Pictet Global Megatrend Selection Fund Update

This fund invests in 9 Megatrends based on 5 investment themes - Ageing and Health are driving Generics and Biotech; Individualisation is driving Premium Brands; New Technology is driving Security and Digital Communicaton; and the Environment is driving Clean Energy, Water, Timber and Agriculture.

Hans Peter Porter points out that 7 of these 9 megatrends have outperformed the MSCI World index since launch, with only Biotech and Clean Energy underperforming.  While Hans uses the MSCI World index to explain performance he says that actually there is only a 10% overlap with the stocks in the index. The fund has underperformed in 2011 because the fund is 50% exposed to small and mid cap stocks and has a 20% exposure to emerging markets. He points out that relative to the index the fund will continue to be overweight in healthcare companies and underweight in financials.

However Hans goes onto say that with "little cyclical growth this fund will continue to do better" than the MSCI World index. In the year to date Timber and Clean Energy have also been a drag on performance. The weak US housing market continues to impact on demand for timber, while the economic slowdown in Europe weighs on paper and pulp demand. Austerity measures continue to impact on clean energy, with many companies in this area reliant on government subsidies for their end market.

Hans points out that Water, Biotech, Generics, Digital Communication and Security will tend to move in line with the markets (low beta), while Clean Energy, Timber, Agriculture and Premium Brands will be more volatile and he describes as "racier versions of the themes".

Hans maintains that the key differentiator for this fund is the fund managers' focus on "one value chain" in each sub theme. Each fund manager knows "a lot about a little" as opposed to most other global equity managers who know "a little about a lot". The fund weightings between each sub theme are managed passively, with rebalancing between the themes automaticly undertaken and not subject to opinion. Thus this fund relies on the decisions of 17 investment managers as opposed to 1 or 2 and will invest in up to 500 stocks at any one time as opposed to say 100.