Management Global High Conviction Fund Aitken Investment Management - PowerPoint PPT Presentation

Aitken Investment Management Global High Conviction Fund Aitken Investment Management

Who Are We? • A portfolio built to capture long-term secular trends by investing in high quality businesses that can compound in value • Bottom-up, fundamental-driven, concentrated, long only, unhedged Aitken Investment Management

Why global? Developed Markets: Countries by Market Cap Developed Markets vs. Australia : Sectors 40% Japan, 8.2% United Kingdom, 35% 5.5% 30% France, 3.8% 25% Canada, 3.4% 20% 15% Switzerland, 3.1% 10% Germany, 2.9% 5% United States, Australia, 2.3% 63.7% 0% Netherlands, 1.2% Hong Kong, 1.1% Developed Markets Australia Aitken Investment Management

What Do We Believe? Over the long term, value is created and captured by businesses that: Grow revenues at a rate exceeding nominal GDP Invest in businesses experiencing structural tailwinds Generate excess returns on capital sustainably Excess returns on capital underpinned by a moat or competitive advantage: a high-quality business Reinvest excess returns at rates of return that beat inflation Growing the business or widening the moat to grow value over the long term We call these businesses compounders We seek to identify and invest for the long term Aitken Investment Management

It Pays to Own Compounders Value creation is a function of interest rate expectations Value creation needs a timely catalyst Value creation is a function of sustainably timing the cycle Value creation is a function of a business generating & reinvesting excess returns Aitken Investment Management

It Pays to Own High-Quality Businesses 3,000 3000 Compound Annual Growth Rate 16.0% 2,500 2500 14.1% 14.0% 13.0% 2,000 2000 12.0% 11.2% 1,500 1500 10.0% 7.6% 1,000 1000 8.0% 6.0% 500 500 4.0% 0 0 09/1994 09/1995 09/1996 09/1997 09/1998 09/1999 09/2000 09/2001 09/2002 09/2003 09/2004 09/2005 09/2006 09/2007 09/2008 09/2009 09/2010 09/2011 09/2012 09/2013 09/2014 09/2015 09/2016 09/2017 09/2018 09/2019 2.0% 0.0% High ROIC MSCI World High ROIC+ High ROIC+ High ROIC (top quintile) MSCI World (USD) High ROIC+ (1m) High ROIC+ (6m) (top quintile) (USD) (1m) (6m) Source: Bloomberg EQS. All series based to 100 on 30 September 1994. All returns gross of fees. Parameters – High ROIC: Only DM businesses with a market cap in excess of USD10bn, top 20% by ROIC. Rebalanced monthly. Parameters – High ROIC+ (1m): Only DM businesses with a market cap in excess of USD10bn. Top 10% by ROIC, LT Debt/Total Assets < 50%,4% or higher YoY revenue growth. Rebalanced monthly. Parameters – High ROIC+ - (6m): Only DM businesses with a market cap in excess of USD10bn. Top 10% by ROIC, LT Debt/Total Assets < 50%,4% or higher YoY revenue growth. Rebalanced every 6 months. Aitken Investment Management

It Pays To Focus On The Long Term MSCI World Net Total Return (USD) Compound Annual Growth Rate 350 8.0% 7.1% 300 7.0% 250 6.0% 4.8% 200 5.0% 150 4.0% 3.1% 100 3.0% 1.7% 50 2.0% 0.8% 0 1.0% 0.0% -1.0% -1.1% MSCI World Excl. 5 best days Excl. 10 best days -2.0% MSCI Excl. 5 Excl. 10 Excl. 20 Excl. 30 OECD G7 Excl. 20 best days Excl. 30 best days OECD G7 Inflation World best days best days best days best days Inflation Source: AIM, MSCI Aitken Investment Management

Profits and the Capital Required To Generate Them MSCI World – Pools of Profit (Trailing 12 months – Sept. 2019) 20% Utilities Real Estate Materials 15% Information Technology ROIC - % Industrials 10% Health Care Financials Energy 5% Consumer Staples Consumer Discretionary Communication Services 0% 0 10 20 30 40 50 60 70 80 90 100 Share of Invested Capital - % Source: AIM, MSCI Aitken Investment Management

Our Investment Process Idea Generation Fundamental Analysis Portfolio Construction • Top-down • Quantitative Review • Initial Screening • Qualitative Analysis • 15 – 25 stocks • Find Attractive • Forecast & Valuation • Sensible stock, Global Profit Pools • Ongoing Monitoring sector and • Bottom-up regional limits • Travel • Secular Growth • Conferences • FX unhedged Trends Aitken Investment Management

Portfolio Construction Framework • Concentrated: 15 – 25 stocks • Maximum single stock position: 7.5% • Minimum single stock position: 2.5% • Cash: 0% - 10% • Currency: unhedged Cyclical Secular Defensive • Sector limits Growth Growth Growth • 25% maximum per GICS sector classification • • 0% - 30% • 50% - 70% • 20% - 40% Regional limits • 15% maximum, excluding the USA • Example: • Example: • Example: • USA: often the listing venue, not the • LVMH • MasterCard • Estee Lauder source of economic risk • Off-benchmark regions capped at 10% Future • Minimum market cap Compounder • USD10bn or equivalent • 0% - 10% • Liquidity • Minimum USD50mn or equivalent • Example: average daily value over 30 days • Netflix Aitken Investment Management

Looking to 2020: A Framework for Assessing Economic Risk Possible External Generic Risk Specific Risk Shocks • Slowing global & • Structural Conditions Financial system US growth • Trade war escalation • Confidence • Corporate • credit Asset/investment/ • Cyclical Conditions spending bubbles? Late cycle? • Policy error? Internal to the make-up of the Ability of the economy to withstand economy: asset bubbles, strength of an external shock the financial system, policy settings Source: Framework by Bernstein Aitken Investment Management

Looking to 2020: A ‘Muddle - Through’ is our Base Case • Cautiously constructive, but expect volatility • Global growth to remain positive, though continuing to slow from 2017 to 2019 levels • Slowing in 1H20, modestly accelerating in 2H20 • Equity returns likely in the mid-to-high single digit range, given starting valuations are elevated • A low growth, low inflation world likely means low rates for longer • Given this combination of factors, we still prefer companies that can generate internal growth, but are vigilant about the margin of safety • Main risks we see: • trade war escalation • collapse in consumer confidence (fueled by a pullback in business investment) • policy uncertainty (elections, fiscal & monetary) • A left-field risk: sustained pick-up in inflation • Difficult to see where it comes from, but would materially change the outlook • Fiscal stimulus? Those who are willing, cannot afford to; those who can afford are unwilling. Aitken Investment Management

The US consumer: in a more resilient place than pre-2009 160% 18% 16% 140% 14% 120% 12% 100% 10% 80% 8% 60% 6% 40% 4% 20% 2% 0% 0% US Household Debt/Disposable Income (LHS) US household savings as % of Disposable Income (RHS) Aitken Investment Management

US banking system: much higher capital levels Tier 1 Risk Based Capital Ratio (US Large Banks) 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% Aitken Investment Management

A combination of low inflation, low growth = low rates OECD Inflation – persistent disinflation since Persistently lower growth the 70’s 8% 7% 18.0% 6% 16.0% 5% 14.0% 4% 12.0% 3% 10.0% 2% 8.0% 1% 6.0% 0% 4.0% -1% 2.0% -2% 0.0% -2.0% -3% 1971 1973 1975 1978 1980 1982 1985 1987 1989 1992 1994 1996 1999 2001 2003 2006 2008 2010 2013 2015 2017 1971 1974 1976 1979 1981 1984 1986 1988 1991 1993 1996 1998 2000 2003 2005 2008 2010 2013 2015 2017 2020 Aitken Investment Management

Positioning / Sectors • Top 10 holdings Sector Allocation • Microsoft (7.5%) Cash • Facebook (6.3%) 9.1% • LVMH (6.2%) Information Technology • Estee Lauder (5.3%) Consumer Staples 25.6% • MasterCard (5.2%) 9.9% • Visa (5.1%) • Amazon (5.1%) • Alphabet (4.9%) • Coca-Cola (4.6%) Health Care • The Walt Disney Company (4.2%) 11.0% • Nike (4.2%) • Allocation by internal classification • 51.4% in Secular Growth (56.5% of equity) • Of which 8.1% in ‘Future Compounders’ • 21.0% in Defensive Growth (23.1% of equity) Communication • 18.5% in Cyclical Growth (20.4% of equity) Services • 9.1% in Cash Consumer 22.3% Discretionary 22.1% Aitken Investment Management

Positioning / Regional Regional Allocation (by listing) Regional Allocation (by source of revenue) 50% 45% 40% France 35% 6.2% 30% Hong Kong (China) 25% United States of 2.7% America 20% Netherlands 79.7% 2.4% 15% Cash (AUD) 10% 9.1% 5% 0% USA Developed ex China Emerging ex Cash (AUD) USA China AIM GHCF MSCI World Aitken Investment Management

Nike: A Compounder Capturing Several Structural Consumer Trends • Changing Consumer Preferences • Healthier lifestyles, particularly for younger and more affluent consumers • Athleisure as a dress code • Manufacturing Innovation • Improved sourcing, materials innovation, focus on reducing wastage • Supply chain flexibility • Building a Direct-to-Consumer Business • Leveraging digital platforms to build a community of fitness enthusiasts • Using data to better predict demand • Owning the distribution uplifts margins • Strengthening and Growing a Global Brand • Enabled by themes identified above • Global reach, local differentiation • Serving an increasingly segmented audience better Aitken Investment Management