Global Equity Spotlight: Travel Edition Episode 10

Hello everyone and welcome back to Global Equity Spotlight Travel Edition, a series where we unpack on the ground insights from our analysts’ recent travels. Today I have Janco joining me who’s recently returned from a trip to the US. Thank you so much for being here today. So Janco, you spent your first few days in Las Vegas. Could you maybe unpack some of the key themes and sort of opportunities that you’ve seen coming out of that market?

Hi Karena, thanks for the opportunity. It’s great to share a bit of our insights. I think in the US people like to paint the US with a very broad brush, but actually within the states there’s a lot of different dynamics. All of the states have different regulations and I’ll talk to that in a bit. But with regards to Las Vegas, it’s in Nevada, which is in the southwestern part of the US. It’s actually the seventh largest state in the US and has the 31st most populated, so very low population density. The population there has a median household income of around $80,000, which is in line with the median household income of the US. The state’s primary industry is very much focused towards hospitality and leisure, and that’s very evident with the gambling industry and all the casinos. To my surprise, the mining industry is actually the second biggest contributor to the GDP of the state. It is the number one gold producer out of all the states in the US. They have around a $230 billion GDP, ranking around 33rd within the US. Most of Nevada’s taxes actually come from sales tax, so the prices you see in retailers aren’t the prices you pay at the point of sale. It’s a tax primarily directed from consumer consumption to the state. The second highest source of tax income for Nevada is from gaming, which is evident through the casinos and the hospitality industry. In terms of the state’s budget priorities, the state is primarily focused on healthcare spending, which goes to Medicaid, a healthcare insurance program for the lower-income population, and then secondly, a lot of spending goes to education.

Could you maybe go on to unpack what you saw on the ground in Las Vegas?

So firstly, the cool drinks at the top, that is actually a government or state-funded program called the SNAP benefit program, which is supplemental nutrition assistance, where the state supplements lower-income households to purchase groceries. You saw that quite a lot in the retailers, which was very interesting. On the second picture, that’s an electric vehicle, there’s actually nobody inside driving it, and it was quite interesting to see them moving around. Thirdly, in terms of construction, the scale they operate at is incredibly vast. I walked around in the Fashion Show Mall and the size of the retail shops is probably two to three times bigger. It feels like there’s a lot of wasted space, and revenue per square foot isn’t as efficient there. They also focus a lot on entertainment. People who’ve visited Las Vegas probably know about the Sphere. In the hotel where our conferences were, the Wynn, Chain Smokers were there that week, Carbonaro was there, Marshmello, and that’s everything just within one week. And finally, alcohol is super expensive. It was $5 a beer, so I didn’t have a lot to drink throughout that week.

That sounds like a really exciting few days. Maybe moving over to Boston. It’s quite different to what we see coming out of Vegas. Could you maybe unpack some of that for us?

Yes. Comparing Boston to Las Vegas, the state is actually the seventh smallest but the 13th most populated, meaning it has a very high population density. The GDP of Massachusetts is around $800 billion and it ranks within the top 10 of GDP-producing states. The primary industries for Massachusetts or Boston are medtech, biosciences, life sciences, technology, and education, very much towards the high-LSM end, and that can also be seen with the median household income of around $100,000, which is $20,000 more compared to Nevada. Very highly educated individuals. There are around 50 universities within Boston. We were privileged to go see Harvard, and then also went to MIT and visited some of the local state universities as well. In terms of state revenue, 70% actually comes from property taxes, which is basically a percentage levied on the property value, around 1 to 2%, revalued every single year, but the increase is actually capped at around 2% annually. The second largest contributor to the state’s tax is personal income tax, charged at a flat rate of around 5%, with an incremental 9% above people earning over a million. In terms of the state’s priorities, the main priority is funding the healthcare infrastructure, which is also very evident with biotech being a very prominent industry there, and then second is education.

So you’ve got some exciting pictures to walk us through. Maybe you can take us through that.

On the first picture you can see Moderna’s building. A lot of the universities have partnerships with regard to research and development with these big pharmaceutical companies. There was a lot. I saw Amgen, Eli Lilly, Johnson and Johnson, Thermo Fisher, all of them play in the healthcare space, and that’s obviously why biotech is such a prominent industry for the state. On the second picture you can see the infrastructure development. That picture was actually taken from a roof garden. There’s a lot of green spaces in Boston; it’s fourth in terms of budget priorities. The third picture is MIT, or Massachusetts Institute of Technology. It was actually a graduation week when we were there, so all of the universities were getting ready for students to graduate and there was a very vibrant atmosphere. Then fourth is Harvard’s Museum. That is a real Van Gogh. I saw his portrait, and the last one auctioned for around $70 million, so it’s a very expensive picture to take. And then lastly, sport is very prominent in Boston. Everybody’s wearing their jerseys at Harvard University. That’s where that picture was taken, of a football field. The Boston Red Sox are there, the Boston Celtics, and the New England Patriots, and you can just feel that everybody is very invested in sport. What was quite interesting, and not on the pictures, is how much pharmaceuticals and drugs are advertised on television. Within live sports broadcasts there would be a pharmaceutical company advertising something, which doesn’t seem right, but that’s the way they do it.

Thank you for those insights from your time in Boston. Maybe we can just end off with some of your key takeaways from the trip.

In terms of the healthcare conferences I attended in Las Vegas, one of the key themes that always gets highlighted is AI, but here it relates more to accelerated approvals and drug discovery for clinical programs, which was talked about quite a bit. They also talked about drug pricing, which is very topical in the US because we’ve seen drug pricing deflation for quite some time in a lot of the big biopharmaceutical and pharmaceutical companies. They talked about the Most Favored Nation drug pricing policy, which is probably the most likely outcome to be passed. It’s the politically easiest to get over the line. They also talked quite extensively about election outcomes. The most likely outcome and the consensus is that we will get a Republican Senate and a Democratic House. The implications of that would just be slower regulatory and legislative approvals for drug development and commercialization.
In terms of the Boston tech conference I attended, AI is also very thematic there, but the focus is slightly different. They’re focusing more on key bottlenecks, most prominent in memory and storage capacity. People were very excited about AI infrastructure plays, and memory prices were highlighted in almost every single conversation. What it seems is that most companies are passing through these increasing memory prices. Finally, software is still a key underweight that we’ve seen. I was in a few meetings with software companies, and one of them specifically noted that since their March results they have engaged personally, face to face, with more than 200 investors. So they’re really making an effort from their side. They’re actually seeing an acceleration in some of the subcategories and talked to increasing volumes which are offsetting the price deflation we’re seeing in software as well. Quite interesting takeaways, and a lot of nuance, but it was a big privilege to be there.

Brilliant. Thank you so much for your time today. It’s been great having you and hearing about your trip, and I’m really excited to see how we utilize some of these opportunities in the portfolios. To the audience, thank you so much for joining and we look forward to seeing you next time.