3. OppenheimerFunds, Inc. & its Subsidiaries
Founded in 1960
Privately held firm with majority
ownership by MassMutual since 1990
34 investment strategies
$222.1B Assets Under Management
(As of 9/30/13)
11 million accounts
Alternatives/
Alternative
Multi-Asset $13.0
$0.0
$0.0
$17.8 $0.0
Global Debt
$21.5
Domestic
Equity
$46.6
Domestic
Debt
$56.7
Global Equity
$79.5
(Assets in billions)
3
4. Creating Value Through High Conviction Investing
“I was taking a different look at the familiar… rather than adhering to conventional wisdom.”
– Leon Levy, founder, (the original) Oppenheimer Fund
1 CONVICTION THAT ACTIVE 2 CONVICTION THAT TEAMS
MANAGEMENT DELIVERS
INDEPENDENT SMALL
BETTER OUTCOMES
3 CONVICTION THAT A IS
GLOBAL PERSPECTIVE
CRITICAL, ESPECIALLY NOW
4
OF SMART INVESTORS LEAD
TO BETTER PERFORMANCE
4 CONVICTION THAT WE
KNOW THE DIFFERENCE
BETWEEN RISK AND RISKY
5. Economic Overview: The Real Numbers
Deficits declining
Washington taking an incremental, short-term approach to
debt problems
Recent steps buy time but entitlement programs remain
burdensome
5
6. U.S. Deficits Declining
GOVERNMENT OUTLAYS AND RECEIPTS AS A PERCENT OF GDP
Reagan
Bush I
Clinton
Bush II
Obama
% Carter
30
25
20
7.4%
15
10
1976
1980 1984 1988 1992
U.S. Government Spending
Source: U.S. Treasury, 12/31/12.
6
1996 2000 2004 2008 2012
U.S. Government Receipts
7. Incremental Short-term Approach has Arrested Likely
Growth in Debt to GDP for Next Decade
U.S. DEBT AS A PERCENTAGE OF NOMINAL GDP
88%
86%
84%
82%
80%
78%
76%
74%
72%
70%
No Government Action
Ratio without
Budget Control Act
American Taxpayer
Relief Act
Sequester
Government Action to
Date Ratio with
Budget Control Act
American Taxpayer
Relief Act
Sequester
2012 2013 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022*
Source: Congressional Budget Office as of 8/31/13. *Forecasts may not be achieved.
7
8. The Real Problems Begin to Emerge in Less Than 10
Years
U.S. BIRTHS 1940 - 1970
4.5
4.0
3.5
3.0
2.5
Source: U.S. Census Bureau
8
BABY BOOM
AVERAGE AGE: 57 YEARS OLD
9. Current Government Spending Unsustainable
% of GDP
TOTAL GOVERNMENT SPENDING AS % OF GDP (PROJECTED)
Source: Congressional Budget Office Projections may not be achieved.
9
10. Current Government Spending Unsustainable
% of GDP
TOTAL DEBT AS % OF GDP (PROJECTED)
Source: Congressional Budget Office Projections may not be achieved.
10
11. But, Things May Be Better Than They Seem…
11
Technological and scientific advances led by the U.S.
Unforeseen economic booms (global and domestic)
U.S. benefits from further synergies from world economic integration
Entitlements can be modified (they are only promises)
12. Key Themes for the Future
Developing economies helping drive growth
Increased productivity and wealth across emerging markets
Reorientation of Chinese economy
U.S. energy renaissance
Companies have strong balance sheets and low valuations
Global Megatrends (MANTRA) may help drive growth
12
13. Significant Growth Opportunities in Emerging Markets
WORLD POPULATION (AS OF 12/31/12)
CONSUMPTION GROWTH: EM VS. DM
~6 billion
Developed Markets
Annualized Growth
~1 billion
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Emerging Markets
Source: The World Bank, 2012 and Goldman Sachs: “Global Consumer: An all consuming
search for growth & consolidation,” 12/31/12. Estimates may not be achieved. Past
performance does not guarantee future results.
13
7.8%
7.6%
4.5%
1.2%
1990-2010
BRICs
2010-2020E
G7
14. Wealth Is Rising Across Emerging Markets
GROWTH IN REAL GDP PER CAPITA (PPP*):
20 YEARS AS OF 12/31/12
Germany +27%
China
+495%
Russia
+49%
Japan
+14%
United States +35%
Turkey +66%
India +168%
Vietnam +212%
Brazil +46%
Indonesia +83%
14
Source: The World Bank, 12/31/12. GDP (gross domestic product) is the total value of all final goods and
services produced in a country in a given year. *Purchasing Power Parity
Past performance does not guarantee future results.
Malaysia
+90%
15. Revenues No Longer Have Borders
Myth:
Coca Cola and Nestlé generate the majority of their
revenue in North America
Reality:
Only 31% of Nestlé's revenues come from
“The Americas.”
Only 45% of Coca Cola’s revenue is generated in
North America.
15
Source of data: Bloomberg. As of November 14, 2013.
The mention of specific companies does not constitute a recommendation by any Oppenheimer fund or by
OppenheimerFunds, Inc. Certain Oppenheimer funds may hold the securities of those companies mentioned.
16. MANTRA®
Mass Affluence New Technology
16
Restructuring
The mention of specific companies does not constitute a recommendation by any Oppenheimer fund or by
OppenheimerFunds, Inc. Certain Oppenheimer funds may hold the securities of those companies mentioned.
Aging
17. The More Things Change the More they Stay the Same
1972-1982
17
2002-2012
Poor politics
Oil embargoes
Emergent Asian superpower (Japan)
Stagflation
High interest rates
Geopolitical uncertainty
Poor politics
Oil price high and volatile
Emergent Asian superpower (China)
Europe directionless
Loss of faith in fiat currencies
Geopolitical uncertainty
Asset allocation models must evolve. The New 60/40 must be more globalized, more diversified and more nimble, and address the opportunities and risks investors face today—not those of decades past. It must seek to help investors find growth, real income and protection against a variety of risks.In brief, we believe that investors shouldGlobalize their equity allocations by combining Shares of large companies headquartered across developed markets andPositions in emerging market and global small-cap stocksThink beyond traditional fixed income allocations byOwning a core “credit barbell” of U.S. Government and domestic high-yield bonds and/or senior loansAdding exposure to developed- and emerging-market international bondsUsing alternative assets and non-traditional fixed income securities to manage inflation and other risks
1. CONVICTION THAT ACTIVE MANAGEMENT DELIVERS BETTER OUTCOMES:We believe that good ideas add value over time.Active management is designed to deliver better returns and better risk controls.Well-researched investment themes trump short-term benchmarking.PM’s interests should always be aligned with the investor’s.2. CONVICTIONTHAT INDEPENDENT INVESTMENT BOUTIQUES LEAD TO BETTER IDEAS:We believe that PMs must be empowered to shape their own strategies.They do best with teams dedicated to their investment thesis. Cross-pollination between independent thinkers leads to better ideas.We should amplify rather than silence different points of view.3. CONVICTION THAT A GLOBAL PERSPECTIVE IS CRITICAL, ESPECIALLY NOW:We believe that the world has changed and that opportunities have too.Regional outlooks, silos and analyses are no longer relevant.Investors need to look beyond a U.S. centric view of the world.Winners and losers will be decided by how they perform globally.4. CONVICTION THAT WE KNOW THE DIFFERENCE BETWEEN RISK AND RISKYWe believe that taking the right risks is at the core of generating better returns.Partnership between our risk and investment teams is better than push-pull.Autonomous risk management complements the PM’s organic risk management process. There will always be risk, and proper risk management can contribute to success.
The current trajectory of government spending appears to stabilize the U.S. debt/GDP ratio thanks to the recent enactment of the sequester and the fiscal cliff deal at the beginning of 2013.Long-term entitlement reform remains elusive, however. After 2020, government debt levels begin to rise again as demographics begin to strain the budgets of Medicare, Medicaid and Social Security. The immediate crisis of government finances seems to have passed, but long-term entitlement reform will require both parties to work together to enact painful solutions to ensure the long-term solvency of these entitlement programs- which at this point looks to be a difficult task.
The current trajectory of government spending appears to stabilize the U.S. debt/GDP ratio thanks to the recent enactment of the sequester and the fiscal cliff deal at the beginning of 2013.Long-term entitlement reform remains elusive, however. After 2020, government debt levels begin to rise again as demographics begin to strain the budgets of Medicare, Medicaid and Social Security. The immediate crisis of government finances seems to have passed, but long-term entitlement reform will require both parties to work together to enact painful solutions to ensure the long-term solvency of these entitlement programs- which at this point looks to be a difficult task.
The current trajectory of government spending appears to stabilize the U.S. debt/GDP ratio thanks to the recent enactment of the sequester and the fiscal cliff deal at the beginning of 2013. Long-term entitlement reform remains elusive, however. After 2020, government debt levels begin to rise again as demographics begin to strain the budgets of Medicare, Medicaid and Social Security. The immediate crisis of government finances seems to have passed, but long-term entitlement reform will require both parties to work together to enact painful solutions to ensure the long-term solvency of these entitlement programs- which at this point looks to be a difficult task.
I recently watched a Bowdoin panel with Barry Mills, Geoffrey Canada and Stanley Druckenmiller about the impact of entitlement spending…
I recently watched a Bowdoin panel with Barry Mills, Geoffrey Canada and Stanley Druckenmiller about the impact of entitlement spending…
Incomes are rising across the developing world. As incomes rise, world wealth distribution has been shifting. Over the past 10 years emerging markets’ share of world wealth has increased significantly. Share of world wealth in the BRIC countries has risen by: Brazil + 158%Russia + 231%India + 72%China + 113%Source: Credit Suisse, 10/31/11.
MASS AFFLUENCE:Unilever, Procter & Gamble are examples of consumer goods companies that are looking to conquer the emerging marketsUnilever is a supplier of fast moving consumer goods. The Company’s four product areas are Personal Care, Foods, Refreshment and Home Care. Emerging markets now account for about 55% of Unilever’s business.Procter & Gamble is focused on providing consumer packaged goods in 5 primary segments: Beauty; Grooming; Health Care; Fabric Care and Home Care; and Baby Care and Family Care. The Company’s products are sold in more than 180 countries and territories around the world . Procter and Gamble currently generates about 40% of its revenue abroad. They are focused on strategies to catch up to competitors Unilever and Colgate-Palmolive who already have a stronger hold in developing markets. NEW TECHNOLOGY:Apple distributes its mobile communications and media devices, personal computers, portable digital music players and related software, services and applications worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers.Google is a global technology company that provides its search, advertising, operating systems and hardware products and services in more than 100 languages and in more than 50 countries, regions, and territories. RESTRUCTURING:Nearly every company has to restructure based on exogenous or internal factors. BT Group is the major provider of telecommunications networks and services in the UK. But they are also a major global communications company, serving customers in more than 170 countries. BT provides services to large corporate and public sector customers with operations across the world in a wide range of sectors such as banking and financial services, consumer packaged goods, logistics, pharmaceuticals and manufacturing. UBS is a client-focused financial services company that offers a combination of wealth management, asset management and investment banking services on a global and regional basis. The Company operated about 877 business and banking locations worldwide, of which about 42% were in Switzerland, 42% in the Americas, 11% in the rest of Europe, Middle East and Africa, and 5% in Asia-Pacific. Like many financial service companies, after 2008 UBS has to restructure to survive.AGINGPharmaceutical companies like Roche and Pfizer are addressing global demographic changes and figuring out how to market to the boomer segment. Roche is a Swiss pharmaceuticals and diagnostics holding company that operates through subsidiaries and associated companies around the world. It discovers, develops and provides diagnostic and therapeutic products and services from early detection and prevention of diseases to diagnosis, treatment and treatment monitoring.Pfizer is a research-based, global biopharmaceutical company that manages its operations through five segments: Primary Care; Specialty Care and Oncology; Established Products and Emerging Markets; Animal Health and Consumer Healthcare, and Nutrition.