* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Active vs. Passive Management in 12 Points
Survey
Document related concepts
Systemic risk wikipedia , lookup
Early history of private equity wikipedia , lookup
Private equity in the 2000s wikipedia , lookup
Private equity secondary market wikipedia , lookup
Leveraged buyout wikipedia , lookup
Stock trader wikipedia , lookup
Private money investing wikipedia , lookup
Financial crisis wikipedia , lookup
Interbank lending market wikipedia , lookup
Socially responsible investing wikipedia , lookup
Environmental, social and corporate governance wikipedia , lookup
History of investment banking in the United States wikipedia , lookup
Transcript
Quantitative Research and Analytics April 2017 Bonds Are Different: Active vs. Passive Management in 12 Points For institutional investor use only FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE Agenda 1/ Does active management work? 2/ How are bonds different? 3/ Other thoughts on active management 4/ Conclusions FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 1 Based on the media, who is winning the active vs. passive debate? Source: CNBC, The Wall Street Journal, Bloomberg, Market Reporters, US Market Editor FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 2 The trend into passive fixed income is accelerating Quarterly flows in taxable bond funds Active Flows 120 Passive Flows Passive Percentage of total assets 30% 100 25% 80 60 20% 40 15% 20 0 10% -20 5% -40 0% -60 Dec '07 Jun '08 Dec '08 Jun '09 Dec '09 Jun '10 Dec '10 Jun '11 Dec '11 Jun '12 Dec '12 Jun '13 Dec '13 Jun '14 Dec '14 Jun '15 Dec '15 Jun '16 Dec '16 As of 31 December 2016; Source: Morningstar Direct Data limited to US fund flows. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 3 Point 1: Active bond funds and ETFs largely outperformed their median passive peers Percentage of active mutual funds and ETFs that outperformed their median passive peers after fees 1-Year 90% BONDS 3-Year 5-Year 10-Year EQUITIES 80% 70% 60% 50% 40% 30% 20% 10% 0% All bond categories IntermediateTerm Bond High Yield Bond* Short-Term Bond* All equity categories Large Growth Large Blend Large Value As of 31 December 2016; Source: Morningstar Direct * High Yield Bond and Short-term Bond is shown for 7-year trailing period as passive peer 10-year track record is not available. Past performance is not a guarantee or a reliable indicator of future results. The three largest categories are based on numbers of active mutual funds and ETFs with at least one-year return histories. Based on Morningstar U.S. ETF and U.S. Open-End Fund categories (institutional shares only). To avoid potential survivorship bias, we included funds and ETFs that were live at the beginning of each sample period but were liquidated or merged as of 31 December 2016. Chart is provided for illustrative purposes and is not indicative of the past or future performance of any PIMCO product. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 4 Point 2: Are bonds different? Outperformance over benchmarks and outperformance over median passive peers after fees Percentage of active mutual funds/ETFs outperforming median passive 100% 90% 80% 70% 10-year 60% 3-year 5-year 1-year 50% 5-year 40% 10-year 3-year 30% 1-year 20% All bond categories 10% All equity categories 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of active mutual funds/ETFs outperforming benchmark As of 31 December 2016; Source: Morningstar Direct Past performance is not a guarantee or a reliable indicator of future results. Based on Morningstar U.S. ETF and U.S. Open-End Fund categories (institutional shares only). To avoid potential survivorship bias, we included funds and ETFs that were live at the beginning of each sample period but were liquidated or merged as of 31 December 2016. Some categories contain funds with a wide range of benchmarks. Chart is provided for illustrative purposes and is not indicative of the past or future performance of any PIMCO product. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 5 Point 3: Active managers should be evaluated over a long horizon Number of years needed for the manager to beat the index with 90% confidence 100% Years 0.7 3.5 0.5 7 0.3 20 0.2 48 90% Probability of outperformance Information ratio Probability of outperformance in 5 years 80% 70% 60% 50% 0.0 0.1 0.3 0.4 0.6 0.7 0.8 1.0 Information ratio Source: PIMCO Hypothetical example for illustrative purposes only. Provided for illustrative purposes and is not indicative of the past or future performance of any PIMCO product. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 6 Point 4: It is not just about active versus passive Bond holdings by noneconomic investors Investor group Bond holdings ($ trillion) Investment objective – Foreign exchange – Reserves 10.8 Stabilize exchange rates – Domestic holdings 4.5 Manage money supply U.S. insurance 4.3 Book yield, predictable income, regulatory-driven capital charges U.S. banks 2.8 European insurers 5.3 European banks 4.7 Asian banks and insurers 12.6 Other banks and insurers 2.0 – 3.0 Central banks Total 47.0 – 48.0 ~47% of $102 trillion global bond market is controlled by noneconomic investors Total bond holdings 47.0– 48.0 As of 31 December 2016; Source: Company filings, European Federation, EIOPA, EBA, SNL Financial, Bloomberg and PIMCO. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 7 Point 5: Information is vital to trading and rebalancing New issuance in U.S. corporate bond market versus U.S. stock market ($ trillions in Q1 2016 – Q4 2016) Total outstanding U.S. equity $25.2 0.78% is new issuance Total outstanding U.S. corporate debt $8.5 17.84% is new issuance $0 $5 $10 $15 $20 $25 $30 SOURCE: SIFMA, Bloomberg; As of 31 December 2016 Note: Chart shows the extent to which new issuance affects the debt and equity markets U.S. companies access in order to finance themselves. The S&P500, which has a market capitalization of around $20tn, has a turnover of 4% a year, as company stocks enter and leave the index for reasons other than new issuance. Less than 1% relates to new issuance. Active equity managers are able to trade on the basis of this, as inclusion in the index can be a tailwind for a firm’s stock price. By contrast, 22.2% of Bloomberg Barclays U.S. Aggregate was new issuance, in the period 31 Dec ’15– 31 Dec ’16. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 8 Point 6: Off-index and active share matter A scatter plot of 5-yr excess returns against fund-index return correlations2 Summary statistics for excess fund and factor returns (January 2007–December 2016)1 Mean (annualized) Volatility (annualized) Mean ER 0.4% 1.9% Dur 0.6% 0.8% IG 0.1% 1.0% HY 1.0% 2.9% 4% Correlation Mean ER Dur IG HY Mean ER 1.00 -0.52 0.81 0.89 Dur -0.52 1.00 -0.40 -0.49 IG 0.81 -0.40 1.00 0.87 HY 0.89 -0.49 0.87 1.00 5-year annualized excess return 3% 2% 1% 0% -1% -2% 50% 1 Sample 60% 70% 80% 90% 100% Correlation with benchmark consists of average monthly excess returns for active mutual funds and ETFs in “Intermediate-Term Bond” Morningstar category, with Bloomberg Barclays US Aggregate Bond Index as their primary prospectus benchmark and at least 10-year return histories. 2 Sample consists of active U.S. mutual funds (institutional shares only) in “Intermediate-Term Bond” Morningstar category with Bloomberg Barclays US Aggregate Bond Index as their primary prospectus benchmark. As of 31 December 2016; Source: Morningstar and Barclays Duration: Excess returns of Bloomberg Barclays US Treasury Index over cash (1M OIS), per unit of duration. Investment grade: Excess returns of Bloomberg Barclays US Corporate IG Index over durationmatched Treasuries, per unit of spread duration. High yield: Excess returns of Bloomberg Barclays US Corporate HY Index over duration-matched Treasuries, per unit of spread duration. Past performance is not a guarantee or a reliable indicator of future results. Chart and Table are provided for illustrative purposes and is not indicative of the past or future performance of any PIMCO product. FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 9 Point 7: Structural tilts are not always beta What is a systematic factor? Why is duration a systematic factor? Is timing of systematic tilts beta or alpha? FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 10 Point 8: A purely passive market would cause severe market risk and resource misallocations Source: Getty images FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 11 Point 9: Neither passive nor active investors can dominate at equilibrium Source: Grossman, Sanford, and Joseph Stiglitz. “On the Impossibility of Informationally Efficient Markets: Reply.” The American Economic Review, vol. 72, no. 4, 1982, pp. 875–875 FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 12 Point 10: Passive management, unchecked, may encourage free riding, adverse selection and moral hazard Japan GDP, as percent of developed market GDP* Japan 9.84% Japanese government debt, as percent of all developed market government debt outstanding Japan 23.29% As of 31 March 2017.; Source: World Bank, Barclays; * As of December 2015 FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 13 Point 11: Passive management has its virtues • Helps allocate capital efficiently • Helps asset-allocation-focused investors • May overinvest in research • Helps keep active from overinvesting Optimal mix depends on the market More liquid and efficient markets may accommodate fewer active managers FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 14 Point 12: There is no such thing as passive (just different shades of active) Is it possible to replicate the market? Investors must decide when to buy and sell passive ETFs. Is that active management? What is the role of asset allocation? Can that be done passively? FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 15 Conclusions Active management can work in fixed income Bonds are different • Non-economic investors • Benchmark rebalancing and turnover (includes new issue concessions) • Structural tilts (sometimes expressed with derivatives) FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 16 Appendix This presentation contains hypothetical analysis. Hypothetical and simulated examples have many inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and the actual results. There are numerous factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved. Management risk is the risk that the investment techniques and risk analyses applied by an active manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to active manager in connection with managing the strategy. Performance results for certain charts and graphs may be limited by date ranges specified on those charts and graphs; different time periods may produce different results. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product. All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. The correlation of various indexes or securities against one another or against inflation is based upon data over a certain time period. These correlations may vary substantially in the future or over different time periods that can result in greater volatility. It is not possible to invest directly in an unmanaged index. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (25 The North Colonnade, Canary Wharf, London E14 5HS) in the UK. The Italy branch is additionally regulated by the CONSOB in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services and products are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany) is authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie-Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The services and products provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 31a para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services and products provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (501 Orchard Road #09-03, Wheelock Place, Singapore 238880, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia). This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd (Toranomon Towers Office 18F, 4-1-28, Toranomon, Minato-ku, Tokyo, Japan 105-0001) Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. Investment management products and services offered by PIMCO Japan Ltd are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorized. Valuations of assets will fluctuate based upon prices of securities and values of derivative transactions in the portfolio, market conditions, interest rates and credit risk, among others. Investments in foreign currency denominated assets will be affected by foreign exchange rates. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 17 Appendix maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Edifício Internacional Rio Praia do Flamengo, 154 1o andar, Rio de Janeiro – RJ Brasil 22210-906. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2017, PIMCO. CMR2017-0426-265343 FOR USE DURING 2017 ADVISORY ANEL MEETING ONLY -- DO NOT COPY OR DISTRIBUTE 18