PIMCO: The New Neutral

Transcription

1 PIMCO: The New Neutral

2 Philanthropy Summit 2015 Investing in the New Neutral world April 2015 PIMCO Australia Pty Ltd ABN AFS Licence Level 19, 363 George St. Sydney, NSW 2000 telephone: facsimile: The financial services described in this communication are only available in Australia to persons who come within the category of wholesale clients as defined in the Corporations Act 2001 (Cth). They are not available to persons who are retail clients, who should not rely on this communication. For investment professional use only

3 Bio pg 2

4 1. Secular Forum intl_tab_10

5 PIMCO Investment Process Annual Secular Forum (3 5 Year Outlook) Assess long term trends: e.g. demographics, political factors Quarterly Cyclical Forum (6 12 Month Outlook) Inflation and GDP forecasts Fine tune the secular outlook The New Neutral Lower potential growth Lower inflation Lower terminal policy rates Where are we in the cycle? Fiscal austerity fading Continual policy support Household balance sheet repair Output: Themes that guide portfolio construction Sector allocation ideas Interest rate direction and volatility Exchange rate expectations Credit trends 1cs_pimco_outlook_08 pg 4

6 The New Neutral in a nutshell Aging population, weak productivity growth, debt overhang and muted inflation Slow growth (real and nominal) Low interest rates pg 5

7 ($) Billion Global Deleveraging? Modest so far: A large debt overhang remains 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Global debt outstanding Total Stock of Debt Outstanding Total Stock of Sov Debt Outstanding As of 30 June 2014 SOURCE: BIS pg 6

8 The New Neutral: PIMCO s secular forecast OPTION A U.S. policy rate REAL NOMINAL* Better labor participation Corporate spending Economic growth Market expectation for neutral rate SCENARIO Fed gradually increases to New Neutral SCENARIO Fed overshoots; economy stutters; correction occurs New Neutral: PIMCO s forecast Debt overhang Demographics Geopolitical instability Current rate Neutral Rate = The expected Fed Funds Rate when GDP, inflation, and employment are stable, and monetary policymakers are neither "easing" nor tightening. * Assuming 2% inflation Mk_2cs_pimco_outlook_06a pg 7

9 So how fast is nominal GDP likely to grow? Growth in the labor force + Increase in productivity per worker + Inflation Rapid GDP growth is unlikely in an environment of low inflation and an aging population pg 8

10 5-year moving average Labor force growth: The post-boom bust 3.0% Annualized labor force growth rate 2.5% 2.0% 1.5% 1.0% 0.5% Forecast 0.0% Demographic and other structural factors suggest labour force growth may stagnate As of 31 March 2014 Source: HAVER, PIMCO pg 9

11 Growth YoY% Demographic factors increasingly relevant for secular GDP growth 2.5 Working age population growth, UN projections U.S. UK Germany Japan Italy China As of 31 December 2013 SOURCE: United Nations, Haver, PIMCO pg 10

12 YoY change, 5y mov. avg. (%, SA) Productivity growth will be key 4.0 U.S. nonfarm output/hr Productivity growth surged above 3% in the tech boom, but has averaged below 2% recently As of 31 March 2014 Source: Bureau of Labor Statistics pg 11

13 Percent (%) Inflation will likely be modest going foward CPI YOY Average US inflation averaged 4% per year between As of 31 December 2014 Source: Bloomberg pg 12

14 Percent The New Neutral for interest rates 20 Nom GDP YoY FF rate UST 5Y Neutral? If nominal GDP grows at ~4.5%, then Fed Funds and bond yields may not have far to rise As of 31 March 2014 Source: Federal Reserve, Bureau of Economic Analysis, PIMCO pg 13

15 2. Smart Beta intl_tab_12

16 Smart beta: Benchmark Efficiency Traditional benchmarks are backward-looking and focused on market capitalisation causing a structural bias towards highly indebted countries Smart beta benchmarks are forward-looking and help investors seize opportunities in a New Neutral world across a multitude of fixed income markets and sectors Looks to avoid over-allocation to excessive borrowers and focuses on countries with stronger underlying fundamentals Designed to be more inclusive of newly developing countries, positioning investors for future rather than past opportunities Global_advantage_phil_05 pg 15

17 Annulaized return (%) Annualized return (%) PIMCO Global Advantage Bond Index vs. Barclays Global Aggregate Bond Index risk and return (USD unhedged) 14 Global Advantage Bond Index vs. Global Aggregate Bond Index 8 Annualized returns versus volatility of return* PIMCO Global Advantage Bond Index (USD unhedged) Barclays Global Aggregate Bond Index (USD unhedged) '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 ' Barclays Global Aggregate Bond Index (USD unhedged) PIMCO Global Advantage Bond Index (USD unhedged) Annualized standard deviation of monthly return (%) PIMCO Global Advantage Bond Index (USD unhedged) Barclays Global Aggregate Bond Index (USD unhedged) Yield to maturity (%) Duration (yrs) Annulized returns (%)* Annulized standard deviation (%)* As of 31 December 2014 SOURCE: BofA Merrill Lynch, Barclays The PIMCO Global Advantage Index (GLADI ) performance contains back-tested performance beginning 01 January 2004, which is prior to the actual launch of the index: The Global Advantage Bond Index incepted on 12 January 2009 * Ten years ending 31 December All periods longer than one year are annualized global_advantage_perf_fund pg 16

18 3. Active management intl_tab_12 pg 17

19 Active management choosing the right manager matters ACTIVE MANAGEMENT STRATEGIES Duration strategies Sector rotation Curve positioning Growth of $100 invested in the PIMCO GIS Global Bond Fund (NZD Hedged) - 5 yrs 5 year net of fee alpha: +257bp Fund Benchmark Credit selection 140 Quality bias Country positioning Macro forecasting As of 31 January 2015 The index of the fund is the Barclays Global Aggregate Index hedged into NZD global_advantage_review_42_em pg 18

20 Alpha generation becomes even more relevant Performance of StocksPLUS and StocksPLUS Absolute Return Fund 1 Year 3 Years 5 Years 10 years Since Inception PIMCO StocksPLUS Fund (PSTKX) Inception Date: 13 May 1993 PIMCO StocksPLUS Fund Net of fees 14.62% 19.18% 17.21% 7.97% 9.90% S&P 500 Index 14.22% 17.47% 15.60% 7.61% 9.34% Alpha PIMCO StocksPLUS Absolute Return Fund (PSPTX) Inception Date: 28 June 2002 PIMCO StocksPLUS Absolute Return Net of fees 14.35% 19.49% 19.14% 9.61% 10.28% S&P 500 Index 14.22% 17.47% 15.60% 7.61% 7.89% Alpha As of 31 January 2015 pg 19

21 USD billions A rapidly expanding opportunity set 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Global bond market EM: $14tn 12/31/1989 6/30/2014 U.S. 60.7% 35.0% Dev. Ex U.S. 38.2% 51.0% EM 1.1% 14.0% Developed ex U.S.: $51tn U.S.: $35tn '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 As of 30 June 2014 SOURCE: BIS Estimated $100 trillion global debt market. Capital_Securities_Review_14 pg 20

22 Percentage of bond exposure (%) Investment process Adjust exposures dynamically given macroeconomic views Add value through continually shifting market conditions PIMCO Income Representative Account Government-related¹ Agency mortgage Non-U.S. developed Non-agency mortgage CMBS ABS Bank loans Corporates High yield Emerging markets Other Apr '07 Nov '07 Jun '08 Jan '09 Aug '09 Mar '10 Oct '10 May '11 Dec '11 Jul '12 Feb '13 Sep '13 Apr '14 Nov '14 As of 31 December 2014 SOURCE: PIMCO 1 Government Related may include nominal and inflation-protected Treasuries, agencies, interest rate swaps, Treasury futures and options, FDIC-guaranteed and government-guaranteed corporate securities. The representative account information presented is provided as supplemental information to the PIMCO Income Composite performance presentation stru_766_04 pg 21

23 Summary Anticipate modest returns in a New Neutral world 3% for bonds 5% for stocks Smart beta Active management Leverage global_advantage_perf_fund pg 22

24 Tony Hildyard Tel: Address: Level 19, 363 George Street Sydney, NSW 2000 Tel: Fax: Disclaimer The services and products provided by PIMCO Australia Pty Ltd are only available to persons who come within the category of wholesale clients as defined in the Corporations Act They are not available to persons who are retail clients, who should not rely on this communication. Investors should obtain relevant and specific professional advice before making any investment decision. The information contained herein does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision investors should consider, with or without the assistance of a securities advisor, whether the information contained herein is appropriate in light of their particular investment needs, objectives and financial circumstances. Investment management products and services offered by PIMCO Australia Pty Ltd are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorised. Past performance is no guarantee of future results. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This presentation contains the opinion of the manager as the date of this presentation, and such opinions are subject to change without notice. This presentation has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The content of this presentation remains the property of PIMCO. No part of this publication may be reproduced in any form, or referred to in any other publication, or conveyed to a third party without express written permission. Copyright 2015 PIMCO pg 23

25 PIMCO: The New Neutral