Investing in Future Connectivity - Fidelity Funds - Global Communications Fund Jon Guinness, Sumant Wahi. Portfolio Managers - Finect
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Investing in Future Connectivity
Fidelity Funds - Global Communications Fund
Jon Guinness, Sumant Wahi. Portfolio Managers
June 2020
For investment professional use only and not for general public distributionImportant information The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. The fund invests in overseas markets and the value of investments can be affected by changes in currency exchange rates. The fund invests in emerging markets which can be more volatile than other more developed markets. This fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. The fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. Past performance is not a reliable indicator of future returns. 1 | Fidelity Funds - Global Communications Fund
Why invest in Future Connectivity?
Consumer and business activities are moving from offline to online, and from online to mobile – a long
duration, material trend
Leading to innovation and disruption across multiple industries, with clear winners and losers
The fund exploits this theme with a deep understanding of underlying technologies, new business models,
and a truly global investment perspective
Future Connectivity universe benefits from stronger growth than the broader market, and the fund is
investing in companies with even better growth potential than the thematic universe
Source: Fidelity International.
2 | Fidelity Funds - Global Communications FundConnectivity is a basic human need...
Over millennia we have applied innovation and creativity to make it better
M
O
R
Post S
E
Telephone
The USA, 1876
Cave Smoke Carrier First Postal The Paper Town Crier/ First Public Daily
Paintings Signals Pigeons Service Marathon China, 105 Bellman Newspaper Newspaper Morse Code
First
France, Greece, 776 Persia, 550 Man AD The UK, Germany, Germany, The USA,
Transatlantic Signal
30,000 BC BC BC Greece, 530 1540 1605 1650 1835
Cornwall to
BC Newfoundland
1902
Blogging > Hello
USA, 1999 World <
Skype Tencent Google AIM WWW AT&T Arpanet 1st TV Bell Labs British
USA, 2003 China, 1998 USA, 1998 USA, 1997 USA, 1994 USA, 1983 Launched Broadcast USA, 1925 Broadcasting
The USA, Great Britain Company
Facebook 1969 1927 London, 1920
USA, 2004
YouTube
USA, 2005
Twitter Spotify Netflix WhatsApp Instagram Viber WeChat Snapchat Zoom Periscope Oculus TikTok Fortnite ?
USA, 2006 Sweden, 2006 2007 (Introduces USA, 2009 US, 2010 Israel, 2010 China, 2011 USA, 2011 US, 2013 USA, 2015 USA, 2015 China, 2016 US, 2017 2025
Streaming media)
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International, https://visual.ly/. Third party logos, trademark, copyright and other intellectual property rights are and remain the property of their respective owners.
3 | Fidelity Funds - Global Communications Fund...that plays a key role in all our lives
Average American adult spends ~3hrs a day on a smartphone
Video streaming: Consumers Social media: Av. daily social media
spend almost 83 mins per day usage of internet users worldwide
consuming digital video, growing to amounted to 144 mins per day, in
92 mins in 2020 2019, up from 142 mins in 2018
Gaming: Casual Working from home: In UK, more
gamers spend 2 hrs a than 1.54 million people work from
day gaming home for their main job, up from
884,000 10 years ago
Ecommerce:
Americans spend on Checking emails: Av. person
avg. 2 hrs a day checks work e-mail more than
shopping online three hours each day
Podcasts: 32% of Messaging: >65 billion
Americans now On av, people are WhatsApp messages sent
listen to podcasts spending around 18 hrs per day
on a monthly basis a week listening to
music in 2019, up from
17.8 hrs in 2018.
Source: Statista, eMarketer, musically.com
4 | Fidelity Funds - Global Communications FundWe are now in a Golden Age of connectivity
Speed, data intensity & people connected are rising exponentially
Speed Data intensity No. of people connected
700 160 9.000
Global mobile data traffic
No. of people connected (globally, millions)
140 8.000
600 575 Mbps
7.000
120
500
6.000
EB per month
100
400 5.000
Mbps
5G
80
300 4.000
60
3.000
200
40
2.000
76 Mbps
100 20 2G/3G/4G
32 Mbps 44 Mbps 1.000
13 Mbps 44 Mbps
6 Mbps 10 Mbps
0 0 0
2018
2019
2020
2021
2022
2023
2015
2017
2019
2021
2023
2025
E2019
E2022
E2025
2004
2007
2010
2013
2016
3G 4G
5G All Network Types
Source: Fidelity International, Cisco, March 2020; Ericsson, November 2019; Statista, April 2020.
5 | Fidelity Funds - Global Communications FundTriggering innovation across the global economy
Faster Cheaper
‘The defining secular trend will be the increasing
rate of digitisation of people, places and things.’
Satya Nadella, CEO, Microsoft
People Places Things
Finance Consumer Healthcare IT Industrials
Energy Communication services Real estate Materials Utilities
Source: Fidelity International. Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only
6 | Fidelity Funds - Global Communications FundConnectivity economics break global barriers
Global scale of e-commerce, cloud & social platforms un-parralled
Breakdown of global population and connectivity
technology usage
Enormous global platforms
6 support unprecedented
connectivity...
5
4 ..leading
to lower
… & higher customer
Billions
3 customer acquisitio
loyalty & Sustainable n costs
advocacy Growth & high
increment
2 al margins
1
These global winners have a
0 better product than local
Cloud availability Social media No. of people with e-commerce competitors...
penetration smartphones
Source: Fidelity International, Bessemer Venture Partners, 2020
7 | Fidelity Funds - Global Communications FundMost categories are very early in this transition
Globally, different regions have varying levels of penetration
100% Global penetration rates for adults
90%
80%
70%
Penetration rate
60%
50%
40%
30%
20%
10%
0%
Smartphones Social Mobile gamers mCommerce Streaming Car Food delivery Online Online
media videos sharing dating groceries
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International. Andreessen Horowitz (a16z), Kantar, eMarketer, 2018. Reference to specific securities should not be construed as a recommendation to buy or sell
these securities and is included for the purposes of illustration only.
8 | Fidelity Funds - Global Communications FundDigital economy is one of biggest drivers of GDP growth
Addressable universe offers resilient, through cycle growth
Digital economy real value added Projected annual net contribution of 5G to global
and total economy real US GDP growth
250
NPV of 5G contribution to global GDP growth
over 2020-2035: $2.1tn. (USD 2016)
200
USD billions (2016)
150
100
change YoY
50
0
-50
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Source: Fidelity International. US Bureau of Economic Analysis. Source: IHS Markit, ‘The 5G Economy’, November 2019
9 | Fidelity Funds - Global Communications FundAddressable universe split across three pillars…
Enablers, Networks & Innovators growing faster than global GDP
Category Universe Pillars Long-term drivers
Mkt Cap ~ $4trn
Equipment & devices to power super-fast Handsets & IoT:
networks Higher specs required given increasing use cases.
Typically technology companies e.g. Apple, Network Equipment:
Enablers Ericsson, Murata Constant speed & capacity upgrades required.
Demand for higher speed:
Mkt Cap ~ $2trn
Owners of
Consumers & businesses constantly demand higher speeds from
connectivity networks
telecoms operators.
Typically Telcom companies e.g.
More infrastructure pressure:
Networks Verizon, Charter, Cellnex
Higher speeds & capacity require more towers, more fibre.
Digital advertising / search / social:
Advertising follows consumers to mobile.
Mkt Cap ~ $13trn
Mobile commerce:
Taking advantage of the shift to online & mobile
Commerce / grocery / taxis follows consumers to mobile.
Typically internet companies, e.g.
Digital entertainment:
Alphabet, Alibaba, Tencent
Innovators Video, music, gaming, dating, apps move digital.
Digital workspace:
Enterprise / cloud / education going digital.
Source: Fidelity International.
10 | Fidelity Funds - Global Communications Fund…with unique characteristics
Enablers see cyclical revenue
$800
We are at the start
of 5G super cycle
$700
$600
$500
USD billions
$400
$300
$200
$100
$0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
3G 4G 5G
Source: Fidelity International. Morgan Stanley, JP Morgan, IDC, IHS, 2019. Global handsets, wireless RAN & IOT devices (in USD billion)
11 | Fidelity Funds - Global Communications Fund…with unique characteristics
Networks see steady revenue growth
$1.800
$1.600
$1.400
$1.200
USD billions
$1.000
$800
$600
$400
$200
$0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Mobile revenue Fixed revenue - Broadband Fixed revenue - Telephony Global Cable revenue Tower revenue
Source: Morgan Stanley & JP Morgan. Mobile & fixed telecom operator, cable, towers (in USD billion)
12 | Fidelity Funds - Global Communications Fund…with unique characteristics
Innovators benefit from huge structural growth
$2.000 7000
Cloud
$1.800 Taxi services
6000
$1.600 Food aggregators
Mobile travel bookings
$1.400 5000
Video streaming
USD billions
$1.200 Music streaming
4000
Digital Advertising
$1.000
Mobile gaming
3000
$800 Total Unified App Gross Revenues
$600 mCommerce (RHS) 2000
$400
1000
$200
$0 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Source: Morgan Stanley & JP Morgan. Mobile app, digital advertising, streaming media and m-commerce revenue (in USD billion)
13 | Fidelity Funds - Global Communications FundFocus on likely winners
Sample of key trends invested in
Category Trends Detail Stocks
5G capex cycle Key enablers of 5G connectivity
Acceleration in digital transformation Enablers that help enterprise transform faster
Enablers
Industry will be the primary driver of 5G adoption and
Network slicing
this needs network slicing
5G requires huge increase in connectivity,
Infrastructure for hyper-connectivity
computation & memory
Networks
Gaming goes AR, digital & mobile 5G gives hyper-fast networks with super low latency
Acceleration of M-Commerce Commerce is increasingly moving offline to online
Videos and music increasingly consumed on
On demand digital entertainment demand, supported through subscriptions or digital
Innovators advertising
Digitisation of offline media Legacy media companies embrace the digital age
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International, 2020.
14 | Fidelity Funds - Global Communications FundTrend in focus: Music goes digital
Benefitting from wider market participation
US Recorded Music Revenues by Format Amazon now an established player and likely to
(1973 to 2030), Value (millions USD) overtake Apple in 2020
18 160
16
14 140
USD million
12 120 Projected
Million subscribers
10
8 100
6
4 80
2
0 60
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
2024
2027
2030
40
LP/EP Vinyl Single 20
8-Track Cassette
0
CD Music Player (physical)
dic-10
feb-12
ene-15
ago-15
feb-19
jul-11
dic-17
jul-18
mar-16
may-10
abr-13
abr-20
oct-16
may-17
sep-12
nov-13
jun-14
sep-19
nov-20
Download single Download album
Ringtones & ringbacks Paid subscription
On demand streaming (ad supported) Other ad-supported streaming
Limited tier paid subscription Synchronisation Spotify Apple Music Amazon Music
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International, RIAA. Source: Fidelity International, company releases.
15 | Fidelity Funds - Global Communications FundTrend in focus: Gaming goes digital & mobile
Benefitting from wider market participation
2012-2021 global games market Asia to drive gamer growth
180
Expanding Audience Reach
160
140 Upcoming major industry transformations
120
USD billion
In the next ten years
100
80
60
5
billion gamers
40
Free-to-Play / Subscription
20
2019 Asia
0
2012
2013
2014
2015
2016
2017
2018
2019E
2020E
2021E
2
Mobile
Streaming / Cloud Gaming
Console PC Mobile billion gamers
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International, Newzoo, December 2018 Source: Fidelity International, Ubisoft, 2019.
16 | Fidelity Funds - Global Communications FundThemes in focus: Advertising video on demand
Hulu and Amazon will win the AVOD battle for advertising dollars
Global AVOD market revenues $ cost per thousand impressions
70 16
64
Targeted
60
60 14
55
50 12
50
44
10
USD billion
40 38
32 8
30 27 Untargeted
23 6
20 17
4
10 2
0 0
2016
2017
2018
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Viacom Discovery CBS Fox Hulu (Live)
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fiercevideo.com, June 2019 Source: Fidelity International. March 2019. Analyst estimates from 2018 to 2027
17 | Fidelity Funds - Global Communications FundPerformance
At 31 May 2020
Performance net of fees, EUR (%) Rolling 12-month returns net of fees, EUR (%)
Benchmark change
Fund (%) Index* (%) Excess return (%) 150 on 1 Oct 2019
140
130
1 month 4.7 2.7 1.9
120
3 months 10.7 -1.3 12.0 110
100
1 year 20.2 3.9 16.3 90
dic-18
ene-19
jul-19
sep-19
nov-19
dic-19
jun-19
feb-19
mar-19
ago-19
oct-19
ene-20
feb-20
mar-20
abr-19
abr-20
may-19
may-20
CY 2019 35.0 27.8 7.2
Tenure (cumulative)** 36.7 12.4 24.3
FF Global Communications Y-ACC-EUR
Benchmark index
MSCI ACWI Communication Services (N)
31.05.15 - 31.05.16 31.05.16 - 31.05.17 31.05.17 - 31.05.18 31.05.18 - 31.05.19 31.05.19 - 31.05.20
Fidelity Funds – Global
N/A N/A N/A N/A 20.2
Communications Fund –Y-ACC-Euro
Benchmark Index* N/A N/A N/A N/A 3.9
Excess return N/A N/A N/A N/A 16.3
Reference to specific securities should not be construed as a recommendation to buy or sell these securities
and is included for the purposes of illustration only.
Source: Fidelity International, 31 May 2020. Performance net of fees, for the Y-ACC-EUR share class. Basis nav-nav, with gross income reinvested in EUR. Comparative index:
MSCI AC World (N). *Prior to 1 October 2019, the fund was benchmarked against MSCI ACWI Communication Services Index (N); performance has been chain-linked. **Tenure
reflects Sumant Wahi’s tenure, from 11 December 2018; Jon Guinness was appointed Lead Portfolio Manager on 25 March 2019.
18 | Fidelity Funds - Global Communications FundWhy now?
COVID-19 is accelerating our key investment themes
Video conf up materially due to WFH. Acceleration in existing structural trends
Early data from China suggests this sticks
80%
70%
31 March saw daily record of 2.7 bn
meeting mins in 1 day, a 200% 60%
increase from 900m on 16 March
50%
40%
30%
February 23
Employees in China begin 20%
returning to work2
10%
0%
Digital Social Education GIFs & Streaming Gaming
publishing media tech Memes
% change between week of 6-12 Jan to week of 10-16 Feb
= Lockdown initiation dates % change between week of 10-16 Feb to week of 23-29 Mar
Source: Left chart - Microsoft, 9 April 2020. *Engagement reflects active actions in Microsoft Teams such as a chat or meeting. **Data reflects increase from last week in Jan to 3rd
week in March. Right chart - Fastly.com, April 2020
19 | Fidelity Funds - Global Communications FundDisclaimer This information must not be reproduced or circulated without prior permission. Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances, other than when specifically stipulated by an appropriately authorised firm, in a formal communication with the client. Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Unless otherwise stated all products and services are provided by Fidelity International, and all views expressed are those of Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited. Research professionals include both analysts and associates. The Key Investor Information Document (KIID) is available in English and can be obtained from our website at www.fidelityinternational.com. The Prospectus may also be obtained from Fidelity.Fidelity Funds “FF” is an open-ended investment company (UCITS) established in Luxembourg with different classes of shares. Holdings can vary from those in the index quoted. For this reason the comparison index is used for reference only. Barra. Inc.’s analytics and data (www.barra.com) were used in the preparation of this document. Copyright 2020 BARRA, INC. All rights reserved. Issued by FIL Pensions Management. Authorised and regulated by the Financial Conduct Authority. Spain: We recommend that you obtain detailed information before taking any investment decision. Investments should be made on the basis of the current prospectus and KIID (key investor information document), which is available along with the current annual and semi-annual reports free of charge from our distributors, from our European Service Centre in Luxembourg, FIL (Luxembourg) S.A. 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier). Portugal: We recommend that you obtain detailed information before taking any investment decision. Investments should be made on the basis of the current prospectus and KIID (key investor information document), which is available along with the current annual and semi-annual reports free of charge from our distributors, from our European Service Centre in Luxembourg, FIL (Luxembourg) S.A. 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier)... GLEMUS3301-0920 20 | Fidelity Funds - Global Communications Fund
You can also read
