Financial Markets Update, Outlook

Transcription

1 Financial Markets Update, Outlook and Challenges John Augustine, CFA Chief Investment Strategist Fifth Third Private Bank September, 2009

2 Managed Assets Mix as of 7/31/09 - $25.1 billion Fifth Third Asset Mgmt 10% Retail Brokerage 11% Instl. Services 20% Private Bank 59% NOTE: Includes Fifth Third Funds with Private & Institutional assets. 2

3 Investment Management Line-Up Passageway Fund or separately managed portfolios Proprietary and non-proprietary managers Conservative to Aggressive portfolios $50,000 minimum account value CustomPlus Portfolios Outcome oriented strategies Customized stock or bond portfolios Proprietary and non-proprietary managers Alternative investment diversification $1 million minimum account value Investment Management Account (Agency or Trust) Outcome oriented strategies Customized stock or bond portfolios Dedicated portfolio management $500,000 minimum account value 3

4 I. Transitions 4

5 Three transitions beginning 1. New business cycle. 2. Relationship between public & private sectors. 3. Relationship between developed & developing economies. 5

6 II. Market Reactions 6

7 Asset Classes Total Returns YTD 10/2/09 70% 62.6% 60% 50% 48.2% 40% 30% 24.9% 20% 10% 15.7% 17.6% 6.0% 12.3% 10.2% 13.6% 0% S&P 500 Russell MSCI MSCI LB Agg LB HY S&P REIT CRB Gold 2000 EAFE EEM Bond Bond Index Source = Bloomberg/Factset 7

8 III. Focusing on 2010 >>> Markets vs. Policy 8

9 1) Leading Economic Indicators higher US LEI OECD LEI Leading Economic Indicators pointing strongly to growth in '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 (% 1YR) Composite Leading indicators, Trend Adjusted - OECD Total (% 1YR) Leading Index Total, 1996=100, SA - United States Recession Periods - United States Source: World Bank/IMF -15 Source = FactSet 9

10 2) GDP Growth 2009 & 2010 Estimates 10.0% 8.0% 6.0% 9.0% 8.5% 6.4% 5.4% 4.0% 2.0% 0.0% 1.5% 0.3% 1.7% 0.9% 3.5% 2.1% -2.0% -0.7% -4.0% -6.0% -8.0% -2.7% -4.2% -5.4% -4.4% -6.7% US Euro Zone Japan UK China Brazil India E. Europe Source = IMF 10

11 3) Corporate profits beginning to recover S&P 500 YoY Profit % Changes 70% 63.4% 60% 50% 40% Corporate profits expected to recover from a post-wwii record of 9 consecutive quarters of YoY declines. 30% 20% 10% 26.3% 24.8% 15.0% 18.0% 13.1% 14.2% 13.7%13.2% 15.5%16.7%19.8% 11.1% 9.6% 9.4% 25.1% 21.7% 0% -10% -20% -30% -5.7% -16.9% -20.4% -17.5% -23.0% -23.2% -28.5% -30.8%-29.0% -40% Q1-04Q2-04Q3-04Q4-04Q1-05Q2-05Q3-05Q4-05Q1-06Q2-06Q3-06Q4-06Q1-07Q2-07Q3-07Q4-07Q1-08Q2-08Q3-08Q4-08Q1-09Q2-09Q3-09Q4-09Q1-10Q2-10 Source = Historical numbers from FirstCall, forward estimates from Bloomberg 11

12 Known risks to a Sustainable Recovery 1. Washington bureaucracy vs. innovation income growth vs. income caps foreigners willing to financing new debt Will the stimulus be inflationary? 2. Commodity prices gap higher (dollar, demand, speculation). 3. Treasury yields gap higher (inflation, dollar). 4. Central banks tighten policy too soon. 12

13 Market reaction to policy will be the focus 1. Stocks What PE Multiple will be assigned? 2. Treasury Yields Increased savings vs. increased government borrowing. 3. US Dollar Lower value to promote exports vs. every other country wanting to do the same thing. 4. Commodity Prices Growing output vs. lower dollar. 13

14 US composition of GDP likely to change 1. Consumer Spending (70.1%) Likely to moving lower, as consumers balance spending/saving. 2. Investment (14.8%) A push - business builds capabilities for a global expansion; new structures stays slow to utilize current vacancies. 3. Exports net (-4.9%) Exports rising; imports falling ( crude oil is wildcard). 4. Government Spending (20.0%) Likely moving higher. 14

15 IV. The Challenges & Opportunities Ahead 15

16 Challenge #1 - US Debt moving sharply higher Source = NateReport.com 16

17 Challenge #2 US consumers balancing spending/saving Savinngs Rate Consumer Spending is weakest since WWII; consumer savings starting to rise. Consumer Spending YoY% '59 '61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 (% 1YR) Personal Outlays Overall Total, USD, Annual Rate, SA - United States Personal Saving Rate, Percent, Annual Rate, SA - United States Recession Periods - United States -4 Source = FactSet 17

18 Business trends we see in the recovery 1. Slow rehiring from furlough s versus layoffs and - focus on productivity. 2. Privatization. 3. Darwinism - buying weakened competitors for new products and/or geography. 4. Simplification of business models (core vs. non-core). 5. Focus on finding the new growth markets in the world. 6. Having a China/India strategy for all international firms. 7. Discovery of the new value proposition for consumers. 8. Less leverage. 18

19 Investor trends we see in the recovery 1. Get some advice. 2. Rebuilding environment still positive for the asset side of balance sheets. Recovery expectations growing; policy supportive. 3. Simplify - know what you own and why you own it. 4. Mix global growth and stable cash flow investment vehicles (global producers, global real estate, investment-grade bonds, TIPS) 19

20 Stocks 3rd period of being stuck in 80 years 2,000 1, Innovation in some combination of: Energy, Exports, Education, Transportation, Healthcare, Immigration ,000 1, years WWII Victory 7years Volcker rate hikes (inflation halted); Reagan tax cuts; Baby Boomers consumerism '28 '31 '34 '37 '40 '43 '46 '49 '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 Standard & Poors 500 Composite Index, Price Return, Close - United States Recession Periods - United States Source = FactSet 20

21 John Augustine, CFA Chief Investment Strategist Fifth Third Private Bank

22 Important Information Dow Jones Industrial Average: chip stocks, primarily industrials. The most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue S&P 500: Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. U.S. Treasury Bills: Direct debt obligations issued and backed by the full faith and credit of the United States government (i.e. timely payment of principal and interest is guaranteed) and are issued with maturities of three months to six months in denominations beginning at $1,000. GDP (Gross Domestic Product): The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. Treasury Bonds: Treasury bonds are debt instruments of the U.S. government issued in minimum denominations of $1000. Considered to be long term investments, Treasury bonds have maturities of 10 years or longer. Treasury bonds carry the lowest degree of risk and are the benchmark against which all other types of bonds are measured. Although their market value fluctuates, they are considered to be the safest of bonds due to the fact that they are secured by the full faith and credit of the U.S. government. MSCI Emerging Markets Index Fund (EEM): The ishares MSCI Emerging Markets Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in emerging markets, as represented by the MSCI Emerging Markets Index. Russell 2000: The Russell 2000 Index measures the performance of the 2000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. MSCI EAFE (Europe, Australia and Far East): The MSCI EAFE index is a market-capitalization-weighted index of 21 non-u.s., industrialized country indexes, and is widely accepted as a benchmark for international stock performance. The S&P REIT: Tracks the performance of U.S. Real Estate Investment Trusts. The REIT Composite consists of 100 REIT s chosen their liquidity and importance in representing a diversified real estate portfolio. Gold: Quoted as U.S. Dollars per Troy Ounce. The CRB/Reuters Futures Price Index: An equal-weighted geometric average of commodity price levels relative to the base year average price. Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries. Investments and Investment Services: Are Not FDIC Insured Offer No Bank Guarantee May Lose Value Are Not Insured By Any Federal Government Agency Are Not A Deposit Insurance products made available through Fifth Third Insurance Agency, Inc. 22