Dynamic US Equity Strategy Jason Lejonvarn

Size: px

Start display at page:

Download "Dynamic US Equity Strategy Jason Lejonvarn"

Ariel Murphy
6 years ago
Views:

operating companies to undertake portfolio management activities in relation to contracts for products and services entered

1 Dynamic US Equity Strategy Jason Lejonvarn For Professional Clients and, in Switzerland, for Qualified Investors only. Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds. Any views and opinions are those of the investment manager, unless otherwise noted

2 Mellon Capital A pioneer in multi-asset strategies Founded in 1983 and headquartered in San Francisco. Mellon Capital founders are recognised as the originators of tactical asset allocation in 1977 Mellon Capital s research Research and expertise spanning four decades provides a unique perspective that is the cornerstone of its multi-asset solutions. the index strategy in 1971 Understand what you re doing. Believe in what you re doing. Love what you re doing. William Fouse Chairman Emeritus and Cofounder Global Macro Economic Forecasting Research 23 research professionals Average of 11 years experience Equity Fixed Income 105 investment professionals with 14 years average experience Strategists Portfolio management Trading Source: Mellon Capital, as at 31 December For illustrative purposes only 2

$Allocation (TAA) Model 1973 Fouse convinces security analysts to use his DDM First S&P 500 Index Strategy 1976 Fouse earns Graham & Dodd\ Award for$ outstanding contributions to financial research 1979 Loeb manages first Yield Tilt Fund forerunner of today s smart beta funds 1987 MCM s TAA model moves

outstanding contributions to financial research 1979 Loeb manages first Yield Tilt Fund forerunner of today s smart beta funds 1987 MCM s TAA model moves

is Godfather of Indexing in Dow Jones Asset Management 2000 Tom Loeb featured in Fund Forum for his unusual ability to call markets 2006 Loeb steps down

Equity Launched Strategic Beta Strategy Option tail hedging in Multi-Asset Carbon Efficiency Strategy 2015 Regime-Based Asset Allocation 1971 Bill Fouse

efforts in index funds & Tactical Asset Allocation 1973 Tom Loeb selected as the PM for the first S&P 500 Index Fund 1977 Fouse institutes first

TAA Strategy 1990 Global TAA Strategy 1990 Bill Sharpe earns Nobel Prize, says the people at the time were among the most creative and innovative in the

. Undoubtedly, my greatest debt in this connection is to Bill Fouse, whose vision made Wells Fargo such an exciting and stimulating organization at the time.

3 Bill Fouse & Tom Loeb Pioneers in Quantitative Asset Management 1970 Bill Fouse first links the CAPM with the DDM 1972 Fouse creates Tactical Asset Allocation (TAA) Model 1973 Fouse convinces security analysts to use his DDM First S&P 500 Index Strategy 1976 Fouse earns Graham & Dodd\ Award for outstanding contributions to financial research 1979 Loeb manages first Yield Tilt Fund forerunner of today s smart beta funds 1987 MCM s TAA model moves out of equities BEFORE 10/19 Black Monday 1983 Loeb s trading cost article in Financial Analysts Journal wins him Graham & Dodd plaque award 1997 Bill Fouse is Godfather of Indexing in Dow Jones Asset Management 2000 Tom Loeb featured in Fund Forum for his unusual ability to call markets 2006 Loeb steps down from CEObecomes chairman 2008 Tom Loeb recognized by Plan Sponsor Magazine as a Legend in the Retirement Industry 2014 Quality Timing Implemented in Active Equity Launched Strategic Beta Strategy Option tail hedging in Multi-Asset Carbon Efficiency Strategy 2015 Regime-Based Asset Allocation 1971 Bill Fouse helps create $6ml first NYSE equalweighted Equity Index Portfolio 1970 Bill Fouse joins Wells Fargo 1973 Tom Loeb joins Wells Fargo to lead pioneering efforts in index funds & Tactical Asset Allocation 1973 Tom Loeb selected as the PM for the first S&P 500 Index Fund 1977 Fouse institutes first Quantitative TAA account with his 1972 model 1980 Fouse featured in Institutional Investor 1983 Mellon Capital Founded, Loeb becomes CEO 1989 Tangent Added TAA Strategy 1990 Global TAA Strategy 1990 Bill Sharpe earns Nobel Prize, says the people at the time were among the most creative and innovative in the industry.. Undoubtedly, my greatest debt in this connection is to Bill Fouse, whose vision made Wells Fargo such an exciting and stimulating organization at the time Bill Fouse is The Father of the Index Fund in Pensions and Investments 2013 Mellon Capital 30 Year Anniversary 2010 Fouse earns Matthew R. McArthur Award for outstanding contributions to the profession of investment management consulting by IMCA 2007 Bill Fouse earns William F. Sharpe Indexing Achievement Award at Superbowl of Indexing 3

4 Why do investors go passive in U.S. Large Cap? The Problem Percentage of U.S. Large Cap Core Managers Outperforming S&P 500 1, U.S. large cap core managers have lagged the S&P 500 historically Since the GFC (i.e. the last 8 years), U.S. large cap core managers, on average, have underperformed every calendar year Mutual Funds: 36% Institutional Managers: 44% For illustrative purposes only. 1 Institutional manager data subtracts 50bps in fees from managers reported returns in evestment. Mutual fund data is net of fees. 2 The ea U.S. Large Cap Core Equity Universe is compiled by evestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation). The 25 largest Managers are those with the highest AUM as of 12/31/2015. Data Source: Mellon Capital, evestment. evestment Alliance, LLC and its affiliated entities (collectively, evestment ) collect information directly from investment management firms and other sources believed to be reliable, however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution and limited distribution may only be made pursuant to client s agreement terms. * All categories not necessarily included, Totals may not equal 100%. Copyright evestment Alliance, LLC. All Rights Reserved. 4

5 Why the Dynamic U.S. Equity Strategy? Uncorrelated source of excess returns diversifies traditional approaches A Secondary Problem U.S. large cap core managers typically outperform their respective benchmarks when small cap outperforms large cap (i.e. the managers buy small cap stocks outside the benchmark) Traditional Approaches: Highly Correlated to Large Cap Small Cap Spread September 1989 March ,2 Large Small is defined as the monthly return difference between the S&P 500 and the Russell 2000 Correlation of Gross Excess Returns (Rolling 3 Years) Dynamic U.S. Equity Composite v. ea US Large Cap Core Equity Universe September 1989 March ,2 Dynamic U.S. Equity has no factor or sector bias Dynamic U.S. Equity has virtually zero correlation to U.S. large cap core managers For illustrative purposes only. Mellon Capital s performance calculated as total return, income reinvested, gross of fees, in US dollars. Please see appendix for GIPS compliant presentation 1 Based on monthly observations since inception: August 31, The first data point in the chart reflects the first 3 year composite return. 2 The ea U.S. Large Cap Core Equity Universe is compiled by evestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation). The 25 largest Managers are those with the highest AUM as of 12/31/2015. Data Source: Mellon Capital, evestment. evestment Alliance, LLC and its affiliated entities (collectively, evestment ) collect information directly from investment management firms and other sources believed to be reliable, however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution and limited distribution may only be made pursuant to client s agreement terms. * All categories not necessarily included, Totals may not equal 100%. Copyright evestment Alliance, LLC. All Rights Reserved. 5

6 What is Dynamic U.S. Equity? A unique, non-traditional, index-based approach to active equity A strategy with a 27-year live track record and over $1 billion in AUM 1 A strategy that has produced consistent positive returns 2 vs the S&P 500 with positive downside features A strategy that is ranked in the top 1% among its peers in the ea U.S. Large Cap Core Equity Universe 3 1 As of December 31, On an annualized basis, gross of fees 3 The ea U.S. Large Cap Core Equity Universe is compiled by evestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation) For illustrative purposes only Source: Mellon Capital Dynamic U.S Equity Composite. Mellon Capital s performance calculated as total return, income reinvested, gross of charges, in US dollars. Please see appendix for GIPS compliant presentation. Mellon Capital, evestment. evestment Alliance, LLC and its affiliated entities (collectively, evestment ) collect information directly from investment management firms and other sources believed to be reliable, however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution and limited distribution may only be made pursuant to client s agreement terms. * All categories not necessarily included, Totals may not equal 100%. Copyright evestment Alliance, LLC. All Rights Reserved. 6

7 Dynamic U.S. Equity Strategy Pursuing excess returns in an efficient asset class: US Large Cap Investment objective Aims to generate excess returns above the U.S. equity market with the total volatility of the U.S. equity market Benchmark S&P500 Mellon Capital has been managing multiasset solutions for 25 years Other Strategy Characteristics Target Typical Range 1 Since Inception 2 Gross Excess Return 1 6% 3.2% Tracking Error 3 6% 4.9% Based in San Francisco, Mellon Capital has been widely recognised as a pioneer in applying modern portfolio and capital market theory to the investment process Mellon Capital s research and expertise - spanning four decades - provides a unique perspective which forms the cornerstone of their investment solutions Equity Beta 0.9 to Gross Leverage to or 1.37x As of 31 December, For illustrative purposes only. 1 The historical range including the majority of the actual observed values since inception. All relative values are against the S&P The since inception, 31 August, 1989, realised value of the strategy. 3 The gross leverage is the sum of the absolute value of the equity and the bond positions. Source: Mellon Capital. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. 7

Dynamic U.S. Equity Strategy Stock and bond forecast return The allocation to stocks and bonds respond to the forward-looking expected returns of each.

Allocation Typical Range 1 Since Inception 2 Equity Allocation 80 to 120% 94% Bond Allocation -10 to 40% 41% Cash Allocation -40 to -50% -36% Gross Leverage 3 120 to 150 137 or 1.

8 Dynamic U.S. Equity Strategy Stock and bond forecast return The allocation to stocks and bonds respond to the forward-looking expected returns of each. Stock and Bond Allocation and Expected Returns December 1989 December 2016 In the last eight years, the forecast for cash and bonds has shrunk while equity has improved its relative attractiveness. Allocation Typical Range 1 Since Inception 2 Equity Allocation 80 to 120% 94% Bond Allocation -10 to 40% 41% Cash Allocation -40 to -50% -36% Gross Leverage to or 1.37x Net Leverage The historical range including the majority of the actual observed values since inception. All relative values are against the S&P The since inception realised value of the strategy. 3 The gross leverage is the sum of the absolute value of the equity and the bond positions. Source: Mellon Capital as at December 31, Portfolio allocations shown are for a representative account in the Dynamic U.S. Equity Composite and are shown as supplemental information. The representative portfolio adheres to the same investment approach as Mellon Capital s Dynamic US Equity Strategy. For illustrative purposes only. 8

credit (buybacks and M&A off the charts) Treasury bonds not attractive on value basis, but hedging characteristics still have maximum

Portfolio Asset Premia 1989-2016 Equity Portfolio Positioning 1989-2016 Source: Mellon Capital.

9 Dynamic U.S. Equity Strategy Current positioning As of December 31, 2016 Large equity premium-investors have inconsistent view of equities and credit (buybacks and M&A off the charts) Treasury bonds not attractive on value basis, but hedging characteristics still have maximum impact in our view Supportive central banks and liquidity conditions Growth and inflation tails skewed to the downside Dynamic U.S. Equity Portfolio Asset Premia Dynamic U.S. Equity Portfolio Positioning Source: Mellon Capital. Portfolio allocations shown are for a representative account in the Dynamic U.S. Equity Composite and are shown as supplemental information. The representative portfolio adheres to the same investment approach as Mellon Capital s Dynamic US Equity Strategy. For illustrative purposes only. 9

10 Dynamic U.S. Equity Strategy Better returns vs. the benchmark in various market environments September 1989 December 2016 Gross Avg Monthly Returns Dynamic US Equity Composite All months Up Mkt Down Mkt Value Growth S&P 500 >5% S&P 500 <5% 1.08% 3.39% -3.07% 1.24% 0.93% 6.99% -7.24% S&P 500 Index 0.83% 3.22% -3.46% 0.85% 0.82% 7.00% -7.78% Excess returns 0.25% 0.17% 0.39% 0.39% 0.11% -0.01% 0.54% # Months For illustrative purposes only. Up and down months are defined as periods when the S&P 500 experienced a positive or negative return, respectively. Value months are defined as periods when the return of the S&P 500 Value was greater than that of the S&P 500 Growth Index. Growth months are defined as periods when the return of the S&P 500 Growth Index was greater than that of the S&P 500 Value Index. Source: Mellon Capital and Bloomberg. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. 10

11 Dynamic U.S. Equity Strategy Equity-like risk, Beta and Correlation Rolling Three-Year Risk(Standard Deviation) 1 September 1992 December 2016 Risk Statistics vs. S&P 500 Index As of December 31, 2016 Beta Correlation Since Inception years years For illustrative purposes only. 1 Based on monthly observations since inception: August 31, The first data point in the chart reflects the first 3 year composite return. 2 Inception date: August 31, 1989 Source: Mellon Capital and S&P. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. 11

12 Why the Dynamic U.S. Equity Strategy? Long 27+ year live record outperforming the S&P Seeks unique source of excess return, - diversifying traditional long-only equity strategies - Compelling downside performance CAPM Conceptual Illustration Risk/Return Characteristics 2 September 1989 December 2016 For illustrative purposes only. Inception date: August 31, On an annualized basis, gross of fees since inception 2 The indexes above are shown to illustrate various market sectors and individually are not necessarily appropriate benchmarks for the composite. Data sources: 500, Barclays POINT/Global Family of Indices Barclays Capital Inc. Used with permission. Source: Mellon Capital. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. 12

Dynamic U.S. Equity Strategy Performance versus Peers Ranking of Dynamic U.S. Equity Composite vs. evestment U.S. Large Cap Core Equity Universe As of December 31, 2016 For illustrative purposes only.

13 Dynamic U.S. Equity Strategy Performance versus Peers Ranking of Dynamic U.S. Equity Composite vs. evestment U.S. Large Cap Core Equity Universe As of December 31, 2016 For illustrative purposes only. 1 Inception date: August 31, Source: Mellon Capital. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. Percentile ranks are based on the respective performance statistics shown for applicable periods. The evestment U.S. Large Cap Core Equity Universe is compiled by evestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation). evestment. evestment Alliance, LLC and its affiliated entities (collectively, evestment ) collect information directly from investment management firms and other sources believed to be reliable, however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution and limited distribution may only be made pursuant to client s agreement terms. * All categories not necessarily included, Totals may not equal 100%. Copyright evestment Alliance, LLC. All Rights Reserved. 13

14 Dynamic U.S. Equity Strategy Performance versus Peers For illustrative purposes only. Source: Mellon Capital. Performance calculated as total return, income reinvested, gross of fees, in USD. Please see appendix for GIPS compliant presentation. Percentile ranks are based on the respective performance statistics shown for applicable periods. The evestment U.S. Large Cap Core Equity Universe is compiled by evestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation). Continuous peer manager returns data prior to 2000 is limited. Results shown beginning December 2000 in order to capture a robust universe of peer data indicative of current evestment U.S. Large Cap Core Equity Universe, as well as in an effort to capture multiple market cycles. evestment. evestment Alliance, LLC and its affiliated entities (collectively, evestment ) collect information directly from investment management firms and other sources believed to be reliable, however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution and limited distribution may only be made pursuant to client s agreement terms. * All categories not necessarily included, Totals may not equal 100%. Copyright evestment Alliance, LLC. All Rights Reserved. 14

15 Appendix

Asset Allocation Team Jeff Zhang, CFA Executive Vice President and Chief Investment Officer 22 years experience PORTFOLIO MANAGEMENT MULTI-ASSET RESEARCH* GLOBAL TRADING*

Managing Director, Head of Multi-Asset Research 15 years experience Brett Thunstrom Managing Director, Head of Global Trading 19 years experience Sinead Colton Managing

, CFA Chris Yao, CFA Asset Allocation, Currency, Equity, Commodities, Fixed Income, Macro Forecasting, Multi-Asset Solutions, Risk Management Che Garcia Leo Hmelnitsky Global

16 Asset Allocation Team Jeff Zhang, CFA Executive Vice President and Chief Investment Officer 22 years experience PORTFOLIO MANAGEMENT MULTI-ASSET RESEARCH* GLOBAL TRADING* INVESTMENT STRATEGY* Vassilis Dagioglu Managing Director, Head of Asset Allocation Portfolio Management 18 years experience Anjun Zhou, Ph.D. Managing Director, Head of Multi-Asset Research 15 years experience Brett Thunstrom Managing Director, Head of Global Trading 19 years experience Sinead Colton Managing Director, Head of Investment Strategy 22 years experience Senior Portfolio Managers Senior Research Analysts Senior Traders Global Investment Strategists Suzanne Ly, CFA, FRM James Stavena Torrey Zaches, CFA Dimitri Curtil Pritha Mitra-Stiff, Ph.D., CFA Chris Yao, CFA Asset Allocation, Currency, Equity, Commodities, Fixed Income, Macro Forecasting, Multi-Asset Solutions, Risk Management Che Garcia Leo Hmelnitsky Global Equity, Global Fixed Income, Listed Derivatives, OTC Derivatives Foreign Exchange, Commodities Emerging Markets Jason Lejonvarn, CFA Philip Lung Joseph Miletich, CFA Syed Zamil, CFA 12 Total Portfolio Managers 13 years industry experience 24 Total Researchers 11 years industry experience 11 Total Traders 12 years industry experience 7 Total Strategists 22 years industry experience TEAM EXPERIENCE Average years of industry experience 13 Average years of firm experience 8 Total number of PhDs 5 Total number of CFAs/CAIAs 20 Total number of MBAs/MFEs 16 *Firmwide As of December 31, For illustrative purposes only. CFA is a designation obtained through the CFA Institute. CAIA is a professional designation offered by the CAIA Association. CFA and Chartered Financial Analyst are registered trademarks owned by CFA Institute. 16

7b Americas $286.0b Source: Mellon Capital as of December 31, 2016.

17 Global Client Reach A strategic partner with our clients since 1983 $341b AUM for 335 Clients AUM by Region EMEA $38.4b APAC $16.7b Americas $286.0b Source: Mellon Capital as of December 31, Numbers may not sum due to rounding. For illustrative purposes only. 17

18 Dynamic U.S. Equity Strategy Performance Disclosure Statements 18

19 Important Information Past performance is not a guide to future performance. The value of investments can fall. Investors may not get back the amount invested. For Professional Clients and, in Switzerland, for Qualified Investors only. This is a financial promotion and is not investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. As at end Q2 2016, Mellon Capital AUM includes $3.0 billion in overlay strategies. Except where specifically noted, performance is stated gross of management fees. The impact of management fees can be material. Further detail is available on request. BNY Mellon Investment Management EMEA Limited and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. Issued in UK and Europe (excluding Switzerland) by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No Authorised and regulated by the Financial Conduct Authority. Issued in Switzerland by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA. PREXXXXX. Exp DD MMM YYYY 19

Conduct proprietary research Set up & down price targets Document and present investment recommendation

Conduct proprietary research Set up & down price targets Document and present investment recommendation FOR PROFESSIONAL CLIENTS AND, IN SWITZERLAND, FOR QUALIFIED INVESTORS ONLY. IN THE MIDDLE EAST, PROVIDED SOLELY FOR USE BY THE INTENDED RECIPIENT. Mellon Dynamic Large Cap Value Strategy All information