Download Managing risk in a topsy-turvy world

Managing risk in a topsy-turvy world
Hector Kilpatrick Chief Investment Officer
PFS Q1 2017 Regional Conferences
Learning Objectives:
• Assess the impact of Extraordinary Monetary Policy
Learning Objectives:
• Assess the impact of Extraordinary Monetary Policy
• Identify how to benefit from the shift to fiscal stimulus
Learning Objectives:
• Assess the impact of Extraordinary Monetary Policy
• Identify how to benefit from the shift to fiscal stimulus
• Learn how to invest to mitigate inflationary risks
Learning Objectives:
• Assess the impact of Extraordinary Monetary Policy
• Identify how to benefit from the shift to fiscal stimulus
• Learn how to invest to mitigate inflationary risks
• Consider how best to manage risk at the portfolio level
Market Outlook – hooked on cheap money?
Negative interest rates – stimulant or sedative?
Yield to maturity (% per annum)
German 2-year Bund yield
Time (2006 - 2016)
Source: Bloomberg
The problem with Extraordinary Monetary Policy
Year on Year Change (%)
Japanese industrial production (year on year change)
Time (2001 - 2016)
Source: Bloomberg, Ministry of Economy, Trade & Industry of Japan
Indices (rebased 100)
The problem with Extraordinary Monetary Policy
Time (2008 - 2016)
Source: Bloomberg, BLS, FHFA
Indices (rebased 100)
The problem with Extraordinary Monetary Policy
S&P 500 Index
Time (2008 - 2016)
Source: Bloomberg, BLS, FHFA, S&P
Consequences?
Impact on equities – topsy-turvy world?
S&P500 Index
S&P 500 Index
Time (July – Dec 2016)
Source: Bloomberg, S&P
Impact on equities – topsy-turvy world?
US Bank sector performance
vs S&P500
US Bank sector performance vs S&P 500
Time (2013 - 2016)
Source: CAM, KBW, Bloomberg, S&P
UK equities – dramatic sector rotation post Trump
Selected share price moves (8/11/16 to 15/11/16)
Source: Bloomberg, Cornelian
The Infrastructure spend gap
US Government infrastructure spend as a proportion of GDP
Average spend 3.3%
%
Av. spend 2.6%
Time (2002 – 2015)
Source: CAM, Factset, US Bureau of Economic Analysis
Focus on investor outcomes
How to benefit from increased infrastructure opportunities
Inflationary pressures building
Year on year change (%)
US Core CPI
Time (2001 - 2016)
Source: Bloomberg, BLS
Inflationary pressures building
Year on year change (%)
Atlanta Fed Wage tracker
Time (2006 – 2016)
Source: Bloomberg, Atlanta Fed.
Focus on investor outcomes
How to protect portfolios from inflation
Impact of higher interest rates
Yield to maturity (% per annum)
US Yield Curve
31 December 2016
30 September 2016
Time to maturity
Source: Bloomberg
Focus on investor outcomes
Price ($)
US 30 year Treasury price
Time (July 2016 – Dec 2016)
Source: Bloomberg, 2.5%, 15/05/46
How positive are rising interest rates really?
(%)
US 30yr Mortgage rate
Time (2013 - 2016)
Source: CAM, Bloomberg, Bankrate.com
Managing risk in a topsy-turvy world
Managing Risk
Is your investment manager able to reduce risk?
Managing risk in a topsy-turvy world
Managing risk in a topsy-turvy world
Managing risk in a topsy-turvy world
Managing risk in a topsy-turvy world
Risk Managed Funds
* Net of fees, over the investment cycle.
Source: Cornelian, DT, Defaqto, Scopic
Core objective – consistent outcomes
Annualised Total Return (%)
Cornelian Risk Managed fund range – 5 year risk/returns
Risk – Annualised Standard Deviation (%)
Source: CAM, Morningstar, D Acc share classes – annualised return for 5 years to end December 2016
Learning outcomes:
• Explain the harmful effects of Extraordinary Monetary Policy
Learning outcomes:
• Explain the harmful effects of Extraordinary Monetary Policy
• How to invest to benefit from fiscal stimulus
Learning outcomes:
• Explain the harmful effects of Extraordinary Monetary Policy
• How to invest to benefit from fiscal stimulus
• How to protect portfolios from rising inflation
Learning outcomes:
• Explain the harmful effects of Extraordinary Monetary Policy
• How to invest to benefit from fiscal stimulus
• How to protect portfolios from rising inflation
• Demonstrate the benefits of…
…an unconstrained investment philosophy
Learning outcomes:
• Explain the harmful effects of Extraordinary Monetary Policy
• How to invest to benefit from fiscal stimulus
• How to protect portfolios from rising inflation
• Demonstrate the benefits of…
…an unconstrained investment philosophy
www.cornelianam.com
Risk Warning
Cornelian Asset Managers Limited is authorised and regulated by the Financial Conduct Authority. This material
is directed at professional financial advisers only.
You should remember that the value of investments and the income derived there from may fall as well as rise
and you may not get back the amount that you invest. Past performance is not a guide to future returns. Fund
performance figures do not include any initial charge; if this is paid it will reduce performance from that shown.
Opinions expressed whether in general or both on the performance of individual securities and in a wider
economic context represent the views of Cornelian Asset Managers Limited at the time of preparation. They are
subject to change and should not be interpreted as investment advice. Cornelian Asset Managers Limited and
connected companies, clients, directors, employees and other associates, may have a position in any security,
or related financial instrument, issued by a company or organisation mentioned in this document.
Cornelian Asset Managers Limited, 30 Charlotte Square, Edinburgh EH2 4ET
Authorised and regulated by the Financial Conduct Authority No 143452
www.cornelianam.com