Investment Opportunities in Global Fixed Income Markets

Transcription

1 Investment Opportunities in Global Fixed Income Markets GSAM Insurance Fixed Income May 217

2 GSAM Insurance Asset Management Key Themes for 217 Economic Backdrop End of the Distortion Monetary to Fiscal Policy Transition Cyclical Expansion Continues Apace Can it Continue? Geopolitical Ever Present but on the Rise and Anti-globalism Valuations Source: GSAM. As of March 31,

3 US: Potential Fiscal Easing Adds to Case for Fed Tightening Fiscal expansion appears likely but may be limited by concerns over debt-to-gdp. In an economy at full employment, tax cuts could add pressure to shrink Fed balance sheet Tax cuts are likely but fiscal concerns may limit size % of GDP US Federal Debt Held by the Public Actual Projection based on Current Law Projection if 1-year deficit increased by $2 trillion Fed likely to announce balance sheet plan this year US$ bn Notes & Bonds MBS TIPS Total Holdings ($4.2tn) QE2 (Nov '1) Operation Twist (Sep '11) Fed Assets Tapering (Dec' 13-Oct '14) QE3 (Sep'12) 5 4 Reagan Tax Cuts Bush Tax Cuts 2 15 Expansion of QE1 (Mar '9) QE1 (Nov '8) '7 '75 '8 '85 '9 '95 ' '5 '1 '15 '2 ' Source: Congressional Budget Office for actual and projections. As of March 217. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this presentation. Source: GSAM, Bloomberg, Federal Reserve Board, Goldman Sachs Global Investment Research. As of March 17,

4 Interest Rates: We Expect Divergence to Continue We expect European rates to remain low relative to US and UK rates as the Fed tightens, the BoE contends with inflation and the ECB remains accommodative We expect a further two rate hikes in the US this year while we expect rates to remain low in Europe through to 218 We expect European rates to remain low relative to US, UK 2.5 % US and European Policy Rates % 8 5-Year Government Bond Yields 2. Euro Area 7 United States Spain US 6 France 1.5 Market Implied - Europe Germany Market Implied - US 5 United Kingdom '12 '13 '14 '15 '16 '17 '18 '19 Source: GSAM, Bloomberg. As of March 3, 217. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. -1 '14 '15 '16 '17 Source: Macrobond. As of April

5 Global: Broad-Based Improvement in Economic Growth 217 Data (So Far) Suggests Broad-based Growth Index Improving global economic activity Global PMI Composite Manufacturing Services Survey data suggests elevated expectations % US Current Activity Indicator - Hard vs Soft Data 7 Hard Data Survey Data '1 '11 '12 '13 '14 '15 '16 '17 Source: Macrobond. As of March Source: Goldman Sachs Global Investment Research. As of March 217. Survey data include measures such as consumer confidence, ISM indices, and manufacturing/non-manufacturing surveys. Hard data include concrete, quantitative measures such as sales and spending, payrolls, and industrial production. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. 4

6 Global: A Busy Political Calendar Raises Potential Risks Brexit negotiations, European elections, US policy developments and China s priorities ahead of its National Communist Party Congress may be important market drivers. January February March April May June July August September October November December Presidential Inauguration 2-Jan, USA General Election 15-Mar, Netherlands Article 5 Triggered 29-Mar, UK 1st Round Presidential Election 23-Apr, France General Election 8-June, UK EU Economic Sanctions Renewal Deadline 31-Jul, Russia 19th National Congress of the Communist Party of China Oct-Nov, China US Debt Ceiling Extension Expires 15-Mar, USA US Budget Continuing Resolution Expires 28-April, USA G7 Summit May, Italy NATO Summit May Belgium G2 Summit 7 8-Jul, Germany Federal Election 24-Sep, Germany 2nd Round Presidential Election 7-May, France Source: GSAM. As of April 17, 217. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. 5

7 Corporate Credit: Late in the Credit Cycle We are Cautious on Corporate Credit Given Tight Valuations at this Stage of the Cycle Recent improvement in fundamentals, but still Late Cycle O'clock Tight spreads relative to history, reduced scope for further gains Current Spread Tightest Ever One Year Ago Widest Ever Index begins: Euro Investment Grade May- US Investment Grade Jun-89 US High Yield Energy Aug- US High Yield Jan-93 EM External Debt Dec-97 US High Yield Ex- Energy Jan-94 EM Corporates Dec-1 Euro High Yield Feb Percentile Source: GSAM. As of March 217. Source: Bloomberg, Barclays US Corporate Index, Barclays US High Yield Index, Barclays Euro Corporate Index, Barclays Euro High Yield Index, JP Morgan Global Bond Index-EM, JP Morgan Emerging Market Bond Index Global Diversified. JP Morgan Corporate Emerging Market Bond Index. As of March

8 Spread Dispersion is Low When Potential Policy Changes Create Greater Winners and Losers Barclays US$ IG Index: Dispersion over time Barclays US$ IG Index: Dispersion by OAS Spread Difference between 75th and 25th Percentile 12/31/215 3/31/217 12/31/ OAS 2 15 # of CUSIPs Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec More Source: Barclays, GSAM Estimates. Data as of 31 March

9 GSAM Insurance Asset Management 4 Fixed Income Strategies for Insurers Securitized Floating rate assets offer attractive carry and more domestic US Positively exposed to more aggressive Fed and LIBOR Bank Loans Floating rate asset offers exposure to corporate credit Benefits from credit cycle extension Emerging Markets (Corps and Blended) Selection opportunities increase the with concerns of trade disputes and fed rate hikes Demonstrated resilience through FX regimes, valuations tight but 217 should allow opportunities Macro Volatility High volatility allows for good selection and alpha opportunities Correlation reducer which helps de-risk balance sheet while maintaining risk allocation Source: GSAM. As of March 31, 217. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this presentation. 8

10 General Disclosures This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell any securities. THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant. References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. The strategy may include the use of derivatives. Derivatives often involve a high degree of financial risk because a relatively small movement in the price of the underlying security or benchmark may result in a disproportionately large movement in the price of the derivative and are not suitable for all investors. No representation regarding the suitability of these instruments and strategies for a particular investor is made. Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur. Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only. Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction. GSAM does not provide legal, tax or accounting advice and therefore expresses no view as to the legal, tax or accounting treatment of the information described herein or any related transaction, nor are we providing any assurance as to the adequacy or appropriateness of this information or our procedures for your purposes. This material is not a substitute for the professional advice or services of your own financial, tax, accounting and legal advisors. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. independent verification, the accuracy and completeness of all information available from public sources. We have relied upon and assumed without 9

11 General Disclosures Confidentiality No part of this material may, without GSAM s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient. 217 Goldman Sachs. All rights reserved. Compliance OTU