Where and how do we find growth in global equities? Andrea Cicione Head of Strategy

Transcription

1 Where and how do we find growth in global equities? Andrea Cicione Head of Strategy

2 Where and how do we find growth? In short, it s tough 1 The global cycle is maturing 2 Corporate earnings are falling 3 But alpha can still be captured 2

3 Where and how do we find growth? In short, it s tough 1 The global cycle is maturing 2 Corporate earnings are falling 3 But alpha can still be captured 3

4 OECD Global LI (% y/y) A slowing global cycle Global growth below trend and slowing explaining recent poor equity returns 6 Recovery LI < 1, y/y > Expansion LI > 1, y/y > 15 OECD Global LI MSCI World y/y (rhs) Euro crisis Latest Mar Slow dow n 28-9 Global Financial Crisis Dow nturn LI < 1, y/y < OECD Global LI LI > 1, y/y < Source: OECD, LSR Source: OECD, MSCI, LSR 4

5 Credit cycle maturing Leverage is increasing in the US leading to credit market re-pricing Ex-Financials, Tech Ex-Financials, Tech, Energy Jan-9 to Mar-11 Oct-11 to Jun-15 Jul-15 to Jun-16 Latest Net debt-to-ebitda MSCI USA CDX NA IG (bp) Increasing leverage Source: MSCI, Bloomberg, LSR 75 5 S&P Source: Bloomberg, LSR 5

6 Where and how do we find growth? In short, it s tough 1 The global cycle is maturing 2 Corporate earnings are falling 3 But alpha can still be captured 6

7 Corporate profits stagnating US profits stagnating despite low rates and things are worse elsewhere US corporate profits (IVA, CCAdj) UST 2y yield (rhs) Surprise Change y/y 23 % 8 1% Q1 216 Earnings 21 7 % % % % % % US Euro area Japan UK Source: BEA, Bloomberg Source: Bloomberg 7

8 S&P 5 Energy Materials Industrials C. Discr. C. Staples Healthcare Financials Tech Telecom Utilities Not just a commodity story Ex-Energy, ex-materials EPS still ok but weakness spreading to key sectors Energy+Materials Ex-Energy, Ex-Materials Sales Growth Earnings Growth 3 1 3% 25 EPS (12m trailing) MSCI USA 9 2% 1% % -1% 2 8-2% -3% % -5% -6% -7% 1 5-8% -9% -1% % -12% S&P 5 - Q1 216 results - y/y changes Source: MSCI, Bloomberg, LSR Source: Bloomberg 8

9 Poor productivity to squeeze margins Margins are holding up for now but slowing productivity remains a drag 25 % Q1 215 Q1 216 MSCI US operating margins 8 Unit labour costs (y/y) Productivity (y/y) S&P 5 operating margins (rhs) % % Mkt FN MT IN EN CS HC TC UT CD IT Source: MSCI, Bloomberg, LSR Source: Bloomberg 9

10 Valuations expensive in DMs DM price-to-earnings ratio vs cycle EM price-to-earnings ratio vs cycle (.4) (.5) (1.1) year z-score year z-score 3 Key +/- 1 stdev Last Avg 7.5y range 3 Key +/- 1 stdev Last Avg 7.5y range US CA JP AU GB CH DE FR IT ES CN IN KR TW BR MX RU ZA TR EM Source: MSCI, Bloomberg, LSR Source: MSCI, Bloomberg, LSR 1

11 Where and how do we find growth? In short, it s tough 1 The global cycle is maturing 2 Corporate earnings are falling 3 But alpha can still be captured 11

12 Quant strategies European sector selection, market neutral US sector selection, market neutral 19 Strategy MSCI World HFRI Equity Market Neutral 17 Strategy MSCI World HFRI Equity Market Neutral Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Source: MSCI, Bloomberg, LSR 8 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Source: MSCI, Bloomberg, LSR 12

13 Quant strategies European sector selection, market neutral US sector selection, market neutral Strategy M kt Neutral HFRI Quant Out-of-sample Return 8.% 13.1% 13.1% YTD Ret 9.9% -.4%.9% Ann.Ret 12.66% 2.53% 2.52% Volat ilit y (annualized) 1.6% 2.6% 6.5% Sharpe Ratio Dow nside Dev (annualized) 6.1% 1.7% 4.2% Sort ino Rat io Bet a Correlat ion Alpha (annualized) 13.5% 1.26%.41% % Positive weeks 59.6% % Posit ive mont hs 63.3% 69.5% 55.9% M aximum w eekly loss -6.4% M aximum Draw dow n -11.2% -5.5% -12.1% Strategy M kt Neutral HFRI Quant Out-of-sample Return 4.8% 13.1% 12.6% Volat ilit y (annualized) 1.5% 2.6% 6.7% Sharpe Ratio Dow nside Dev (annualized) 5.4% 1.7% 7.5% Sort ino Rat io Bet a (vs S&P5) Correlat ion (vs S&P5) Alpha (ann. Vs S&P5) 7.96%.53% 7.39% % Posit ive mont hs 6.7% 68.3% 56.7% M aximum mont hly loss -6.1% -2.8% -5.4% M aximum Draw dow n -11.6% -5.5% -12.1% Source: LSR Source: LSR 13

14 Brexit opportunities Remain and Leave neck and neck in polls but the Undecided seem to favour Remain Leave Remain Undecided Remain Undecided (rhs, inv) Sep-15 Nov-15 Jan-16 Mar-16 May-16 3 Sep-15 Nov-15 Jan-16 Mar-16 May Source: Bloomberg Source: Bloomberg 14

15 Brexit opportunities Strong Remain-Undecided correlation Virtually no Leave-Undecided relationship 6 Remain y = -.8x R 2 =.7 6 Leave y = -.2x R 2 = Undecided Undecided Source: Bloomberg, LSR Source: Bloomberg, LSR 15

16 Brexit strategy EU-exposed UK stocks to rally if Bremain Europe also dragged down by Brexit risk GBP/EUR Bloomberg BREXIT Equity Index* (rhs) S&P 5 Stoxx 6 Europe GBP/EUR (rhs) (* ) RR/, BARC, BKG, NXT, TCG, VOD, STHR, KGF, SVT, RGU 1.15 Jan-14 Jul-14 Jan-15 Jul-15 Jan Jun-15 Sep-15 Dec-15 Mar-16 Jun Source: Bloomberg Source: Bloomberg, LSR 16