Investment: The Changing Nature of Markets Dr Mike McCorry CIO, BlackRock Australia Convention 2014 For Financial Advisers Use Only
The Changing Nature of Markets Some thoughts: 1. Get used to changing & evolving markets as 2014 will continue the themes Need to adapt portfolios to seek prevailing opportunities and protect against evolving risks 2. 2014 Macro Outlook: Lower for Longer Macro backdrop should look somewhat similar to 2013 Expect global economy to continue to gradually recover, led by the US with Europe emerging from recession Low growth & low inflation expectations means global CB policy will still remain supportive Expect lower returns from equities, bond yields to gradually move higher, and volatility around policy decisions to increase 3. Regulatory landscape has changed dramatically since 2008, now in implementation phase: Global: Basel III, Dodd-Frank, FATCA Local: FOFA, MySuper, ASIC RG240, Portfolio Holdings Disclosures 4. Portfolio implications Seek additional sources of return, think differently about fixed income, & continue to diversify For Financial Advisers Use Only 2
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The changing nature of markets Emilio Gonzalez, Chief Executive Officer
First Principle The only thing that is constant is change - Greek Philosopher: Heraclitus 2
Second Principle Return is a function of risk 3
5yr % pa Asset class returns over the 3 decades (5 year average % pa) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 1980s 1990s 2000s Australian Equities Intl Equities (unhedged) A-REITS Aus FI Intl FI (hedged) Cash 60/40 Fund 4
5 yr % pa Asset class returns excess cash (5 year average % pa) 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% 1980s 1990s 2000s Australian Equities Intl Equities (unhedged) A-REITS Aus FI Intl FI (hedged) Cash 60/40 Fund 5
Return above cash per unit of risk Asset class return excess cash risk adjusted over 3 decades 1.20 1.00 0.80 0.60 0.40 0.20 0.00-0.20 1980s 1990s 2000s -0.40-0.60 Australian Equities Intl Equities (unhedged) A-REITS Aus FI Intl FI (hedged) Cash 60/40 Fund 6
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