curing cancer. in the clouds. the final frontier
DESCRIPTION
Portfolio managers Dennis Wassung, CFA, and Craig Goryl, CFA, discuss Cabot Wealth Management's investment themes, including biotechnology and genomics, cloud computing and frontier markets. Presented on September 26, 2014.TRANSCRIPT
WELCOME TO CABOT’S
25TH ANNUAL INVESTMENT & WEALTH MANAGEMENT CONFERENCE
Your interests and goals always come first.
Curing Cancer, In The Clouds
& The Final Frontier
PRESENTED BY:
DENNIS WASSUNG, CFA ®, PORTFOLIO MANAGER
CRAIG GORYL, CFA ®, PORTFOLIO MANAGER
Dennis Wassung, CFA®
Portfolio Manager
Cabot Wealth Management, Inc.216 Essex Street
Salem, Massachusetts 01970800-888-6468 eCabot.com
Curing CancerGenomics & Biotechnology
GenomicsWhat is it?
Genomics – The study of organisms’ hereditary information. An
organism’s genome is its complete set of DNA.
DNA – The chemical compound containing instructions for developing
and directing all the body’s activities. An identical copy is in each cell.
DNA Sequencing – The process of determining the exact order of the
chemical bases that make up DNA, about 6.2 billion in total for a human.
The map of a person’s DNA can tell us a lot about them, from their
eye color to their likelihood of developing cancer. Scientists
understand parts of the map, but most of it is still a mystery.
GenomicsWhy is this important?
Predictive Medicine – Based on my DNA, what are my chances of
developing a particular disease?
Testing & Diagnostics – What disease is this? Is it an aggressive form in
need of treatment, or is it better to wait?
Therapeutics – What causes this disease, and what drugs will cure it?
At the heart of genomics is the promise of personalized medicine. Because
of differences in DNA, treatments do not work the same for everyone.
Someday our current practice - prescribing the same drug for everyone who
has a given disease - will seem archaic. This is truly a revolution in
healthcare.
Why We Need Better, Targeted Drugs
Lower Cost Per Genome Drives Adoption
Next-Generation Sequencing (NGS)
Source: Illumina, Inc.
Oncology Market Evolving
Source: Illumina, Inc. & U.S. Department of Energy Office of Science
Evolving Biotechnology & BiopharmaLandscape
Source: Quintiles Transnational, Inc.
Market Evolution Toward The Patient
Source: Quintiles Transnational, Inc.
Where Are We Headed?
Source: Illumina, Inc.
Investment Opportunities
Gene Sequencing – Equipment & Technology solutions to rapidly and cost-effectively sequence DNA
Biotechnology – New Drug Development & Commercialization, Genetically-targeted drugs
Testing & Diagnostics – Testing for & diagnosing specific genetically defined diseases and condition.
Bioinformatics & Data Analytics – Analyzing the massive amounts of data created and gleaning critical information from gene sequencing
In The Clouds…
Cloud Computing – A Major Transition
Cloud Computing Benefits
$410 Billion Worldwide Software Market
Enterprise Software Market Evolution
Source: Veeva Systems, Inc.
Moving To The Cloud Saves Money
Source: IDC Research Cloud Software Analysis, Sep 2012; Veeva Systems
Industry-Specific Cloud Platforms
Sources: Demandware,
Euromonitor, Gartner,
eMarketer Global eCommerce
Investment Opportunities
Cloud Software (aka “Software-as-a-Service” or SaaS) –Enterprise Software “lease” business model gaining wide adoption – CRM, Marketing, HCM, ERP – Lots of attention from the Big Guys (Acquisitions)
Cloud Infrastructure – Internet and data center infrastructure needed to enable the “Cloud” in all of its forms
Industry Cloud Software Applications – Companies are developing and gaining traction with industry-specific cloud platforms – life sciences, financial services, eCommerce, etc.
Cybersecurity technology – Software and hardware solutions to protect consumers and companies, whose personal or business data reside in the cloud
Frontier Markets-Next to EmergeCRAIG GORYL, CFA
PORTFOLIO MANAGER
CABOT WEALTH MANAGEMENT
What are Frontier Markets?Frontier Markets are less developed than Emerging Markets. We view the investment universe in classes.
In order of market maturity (with examples):
1. United States*
2. Developed Markets (Germany, Canada, Japan)
3. Emerging Markets (Brazil, China, Russia, Mexico)
4. Frontier Markets (Kuwait, Nigeria, Argentina, Pakistan)
In terms of development, Frontier Markets are like Emerging Markets 20 years ago. But they are catching up at a faster rate.
*US is a Developed Market- a special case as our home country and the most advanced
What are Frontier Markets?
Source: Wall Street Journal
What are Frontier Markets?Frontier markets hold 35% of the world’s population, produce 16% of its economic output, and represent 4% of global market value
Source: Everest Capital
Why Frontier Markets?
1) ATTRACTIVE DEMOGRAPHICS
Growing working age population, the prime time for fertility and economic productivity
0
10
20
30
Kuwait Nigeria US Japan
% of Pop. Over 65 today
-10
0
10
20
Kuwait Nigeria US Japan
% Growth of Working Age Pop, 2015-2020
Low “elderly dependency ratio,” the resource transfer from young to old
Why Frontier Markets?
2) “LEAPFROGGING”
Skipping generations of technologies saves time, money and resources. Examples: photography, M-Pesa
Access to modern political and economic theory through an increasingly global education system
Source: Franklin Templeton
68%
50%
29%
24%
13%
11%
% of Mobile Phone Users Regularly Making or
Receiving Payments on their Phone
Why Frontier Markets?
3) RESOURCE RICH
Frontier markets contain about 40% of the world’s natural resource reserves and nearly 26% of gas reserves
They have an opportunity to avoid the “resource curse,” where corruption and inequality follow abundant natural resources (Russia, Mexico, South Africa)
Source: Everest Capital
Why Frontier Markets?
4) GROWING FAST 5)REASONABLY PRICED 6) GOOD QUALITY
Growth: Valuation: Quality:
Est. Sales
Growth
Rate '13-15
Est. EPS
Growth
Rate '13-16
Price/
Earnings
Est. Price/
Earnings
Price/
Book
Dividend
Yield
Return
on
Equity
Operating
Profit
Margin
Debt/
Equity
Debt/
Assets
United States 5% 12% 18.1 16.8 2.7 1.9% 15.0 14.0 104.8 23.9
Developed Int'l 2% 15% 17.6 15.1 1.6 3.3% 10.6 9.6 180.6 24.5
Emerging Mkts 4% 8% 13.4 12.2 1.5 2.7% 10.9 10.9 109.3 22.4
Frontier 28% 25% 12.0 11.2 1.8 3.7% 15.4 18.7 88.3 16.7
Green represents the most attractive metric. Red is least attractive.
Data: Bloomberg 9/19/14
Risky? Less Than You ThinkLOW DEPENDENCE ON FOREIGN CAPITAL
Frontier economies are self-sustaining. Infrastructure investment is fed by citizen savings, not hot foreign money.
LOW CORRELATION TO OTHER MARKETS
These markets and economies respond to military coups, typhoons, oil discoveries etc., not broad global macro events. Each country has idiosyncratic drivers.
Single country volatility is high, but low correlations mean lower collective volatility- see the chart.
Source: Wall Street Journal
Other Risks?
BALANCE
The main benchmark (MSCI Frontier Markets Index) is not well balanced.
Kuwait and Nigeria comprise almost half the index. Banks and other financial companies dominate.
Solution: Frontier markets should be part of a diversified portfolio
LIQUIDITY
Market access, company size, and share availability are barriers.
Most Frontier companies trade less than $3mil in value per day, raising the cost of entry and exit.
Solution: US-traded funds like FM & TFMAX are liquid but don’t solve the underlying issue
Return Comparison (2-year)
Thank you
2 1 6 E S S E X S T R E E T
S A L E M , M A 0 1 9 7 0
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( 8 0 0 ) 8 8 8 - M G M T
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