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Baring Asset Management

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  • Extending the sample time-period to seven years throws into even greater relief the comparative information ratios. On this time-scale the median manager achieved a higher information ratio than the top-quartile manager of any other asset class save Global equity. Indeed, even the bottom quartile manager achieved a positive information ratio. Now I’d like to say that this is because as asset allocators we are an incredibly smart bunch of people who put our stupid colleagues in the shade, but I’m afraid that this is not the case. The fact of the matter is that D.A.A. is simply easier than other asset classes because it is less crowded with active managers, S.A.A. dominates. In fact I took the time period back only seven years because there is such a small sample for longer periods.
  • Perf of DAA v LIBOR v FTSE Fund has 2 obj – libor + eq like rets Over time both our fund and the 2 obj should end up at the same place This is what happened until Oct 07 Since then eqmkts have fallen and tgt more challenging In that env we wouldn’t expect DD to deliver ab rets when all mkts it can invest in are falling, but we would expect it to preserve capital 1 yr to end Aug 08 2.4% SI 3.7%
  • Perf of DAA v LIBOR v FTSE Fund has 2 obj – libor + eq like rets Over time both our fund and the 2 obj should end up at the same place This is what happened until Oct 07 Since then eqmkts have fallen and tgt more challenging In that env we wouldn’t expect DD to deliver ab rets when all mkts it can invest in are falling, but we would expect it to preserve capital 1 yr to end Aug 08 2.4% SI 3.7%
  • Transcript

    • 1. Andrew Cole Why Top Down Asset Allocation Matters New Model Advisers Conference January 2010
    • 2. Barings Multi Asset Investing
      • Barings have been running Multi Asset Investment Solutions since 2000
      • £5bn aum, across Multi Asset Portfolios
      • Launched Multi Asset Fund in March 2009 for Retail Investors
      • Fund Manager Andrew Cole has 29 years of Investment experience
    • 3. Strategic Asset Allocation “ Investing should be dull  . . . it shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas . . . it is not easy to get rich in Las Vegas . . . or at the local Merrill Lynch office.” Paul Samuelson – Nobel Prize Laureate (Economics) “ The key is not to predict the future, but to be prepared for it.” Pericles, 495-429BC “ It’s not what we don’t know that hurts us; it’s what we know for sure that just ain’t so.” Mark Twain – Nobel Prize Laureate (Literature) Source: Brainyquote.com – 11 th January 2010
    • 4. Can managers add value? Information Ratio of Selected Asset Classes - 10 years to 30th September 2009 Over the long-run, even fourth quartile managers have added value in Asset Allocation Source: Mercers MPA US$ universe, as at 30 th November 2009 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 US Fixed Euro Fixed UK Fixed Global Fixed Asset Allocation US Equity Euro Equity UK Equity Global EM Global Equity 1st Quartile Median 4th Quartile
    • 5. Why bother with asset allocation? Equities outperform Source: Barclays Equity Gilt Study - 2009 1980 UK Equity Annual Returns Gilt Annual Returns -10 10 30 50 1984 1988 1992 1996 2000 %
    • 6. They do, but it’s a bumpier road than you might desire Source: Barclays Equity Gilt Study - 2009 -40 -20 0 20 40 60 1900 1904 1908 1912 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 UK Equity Annual Returns % Gilt Annual Returns 149 -50
    • 7. Lowering the risk profile Source: Barclays Equity Gilt Study 2009, 1899 – 2008 * Cumulative ~ Annual Equity like returns with less risk UK equity returns % (RHS)~ UK Equity Nominal TR Index (LHS)* UK Cash + 4% Index (LHS)* UK Cost of Living + 5% Index (LHS)* 1 10 100 1,000 10,000 100,000 1,000,000 10,000,000 1899 1903 1907 1911 1915 1919 1923 1927 1931 1935 1939 1943 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 -60 -40 -20 0 20 40 60 80 100 120 140
    • 8. Strategic Asset Allocation Forecasting Long-Term returns
      • We know that we need return and inflation assumptions.
        • What drives asset market returns in the medium-term?
          • Macroeconomics drive markets
          • Overlaying risk environments
      Big questions that will make or break any long-term savings plan
        • What do we do with these assumptions once they are made?
          • Combining assets in a Strategic Asset Allocation
          • NB: Fragility of assumptions
    • 9. Macroeconomics Drive Markets IMF 1 Yr Nominal GDP Growth Forecast - % IMF 1 Yr Nominal GDP Forecast vs 12mth Forward G7 Bond Yields Source: MSCI, IMF, Factset, Bloomberg & Barings, as at 10 th January 2010 Nominal 12mth Fwd 10yr Bond Yield - % Japan EU Canada UK US Australia R 2 = 0.66 0 2 4 6 7 5 3 1 1.5 3.5 1.0 2.5 0.0 2.0 4.0 0.5 3.0 Nominal Annualised Equity Market Return - % R 2 = 0.37 0 2 4 6 8 10 -25 -20 -15 -10 -5 0 5 10 15 20 25 Nominal Annualised GDP Growth-% Nominal GDP Growth and Nominal Equity Market Returns, MSCI AC Members (2005-2009)
    • 10. Forecasting Long-Term Returns using Macroeconomics Time to make some more assumptions…
      • Cash Rates
        • Where will inflation be on average?
        • What is the long-term productivity growth trend for an economy?
        • Where is the ‘neutral rate’ for an economy?
      • Bond Market Returns
        • Liquidity premia
        • Getting from here to there…
      • Equity Market Returns
        • Dividend yields, and long-term growth prospects
      • Currency Returns
        • Long-term currency forecasting
    • 11. Expected Returns/Historic Risk 10 year asset class forecasts (GBP) Source: Barings as at 1 st January 2009 * Risk (standard deviation of annualised returns) UK Index Linked Emerging Asia Equities Taiwan Equities LATAM Equities Emerging Equities Hong Kong Equities Pacific ex Japan Singapore Equities Japan Equities Europe Equities Australian Equities Property Fund of Hedge Funds US Equities UK Equities UK Private Equity US Bonds EM Bonds UK Gilts UK 3 Mth Cash 0 2 4 6 8 10 12 14 0 5 10 15 20 25 30 35 40 Return (% per annum) Risk (% per annum)
    • 12. Strategic Asset Allocation * Source: Barings, for Baring Multi Asset Fund. As at 28 th April 2009 ** Risk= standard deviation of annualised return Predicted Risk** 10.25% A wardrobe for all Seasons!
    • 13. Tactical Asset Allocation “ Wide diversification is only required when Investors do not understand what they are doing.” Warren Buffett Would you wear all the clothes in your wardrobe at the same time? Source: Brainyquote.com – 11 th January 2010
    • 14. Why Dynamic Asset Allocation is Critical Best and worst performing asset classes The right asset class at the right time is key Source: Barings as at 31 st May 2009 -24.4 European Equities 4.5 Hedge Funds 0.8 Corporate Bonds 8.7 Corporate Bonds -29.9 UK Equities 1.8 Corporate Bonds 0.7 UK Bonds 7.9 UK Bonds -31.3 Asia Ex Japan -5.5 Property -7.4 Japanese Equities 4.6 Cash -35.2 Emerging Equities -6.5 Japanese Equities -7.5 Overseas Bonds 4.3 Overseas Bonds     4.7 Cash 15.3 European Equities 16.3 Emerging Equities 30.8 Gold Bullion 12.8 UK Bonds 29.0 Asia Ex Japan 16.8 UK Equities 35.0 Asia Ex Japan 42.8 Gold Bullion 29.6 Gold Bullion 18.1 Property 39.6 Japanese Equities 58.1 Overseas Bonds 37.4 Emerging Equities 19.7 European Equities 50.5 Emerging Equities 2008 2007 2006 2005
    • 15. Sources of asset allocation ideas Risk Managed PORTFOLIO Recession Boom Macro economic anomalies Direct Stock Passive Derivative Active Investment innovation / response UK Equities Index Linked F of Hedge Funds Emerging Equities Market valuation anomalies Low High Risk appetite
    • 16. What risks are you being compensated for? Source: Bloomberg, ML,MSCI, S&P, Barings, as at 11 th November 2009 UK 10yr Real Yield UK 10yr Breakeven Inflation UK Credit UK ERP Equity Volatility Bond Volatility Max Current 10yr Average Min
    • 17. More Macro Earnings and GDP Growth Source: MSCI, IMF, Barings as at 6 th January 2010 12mth Change in MSCI World Earnings IMF Forecasts Global Growth -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12 Dec-16 % -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 %
    • 18. Equity Risk Premium (ERP) United Kingdom Source: MSCI, Factset, DataStream, Barings as at 8 th November 2009 No. of Observation - % 0 2.5 5 7.5 10 12.5 15 17.5 20 22.5 2.1 2.7 3.0 3.3 3.6 3.9 4.2 4.5 4.8 5.1 5.4 5.7 6.0 6.3 6.6 6.9 7.2 7.5 7.8 8.0 Level of ERP 31st December 2007 31 st March 2009 28 th December 2009 Consensus 2 year Earnings Estimate % -2 0 2 4 6 8 10 12 14 -60.0 -40.0 -20.0 0.0 20.0 40.0 60.0 %
    • 19. ERP United States Source: MSCI, Factset, DataStream, Barings as at 8 th November 2009 31st December 2007 31 st March 2009 28 th December 2009 Consensus 2 year Earnings Estimate -2 0 2 4 6 8 10 -60.0 -40.0 -20.0 0.0 20.0 40.0 60.0 % % 0 2.5 5 7.5 10 12.5 15 17.5 1.0 1.5 1.7 2.0 2.2 2.5 2.7 2.9 3.2 3.4 3.7 3.9 4.2 4.4 4.6 4.9 5.1 5.4 5.6 5.9 No. of Observation - % Level of ERP
    • 20. Changes in asset allocation since inception Baring Dynamic Asset Allocation Fund Source: Barings, as at 31 st December 2009, Gross Exposure Inception date: 16 th January 2007 %
    • 21. Baring Dynamic Asset Allocation Fund Annualised Performance since inception: +7.5% p.a. Source: Barings as at 31 st December 2009, net of fees Fund inception date: 16 th January 2007 Past performance is not a guide to future performance 60 70 80 90 100 110 120 130 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Dynamic Asset Allocation Fund FTSE All Share LIBOR +4% Objective FTSE World
    • 22. Current Portfolio & Themes (as at 31 st December 2009) Source: Barings as at 31 st December 2009 Risk = standard deviation of annualised return from asset allocation Predicted Risk* 8.36%
      • Current portfolio themes:
      • Value in UK Equities
      • Inflation protection
      • Gold, Index Linked, Property
      • Asia Growth
      • Less value in credit
      • Sterling to weaken
    • 23. Dynamic Asset Allocation Fund Track Record Fund Inception date: 16 th January 2007. Chart shows net returns for the Fund, the IMA Cautious Managed sector and the MSCI World Index from earliest available data on 19 th Jan 2007 to 31 st December 2009. All in sterling terms. Past performance is not a guide to future performance
    • 24. Performance Chart of Multi Asset Fund Past performance is not a guide to future performance Source: Financial Express as at 31.12.09, Net returns, Bid To Bid. Fund inception date: 16th January 2007 % Nov 09 A Apr 09 May 09 Jun 09 Jul 09 Sep 09 Aug 09 20 15 10 5 0 -5 25 Oct 09 Dec 09 B A – Baring – Multi Asset TR in GB (22.80%) B – UT Cautious Managed TR in GB (22.17%)
    • 25. Barings Multi Asset Fund
      • Barings have been running Multi Asset Investment Solutions since 2000
      • Launched Multi Asset Fund in March 2009
      • Cautious Managed Sector
      • Available via all major platforms
    • 26. Biographies Andrew is a member of the Targeted Solutions Portfolio Construction Group responsible for the management of multi asset portfolios. He is lead manager for the Baring Multi-Asset Fund and for a number of segregated portfolios. Andrew was appointed to the Strategic Policy Group (SPG), the company’s global macro research and asset allocation team in 2005. He is chair of the SPG Risk Sub Group and is a member of the Economic Group. Both groups provide key inputs to the debate of the monthly SPG meetings. Andrew joined the Fixed Income department at Baring Asset Management in 1986. He was appointed a Director in 1994 and joined the Multi-Asset portfolio team in 1995. Andrew Cole Investment Manager, Baring Multi-Asset Fund Location: London Investment Experience: 29 Years
    • 27. Important Information Compliance (London): 11 h January 2010 For Professional Investors/Advisers only. This document is approved and issued by Baring Asset Management Limited and in jurisdictions other than the UK it is provided by the appropriate Baring Asset Management company/affiliate whose name(s) and contact details are specified herein. The information in this document does not constitute investment, tax, legal or other advice or recommendation. It is not an invitation to subscribe and is for information only. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance is not a guide to future performance. Quoted yields are not guaranteed. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Investments in higher yielding bonds issued by borrowers with lower credit ratings may result in a greater risk of default and have a negative impact on income and capital value. Income payments may constitute a return of capital in whole or in part. Income may be achieved by foregoing future capital growth We reasonably believe that the information contained herein from 3rd party sources, as quoted, is accurate as at the date of publication. The information and any opinions expressed herein may change at any time. Companies and employees of the Baring Asset Management group may hold positions in the investment(s) concerned. This document may include internal portfolio construction guidelines. As guidelines the fund is not required to and may not always be within these limits. These guidelines are subject to change without prior notice and are provided for information purposes only. This document must not be used, or relied on, for purposes of any investment decisions. Before investing in any product, we recommend that appropriate financial advice should be sought and all relevant documents relating to the product, such as reports and accounts and prospectus,( which specify the particular risks associated with a product, together with any specific restrictions applying and the basis of dealing) should be read. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available in respect to any Offshore Fund. Research Material Baring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime. For data sourced from Morningstar: © Morningstar, Inc. all rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Version 03/2009