Bill Hill - Going Global – How Much is Enough

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  • 1. Going Global – How Much is Enough? William (Bill) H. Hill, RBC Asset Management
  • 2. What we talked about last year
    • The importance of investor behaviour
      • Understanding it so you can help manage it
    • The Case for America
    • International Investing
    • Our 2006 Outlook
    • How to keep clients on track
  • 3. What’s changed since last year?
    • What products are selling today vs. last year
    • Global Flows
      • $11 Billion to Foreign Equity (International & Global)
      • $533 million to US Equity
      • $22 Billion to Balanced Funds
      • $11 billion in Cdn Equity Fund Redemptions
    • Product launches
      • More than 60 global mandates launched since June 2006
      • Almost $4 billion in assets in those new funds
  • 4. We are not alone
    • What are institutional money managers doing?
  • 5. What hasn’t changed
    • Client behaviour
    • Diversification is still key
    • Global investing should be the focus
  • 6. Going Global
    • So how much is enough?
    35%
  • 7. Global investing challenges
    • Knowledge / exposure
    • Currency
    • Behavioural
  • 8. Global investing challenges – knowledge/exposure
    • Where’s Waldo?
    Royal Bank of Canada CIBC Bank of Montreal Canadian Natural Resources Suncor Energy EnCana Corp. TD Bank Bank of Nova Scotia Manulife Sun Life Financial Total S.A. Procter & Gamble UnitedHealth Group Groupe Danone Cemex CVS Caremark Corp. BBVA Continental AG Atlas Copco Royal Bank of Scotland Group
  • 9. Global investing challenges – knowledge/exposure
    • Easier to be more familiar with Cdn / NA companies
    Canada Royal Bank of Canada Manulife Bank of Nova Scotia TD Bank EnCana Corp. Suncor Energy Canadian Natural Resources Bank of Montreal CIBC Sun Life Financial Which list do your clients know? RBC Global Titans Fund CVS Caremark Corp. (US) Total S.A (France) Groupe Danone (France) Procter & Gamble (US) Cemex (Mexico) BBVA (Spain) UnitedHealth Group (US) Royal Bank of Scotland Group Continental AG (Germany) Atlas Copco (Sweden)
  • 10. Global Investing – The Realities As countries become more economically integrated, global economies are looking beyond their borders for opportunities It’s not only Canadians who are investing more globally. Foreign investors are investing more here too.
  • 11. Global Investing – The Realities Danger of not going global Canadian companies represent only a very small portion of the world’s stock market value. As a result, investors without exposure to other countries limit their range of available investment opportunities.
  • 12. Global Investing – The Realities Canada only offers exposure to a couple of sectors Compared to the global economy, Canada’s economy is dominated by Financials and Resources companies.
  • 13. Global investing challenges – Knowledge/exposure Outperfomance of Canadian market I don’t need to invest anywhere else – look at my amazing returns over the past 5 yrs! Source: TSX, S&P, MSCI at April 30, 2007
  • 14. Global Investing – Geographical Outlook
    • Canadian equities remain expensive
    After strong gains since 2003, Canadian equities are trading above fair value. Source: Bloomberg, RBC Asset Management
  • 15. Global Investing – The Realities
    • The Canada story
    Strong upside in Natural Resources for a prolonged period!
      • China driving demand, & just getting started
      • India, Russia & Brazil add to pressure
    DEMAND Pressure Increasing
      • Underinvestment in exploration & development for past two decades
      • Restrained capital spending due to high costs relative to commodity prices
    SUPPLY Lagging for awhile
  • 16. Across the Huangpu River to Pudong, Shanghai, 1984
  • 17. Across the River Now…
  • 18.
    • Mining:
    • Canada has 58% of the world’s listed mining companies
    • 1293 financings in 2006
    • - US$10.1 billion raised
    • - 84% of world total by number
    • - 38% of world total by value
    • Aggregate market capitalization of US$280 billion listed in Canada
    • 45 TSX mining companies have >$1 billion market capitalization
    • Energy
    • Canada has the highest number of listed oil & gas companies in the world
    • 431 listed companies with a total market capitalization of C$532 billion
    • C$10.5 billion in financings in 2006
    • 31 new listings in 2006
    Global Investing – The Realities Source : TSX Group, as of December 31, 2006
    • Canada is a leader in global resources
  • 19. Global Investing – Geographical Outlook
    • Canadian equities remain expensive
    After strong gains since 2003, Canadian equities are trading above fair value. Source: Bloomberg, RBC Asset Management
  • 20. Global Investing – Geographical Outlook
    • U.S. equities trading at attractive prices
    Current valuations suggest good potential for U.S. equities Source: Bloomberg, RBC Asset Management
  • 21. Global Investing – Geographical Outlook
    • Japanese stocks are particularly attractive
    Improving growth and attractive valuations continue to support a positive outlook for Japan Source: Datastream, Consensus Economics, RBC Asset Management
  • 22. Global investing challenges - Currency Difference in Canadian investor returns and U.S. investor returns S&P 500 Index
  • 23. Global investing challenges - Behavioural
    • People see what they want to see.
    • It’s just the way we’re built…and conditioned.
    • The size of the bowl or plate biases how much a person eats by an average of 20-30%.
    • You'll eat 35% more dining with a friend than when eating alone and double the amount of food ingested when dining with 7 or more people.
    • About 1 in 5 employees have more than 50% of their work-related investment plans in company stock
    • One third of Canadians have no foreign content in their RRSPs
  • 24. Canadian government bond market is shrinking Source: Citigroup WGBI
  • 25. The Case For Hedging Global Bonds Hedged global bonds have provided better returns at much lower risk levels Source: RBC Asset Management with data provided by Ibbotson EnCorr
  • 26. The Case For Hedging Global Bonds Source: RBC Asset Management with data provided by Ibbotson EnCorr Hedged global bonds have tightest range of returns compared to Canadian bonds and unhedged global bonds
  • 27. Getting there – Riding the Efficient Frontier
    • Diversification can both increase potential for returns, but more importantly, provides consistency of returns
  • 28. How much is enough?
    • Criteria to consider
      • Investor characteristics – risk and return
      • Currency needs – income, expenses, retirement
      • Risk management – diversification benefits
    • Your own asset mix approach
      • Familiarity with client situation and needs
      • Your style – prefer standalone funds or managed solutions?
      • Level of ongoing involvement – rebalancing requirements
  • 29. How much is enough?
    • What is the RBC Asset Management approach?
    • RBC Investment Strategy Committee
      • Firm wide asset allocation recommendations
    • Investor profile recommendations
      • Based on strategy committee recommendations
    • Implementation in investor portfolios
      • Model portfolios, fund-of-funds
  • 30. Finding the Right Mix
    • RBC AM Current Recommendations
  • 31. And now for the HOW…
    • Individual securities
    • ETFs
    • Individual funds
    • Fund of Funds
    • Combination of all of the above
  • 32.
    • Trade Execution
    • Challenges involved with investing in global segregated securities
    Global Investing – Additional Challenges
    • Diversification
    • Managing Currency
    • Access to research
    • Reporting
  • 33. Global Investing – The Realities
    • Challenges identified: currency, execution, fixed income, are all difficult to take on as an individual investor…
    • But can be efficiently and effectively managed through mutual funds
    • Funds even help manage behavioural challenges
      • Staying invested
      • Not chasing performance
      • Rebalancing
      • diversification
  • 34. One way or another
    • Different solutions can mean very different results
  • 35. Clients Succeed with Packaged Solutions “ Premixed Funds” target date and target risk funds/ portfolios Source: Hewitt Associates, January 2006 Money Magazine, October 2006
    • Good for you…and good for them.
  • 36.
    • If you’re looking at mutual funds, here are some things to consider when hiring an asset management company
    • … always important investment considerations but especially critical for a global strategy
  • 37. Value
    • Experienced managers
    • Consistent discipline
    • Track record of performance
    • Value for money
      • A shop that can deliver:
        • Global opportunities through global footprint
        • Currency experience and expertise
          • Size and scale enables us to have dedicated team
        • Trading execution excellence
  • 38. Choice
    • Broad spectrum of funds
      • Global
      • International
      • Regional
      • Sector
      • Style
      • Currency hedged or un-hedged options
    • Single fund or portfolio solution
    • Purchase options to suit client needs and advisor style
  • 39. Transparency
    • Know what you’re getting
    • The importance of clear investment mandates in portfolio construction
    • Confidence that a fund will do what it says it’s going to do
    • Are Canadian equity funds truly Canadian?
    • Apples to apples comparisons becoming difficult
    • The importance of clear, predictable fees
  • 40. Success Serious about ours Committed to yours
  • 41. Disclosure The information contained in this report has been compiled by RBC Asset Management Inc. (“RBC AM”) from sources believed to be reliable, but no representations or warranty, express or implied, are made by RBC AM, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC AM’s judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report may not be reproduced, distributed or published without the written consent of RBC Asset Management. To the full extent permitted by law neither RBC AM nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. Past performance does not indicate future performance. RBC Asset Management Inc. provides global wealth management services. RBC Asset Management Inc. and Royal Bank of Canada are separate corporate entities, which are affiliated. ® Registered trademark of Royal Bank of Canada. Used under license. © Copyright 2007. All rights reserved.