Portfolio construction for 2015

Transcription

1 Portfolio construction for 2015 Schroders Insurance Asset Management Investment Seminar 2014 Paul Forshaw Head of Insurance Asset Management For professional investors only. This material is not suitable for retail clients

2 Thinking about portfolio construction High exposure to rising rates, and equity market volatility Lloyd s Aggregate Portfolio 2% 2% 12.60% Key themes: Dilute portfolio impact of rising rates Dilute exposure to equities Avoid liquidity risk Core Fixed Income Hedge Funds Core Fixed Income 83.40% Property Global Equity Increase bond return, through an unconstrained approach Add yield, via a buy and hold allocation Increase income, through a MA approach Tactical allocation to property Lloyd s Aggregate Portfolio 12M Expected Risk* 2.05% 12M Expected Return** 1.6% 1 year 99.5 th VaR (SII Proxy) -5.28% Source: Schroders, SMART at 30 November 2014, AM Best, Syndicates Report and Accounts 2013, BofAML, Barclays POINT, Bloomberg for illustration only. *Expected Risk is the annual standard deviation of returns based on 3 years of weekly data using a Half Life methodology giving more weight to more recent data. **12M expected Return for the Core Fixed Income benchmarks are as implied by the 1 year forward curve with a 1M phase-in period for the scenario to take effect. Spreads are assumed to remain constant. For the other asset classes. 12M expected Returns are the average medium term (7-year) cyclical expectations as determined by our Economics forecasting teams and respective investment teams.. Core fixed income (BofAML, US 1-5 Year Treasury Agencies (GVA0) and US Corporates 1-5 Years (CVA0)). Property (UK IPD). Hedge Funds (CSFB - T Hedge Fund Index). Global Equity (MSCI World Index). The data source for each strategy is as follows: Core fixed income (50% BofAML, US 1-5 Year Treasury Agencies (GVA0) and 50% BofAML US Corporates 1-5 Years (CVA0)). Property (UK IPD). Hedge Funds (CSFB - T Hedge Fund Index). Global Equity (MSCI World Index). The forecasts used above are the result of statistical modelling, based on a number of assumptions. There is no assurance or guarantee that the forecast will be achieved and it should not be considered as a prediction of actual returns that may be realised in the future from the portfolio. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. Please see the General Risk Warning at the end of this document for more information. 1.

3 Diversifying strategies Simple building blocks, real track records Buy and maintain credit Strategic bond Multi asset income UK Property 5 year corporate bonds, held to maturity. Portfolio runs off over time. Corporates with solid 5 year credit fundamentals. Unconstrained, no benchmark. Global fixed income opportunity set. We look to invest only invest in what goes up. Carefully risk controlled. A broad, global multi asset class opportunity set. Focus on generating stable income. Risk control. UK commercial real estate. More than 75 properties, diversified by region, sector (retail, offices, industrial) and tenant. Stable income from proactive management of the properties. Return 2.5% Libor + 4% 7% (5% Income) 6-8% Risk 3.77% 3.06% 4.49% ) 12.6% Source: Schroders at 10 November For illustration only. 2

4 2015 enhanced portfolio Escaping the clutches of the benchmark Lloyd s Aggregate 2% 2% 12.60% Diversifiers Schroders 8% 12% 34% 83.40% 23% 23% Core Fixed Income Property Hedge Funds Global Equity Strategic Bond Buy and Maintain Global Multi Asset Income (GMAI) UK Property Core Fixed Income Buy and Maintain Property Strategic Bond GMAI Lloyd s Aggregate Schroders Model Expected 12M Return 1.6% 3.12% Expected 12M Risk 2.05% 2.05% 1 year 99.5th VaR 5.28% 5.07% Duration 2.25 years 2.23 years Source: Schroders, SMART at 30 November 2014, AM Best, Syndicates Report and Accounts 2013, BofAML, Barclays POINT, Bloomberg for illustration only. *Expected Risk is the annual standard deviation of returns based on 3 years of weekly data using a Half Life methodology giving more weight to more recent data. **12M expected Return for the Core Fixed Income benchmarks are as implied by the 1 year forward curve with a 1M phase-in period for the scenario to take effect. Spreads are assumed to remain constant. For the other asset classes. 12M expected Returns are the average medium term (7-year) cyclical expectations as determined by our Economics forecasting teams and respective investment teams.. Core fixed income (BofAML, US 1-5 Year Treasury Agencies (GVA0) and US Corporates 1-5 Years (CVA0)). Property (UK IPD). Hedge Funds (CSFB - T Hedge Fund Index). Global Equity (MSCI World Index). The data source for each strategy is as follows: Core fixed income (50% BofAML, US 1-5 Year Treasury Agencies (GVA0) and 50% BofAML US Corporates 1-5 Years (CVA0)). Property (UK IPD). Hedge Funds (CSFB - T Hedge Fund Index). Global Equity (MSCI World Index), Strategic Bond (Schroders ISF Strategic Bond), Global Multi-Asset Income (Schroders ISF Global Multi-Asset Income). The forecasts used above are the result of statistical modelling, based on a number of assumptions. There is no assurance or guarantee that the forecast will be achieved and it should not be considered as a prediction of actual returns that may be realised in the future from the portfolio. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. Please see the General Risk Warning at the end of this document for more information. 3

5 Stress testing 2015 enhanced portfolio maximum loss VaR back test for portfolio loss during periods of major financial market stress Credit Crunch Gulf War 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 94 Fed Rate Tightening Schroders Lloyd's sample Sep Rates Rise LTCM Asia Crisis Source: Schroders Multi-Asset Risk Technology, BofAML, Barclays, 24 November

6 Important information For Professional Investors only. Not suitable for Retail Clients The views and opinions contained herein are those of the speakers and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Schroders has expressed its own views and opinions in this document and these may change. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Limited (Schroders) does not warrant its completeness or accuracy. The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. The hypothetical results shown must be considered as no more than an approximate representation of the portfolios performance, not as indicative of how it would have performed in the past. It is the result of statistical modelling, based on a number of assumptions and there are a number of material limitations on the retroactive reconstruction of any performance results from performance records. For example, it does not take into account any dealing costs or liquidity issues which would have affected a real investment's performance. This data is provided to you for information purposes only as at today's date and should not be relied on to predict possible future performance. The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the Company ). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A. An investment in the Company entails risks, which are fully described in the prospectus. For the purposes of the Data Protection Act 1998, the data controller in respect of any personal data you supply is Schroder Investment Management Limited. Personal information you supply may be processed for the purposes of investment administration by any company within the Schroder Group and by third parties who provide services and such processing may include the transfer of data outside of the European Economic Area. Schroder Investment Management Limited may also use such information to advise you of other services or products offered by the Schroder Group unless you notify it otherwise in writing. Issued in November 2014 by Schroder Investment Management Limited, 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial Conduct Authority. 5 5