Download a more volatile world The - Around The World in 80 Minutes

A new world
order
AROUND
– implications
THE
for
bond
WORLD
investors
IN 80
MINUTES
BNY Mellon Asset
Management
For professional advisers only
Your starting point is all important…
A perspective on investment returns
Returns
The ‘great moderation’ is over …
Time
Returns
… a more volatile world
Time
For illustrative purposes only
1
Your starting point is all important…
A perspective on investment returns
2
(cont’d)
Then and now… it’s a different world
United States
1982
2011¹
Fed funds rate
10-year bond yield
Monetary base
Budget deficit as % of GDP
Household debt to GDP ratio
Inflation rate, % yoy
Savings rate
Unemployment rate
Profit margins (national accounts)²
S&P 500 P/E ratio (1 year trailing)
S&P 500 cycle adjusted PE³
S&P 500 dividend yield
Demographics – average age of babyboomer
12%
14%
$149 billion
-2.2%
47.1%
8.9%
11.9%
8.5%
9.6%
8.0x
7.8x
5.7%
Median age is 27
0.25%
2%
$2.6 trillion
-10.1%
88.3%
3.8%
4.5%
9.1%
17.5%
14.0x
20.3x
2.3%
Median age is 56
Investment solutions in a lower return/volatile world
•
•
•
•
Active, flexible approaches
Emphasis on income
Strategies that protect capital and aim for asymmetry of return
‘Return based’ objectives
¹ September 2011.
² Calculated by the Bureau of Economic Analysis in the US in calculating the national accounts
³ Used 10 years of earnings to remove the effect of the economic cycle from the PE calculation
Source: Census, Bloomberg, Datastream, Newton
A perspective on investment returns
Or put it another way…let’s
pretend it’s a household budget:
The US financial position:
($)
($)
US tax revenue
Federal budget
spending
New debt
National debt
Recent budget cuts
Source: Newton, October 2011
3
2,170,000,000,000
Annual family income
21,700
Annual outgoings
38,200
New credit card debt
16,500
3,820,000,000,000
1,650,000,000,000
14,271,000,000,000
38,500,000,000
Outstanding balance on
credit card
Budget cuts
142,710
385
A perspective on investment returns
Peak debt year
Peak debt in
USD bn
Peak debt
proportion of
domestic GDP
Peak debt
proportion
of global GDP
Greece
Russia
Argentina
S. Korea/Thailand Eurozone*
1982
1997
2002
1997
2011
40
347
489
1,836
36,157
80%
86%
181%
248%
297%
0.4%
1.2%
1.5%
6.1%
57.4%
* Precrisis debt peak except for Eurozone figures, which are as at February 2011
Note: Bubbles are not to scale and for illustrative purposes only
** GDP stands for Gross Domestic Product, and is the monetary value of goods and services produced within a
country’s borders in a specific time period. It is usually calculated on an annual basis and gives an indication of a
country’s economic health and standard of living. Source: IMF, Bloomberg
Global thematic framework
5
Theme(s)
Five important
transitions to a
world with:
Less debt
More ‘balanced’
economic variables
Higher energy costs
More older people
Unprecedented
connectedness
The post-bubble landscape
6
 Key economic factors:
Debt, growth, competitiveness
 Primary trend:
Extended period of deleverage
 Secondary trend
Loose Monetary Policy, State intervention
 Major fault lines:
Eurozone economic collapse
US growth and budget arithmetic
China growth uncertainty
Diverse outcomes:
Printing of Money, Rate Cutting and Default
Market distortions remain
Managing money against a bond index
is fraught with danger
7
Index* weightings
AAA CLUB
UK
Australia
Canada
Germany
Sweden
Denmark
%
6.74
0.95
1.82
5.96
0.41
0.57
MONEY
PRINTERS
USA
33.70
Japan
32.42
CREDIT RISK
France
6.09
Holland
1.63
Belgium
1.63
Italy
5.36
Spain
2.71
%
16.45
66.12
17.42
100.00
*Source: JPMorgan Global Bond, as at 31 Dec 2011
REST OF THE
WORLD
Brazil
China
Czech Republic
Indonesia
Malaysia
Mexico
New Zealand
Norway
Poland
South Africa
South Korea
Singapore
Switzerland
Government debt held abroad
8
Govt debt held abroad as % GDP vs. 5yr CDS spreads
Source: Datastream as of 31 October 2011
As economic growth slips the reliance on
foreign support becomes more important.
Wage growth and the problem with Europe
Source: Bloomberg, OECD January 2012
Source: Bloomberg, OECD January 2012
9
Global Dynamic Bond strategy
Conceptual representation
Source: Newton, February 2012
Portfolio holdings are subject to change at any time without notice, are for information purposes only and should
not be construed as investment recommendations.
10
•
Emphasis on
traditional fixed
income asset
classes
•
A return seeking
core with
particular
security
characteristics
•
Risk offsetting
positions for
dampened
volatility and
downside
protection
The fixed income asset classes rankings change
depending on the economic cycle
EM
Emerging-market govt bonds
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Govt
1st
EM
6.80
HY
14.87
HY
59.71
Govt
11.66
Govt
6.38
HY
10.22
EM
13.73
EM
15.07
HY
30.57
EM
15.18
IG
9.95
EM
13.19
EM
21.65
Govt
13.03
Govt bonds
IG
Investment-grade corporate bonds
2nd
Govt
6.32
EM
12.04
EM
27.51
IG
-3.38
EM
5.89
EM
9.68
Govt
6.50
HY
14.69
EM
29.01
Govt
10.73
Govt
7.31
Govt
10.22
HY
3.06
IG
10.75
Source: Newton, Merrill Lynch Indices Hedged into Sterling, 31 December 2011
Past performance is not a guide to future performance.
3rd
IG
5.14
IG
7.46
IG
16.09
EM
-10.23
IG
3.76
IG
3.32
IG
5.20
IG
8.66
IG
8.73
IG
10.72
HY
4.76
IG
8.49
IG
1.74
HY
5.01
HY
11
High-yield corporate bonds
4th
HY
2.92
Govt
3.89
Govt
1.18
HY
-27.01
HY
2.53
Govt
2.82
HY
4.91
Govt
8.02
Govt
4.39
HY
1.61
EM
1.52
HY
-6.15
Govt
1.33
EM
-12.83
Global Dynamic Bond Fund
Newton Global
Dynamic Bond
Fund
12
The performance aim of the
Fund is to deliver cash (1 month GBP
Libor) + 2% p.a. over 3 to 5 years before
fees are deducted. There is no guarantee that
this return will be achieved or that your capital
will be maintained.
Risk parameters
Risk control
(portfolio guidelines)
Target volatility
6% – 8%**
Portfolio diversification
Max 5% in any corporate issuer at purchase
Portfolio concentration
Max 50% in any sector.
Quantitative risk assessment
Risk monitoring
How much risk? – (bond weights, correlation, volatility)
What kind of risk? – (currency, credit, interest rate)
Is risk consistent? – (strategic views, economic cycle)
*The higher the target return the greater the potential for the returns to be significantly higher or lower than
expected*
**Based on long term volatility statistics
Newton Global Dynamic Bond Fund
Positioning as at 29 February 2012
High Yield 19.58%
13
Government Bonds 23.95%
Investment Grade 32.00 %
EM Sovereign 19.61 %
Source: Newton, 29 February 2012
Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be
construed as investment recommendations.
Newton Global Dynamic Bond Fund performance versus IMA
14
Sectors
Source: Lipper as at 14 Feb 2012. Please note that sector returns are likely to vary, depending on the timing of data
extraction from Lipper Fund performance calculated as total return including income net of UK tax, net annual charges, no
initial charge, in GBP. The impact of the initial charge, which may be up to 4%, can be material on the performance of your
investment. Performance figures including the initial charge are available upon request. Past performance is not a guide to
future performance. The performance aim of the Fund is to deliver cash (1 month GBP LIBOR) + 2% p.a. over 3 to 5 years
before fees are deducted. There is no guarantee that this return will be achieved or that capital will be maintained.
Why Newton Global Dynamic Bond Fund?
The present
•
Government bond yields at new
lows
•
Investors looking to work their
bonds harder – looking to
invest in a wider bond universe
•
Defaults on a declining path.
Corporate credit still attractive.
•
Plenty of individual credit
stories – they don’t all move
together
•
Emerging market debt a serious
alternative – credit story
improving
The future
•
NEWTON GLOBAL DYNAMIC
BOND FUND invests
wherever there are fixed
income opportunities
•
Investing in a diversified
universe of generally high
yielding securities:
Going forward a
dynamic fixed
income asset
allocation is
required
– Government bonds
– Emerging market
sovereigns
– Corporates – high yield
and investment grade
•
•
Currency overlay
Derivatives – principally to
manage duration
A higher yielding addition to global government bonds
15
Important information
16
This is a financial promotion and is not intended as investment advice. The information provided within is for use by professional clients and should not be relied upon by retail clients.
All information relating to Newton Investment Management Limited (Newton) and Newton Global Dynamic Bond Fund has been prepared by Newton for presentation by BNY Mellon Asset
Management International Limited (BNYMAMI). Any views and opinions contained in this document are those of Newton at the time of going to print and are not intended to be construed as
investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied.
This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.
Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency
movements. When you sell your investment you may get back less than you originally invested.
The Prospectus and/or Simplified Prospectus should be read before an investment is made. This document can be obtained from www.bnymellonam.co.uk or by calling 0500 66 00 00. To
help us continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us.
Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.
Tax treatment will depend on the individual circumstances of clients and may be subject to change in the future.
Newton Investment Management Limited are authorised and regulated by the Financial Services Authority. Newton Investment Management Limited, 160 Queen Victoria Street, London
EC4V 4LA. Registered in England No. 1371973
Newton Global Dynamic Bond Fund (NGDBF) is a sub-fund of BNY Mellon Investment Funds, an investment company with variable capital (ICVC) incorporated in England and Wales under
registered number IC27 and authorised by the Financial Services Authority. BNY Mellon Fund Managers Limited (BNY MFM) is the Authorised Corporate Director. BNY Mellon Fund
Managers Limited, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1998251. Authorised and regulated by the Financial Services Authority. The investment adviser
of the Newton sub-funds is Newton Investment Management Limited.
ICVC investments should not be regarded as short-term and should normally be held for at least five years.
There is no guarantee that either the target or positive returns will be achieved and no form of capital protection will apply. The higher the target return the greater the potential for the returns
to be significantly higher or lower than expected.
Changes in the rates of exchange may affect the value of investments. The Fund can invest in overseas securities which may also generate profits overseas and pay dividends in foreign
currencies, which means the fund is exposed to changes in currency rates. The Fund may invest in emerging markets. It should be noted that these markets have additional risks associated
with local custody and registration practices that may be less developed than more mature markets. The Fund takes its charges from the capital of the fund. Investors should be aware that
there is potential for future capital erosion if insufficient capital growth is achieved by the Fund to cover the charges. Capital erosion may result in the amount of income that can be drawn
declining over time. The Fund may hold sub-investment grade bonds that typically have a low credit rating and carry a high degree of default risk, which can affect the capital value of your
investment. The Fund may hold fixed interest securities, which are particularly affected by trends in interest rates and inflation. This may affect the capital value of your investment. The Fund
may invest in illiquid securities, which means that there is a possibility that they cannot be readily converted into cash when required. The value of these securities is subject to greater
fluctuation if they are not regularly traded. The Fund may use derivatives for efficient portfolio management (EPM) purposes. EPM restricts the use of derivatives for the reduction of risk, the
reduction of cost and the generation of additional capital or income with no or an acceptable low level of risk. EPM transactions must be economically appropriate and the exposure fully
covered. In addition to EPM, the Fund uses derivatives in pursuit of its investment objectives. All of these factors may affect the performance of the Fund.
This document is issued in the UK by BNY Mellon Asset Management International Limited. BNY Mellon Asset Management International Limited, 160 Queen Victoria Street, London EC4V
4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Services Authority.
BNY Mellon Asset Management International Limited, BNY MFM and Newton and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon
Corporation. BNY MFM and Newton are members of the IMA.
CP8112-15-03-2012(3m)