AllianceBernstein
Thematic Investing
Capitalizing on Tomorrow’s Trends Today
> Our thematic portfolios seek to identify and
exploit powerful themes that may drive profits
across industries.
> Our current themes target opportunities associated
with major trends like climate change, high-speed
Internet and genomic medicine.
> Thematic investing may provide an attractive diversification element to an overall portfolio, potentially
enhancing returns while reducing overall portfolio risk.
Thematic Investing
Big Changes May Lead to Big Opportunities
Portfolios built on innovative ideas that can transform the investing landscape allow investors to
participate in some of the world’s most promising investments.
Searching the Horizon for Promising Themes
We’re living in a period of extraordinary
change. High-speed Internet access has spread
like wildfire across the globe, altering the way
we spend our time—at work and at play. Many
believe rising temperatures are threatening
our very future on this planet—and inspiring
people around the world to “think green.”
Revolutionary discoveries in genetics will soon
allow us to diagnose and treat many of the
diseases that aff lict us, prolonging our lives.
Disruptive ideas, innovations and economic forces
like these are constantly reshaping our world. We
believe the companies that can exploit them will
become the next great investment opportunities.
Thematic investing uses these ideas as a guide to
help build portfolios of companies with unusual
promise, positioned to capitalize on exciting
long-term trends.
Research Leads Us to Opportunity
Identifying the right themes isn’t easy. The
investment world is full of promising ideas that
go nowhere. It takes teams of analysts with deep
expertise in a variety of industries to see through
the hype. We’ve spent two decades building one
of the largest research efforts in the investment
world—and we believe this helps us build
thematic portfolios that include companies of
unusual promise.
In this brochure, we’ll discuss how we approach
thematic investing and how the themes that drive
our investments will reshape our world and create
the potential for major opportunities for investors.
A thematic approach can help identify
companies poised to exploit the bold new
ideas of tomorrow.
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AllianceBernstein
Research Drives Our Investment Themes
Our thematic research team tries to identify and exploit profound economic or technological
changes that are powerful enough to drive profits across many different industries.
Leveraging Research Insights from Across Our Firm
To find the themes that will drive tomorrow’s
markets, we draw heavily on our firm’s research
strength. Analysts from our Research on Strategic
Change group help us identify and define longterm themes like climate change and genomic
medicine. The themes we choose to invest in
must be powerful enough to create and disrupt
business opportunities.
To target the industries most likely to benefit
from each theme, we build a profound
understanding of all the underlying market
dynamics. For example, after studying the
economics of producing solar energy, we
concluded that investors should focus less on
renewable energy stocks such as wind and solar,
and more on nuclear power, plug-in hybrids and
clean coal technologies.
Targeting the Right Companies
But simply identifying these transformational
themes and their impact is only part of the story:
we must also identify companies that will reap
the benefits. To do so, we focus on the strategic
advantages of a company’s business plan over our
three- to five-year investment time horizon.
Our Early Stage Growth team helps us target
innovations on the cusp of being commercially
viable, and our growth and value analysts give us
deep insight into company fundamentals.
We refine our portfolio selections with the help
of our economic analysts, who identify the
cyclical forces that may affect our themes in the
next 12 to 18 months. In addition, we constantly
balance the risk/reward trade-offs of the stocks
held in our portfolios with tools developed by our
quantitative research group.
Our thematic investment process draws on the best ideas of our research analysts.
´
´
Thematic Research
Team
´
Economic Research
Provides global cyclical outlook
´
Early Stage Growth Research
Identifies emerging technologies
Research on Strategic Change
Identifies key secular themes and beneficiaries
´
2
´
Portfolio Themes
> Climate Change
> Web 2.0
> Genomic Age
Portfolio themes are subject to change.
Source: AllianceBernstein
> (re)Emerging Middle Class
> Heightened Cyclicality
Quantitative Research
Analyzes portfolio risk/reward ratio
Fundamental Research
Identifies attractive investment candidates
Thematic Investing
Capitalizing on Tomorrow’s Trends Today
Here are five key themes that we currently believe will transform industries and create enormous
opportunities for our clients.
A Changing Climate Will Inspire Massive New
Investment Around the World
The threat of catastrophic changes in the world’s
climate is leading people around the world to
“think green.” Support continues to grow for
strong regulatory efforts to reduce greenhouse
gas emissions like CO2. This concerted effort by
governments, corporations and global movement
should lead to strict new policies and may alter
the way businesses operate. Much of the world
has already adopted regulations with this goal in
mind, and we expect them to become stricter and
more widespread.
This redefined regulatory regime will promote
existing and developing technologies, allowing us
to control carbon emissions in many new ways.
Electric power plants, the largest source of these
emissions, will be retooled so that they channel
their emissions underground. Efforts that promote
energy efficiency, nuclear energy and plug-in
hybrids will also help.
The capital expenditures needed to push CO2
concentrations below dangerous levels will be
massive and will likely occur over decades.
We believe that the investment implications
will be profound for a wide variety of
industries—from electric utilities and power
equipment makers to pipeline operators and
construction & engineering firms.
New expenditures to control climate change
have profound investment implications.
A new generation of global power plants will use clean coal, nuclear and renewable energy.
Capital Expenditures of Global Power Generation
USD Billions
600
Traditional
Coal Plants
400
Gas
Oil
Renewables
Nuclear
200
0
Clean Coal
2006
2010E
2014E
2018E
2022E
2026E
2030E
Neither current analysis nor estimates nor performance guarantees future results.
Source: Energy Information Association, International Energy Agency, Oak Ridge National Laboratory, World Resources Institute and AllianceBernstein
3
4
AllianceBernstein
Innovative Companies Have Prospered as the
World Goes Online
High-speed networks have made enormous
strides in the first decade of the 21st century. Just
15 years ago, few people had Internet access in
their homes; these days, many of us carry it with
us on our cell phones. The developed world’s
thirst for high-speed Internet access is now
spreading to the emerging markets. Some of the
companies that helped build the infrastructure
for this revolution are facing slower growth, but
other companies are poised to take advantage of
the new ability to connect to the information
superhighway almost anytime—and anywhere.
Consumers are spending more time online, and
as they expand their Internet use to bandwidthintensive activities like streaming video such as
YouTube and high-definition TV, demand for
additional capacity will grow dramatically. We
believe this will create attractive investment
opportunities in companies that support, organize
and secure data. We believe the evolution of
consumers’ online preferences will also include
a surge in multi-player games, online virtual
worlds and other new forms of entertainment,
which are already attracting new users by the
millions. Some innovative new companies in this
sector have learned how to capitalize on the many
different sources of revenue from trends, such as
cloud computing.
The dramatic increase in broadband capacity has
also led to a huge increase in trading volumes
at financial exchanges, which has helped them
lower costs, increase efficiencies and produce
strong revenue growth. At the same time, the
efficiencies of global networks are encouraging
other companies to divest themselves of non-core
businesses and outsource to firms that can
produce goods and services at lower cost.
Promising new companies are learning
how to exploit the global increase in
broadband capacity.
What will drive the next wave of IT spending?
US Capital Expenditures on Investment Technology Annualized Growth Rate*
Percent
25
/
es
am tion
r
f
in op
Ma Ad
C
P
20
What’s Next?
Cloud Computing
Web 2.0
Mobile Internet
15
et
ern
10
Int
5
0
–5
1964
1973
Current analysis does not guarantee future results.
Through 30 June 2009
*Rolling three-year average, inflation adjusted
Source: Bureau of Economic Analysis and AllianceBernstein
1982
1991
2000
2009
Thematic Investing
A Promising New Age of Genomic Medicine Is
About to Begin
Technological advances often lead to scientific
discoveries that change how we treat illnesses,
creating breakthrough investment opportunities.
Improvements in microscopes during the 1850s
helped us understand how bacteria contribute to
disease, leading to vaccines and improvements in
hygiene. In the 1940s, our ability to manipulate
chemistry fueled the development of antibiotics
and the birth of the pharmaceutical industry.
Science is now crossing a new medical milestone
with the mapping of the human genome—the
basic genetic information contained in our DNA.
As methods for decoding this map become faster
and the tools utilized become cheaper, companies
will be able to develop tests and medicines
tailored to our specific needs. Doctors hope to
eventually be able to predict the diseases that
will affect us and prescribe medical treatments
for some of our most challenging illnesses—from
heart disease to cancer.
These exciting developments will help us live
longer, more productive lives. They will also
transform the way medicine is practiced and
open up vast new opportunities in the healthcare
and insurance industries. We’re now identifying
which companies we believe are positioned to
thrive in this new era of medicine—and which
may be left behind.
New genetic therapies will redefine how
we practice medicine and open up vast
new opportunities.
Knowledge of the genetic origins of disease is increasing at an exponential rate.
Cumulative Genomic Associations with Human Disease
2,500
Basal cell carcinoma (cutaneous)
Blood pressure
Breast cancer
Crohn’s disease
LDL cholesterol
Type 1 diabetes
Asthma
2,000
1,500
1,000
500
0
2005
2006
2007
2008
Historical analysis does not guarantee future results.
*As of 31 May 2009
Source: UBS and AllianceBernstein
YTD 2009*
Bipolar disorder
BMI
Colorectal cancer
HDL cholesterol
Prostate cancer
Type 2 diabetes
Other
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6
AllianceBernstein
A Powerful Middle Class Is Growing
Around the World
The rapid growth of emerging economies—
particularly in China and elsewhere in Asia—has
given birth to a new and rapidly growing
middle class.
These consumers are spending more on
discretionary items such as personal luxuries,
name-brand products and entertainment. Firms
selling products in these surging markets are
moving production centers closer in an effort
to reduce manufacturing costs—and have been
reaping sizable profits.
The ranks of the middle class are growing
in the developed markets as well. Economic
changes and new policy decisions are helping to
change consumer spending patterns and opening
up additional new investment opportunities,
particularly in Europe and the Americas.
Stimulus Efforts Have Led Us to a Reshaped
Environment of Cyclical Opportunities
We believe the massive stimulus efforts in
progress will help revive the global economy.
But we also believe they may lead to a more
volatile business cycle.
To combat potential inf lation, governments will
be forced to take drastic measures to remove
the excess liquidity from the system. As a result,
we may see a return to the shorter and sharper
economic cycles of the 1970s and early 1980s,
which were driven largely by monetary and
fiscal policy.
This intensely cyclical environment is likely to
lead to many new investment opportunities.
Companies with strong balance sheets should be
able to capture market share from weaker rivals,
becoming more efficient. At the same time, active
managers may have the opportunity to capitalize
on companies arising from the various economic
scenarios that may occur.
When per-capita GDP reaches USD 6,000,
consumption growth in emerging markets has
historically taken off.
Dramatic growth in the money supply could lead
to higher inflation.
Consumer Contribution to GDP*
Percent
Growth of Monetary Base Year over Year*
Percent
120
90
80
100
USD 6,000
Periods of
Recession
80
70
Infrastructure
Buildout
60
60
Rise in Consumption
40
50
20
40
0
30
USD 0
10,000
20,000
30,000
40,000
50,000
–20
1929
1939
1949
1959
1969
1979
1989
US Dollars
India
China
Global Trend (1955–now)
Historical analysis does not guarantee future results.
As of 30 June 2009
*Consumption % GDP vs. per-capita GDP in USD purchasing power
of parity terms
Source: Nomura and AllianceBernstein estimates
Historical analysis does not guarantee future results.
Through 31 July 2009
Source: Bloomberg, FactSet and AllianceBernstein
1999
2009
Thematic Investing
Change Is Constant; Opportunities Aren’t
Big investment themes are never static: they continue to evolve as the world changes.
Our portfolios are designed to adapt to these changes.
Building portfolios on the basis of promising
investment themes forces us to keep watch on
how new events are affecting our investments.
Our interest in opportunities associated with
the Internet is a good example. Our initial efforts
targeted manufacturers of high-speed Internet
technology, but as more people started using
it to watch streaming video, play games and
interact online in new ways, we changed our
focus to follow companies that can exploit these
new trends.
Sometimes themes that begin as separate ideas
converge. Other times, themes need to be
redefined to capture the new directions they’re
taking. We also adjust the portfolio weightings
we assign to each theme depending on the
investment opportunities we see.
We try to identify the most dynamic
economic and technological trends and then
find companies poised to benefit from them.
Our investment themes evolve over time.
Cyclical/Other
Broadband Revolution/
Personalized Media*
Weighting
Developing World’s
Emerging Middle Class†
Biotech Revolution/
Personalized Medicine‡
Broadband Revolution/
Personalized Media*
Broadband Revolution/
Personalized Media*
Abating Climate Change
Developing World’s
Emerging Middle Class†
2004
Housing
Abating Climate
Change
Developing World’s
Developing World’s
Emerging Middle Class† Emerging Middle Class†
Biotech Revolution/
‡
Productivity Super Cycle/ Personalized Medicine
Deverticalization*
Industrial Renaissance
Broadband Revolution/
Personalized Media*
Biotech Revolution/
Personalized Medicine‡
Cyclical/Other
Heightened Cyclicality
Broadband Revolution/
Personalized Media*
Web 2.0
Abating Climate
Change
Biotech Revolution/
Developing World’s
Personalized Medicine‡ Emerging Middle Class†
Productivity Super Cycle/
Productivity Super Cycle/ Productivity Super Cycle/ Biotech Revolution/ ‡
Deverticalization*
Personalized Medicine
Deverticalization*
Deverticalization*
Industrial Renaissance
Rise of Electronic
Financial Exchanges*
Rise of Electronic
Financial Exchanges*
2005
2006
2007
Investment themes and weights are subject to change.
As of 30 June 2009
*Now part of Web 2.0
†
Now part of (re)Emerging Middle Class
‡
Now part of Genomic Age
Source: AllianceBernstein
Abating Climate
Change
Productivity Super Cycle/
Deverticalization*
2008
(re)Emerging
Middle Class
Genomic Age
2009
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AllianceBernstein
Unique Insights Lead to Diversified Portfolios
Unique insights from our global team of research analysts allow investors to diversify their global
stock portfolio, potentially enhancing returns while reducing risk.
Drawing on Our Research Strength
AllianceBernstein’s approach to thematic
investing is supported by more than 150
fundamental and quantitative analysts from across
the firm. Our analysts, who have an average of
14 years of investment experience, have the deep
insights required to understand and challenge
the market’s view of a company.
Our thematic research often leads us to unique
insights—and as a result, our thematic portfolios
don’t look or perform like others. They span
sector and country borders with no regard for
industry-defined style. Thematic companies
Diversification does not eliminate the risk of loss.
may behave like growth stocks during one phase
and value stocks in another. Because thematic
portfolios aren’t highly correlated with style or
index-sensitive holdings, they can help diversify
an overall portfolio, enhance return potential
and reduce overall risk.
Thematic portfolios may be a good
complement to traditional style- and
benchmark-driven investments.
©2009 AllianceBernstein L.P.
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