Taking the right path. This is just for UK advisers it is not for use with clients

Transcription

1 Taking the right path This is just for UK advisers it is not for use with clients

2 Disclaimer This document has been prepared by Prudential Portfolio Management Group Limited ( PPMG ) for informational purposes only for the sole and exclusive use of the persons to whom it is addressed and may not be passed on to any other person, as further distribution might be restricted or illegal in certain jurisdictions. This document or report may not be copied, published, circulated, reproduced or distributed without the prior written consent of PPMG. This document does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any security or other interests, nor shall this document or any part of it or the act of its distribution form the basis of, or be relied upon in connection with, any contract for the purchase of any such securities or other interests. This document does not constitute investment advice. Information given in this document has been obtained from, or based upon, sources believed by PPMG to be reliable and accurate although PPMG does not accept liability for the accuracy of the contents. Any opinions expressed are our present opinions reflecting current market conditions, are subject to change without notice and involve a number of assumptions which may not prove valid. Past performance is no guarantee of future performance. The value of investments can fall as well as rise. To the extent available, the industry, market and competitive position data contained in this document come from official or third party sources. Third party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but there is no guarantee of the accuracy or completeness of such data. Where included, benchmark and index data included in this document are provided for illustrative purposes only. Every effort is made to ensure the accuracy of any information but no representation, warranty or other assurance, express or implied is made or given by PPMG or any of its shareholders, affiliates, directors, employees or any other person as to the accuracy, completeness or fairness of any information, forward-looking statements or opinions contained in this document and no responsibility or liability is accepted by any of them for any such information, forward looking statements or opinions in respect of any omission, and this document is distributed expressly on the basis that it shall not give rise to any liability or obligation if, for whatever reason, any of its contents are or become inaccurate, incomplete or misleading. Neither PPMG nor any of its shareholders, affiliates, directors or employees undertake any obligation to provide the recipient with access to additional information or to correct any inaccuracies herein which may become apparent. By accepting the document, you agree to be bound by the foregoing limitations. Prudential Portfolio Management Group Limited, is registered in England and Wales, registered number , with registered offices at Laurence Pountney Hill, London EC4R 0HH.

3 The Past What happened in 2018? What were the drivers for performance and risk? How did we deal with these challenges?

4 What happened in 2018? A year of two halves Global growth became more divergent, split between a fast growing US and slowing rest of the world. Aggregate growth held up! Past performance is no guarantee of future performance. The value of investments can fall as well as rise.

5 What happened in 2018? Deutsche Bank shows 2018 to have amongst the highest percentage of assets in negative total return since 1901

6 What were the key drivers of performance and risk? Several factors at play valuations trade wars politics stage of the economic cycle.and UK investors to consider: Investors seeking a risk premium Valuations now reasonably attractive Sterling impacts

7 How did we deal with these challenges? Maintained global and asset class diversification Still comfortable holding risk assets fundamentals still supportive BUT reduced risk during the 2018 strategic asset allocation review Fixed income continued to look for new opportunities New investments across property & alternatives Increased allocation to exciting long-term opportunities Chinese equities, African equities and African debt Dynamic tactical asset allocation mandate volatility can present opportunities

8 2018 Strategic asset allocation review PruFund Growth 2018 (%) 2017 (%) SAA Change (%) Equity Property Alternatives Fixed Income TAA (M&G) Cash PruFund Cautious 2018 (%) 2017 (%) Change (%) Equity Property Alternatives Fixed Income TAA (M&G) Cash

9 2018 Good news stories? Diversification did help! Direct Real Estate Private Equity Infrastructure Hedge Funds Pharo Gaia (EM Macro Fund) Private Credit Prudential Credit Opportunities

10 The Present Concerns? Opportunities?

11 Asset allocation covers multiple future scenarios! Weekly modelling to check the portfolio is on the right path! Source; PPMG as at 1/1/2019

12 Continued to source new investment themes/opportunities Ability to hold significant real assets Example Investment: Vista Ridge Pipeline, Texas Pipeline essential to the City of San Antonio - expected to provide 20% its water needs One of the fastest growing cities in the US and sits in a drought zone; but hasn t built new water resources in >30 years 30 year contract with no volume risk. AA+ rated counterparty Best-in-class construction counterparty Highly attractive to a long-term investor on exit Source: Garney Construction Example Investment: Centropolis Towers, Seoul New twin office building in South Korea Based in the main business district High demand for best in class office space Joint ownership with two of the largest pension schemes in South Korea Source: M&G Real Estate

13 2018 new themes and opportunities Resource and scale broadens the alternatives universe Source: T&IO illustrative only Different strategies researched in recent years. Reflects teams views of relative risk and diversification benefits Being part of M&G Prudential allows us to capitalize on these diverse opportunities

14 The Future Staying on the path! Inflation and monetary policy impacts? What themes and opportunities are we looking at?

15 2019 Staying on the path The team do not necessarily aim to build an asset allocation which will provide the best risk and return outcome, but one which is likely to be the most stable over time and one which is positioned to benefit from a broad number of scenarios, not just a few - M&G Prudential Treasury & Investment Office Short-term outlook Is not about timing markets Established tactical asset allocation process in place to take advantage of volatility Risk assets rallied in early 2019 Fed, PBOC comments, easing trade tensions, US monetary policy Medium and long-term outlook Continue to work hard to understand markets, secular themes and new investment opportunities Exciting opportunities may not yet exist?

16 2019 and beyond? Monetary policy Federal Reserve increased rates in December, still reducing balance sheet, markets now pricing in no further increases ECB confirmed end of quantitative easing in December BoE in wait-and-see mode. Uncertainty over March outcome is a key concern. Weakening outlook and falling oil prices were noted but bias towards higher rates remains People s Bank of China (PBOC) have cut reserve requirement ratio for banks Main policy rates, % US UK Euro zone Japan Source: Datastream Central bank balance sheets, % of GDP US UK Euro zone Japan Source: Datastream, LTIS

17 2019 and beyond? Inflation Inflation structurally lower, capacity pressures could lead to a cyclical rise in core inflation Market pricing of inflation has softened in the US and Europe. Little change in UK pricing of inflation Core CPI in the US rose 2.2% in Nov. Signs of faster wage rises, though wage growth remains slow relative to history Euro area core inflation remains well below target (1.1%) with greater economic slack, slowing in the UK (2.2%) Oil prices have turned disinflationary. Central banks tend to look through oil driven impact. Could be used to justify slower pace of tightening Core consumer price inflation (NSA), % change year on year US UK Euro area CPI YOY Source: Datastream US Inflation profile Forward inflation curve for next 10 years 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y US Inflation Swap Rate 1Y Forward Rate

18 and beyond themes and opportunities? Data on exports shows the influence of China/Asia on the global trade systems; Data on imports is similar Further evidence of the shifting centre of economic gravity Structure of global economy has changed The history of world trade, : export shares, % Other areas; Africa Real estate Alternatives Europe Asia Americas Africa

19 How will we deal with these challenges? Global economic growth set to be lower in 2019 Prudential capital market research has suggested lower future returns Stick to your philosophy the With-Profits Fund has weathered many storms All multi-asset teams face the same challenges Smoothing helps..