Smart materials june_2012_citywire

SAM Smart Materials Fund

26 June 2012Citywire Zurich Forum

Pieter Busscher, Portfolio Manager

1

Table of Contents

1. SAM at a Glance

2. Growth in a resource constrained world

3. Investment Case for „Smart Materials“

4. Portfolio Composition and Exposures

5. Performance Review

6. Outlook

7. Appendix

2

SAM at a Glance

• Investment boutique focused exclusively on Sustainability Investing since 1995

• Offering complementary capabilities to Sustainability Investing

• Powering Dow Jones Sustainability Indexes since 1999

• Member of Robeco, part of the Rabobank Group (with the highest credit rating of all privately owned banks, awarded by rating agencies Moody’s, Standard & Poor’s, Fitch and DBRS)

• EUR 8.8 billion total assets (as per 31.12.2011)

• Servicing a global and diversified client base

• Approximately 100 employees based in Zurich, Switzerland

3

Investment Case: Smart Materials

Development nominal and real prices of commodities 1934- March 2012

• While nominal commodity prices have increased 10-fold over the past ~70 years, real (inflation-adjusted) prices

have actually declined some 40%.

• Free-market forces and human ingenuity have generally led to substitution and technological progress,

enabling economic growth despite resource scarcity.

2.79% CAGR

-0.90% CAGR

Source: Bloomberg, SAM Research (2012)

4

Challenge of Demand Growth

Current challenges:

• By 2030 1.46bn Chinese will demand twice the paper produced today

• By 2030 at 3 cars per 4 people there will be 1.1bn cars, today total 0.86bn

• By 2030 China would need 98mn barrels of oil, versus 85mn world wide now

Per Capita (kg)

157Total (m tons)

Global

Production2004

Example:

Current paper demand Expected future paper demand

210

303

China

Exp. Usage2030*

27210

3562

ChinaUSA

Usage in 2004

� Impossible to meet future demand at current usage levels

55

Increasing Worldwide Demand for Basic Resources Calls for Innovation and Efficiency

Limited natural resources and growing demand

Investment opportunities

Commodity price volatility

Technology & substitution

•Basic Resources

•Recycling & Disposal

•Process Technologies

•Innovative Materials

Investment Case Smart Materials

6

• Many of the companies we invest in benefit from solid business fundamentals, such as:

• dominant or fast-growing position in served end-markets

• high barriers to entry due to strong intellectual property and technical know-how

• exposure to secular growth trends, often driven by new applications and increasing adoption

• good pricing power leading to stable and above-average margins

• balance sheet strength

Defining Features of Innovative Materials & Technologies

What differentiates innovative materials & technologies?

The type of materials and technologies we invest in generally aim to fulfill one or more of the following

objectives:

• lower the cost of a product or manufacturing process (e.g. automation & process control)

• improve the performance specifications of a product (e.g. energy storage materials)

• prolong product life (e.g. specialty metal alloys)

• stimulate development and pioneer new applications (e.g. E-paper & novel displays)

77

Stock Selection

Portfolio Construction& Monitoring

IndustryAnalysis & Universe Screening

Peer Group Analysis & Company Selection

Fundamental

Company Valuation

Investment Universe

Growth Themes Investment Opportunities Portfolio

SAM Sustainability Expertise

SAM Theme Strategies – Investment Process Overview

8

Christophe ChuretSenior Analyst

Basic Resources, Process TechnologiesMaster in International BusinessIn industry since 2006; with SAM since 2006

Investment Team

Dieter KüfferSenior Portfolio Manager

Deputy Portfolio Manager Smart MaterialsIn portfolio management since 1986; with SAM since 2001

Pieter BusscherPortfolio Manager

In portfolio management since 2007; with SAM since 2007

Smart Materials Portfolio Management Team

Smart Materials Analyst Team

Urs Diethelm, CEFASenior Analyst

Recycling and DisposalMA Business AdministrationIn industry since 1986; with SAM since 2010

Andrea Ricci, PhDAnalyst

Innovative MaterialsMaster in Business Administration, PhD Chemical SciencesIn industry since 1999; with SAM since 2010

9

Smart Materials - Strategy Scope

30

115

147

51

No. Stocks

Closing the material loop

• Waste management & recycling

• Waste & recycling equipment

• Waste to energy

Recycling & Disposal

Technologies that deliver efficiency gains

• High-power industrial lasers

• Automation & process control (e.g. sensors, metrology, motion control, …)

• Analytic instruments (e.g. software, inspection & testing, …)

• Mining & industrial equipment

• Industrial gases

Process Technologies

Materials that improve performance & pioneer new applications

• Light-weight materials (e.g. carbon fibers, ceramics)

• Energy storage materials (e.g. batteries, ultracapacitors)

• E-paper & novel displays (e.g. OLED)

• Bio-based materials (e.g. bio-plastics, industrial biotech)

• Specialty metals (e.g. titanium metal alloys)

• Efficient building materials

Innovative Materials

Strategic commodities in tight supply

• Strategic metals (e.g. rare earths, lithium, PGMs)

• Sustainable metals & mining companies

Basic Materials

FocusInvestment AreasCluster

9 Focus on Innovative Materials and Process Technologies

10

• Rare Earth Elements are increasingly important for clean tech applications like: magnets (e.g. in automobiles), alloys (high strength applications), displays and glass, etc

• Chinese impact on export pricing and quotas has driven up prices abroad

• The market is expected to grow by some 7-10% annually, driven by China and Japan

Trend: Basic Resources: Rare Earth Elements

Source: SAE

Source: USGSSource: USGS

Other; 5%

Ceramics; 5%

Phosphors ; 7%

Magnets; 21%

Metal alloys; 18%

Polishing; 15%

Glass; 9%

Catalysts; 20%

Source: USGS

REO Consumption by Volume 2010

11

Investment Universe -Examples

Rare earth elements

• Dominant position in the supply of neodymium, with 85% global market share

• Global # 2 processor & distributor of other rare earths and zirconium-based engineered materials

• Vertically integrated, low-cost advantage due to strategically located production facilities

Neo Material

Technologies Inc.

Market cap: 1’294 million USD (31.03.2012)Country: CanadaCluster: Basic MaterialsMSCI Sector: Materials

12

Trend: Innovative Materials: Carbon Fibers

• The commercial aerospace sector provides a good example of the gradual substitution of traditional materials

by innovative materials over time

• While the first Boeing 747 that came into service in 1969 contained mostly aluminum and steel, the latest

generation of aircrafts, such as the Boeing 787 and the Airbus A380 and A350 XWB, contain between 30-60%

of composite materials such as carbon fibers, whereas aluminum and steel now represents less than 15%

Airplane weight over time, by material type

Source: Bank of America (2010)

Boeing 747

Composites content at zero in 1970, in current Boeing 787 at 50%

13

Trend: Innovative Materials: Carbon Fibers

• Carbon fibers offer significant advantages for applications where strength and light-weight properties are

mission critical. Carbon fibers are approx. 10x stronger and 5x lighter than steel, and 8x stronger and 1.5x

lighter than aluminum

• As the cost of carbon fibers has declined from $350/kg in the 1970s to approx. $20/kg today, it has continuously

penetrated new applications, from aerospace to construction, wind blades, deep-water drilling, and automotive

applications. Demand is expected to grow by 15-17% p.a.

Source: DB, SAM estimates

Global Carbon Fiber Demand 2011-2020, in tonsGlobal Carbon Fiber Demand in 2020 by application

Source: CompositesWorld/SAM estimates

Source: CompositesWorld/SAM estimates

14


Carbon Fibers

• Leading advanced composites company, focusing on aerospace and wind applications

• Carbon fibers 10x stronger, ¼ of the weight of steel

• Boeing 787 contains more than 50% (~30t) of composite materials

HexcelCorp.

Market cap: 2’386 million USD (31.03.2012)Country: USACluster: Innovative MaterialsMSCI Sector: Materials

15


Portfolio Characteristics (C-Shares, in EUR, as of May 31, 2012)

The data stated above may differ from data on the monthly factsheets due to different sources.

Key Data: SAM Smart Materials Fund

Inception Date October 1, 2006

Total Fund Volume in EUR (in m) 73

Number of Holdings 47

13.2%

11.4%

35.3%

40.0%

Innovative Materials

Process Technologies

Basic Resources

Recycling & Disposal

52.1%

23.4%

24.5%

Americas

Europe

Asia & Australia

48.3%

24.0%

27.7%

Large Caps (> USD 10bn)

Mid Caps (USD 2-10bn)

Small Caps (< USD 2bn)

Exposure by Clusters(excluding cash)

Exposure by Regions(Company Domicile, excluding cash)

Exposure by Market Capitalization

for 3-years-performance

16


Portfolio Exposures (C-Shares, in EUR, as of May 31, 2012)


46.6%

9.9%

7.6%

6.5%

5.5%

5.1%

4.7%

4.0%

3.0%

1.9%

1.8%

3.4%

54.9%

9.3%

0.0%

8.9%

5.0%

0.0%

3.3%

3.6%

0.9%

0.0%

1.2%

12.9%

0% 20% 40% 60%

USA

Great

Britain

South Korea

Japan

Canada

Taiw an

Germany

France

Netherlands

China

Hong Kong

others

SAM Smart Materials MSCI World TRN

43.2%

29.7%

27.1%

6.8%

11.0%

12.9%

0% 10% 20% 30% 40% 50%

Materials

Industrials

Information

Technology

45.9%

11.8%

11.8%

7.4%

6.4%

5.8%

5.3%

3.7%

1.8%

54.9%

9.3%

10.6%

0.0%

8.9%

5.0%

0.0%

1.2%

10.1%

0% 10% 20% 30% 40% 50% 60%

USD

GBP

EUR

KRW

JPY

CAD

TWD

HKD

others

Exposure by Countries(Company Domicile, excluding cash)

Exposure by Sectors(Global Industry Classification Standard, excluding cash)

Exposure by Currencies

17


Portfolio Top Holdings (C-Shares, in EUR, as of May 31, 2012)

* Company Domicile


Company Country * Cluster Current Weight

Neo Material Technologies Inc Canada Basic Resources 4.74%

Linde AG Germany Process Technologies 4.61%

Hexcel Corp USA Innovative Materials 4.33%

Ceradyne Inc USA Innovative Materials 4.05%

FEI Co USA Process Technologies 3.30%

Croda International PLC Great Britain Innovative Materials 3.25%

IPG Photonics Corp USA Process Technologies 3.09%

Praxair Inc USA Process Technologies 3.06%

Waste Management Inc USA Recycling & Disposal 3.06%

Dynamic Materials Corp USA Process Technologies 3.00%

Total 36.48%

1818

Smart Materials Year to Date….

Source: Bloomberg

19

Performance Smart Materials Strategy (gross)

Strategy vs. MSCI World, MSCI Materials and DJ UBS Commodities

The data stated above are based on custodian data and respective FX rates. Index performance is also accounted for with the same rates. * Inception is 2 October 2006

Consistent outperformance versus MSCI World

Consistently lower Beta and outperformance vs. MSCI Materials

Consistently lower Beta and outperformance vs. DJ UBS Commodities

As of May 2012

YTD 1 Year 3 Year 5 Year

Since

Inception*

SAM Smart Materials 5.19% -9.01% 19.66% -1.21% 3.55%

MSCI World TRN 5.81% 3.46% 13.97% -2.42% -0.05%

Outperformance -0.62% -12.46% 5.69% 1.22% 3.60%

Information Ratio -1.08 0.62 0.10 0.31

Beta 1.47 1.30 1.30 1.31

MSCI Materials TRN -0.79% -14.03% 10.28% -2.16% 2.42%

Outperformance 5.98% 5.03% 9.38% 0.95% 1.13%

Information Ratio 0.71 1.16 0.11 0.13

Beta 0.91 0.80 0.90 0.90

DJ-UBS Commodity Index TRN -4.16% -10.33% 5.65% -3.32% -1.85%

Outperformance 9.35% 1.32% 14.01% 2.11% 5.40%

Information Ratio 0.07 1.02 0.11 0.29

Beta 0.85 0.88 0.80 0.78

Annualized Performance (%)

20


Portfolio Performance (C-Shares, in EUR, as of May 31, 2012)

Past performance is no indication of future results. The values and returns indicated here do not consider the fees and costs which may be charged when subscribing, redeeming and/or switching units.

* 02.10.2006

-15%

-10%

-5%

0%

5%

10%

15%

20%

YTD last month last 3 months last 6 months last 12 months last 2 years

p.a.

last 3 years

p.a.

last 5 years

p.a.

since inception

p.a. *


MSCI World TRN

YTDlast

month

last 3

months

last 6

months

last 12

months

last 2

years

p.a.

last 3

years

p.a.

last 5

years

p.a.

since

inception

p.a. *

SAM Smart Materials Fund 4.67% -4.09% -5.48% 2.59% -10.07% 10.68% 18.27% -2.30% 2.47%

MSCI World TRN 5.81% -2.20% -1.02% 9.66% 3.46% 6.33% 13.97% -2.42% -0.05%

Excess Return -1.13% -1.90% -4.46% -7.07% -13.53% 4.35% 4.30% 0.13% 2.53%

2121

Outlook

Strong growth of developing countries will continue to lead to a further depletion of natural resources, driving up the exploration and production costs

• Chinese policy will remain important, as the country tries to contain inflation• The new five year plan explicitly mentions areas like innovation/automation and new materials as a focus

� Search for substitutes and increased recycling

� Efficient use of resources

� Automation (sensors, modeling, ceramics) and process equipment (e.g. lasers) make alternatives economically viable through mass manufacturing

� Industrial biotechnology is a growing investment theme, as chemical companies continue to seek alternatives to petroleum based feedstock

� Energy Storage Materials provide growth, with rare earths, lithium, and ultracaps

� Display materials like Organic LED improve efficiency and contrast of displays and grow in the market

22

Smart Materials Fund – Conclusion

• Pioneering fund concept that invests in smart solutions to resource scarcity

• Focus on materials & technologies that benefit from secular growth trends, and for

which adoption is at an inflection point

• Specialized investment team, that employs a systematic investment process based on

fundamental analysis and a bottom-up portfolio construction process

• Demonstrated ability to produce superior risk-adjusted returns:

• Strong outperformance versus MSCI World since inception

• Lower risk vs. traditional material indices and strategies

• Also offers diversification benefits vs. traditional Materials indices and strategies

23

Appendix

24

Trend: Structural Improvements at the Nano Level

• Key technology of the 21. century, influencing many industries (expected growth 10-15% p.a.)

• Revenues already at 100 billion, particularly in the chemical industry (coatings, textiles, etc.)

Source: BASF

Nano coating of textiles

0

500

1000

1500

2000

2500

3000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Global revenues with products based on nanotechnology (Billions USD)

Source: Evonik, survey of market estimates

25

Trend: Innovative Materials: Organic Electronics

• Liquid Crystal Displays have become the dominant over the past decade with units growing by 50 times

• OLED offers higher definition and lower power consumption at lower cost due to less materials usage

• OLED is expected to grow at a CAGR of 20% based on small screen applications only, larger TV sets would allow for stronger growth.

0

2

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Glo

ba

l O

LE

D s

ale

s (

US

$ b

n)

Small & mid-size displays TV sets

Global sales of OLED displays (2010 - 2020)

Source: SAM Research (2011)

26


Engineered Materials

• Dominant position in the e-paper display market, with 90% global market share

• Significant technological and first-mover advantage provides good barriers to entry

• Strong growth expected in education-related applications

E Ink Holdings Inc.

Market cap: 1’412 million USD (31.03.2012)Country: TaiwanCluster: Innovative MaterialsMSCI Sector: Information Technology

27

Cluster Performance 2011

Cluster Performances Smart Materials (YTD December 2011)

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

Date

Cu

m.

Perf

orm

an

ce

Basic Materials Process Technologies Innovative Materials

Recycling & Disposal MSCI

28

Performance Contributors in 2011

• Light weight materials (16%) contributed positively thanks to carbon fiber companies (Hexcel (+1.42%), Toray (+0.4%), SGL Carbon (+0.29%)) which benefitted from growing demand from aerospace. Ceradyne (-0.62%) trended lower in the 2nd half of the year, due to cyclical concerns.

• Automation & lasers (17%) added performance driven by market share gains at IPG Photonics (+0.8%), Cognex (+0.67%) and SFA Engineering (+0.12%). Rofin-Sinar (-0.75%) did not contribute positively despite attractive valuation.

• Energy storage materials (10%) FMC Corp. (+0.53%), Iljin Materials (+0.51%) and Maxwell (+0.16%) appreciated during the year thanks to their strong position in their respective value chains. Stella Chemifa (-0.53%) suffered from decreasing demand because of Fukushima. Theposition was sold.

• Industrial gases (8%) benefitted from their defensive exposures Praxair (+0.37%), Linde(+0.13%). Oci Materials which has a stronger focus on technology gases corrected because of demand weakness in displays and solar. The position was sold.

• E Paper & OLED (7%) Duksan gained as a direct beneficiary of Samsung’s OLED growth (+0.29%) while E-Ink (-0.97%) performed negatively towards the end of the year as concerns about destocking influenced the name.

Positioning in growth niches yielded outperformance vs. Materials sector

(16%): cluster weight in the fund at the end of 2011(+1.42%): performance contribution in EUR in 2011

29

Key Data: SAM Smart Materials Fund

EURReference currency:

• B-Shares: 1.5% p.a. (accumulation)

• C-Shares: 0.8% p.a. (accumulation)

Management fee:

RBC Dexia Investor Services Bank S.A.Custodian bank:

EUR, GBP, CHF, USDCurrency tranches:

SAM Sustainable Asset Management AGAsset manager:

Investment fund under Luxemburg law (SICAV Part I)Legal structure:

• SAM Funds Hotline, Tel: +41 44 653 10 10

• [email protected], www.sam-group.com

Contact:

• B-Shares: LU0175575991 (ISIN) / 1666.333 (Valor)

• C-Shares: LU0199357012 (ISIN) / 1930.482 (Valor)

Security numbers:

The European SRI Transparency logo signifies that SAM commits to provide accurate, adequate and timely information to enable stakeholders, in particular consumers, to understand the Socially Responsible Investment (SRI) policies and practices relating to the fund. Detailed information about the European SRI Transparency Guidelines can be found at: www.eurosif.org, and information of the SRI policies and practices of the SAM Smart Materials Fund can be found at: www.sam-group.com. The Transparency Guidelines are managed by Eurosif, an independent organisation. The European SRI Transparency Logo reflects the fund manager’s commitment as detailed above and should not be taken as an endorsement of any particular company, organisation or individual.

3030

Disclaimer

Important legal information:

The details given on these pages do not constitute an offer. They are given for information purposes only. No liability is assumed for the correctness and accuracy of the details given. The value of the units and the return they generate can go down as well as up. They are affected by market volatility and by fluctuations in exchange rates. Past performance is no indication of future results. The values and returns indicated here do not consider the fees and costs which may be charged when subscribing, redeeming and/or switching units. The breakdown into sectors, countries and currencies as well as possibly indicated benchmarks are liable to change at any time in line with the investment policy determined in the Prospectus. The translation into action of fund recommendations contained in these documents shall always lie in the sole responsibility of the intermediary or investor. Investments should only be made after a thorough reading of the current Prospectus and/or the Fund Regulations, the current simplified prospectus and articles of association, the latest annual and semi-annual reports and after advice has been obtained from an independent finance and tax specialist. The documents mentioned can be obtained free of charge by calling the local SAM office, on www.sam-group.com or from any address indicated below. The range of SAM investment funds with domicile in Luxembourg (SICAV) is registered for public offering in Luxembourg, Switzerland, Germany, Austria, France, Holland, Sweden, Spain, Belgium, Ireland, United Kingdom, Singapore* and Italy. However, due to the different registration proceedings in the various countries, no guarantee can be given that each fund or share category is or will be registered in every jurisdiction and at the same time. For an up to date registration list, please refer to www.sam-group.com. Please note that in any jurisdiction where a fund or share category is not registered for public offering, they may, subject to the applicable local regulation, only be sold in the course of private placement or institutional investments. Particularly, the SAM funds are not registered and, therefore, may not be offered for sale or be sold in the United States of America and their dependencies. In a case of private placement this pages are destined exclusively for internal use by the intermediary appointed by SAM and/or the institutional investor and shall not be passed over to third parties. Particularly, this document shall under no circumstances be used as material for public offering or any other kind of promoting to the public of the SAM Funds or their share categories. Switzerland: Representative is Swiss & Global Asset Management Ltd., Hohlstrasse 602, Postfach, CH-8010 Zurich. Paying Agent: Bank Julius Bär & Co. AG, Bahnhofstrasse 36, Postfach, CH-8010 Zurich. Germany: Paying and Information Agent is Bank Julius Bär Europe AG, An der Welle 1, Postfach 150252, D-60062 Frankfurt/Main. Austria: Paying Agent is Erste Bank der österreichischen Sparkassen AG, Graben 21, A-1010 Vienna. Spain: SAM investment funds are registered in the Registry of Foreign Collective Investment Institutions Commercialized in Spainof the CNMV: Julius Baer Multipartner (No. 421). For a list of registered distributors in Spain, please refer to www.cnmv.es. Copyright © 2011 SAM - all rights reserved.

*restricted recognition for institutional investors in Singapore

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