Digital is Eating the World Seeking Companies on the Correct Side of the Divide

Doug Rao

Portfolio Manager

2

Dematerialization

Use of third party names, marks or logos is purely for illustrative purposes and does not imply any association between any third party and Janus Henderson Investors,

nor any endorsement or recommendation by or of any third party. Unless stated otherwise, trademarks are the exclusive property of their respective owners.

Using less to produce more

3

Is the Growth Trade Over? S&P 500® growth vs. value

0.0

0.5

1.0

1.5

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3.5

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4.5

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8

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9

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Gro

wth

of 1

S&P 500 Growth Index

S&P 500 Value IndexGrowth Value

2009 31.6% 21.2%

2010 15.0% 15.1%

2011 4.7% -0.5%

2012 14.6% 17.7%

2013 32.8% 32.0%

2014 14.9% 12.4%

2015 5.5% -3.1%

2016 6.9% 17.4%

2017 27.4% 15.4%

Calendar Year Returns 80% Cumulative

Outperformance ®

Source: Morningstar, Inc., as of 12/31/17.

Past performance is no guarantee of future results. S&P 500® Growth Index reflects the performance of U.S. large cap growth equities. S&P 500® Value Index reflects the performance of U.S. large cap value equities. Index performance

does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment.

®

4

Will it Continue?

“The horse is here to stay but the automobile is only a novelty – a fad.” President of the Michigan Savings Bank in 1903, advising Henry Ford’s lawyer, Horace Rackham, not to invest in the Ford Motor Company

In periods of disruption, past is not prologue

Piccadilly Circus, London Piccadilly Circus, London

c. 1912 c. 1900

The opinions are as of 6/22/18 and are subject to change without notice. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual

holdings or market sectors, but as an illustration of broader themes. Investing involves risk, including the possible loss of principal and fluctuation of value.

5

Moore’s Law

In 1965, Gordon Moore predicted that chip capacity, i.e., the number of transistors on a chip, would double every 18-24

months. This prediction has proven more or less accurate over the past 53 years …despite repeated calls for its demise.

“Incredible shrinking transistor nears its

ultimate limit: The laws of physics.”

New York Times

“The End of Moore’s Law? The

current economic boom is likely due

to increases in computing speed and

decreases in price. Now there are

good reasons to think that the

party may be ending.”

MIT Technology Review

“The End of Moore’s Law. Given the state of today’s

technology, chips can only get so small.”

Slate Magazine

“After a glorious 50 years, Moore’s Law

is running out of steam.”

The Economist

2016 2005 2000 1997

6

Moore’s Law

1 1 2

3 4

1 2 3 4

5 6 7 8

9 10 11 12

13 14 15 16

?

?

“As legend has it, when chess was invented

in sixth century India, the inventor was given

an audience with the emperor. When asked

to name his reward, the inventor said he

would like just one grain of rice for the

first square of the chessboard, and

double that number for each succeeding

square…”

Chess Example

Source: http://www.michiganfuture.org/01/2017/chessboards-and-rice/

7

Moore’s Law

At square 32, how many grains of rice does the emperor owe the inventor?

?

4.3 billion grains of rice!

8

Moore’s Law

On square 64, the last square on the chess board, how many grains of rice

does the emperor owe the inventor?

?

18,446,744,073,709,600,000

Eighteen quintrillion grains of rice!

9

Moore’s Law

1

1 grain of rice.

0.2 inches long. 1965

~2018

13.6 thousand miles of rice.

Enough rice to stretch halfway

around the world!

58 trillion miles of rice.

Enough rice to wrap around the

world 2.3 billion times.

10

Growth in Mobile Devices

Cellular phones will absolutely not replace local wire systems.” - Marty Cooper, inventor of cellular telephone in 1981

Mobile phone subscriptions

have grown at ~23%

Compound Annual Growth

Rate (CAGR) while

population has grown at a

1.3% CAGR

Global Population vs. Mobile Phone Subscriptions

-

1

2

3

4

5

6

7

8

1995 1998 2001 2004 2007 2010 2013 2016

Bill

ions

Global Mobile Phone Subscriptions

Global Population Mobile Cellular Subscriptions

“

Source: World Bank, as of December 2016.

0

11

E-commerce Penetration Still Low

0%

2%

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14%

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$200

$300

$400

$500

$600

$700

2016 2017 2018E 2019E 2020E 2021E

Total Sales Share of Total Retail Commerce

Sale

s in B

illio

ns Mark

et S

hare

Growth in U.S. Retail E-commerce

Source: Statista, estimates as of 12/31/17.

12

Retail Consumers Preferring Online Convenience

Fortune Amazon (AMZN) vs. Walmart (WMT) Nike Reviews Distribution Strategy

“Nike held firm year after year when Amazon

executives returned to Beaverton…while the

meetings were friendly, Nike was clear. It had no

plans to add the online retail giant as a

distribution partner.”

Nike CEO June 2017 December 2017

“Nike

confirms it

will sell

directly on

Amazon.”

“We’re

extending our

pilot with

Amazon…it’s

going well.”

0

50

100

150

200

250

300

Y0 Y5 Y10 Y15

Bill

ions (

$U

SD

)

Amazon - $223B

Walmart -

$131B

First 20 years of

growth for WMT and

AMZN after each hit

$1B in sales

AMZN has shown faster growth and higher margins than WMT … And is close to catching WMT on a total

sales basis

0

3

6

9

12Projected

Total Revenue

Revenue as a % of total U.S. retail sales

Walmart

Amazon

%

Source: Cowen and Company, Janus Henderson Research as of December 2017.

Note: 1.) $131B in 1998 is worth ~$196B today. 2.) Using Gross Merchandise Value (GMV) for AMZN.

As of 6/30/18, Janus Henderson Forty Fund holdings include: Amazon.com Inc 6.62%, Nike Inc 2.63%, and Walmart 0.00%. Holdings are subject to change.

Fortune

13

Cash & Check Being Disintermediated

Conversion

of Cash

1

Expanding

Access

3

Shift to

Digital

2

PCE Growth

4

o Cash and check

replacement

o Growth in digital

o New form

factors

o New acceptance points

o Internet of Things

o Commercial

o Geographic expansion

Spend is Shifting from Physical to Digital

9% 15%

91% 85%

2016 2020E

Total Global Retail Spend

Digital

Physical

CAGR

20%

Source: Visa, as of 12/31/17.

14

Payments in China Going mobile at light speed

Mobile Payments ($ Trillion) Homeless in

China

accept mobile

payment

Tithe in China

with mobile

payment

Starbucks launches

mobile payments in

the U.S. 2011

2016

SBUX launches

mobile payments in

China in December

2017 Mobile accounts for

20% of all

payments in the U.S.

Mobile accounts

for 40% of all

payments in China

Mobile Payments Starbucks (SBUX) & Mobile

0

2

4

6

8

$10T

2012 2014 2015 2016 2013

China

USA

Source: Wall Street Journal, Starbucks Company Reports, Andreessen Horowitz, December 2017.

As of 6/30/18, Janus Henderson Forty Fund holdings include: Starbucks Corp 1.97%. Holdings are subject to change.

15

Rise of Online Travel Bookings

8%

10%

12%

14%

16%

$0

$100

$200

$300

$400

2016 2017E 2018E 2019E 2020E 2021E 2022E

Online Travel Booking Penetration Rate

Revenue in B

illio

ns

Mark

et S

hare

Growth in Online Travel Penetration

Source: Statista, estimates as of December 2017.

16

Advertising, Shift from Print to Digital Internet eats print ads: Google & Facebook eat digital

Global Advertising Revenue

0

50

100

150

200

250

300

350

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Print Google Facebook Other Internet

Revenue in B

illio

ns (

$)

$171

-$90

$155

$87

$19

-$150

-$100

-$50

$0

$50

$100

$150

$200

Total Print Google Facebook OtherInternet

Change in Dollars (1999-2021E)

Bill

ions

Source: Magna Global as of June 2017, Projected 2017-2021. As of 6/30/18, Janus Henderson Forty Fund holdings include: Facebook Inc 3.75%. Holdings are subject to change.

17

eSports Overtake Traditional Sports

20.3M

22.5M

25.4M

27M

32.5M

36M

111.9M

0 50 100 150

ABC NBA Finals (2016)

NBC Sunday Football (2015 Avg)

NBC Rio Olympics (2016 Avg)

Twitch ESL Cologne (2015)

CBS Thanksgiving Day (2015)

LoL World Championship (2015)

CBS Super Bowl 50 (2016)

Viewership (Millions)

79

118 115

133

326

$47

$76

$3

$38

$34

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90

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NHL MLB eSports NBA NFL

Unique Viewers (mm) Revenue / Viewer

Un

iqu

e V

iew

s (

Mill

ions) R

eve

nu

e p

er V

iew

er ($

)

eSports Have the Lowest Revenue per Unique Viewer… …Despite Having Comparable Viewership to Other Sports

Source: Company Reports, Barclays Research, as of 2016. Source: Twitch, Nielsen, NFL Press Release, as of 2016.

18

Move to Cloud, Still Early Innings

0%

5%

10%

15%

20%

25%

30%

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200

300

400

500

600

700

800

900

2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Infrastructure & Software Spend

Public Cloud Services Spend

Cloud Market Share

IT S

pe

nd (

$ B

illio

ns)

Ma

rket S

ha

re

Source: FactSet, as of 12/31/17.

19

Autos, Reaching a Tipping Point Powering up demand for electric vehicles (EVs)

0%

20%

40%

60%

80%

100%

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32E

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40E

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42E

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44E

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46E

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48E

20

50E

Unit S

hare

of A

uto

motive S

ale

s

BEV PHEV Hybrids ICE

EVs to Grow at 15% CAGR and Amount to 60% of

Deliveries by 2050

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400

20

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25E

Mainstream

Best in class

~$100/kWh = ICE cost parity

$/kWh

EV Battery Pack Price Forecast

Source: Alliance Bernstein as of December 2017.

BEV – Battery Electric Vehicle. PHEV – Plug-in Hybrid Electric Vehicle. ICE – Internal Combustion Engine.

20

Declining Battery Prices Spur Demand for EVs Every time the global supply of batteries doubles, price drops 19%

$0

$250

$500

$750

$1,000

2010 2015 2020 2025 2030

Battery Price

Forecast

Battery Prices $/kWh The council’s 20-

year prediction was

proven incorrect

within 5 years.

“Over the next 20 years, we felt that a

50 percent reduction in battery costs

would take place.”

- Michael Ramage, Former U.S. Dept. of Energy

National Research Council Chair, 2009 Report

Source: Bloomberg New Energy Finance as of June 2017, http://www.nytimes.com/2009/12/15/business/15hybrid.html

21

So What’s Next?

2018

22

A Transformation in Health Care?

Cost per genome

Individualized Medical Care of Tomorrow? The Operating Theater of Tomorrow?

A doctor of tomorrow?

Source: Welcome Images, Intuitive Surgical, National Human Genome Research Institute, as of July 2017.

23

AI, Autonomous Driving and Blockchain

“J.P. Morgan’s Jamie Dimon May Hate Bitcoin, but He Loves Blockchain.” - WSJ, Oct. 2017

Artificial

Intelligence 1 Autonomous

Driving 2 Blockchain 3

“Facebook CEO Mark Zuckerberg announced he plans to

study cryptocurrencies.” - Facebook, January, 5 2018

“How blockchains could change the world.” - McKinsey,

May 2016

“J.P. Morgan’s Jamie Dimon May Hate Bitcoin, but He

Loves Blockchain.” - WSJ, Oct. 2017

24

The big ideas in business are often very obvious, but it’s very hard to maintain a firm grasp of the

obvious at all times.”

- Jeff Bezos

“

25

Tech Sector Outperformance Where to now?

P/E Multiple

Performance Total Returns (December 2013 December 2017)

12/31/13 12/29/17 Change in Multiple Change in NTM EPS

Est.

S&P 500 Information

Technology Sector 88.3% 16.8x 21.3x 26.8% 48.5%

Top 1500 U.S. stocks

by cap size 48.5% 16.2x 19.0x 17.3% 26.5%

Relative (Tech – Mkt) 39.8% 9.4% 22.0%

P/E Multiple

Performance Total Returns (December 2013 December 2017)

12/31/13 12/29/17 Change in Multiple Change in NTM EPS

Est.

S&P 500 Information

Technology Sector 61.5% 19.5x 19.3x -1.0% 63.2%

Top 1500 U.S stocks

by cap size 39.8% 17.9x 18.9x 5.7% 32.2%

Relative (Tech – Mkt) 21.8% -6.8% 31.0%

Cap Weighted

Equal Weighted

Source: Alliance Bernstein, as of 12/31/17.

NTM EPS – Next Twelve Months Earnings Per Share Estimate.

Price-to-Earnings (P/E) Ratio measures share price compared to earnings per share for a stock or stocks in a portfolio.

26

Durable and Competitively Advantaged Business Models

Technology

Distribution Cost

Structure

Network

Effect

Brand

Sustainable

Competitive

Advantages

27

As of June 30, 2018

Characteristics – Forty Fund

Top Holdings

(28.95% of Fund) (%)

Mastercard Inc 6.23

Amazon.com Inc 6.22

Microsoft Corp 5.71

Alphabet Inc 5.70

Salesforce.com Inc 5.09

Sector Breakdown (%) Forty Fund Russell 1000®

Growth Index

Information Technology 43.16 41.55

Consumer Discretionary 15.40 17.93

Health Care 14.60 13.37

Financials 9.81 4.44

Industrials 5.79 11.87

Materials 4.76 1.80

Real Estate 3.53 2.16

Cash & Equivalents 2.95 ‒

Characteristics Forty Fund Russell 1000® Growth Index

Number of Securities 39 542

Weighted Average Market Cap $245.9B $275.7B

Median Market Cap $83.3B $12.1B

Active Share 67.16% –

Holdings are subject to change without notice. For a complete list of holdings as of the most recent publicly available disclosure period, visit janushenderson.com/info.

Sector weights based on GICS.

Active Share represents the portion of portfolio holdings that differ from an index. Active share is not an indicator of past or future performance. Higher active share may present increased risk of volatility and does not protect against loss.

28

Characteristics – Forty Fund

Actual results may vary, and the information should not be considered or relied upon as a performance guarantee.

Russell 1000® Growth Index reflects the performance of U.S. large-cap equities with higher price-to-book ratios and higher forecasted growth values. Beta measures the volatility of a security or portfolio relative to an index. Less than one

means lower volatility than the index; more than one means greater volatility. Tracking Error is the divergence between the price behavior of an investment and an index. Turnover is a measure of portfolio trading activity. Higher turnover

may indicate higher transaction costs and vice versa.

The fund is classified as “nondiversified”, meaning it has the ability to take larger positions in a smaller number of issuers than a “diversified” fund. Nondiversified funds may experience greater price volatility.

General Characteristics

Inception Date Primary Benchmark

5/1/97 Russell 1000® Growth Index

Fund Assets Peer Group Category

$12.5B (as of 6/30/18) Morningstar Large Growth

Investment Style Weight in Top Five Holdings

High-conviction large-cap growth equities 28.95% (as of 6/30/18)

Typical Investment Guidelines and Risk Parameters

Holdings Range Expected Tracking Error Range

30 – 40 300 – 700 bps

Expected Turnover Beta

20% – 40% 0.85 – 1.15

Max Position Size Liquidity

8.0% (2.5% – 3.0% core weight) Max of 20% of 10 day average daily volume

Target Market Cap Range

Up to 70% of the portfolio > $15 billion

29

Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus

containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before

you invest or send money.

Investing involves market risk and it is possible to lose money by investing. Investment return and value will fluctuate in response to issuer, political, market and economic developments, which can affect a single

issuer, issuers within an industry, economic sector or geographic region, or the market as a whole. Technology industries can be significantly affected by obsolescence of existing technology, short product cycles,

falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated

investments and the market as a whole.

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Management) Sarl and Janus International Holding LLC.

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