Conexus Financial Events Alternatives 6th Annual Conference

Transcription

1 Conexus Financial Events Alternatives 6th Annual Conference SEPTEMBER 6, 2012 Prepared for wholesale investors only

2 Global Macro Styles Examined Eric S. Goodbar, CFA Managing Director, Global Investment Strategist 2

3 Global Macro Stands Apart Global Macro has withstood Technology Bubble Financial Crisis Has the ability to profit in up and down markets Investing in the category requires Understanding individual world views Time frames for themes to play out Intricacies of each sub-style Our discussion Global Macro sub-style definitions Rational markets opportunities Thematic investing Global Macro investor behavior 3

4 Global Macro Rationale Global Macro performance characteristics advantages relative to other HFRI indices HFRI Macro Index shows the lowest correlation to the MSCI World Index Much lower drawdown Moderate volatility as a group Significant performance variability Index Performance July 1992 to June 2012 Annualized Maximum Standard Sharpe Correlation to HFRI Categorizations ROR Drawdown Deviation Ratio MSCI World HFRI Equity Hedge Index 11.4% -30.6% 9.3% HFRI Event-Driven Index 11.2% -24.8% 6.8% HFRI Macro Index 10.6% -10.7% 7.2% HFRI Relative Value Index 9.4% -18.0% 4.4% HFRI Fund Weighted Composite Index 10.2% -21.4% 7.1% MSCI World Index 7.0% -53.6% 15.4% Sharpe Ratio Cash Rate: Citigroup 1-Month T-Bill (2.95%) Source: Hedge Fund Research, Inc. 2010, Datastream, Mellon Capital 4

5 Value of $1,000 Investment Global Macro Rationale Performance Consistency Drawdowns are coincident in other sub-strategies Global Macro offers potential for downside risk mitigation Easily deployed in separately managed accounts Use of derivatives creates cost effective exposure HFRI Macro HFRI Equity Hedge HFRI Event-Driven HFRI Relative Value Value of $1, 000 Investment June 1992 to June ,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Source: Hedge Fund Research, Inc. 2010, Datastream, Mellon Capital 5

6 Maximum Drawdown Global Macro Rationale Benefit Triangulation Historically low drawdowns, low equity correlation and moderate risk Challenges remain for getting full exposure to group Managers performance with global macro can vary dramatically HFRI Indices: Correlation to MSCI World June 1992 to June 2012 Macro Index 0.35 Relative Value Weighted Composite Event Driven % -5% -10% -15% -20% -25% Equity Hedge -30% % 8% 9% 10% 11% 12% Standard Deviation Source: Hedge Fund Research, Inc. 2010, Datastream, Mellon Capital 6

7 Global Macro Classifications Price Prediction Trend-Based data driven, positive serial autocorrelation, or pattern recognition Relative Value price relationships, comparative internal rates of return, etc. No inherent conflict both can capture opportunities Rational Market Expectations Most managers can accept rational market behavior Most managers revert to cash if markets are not trending or in disequilibrium Thematic Investing Themes (a) trending behavior will continue or (b) over/under priced markets will self correct Challenge is to attribute performance to true underlying fundamental drivers Relative Value Trend Based Systematic Fundamental Value Trend-Followers Discretionary Discretionary Counter-Trend Pattern-Based 7

8 Global Macro Classifications: Group 1 Systematic Relative Value Fundamental Value Relative value drives the investment process equilibrium forecasts Value is in discriminating stock/bond, stock/stock, bond/bond, currency and commodity opportunities globally Early-in/Early-out of price trends is often evident with performance. While relative value or convergence trades are typical, momentum approaches are used much less Risk is managed by using risk budgets within an optimization framework Trend-Based Trend-Followers Discretionary Discretionary Counter-Trend Pattern-Based 8

9 Global Macro Classifications: Group 2 Relative Value Trend-Based Systematic Fundamental Value Trend-Followers Discretionary Discretionary Counter-Trend Contains a variety of approaches Example allegory type approach that seeks to map past events into today s environment This style requires a strong conviction level that often is found in one person/small group s market calls Risk is typically managed on a percent loss basis usually without optimization Pattern-Based 9

10 Global Macro Classifications: Group 3 Relative Value Trend-Based Systematic Fundamental Value Trend-Followers Often described as CTAs or Managed Futures Style depends on computer models to detect non-random price patterns Yield late-in/late-out trend dependent performance Typically do not depend on relative value or convergence approaches Risk is managed by stop loss orders Portfolios are not typically optimized Discretionary Discretionary Counter-Trend Pattern-Based 10

11 Global Macro Classifications: Group 4 Relative Value Trend-Based Systematic Fundamental Value Trend-Followers Discretionary Discretionary Counter-Trend Pattern-Based Typically uses charting or fundamental analysis Managers are looking for confirmation of price behavior that has appeared somewhere in the past Typically confirmed by supply/demand imbalances Risk is typically managed on a percent loss basis Portfolios are not typically optimized 11

12 Investor Behavior with Manager Selection Performance Chasing Investing in a manager after great performance and then divesting when performance is in a drawdown Rebalancing Programs Break Down It is routine to see some global macro managers up 20% or more while others are down 20% or more Performance Chasing Unrealistic Expectations Investors may place too much emphasis on performance consistency. For example, getting nine calls right may mean little if the investment manager gets the tenth call wrong. Getting around 55% of the calls correct is an admirable achievement for any investment manager. Misplaced expectations can create the environment for performance chasing and mismanaged rebalancing to flourish. Unrealistic Expectations Rebalancing Programs Break Down 12

13 Public vs. Non-Public Fund Investing Public funds have much larger peer risks than other institutions because of their unique, open status vs. foundations and endowments Introduces "career risk" and "political risk" to trustees Foundations and endowments can be aggressive with global macro Today, there are enough fully flexible institutional quality global macro managers that have all the appearances of being "balanced funds" A meaningful allocation to a balanced portfolio of global macro programs especially with high levels of liquidity and transparency can provide the needed rebalancing actions while taking advantage of alpha opportunities as they arise 13

14 Disclosure Statements Mellon Capital Management Corporation ( Mellon Capital ) is an investment adviser registered with the Securities and Exchange Commission ( SEC ) under the Investment Advisers Act of Mellon Capital is a wholly-owned subsidiary of The Bank of New York Mellon Corporation ( BNY Mellon ). The firm is defined as Mellon Capital and includes assets managed as dual officers of The Bank of New York Mellon and as dual employees of The Dreyfus Corporation. AUM, client and employee counts are as of June 30, 2012 unless noted otherwise. Mellon Capital s AUM includes assets managed in overlay strategies ($8.3 billion) as of June 30, BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation. Any collective investment funds presented are maintained by The Bank of New York Mellon and Mellon Capital provides non-discretionary investment advisory services to certain of those collective investment funds. Any collective investment funds presented are not deposits of, and are not insured or guaranteed by, any bank, the FDIC or any other government agency. Please refer to the fund s Schedule A for important additional information. Mellon Capital Management and its abbreviated form Mellon Capital are service marks of Mellon Capital Management Corporation. This presentation does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. This material (or any portion thereof) may not be copied or distributed without Mellon Capital s prior written approval. Statements are current as of the date of the material only. The following provides a simplified example of the cumulative effect of management fees on investment performance: An annual management fee of 0.80% applied over a five-year period to a $100 million portfolio with an annualized gross return of 10% would reduce the value of the portfolio from $161,051,000 to $154,783,041. The actual management fee that applies to a client s portfolio will vary and performance fees may be available. The standard fee schedules for Mellon Capital s strategies are shown in Part II of Mellon Capital s Form ADV. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Past results are not indicative of future performance and are no guarantee that losses will not occur in the future. Future returns are not guaranteed and a loss of principal may occur. Performance is expressed in U.S. dollars unless noted otherwise. Performance results for one year and less are not annualized. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. The active risk targets and information ratio targets shown in this presentation are the long run ex-ante targets. The active risk levels and information ratios may be higher or lower at any time. There is no guarantee that the active risk targets and information ratio targets will be achieved. The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. Any specific securities identified do not represent all of the securities purchased, sold or recommended for advisory clients, and may be only a small percentage of the entire portfolio and may not remain in the portfolio at the time you receive this report. You should not assume that investment decisions we make in the future will be profitable or will equal the investment performance of the past. 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All content of the Dow Jones-UBS Commodity Indexes CME Group Index Services, LLC and UBS Securities, LLC Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC and has been licensed for use by CME Indexes. UBS is a registered trademark of UBS AG. Australian prospects and clients, please note the following: If this document is used or distributed in Australia, it is issued by BNY Mellon Asset Management Australia Limited ( BNY AMI Australia ) (ABN , AFS License No ) located at Level 6, Macquarie Place, Sydney, NSW BNY AMI Australia holds an Australian Financial Services License authorizing it to provide financial services in Australia. BNY AMI Australia also introduces the capabilities of BNY Mellon affiliated United States asset managers or investment advisers, such as Mellon Capital Management Corporation, in Australia. 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15 15 Important Information BNY Mellon Asset Management International Limited and all asset managers contained within are ultimately owned by The Bank of New York Mellon Corporation. This material is for wholesale clients only and is not intended for distribution to, nor should it be relied upon by, retail clients. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised to do so. This information should not be construed as a recommendation to purchase or sell any security. This information has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Before making an investment decision you should carefully consider, with or without the assistance of a financial adviser, whether such an investment strategy is appropriate in light of your particular investment needs, objectives and financial circumstances. BNY Mellon Asset Management is the umbrella organization for The Bank of New York Mellon Corporation's affiliated investment management firms and global distribution companies. BNY Mellon Asset Management may refer to The Bank of New York Mellon Corporation's affiliated firms and companies on a collective as well as an individual basis. In preparing the report BNY Mellon Asset Management may have relied on information provided by third parties. Whilst BNY Mellon Asset management has no reason to doubt the accuracy of information used to prepare this report, BNY Mellon Asset Management does not represent, warrant or guarantee that this information is accurate, complete or suitable for any purpose and it should not be used as a basis for investment decisions. Any opinions and estimates expressed in this document, including forecast returns, are those of relevant investment manager, they reflect their judgement as of the date of its publication, they involve a number of assumptions that may not prove valid and are subject to change without notice. BNY Mellon Asset Management is not responsible for any subsequent investment advice given based on the information supplied. Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Portfolio holdings are subject to change at any time without notice. The value of investments and the income from them can fall as well as rise and investors may not get back the full amount originally invested. Neither the performance of the investments discussed nor the payment of any income return or the return of any capital is guaranteed by BNY Mellon Asset Management Australia or any other member of The Bank of New York Mellon Corporation, or any related body corporate. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading results/returns. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Except where specifically noted, performance is stated gross of management fees. The impact of management fees can be material. Generally, investment management fees are charged based upon the size of the portfolio, computed quarterly. A fee schedule is available upon request from BNY Mellon Asset Management. If this document is used or distributed in Australia, it is issued by BNY Mellon Asset Management Australia Limited (ABN , AFS License No ) located at Level 6, 7 Macquarie Place, Sydney, NSW