+ About James Soutter
B.Com, Grad Dip App Fin (SIA), SIP (UK), GAICD
Responsible for Global and Asian Equities
James holds a Bachelor of Commerce (Economics and Finance) from Deakin University and a Graduate Diploma of Applied Finance from FINSIA (formerly the Securities Institute of Australia). He has also completed the UK Investment Management Certificate with UKSIP and is a graduate of the Australian Institute of Company Directors.
James commenced his career in 1994 at JBWere & Son before shifting into Asset Management in 1998 at AXA. In 2000 James relocated to London working for Fidelity International before joining JPMorgan Asset Management. During his six year career at JP Morgan, as a member of the European Equity Group, he managed a number of retail and institutional equity mandates including the FTSE 250 listed company, The Mercantile Investment Trust, one of the largest (and best performing) investment trusts in the UK, investing exclusively in small and mid-capitalisation equities. While at JPMorgan, James ranked number 52 over 3 years and number 47 over one year in “Britain’s Top 100 Fund Managers 2006” ranked by Citywire for the JPM Balanced Fund. The rankings are inclusive of all asset classes and based on a risk return profile. James also received the Money Observer Magazine “Best Large Investment Trust Award 2007”, for the JPMF Mercantile Investment Trust based on its three year performance record to the end of December 2006.
In 2007 James returned to Australia and joined Perennial Investment Partners, a $20bn FUM Australian Asset Manager, with investment management responsibilities including the Perennial Global & Asian Equity Trusts and Multi Asset Class vehicles. As Head of Global Equities for Perennial, James was also a member of the Executive Leadership Group and member of the Asset Allocation Committee. In 2014 James was a finalist for Fund Manager of the year for Global Equities at the Australian Fund Managers Awards.
Monday, March 21, 2016
A structural growth area that has been gathering momentum in recent years is egaming (electronic gaming). Gaming has evolved through technological advancement from traditional arcade-style and console gaming to mobile applications across 4G networks.
Superior content cffering
Gaming companies are effectively creating ‘content’ which encapsulates consumer interest in the same way Disney, Fox or Netflix create TV shows and movies. Many consumers can identify with gaming brands such as Assassin’s Creed, Grand Theft Auto, Call of Duty or FIFA. Large scale traditional media companies are demonstrating a keen interest in gaming. In Europe, Vivendi, which owns part of Universal Music Group and Canal (a pay TV service in France), acquired a 10% stake in Ubisoft, a game creator known for its Assassin’s Creed franchise. Vivendi’s acquisition highlights the importance of gaming content and demonstrates traditional media’s appetite for digital content is likely to continue to grow going forward. In addition, Ubisoft has sold the rights to 21st Century Fox to produce and release an Assassin’s Creed movie in December 2016. We envisage gaming franchises to continue to be branched out into animation, movies and merchandising. Gaming is therefore an obvious place for increased media spend and product placement for advertisers.
The global gaming opportunity
The popularity of gaming brands are not only encouraging existing gamers to play more, but also bringing new people to the gaming universe. Activision Blizzard, a leading global game publisher, suggested that the total hours spent gaming increased by 28% from 2014 to 2015. Further, Activision also estimated their monthly active user base is now larger than Twitter and Spotify combined. In fact, it has been estimated that gamers are now spending approximately 22 hours per week playing games, fast approaching the average television hours watched at 28 per week. To put this in context, hours spent gaming has risen to 22 in 2015, up from 6 hours in 2013. This clearly emphasises the pace at which the global gaming industry is growing. The increased prevalence of egaming has also attracted the attention of high profile corporates, with Coca-Cola, Nissan, SK Telecom and Red Bull all sponsoring egaming related contests.
Gaming has moved away from typical console games to online via computers, tablets and mobile phones. When playing online using a gaming company’s server, the company is able to build a profile for all of its egaming participants. For example, if Electronic Arts (a US-listed gaming company) has hundreds of millions of gamers playing online, it knows who each person is, how they play, who they play with and why they’re playing, which is valuable to gaming companies who can target advertising to their audience. This is compared to traditional gaming where the consumer would purchase a hard copy of a game on a CD and then play individually on their console. Electronic Arts estimates that their marketing spend has decreased from approximately 21% of sales to 14% of sales in 2 years (and sales have risen almost 20% in the same time period).
It has been estimated that consumers spend almost double the time on their mobile phone playing games compared to using Facebook. As depicted in the chart below, research indicates that consumers using smartphones spend approximately 17% of their time on their phone using Facebook, whilst gaming makes up approximately 32% of this time. The potential for mobile gaming is significant, and is largely driven by casual gamers. Going forward, we expect mobile gaming to meaningfully outpace the growth of traditional gaming through consoles. This in turn generates higher margins for gaming companies and opens up a broader consumer audience.
Source: Aviate Global Research
Egaming is a structural growth area in its relative infancy. Gaming companies have developed superior content which is constantly increasing in popularity. This content is able to be monetised and presented across digital platforms via smartphones and tablets. We believe egaming will provide significant investment opportunities in the medium term.
James Soutter is a portfolio manager for K2 Asset Management.
Monday, March 07, 2016
A starting point for finding investments is to find parts of the market that are growing somewhat independently of the economic cyclical. One such structural growth area that is receiving a lot of attention is the e-commerce sector. While the rise of e-commerce at the expense of traditional bricks and mortar will not be a news flash to anybody, we believe that e-commerce market share gains are still in the early stages and have much further to run.
From our point of view there are numerous winners emanating from the e-commerce trend. The primary beneficiaries are the major platforms like Amazon, eBay and Asos. We also see online payment providers like Paypal and Visa, as well as postal and transport and logistics companies like UPS and Fedex, as being beneficiaries. E-commerce is also a positive for the good omni-channel retailers as they can either sell you the product in store or use their stores as ‘showrooms’ and support the sale with an e-commerce offering. Their products and brands are such that the price of an item is the same in store as it is online and hence groups that are able to do this (such as Apple and Nike) can hold price and flourish while weaker competitors lose ground.
To put e-commerce growth into perspective, it is our estimation that global e-commerce sales will grow at a 24% compound annual growth rate for the 10 years to 2018, while total retail sales will grow at only 2-3% compounded over the same timeframe. The market share losses felt by the bricks and mortar stores to date has indeed been immense and this trend is now well understood by the share market. However, what we think is underappreciated, is that there is a real likelihood that e-commerce growth rates will actually inflect upwards from this already high base. Part of our reasoning for this is that e-commerce is still less than 20% of total retail sales in the US and what we have found with other megatrends is that at the 20% level of penetration there is a major acceleration point. As shown in the chart below, this has happened previously in other products/industries such as in notebooks, digital music sales and smartphones. We expect a similar acceleration to occur in e-commerce as it reaches this level.
So why do we think this 20% market penetration level is so important for ecommerce in particular? We think it comes down to network effects. That is, the more people that use a network, the better that network becomes, which in turn drives more people to that network. It’s at a 20% market penetration level that we expect these network effects to really kick in for ecommerce. If we use Amazon as an example, as more customers use its platform it increases the density of its network which results in it being able to offer better fulfillment services (same or next day delivery). These advancements change customer buying behavior in terms of the things they are prepared to buy online which then allows Amazon to expand into new verticals (for example, groceries, household items, furniture, etc.). This change in buying behavior then drives further sales. These are similar network effects to what we have seen previously with Google and Facebook for example. In the case of Facebook, the bigger the network became the more new people joined the network.
In summary, the e-commerce industry still has a long runway for growth ahead of it as network effects take hold and e-commerce market share moves from below 20% to above 50% of total retail sales.
James Soutter is a portfolio manager for K2 Asset Management.