EVOLUTION OF MULTI-ASSET STRATEGIES

Transcription

1 EVOLUTION OF MULTI-ASSET STRATEGIES Ricky Chau Vice President, Portfolio Manager Franklin Templeton Multi-Asset Solutions approval of Franklin Templeton Investments.

2 Multi-asset frameworks and philosophies An evolution Single asset class Home market only Set-and-forget SAA Balanced portfolios CAPM & MVO Global investing Behavioral finance TAA APT VAR Risk parity Outcome-oriented multi-asset solutions Perceived Return Sources Alpha Traditional Risk Premia Alpha Traditional Risk Premia Alternative Risk Premia Alpha approval of Franklin Templeton Investments. 1

3 Evolution offers choices Genetic diversity Passive vs. active building blocks Dynamism in asset allocation Leverage Investment ŹŹŹ time horizon Complexity Internal vs. open architecture Fees Downside mitigation Physical vs. synthetic implementation Reliance on traditional beta Liquidity approval of Franklin Templeton Investments. 2

4 Survival of the fittest? Performance more diverse than some think International Multi-Asset USD (Net) universe: 5Y downside risk & return Return (% p.a.) Semi-Standard Deviation (Relative to Zero, % p.m.) Source: Mercer (MercerInsight), based on US$ net returns over the 5-year period ending June 2017 approval of Franklin Templeton Investments. 3

5 Challenges Ahead Low Yield Low Growth High Volatility approval of Franklin Templeton Investments. 4

6 Sales of adult diapers in Japan outsold those for infants in 2014 Nippon.com June Longevity & Aging Population approval of Franklin Templeton Investments.

7 Growing Older 25, % # of people who are expected to live to 100 or more years of age (thousands) 20,000 15,000 10,000 5,000 21,183, 000 Centenarians in 2100 China, 0.40% Europe, 0.35% Asia, 0.26% USA, 0.20% World, 0.19% % of population 100 years of age % United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, DVD Edition. approval of Franklin Templeton Investments. 6

8 Cash Rich Household Cash Holdings 80,000 Japan - % Cash of Total Household Assets - 51% 70,000 60,000 50,000 40,000 30,000 S. Korea - % Cash of Total Household Assets - 43% USA - % Cash of Total Household Assets - 13% 20,000 10,000 0 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. OECD (2017), Household financial assets (indicator). doi: /7519b9dc-en (Accessed on 03 August 2017) approval of Franklin Templeton Investments. 7

9 Cash isn t always King Purchasing Power of $100 with Inflation of 3% and 5% 5% 3% $ Years Source: Franklin Templeton Investments. This chart is hypothetical and intended for illustrative purposes only. The figures shown above may not necessarily reflect the actual circumstance and no reliance, therefore, should be placed upon them. approval of Franklin Templeton Investments. 8

10 Are we prepared? Melbourne Mercer Global Pension Index Netherlands: 80.1 Denmark: 80.5 USA: 56.4 Australia: 77.9 Benchmarks a country s pension system based on 3 sub-indices: Adequacy, Sustainability and Integrity Argentina: 37.7 Source: Mercer (2016), Melbourne Mercer Global Pension Index, Australian Centre for Financial Studies, Melbourne. approval of Franklin Templeton Investments. 9

11 Are we prepared? Melbourne Mercer Global Pension Index China: 45.2 Japan: 43.2 India: 43.4 South Korea: 46.0 Singapore: 67.0 Malaysia: 55.7 Indonesia: 48.3 Source: Mercer (2016), Melbourne Mercer Global Pension Index, Australian Centre for Financial Studies, Melbourne. approval of Franklin Templeton Investments. 10

12 Introducing dynamism and diversifying exposures Bonds Static SAA-driven portfolio, with no TAA Higher the return, higher the risk investor has to bear Investment Risk Expected Return Longer the investment horizon, the higher the expected return Investment Horizon Longer the investment horizon, the lower the shortfall risk Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 11

13 Introducing dynamism and diversifying exposures Bonds Indicators Category Bearish Neutral Bullish Growth Liquidity Valuations Sentiment Carve out some of static portfolio for reallocation GIC Asset Class Views (As of Aug 1, 2017) N + Equities Corporate Bonds Government Bonds Commodities Hedge Funds Cash Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 12

14 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 13

15 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 14

16 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 15

17 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 16

18 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 17

19 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 18

20 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 19

21 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 20

22 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 21

23 Introducing dynamism and diversifying exposures Bonds Multi-Asset Strategies Listed Real Assets Alternative Risk Premia Equities Hypothetical example. For illustrative and discussion purpose only. approval of Franklin Templeton Investments. 22

24 Leverage and derivatives Expanding the caveman s toolkit approval of Franklin Templeton Investments. 23

25 Decision-making diversification Is your asset allocation decision diversified? Asset Allocation Manager Selection/ Implementation Security Selection approval of Franklin Templeton Investments. 24

26 Evolution continues Customized, client-centric & aligned Efficient implementation of: o Traditional risk premia o Alternative risk premia Diversify risk/return drivers Lower governance requirements Fee-to-alpha efficiency More tools (e.g. derivatives, leverage) to achieve outcomes approval of Franklin Templeton Investments. 25

27 approval of Franklin Templeton Investments.

28 Important Information Copyright Franklin Templeton Investments. All rights reserved. The document is for Asian Cross-Border Investment Insights Forum 2017 participants only. None of the services or other matters described here should be taken as an offer or solicitation of those services or other matters in the PRC where such an offer or solicitation is not permitted under applicable legislation. The comments, opinions, and estimates contained herein are based on or derived from publicly available information from sources that we believe to be reliable. We do not guarantee their accuracy. The document, which is for informational purposes only, sets forth our views as of the date published. It is the responsibility of every person receiving a copy of this document to satisfy him or herself as to the full observance of laws of any relevant country, including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. The underlying assumptions and these views are subject to change. There is no guarantee that any forecasts expressed will be realized. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this report or any information, opinion or estimate herein. approval of Franklin Templeton Investments. 27