cautious funds are no longer cautious€¦ · 5 2015 is proving volatile but they are still some...
TRANSCRIPT
1
What’s the
investment problem
no-one’s talking
about?
IFP Conference 2015
Marcus Brookes | Head of Multi-Manager
October 2015 | For professional advisers only. This material is not suitable for retail clients
Cautious funds
are no longer
cautious
2
3
Myth 1: Bonds offer diversification Traditional methods of portfolio diversification no longer work
4
Source: Lipper IM, 31 August 2015. Barclays Global Agg Bond; IA Property; MSCI ACWI Commodity Producers; MSCI World
-0.7%
-1.3%
-5.4%
-19.3%
-30.00
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15
Global Bonds IA Property Commodities MSCI World
3
Myth 2: Bonds provide an income Government debt valuations are at threat when interest rates begin to rise
5
Source: Lipper IM, as at 31 July 2015
0
2
4
6
8
10
12
14
89 89 90 91 92 93 94 94 95 96 97 98 99 99 00 01 02 03 04 04 05 06 07 08 09 09 10 11 12 13 14 14
5.5%
Financial crisis -11%
-25%
Record low yields provide little cushion against rising interest rates
3.3%
1.8%
Total
return:
US $m US $m
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14
6
Source: JP Morgan Asset Management, as at March 2015
Delusion of liquidity is underappreciated
Dealer inventories (LHS)
Corporate debt outstanding (RHS)
Financial crisis
Market size has
doubled since crisis
Dealer inventories have dropped by 85%
Myth 3: Bonds provide liquidity The delusion of liquidity is underappreciated
4
Recent market
performance
2015 is proving volatile UK Gilts and corporate bonds have begun to underperform (in line with equities!)
8
Source: Lipper IM, 31 July 2015. BoA Merrill Lynch Sterling Corp Bond TR. FTSE A British Govt All Stocks
-3.00
0.00
3.00
6.00
9.00
12.00
14
Ap
r 1
5
21
Ap
r 1
5
28
Ap
r 1
5
05
Ma
y 1
5
12
Ma
y 1
5
19
Ma
y 1
5
26
Ma
y 1
5
02
Ju
n 1
5
09
Ju
n 1
5
16
Ju
n 1
5
23
Ju
n 1
5
30
Ju
n 1
5
07
Ju
l 1
5
14
Ju
l 1
5
21
Ju
l 1
5
28
Ju
l 1
5
Corporate Bonds UK 10 year Gilts MSCI AC World
5
2015 is proving volatile But they are still some way off being good value
9
Source: Lipper IM, 31 July 2015
-3.00
0.00
3.00
6.00
9.00
12.00
31 Dec 14 31 Jan 15 28 Feb 15 31 Mar 15 30 Apr 15 31 May 15 30 Jun 15 31 Jul 15
Corporate Bonds UK 10 year Gilts MSCI AC World
It’s not just sovereign and corporate bonds Emerging Markets and high yield has also begun to struggle (in line with equities!)
10
Source: Lipper IM, 31 July 2015. JPM EMBI Global. Markit iBoxx USD Liquid High Yield TR
-3.00
0.00
3.00
6.00
9.00
12.00
10
Ap
r 1
5
17
Ap
r 1
5
24
Ap
r 1
5
01
Ma
y 1
5
08
Ma
y 1
5
15
Ma
y 1
5
22
Ma
y 1
5
29
Ma
y 1
5
05
Ju
n 1
5
12
Ju
n 1
5
19
Ju
n 1
5
26
Ju
n 1
5
03
Ju
l 1
5
10
Ju
l 1
5
17
Ju
l 1
5
24
Ju
l 1
5
31
Ju
l 1
5
Emerging Market Bonds High Yield MSCI World
6
It’s not just sovereign and corporate bonds But they are also still no better value than at the start of the year
11
Source: Lipper IM, 31 July 2015. JPM EMBI Global. Markit iBoxx USD Liquid High Yield TR
-3.00
0.00
3.00
6.00
9.00
12.00
31 Dec 14 31 Jan 15 28 Feb 15 31 Mar 15 30 Apr 15 31 May 15 30 Jun 15 31 Jul 15
Emerging Market Bonds High Yield MSCI World TR USD
Market thoughts
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-50
-40
-30
-20
-10
0
10
20
30
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
We favour Europe over the US in equities And within Europe there are still clear divergences
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Source: Majedie, Morgan Stanley and Robert Shiller, July 2015
Premium of US over European equities (Shiller P/E) % Relative P/E of EZ periphery vs. wider EZ market
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
01
Nov 7
9
01
Nov 8
1
01
Nov 8
3
01
Nov 8
5
01
Nov 8
7
01
Nov 8
9
01
Nov 9
1
01
Nov 9
3
01
Nov 9
5
01
Nov 9
7
01
Nov 9
9
01
Nov 0
1
01
Nov 0
3
01
Nov 0
5
01
Nov 0
7
01
Nov 0
9
01
Nov 1
1
01
Nov 1
3
40
60
80
100
120
140
160
180
200
05 Jan 07 05 Jan 08 05 Jan 09 05 Jan 10 05 Jan 11 05 Jan 12 05 Jan 13 05 Jan 14 05 Jan 15
MSCI AC World ex US S&P 500
The effect of US on global markets
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Source: Bloomberg, MSCI. NBER: Minack Advisers, as at August 2015
Index January 2007 = 100
8
MSCI Eurozone and MSCI US 12 month Forward Earnings Per Share (EPS)
European earnings remain depressed… for now Significant upside potential relative to US earnings that are peaking
15
Source: JPMorgan, Bloomberg as at June 2015. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell
25
35
45
55
65
75
85
95
105
115
125
2
4
6
8
10
12
14
16
18
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
MSCI Eurozone 12m Fwd EPS (€) MSCI US 12m Fwd EPS (rhs)
Cyclical differences prompt policy divergence The US cycle is mature
16
Source: Bloomberg, 30 June 2015
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Mar 01
Nov 01
Jul 02
Mar 03
Nov 03
Jul 04
Mar 05
Nov 05
Jul 06
Mar 07
Nov 07
Jul 08
Mar 09
Nov 09
Jul 10
Mar 11
Nov 11
Jul 12
Mar 13
Nov 13
Jul 14
Mar 15
2
3
4
5
6
7
8
9
10
11
US Unemployment (lhs inverted) US (ECI) Private Sector Wages and Salaries YoY%
9
Alternatives
Property
Currency
Absolute equity, absolute macro
Current asset allocation views
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Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell
Bonds and
cash $ Cash
Corporate debt
Government debt
Japan, Europe
UK, Asia Pacific
Emerging markets, US
Equities
-8
-4
0
4
8
12
Apr 13 Apr 13 Apr 13 Apr 13 May 13 May 13 May 13 May 13 Jun 13 Jun 13 Jun 13 Jun 13
Morgan Stanley Diversified Alpha Plus in 2013
Traditional diversification no longer works A solution: Strategies offering negative correlation to equities and bonds
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Source: Lipper IM, as at June 2013
Ben Bernanke announced
QE could end
IA UK Gilt FTSE All-Share TR
IA Mixed Investment 20 – 60% Shares Morgan Stanley Diversified Alpha Plus ZH GBP
10
MM Diversity range alternative holdings Uncorrelated ideas that can take advantage of market anomalies
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Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell
Majedie Tortoise
International equity long short strategy
Modest net currently
Long Europe/Short US
Artemis Strategic Assets
Multi-Asset long/short
Long equities, short bonds
Currency overlay
Sanditon European Select
European equity long/short
Modest net
Exploitation of relative value
opportunities within this divergent
asset class
Morgan Stanley DAP
Multi-Asset long/short
Modest net currently
Long Eurozone recovery, short China
boom and global yield bubble
A suite of low-cost, flexible managed funds
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Source: Distribution Technology, Schroders. The fund risk profiles are accurate as at 31 July 2015. Ongoing charges are for the Z Acc share class
Equities 28.33 to 33.33% 30 to 60% 50 to 85% 1 to 98% 90 to 100% 90 to 100%
Fixed Income and cash 33.33 to 43.33% 30 to 60% 1 to 50% 1 to 98% 0 to 10% 0 to 10%
Alternatives 28.33 to 33.33% 5 to 40% 1 to 50% 1 to 98% – –
On-going charges 1.26% 1.29% 1.32% 1.38% 1.45% 1.44%
Parameters
Lower
Risk Higher
Higher
Retu
rn
Lower
Neutral
position
Schroder MM
International
Fund
Neutral
position
Schroder MM
Diversity
Income Fund
Neutral
position
Schroder MM
Diversity
Balanced Fund
Neutral
position
Schroder MM
Diversity Tactical
Fund
Neutral
position
Schroder MM
UK Growth Fund
Neutral
position
Schroder MM
Diversity Fund
33.3 40
5
10
33.3 33.3 40 20
25
65
15
80
100
100
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Our process Overview
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Multi-manager team
Marcus Brookes Head of
Multi-Manager
Joe Le Jéhan
Fund Manager
Robin McDonald
Fund Manager
Asset allocation views
Portfolio construction
Fund selection (5,000 funds)
Review Independent strategists
(GaveKal, Gluskin Sheff, CLSA)
External fund managers
(300 – 400 meetings a year)
Broker research
(BAML, GS, MS)
External resources
Schroders strategy team
(Keith Wade)
Schroders fund managers
Matt Hudson (UK)
James Sym (Europe)
Robin Parbrook (Asia)
Andrew Rose (Japan)
Peter Harvey (Credit)
Internal resources
Joe Tennant Product
Specialist
What makes us different? Key principles
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Philosophy
Compounding: Manage downside risk to compound returns over the long-term
Asymmetry: Participate in gains when the market rises to a greater extent than we participate
in losses when it falls
Asset allocation
Contrarian: A willingness to be different
Patience: The fact that something’s cheap doesn’t mean it’s going to appreciate tomorrow and
the fact that something’s overpriced certainly doesn’t mean it’ll fall right away
Fund selection
Disciplined: We buy on the way down, and we sell on the way up
Portfolio construction
Flexible: Our mandates afford us the flexibility to have high cash positions if other asset
classes look relatively unattractive
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We look and perform differently to our peers Schroder MM Diversity – #1 in sector, August 2015
23
Source: Lipper, bid to bid with net income reinvested, net of fees in GBP, main unit share class, from fund launch 31 July 2015 to 31 August 2015
-6
-5
-4
-3
-2
-1
0
1
2
31
Ju
l 1
5
31
Au
g 1
5
Schroder MM Diversity Z Acc IA Mixed Investment 20–60% Shares TR Peer 1 Peer 2 Peer 3
-2.49%
-1.03%
-2.70%
-3.63%
-2.77%
We don’t just say we’re different…
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Source: Lipper IM. As at 31 August 2015. Schroder MM Diversity Z Acc share class used from 2011 onwards. Previous data is based on Schroder MM Diversity A
Acc units
Year Positioning Schroder MM
Diversity
IA Mixed
Investment 20 – 60
2008 Bearish on property and equities -9.63% -16.38
2009 Added to credit holdings (bond funds) 16.30 15.78
2010 Bearish on EM 7.18 8.68
2011 Still bearish on EM… 0.88 -2.06
2012 Added to out of favour markets – Europe 9.76 8.24
2013 Underweight US, overweight Europe and Japan 11.31 8.87
2014 Growing cautious on valuations. Underweight
bonds and US equity 1.64 4.77
2015 YTD Bearish on US/Asia/EM equity, favouring Europe
and Japan. Underweight bonds 0.55 -0.22
13
Performance Market leading risk-adjusted returns
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Source: Lipper, bid to bid with net income reinvested, net of fees in GBP, Z Acc share class, as at 31 August 2015. †A Acc has been used where Z Acc data is
missing. Sharpe Ratio source: Lipper, bid to bid with net income reinvested, net of fees in GBP, A Acc share class , as at 31 August 2015. Quartile rankings within
UK Investment Association universe. *Since launch position shown when five year track record is unavailable. Fund launch dates: Schroder MM Diversity Income
Fund, 15 December 2010
21/10/2015 15:36:19
Fund Performance
Quartile rankings
6
months
2015
YTD
1 year 3 years 5 years
(*or since
launch)
Schroder MM Diversity Fund 1 1 2 3 2
Schroder MM Diversity
Income Fund 2 3 3 2 1†*
Schroder MM Diversity
Balanced Fund 1 1 1 1 2
Schroder MM Diversity
Tactical Fund 1 1 1 1 1†
Schroder MM UK Growth Fund 3 3 3 3 3†
Schroder MM International Fund 1 1 2 1 1†
Sharpe ratio
Rank and quartile
3 years 5 years
(*or since
launch)
1 1
1 1*
1 1
1 1
2 2
1 1
For professional advisers only. This material is not suitable for retail clients
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intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be
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Source for ratings: Defaqto, Square Mile, Fund Calibre, Rayner Spencer Mills, Citywire and Morningstar, as at 31 August 2015
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Important information
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