Advantus Update and Investment Outlook

Transcription

1 Advantus Update and Investment Outlook Chris Sebald, CFA President and Chief Investment Officer Advantus Capital Management A Securian Company June 15,

2 Significant Trends in the Investment Industry The pace of change accelerates Passive vs active ETFs vs mutual funds Robo advisors Tech entering the investment process Artificial intelligence and big data 2

3 We re Thriving Steady growth AUM Growth (billions) $27 $33 $33 $36 $ YTD As of 5/31/17. 3

4 And Changing New strategies and solutions Managed Volatility Commercial Mortgage Loans Pension Risk Transfer Strategic Credit Income Model Portfolios Source: Advantus Capital Management, istock. 4

5 Advantus Value Proposition Delivering in a time of change Value Proposition Fundamental research Long term focus, client centric Large enough Small enough Financial strength Delivering on it Strong investment performance High client satisfaction and retention Institutional trading, research and portfolio management platform Custom client solutions Resources of AA rated insurance company 5

6 Securian s Asset Management Collaboration to capitalize on strength $70B+ 6

7 Investment Outlook 7

8 White House View Will lower taxes and regulation drive higher growth? Mnuchin says tax plan will 'pay for itself' with economic growth. - Marketwatch I believe the climate is changing. I believe some of it is naturally occurring, but some of it is also caused by manmade activity. The question is: How do we address it in a thoughtful way that doesn t compromise economic growth, the affordability of energy or American jobs? - Rick Perry, Secretary of Energy via New York Times 8

9 Politics TRUMP Economics Fiction more plausible than truth Tax cuts are great for the economy. Stocks are up. Democrats don t get it. So strange! Fake Donald Trump tweet Regulation is killing small business. Out of control. So sad. Cutting unnecessary regulation to MAGA and WIN. Fake Donald Trump tweet Companies are shipping jobs back to America. Investing in America. Now THEY get it! Fake Donald Trump tweet Source: Advantus Capital Management, whitehouse.gov. These tweets were created by Advantus and do not represent any actual tweet. They are presented for the purpose of providing an example how tweets may or may not impact the markets. 9

10 Policy Uncertainty vs. Market Uncertainty Policy index at high while market s prime risk measure at low Volatility Policy Uncertainty CBOE Market Volatility Global Economic Policy Uncertainty Source: Bloomberg From 04/30/ /30/2017. Chicago Board Options Exchange SPX Volatility Index and Global Economic Policy Uncertainty Index with Current Price GDP Weights were used in this graph. 10

11 Macro Longstanding headwinds Age demographic shifts High developed country debt Secular stagnation Technology disrupts established industries Source: Advantus Capital Management, istock. 11

12 Industry Disruption Impact on employment growth 1,800 Department Store Employment 1,500 Truck Transportation Employment All Employees (Thousands) 1,700 1,600 1,500 1,400 1,300 1,200 1,400 1,300 1,200 1,100 1,000 Source: US Bureau of Labor Statistics. As of 5/31/17. 12

13 Industry Disruption Creative destruction at work Bottom 5 Top 5 Bottom 5 Top 5 Apparel Employment Services Department Stores Food Services Transportation Equipment (including cars) Food Services Telecom Individual & Family Social Assistance Machinery Education Services Specialty Trade Computer System Design Contractors Depository Credit Computer System Design Transportation Equipment Management & Technical Consulting Food & Beverage Stores Sector Ranking By Change in Employment Shares Individual & Family Social Assistance Wholesale Durable Home Health Care Source: Goldman Sachs. 13

14 Disruption Employment growth in other sectors 12,000 Food Service Employment All Employees (Thousands) 10,000 8,000 6, As of 5/31/17. Source: Bureau of Labor Statistics. 14

15 Fed Solidly in tightening cycle Percent Source: Bloomberg. Data series 11/30/1990 through 05/31/

16 Business Cycle Third longest in history Post War Average Average in "Great Moderation" Expansion Length Years As of 5/30/17. Source: Bureau of Economic Analysis. 16

17 Corporate Credit Cycle Corp Debt to GDP Late cycle 50% 45% Percent of GDP 40% 35% 30% 25% 20% Data Series non financial corporate business debt. Source: Board of Governors of the Federal Reserve System/FRED. 17

18 Investing Under Trumponomics Initial Reaction Stronger growth, infl., rates and stocks Personal tax cuts Corporate tax cuts Easier regulation and enforcement Infrastructure spending Current Expectation Boost to growth comes later Easier regulation and enforcement Corporate tax cuts Personal tax cuts Infrastructure spending 18

19 Macro Risks Remain significant despite sunnier outlook Fed solidly in tightening cycle Credit cycle in 8 th year Developed country debt crisis (Europe or Japan) Emerging market debt/currency crisis (China) 19

20 U.S. Growth Growth revives late in expansion? Percent P 2018P U.S. GDP Year over Year U.S. GDP year over year as of 12/31/16. Source: Bloomberg. Projections are those of Advantus Capital Management only. Past performance is no indication of future results. 20

21 U.S. Growth Can long term growth return to historical levels? Percent OMB May 2017 Assumption (Trump)* CBO Baseline* Source: Bloomberg and Advantus. *Real GDP Growth Projection. 21

22 Wage Inflation Continues to rise steadily 6 5 Percent Employment Cost Index Average Hourly Earnings Atlanta Fed Tracker Source: Bloomberg. 22

23 When Interest Rates Rise They don t rise by much Yr. Treasury Yield Months Months Months Years Months Months 8 Months Source: Bloomberg and Advantus Capital Management. 23

24 U.S. Housing Significant under building persists 2,500 Annual Housing Completions 2,000 Long term Housing Demand: 1.6M units 1,500 1,000 1, Source: Bloomberg and Advantus Capital Management. 24

25 Commercial Real Estate Occupancy has likely peaked 96% 95% Historical Average = 93.3% Occupancy 94% 93% 92% 91% 90% Source: CITI Research and Advantus. 25

26 Stock Valuations Remain High But earnings continue to improve PE Multiple % Earnings Growth (YoY) 5 10 Source: S&P Index via Bloomberg. *Source: Advantus. Earnings Growth (YoY) Price/Earnings Forecasted Earnings* 26

27 Advantus 2016 Outlook Summary and Scorecard 2016 Outlook Results 2 Scorecard Economy Slightly weaker growth Weak growth 1.6% Interest Rates Long term rates rise little 10 year rates rose 25bps Housing Bullish. Home prices continue to rise Home prices rose 5 6% Commercial Real Estate REITs rise high single digits REITs returns 8% Fixed Income Bonds Outperform Treasuries Investment Grade bonds outperform by 5% Equities Europe and Foreign Developed Market equities better than U.S. U.S. and U.K. did well; Europe lagged Volatility Volatility accelerates Despite spikes in 2016, volatility was lower Source: 1 Advantus Capital Management, 2 Bloomberg. 27

28 Advantus 2017 Outlook Higher growth and lower returns 2017 Outlook Economy Growth accelerates Interest Rates U.S. long term yields rise (2.75%) along with Fed Funds Rate (1.50%) Housing Commercial Real Estate Fixed Income Equities Volatility Home prices continue rise on limited supply and rising demand Slowing growth and rising rates lead to lower returns Underperforms from higher rates Earnings growth bolster stock returns so long as inflation rises moderately Rises but still remains relatively low For illustrative purposes only. See disclosures at the end of this presentation. 28

29 Disclosures The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, Advantus does not guarantee the accuracy, adequacy or completeness of such information. Predictions, opinions, and other information contained in this article are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward looking statements speak only as of the date they are made, and Advantus assumes no duty to and does not undertake to update forward looking statements. Forward looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those anticipated. Advantus Capital Management, Inc. is a subsidiary of Securian Financial Group, Inc. For Institutional Investment Use Only Advantus Capital Management, Inc. All rights reserved. DOFU