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May 22, 2015 - 5. 6. 7. 8. 9. 2010. 2015. 2020. 2025. US$ tn. Millennials. Gen X. Boomers. Please see: Generation Next â

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Idea Transcript


Thematic Investing

Thematic Investing Equity | Global | Thematic Investing 22 May 2015

Generation Next - Millennials Primer Sarbjit Nahal >>

World: Millennials  AAsTransforming part of our work on A Transforming World, we introduce a new people-focused theme in this Primer and a Primer Picks report; we set out the challenges and opportunities offered by the Millennials theme.

Millennials: #1 global and US demographic We define Millennials (aka “Generation Y”) as the demographic cohort born post1980 (aged 18-34Y). Globally, there are c.2bn Millennials, with 86% living in EMs. In the US, Millennials (c.75mn) are set to overtake the Baby Boomers in 2015 as the largest living generation. While the US Boomer demographic is ageing and shrinking in size (cf. our Silver Dollar report), the Millennials generation continues to grow, driven by immigration, peaking in the US only in 2036E at 81.1mn.

+44 20 7996 8031

Equity Strategist MLI (UK) [email protected]

Beijia Ma >>

+44 20 7996 9070

Equity Strategist MLI (UK) [email protected]

Felix Tran >>

+44 20 7996 7010

Equity Strategist MLI (UK) [email protected]

#1 income & wealth: $8.3tn by 2025E in the US alone While the Boomers have accumulated wealth and currently lead consumer spending, Millennials are emerging as the new dominant source of both. They are the #1 workforce demographic in the US and account for $1.3tn in direct annual consumer spending, which will grow as their annual income reaches $8.3tn by 2025E in the US alone. They are also set to benefit from the “Great Transfer”, the c$40tn+ of assets that will shift from US Boomers to Millennials over the next generation. Globally, Millennials will account for 75% of the workforce by 2025E, with women Millennials becoming an increasingly important economic force.

Unauthorized redistribution of this report is prohibited. This report is intended for [email protected].

Disruption: autos, dining, finance, media, tech and travel Like every generation, Millennials display generalised and unique traits, clichés, and contradictions that are key to understanding their role as a force for creative disruption. In our view, these include ‘adventure’, ‘collaboration’, ‘connected’, ‘digital’, ‘diverse’, ‘educated’, ‘international’, ‘liberal’, ‘me’, ‘now’, ‘sharing’, ‘sceptical’, ‘social’, ‘special’, and ‘values’. Areas poised for disruption in the next three to five years include accommodation, autos, eating out, finance, media, technology, and travel.

Click the image above to watch the video.

A Transforming World

Eight major entry points for investors We highlight eight entry points for investors wishing to play the Millennials theme: (1) Technology; (2) Consumers; (3) Drinking, Dining and Health & Wellness; (4) Households; (5) Financials; (6) Education; (7) Women; and (8) Sharing Economy.

BofAML Global Millennials Stock List & Primer Picks We present a list of over 250 global stocks covered by BofAML that have exposure to the Millennials-related theme. Our Buy-rated stocks with material exposure to the theme are detailed in an accompanying Primer Picks document, as is our full stock list.

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 239 to 241. 11517927

Thematic Investing 22 May 2015

Contents Millennials

3

BofAML Global Millennials Stock List

4

Millennials 101: Generation Next as creative disruptors

5

Comeback kids, the economic state of a generation

37

Sharing economy, access over ownership

56

Technology: devices, eCommerce, apps, media, dating, games, wearables

62

Consumers: clothing & apparel, affordable premium, beauty & cosmetics, travel & leisure

112

Drinking, Dining and Health & Wellness: healthy eating, 155 quick-casual & online dining, beverages, physical activity

2

Households & Housing: household formation, homebuilders, DIY, white goods

194

Education: Post-secondary, publishing & content, EdTech, childcare

213

Financials: FinTech, low-cost, mBanking, wealth management, cashless society

216

Thematic Investing 22 May 2015

Millennials Please see: Generation Next – Millennials Primer Picks for a list of our Primer Picks and the full list of BofAML “Generation Next” (Millennials exposure) stocks

We define Millennials (“Generation Y”) as the demographic cohort born post-1980 (currently aged 18-34Y). Globally, there are c2bn Millennials with 86% of them living in EMs. Demographically, in the U.S., Millennials are set to overtake the Baby Boomers in 2015 as the US’ largest living generation (c75mn). Emerging as the new dominant source of wealth and spending Millennials are the no. 1 workforce demographic in the US and currently account for $1.3tn in direct annual consumer spending, which will grow as their annual income reaches $8.3tn by 2025E in the US alone. They are also set to benefit from the “Great Transfer”: the c$40tn of assets that will shift from the Boomers to Millennials over the next generation. Globally, Millennials will account for 75% of the workforce by 2025E. Understanding their traits, clichés & contradictions is key Like every generation, Millennials display generalised and unique traits, clichés, and contradictions that are to understanding their role as a force for creative disruption. Areas poised for disruption in the next 3-5Y include accommodation, autos, drinking and dining, finance, media, technology, and travel, among other areas. Eight major entry points for investors We highlight eight entry points for investors wishing to play the Millennials theme: (1) Technology; (2) Consumers; (3) Drinking, Dining and Health & Wellness; (4) Households; (5) Financials; (6) Education; (7) Women; and (8) the Sharing Economy. BofAML Global Millennials Stock List & Primer Picks We believe that the global dynamics of Millennials mean that the theme offers numerous growth opportunities for those with exposure. We have created a list of more than 250 global stocks covered by BofAML that have exposure to Millennials-related themes and solutions. Chart 2: Projected US income by generation to 2025E

140 120 100 80 60 40 20 0

9 7 6.4

US$ tn

6 5 4 3

Millennials

Gen X

Boomers

2 1.1

1 0

birth year

Source: UN

8.3

8

1 997 1 992 1 987 1 982 1 977 1 972 1 967 1 962 1 957 1 952 1 947 1 942 1 937 1 932 1 927 1 922 1 917

population (mn)

Chart 1: World population by generation cohort

2010 Silent+

Millennials

2015

2020 Gen X

2025 Boomers

Source: Javelin Research & Strategy

3

Thematic Investing 22 May 2015

BofAML Global Millennials Stock List BofAML Millennials stock list is not a recommended list either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances / objectives before making any investment decisions

We have mapped Millennials-related opportunities across 8 major themes: 1.

Technology (incl. devices, eCommerce, apps, media, dating, games, IoT, wearables);

2.

Consumers (incl. clothing & apparel, affordable premium, beauty & cosmetics, travel & leisure);

3.

Drinking, Dining and Health & Wellness (incl. healthy eating, quick-casual & online dining, beverages, physical activity);

4.

Households (incl. household formation, homebuilders, DIY, white goods);

5.

Financials (incl. FinTech, low-cost, mBanking, wealth management);

6.

Education (incl. post-secondary, publishing & content, EdTech, childcare):

7.

Women (incl. child care, clothing & apparel, affordable premium, beauty & cosmetics); and

8.

Sharing Economy (incl. car rental, C2C commerce, hotels, lending services, luxury goods, self-storage, taxis).

We outline these areas below and examine them in much greater detail throughout the report. For each theme, we have estimated the level and materiality of companies’ exposure to Millennial-related themes – and the role of Millennials as a long-term growth driver. For each company, we have characterised their Millennials exposure as follows: 

Low – Millennials-related products, technologies, services, and solutions are not material to global revenues and/or growth but are one factor, among others, for the business model, strategy & R&D of the company.



Medium – Millennials-related products, technologies, services, and solutions are an important factor for the business model, strategy and R&D of the company; material to sales and/or growth.



High – Millennials-related products, technologies, services, and solutions are core to the business model, strategy and R&D of the company; material sales and/or growth driver; pure play (i.e., 100% of sales).

Although it is difficult to accurately gauge the link between such exposure and share price performance (as many factors outside the scope of this analysis are likely to play a role in short- and long-term price development), we still consider Millennials exposure as an important and positive point to track given that Millennials is a global “Transforming World” theme with a 25-50Y lifespan. The aim of our Global Millennials Exposure stock list and its eight underlying themes is to provide investors with information to identify company and subsector specific risks and opportunities that are inherent in the Millennials theme.

4

Thematic Investing 22 May 2015

Millennials 101: Generation Next as creative disruptors Who are the Millennials? Table 1: Timeline of global events (1980–2013) since the very first Millennials were born 1981 1985 1989 1989 1989 1990 1994 1997 1999 2000 2001 2001 2003 2004 2005 2007 2008 2008 2008 2011 2011

2013

AIDS epidemic identified Hole in the ozone layer discovered Exxon Valdez spill Berlin Wall comes down World Wide Web invented Operation Desert Storm Nelson Mandela elected, ending apartheid Kyoto protocol proposed First U.S. hybrid car sales, Honda Insight Dot-Com bubble burst 9/11 World Trade Centre attack Enron scandal revealed Iraq War launched Facebook launched Hurricane Katrina hits Gulf Coast, causing costliest natural disaster in U.S. History First generation iPhone is released First fully electric sports car, Tesla Roadster, produced with lithium ion battery Lehman Brothers files for bankruptcy Barack Obama, first black president of the United Stated, elected Arab spring, organized through social media, brings down regimes across the Arab world Occupy Wall Street movement protests income inequality and wealth distribution in the United States G8 convenes Social Impact Investing Forum

Source: Pew Research, Impact Assets

We define Millennials as the demographic cohort born between 1980 and 1997, ie, those aged between 18 (born in 1997) and 35 (born in 1980). Millennials are also referred to as Generation Y or Gen Y, the ‘Echo Boomers’ and ‘Trophy Kids’ Exhibit 1: Timeline of generations

Source: Pew Research

The term Millennials is thought to have been coined in the 1990s (cf. Strauss and Howe), but its popular usage has skyrocketed only in the past two to three years. Chart 3: Use of the term “Millennials” has risen over the past decade on Google Trends 100 80 60 40 20 0

Source: Google, BofA Merrill Lynch Research

2bn Millennials globally “The number of ‘Millennials’ mentions on quarterly earnings calls has jumped from just 1 in 2007 to >100 in the most recent quarter (1Q15) alone” - Thomson Reuters

There are an estimated 2bn Millennials globally – close to one-third of the worldwide population – with 86% of them living in EMs (source: UN).

5

Thematic Investing 22 May 2015

Chart 5: World population - 2025

Chart 6: World population - 2050

100+

100+

90-94

90-94

80-84

80-84

80-84

70-74

70-74

70-74

60-64

60-64

60-64

50-54

Age

100+ 90-94

Age

Age

Chart 4: World population - 2015

50-54

50-54

40-44

40-44

40-44

30-34

30-34

30-34

20-24

20-24

20-24

10-14

10-14

10-14

0-4

0-4 500

0 Population mn Male

Female

Source: UN, BofA Merrill Lynch Global Research; UN

500

0-4 500

0 Population mn Male

500

Female

Source: UN, BofA Merrill Lynch Global Research; UN

500

0 Population mn Male

500

Female

Source: UN, BofA Merrill Lynch Global Research; UN

Succeeding Gen X, the Boomers & Silent Generation Millennials were born after the cohorts known as Generation X (born 1965-80), Baby Boomers (born 1946-64), and Greatest / Silent Generation (born 1928-45), in chronological terms. Exhibit 2: Changing in names of generations

Source: Council of Economic Advisers, WP

Gen Y will be succeeded by Generation “Z” Millennials are no longer the “most recent” generation – with a so-called “Generation Z” (born post-2000) – having been identified by demographers. These are also referred to as the “Alpha” and “Homeland” generation – and are thought to demonstrate many of the technology-focused traits and characteristics of Millennials, albeit even more pronounced. Our focus is primarily on the Millennials as Gen Z is still somewhere between their infant years and just finishing up their education.

#1 US demographic: bigger than Boomers By the end of 2015, Millennials will become the largest generation in US history, overtaking the Baby Boomers (source: US Census Bureau, Pew Research). Millennials are projected to total 75.3mn of the US population size vs. Baby Boomers at 74.9mn (end 2015E). This is significant because the Boomers have

6

Thematic Investing 22 May 2015

been the main drivers of the American consumer economy in the past few decades. With their impending retirement and continued shrinkage of the Boomer demographic, companies need to recognise the rise of the Millennial consumer and their needs, in our view. Likewise, we think investors should position themselves to reflect these changes to take full advantage of the Millennial theme. Chart 7: Millennials are the largest generation in US history

Chart 8: US Population, 2015E

5 4

11%

Million

24% 3 24%

2 1

25% 16% 1914 1919 1924 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994

0

Year of birth Millennials

Source: U.S. Census Bureau population projections

Millennials

Gen Z

Gen X

Source: Nielsen, U.S. Census Bureau

Influence to grow over time: peaking at 81mn in 2036E The total US Millennial population size is forecast to continue to grow, reaching its peak of 81.1mn by 2036E, driven largely by immigration (source: Pew Research, US Census). This is in stark contrast to the demographic drivers underlining the Baby Boomers, which is expected to fall significantly from c.75mn today to under 17mn by 2050E (source: Pew Research). As a result, Millennials will be the #1 influencer of the US economy in the next couple of decades, in our view.

Millennials

Gen X

Boomers

2050

2045

2040

2035

90 80 70 60 50 40 30 20 10 0 2015

million

Chart 9: Projected US population by generation

2030

Gen X

Boomers

2025

Boomers

2020

Silent

Greatest/Silent

Silent

Source: Pew Research, U.S. Census Bureau population projections

7

Thematic Investing 22 May 2015

Ethnicity: US most diverse demographic mix ever Millennials are also the most diverse US generation in history, driven by strong immigration trends: 61% of the US Millennials population in 2009 was identified as White vs. 73% of the Boomer population. On the other hand, nearly one-fifth was classified as Hispanic vs. only one-tenth of Baby Boomers (source: Pew Research). This is significant because it again reflects the need for stakeholders to recognise that the Millennial generation differ considerably from the preceding generation. Chart 10: Race/Ethnicity in 2009 (% by generation)

Chart 11: The new face of America Millennials (ages 18-29) 5%

Millennial

61

Chart 12: Adults ages 30 and older 5%

1%

1%

19 13 4 2

11% Gen X

62

18 12 6 2

14% 13%

Boomer

73

Silent

10114 2

80

0

50

White

Hispanic

Asian

Other

Source: Pew Research

19%

61%

70%

7 84 1

% 100 Black

White

Hispanic

Asian

Other

Source: Pew Research

Black

White

Hispanic

Asian

Other

Black

Source: Pew Research

Fast pace of growth in Hispanic & Asian populations The increase in diversity has been driven by the huge growth of the Hispanic and Asian populations in the US. By 2050E, the Hispanic population is projected to have grown by 167% whilst the number of Asians will have increased by 142%. Currently, New Mexico and California have the highest percentages of Latinos within their youth population, at 51% and 42% respectively. This is significantly higher than the national average of just 20% (Source: Nielsen).

8

Thematic Investing 22 May 2015

Exhibit 3: Share of Latinos is higher in certain states

Source: Nielsen

Raceless generation While less ethnically diverse, BRIC Millennials are also moving towards greater acceptance of greater diversity. 9 out of 10 (86%) believe their generation is accepting of people from different racial backgrounds. 8 out of 10 (81%) wish they had more friends from different races, and 3/4 (74%) would marry outside of their race. (source: JWT Intelligence) Chart 13: A raceless generation

Chart 14: A raceless generation

I view race differently than my parents’ generation does

76%

I wish I had more friends who have different racial backgrounds…

81%

I think race matters much less now than it did in the past

82%

My generation is accepting of people from different racial backgrounds

86%

0%

20%

40%

60%

80%

I have friends who have different racial backgrounds than me

72%

I would marry outside my race

74%

I would date outside my race

74%

100%

0%

Percentage of BRIC Millennials who agree

China Source: JWT

India

Russia

20%

40%

60%

80%

100%

Percentage of BRIC Millennials who agree

Brazil

China

India

Russia

Brazil

Source: JWT

Relationships: single & delaying marriage Among US Millennials, of those aged between 18 and 28, 75% are single, compared to just 43% of the Silent Generation (source: Pew Research). This reflects the general developed-world trend of people staying single for longer. Only 26% of Millennials were married by the age of 32 compared to 48% of Boomers. Millennials are likely to remain single for longer and therefore exercise greater personal spending power, in our view.

9

Thematic Investing 22 May 2015

Chart 15: % that were “single” when they were aged 18-28

Millennial

Chart 16: % that were “married” when they were aged 18-32

Millennial

75

Gen X

Gen X

67

Boomer

20

48

Silent

43 0

36

Boomer

52

Silent

26

40

60

80

100

65 0

20

40

%

60

80

100

%

Source: Pew Research

Source: Pew Research 2014

Family & parenthood: childless Millennials? The delay in parenthood has meant that Generation Y is also having fewer children at a young age compared to previous generations. This is particularly reflected in the wider trend of falling fertility rates in more developed countries. There were only 145 births per 1,000 among US Millennial mothers aged 25-29 in 2005-10. Conversely, this figure was 209 among Baby Boomer mothers in 1975-80 (source: UN). The combination of later marriages and lower fertility (see chart below) are driving this trend whereby fewer Millennials are becoming parents early on in life compared to previous generations, in our view Chart 17: Birth rates on the decline, 1975-80 vs 2005-10

births per 1,000 women

250 200 150 100 50 0 15-19

20-24

25-29

30-34

35-39

40-44

45-49

Age 1975-1980

2005-2010

Source: UN WPP 2012

Lifestyle: changing the traditional linear concept Gen Y is also changing attitudes to life, in our view. For example, 44% of US Boomers believe living together without getting married is “bad” compared to just 22% of Millennials. The trend of mothers working more and being more independent are also viewed differently intergeneration – 39% of US Boomers believe mothers working outside the household is “bad” compared to 23% of Gen

10

Thematic Investing 22 May 2015

Y (source: Pew Research). Millennials are also living a less linear lifestyle: whereas previous demographics usually followed the traditional life stages of education to career, Millennials are doing this is in a more stop-start manner, interspersed with a range of other stages. Exhibit 4: Millennials follow a more “scattered” life trajectory

Table 2: Q: % saying each category is a bad thing for society Millennial Gen X Boomer Silent (18-29) (30-45) (46-64) (65+) More single women deciding to have children More gay couples raising children More mothers of young children working outside the home More people living together without getting married More people of different races marrying each other

59 32

54 36

65 48

72 55

23

29

39

38

22

31

44

58

5

10

14

26

Source: Pew Research

Source: ABInBev

Long-term priorities: being a good parent is #1 Despite these demographic findings, being a good parent and having a successful marriage continues to outrank all other categories for US Millennials (e.g. having free time, being famous), in the context of long-term life priorities (source: Pew Research). Despite appearing to follow a non-traditional lifestyle, they have not abandoned long-standing family values altogether, in our view. Chart 18: Millennials’ priorities in the long-term Being a good parent

52

Having a successful marriage

30

Helping others in need

21

Owning a home

20

Having a high-paying career

15

Living a very religious life

15

Having lots of free time

9

Becoming famous

1 0

10

20

30

40

50

60

% saying … is one of the most important things in their lives Source: Pew Research

11

Thematic Investing 22 May 2015

EMs: Millennials are also #1 demographic The Millennial demographic is a global phenomenon, with 86% of them living in EMs (source: UN). As a percentage of the total population, Millennials outnumber the Baby Boomers in Brazil, China and India, for instance (source: Nielsen, US Census International Database). Chart 19: Boomers vs. Millennials in EMs 100% 90% 80% 70% 60% 50% 40% 30%

30%

30%

28%

25%

20% 10%

17%

21%

24%

14% India

Brazil

China

U.S.

0% Boomers

Millennials

Source: US Census International Database, 2013

86% of the world’s Millennials live in EMs 86% of the world’s Millennials live in developing regions. Excluding China and India, the US, Pakistan, Bangladesh, Russia, the Philippines, and Ethiopia have the largest Millennial populations (source: UN). Chart 21: Countries with largest # of Millennials (ex. China & India)

population (mn)

Chart 20: % of world’s Millennials by development region

14%

80 70 60 50 40 30 20 10 0

86%

More developed regions Source: UN

Less developed regions Source: UN

While Boomers are generally the largest demographic in developed regions due to the “longevity miracle”, Millennials are the largest in EMs. This is significant

12

Thematic Investing 22 May 2015

demographically because it suggests this young generation will be the driving force behind consumption and production in EMs, in our view. Table 3: EM Millennials overview Total Population

Brazil 201 million

Russia 142.5 million

India 1.2 billion

China 1.3 billion

30.3

38.8

26.7

36.3

30%

27%

30%

28%

54%

61%

75%

58%

Median Age of Population, in Years Millennials as Percentage of Total Population Millennials as Percentage of Total Internet Users

Source: JWT, CIA World Factbook, US Census Bureau, eMarketer, ComScore

Chinese Millennials: independent & single Millennials in China will be the driving force of the generation in EMs, in our view. Currently, Millennials account for 28% of the Chinese population (source: US Census International Data Base, Nielsen). A study by the UNWTO found that the rise of Chinese Millennials from the “one-child-policy” era and increasing time spent on the internet is driving the story. Chinese Millennials have shifted away from the family-centric “we” outlook towards a “me” spending dynamic. This is reinforced by the secular trend of rising consumerism in China vs. reduced saving rates. Hence, we believe Millennials will benefit as China continues to shift towards a consumption rather than investment economic model. Table 4: Characteristics of Chinese children China’s Eldest Children: ‘70s

China’s Middle Children: ‘80s

China’s Youngest Children: ‘90s

Key Focus in Life Core Values Internet Value Outlook on Trends Online Content Communications Strategy Engagement Strategy Friends

Responsibility & Happiness Family Time Saver Follow Trends

Fun Friends Social Arena Choose Trends

Excitement Self Extension of Self Create Trends

Collecting Information Nothing overwhelming

Sharing Information Accessible and trendy

Creating Information High level of interaction

Information

Peer involvement

Self expression

Make friends with those that have power and influence

Money Financial Pressure Discussion Topics

Have Savings Demands from kids, spouses and parents Topics that relate to everyday life: Seasonal fashion Property prices

Make friends with those that share the same interests Have Debt Ignoring pressure and live in the now Topics that make one get ahead: Career Trends

Make friends with those that have tattoos Have Daddies Pampered by parents and grand parents Exciting topics to be shared: Sensations Gossip

Source: UNWTO

Indian Millennials: youngest age & online-mavens Millennials in India have the lowest median age and the highest percentage share of internet users (source: JWT et al). They account for 75% of all internet users in the country. India also has among the most favourable demographics. With a current median age of 26.7, Millennials in India are poised to be key drivers of growth as they head into their peak spending years (source: Nielsen, US Census International Database).

13

Thematic Investing 22 May 2015

Future Millennial “leaders” are in EMs Elite Millennial “leaders”, who exhibit particularly strong Gen Y traits (e.g. tech savviness) are mostly in EMs, according to analysis by Telefonica. It believes this “global 11%” will be vital in driving economic growth because they are the most tech-adept. However, what is most significant in this study is that it finds that the crux of these “leaders” comes from EMs. In particular, LatAm ranked the highest, with countries such as Colombia having 27% of the sample classified as a Millennial “leader”. Conversely, developed nations like Japan scored only 1%. Table 5: Millennial “leaders”, where they are in the world TOP 13 Country

% of country respondents that are Millennial Leaders

Colombia Peru KSA Chile Venezuela India Mexico South Africa Brazil US Australia Poland Canada

27% 26% 26% 22% 22% 22% 21% 20% 18% 16% 15% 14% 13%

Country

BOTTOM 13 % of country respondents that are Millennial Leaders

Japan Korea Italy Russia Czech Republic France Spain China Egypt Turkey Argentina Israel Germany

Global

N Size MOE

Millennial Leaders

1% 2% 4% 6% 6% 6% 6% 7% 8% 10% 10% 12% 12%

1,600 +/-2.5%

Source: Telefonica

Unique: traits, characteristics & contradictions Millennials are positioned as a one-of-a-kind, unique age demographic. They display generalised and unique traits, clichés and contradistinctions that are key to understanding their role as creative disruptors (i.e., which brands they like, which companies are meeting their needs, and which are at risk of disruption). Table 6: Different types of Millennials Types of Millennial

Most likely to be found

Typical jobs

The Young Householder

- Part-time server - Office temp - Production or marketing assistant - Public relations intern - Researcher Grading a stack of uninspired essays - Teaching Assistant Pledging money to the latest big kick- - Non profit development coordinator starters campaign - AmeriCorps member - Power blogger Collecting home decor inspiration on - Graphic designer Pinterest during naptime - Photographer

The High-Tech Multitasker

Lining up outside Apple store for the latest iMust-Have

The Startup Kid

Selling her third business to Google

The Boomerang Baby The Perpetual Intern The Grad Student The Idealist

Source: mint.com

14

In his parents' basement, beating 'call of duty: Black Ops' - again Juggling four coffees while running to the office at 7 a.m.

- Social media strategist - Software engineering ninja - Mobile app developers - Tech company CEOs

Average salary

Other characteristics of Millennials

$0 - $9.19/ hr

1/10 will buy a home before 30 The average millennial has held 7 different jobs by age 26 - 54% of Millennials have attended college - 60% of college students take out loans - 57% of millennials volunteer regularly - 75% donated to nonprofits in 2011 - 1 in 5 is married - 12% are married with children compared ot 44% of baby boomers at the same age - Millennial smartphone users - 76% - Millennial laptop users - 73% - Millennial tablet users - 35% - 8% of millennials currently own a business - 54% plan to start one in the future

$0 - $15/ hr $16/ hr or $32,000/ year $12K - $49K/ year

$29K - $50K/ year

$45K - $92K/ year $260,000 (Not including stock)

Thematic Investing 22 May 2015

See themselves as one of the most unique generations Gen Y identifies itself as the most unique cohort in history. According to a survey by Pew Research, 61% of Millennials believe that they are unique; only the Silent Generation came in higher at 66%. While the Silent generation’s experiences were formed by WW1 and WW2, Millennials regard events such as globalisation, the invention of the World Wide Web, 9/11 attacks and the Great Recession as uniquely shaping this generation. Chart 22: Q - Is your generation unique? All

57

Millennial (18-29)

61

Gen X (30-45)

49

Boomer (46-64)

58

Silent (65+)

66 0

10 20 30 40 50 60 70 % saying that their age group is unique and distinct

Source: Pew Research

That said, there remain significant differences in terms of how Millennials perceive themselves and how they are perceived by others. Exhibit 5: Opinions of Generation Y, Millennials vs. Non-Millennials

Source: BCG. *size of word denotes frequency in survey

Significant intergenerational differences Millennials have unique traits and characteristics vis-à-vis previous generations like the Silents, Baby Boomers and Gen X. For example, the stereotype is that Millennials are seen as tech-reliant due to innovations like texting, whereas Boomers are seen as competitive, having grown up during the Space Race of the 1960s (source: Barkley). Numerous academic studies and surveys have found Millennials to have their own set of personal traits and clichés that set them apart from other generations.

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Thematic Investing 22 May 2015

Table 7: Overview of generations, past and present GENERATION BIRTH YEARS

DEFINING EVENTS

GENERATIONAL CHARACTERISTICS

SILENT GENERATION

Great Depression, Dust Bowl, Hitler’s Germany, WWII, Communism Jet Age, National TV, Alaska & Hawaii, Civil Rights Movement, Space Race Martin Luther King Jr. Assassination, Working Mothers, Nixon and Watergate, Vietnam AIDS, Iran Hostage Crisis, Space Shuttle Challenger, Fall of Berlin Wall and Soviet Union, Technology Immersion (Email, Texting)

Overly cautious, less likely to take risks, hierarchical, loyal and patriotic, rule makers/followers Economically optimistic, idealistic, individualistic, prefer achievement over relations, competitive

1925-1945

BABY BOOMER 1946-1964 GENERATION

GENERATION X 1965-1976

MILLENNIAL GENERATION

1980-2000s

Homesick, in need of attention but not used to supervision, prefer non-routines, anti-institution

Technology reliant, image-driven, multitasking, open to change, confident, team-oriented, information rich, impatient, adaptable

Source: Barkley

Generation “now”: tech-enabled instant gratification “Globally Millennials spend an average of 6 hours online every day” - Telefonica

Millennials are generally considered to be the “now” generation because of their fast-paced, technology-enabled lifestyle and how they demand products instantaneously. The advent of the internet has ingrained this culture within Generation Y. Globally, Millennials spend an average of six hours online every day with the longest times spent in North America and LatAm in particular, followed by Asia (source: Telefonica). Exhibit 6: Constantly connected, globally spend an average of 6 hours online everyday

Source: Telefonica

Social & sharing: the connected generation Millennials are more socially connected to peers than any other demographic, with one study finding them to be 27% more “people-oriented” than Baby Boomers (source: Hudson). Millennials are unique in that “socialness” pervades their lives, and they tend to reach out more to people and build social connections with them. Social media is a key driving force of this trend, as well as enabling them to reach out beyond their networks. In addition, Millennials’ abstract-thinking abilities are thought to be 12% higher than Baby Boomers’. However, Boomers

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Thematic Investing 22 May 2015

are deemed to have better leadership qualities: they are 28% more decisive and 34% more confident in their ability to lead vs. Millennials (source: Hudson). Exhibit 7: Differences in psychological traits between generations

Source: Hudson

Sceptics: less trusting of others Millennials are thought to be less trusting of others compared to any other generation. Only 19% polled in 2014 said that, generally speaking, people can be trusted. On the other hand, 40% of Boomers and 37% of Silents said the same thing (source: Pew Research). In our view, this has potential implications for many different stakeholders (e.g., it disrupts many companies’ marketing strategies, creates further political disenfranchisement). This effect has perhaps been most material in the financial services sector, where Millennials have a very low opinion of the sector following the Great Recession.

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Thematic Investing 22 May 2015

Chart 23: Q - % saying that most people can be trusted 55 50 45

%

40 35 30 25 20 15 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

10

Silent

Boomer

Gen X

Millennial

Source: Pew Research 2014

“DIY” generation: creative thinkers, customised-makers

“Millennials are nearly 3x more likely than non-Millennials to have their own personal blog or website” (source: Barkley)

Millennials’ ability to generate new ideas has become a defining trait, in our view. This has been driven partly by financial constraints, but also by their preference for customisation over standardisation. Hence, Millennials have been coined as a “DIY” generation because of their ability to create low-cost solutions, which also aligns with the recent rise of the so-called “maker culture”, which marries their tech-savviness with their arts and craft skills to form a creative partnership. Indeed, when asked what the word “creativity” means to them, 17% of Millennials (#4 choice) replied with “arts & craft” as the category. The top three were intangible concepts such as ideas, being original and innovation (source: InSites Consulting).

Chart 24: What the word “creativity” means to Millennials Innovating / new Ideas Original / different / unique Arts & crafts Develop / generate / produce Skills / talent / ability Practical / problem-solving Own initiative / individual Music Inspiration / imagination Inventing / discovering Literature Intelligent / knowledgeable Quality / effectiveness / success Emotions / feelings / expressions

0% Source: InSites Consulting

Chart 25: Millennials more likely to contribute to blogs and personalised web content

26% 21% 20% 17% 15% 12% 10% 8% 7% 7% 5% 5% 5% 5% 4% 20%

Millennials

70% 60% 50% 40% 30% 20% 10% 0%

40%

I have my I have my I I upload I rate own blog own subscribe content to products website to web the web and data / services news on the feeds web Source: Barkley

18

Non-Millennials

Thematic Investing 22 May 2015

Digital natives Millennials’ creativity and freedom of expression is perhaps best reflected online, where they are the generation of “digital natives”. According to Barkley, Millennials are nearly 3x more likely to have their own blog or personal website than non-Millennials. On these, they regularly upload and contribute their own original content vis-à-vis the subject matter. An example is “foodie” blogs where Millennials often share recipes with each other and pictures of meals they have prepared with friends.

ME-llennials: generation “me, myself & I” Millennials have often pejoratively been dubbed Generation “Me” in the media, because of their individualistic qualities. This has been driven partly by the ability to share their daily lives on social media (e.g. posting selfies, “likes”, and secular trends of rising material consumption). According to one study, Millennials place a high importance on personal success and status compared to older generations, with over 20% more saying “personal success is the most important thing in life” (source: Barkley). However, one must consider the other side of the story as Millennials are also the “sharing” generation, which we focus on later in the report. Chart 26: Millennials value success and status Would pay extra for a product consistent with the image I want to convey Special "status" credit cards or memberships are important to me Personal success is the most important thing in life Success is amatter of hard work rather than luck 0

10

20

30

40

50

60

70

% Non-Millennials

Millennials

Source: Barkley

Please see GEMs Strategy team’s - The GEMs Inquirer: Vanity Capital: The global bull market in narcissism 21 April 2015

“Vanity capital”, US$4.5tn economy Our GEMs Strategy team’s recent “Vanity Capital” report underlines the “Gen Me” idea and how Millennials are key plays in consumption that augments personal status. They estimate that spending on vanity capital is approximately $4.5tn, larger than the $3.7tn German economy, which is the fourth largest in the world. The key demographic drivers of their thesis are also those exhibited by Millennials: the rise of women empowerment, delayed marriage, living with their parents for longer, social and internet-driven ease of purchase and price comparisons.

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Thematic Investing 22 May 2015

Figure 1: Global personal Vanity Capital market size plus augmented Vanity Capital (art, luxury property, luxury cars, private jets, yachts) is more than US$4.5tr. That is bigger than the fourth largest economy in the world (Germany) 20 2014 GDP Size (US$tr) 18 16 14 12 10 8 6 4 2 0 United China Japan Global Germany United France Brazil Italy India Russia Canada States personal Kingdom vanity capital Source: BofA Merrill Lynch Global Research, Euromonitor International

“Peter-Pan” generation: nostalgia driven “The Beatles, Rolling Stones & Nirvana are all within the top 5 of Millennials’ favorite artists of all time” – Pew Research

Millennials have also been labelled the “Peter Pan” generation because of their perceived delay in entering traditional adulthood and fondness for the past. Demographically, we already know they are staying single for longer, delaying marriage and choosing to start a family later than previous generations. However, their nostalgic outlook may have also been partially augmented too. Although this may appear contrary to the traits that we have identified (e.g. ambitious and forward looking), it also fits into the diverse, multilateral-thinkers story that we have told about Millennials thus far. Michael Jackson, Rolling Stones, Beatles & Dylan over Madonna In a poll to find out their favourite musical performers, the Rolling Stones and the Beatles from the 1960s appeared among the most popular performers with 45% of Millennials saying they “like them a lot”. Conversely, more recent artists such as Madonna, who started out in the 1980s when the very first Millennials were growing up, ranked lower down, with only 18% giving the same thumbs-up (source: Pew Research). Although these artists’ popularity aren’t necessarily unique vis-à-vis the Millennial generation, we believe it highlights that nostalgia in part is important to Generation Y.

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Thematic Investing 22 May 2015

Chart 27: Millennials’ favourite musical performers across the decades Michael Jackson The Beatles The Rolling Stones Nirvana Kanye West Jimi Hendrix Carrie Underwood* Coldplay Mariah Carey* Johnny Cash* Frank Sinatra Aretha Franklin Garth Brooks* Elvis Presley The Eagles* Bob Dylan Madonna Bruce Springsteen The Grateful Dead The Jefferson Airplane

0

10

20

30

40

50

Source: Pew Research

#1 stressed generation: comfort in escapism Millennials are the most stressed generation in the US, according to the American Psychological Association (APA). An APA study found Millennials to have a 5.5 level of stress on a 10-point scale compared to 4.5 for Boomers. This is primarily thought to be driven by money constraints, the #1 stressor, with 75% of Millennials saying this was a significant source of stress for them (vs. the American average of 64%). Millennials with greater budget constraints and lower incomes face a higher degree of stress. However, Millennials and Generation X are also more likely to experience stress given they form the majority of the workforce, and are parents of children growing up, etc. Chart 28: Average level of stress by US generation (on a scale of 1-10) 6

Chart 29: Stress management techniques among Millennials All Americans

70% 5.5

5.4

Millennials w/ high money stress Millennials w/ low money stress

60% 50%

5 4.5

40% 30%

4 3.5

20% 10% 0%

3 Millennials

Gen Xers

Boomers

Watch Surf the Nap/sleep television/ Internet movies for more than 2 hours per day

Matures

Reported Stress Levels All Americans (average) Source: APA

Eat

Drink alcohol

Source: APA

#1 stress reliever, surfing the net The #1 stress management technique for Millennials is surfing the internet followed by watching videos (source: APA) This finding is significant because we

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Thematic Investing 22 May 2015

think it gives greater insight into why new fads such as “binge-watching” have recently emerged in this generation. Millennials may be coping with stress by going online to distract themselves from the responsibilities of the real world.

Education, #1 learned generation Education is the single most important determinant of income – and as the most educated generation in history, this should tend to boost earning for Millennials over the course of their lifetime, and offset long-term risks from the Great Recession (source: CEA). We see Millennials as a key driver in the US$4.5-5.1tn global education market, which is expected to grow to US$5.9-7.8tn by 2017E (source: GSV Advisors, BofA Merrill Lynch estimates).

Most educated generation in history Millennials are the most educated generation in history, having gone the furthest on the education ladder of any demographic cohort. In 2013, 47% of 25-34Y olds in the U.S. had received a postsecondary (associate’s, bachelor’s, graduate degree), with an additional 18% having completed some postsecondary education. Millennials’ commitment to higher education is a rational response to a labour market that confers large rewards on more educated workers (source: CEA). Chart 30: Male educational attainment when they were 18-28 (% by generation)

Millennial Gen X Boomer Silent

15

35

18

36

21 32

0 Less than high school Some college Source: Pew Research

34

41

Millennial

15

33 25 40 50 High school

19

Chart 31: Female educational attainment when they were 18-28 (% by generation)

13

Gen X

13

Boomer

9

Silent

100

4 years of college or more

12

28

16

40 32

19

37 47

31

0 Less than high school Some college

20 15 23

49 50 High school

11 15

6 100

4 years of college or more

Source: Pew Research

Earnings & employability are the key drivers College-educated Millennials are more likely to earn higher wages and be employed than those without a degree. A 4Y degree yields US$570,000 more in lifetime earnings than a high school diploma alone (source: US Treasury). The number of biomedical engineers and veterinary technologists, requiring specialised degrees, are projected to increase by 62% and 52% respectively by 2020E in the US (Source: BLS) Female Millennials driving higher education rates Female Millennials in particular are driving this rise into tertiary education. In every region, bar Sub-Saharan Africa, female enrolment growth rates outgrew male figures between 1999 and 2009. East Asia and the Pacific saw the strongest growth with +150% growth in female enrolment rates during the 10Y period (Source: PwC, UNESCO, OECD).

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Thematic Investing 22 May 2015

Chart 32: % of tertiary degree qualifications awarded to women (2010) Australia Brazil Canada China Germany Hungary Ireland Korea Saudi Arabia South Africa UK US OECD Country Average EU21 Country Average G20 Country Average

0%

10%

20%

30%

40%

50%

60%

70%

Source: OECD

Millennial POV: education is #1 enabler of world change Millennials believe access to education is the most important way to make a difference in the world (Source: Telefonica). This was followed by protecting the nd rd environment in 2 and eliminating world poverty in 3 . And unsurprisingly an education in technology ranked as the most important in ensuring success in their careers, 16% ahead of economics.

45% 40%

42%

41%

39%

35% 30%

24%

25%

24%

20%

Chart 34: % saying what is most important to ensure future success % of global millennials

% of global millennials

Chart 33: % saying what will make a difference in the world

40%

30% 25%

15%

10%

10%

5%

5%

Source: Telefonica

Access to / Protecting the Eliminating quality of environment poverty education

Providing basic food / shelter

Promoting sustainable energy

20%

20%

15%

0%

36%

35%

0%

13%

12% 4% Education Economics in technology

3%

Science Matematics Literature

Foreign languages

Source: Telefonica

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Thematic Investing 22 May 2015

Pioneering the EdTech revolution Tech-savvy Millennials are leading the charge on EdTech via the growing integration of ICT, and the shifts from print to digital and from classroom to online learning. Chart 35: Search engines are #1 when Millennials want to do a deep dive into a topic Search engine Facebook Wikipedia Online… Online-only… Local TV Word-of-mouth Specialized… National TV Blog National… Local… Other social… Twitter Radio 0

Rise of “self-education”, prefer to do own deep dives online Millennials in particular have driven the shift towards online, self-taught education. In particular the advent of search engines such as Google has increasingly driven deep dives of subjects to online, rather than an encyclopaedia book of the past. 50% of Millennials look towards search engines like Google first when they want to look into a topic in depth. Online learning Around 7m US students took at least one online course in 2012 (+570,000 YoY) – and this figure has been increasing at a faster pace than the overall numbers in higher education every year since 2002. The proportion of all students taking at least one online course reached a record high of 32% in 2012. However, the online enrolment growth rate of 9.3% is the lowest since 2002 (source: Babson Survey Research Group and Quahog Research).

Well educated but do they have the right skills? 20

40

60

Percent of Millennials investigating a topic online Source: AP, Media Insight Project, NORC Center for Public Affairs Research

American Millennials are well educated but less prepared for today's job market than many of their international peers according to Educational Training Services st (ETS). US Millennials ranked 21 out of 22 countries in numeracy; in literacy, 1/2 scored below the minimum proficiency level; and for problem solving, only 56% of American Millennials met the minimum standards, ranking behind every other nation (source: ETS). This potentially threatens their prospects and puts the US’ labour market at a distinct competitive disadvantage in an increasingly globalised economy that rewards high-level skill sets.

300 290 280 270 260 250 240 230 Finland Japan Flanders (Belgium) Netherlands Czech Republic Sweden Austria Estonia Republic of Korea Denmark Germany Norway Slovak Republic OECD average Australia Canada Poland France England and Northern Ireland Italy Spain United States

Numeracy

Chart 36: Numeracy scores of Millennials across the globe

Source: ETS

Studying social sciences & applied fields (vs. business, health, STEM, IT) Millennials are more likely to study social science or applied fields that correspond more directly to specific careers (e.g. communications, criminal justice, and library science). Worryingly, Millennials are somewhat less likely than previous generations to major in fields like business, health, and STEM fields –

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Thematic Investing 22 May 2015

and the share of Millennials choosing computer and information science majors has fallen over time, especially for women (source: CEA).

Debt is the price of education: US$1tn+ in student loans The total student loan debt balance in the US is now worth US$1tn+, making it the no. 2 largest category of household debt (source: FRBNY). Drivers for the debt load include: greater enrolment among Millennials, an increasing share of low-income students, rising tuition, parents’ impaired ability to offset costs, and the fact that students are taking longer to pay their loans. As employment and wages accelerate more notably than they have thus far, then, in our view, the student loan debt barrier should subside. Chart 37: Total student loan debt balance composition in the US 1.3 1.2 1.1

USD$tn

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3

Source: Bloomberg, FRBNY, BofA Merrill Lynch Global Research

10% of household debt & $30k average debt As a percentage of total debt, student loan debt now comprises around 10% of total household debt at 1Q15 versus 3.3% in 2Q03. The average student debt figure has grown from just over US$10,000 in 2003 to US$30,000 in 2015 (Source: Federal Reserve). Chart 38: Mean and median student loan debt for those under 35 (US$2013) $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 1989

1992

1995

1998

2001

Mean

2004

2007

2010

2013

Median

Source: BofA Merrill Lynch Global Research, Survey of Consumer Finance (2013)

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Thematic Investing 22 May 2015

Many borrowers facing financial difficulties with their debt Recent increases in the prevalence of delinquent student loans demonstrate the difficulties that some borrowers face managing and paying down their debt. Defaults are concentrated among borrowers who did not graduate from a 4Y institution and those attending for-profit institutions – both of whom tend to receive lower ROI on education (source: EA). Student debt has stifled the ability of many Millennials to make big-ticket purchases and obtain mortgages. Chart 39: Estimated home buying delay due to student loan debt 80% 70% 60% 50% 40% 30% 20% 10% 0%

Chart 40: Millennials with loans vs. current living situation 70% 60% 50% 40% 30%

Some college

Bachelors degree

Less than 5 years

Masters or Professional degree

5-10 years

20% 10% 0% Rent

Source: BofA Merrill Lynch Global Research

Own

Neither

Source: BofA Merrill Lynch Global Research

Stronger economy: Millennials choosing work over college Recent evidence shows that the stronger US economy means that more Millennials are choosing to skip college and enter the workforce. College enrolment in the spring 2015 semester dropped 2% from 2014 to 18.6mn with the strongest drop in the mid-20s demographic (source: National Student Clearinghouse Research Center).

Outlook: relatively liberal & progressive Millennials are frequently identified as being more liberal and progressive than their predecessors. This is underscored by the diverse mix of the generation, open-mindedness to change and the unique global events that have shaped their lives, in our view.

Social: equality is important Millennials have shifted from societal views traditionally held by previous generations. We outline the key social differences in intergenerational opinions below. Race: leading the charge against discrimination Generally racial discrimination has declined over time, but Millennials are leading this change with approximately 9/10 in the US believing “it’s all right for blacks and whites to date each other” (source: Pew Research). However for Silents this figure is only around 7/10.

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Thematic Investing 22 May 2015

Chart 41: Q - “I think it's alright for blacks and whites to date each other” 100

% who agree

90 80 70 60 50

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

40

Silent

Boomer

Gen X

Millennial

Source: Pew Research

LGBT issues Generation Y also has a more liberal outlook on LGBT issues. 68% of Millennials support same-sex marriage compared with just 47% of Baby Boomers. Gen Y is driving changes in established societal views on LGBT issues with more than half identifying themselves as supporters of gay rights compared to just 33% of Boomers (source: Pew Research). Chart 42: US Growing % support for same-sex marriages across generations

Chart 43: US Millennials lead the way in % supporting gay rights

80 Millennial

51

70 60 Gen X

50

37

40 Boomer

30

33

20 10

Silent

32

0 0 Silent

Boomer

Gen X

20 40 % supporting gay rights

60

Millennial Source: Pew Research 2014

Source: Pew Research

Echoed by BRIC millennials Similar to US counterparts, 54% of BRIC Millennials think that same sex couples have the right to be married. China had the highest percentage at 67%, which is in line with US Millennials. (Source: JWT Intelligence).

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Thematic Investing 22 May 2015

Chart 44: Lesbian, gay, bisexual and transgender issues

Chart 45: Lesbian, gay, bisexual and transgender issues

67%

I think same sex couples have the right to be married

59%

55%

54%

32% 64%

50%

62% 70%

People are exploring their sexuality more than in the past

39% 83% 80% 85% 87% 91%

0%

20%

40%

60%

I know people who are openly gay/lesbian

48%

India

Russia

82%

80% 100%

0%

20%

40%

60%

80%

100%

Percentage of BRIC Millennials who agree

Brazil

China

Source: JWT

53%

44%

Percentage of BRIC Millennials who agree

China

52%

36% 63%

58% 60% 59%

Being gay/lesbian isn’t really a big deal anymore

I’m comfortable with the idea of homosexuality

India

Russia

Brazil

Source: JWT

Politics: more liberal, less conservative In the US, Millennials are more likely to be political supporters of liberalism than any other generation. 31% identify themselves as such while only 26% identify themselves as conservative (source: Pew Research). Although the data indicates that the US is generally moving in the direction of liberalism, it is in the Gen Y cohort that we observe the greatest rate of increase. Chart 46: % who identify as conservative

Chart 47: % who identify as liberal

55

35

50 30

45

25

35 %

%

40

30

20 25 20

15

Silent Source: Pew Research 2014

Boomer

Gen X

Millennial

Silent

Boomer

Gen X

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

10

2002

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

10

2001

15

Millennial

Source: Pew Research 2014

This trend is also reflected in their positioning on the political compass. The “average Millennial” generally leans more towards the left in the US, aligning more closely with Democrats such as Obama and Clinton (source: Reason, Rupe Spring Poll).

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Thematic Investing 22 May 2015

Exhibit 8: Millennials' ideological positioning on economic and social issues

Source: Reason, Rupe Spring 2014 Millennial Poll

But political views may move further right, just like predecessors However, Millennials seem to move more towards the “political right” with age – like previous generations. As Millennials age and begin to buy homes and get married, they tend to become increasingly Republican: 21% of unmarried, nonhomeowners said they were a Republican vs. 34% of married homeowners (source: Reason).

“Millennials will be 40% of the US electorate by 2020E” – Center for American Progress

Chart 48: Millennials become less independent and more Democratic the longer they are in school 70%

50%

60% 50% 40% 30%

Chart 49: Millennials become less independent and more Republican as they buy homes and marry

51%

46%

59%

45%

43%

35% 38%

29%

44%

35%

34%

21%

22%

30%

25%

20%

23%

20%

10%

44%

40%

26%

25%

15%

20% 15%

0%

Democrats High School

Some College

Democrats

College Grad

Either Married or Homeowner Married and Homeowner

Republicans

“American Millennials trust the UN more than Congress” - Harvard

Republicans

Non-Home Owner, Unmarried

Independents

Source: Reason-Rupe

Independents

Post-Grad

Source: Reason-Rupe

Vote-of-no-confidence: distrust government, abstain from voting Millennials have a lower voting turn-out than other generations, driven by their perceived distrust of government. Although this can also be said for the young demographic of eras gone by, this trend has accelerated. This is driven by Millennials’ disillusionment with politics and the poor state of their finances. According to Pew Research, only 69% of Millennials are registered to vote and/or

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Thematic Investing 22 May 2015

said they almost always vote. On the other hand, nearly 9/10 Baby Boomers said they were regular voters. Chart 50: % of registered voters who say they "always" or "almost always" vote

Chart 51: % of Millennials saying they’re confident in US institution Military

Millennial

69

Gen X

Supreme Court 85

Boomer

President

89

United Nations Federal Govt.

Silent

91 Congress 0

20

40

60

80

100 0%

%

20%

40%

60%

Source: Harvard IOP Source: Pew Research

They are also sceptical of big government, driven by recent impasses; e.g., the fiscal cliff where confidence in the state is at an all-time low. According to a study by Harvard, Millennials have greater trust and confidence in the military (53%) than the President (37%) or Congress (17%). Generation Y are less trustful of those in power, compared to their predecessors because of their independent thinking approach, in our view. 31% of Brazilian, Russian, Indian Millennials trust government Millennials in Brazil and Russia are much more dissatisfied with their political leaders, where fewer than 3 in 10 believe that their governments act promptly to help people and that their leaders are in touch with people’s needs. Indian Millennials are marginally more positive, with 4 in 10 seeing the government in touch with the needs of citizens. (source: JWT Intelligence).

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Thematic Investing 22 May 2015

50

Rise of the political independent Recent trends have shown that Millennials are becoming increasingly politically independent – neither identifying themselves as a Democrat or Republican. Instead, there has been a surge in political independents with 50% of Gen Y identifying themselves as such in a 2014 poll. This will have important implications for voting in US elections as Millennials become the core base of the electorate (source: Pew Research).

40

Chart 53: % who identify as political independents by generation

Chart 52: Millennial political independents taking share from Democrats & Republicans

%

60

30

50

20

45

10 40

Republican

2014

35 %

2012

2010

2008

2006

2004

0 30

Democrat

25

Independent

20

Source: Pew Research 2014

15 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

10

Silent

Boomer

Gen X

Millennial

Source: Pew Research 2014

Social liberals, fiscal centrists - implications for future elections The average US Millennial leans more towards the left on social issues, but more towards the right on economic and fiscal matters. This is significant because it has mixed implications for the US election in 2016, in our view. Furthermore, if we include the rise in the number of independents (ie, an electorate that identifies with none of the established parties), this creates an electorate which is hard for parties to appeal to. Chart 54: Millennials are social liberals, fiscal centrists 100% 80%

25%

40%

60%

24%

40%

14%

22%

20% 17%

14% 13% 11%

Economic

Social

20% 0%

Exhibit 9: Lean closer to Obama socially, but closer to Christie economically

Strong Conservative

Moderate Conservative

Middle

Moderate Liberal

Strong Liberal Source: Reason, Rupe Spring 2014 Millennial Poll Source: Reason, Rupe Spring 2014 Millennial Poll

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Thematic Investing 22 May 2015

Religion: fewer believe in God Millennials are less religious than previous demographic age groups. Only 36% of US Millennials describe themselves as religious compared to over 50% of Baby Boomers (source: Pew Research) Chart 55: % saying they don't see themselves as religious

Millennial Gen X Boomer Silent 0

10 20 30 40 50 60 % saying describing themselves as religious

70

Source: Pew Research 2014

In addition, only 58% of Millennials say they absolutely believe in God vs. 73% of the Baby Boomer sample. They also oppose religious teachings such as the Bible, with 56% supporting the US Supreme Court’s ruling to ban required reading of the Lord’s Prayer or Bible verses in public schools (source: Pew Research).

% opposed

Chart 56: Opposition to Bible Reading. Lord's Prayer in Schools 70 60 50 40 30 20 10

Chart 57: Millennials and God: % saying that they … in God

56

Silent

74

19

5

Boomer

73

20

6

Gen X Early Late Early Late Early Late Early Late 70s 70s 80s 80s 90s 90s 00s 00s Greatest Several Blocks) Gen X

Bike

Baby Boomers

War Babies/Silent Generation

Source: US PIRG

Again drivers of this trend can be explained by financial reasons with walking, biking and public transport much cheaper than servicing a car. However this can also be explained by their H&W and sustainability values, where tall the aforementioned modes of travel are more ENV-friendly compared to autos. Overall this trend reflects the economical, multitasking and explorative mindset of Millennials. It demonstrates that they are a unique generation because of their savviness, by finding multiple ways to get from point A to B. Retailing - Hardlines: Millennial mavens: from spending drag to driver 26 July 2013

From spending drag to driver Consumer expenditure habits differ inter-generation The Millennial generation is poised to have a significant impact across all sectors as they enter their prime spending years over the next decade. Based on data from the Bureau of Labor Statistics, we outline per capita consumer expenditures broken down by sector and by age bracket. Even though the data provides a static view of how consumers in different age groups consumed different kinds of goods and services in 2013, setting aside generational characteristics, the data provide a useful glimpse into lifetime spending trends.

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Thematic Investing 22 May 2015

Table 9: Average annual consumer expenditures by age, 2013 All consumer units

Under 25 years

25-34 years

35-44 years

45-54 years

55-64 years

65 years and older

Average annual expenditures Income before taxes Income after taxes % total income before taxes spent % total income after taxes spent

$51,100 $63,784 56,352 80% 91%

$30,373 $27,914 26,559 109% 114%

$48,087 $59,002 53,178 82% 90%

$58,784 $78,385 69,152 75% 85%

$60,524 $78,879 68,048 77% 89%

$55,892 $74,182 63,312 75% 88%

$41,403 $45,157 41,885 92% 99%

Expenditure breakdown Food Housing Apparel and services Transportation Healthcare Entertainment Personal care products and services Education Personal insurance and pensions Other

6,602 17,148 1,604 9,004 3,631 2,482 608 1,138 5,528 $3,355

4,698 10,379 1,513 5,672 943 1,243 342 2,055 2,203 $1,325

6,197 17,207 1,832 9,183 2,189 2,214 538 1,019 5,304 $2,404

7,920 20,619 1,960 10,519 3,188 2,958 672 903 7,081 $2,964

7,907 19,001 1,826 10,782 3,801 3,070 723 1,970 7,672 $3,772

6,711 17,937 1,563 9,482 4,378 2,651 638 1241 7,033 $4,258

5,191 14,204 1,022 6,760 5,069 2,027 563 319 2,396 $3,852

Percent of total expenditures Food Housing Apparel and services Transportation Healthcare Entertainment Personal care products and services Education Personal insurance and pensions Other

13% 34% 3% 18% 7% 5% 1% 2% 11% 7%

15% 34% 5% 19% 3% 4% 1% 7% 7% 4%

13% 36% 4% 19% 5% 5% 1% 2% 11% 5%

13% 35% 3% 18% 5% 5% 1% 2% 12% 5%

13% 31% 3% 18% 6% 5% 1% 3% 13% 6%

12% 32% 3% 17% 8% 5% 1% 2% 13% 8%

13% 34% 2% 16% 12% 5% 1% 1% 6% 9%

Percent of total income after taxes Food Housing Apparel and services Transportation Healthcare Entertainment Personal care products and services Education Personal insurance and pensions Other

12% 30% 3% 16% 6% 4% 1% 2% 10% 6%

18% 39% 6% 21% 4% 5% 1% 8% 8% 5%

12% 32% 3% 17% 4% 4% 1% 2% 10% 5%

11% 30% 3% 15% 5% 4% 1% 1% 10% 4%

12% 28% 3% 16% 6% 5% 1% 3% 11% 6%

11% 28% 2% 15% 7% 4% 1% 2% 11% 7%

12% 34% 2% 16% 12% 5% 1% 1% 6% 9%

Source: Consumer Expenditure Survey, U.S. Bureau of Labor Statistics

Millennials have the lowest credit score Based on data from credit score agency Experian, Millennials have the lowest credit scores among the various generations (this is unsurprising since many would be too young to have built up much of a credit record). In addition the composition of their debt is also different from that of older generations, with less first mortgage debt ($20,824 on average vs almost $85,000 for GenX) and more student loans ($5,250 on average vs. over $3,600 for GenX). High debt and default could impact Millennials’ ability to obtain credit when needed. Even though many still live at home, because of high unemployment and student loans, current savings levels are very low among Millennials. This could imply higher savings rates will be needed in the future, which could be a drag on discretionary spending. According to the Pew Research Center, 77% of the

44

Thematic Investing 22 May 2015

generation under 30 worry they are not saving adequately, compared to 72% in 2006. According to our checks with loan officers, student debt is treated as being virtually the same as any other lending product. Generally speaking, if the student loan debt is reported on the applicant’s credit report, there is a monthly payment assigned as part of the applicant’s debt ratio. The same would be true for any lending product: the ratio of total monthly debt to total monthly income is calculated then used to determine if the applicant is able to handle additional debt. Table 10: Debt distribution and credit score by Generation Silent Boomer GenX Millennial

First Mortgage

Second Mortgage

Bankcard

Retail Card

Auto Loan

Student Loan

Average Debt

Average VantageScore

66.6% 72.1% 76.3% 59.9%

13.4% 10.2% 5.9% 1.4%

6.0% 4.2% 3.6% 5.2%

0.7% 0.5% 0.5% 1.0%

5.2% 4.8% 5.8% 13.7%

0.7% 1.4% 3.3% 15.1%

$38,043 $101,951 $111,121 $34,765

829 782 718 672

Source: Experian Note: vantageScore is credit score that was developed by the three national credit reporting companies (CRCs) — Experian, TransUnion and Equifax

Chart 84: % with emergency savings fund 60% 50% 40% 30% 20% 10% 0%

Budgeting, times are still tight for Millennials The diminished finances of Millennials have resultantly made them one of the most budget conscious generations ever. 2/3 Millennials had some sort of monthly budget which oversees their finances. Unsurprisingly, 1/3 said they used a digital system to implement this, the most popular form. In addition, Millennials are barely able to afford paying their living expenses, even when taking their emergency fund into consideration. They often live just above the minimum threshold in monetary terms. A combined 65% said if they had a fund, this would only cover them for a maximum of 6 months (Source: Principal Financial Group).

57%

Emergency savings fund Source: Principal Financial Group

Chart 85: Comparison of generational spending trips per household

Chart 86: Comparison of generational basket spend (US$) by trip

Grocery Stores

Warehouse Clubs

Supercenters

Supercenters

Drug Stores

Mass Merchandisers

Dollar Stores

Grocery Stores

Convenience/Gas

Drug Stores

Mass Merchandisers

Convenience/Gas

Warehouse Clubs

Dollar Stores 0

Greatest Gen Source: Nielsen

50 100 150 200 250 Shopping trips per household

Boomers

Gen X

Millennials

0

Greatest Gen

100 200 300 400 Basket ring $ per trip

Boomers

Gen X

500

Millennials

Source: Nielsen

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Thematic Investing 22 May 2015

Chart 87: % of millennials with monthly budget by system

Chart 88: How long could Millennials pay basic monthly expenses from emergency fund

70%

3% 2% 2%

60%

9%

50%

33% 40%

18%

30% 20%

32%

10% 0%

Millennials

Digital My budget Category Envelope Reverse budgeting is not a budget system budgeting formal budget

Other

3 months or less

4 to 6 months

7 months to a year

13 months to 2 years

25 months to 3 years

More than 3 years

Don't know Source: Principal Financial Group Source: Principal Financial Group

Rent/mortgage is #1 budgeted item Nearly 2/3 of Millennials said the largest portion of their budget was dedicated to housing (mortgage/rent). The second and third biggest budget items polled were food (38%) and car/transportation (30%). This is significant in highlighting that Millennials are having to dedicate a huge proportion of their financial resources to living costs alone (Source: Principal Financial Group). Chart 89: Largest budgeted items for Millennial households 70%

65%

60% 50% 38% 27% 20%

20%

15%

11%

10%

Retirement Savings

30%

30%

Insurance

40%

10% Credit Card Debt

Student Loans

Basic Expenses

Car(s)/Transportation

Food

Mortgage/Rent

0%

Source: Principal Financial Group. * Q – “which of the following are your families’ 3 biggest budget items?” (Responses based on the largest categories selected)

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Thematic Investing 22 May 2015

Gen Y’s outlook: entrepreneurial, idealistic & bullish Millennials are still optimistic about the future, despite growing up during an era of difficult economic circumstances. This is backed up by recent survey data suggesting Millennials are beginning to find their feet again in the economy. 41% of those aged 18-29 were upbeat and satisfied with the state of affairs in the US, compared to just 26% observed in those aged 30+. Since the trough in 2008, there has been an upswing in satisfaction. Millennials are consistently optimistic on future job prospects and growth in the economy, which bodes well for the future (Source: Pew Research). In addition, only 32% of Millennials polled said they were earning enough now. However 53% said despite not earning enough economically, they believe they will do so sometime in the future.

% satisfied with the way things are going in the country

Chart 90: Young people consistently more upbeat

Chart 91: Millennials confident about their financial future: % saying they ... to lead the kind of life they want

60

Silent

50

Boomer 40

Gen X Millennial

30

0

20

50

% 100

Earn enough now

10

Don't earn enough now, will in future

18-29

30+

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

0

Don’t earn enough now, won't in future Source: Pew Research 2014

Source: Pew Research

The “American Dream” is still alive North America ranks the highest (77%) where Millennials believe they have the best opportunity to become an entrepreneur. This is reflected globally as well, with an average of 68% agreeing that they have an opportunity to become an entrepreneur in their respective country (Source: Telefonica). This underscores that Millennials to an extent still believe in the “American Dream” of building your own success story, but perhaps in a different way compared to their parents. However the countries that ranked the highest were Saudi Arabia (91%), India (87%) and South Africa at 81% (Source: Telefonica).

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Thematic Investing 22 May 2015

Chart 92: % Agree - I have opportunities to become an entrepreneur in my country 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

77% 69%

68%

64%

70%

68%

Asia

Middle East & Africa

55%

Global

North America

Latin America

Western Central & Europe Eastern Europe

Source: Telefonica

Just as optimistic as Gen X when they were young It is also important to provide a snapshot comparison of Millennials vs. previous generations. According to Pew Research, an employed 2014 Millennial was just as satisfied with life compared to a 1994 Gen X, 20 years ago. This is significant because Gen X came of age in more favourable economic circumstances compared to Gen Y. Again this reiterates that as a generation they idealistic and entrepreneurial in their outlook. Chart 93: Q - % of employed young adults saying they ... to lead the kind of life they want

1994 Gen Xers

2014 Millennials 0

20

40

60

80

100

% Earn enough now

Source: Pew Research

48

Don't earn enough now, will in future

Don’t earn enough now, won't in future

Thematic Investing 22 May 2015

Delayed but not denied, comeback imminent Chart 94: Growth in 30-somethings is incrementally positive for spending

With this generation heading for peak purchasing power in 5 to 10 years, coupled with large pent-up demand, we are positive on their consumer spending. However given their high levels of student debt and disadvantage of entering the work force during a prolonged recession, we are more cautious on discretionary spending in particular. The impact of the Millennials is expected in two large waves. The first wave consists of Millennials now 30-33 years old. This group makes up 5.5% of the total population and 25% of all Millennials. This group will enter peak spending years during the next 5 years while the economy heals. The second and larger wave will consist of Millennials currently 20-24 years old, who make up 7.2% of the US population and 32% of Millennials. Given their youth, current high levels of unemployment and student debt, the bigger impact of this larger group is still a decade out or more.

Source: US Census

Put simply, the greatest factor driving spending is the number of people in their 30s. As the chart on the left shows, people in their 30s will increase by a CAGR of over 1% from 2010-2025E, the fastest growth among the under-65s. We expect the number of 30-somethings to peak between 2020-2025E. Even though people in their 30s do not earn or spend as much as those in their 40s and 50s, they do represent the incremental consumer and new household. Chart 95: Median household income in 2011 and % change since 2007 70,000

10%

60,000

5%

50,000 40,000

0%

30,000

-5%

20,000 -10%

10,000 -

-15% 15-24

25-34 2011

35-44

45-54

55-64

65+

Total

% Change since 2007

Source: US Census

Number of affluent Millennials will grow As we have highlighted not all Millennials are debt-laden, twenty-something students portrayed in the media. According to Nielsen, they actually account for 14.7% of those with a wealth US$2mn+ in the US. This is a greater percentage than the Gen X and younger Boomers cohorts. However the main driver of these “affluent” millennials comes from the older part of the cohort, who are beginning to settle down and finally enter parenthood.

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Thematic Investing 22 May 2015

Chart 96: Wealth (income producing assets) by generation 2,000+ 1,000-1mn advertisers and 20% mobile usage share. Other popular networks include Twitter, Pinterest, Instagram, WhatsApp, WeChat, LINE, YouTube, LinkedIn, Google+, Tumblr, Vine and SnapChat, as well as other regional social sites. Social news for a social generation, disrupting paid content Social media has completely changed how Millennials interact with each other, and have disrupted incumbent players in the news industry. Facebook in particular has become a key source of news for Millennials with more than a half saying they used the platform as their news source on a daily basis with pop culture news their #1 topic. Millennials are increasingly using free viral news. More than half of website users such as Vice (54%) and BuzzFeed (53%) are Millennials (source: ComScore). Generation “selfie”, “like”, FOMO and “sharing is caring” The boom in social media has been accompanied by a rise in “selfies” – with 55% of Millennials having shared a selfie (source: Pew Research) – and “likes” as the currency of this generation because they drive popularity/status in the digital world. They use social network sites to prevent them from missing out on key events or what is termed as “FOMO” (fear of missing out). This aligns their unique “vanity” and “sharing” trends, in our view. 50bn IMs every day 50bn instant messages (IM) are sent every day around the world, meaning 18tn in total every year (source: Deloitte, Ofcom). Millennials are one of the key drivers, with a third using Facebook Messenger or WhatsApp – the #1 and #2 services, respectively (ex China) – and 60% of Chinese Millennials using WeChat (source: GlobalWebIndex). $34bn social media market by 2016E: driven by advertising and gaming Social media is projected to be a $34bn market by 2016E, driven by revenues generated from advertising and gaming (source: Gartner). Social media offers

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Thematic Investing 22 May 2015

multiple opportunities because of its wide array of sectors with exposure to the Millennials demographic.

Online dating, $2bn+ market For further details please see Nat Schindler’s - IAC InterActive: Valuing the Swipe 10 March 2015

Millennials are more likely than any other generation to use online dating services, which are a natural extension of social networks, with over 20% of older Millennials (aged 25-34) in the US having used online dating websites or related apps. Tinder is one of the most popular dating products in this industry, with more than 50mn users worldwide and more than 1.2bn swipes per day. $2bn+ market in US alone The online dating market in the US was worth $2bn+ in 2014 (source: IbisWorld) with Millennials accounting for roughly half. Drivers include demographics (staying single for longer), their busy, on-the-go lives, and the increased acceptance of “digital dating”.

Digital media, $8bn+ global market by 2017E Cloud-based viewing platforms are the Millennials’ preferred way to watch video and listen to audio content. Nearly 25% of US Millennials aged 25-34 use ondemand music streaming services like Spotify, the highest percentage by age demographic (source: Nielsen). Online video streaming had 47tn video views in March 2014, with nearly half of Millennials streaming services like Netflix via mobile (source: comScore). US$62bn+ in NAm spend alone: pay TV incl. streaming is #1 US and Canadian Millennials are projected to spend more than $62bn on media content in 2015E, which equates to an allocated budget of $750 each. Pay TV including fast-growing streaming and shared subscription services ($315 or 50% of their media budget), live music and computer games account for the biggest share of Millennials’ media spend (source: Deloitte). $8bn+ market in digital media by 2017E The global market for digital media is expected to hit US$8.2bn by 2017E, ex. Japan (Source: Sony, IFPI). This is expected to be primarily driven by music streaming (60%) e.g. Spotify and video subscriptions & services (13%) e.g. YouTube, Vevo, Netflix etc.

IoT, $7tn+ mkt. by 2020E The tech-savviness of Millennials will enable them to quickly adapt to the increasing number of IoT products e.g. wearables. IoT is an enabler and driver of growth vis-à-vis products Millennials use because of how it marries the “omnichannel” business model with technological innovation. Global revenue generated by IoT systems including devices, applications, analytics, security and services is expected to grow from $2.7tn in 2015 to more than $7tn by 2020E. And on an annual basis, we estimate that there will be more than 12bn devices sold each year by 2020E as the IoT systems become pervasive (source: IDC).

Wearable wave, $70bn mkt. by 2018E Please see Global Tech team’s Technology - Global: Thematic Research: The Wearable Wave 24 September 2014

Wearables - miniature electronic devices worn in-clothing or on-body – are set to become a key driver of the consumer market enabled by IoT, and a perfect match for the unique tech-savvy traits of Generation Y. Millennials are twice as likely as adults aged 35+ to adopt a wearable, more than half are likely to purchase a fitness band in the coming year, and 83% believe wearables will “strengthen their connection with family & friends” (source: PwC).

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Thematic Investing 22 May 2015

156% CAGR & $70bn market by 2018E Our Global Tech team forecasts the wearables market to grow from $3.6bn in 2014 to $15.4bn in 2015E, $29.3bn in 2016E and to reach $70bn by 2018E. The team’s “Wearable Wave” note highlights how devices such as the Apple Watch have opened up a whole new world for the Millennial tech consumer. Augmented/Virtual Reality (AR/VR), $150bn market by 2020E We believe that Millennials will be a significant audience for augmented/virtual reality (e.g. Oculus Rift headset). This market is forecast to hit $150bn by 2020E, with the lion’s share of revenue coming from the AR segment (Source: Digi Capital).

Risks of tech There are also potential negative effects of being overly-reliant on tech for Millennials. The potential dangers include: privacy, piracy, IP losses, cybersecurity, and skills vis-à-vis education and employment. Skills, tech-dependent vs. tech-savvy? Many employers and academics are raising concerns that while Millennials grew up with social media and texting and consuming information, they suffer from a technological knowledge gap in areas like computer science, professional tools (Outlook, Excel), and Googling (one study found that only one in seven knew how to conduct a “well executed” search) (source: ServiceNow), among other areas.

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Thematic Investing 22 May 2015

“50%+ of Millennials would rather give up their sense of smell than their technology” - Rosetta

Chart 109: Q - does tech make life easier? All

26

18

74

Gen X

21

69

Boomer

30

Silent

36

0

60 50 50

Millennials have been most empowered by tech compared with previous generations. Nearly three-quarters of Millennials believe new technology makes their life easier, more than a half said it made people closer to their friends and family, and allowed them to use their time more efficiently (Source: Pew Research). Overall Generation Y see tech in a more positive light relative to other generations Chart 110: Q - does tech connect people? All

64

Millennial

One ‘tech of a generation

% 100

New technology makes life more complicated New technology makes life easier Source: Pew Research

50

39

Millennial

35

54

Gen X

36

52

Boomer

42

48

Silent

44

44

0

Chart 111: Q - does tech improve productivity?

% 100

50

All

35

52

Millennial

33

56

Gen X

34

52

Boomer

35

54

Silent 0

New technology makes people more isolated

41

41

% 100

50

New technology makes people waste too much time

New technology makes people closer to their friends and family

New technology allows people to use their time more efficiently

Source: Pew Research

Source: Pew Research

Tech is a universal language Globally Millennials believe tech can help them overcome language barriers, via methods such as translation apps, learning a new language online among others. In every region across the world, roughly 9/10 feels technology allows them to solve the communication difficulties when speaking different languages with each other (Source: Telefonica). Chart 112: Q - does technology make language barriers easier or harder to overcome? 100%

13%

9%

9%

11%

6%

87%

91%

91%

89%

94%

16%

15%

84%

85%

Asia

Middle East & Africa

80% 60% 40% 20% 0% Global

North Latin Western Central & America America Europe Eastern Europe Easier to overcome

Harder to overcome

Source: Telefonica

Digital natives, “tech-llenials” “Millennials are 2.5x more likely to be an early adopter of tech than older generations” - Barkley

Millennials are 2.5x more likely to be early adopters of tech than older generations (Source: Barkley). They are often described as “digital natives” – more proficient in adapting to the rapid pace of technological change that is

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Thematic Investing 22 May 2015

occurring than previous generations. Baby Boomers would be considered “digital immigrants” because they were born into a world before modern tech existed and therefore have had to adapt to each new development. Table 14: Millennials outpace older Americans in technology use Millennial

Gen X

Boomer

Silent

(18-29)

(30-45)

(46-64)

(65+)

Created social networking profile Wireless internet away from home Posted video of themselves online Use Twitter

75 62 20 14

50 48 6 10

30 35 2 6

6 11 1 1

Use cell to text Texted in past 24 hours Texted while driving Have a cell phone/no landline Median # texts in past 24 hours

88 80 64 41 20

77 63 46 24 12

51 35 21 13 5

9 4 1 5 --

Internet behaviours

%

Cell phones and texting

%

%

%

Source: Pew Research

This divergence across generations has been driven by more Millennials using the Internet. Whilst internet usage has increased across all generations, the highest growth rate was among Millennials (7%) between 2005 and 2010. If we break this down within the cohort, college and younger Millennials exhibited the highest rates of internet use (Source: Pew Research). The internet is often seen as the gateway to the tech world; hence, the strong presence of Millennials in this domain underlines their status as the first digital generation, in our opinion. Table 15: % of public who use the internet or send and receive email at least occasionally 2005 2010 Change All Millennial Gen X Boomer Silent

68 83 84 73 36

77 90 87 79 40

+9 +7 +3 +6 +4

Source: Pew Research Note: 2005 Data are from Pew Research Center’s Internet & American Life Project survey conducted May 4–June 7, 2005.

Chart 113: % of Millennials who use the internet and/or send + receive email at least once occasionally No college College

83 96

Hispanics Blacks Whites

73 91 95

25-29 18-24

88 92

All Millennials

90 0

20

40

60

80

100

% Source: Pew Research

Millennials are more likely than any other generation to own a cell phone (94%). They are also more likely to use cell-phones for activities like texting: 80% of Generation Y text at least once a day and send a median number of 20 texts over a 24-hour period. A particularly interesting finding is that 41% of Millennials define themselves as “cell-only”, meaning they do not have a landline at home at all (Source: Pew Research). This is significant because it suggests traditional landline telecommunications stakeholders are at greatest risk of disruption with mobile Millennials driving this secular trend, in our view.

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Thematic Investing 22 May 2015

Table 16: Millennials are the most avid texters

Table 17: More Millennials are becoming cell-only

Ever text*

Text in past day*

Median # in past day**

% 59 88 77 51 9

% 48 80 63 35 4

# 10 20 12 5 --

All Millennial Gen X Boomer Silent

Source: Pew Research Note: *Based on all adults. **Based on adults who texted in past 24 hours. Silent generation not shown because of small sample size.

Have a cell phone

Are cell-only*

% 86 94 90 89 62

% 21 41 24 13 5

All Millennial Gen X Boomer Silent

Source: Pew Research *Have a cell phone but do not have a landline phone at home.

The move towards wireless technology underlines the growing importance of going mobile for Millennials. 62% of Generation Y said they used wireless internet away from home vs just 35% of Baby Boomers (Source: Pew Research). However, the uptake rate is lower than that for internet use that we saw earlier across the respective segment categories. In our view, this suggests that there remain significant investment opportunities in this growing market to play the Millennials theme, compared to a more mature market like the internet. Chart 114: % who connect to the internet wirelessly using a laptop or handheld when away from home or work by demographic Silent

No college

11

Boomer

48

Millennial

41 0

20

74

Hispanics

62

All

47

College

35

Gen X

Chart 115: % of Millennials who connect to the internet wirelessly when away from home or work

40

60

80

100

47

Blacks

66

Whites

64

All Millennials

62 0

% Source: Pew Research

20

40

60

80

100

% Source: Pew Research Note: Based on adults ages 18-29

Tech-savvy, gadget mavens Millennials are also often referred to as the “Net” generation, because they grew up in a world where technology was prevalently used and new forms quickly adopted. According to Barkley, 25% of Millennials believe they are usually the very first to try a tech product that has just been introduced to the market. Conversely, only

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