MUNRO GLOBAL GROWTH FUND JUNE QUARTER 2017
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CONTENTS GLOBAL MARKET OUTLOOK 5 MGGF PERFORMANCE ANALYSIS 9 KEY INVESTMENT THEME: VIDEO GAMES (LONG) 15 3
GLOBAL MARKET OUTLOOK 4
GLOBAL MARKET OUTLOOK Growth has stabilised, with Europe still improving. Global Purchasing Managers Indices (PMI's) 60 57.7 58 57.2 57.0 56.7 56.2 56.0 55.4 56 55.2 54.9 54.9 54.8 54.7 54 53.3 53.1 52.7 52.7 52.4 52.4 52.0 51.8 51.6 52 51.4 51.3 51.2 51.2 50.1 50 49.6 48 46.9 46 45.2 44 44.0 42 US Eurozone Japan China Brazil Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Source: Bloomberg Consensus Data 5
GLOBAL MARKET OUTLOOK S&P 500 Index valuation is high, however earnings growth has now inflected positively and looks likely to continue. S&P 500 Index Forward Valuation (RHS) and EPS (LHS) 160 30 140 25 120 20 100 80 15 60 10 40 5 20 0 0 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 S&P 500 Fwd EPS (LHS) S&P 500 Fwd P/E (RHS) Source: Bloomberg Consensus Data 6
GLOBAL MARKET OUTLOOK Yield carry for equities has shrunk, but importantly remains positive. S&P 500 Earnings Yield - US 10yr Bond Yield (%) 8 6 4 2 0 -2 -4 -6 -8 Jan-62 Jan-66 Jan-70 Jan-74 Jan-78 Jan-82 Jan-86 Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 Jan-14 Source: Bloomberg Consensus Data 7
GLOBAL MARKET OUTLOOK The Munro Global Growth Fund has reduced market exposure over recent months as valuations and seasonality start to slow market performance. 120% 110% 100% 90% 80% 70% 60% Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Net Exposure (trailing 10day average) Gross Exposure (trailing 10day average) 8
CASE STUDY: VIDEO GAMES 9
THE RISE OF GAMING The introduction of next generation consoles, smartphones and using the internet for connected game play has resulted in video games moving from the bedrooms of teenagers to the hands of all individuals, sold out sports stadiums and prime time TV. The addressable market is exploding and multiple vendors across the eco-system look well placed. AoI Winners Sub - Trends CONSOLE MAKERS SOFTWARE MAKERS GAMING ENABLERS GAMING ESPORTS AND HOSTING GRAPHICS SECULAR CONTENT LOSERS Images do not necessarily represent assets of the Fund or constitute financial advice. 10
THE GLOBAL GAMING MARKET The global gaming market in gross dollars spent is growing at roughly 8% per annum, driven by the growth in screens, the rise in casual gamers and the digitalisation of game play / game downloads. Global gaming market $bn’s 2012-2018 Global gaming market growth 120 Global gaming market growing at 8% per annum, driven by three key secular trends: 8% CAGR 100 • More screens: Smartphone / tablet penetration gives everyone their own hand held gaming device for publishers to target a much larger 7% CAGR PC, Webgames &MMO audience via casual gaming. 80 • MMO (Massively Multiplayer Online): Internet connected games allow $ Billion players to play each other from all over the world, giving rise to huge 60 15% CAGR playing communities around the top games. Smartphones • In game purchases: Digitalization allows players to purchase more 40 goods in the game, it also allows publishers to hook casual gamers with 9% CAGR Tablets & Handhelds initially free games. Widening the community and widening the revenue opportunity. 20 2% CAGR Consoles 0 2012 2013 2014 2015 2016 2017E 2018E Source : NewZoo 11
FEWER GAMES BUT MORE SUSTAINABLE FRANCHISES The stock market is increasing recognising that the major video game publishers have morphed from “hit driven” business models around AAA game releases, to companies that have been able to build more sustainable franchises via steady gamer engagement. Activision Monetisation Model EA Game Titles vs. Earnings Per Share 450 million users 40 5.00 Earnings Per Share (Non-GAAP) 4.00 30 Number of New Titles p.a. Electronic Arts Electronic Arts 3.00 43 billion $2.2bn of hours 20 operating played/ cash flow watched 2.00 10 1.00 0 0.00 2010 2011 2012 2013 2014 2015 2016 2017e EA # of titles p.a. EA EPS (RHS) $3.6 billion in digital in-game sales Source : Activision Blizzard, Electronic Arts, Morgan Stanley 12
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