Sarasin & Partners Spring Investment Seminar

Transcription

1 Sarasin & Partners Spring Investment Seminar Imbalancing Act: Resilient returns in an imbalanced world March 2017

2 Active investment: Adding value across multi-asset portfolios Richard Maitland March 2017

3 Analysing multi-asset mandates 1. What do we mean by multi-asset investment? 2. Analysing the key drivers of return: manager risk and market risk 3. What do we do at Sarasin & Partners? 4. What are you paying for if you seek a multi-asset investment manager? 5. How can you measure whether you are getting value for money? - Absolute - Relative - Peer Group 6. Looking ahead 98

4 Many names a single ultimate goal Most investors objectives cannot be met by a single asset class A need to blend asset classes together A multitude of names covering much the same thing: Target Return Balanced Strategic Endowment Multi Asset Absolute Income Diversified Growth Real Return More about Investment managers trying to differentiate their processes and products? All trying to make money: achieve attractive returns A smorgasbord of different approaches 99

5 A smorgasbord of different approaches Some aim to achieve an absolute level of return no defined asset mix Some define an asset mix (designed to achieve an absolute return) with tactical overlay Some active Some passive Some directly invested in individual securities Some multi manager buying externally managed funds Your choice should be driven by: what you need your perception of risk your scepticism / admiration of fund managers your confidence of picking a good one 100

6 Which approach suits you? Understand what has driven returns Understand what will drive returns Strategy = market & manager.mostly imbedded risk Tactics = manager.mostly skill Two key differentiating factors: time and income Longer: strategic endowments - a greater tolerance of draw-downs, but sustainable & consistent income cash put to one side Shorter: target return - trying to avoid significant capital draw-downs An inherent desire to have more (return) for less (volatility)....but a healthy scepticism as to whether this is possible 101

7 The potential and pitfalls of tactical asset allocation TOTAL RETURN PER ANNUM SINCE % 16.0% 15.7% 14.0% 12.0% 10.0% 9.4% 8.0% 6.0% 4.0% 3.8% 5.3% 4.7% 2.0% 0.0% -2.0% -4.0% Inflation UK Equities Gilts Cash Hero: Best Asset Source: Sarasin & Partners Compendium of Investment / Barclays Equity Gilt Study / FTSE International Ltd -1.6% Villain: Worst Asset 102

8 The dangers of being out of the market IMPACT OF MISSING THE BEST MONTHS 15.0 Annualised Return % p.a By missing the single best month, your return was reduced from 9.4% p.a. to just 6.4% 636 months since 1963 The best 10 months averaged 18.9% each: 4x your investment Miss the 32 best months..and your returns was zero Cumulative Number of "Key" Months Source: Sarasin & Partners Compendium of Investment / FTSE International Ltd 103

9 In practice: different time periods can suit different styles TARGET RETURN APPROACH LOOKS CLEVER 180 Endowment Fund Target Return Fund A 160 STRATEGIC ENDOWMENT APPROACH LOOKS CLEVER 180 Endowment Fund Target Return Fund A / / Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Source: Sarasin & Partners / Morningstar 60 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: Sarasin & Partners / Morningstar 104

10 Good managers produced very similar returns over 10 years TOTAL RETURNS, FROM TWO MARKET LEADING FUNDS: TARGET RETURN AND STRATEGIC ENDOWMENTS 200 Strategic Endowment Target Return Fund A Know what you are buying 2. Have courage in your convictions 3. This is a long-term game 4. Don t change horse / style mid race 60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Sarasin & Partners / Morningstar 105

11 RISK 1: dispersion of returns between target return managers TOTAL RETURNS FROM WELL-KNOWN FUNDS Strategic Endowment 1 Strategic Endowment 2 Two largest funds in sector Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Sarasin & Partners / Morningstar 106

12 RISK 1: dispersion of returns between target return managers TOTAL RETURNS FROM WELL-KNOWN FUNDS Target Return 1 Strategic Endowment 1 Strategic Endowment 2 Target Return 2 Target Return 3 Target Return 4 Target Return 5 Two largest funds in sector 33bn in largest TR Funds, with 10-year track records How confident are you at picking the next excellent manager? 50 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Sarasin & Partners / Morningstar 107

13 The real difference between successful managers? CAPITAL PROGRESSION Inflation (CPI) Target Return Strategic Endowment INCOME PROGRESSION Inflation (CPI) Target Return Strategic Endowment Source: Sarasin & Partners / Morningstar Source: Sarasin & Partners / Morningstar If over the longer term, total returns are likely to be similar On your journey which do you value more? less volatile capital less volatile income 108

14 What do we do at Sarasin & Partners - both STRATEGIC ENDOWMENTS CORE: most of the money for most charities TARGET RETURN SPECIALIST: all for a few charities, some for some Strategy Define high level purpose Agree return and time parameters Is more than one portfolio necessary? Strategy Defining high level purpose Agree a return and time parameters Tactics: +/-10-15% either side of strategy A focus on long-term total returns and short to medium term income management Tactics: unconstrained bandwidth A focus on long-term total returns and short to medium term capital management Success: driven by a combination of: strategy (45%) tactics (55%) Success: driven by a combination of: strategy (30%) tactics (70%) More market risk, offset by strategic planning and steady income stream More manager risk, offset by skill 109

15 What should your pound buy you when you appoint a multi asset manager? 110

16 What are you paying for? STRATEGY AND ADMINISTRATION A LARGER PROPORTION THAN FIRST THOUGHT? 100% Stock Selection 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Sarasin & Partners Strategic Endowment Income Management Tactical Asset Allocation Strategic Asset Allocation Reporting Administration Overlays Target Return 111

17 Is your pound buying you value for your money? 112

18 Measuring performance and value for money A dashboard approach: 1. Absolute 2. Index-based benchmark 3. Peer Group Pros and cons of each: none tells the whole story Ultimately: - a judgement call on reading the dashboard - other issues: administration, reporting, chemistry 113

19 Absolute: have you made enough money? TOTAL RETURNS OVER PAST 5 YEARS Higher Inflation Band: CPI + 4.5% Lower Inflation Band: CPI + 3.5% Your Target Return Portfolio Government Bonds: FTSE Gilts All Stocks Index UK Equities: FTSE All-Share Index but nagging doubts you should have done better? 75 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: Sarasin & Partners / Morningstar 114

20 Absolute: is this a fair time period? TOTAL RETURNS OVER PAST 5 YEARS Higher Inflation Band: CPI + 4.5% Lower Inflation Band: CPI + 3.5% Your Target Return Portfolio Your Endowments Portfolio Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: Sarasin & Partners / Morningstar 115

21 Tactical: has stock selection added value? ANALYSING THE COMPONENT PARTS: WHERE IS VALUE BEING ADDED / SUBTRACTED? Calendar Year 2016 You % Index % Relative +/-% Fixed Income UK Equities Global Equities Property Alternatives Total Portfolio Was this unique to this fund manager..or were other active managers failing too? 116

22 Active fund managers: struggled in 2016 UK EQUITY MANAGERS GLOBAL EQUITY MANAGERS Jan-16 Dec-16 Jan-16 Dec-16 Source: Morningstar 117

23 2016 was a bad year; but this has happened before 118

24 Peer Groups Testing the combination of strategy and active tactics after costs and over a reasonable time frame ASSET RISK CONSULTANTS FOUR DIFFERENT RISK BUCKETS 5 Years - total returns ARC Equity Risk Charity Index ARC Steady Growth Charity Index ARC Balanced Asset Charity Index ARC Cautious Charity Index Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: Sarasin & Partners / ARC 119

25 Compound value-added Vs appropriate peers Asset Risk Consultants four different risk buckets A CONSERVATIVE PORTFOLIO 175 Your Conservative Portfolio ARC Cautious Charity Index ARC Balanced Asset Charity Index 150 AN ENDOWMENTS PORTFOLIO 175 Your Endowments Portfolio ARC Steady Growth Charity Index ARC Equity Risk Charity Index Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Source: Sarasin & Partners / ARC Source: Sarasin & Partners / ARC 120

26 Conclusions and looking ahead 121

27 Risks and challenges for the period ahead? STRATEGIC ENDOWMENTS Returns: +55% to 60%, or 9%+ p.a. over past 5 years TARGET RETURN Returns: have generally lagged strategic managers recently Expectations: lower growth and lower investment returns Clients will expect managers to avoid some of the next drawdown Expectations: lower growth and lower investment returns Clients will expect managers to avoid most of the next drawdown Active Tactics: The old ally of bond markets might not deliver: Seeking uncorrelated assets Increase cash deposits Use tactical asset allocation parameters Providing evidence of stock selection skills Active Tactics: The old ally of bond markets might not deliver: More of this Maintain income through any correction Ensure risk assets are reinvested post correction 122

28 Conclusions 1. Know what you re buying - Understand the risks that are being taken - Strategic and market risk - Manager risk 2. Make sure it meets YOUR needs: is income or capital volatility more/less important? 3. Strategy adds the majority of value for most investors: perhaps under-appreciated 4. Most investors opt for the strategic approach with most / all of their money 5. IF you pick correctly, the best target return managers produce excellent risk-adjusted returns 6. Unless it is broken - Generally correct to hold your nerve - Avoid switching styles mid race 7. While tactics matter more for target return investors good tactics always required to produce exceptional results 123

29 Important information This promotion has been approved by Sarasin & Partners LLP of Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, a limited liability partnership registered in England & Wales with registered number OC which is authorised and regulated by the Financial Conduct Authority with firm reference number and passported under MiFID to provide investment services in the Republic of Ireland. The investments of the fund are subject to normal market fluctuations. The value of the investments of the fund and the income from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a guide to future returns and may not be repeated. These Funds are for registered charities only. It should also be noted that some of the protections provided by the UK regulatory system do not apply to these products and in certain circumstances compensation will not be available from the UK Financial Ombudsman Scheme. Frequent political and social unrest in Emerging Markets, and the high inflation and interest rates this tends to encourage, may lead to sharp swings in foreign currency markets and stock markets. There is also an inherent risk in the smaller size of many Emerging Markets, especially since this means restricted liquidity. Further risks to bear in mind are restrictions on foreigners making currency transactions or investments. For efficient portfolio management the Fund may invest in derivatives. The value of these investments may fluctuate significantly, but the overall intention of the use of derivative techniques is to reduce volatility of returns. This document does not explain all the risks involved in investing in the fund and therefore you should ensure that you read the scheme particulars which contain further information including the applicable risk warnings. The scheme particulars as well as the annual and semi-annual reports are available free of charge from www. sarasinandpartners.com or from Sarasin & Partners LLP, Juxon House, 100 St Paul s Churchyard, London, EC4M 8BU, Telephone +44 (0) , Telefax +44 (0) Telephone calls may be recorded. All details in this document are provided for marketing and information purposes only and should not be misinterpreted as investment advice or taxation advice. This document is not an offer or recommendation to buy or sell shares in the fund. You should not act or rely on this document but should seek independent advice and verification in relation to its contents. Neither Sarasin & Partners LLP nor any other member of Bank J. Safra Sarasin Ltd. accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The views expressed in this document are those of Sarasin & Partners LLP and these are subject to change without notice. Where the data in this document comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third party data. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect of any such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct. indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI s express written consent. Persons domiciled in the USA or US nationals are not permitted to hold shares in the fund and shares may not be publicly sold, offered or issued to anyone residing in the USA or to US nationals. This publication is intended for investors in the United Kingdom and Republic of Ireland Sarasin & Partners LLP all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk. 124

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