Thriving in the new world order
Martin L. FlanaganPresident and CEOInvesco Ltd.
All information as of Sept. 30, 2012, unless otherwise noted. Please refer to the Appendix for important information.
Our discussion today
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The world is changing around us
Staying ahead of trends in the US
Thriving in the new world order
Some of the top in-demand jobs in 2012 …
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… didn’t exist in 2005.
Source: US Labor Department “Job openings and labor turnover survey,” 2011; US News & World Report, Oct. 5, 2011
Almost half of the revenue of S&P 500 companies …
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Source: RBC Capital Markets Research, Capital IQ. Data as of December 31, 2011. As referenced in businessinsider.com article entitled, “A Breakdown of Where S&P 500 Companies Get Overseas Business”.
… comes from overseas.
72 percent of Apple’s total revenue …
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… is derived from products you couldn’t purchase five years ago.
Source: Apple earnings reports 2007 – 2012; as of Sept. 30, 2012.
During the course of this presentation …
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402 babies will be born in the US
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Source: U.S. Census Bureau, International Program (International Database) http://www.census.gov/population/international/data/idb/region.php (Oct. 11, 2012)
402 babies1,644 babies will be born in China
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Source: U.S. Census Bureau, International Program (International Database) http://www.census.gov/population/international/data/idb/region.php (Oct. 11, 2012)
402 babies1,644 babies2,370 babies will be born in India
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Source: U.S. Census Bureau, International Program (International Database) http://www.census.gov/population/international/data/idb/region.php (Oct. 11, 2012)
402 babies1,644 babies2,370 babies4,416 potential new investors
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Global population has grown to 7 billion people worldwide
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314
1,3431,205
12781 206 63 66 61
US China India Japan Germany Brazil UK France Italy
Sources: Invesco; USA Today; US Census Bureau, Population Division, International Programs Center — data estimate as of July 2012; CIA World Fact Book, Eurostat
People, in millions(in order of GDP)
China’s 2020 GDP projection is equal to the combined GDPs of several countries
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Sources: HSBC, CEIC, IMF, CIA as of December 2011. Actual results may differ from current projections.
Zambia
Israel
Kenya
Switzerland
Kazakhstan
$500bn–$1,000bn
$100bn–$500bn
Below $100bn
Egypt
Thailand
Malaysia
Netherlands
South Africa
Nigeria
Denmark
SaudiArabia
KoreaArgentina
Colombia
Turkey
Canada
Russia
Belgium
Venezuela
Singapore
GreeceIran
Spain
IndonesiaPoland
Argentina
Australia
Sudan
Sri Lanka
Above $1,000bn
Disposable income is expected to grow exponentially in developing countries
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Sources: Bloomberg L.P., Invesco as of December 2011. Actual results may differ from current expectations.
No. of Households(Millions)
0
50
100
150
200
250
300
1991 1996 2001 2006 2011e 2016e 2020e
China
India
Russia
BrazilJapan
US
Household disposable income more than US$10,000
China US India Brazil Japan Russia
Established markets currently have the lion’s share of $52 trillion global AUM …
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4,390
23,207
15,374
1,446 379 4,372 345 1,428 1,3800
5,000
10,000
15,000
20,000
25,000
AsiaPacific
ex Japan
UnitedStates
WesternEurope
LatinAmerica
EasternEurope
Japan Africa MiddleEast
Canada
Green color in chart denotes developed economies as defined by the IMF’s World Economic Outlook Report, April 2012.Source: McKinsey & Company Global Banking Pools; Empirical Research Partners, as of August 2012.Note: Includes all institutional and retail AUM.
Total AUM 2011 Estimates US$Billions
… However, China and other emerging markets are experiencing the greatest growth
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Green color in chart denotes developed economies as defined by the IMF’s World Economic Outlook Report, April 2012 Source: McKinsey & Company Global Banking Pools; Empirical Research Partners, as of August 2012.Note: Includes all institutional and retail AUM.
12.3
5.8 6.37.3
11.9
2.9
7.2
11.8
4.3
0
2
4
6
8
10
12
14
Asia Pacificex Japan
UnitedStates
WesternEurope
LatinAmerica
EasternEurope
Japan Africa MiddleEast
Canada
Total AUM Growth 2011-2014 Estimated CAGR %
Summary of significant global trends
US remains the dominant market
Critical to be an established market leader in developed markets
Strong presence in emerging markets a key driver of long-term success
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Our discussion today
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The world is changing around us
Staying ahead of trends in the US
Thriving in the new world order
Key US market realities
21
1 Post-crisis uncertainty and broad structural reform creating instability
2 Risk mitigation driving evolution of asset allocation
3 Aging US population driving need for income solutions
4 Increased market complexity accelerating need for advice
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Post-crisis uncertainty and broad structural reform creating instability
Advisors and investors are concerned
Uncertainty around tax policy
Eurozone crisis
Government debt and impending fiscal cliff
Market volatility
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1
Increased legislation driving financial reform
Government spending to drive employment
Enduring market volatility
Prolonged investor anxiety
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The Great Depression
Increased legislation driving financial reform
Government spending to drive employment
Enduring market volatility
Prolonged investor anxiety
The Great Recession
Then and now1
Increased legislation driving financial reform
Government spending to drive employment
Enduring market volatility
Prolonged investor anxiety
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The Great Depression
Increased legislation driving financial reform
Government spending to drive employment
Enduring market volatility
Prolonged investor anxiety
Globalization
Aging population
The Great Recession
Then and now1
Lack of confidence in peripheral Eurozone countries continues
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1
Greece to leave Euro Zone on June 18(CNBC)
Did Europe missits chance?September 11(CNN Money)
Soros tells Germany “lead or leave euro”September 9(Investment Week)
Eurozone set for deeper recessionSeptember 6(fundweb)
Why adopting the euro is a trap for some nationsSeptember 10(NBC)
Merkel tries to calm uproar over Eurozone crisis plansAugust 26(Economic Times)
Euro crisis down to confidence, not currency, says German Foreign MinisterAugust 31(CNN)
The Collapse of Europe’s Welfare State Exposes its False Hopes —Is America NextAugust 29(Forbes)
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0
20
40
60
80
100
120
140
1940 1960 1980 2000
Projected Actual
Sources: US Office of Management and Budget data through Dec. 31, 2011, Congressional Budget Office’s (CBO) January 2011 baseline budget projections
Percent of GDP
Total US government debt is approaching 100% of GDP
1
2017
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Other Federal Spending
Social Security
Medicare and Medicaid
Interest
0
5
10
15
20
25
30
1962 1987 2012 2037 2062 2087
Source: Congressional Budget Office (CBO), The Long-Term Budget Outlook, July 2012; extended-baseline scenario
Percent of GDP
The importance of restoring confidence1
28
Source: Bloomberg L.P. , Invesco. Data as of September 30, 2012.VIX is based on real-time option prices, which reflect investors' consensus view of future expected stock market volatility. During periods of financial stress, which are often accompanied by steep market declines, option prices - and VIX - tend to rise. The greater the fear, the higher the VIX level. As investor fear subsides, option prices tend to decline, which in turn causes VIX to decline. It is important to note, however, that past performance does not necessarily indicate future results.
0
10
20
30
40
50
60
70
Dec-99 May-01 Oct-02 Mar-04 Aug-05 Jan-07 Jun-08 Nov-09 Apr-11 Sep-12
Uncertainty driving market volatility and investor anxiety
1
VIX - CBOE Market Volatility Index
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Post-crisis uncertainty and broad structural reform creating instability
How to stay ahead of the trend
Stay invested for the long term
Find low-volatility opportunities
Create risk-balanced portfolios to prepare for various outcomes
Invest in equities for the long term
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1
Risk mitigation driving evolution of asset allocation
Advisors are focused on managing risk
Increasing allocations to income (equity and fixed)
Alternatives are no longer alternative
Growth of risk parity and world allocation strategies
Blending of mutual funds and ETFs in client portfolios
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2
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Source: Invesco RIA Survey conducted by Cogent Research, 2012. Results based on web survey of 189 registered investment advisors with $50M+ in AUM.
Delivering absolutereturn11%
Other12%
Exceeding a benchmark12%
Wealth preservation25%
Managing risk40%
Invesco research indicates advisors are focused on managing risk post-crisis
2
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-200
-100
0
100
200
300
400
2006 2007 2008 2009 2010 2011 YTD 7/12
Alternative Fixed Income US Equities International/Global Equities
Source: Strategic Insight 7/31/12 (LT-OE Mutual Funds & ETFs; Includes fund of funds). Values represent sum of annual net flows for each category.
US$Billions
Flows into fixed income underscore challenges of risk mitigation
2
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2001: $27B
Source: Simfund. Data as of July 31, 2012. Includes fund of funds.
2012: $374B
Real Estate Bank Loan Nontraditional BondCommodities Broad Basket Global Real Estate Long/Short EquityEquity Precious Metals Market Neutral Multi-alternativeCurrency Managed Futures Bear MarketTrading-Based
Alternative mutual fund assets have experienced significant growth and diversification
2
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Source: Simfund. Data as of July 31, 2012. Includes fund of funds.
2001: $208B 2012: $1,287B
Balanced andTarget Risk
Target Date World Allocation Retirement Income
Major shift from traditional balanced funds to target date and world allocation funds
2
40% of advisors use a blend of active investments and ETFs now more than ever.
Source: Invesco RIA Survey conducted by Cogent Research, 2012. Results based on web survey of 189 registered investment advisors with $50M+ in AUM.
5,236 7,005 8,109 8,031 9,200 10,100 11,100 12,200
536
7861,005 1,061
1,3001,400
1,5001,700
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2008 2009 2010 2011 2012E 2013E 2014E 2015E
Mutual Funds ETFs
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Source: Strategic Insight and Cerulli. 2012-2015 estimated projections, not actual figures.
Projected Mutual Fund and ETF Assets (US$Billions)
ETF growth continues2
Risk mitigation driving evolution of asset allocation
How to stay ahead of the trend
Identify and understand risk before you try to mitigate it
Reconsider sources of risk
Adjusting asset allocation mix could improve portfolio outcomes
Invest in equities for the long term
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2
Aging US population driving need for income solutions
A wave of baby boomers retiring soon
Money moving from DB to DC plans
Increasing interest in retirement income products
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What the industry has been expecting…
Baby boomers are hitting retirement age NOW
The real money in motion is from DC plans to IRAs
Advisors prefer to build their own retirement income portfolios
What’s actually happening today…
3
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3.1 4.0 4.9 6.6 9.0 12.316.6 20.0
25.631.7
35.340.1
52.2
69.4
0
10
20
30
40
50
60
70
80
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
Source: U.S. Bureau of the Census (middle series projections)
Estimated Number of Individuals in US Age 65+(millions)
Baby boomers have started to turn 653
E E
10,000 baby boomers will file for Social Security benefits every day for the next 20 years.
Source: “Annual Performance Plan for FY 2012,” Social Security Administration
Social Securitytrust fund exhausted by 2033.
Sources: Social Security Online Actuarial Publications, “Status of the Social Security and Medicare Programs, A Summary of the 2012 Annual Reports,” Social Security and Medicare Boards of Trustees
20
25
30
35
40
45
50
2000 2002 2004 2006 2008 2010 2012E 2014E 2016E
DB DC IRA
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Sources: Department of Labor, ICI, U.S. Census Bureau, Federal Reserve, PBGC, EBRI, Cerulli Associates
Retirement Market Assets by Segment (%)
IRA assets growing at the fastest rate3
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Source: Cerulli Associates. Advisor Portfolio Construction Dynamics. 2011.
Annuitization12%
Retirement Income Funds6%
Dividend-paying equity mutual funds31%
Bond mutual funds41%
What Advisors “Always Use” for Retirement Income
Advisors prefer to build retirement income portfolios
3
Aging US population driving need for income solutions
How to stay ahead of the trend
Provide advice to DC plan participants for IRA rollover capture
Deliver strategies to meet today’s investor income needs
Identify diversified sources of income in today’s market
Ensure that income strategies take into account tomorrow’s outcomes
Invest in equities for the long term
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3
Increased market complexity accelerating need for advice
Key Trends
Markets are becoming more complex
Consumers live in a customized world
Discretionary advice is growing rapidly
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4
For students starting a 4-year technical degree …
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Sources: U.S. Department of Labor Employment & Training Administration, U.S. Department of Commerce, Survey of the Use of Biotechnology in U.S. Industry and U.S. Bureau of Labor Statistics
… half of what they learn in their first year of study will be outdated by their third year.
More time
Limited information
Domestic markets
Stocks and bonds
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Then
Limited time
Unlimited data
Global markets
Broad array of investment solutions
Now
Increasing complexity for investors4
Sources: Phoenix Marketing International, Cerulli Associates. Reasons Investors Do Not Intend to Work with an Advisor Regarding Retirement Planning by Retirement Stage, 2011.
41% of pre-retirees are not working with an advisor because they “have not gotten around to it.”
Generic
Buy an album
Select a shoe style
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Then
Personalized
Build your own playlist
“Choose your outsole, cushioning, colors — even weather protection”
Solutions
Now
Customization is expected4
Products
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0
500
1000
1500
2000
2500
3000
2008 2009 2010 2011 1Q 2012
UMA Program
Rep As PortfolioManager
Rep As Advisor
Mutual Fund Advisory
SMA Advisory*
1268.8
1683.9
* SMA Advisory accounts and assets for 2009, 2010 and 2011 are different from the last issue of Central due to firms restating and receiving actual data.
Sources: Money Management Institute, Dover Financial Research
Managed SolutionsAUM (US$Billions)
Managed solutions business continues to grow
4
2136.2 2269.22480.7
Increased market complexity accelerating need for advice
How to stay ahead of the trend
Build relationships by delivering value
Provide a clear framework to turn data into actionable information
Offer easy, tailored solutions that holistically meet investor needs
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4
Our discussion today
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The world is changing around us
Staying ahead of trends in the US
Thriving in the new world order
Thriving in the new world order
Focused on distinct client needs
Ability to capitalize on global opportunities
Broadly diversified
Ability to effectively deliver tailored solutions
Being indispensable to clients
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Thriving in the new world order
Martin L. FlanaganPresident and CEOInvesco Ltd.
All information as of Sept. 30, 2012, unless otherwise noted. Please refer to the Appendix for important information.
Appendix
Important InformationThe opinions expressed are those of Mr. Flanagan, are based upon current market conditions and are subject to change without notice.
This presentation is for informational purposes only. This is not to be construed as an off to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
This presentation does no form part of any prospectus.
While great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes, or omissions or for any action taken in reliance thereon.
Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations.
Forward-looking statementsThis presentation, and comments made in the presentation today, may include “forward-looking statements.” Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission.You may obtain these reports from the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.
For additional information, contact the Invesco representative in your local jurisdiction.
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