MARKET VIEWS AND ASSET ALLOCATION UPDATE PETER BROOKE, BOUTIQUE HEAD, MACROSOLUTIONS

Transcription

1 MARKET VIEWS AND ASSET ALLOCATION UPDATE PETER BROOKE, BOUTIQUE HEAD, MACROSOLUTIONS

2 AGENDA Why MacroSolutions Investment views & positioning 2

3 STRUCTURALLY POSITIONED FOR SUCCESS

4 WHY MACROSOLUTIONS Solutions Aligned with Wealth range, delivery to objective Solid, differentiated single manager Structurally positioned for success: Boutique model and alignment Team Size Fees Proven differentiator: Asset allocation experts Integrated Solutions Blends well with multi-manager 4

5 BOUTIQUE MODEL AND ALIGNMENT Co-investment with clients Equity ownership As invested as you are! Client Portfolio manager Accountability MacroSolutions Team Old Mutual Investment Group Specialist Old Mutual Trust 5

6 MACROSOLUTIONS TEAM Peter Brooke Boutique Head (20 Yrs) Graham Tucker Portfolio Manager (14 Yrs) John Orford Portfolio Manager (12 Yrs) Denzil Burger Portfolio Manager (31 Yrs) Urvesh Desai Portfolio Manager (12 Yrs) Gary Davids Research Analyst (6 Yrs) Aggressive Balanced Conservative Arthur Karas Portfolio Manager (24 Yrs) Warren vd Westhuizen Portfolio Manager (14 Yrs) Alida Jordaan Portfolio Manager (21 Yrs) Evan Robins Portfolio Manager (15 Yrs) Khangwelo Nemukongwe Property Analyst (5 Yrs) Rian Le Roux Chief Economist (35 Yrs) Johann Els Economist (29 Yrs) 6 ASSET ALLOCATION SA Equities Listed Properties Economics EQUITY SELECTION

7 BALANCED FUNDS AUM AS AT END DECEMBER Billions Source: MacroSolutions

8 THEME & PRICE

9 Bottom Up Price: Valuations PHILOSOPHY: THEME AND PRICE Top Down Macro Environment Integrating top down & bottom up Deteriorating theme Improving theme Expensive Sell all Reduce 9 Cheap Buy some Buy lots

10 10 WAITING ON THE WORLD TO CHANGE THEMES Oil price Better global growth Lower inflation SA surprises Lower inflation & rates Stronger consumer China transition Consumption > Investment Low return world Dividend yield

11 LOWER OIL, BETTER GROWTH G7 leading indicator (y-o-y % change) OECD 6% 4% 2% 0% -2% -4% Brent oil price (y-o-y % change, 3ma, 6mth lead, inverted scale) -60% -40% -20% 0% 20% 40% 60% 80% 100% -6% % 11 Source: BAML, Bloomberg, Old Mutual Investment Group

12 SOUTH AFRICA 12 Source: FINWEEK, 1 January 2015

13 13 SOUTH AFRICA SURPRISES Current account deficit NARROWS Oil at $55 in 2015 will lower the oil import bill by ±3% of GDP Rate CUTS? Inflation down to 3.8% in 2015 No rate hikes in 2015 Economic growth DOUBLES Petrol price saves consumers R20bn Reduced strike impact Better budget? Lower bond yields? STRONG rand?

14 ASSET CLASS RETURNS YTD 31 DECEMBER 2014 Rand returns (%) US dollar returns (%) SA returns FTSE SWIX SA Listed Property SA Bonds SA Cash Global returns MSCI AC World Emerging Markets Bonds Cash Source: MacroSolutions

15 REAL RETURNS A LONGER TERM PERSPECTIVE Returns to year 5 years 10 years 20 years 50 years 80 years SA Equities 5.3% 10.1% 11.3% 7.5% 7.8% 7.2% SA Property 20.3% 15.4% 14.6% 9.7% - - SA Bonds 4.6% 4.5% 2.4% 6.5% 1.5% 0.9% SA Cash 0.6% 0.6% 1.3% 3.7% 1.8% 0.4% Global Equities 10.0% 15.1% 8.1% 7.2% 6.0% 7.6% Global Bonds 5.0% 6.1% 4.8% 5.4% 4.1% 3.1% Gold 3.4% 5.1% 11.6% 5.8% 4.2% 3.0% Balanced Index 5.9% 9.4% 9.1% 7.7% 6.3% 5.4% 15 Source: MacroSolutions. Returns in Rands

16 Coming Soon LONG-TERM LESSONS Equities for the long term Cash is trash Time is your friend Inflation is the enemy The power of compounding Don t put all your eggs in one basket Asset allocation adds value 16

17 PRICE: LONG-TERM ASSET ALLOCATION VIEW Real return View Comment SA Neutral More balanced outlook Equity 5.0% Neutral Key risk is earnings delivery Property 4.5% Neutral More expensive but benefits from oil price Bonds Cash Global* Equity Bonds Cash 2.5% 0.5% 5.0% -1.0% -1.0% + Neutral + Lower inflation is very supportive Better real returns but lacks leverage Maintain diversification for risk management Best risk adjusted returns Record low yields = low returns Cash is trash 17 Source: Old Mutual Investment Group NB: These are long-term, real returns expected over the next five years, as at 15 January 2015 * The international return expectations above are in US Dollar terms; any rand depreciation will add to returns in rands.

18 ASSET ALLOCATION: BALANCED FUND EFFECTIVE EXPOSURE AS AT 31 DECEMBER 2014 SA Property 5% (5%) Global Equities, 25% (20%) SA Equities 40% (45%) Global Bonds, 0% (5%) SA Convertible Bonds, 1% SA Nominal Bonds, 16% (15%) Commodities, 1% (2.5%) SA Money Market 12% (7.5%) 18 Source: Old Mutual Investment Group Benchmark in brackets

19 QUEST FOR YIELD SOUTH AFRICAN BONDS STAND OUT 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% SA BOND YIELD GLOBAL BOND YIELD % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 19 Source: MacroSolutions, I-Net, Global bond yield is a weighted index of Japan, Europe, US and UK

20 OVERWEIGHT FINANCIALS 20 Source: MacroSolutions

21 OLD MUTUAL UNIT TRUST BALANCED FUND TOP TEN SHARES AS AT 31 DECEMBER 2014 Tilt 12 Months % Total Return Naspers Richemont 6.6% 10.9% SWIX: 15.4% BAT 6.5% Nedcor 6.4% Investec 5.8% Old Mutual 5.8% Steinhoff 5.6% Sasol 5.5% Firstrand 4.7% MTN 4.6% % 2% 4% 6% 8% 10% 12% 14% 16% -20% 0% 20% 40% 60% 21 Source: MacroSolutions

22 22 CONCLUSION Oil price Overweight global equity Overweight Europe & Japan; Africa pauses Overweight Barrow Hanley South Africa surprises Overweight SA bonds; offshore pauses Overweight SA inc. Neutral property Low return world Overweight SA financials Alternatives BALANCED is BACK

23 2014 INSTITUTIONAL SURVEY 1 year 3 year Aggressive Balanced 8th Conservative 23 Source: Alexander Forbes Dynamic, Global Large Manager Watch and Conservative surveys

24 24 REGULATORY INFORMATION Old Mutual Investment Group (Pty) Limited Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405 Telephone number: Old Mutual Investment Group (Pty) Limited (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers ( to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. The investment portfolios may be market-linked or policy based. Investors rights and obligations are set out in the relevant contracts. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Disclosures: Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of the Old Mutual Investment Group are remunerated with salaries and standard incentives. Unless disclosed to the client, no commission or incentives are paid by the Old Mutual Investment Group to any persons other than its representatives. All inter-group transactions are done on an arms length basis. We outsource investment administration of our local funds to Curo Fund Services (Pty) Ltd, 50% of which is owned by the Old Mutual Investment Group. Disclaimer: The contents of this document and, to the extent applicable, the comments by presenters do not constitute advice as defined in FAIS. Although due care has been taken in compiling this document, Old Mutual Investment Group does not warrant the accuracy of the information contained herein and therefore does not accept any liability in respect of any loss you may suffer as a result of your reliance thereon. The processes, policies and business practices described may change from time to time and Old Mutual Investment Group specifically excludes any obligation to communicate such changes to the recipient of this document. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to access information please visit