme, and have a Buy rating by the fundamental analyst. The Stock Lists and Primer Picks are in a document called theme Primer Picks. Thematic Investing Primers and their accompanying thematic Primer Picks are updated together. We update the full universe of all Thematic Investing Stock Lists and Primer Picks simultaneously on a quarterly basis and announced through a published research report A Transforming World - Quarterly Primer Picks. We show a representation of performance based on the Primer Picks.
Performance representation methodology Each Thematic Investing Primer Picks list is equal-weighted, with rebalancing each time we publish an update. Updates are made in both the A Transforming World - Quarterly Primer Picks as well as the Primer Picks that are published when each theme is updated. The performance of any individual security on the list is its percentage change in price, including dividends [(End Price Begin Price)/Begin Price.] Dividends and corporate actions are credited when the stock goes ex-dividend. The performance does not reflect transaction costs. If such cost were reflected the performance would have been lower.
Price at which the rebalance occurs is the end-of-day price on the T + 1 date from publication. Stocks that are no longer covered, or are no longer Buy rated or become restricted are taken into account and removed at the next quarterly or theme update. In the same manner, stocks that are added for reasons such as change in restriction, new research initiation, etc. can only occur when the Primer Picks list is updated.
We assume 0% tax rate. The actual tax rate for investors will be dependent on several factors such as the country of domicile of the company, country in which the stock in listed, country of company operations, as well as country in which the investor is based. Investors should consult their own tax circumstances to gauge exact performance.
Seven themes - Education, Energy Efficiency, Climate Change & Extreme Weather, Obesity and Health & Wellness, Safety & Security, Waste, and Water have a base value of 100 starting at December 6 2013, which is the T + 1 date from when the Quarterly Primer Picks product was introduced. Prior to that, each Primer Picks list was maintained and published separately. Longevity theme was introduced on June 6 2014. Food Security was introduced on March 30 3015, and Millennials was introduced on May 22 2015, Robotics & AI was introduced on November 3 2015 which is less than 12 months, hence we cannot show performance at the moment.
The indicative performance of the BofAML themes is calculated by the BofA Merrill Lynch Research group.
For historical Primer Picks changes prior to June 2016, refer to Theme Watch: Introducing Thematic Beats 19 May 2016
Appendix of Primer Picks changes BofAML Thematic Investing Primer Picks lists are rebalanced on a quarterly basis through A Transforming World - Quarterly Primer Picks, and when the themes are updated. Below is an appendix of latest rebalances:
72 Theme Watch | 12 September 2016
Table 54: September 2016 Primer Picks changes
Theme BBG Ticker Date Action Comment Bottom Billion 000651 CS 06/09/2016 Addition Out of review period
Bottom Billion 728 HK 06/09/2016 Addition Coverage Initiated
Bottom Billion 762 HK 06/09/2016 Addition Coverage Initiated
Bottom Billion 941 HK 06/09/2016 Addition Coverage Initiated
Bottom Billion BAT SJ 06/09/2016 Addition Coverage Initiated
Bottom Billion BHARTI IS 06/09/2016 Addition Rating Upgrade
Bottom Billion CDH IS 06/09/2016 Addition Rating Upgrade
Bottom Billion ICICIBC IS 06/09/2016 Addition Out of review period
Bottom Billion SITESB1 MM 06/09/2016 Addition Coverage Initiated
Bottom Billion TEL NO 06/09/2016 Addition Rating Upgrade
Bottom Billion TIMP3 BS 06/09/2016 Addition Rating Upgrade
Climate Change 000651 CS 06/09/2016 Addition Out of review period
Climate Change 002074 CS 06/09/2016 Addition Coverage Initiated
Climate Change 006400 KP 06/09/2016 Addition Rating Upgrade
Climate Change 1590 TT 06/09/2016 Addition Rating Upgrade
Climate Change 2448 TT 06/09/2016 Addition Rating Upgrade
Climate Change 600236 CG 06/09/2016 Addition Coverage Initiated
Climate Change 600900 CG 06/09/2016 Addition Coverage Initiated
Climate Change 6752 JT 06/09/2016 Addition Coverage Initiated
Climate Change 9513 JT 06/09/2016 Addition Rating Upgrade
Climate Change 9984 JT 06/09/2016 Addition Theme exposure warranted for inclusion
Climate Change FTV UN 06/09/2016 Addition Coverage Initiated
Climate Change MEO1V FH 06/09/2016 Addition Rating Upgrade
Energy Efficiency 000651 CS 06/09/2016 Addition Out of review period
Energy Efficiency 002008 CS 06/09/2016 Addition Coverage Initiated
Energy Efficiency 006400 KP 06/09/2016 Addition Rating Upgrade
Energy Efficiency 1590 TT 06/09/2016 Addition Rating Upgrade
Energy Efficiency 2448 TT 06/09/2016 Addition Rating Upgrade
Energy Efficiency 6752 JT 06/09/2016 Addition Coverage Initiated
Energy Efficiency 9984 JT 06/09/2016 Addition Theme exposure warranted for inclusion
Energy Efficiency FTV UN 06/09/2016 Addition Coverage Initiated
Energy Efficiency MEO1V FH 06/09/2016 Addition Rating Upgrade
Food Security 2319 HK 06/09/2016 Addition Rating Upgrade
Food Security BG UN 06/09/2016 Addition Rating Upgrade
Food Security IPL AT 06/09/2016 Addition Out of extended review
Food Security MWC PM 06/09/2016 Addition Rating Upgrade
Longevity CGF AT 06/09/2016 Addition Rating Upgrade
Longevity CVS UN 06/09/2016 Addition Coverage Initiated
Longevity DRRD IS 06/09/2016 Addition Rating Upgrade
Longevity EI FP 06/09/2016 Addition Coverage Initiated
Longevity EW UN 06/09/2016 Addition Rating Upgrade
Longevity FLRY3 BS 06/09/2016 Addition Rating Upgrade
Longevity MFC CT 06/09/2016 Addition Coverage Initiated
Longevity NDA SS 06/09/2016 Addition Theme exposure warranted for inclusion
Longevity NN NA 06/09/2016 Addition Rating Upgrade
Longevity PMC UN 06/09/2016 Addition Coverage Initiated
Longevity SEBA SS 06/09/2016 Addition Theme exposure warranted for inclusion
Longevity WBA UW 06/09/2016 Addition Coverage Initiated
Millennials 2255 HK 06/09/2016 Addition Theme exposure warranted for inclusion
Millennials 3938 JT 06/09/2016 Addition Coverage Initiated
Millennials 7974 JT 06/09/2016 Addition Rating Upgrade
Millennials AEO UN 06/09/2016 Addition Rating Upgrade
Millennials ASC LN 06/09/2016 Addition Coverage Initiated
Millennials BAT SJ 06/09/2016 Addition Coverage Initiated
Millennials BRBY LN 06/09/2016 Addition Rating Upgrade
Millennials GME UN 06/09/2016 Addition Rating Upgrade
Millennials HMB SS 06/09/2016 Addition Coverage Initiated
Millennials HOME UN 06/09/2016 Addition Coverage Initiated
Millennials ITX SQ 06/09/2016 Addition Coverage Initiated
Millennials PLNT UN 06/09/2016 Addition Off restricted list
Millennials PNDORA DC 06/09/2016 Addition Theme exposure warranted for inclusion
Millennials SIG UN 06/09/2016 Addition Theme exposure warranted for inclusion
Millennials TSQ UN 06/09/2016 Addition Theme exposure warranted for inclusion
Millennials VIPS UN 06/09/2016 Addition Rating Upgrade
Obesity 2319 HK 06/09/2016 Addition Rating Upgrade
Obesity 9910 TT 06/09/2016 Addition Rating Upgrade
Obesity BAT SJ 06/09/2016 Addition Coverage Initiated
Theme Watch | 12 September 2016 73
Table 54: September 2016 Primer Picks changes
Theme BBG Ticker Date Action Comment Obesity PLNT UN 06/09/2016 Addition Off restricted list
Robotics 002008 CS 06/09/2016 Addition Coverage Initiated
Robotics 6503 JT 06/09/2016 Addition Rating Upgrade
Robotics FTV UN 06/09/2016 Addition Coverage Initiated
Safety ALQ AT 06/09/2016 Addition Coverage Initiated
Safety MRO LN 06/09/2016 Addition Theme exposure warranted for inclusion
Safety MTD UN 06/09/2016 Addition Rating Upgrade
Safety ULE LN 06/09/2016 Addition Rating Upgrade
Waste ALQ AT 06/09/2016 Addition Coverage Initiated
Waste MWC PM 06/09/2016 Addition Rating Upgrade
Water MWC PM 06/09/2016 Addition Rating Upgrade
Water SIE GY 06/09/2016 Addition Theme exposure warranted for inclusion
Bottom Billion 6367 JT 06/09/2016 Removal Under Extended Review
Bottom Billion BHIN IS 06/09/2016 Removal Rating downgrade
Bottom Billion CCU CC 06/09/2016 Removal Rating downgrade
Bottom Billion CREAL* MM 06/09/2016 Removal Rating downgrade
Bottom Billion DEC FP 06/09/2016 Removal Rating downgrade
Bottom Billion DGE LN 06/09/2016 Removal Under Extended Review
Bottom Billion NPK SJ 06/09/2016 Removal Rating downgrade
Bottom Billion SECB PM 06/09/2016 Removal Rating downgrade
Bottom Billion SITESL MM 06/09/2016 Removal Coverage Terminated
Bottom Billion SUNP IS 06/09/2016 Removal Rating downgrade
Bottom Billion TKG SJ 06/09/2016 Removal Rating downgrade
Bottom Billion URC PM 06/09/2016 Removal Rating downgrade
Climate Change 002745 CS 06/09/2016 Removal Under review
Climate Change 3800 HK 06/09/2016 Removal Coverage Terminated
Climate Change 6268 JT 06/09/2016 Removal Under extended review
Climate Change 6367 JT 06/09/2016 Removal Under Extended Review
Climate Change 6645 JT 06/09/2016 Removal Under extended review
Climate Change ADI UW 06/09/2016 Removal Rating downgrade
Climate Change ARM LN 06/09/2016 Removal Coverage Terminated
Climate Change ASML NA 06/09/2016 Removal Rating downgrade
Climate Change BWA UN 06/09/2016 Removal Rating downgrade
Climate Change ETN UN 06/09/2016 Removal Rating downgrade
Climate Change GNRC UN 06/09/2016 Removal Rating downgrade
Climate Change HXL UN 06/09/2016 Removal Rating downgrade
Climate Change KSP ID 06/09/2016 Removal Rating downgrade
Climate Change MPG UN 06/09/2016 Removal Rating downgrade
Climate Change MXIM UW 06/09/2016 Removal Rating downgrade
Climate Change NXPI UW 06/09/2016 Removal Rating downgrade
Climate Change SAF FP 06/09/2016 Removal Rating downgrade
Climate Change SGO FP 06/09/2016 Removal Rating downgrade
Education ESTC3 BS 06/09/2016 Removal No Rating
Education LNKD UN 06/09/2016 Removal NO RATING
Energy Efficiency 002745 CS 06/09/2016 Removal Under review
Energy Efficiency 6268 JT 06/09/2016 Removal Under extended review
Energy Efficiency 6367 JT 06/09/2016 Removal Under Extended Review
Energy Efficiency 6645 JT 06/09/2016 Removal Under extended review
Energy Efficiency ADI UW 06/09/2016 Removal Rating downgrade
Energy Efficiency ARM LN 06/09/2016 Removal Coverage Terminated
Energy Efficiency ASML NA 06/09/2016 Removal Rating downgrade
Energy Efficiency BWA UN 06/09/2016 Removal Rating downgrade
Energy Efficiency ETN UN 06/09/2016 Removal Rating downgrade
Energy Efficiency GNRC UN 06/09/2016 Removal Rating downgrade
Energy Efficiency HXL UN 06/09/2016 Removal Rating downgrade
Energy Efficiency KSP ID 06/09/2016 Removal Rating downgrade
Energy Efficiency MPG UN 06/09/2016 Removal Rating downgrade
Energy Efficiency MXIM UW 06/09/2016 Removal Rating downgrade
Energy Efficiency NXPI UW 06/09/2016 Removal Rating downgrade
Energy Efficiency SAF FP 06/09/2016 Removal Rating downgrade
Energy Efficiency SGO FP 06/09/2016 Removal Rating downgrade
Food Security 371 HK 06/09/2016 Removal Under Restriction
Food Security 392 HK 06/09/2016 Removal Rating downgrade
Food Security 3983 HK 06/09/2016 Removal Rating downgrade
Food Security 6326 JT 06/09/2016 Removal Under Extended Review
Food Security ALMARAI AB 06/09/2016 Removal Rating downgrade
Food Security AWK UN 06/09/2016 Removal Rating downgrade
74 Theme Watch | 12 September 2016
Table 54: September 2016 Primer Picks changes
Theme BBG Ticker Date Action Comment Food Security CNHI UN 06/09/2016 Removal Rating downgrade
Food Security HAIN UW 06/09/2016 Removal Rating downgrade
Food Security MPI PM 06/09/2016 Removal Rating downgrade
Food Security MRFG3 BS 06/09/2016 Removal Rating downgrade
Food Security NPK SJ 06/09/2016 Removal Rating downgrade
Food Security PI IS 06/09/2016 Removal Under extended review
Food Security UPLL IS 06/09/2016 Removal Under extended review
Food Security WWAV UN 06/09/2016 Removal NO RATING
Longevity 1565 TT 06/09/2016 Removal Rating downgrade
Longevity ACAD UW 06/09/2016 Removal Rating downgrade
Longevity BCR UN 06/09/2016 Removal Rating downgrade
Longevity CS FP 06/09/2016 Removal Rating downgrade
Longevity CYNA UQ 06/09/2016 Removal Under Restriction
Longevity DL NA 06/09/2016 Removal Rating downgrade
Longevity DNAI UQ 06/09/2016 Removal Coverage Terminated
Longevity ESPR UQ 06/09/2016 Removal Rating downgrade
Longevity HTWR UW 06/09/2016 Removal Coverage Terminated
Longevity LGEN LN 06/09/2016 Removal Rating downgrade
Longevity LNC UN 06/09/2016 Removal Rating downgrade
Longevity NOVOB DC 06/09/2016 Removal Rating downgrade
Longevity PFG UN 06/09/2016 Removal Rating downgrade
Longevity QUAL3 BS 06/09/2016 Removal Rating downgrade
Longevity STJ LN 06/09/2016 Removal Rating downgrade
Longevity SUNP IS 06/09/2016 Removal Rating downgrade
Longevity TKAI UQ 06/09/2016 Removal Coverage Terminated
Millennials DGE LN 06/09/2016 Removal Under Extended Review
Millennials DHI UN 06/09/2016 Removal Rating downgrade
Millennials ESTC3 BS 06/09/2016 Removal No Rating
Millennials GRMN UW 06/09/2016 Removal Rating downgrade
Millennials GRUB UN 06/09/2016 Removal Rating downgrade
Millennials HAIN UW 06/09/2016 Removal Rating downgrade
Millennials JUBI IS 06/09/2016 Removal Theme exposure warranted for exclusion
Millennials LMCK UW 06/09/2016 Removal Under review
Millennials LNKD UN 06/09/2016 Removal No Rating
Millennials RI FP 06/09/2016 Removal Under extended review
Millennials W UN 06/09/2016 Removal Rating downgrade
Millennials WWAV UN 06/09/2016 Removal NO RATING
Obesity ESPR UQ 06/09/2016 Removal Rating downgrade
Obesity GRMN UW 06/09/2016 Removal Rating downgrade
Obesity HAIN UW 06/09/2016 Removal Rating downgrade
Obesity HTWR UW 06/09/2016 Removal Coverage Terminated
Obesity NOVOB DC 06/09/2016 Removal Rating downgrade
Obesity SUNP IS 06/09/2016 Removal Rating downgrade
Obesity WWAV UN 06/09/2016 Removal NO RATING
Robotics 6268 JT 06/09/2016 Removal Under extended review
Robotics 6645 JT 06/09/2016 Removal Under extended review
Robotics ADI UW 06/09/2016 Removal Rating downgrade
Robotics ETN UN 06/09/2016 Removal Rating downgrade
Robotics NXPI UW 06/09/2016 Removal Rating downgrade
Safety GRMN UW 06/09/2016 Removal Rating downgrade
Safety KEP SP 06/09/2016 Removal Under Extended Review
Safety MPG UN 06/09/2016 Removal Rating downgrade
Safety NXPI UW 06/09/2016 Removal Rating downgrade
Waste FER SQ 06/09/2016 Removal Rating downgrade
Waste FIBR3 BS 06/09/2016 Removal Rating downgrade
Waste MTO LN 06/09/2016 Removal Rating downgrade
Waste NUE UN 06/09/2016 Removal Rating downgrade
Waste STLD UW 06/09/2016 Removal Rating downgrade
Water 371 HK 06/09/2016 Removal Under Restriction
Water 3800 HK 06/09/2016 Removal Coverage Terminated
Water 392 HK 06/09/2016 Removal Rating downgrade
Water 6326 JT 06/09/2016 Removal Under Extended Review
Water AWK UN 06/09/2016 Removal Rating downgrade
Water MPI PM 06/09/2016 Removal Rating downgrade
Source: BofA Merrill Lynch Global Research
Theme Watch | 12 September 2016 75
Positioning methodology
Positioning between stocks within a Theme We looked at the publicly disclosed holdings data of 13,000 institutions, 30,000 unique mutual fund portfolios, and 200,000 non- ‛ spanning 110 countries. Within each theme, we looked at the 50 largest funds in terms of the total market value of their holdings within the theme. They would be considered the most influential investors within the theme.
First we calculate if a particular stock is overweight by the biggest holders. We take the market value of the stock held by the top 50 holders and calculate its proportion of total market value in disclosed in the stock. Then we consider the total Theme market value of the top 50 holders, and calculate its proportion of total Theme market value for all the funds. This tells us if the top holders of the Theme are overweight or underweight the particular stock relative to all holders within a Theme.
Next we look at the percentage of top 50 holders who are overweight stock. We look at the total market value of the stock, and calculate its proportion within the market value of the entire Theme. Then we look at the proportion the Theme comprises within the
The disclosed MV of Adobe is 28,019mm, and the MV of the Education theme is 1,537,972mm. Adobe then comprises 1.82% of the MV of the Education theme,
within the Adobe stock specifically. This means the fund has 1.518% of its Education theme in Adobe. This is lower than the active benchmark, the fund is underweight Adobe.
We plot the stock overweight level versus the percentage of top holders that are overweight. The higher the overweight level and the higher the proportion of holder overweight, the higher indication that the stock itself is overweight.
Positioning between sub-themes within a Theme We looked at the publicly disclosed holdings data of 13,000 institutions, 30,000 unique mutual fund portfolios, and 200,000 non- ‛ spanning 110 countries. Within each theme, we looked at the 50 largest funds in terms of the total market value of their holdings within the theme. They would be considered the most influential investors within the theme.
First we calculate the relative weight of the sub-theme by the biggest holders. We take the market value (MV) of the sub-theme held by the top 50 holders and calculate its proportion of total MV in disclosed in the sub-theme. Then we consider the total Theme MV of the top 50 holders, and calculate its proportion of total Theme market value for all the funds. This tells us if the top holders of the Theme are overweight or underweight the particular sub-theme relative to all holders within a Theme. For example:
Education theme has 4 sub-themes: EdTech, K-12 & Childcare, Post-secondary, and Publishing
The top 50 holders of the Education theme have 150,000mn in EdTech. The total MV of EdTech held by all holders is 450,000mn. Then the top 50 holders account for 33.33% MV in EdTech.
The top 50 holders of the Education theme have an MV of 375,000mn in Education. The total MV of Education theme is 1,500,000mn. This means the top 50 holders account for 25% of Education. 33.33/25=1.33. Using a 100 scale, 133 is above 100 and shows a relative overweight in the EdTech sub-theme.
76 Theme Watch | 12 September 2016
Next we look at the percentage of top 50 holders who are overweight the sub-theme. We look at the total market value of the sub-theme, and calculate its proportion within the market value of the entire Theme. Then we look at the proportion the Theme
The disclosed MV of EdTech sub-theme is 450,000mm, and the MV of the Education theme is 1,500,000mm. Edtech then comprises 30% of the MV of the
within the Edtech sub-theme specifically. This means the fund has 45% of its Education theme in Edtech. This is higher than the active benchmark, the fund is overweight Edtech.
Positioning between Themes within Thematic Universe We looked at the publicly disclosed holdings data of 13,000 institutions, 30,000 unique mutual fund portfolios, and 200,000 non- ‛ spanning 110 countries. For the overall Thematic Universe, we looked at the 50 largest funds in terms of the total market value of their holdings within the entire thematic universe. They would be considered the most influential investors of themes.
First we calculate if a particular theme is overweight by the biggest thematic holders. We take the market value of the theme held by the top 50 holders and calculate its proportion of total market value in the theme. Then we consider the total Theme universe market value of the top 50 holders, and calculate its proportion of total Theme universe market value for all the funds. This tells us if the top thematic holders are overweight or underweight the particular theme relative to all holders of the thematic universe.
Next we look at the percentage of top 50 holders who are overweight the theme. We look at the total market value of the theme, and calculate its proportion within the market value of the entire Thematic universe. Then we look at the proportion the
The disclosed MV of Education is 225,000mm, and the MV of the Thematic Universe is 1,500,000mm. Education then comprises 15% of the MV of the
within the Education theme specifically. This means the fund has 12.8% of its Thematic Universe in Education. This is lower than the active benchmark, the fund is underweight Education.
We plot the theme overweight level versus the percentage of top holders that are overweight. The higher the overweight level and the higher the proportion of holder overweight, the higher indication that the theme itself is overweight.
Holdings data Sources for this information include 13F, 13G, 13D, Registration filings (S-1, S-2, S-3), Proxy, 10-K, Insider filings (Forms 3, 4, 5), N-30D, N-Q mutual fund holdings, annual reports, and country specific authorities as collated by Factset. We use the most recent data available for each fund, excluding data that is more than 12 months old. The most
-to-three months old. To provide a more recent -to-market
the holdings as of the most recent month-end. The report does not reflect any changes, other than re-pricing, in portfolio holdings after the filing dates. The analysis includes both active and passive fund holdings information.
Theme Watch | 12 September 2016 77
Equity client flow methodology This portion of the research product provides an aggregated view of BofA Merrill Lynch client trading flows into global stocks executed by the cash equities business of the firm. By aggregating flows across many execution platforms and trading desks, the goal of this product is to provide an overview of what Themes are being bought or sold. It is not meant to be predictive of the market, but aims to provide a holistic view of BofAML client trading flows by Theme.
The trading flow considers all stocks within the Thematic Universe, which spans all
of buy orders less sell orders. Since this product is meant to provide client action context of recent market and Theme performance based on client trading flows, we
single stock trades executed by the firm globally within the cash equities business including high touch, electronic trading, and portfolio trading. Order flow on derivatives such as options, futures, and swaps are not included.
Equity flows are represented in US dollar terms. Stocks that are not denominated in USD are converted using the spot foreign exchange rate on the day of trading.
Thematic Beats - Stock Beat Methodology
Filtering the universe 1. Select all stocks that are both within BofAML’s thematic universe as of the
fourth day of the month.
2. Exclude stocks for which BofAML does not have price objectives or earnings estimates.
3. Exclude stocks which are on BofAML’s restricted list or which have no rating, including those under review or under extended review.
4. Exclude stocks where the BofAML’s price objective was established more than six months ago.
5. Exclude stocks in bottom one third based on Market Capitalisation in USD.
6. Both BofAML and IBES Consensus price objectives are 12 months horizon data
7. Verify that the earnings estimate year for consensus is the same as for iQdatabase estimates to ensure that earnings estimates are comparable.
8. Convert consensus data into BofA ML estimates currency using BofA ML forecasts.
9. Exclude stocks with fewer than five consensus estimates for each of FY1 earnings, FY2 earnings and price objective. We do not adjust the consensus number to exclude the BofAML price objective and earnings estimates.
10. Exclude stocks with zero standard deviation of consensus estimates.
11. Adjust estimates for any corporate actions (e.g. stocks split and bonus shares) in the back testing period.
Calculating ranks 1. Convert consensus price objective and earnings estimates to BofAML pricing
currency.
2. Calculate a Z-score for each of the estimates, price objective, FY1 earnings and FY2 earnings individually using the below formula
78 Theme Watch | 12 September 2016
Z-Score =
(BofAML Estimate – I/B/E/S Mean Estimate)
------------------------------------------------------------------------------
Standard Deviation of I/B/E/S Estimate
Using Z-scores, standardises stocks to prevent any cyclical/defensive bias in our universe.
3. Exclude stocks with FY1 or FY2 earnings Z-score outside the range of ±5.
1. Rank stocks’ Z-scores from -100 (worst) to +100 (best) for each of the price
objective, FY1 and FY2 earnings.
Calc 1. Calculate equal-weighted average of ‘PO Beat Factor’, ‘FY1 Earnings Beat
Factor’, and ‘FY2 Earnings Beat Factor’.
2. Rank the average score from +100 to -100 to arrive at the ‘Beat Factor’. The maximum positive average score is ranked as +100 and the least negative average score is ranked as -100.
3. We intend to publish the new Stock Beat Screen each month.
The flowchart below summarises our methodology
Theme Watch | 12 September 2016 79
Expected Return ‘Expected Return’ is calculated as the difference between the month-end share price objective of the BofAML analyst and the month-end share price. The Expected Return does not take into account total return.
Upside Rank The expected return is ranked from +100 (most upside) to 0 (least upside).
Top Thematic Beat Screen Stocks with BofAML ‘Buy’ rating, and positive Beat Factor are placed in the ‘Top Thematic Beat’ screen.
Thematic Beats acts as a stock, sector and market screen and does not constitute a recommended stock portfolio. Thematic Beats screens are not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of companies and their own individual circumstances before making any investment decisions.
Thematic Beats - risk factors 1. The performance of Thematic Beats Top Stock Screens individually or as a group
may be impacted when BofAML analysts change their view after the screen is published for the current month.
2. Thematic Beats will not provide the Top stocks when the BofAML analyst views are less differentiated from consensus.
Minimum of 5 IBES estimates FY1 or FY2 Earnings Z score in the range of +-5
Z score is ranked +100 to -100 PO Beat, FY1 and FY2 Earnings Beat
Buy rating, positive Beat Factor and expected return
Beat Factor
Top Thematic Beats Stocks
Restricted Status, No Rating, PO established date > 6 months
Select top two third stocks by market cap
FY1 Earnings, FY2 Earnings and Price Objective
Estimates are checked for currency compatibility
BofAML Thematic Universe
Rating
Market Capitilisation
Estimates
Currency Normalisation
Screen Selection
80 Theme Watch | 12 September 2016
Analyst Certification I, Beijia Ma, CFA, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.
Theme Watch | 12 September 2016 81
Disclosures Important Disclosures
FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12
dispersions (shown in the table below). The current price objective for a stock should be ew of the potential price appreciation (depreciation).
Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*
Buy ≥ 10% ≤ 70%
Neutral ≥ 0% ≤ 30%
Underperform N/A ≥ 20%
* Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.
INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other coverage cluster is included in the most recent BofA Merrill Lynch report referencing the stock. BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. The analyst(s) responsible for this report may also receive compensation based upon, among other factors, the overall
trading businesses relating to the class of securities or financial instruments for which such analyst is responsible.
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82 Theme Watch | 12 September 2016
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