Investing in Down Markets- Why Stocks over Bonds or GICs?

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Great presentation by Templeton on Why it Pays to stay invested in stocks over bonds and GICs in down markets. Contact me for further details

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Investing in Down Markets- Why Stocks over Bonds or GICs?

  1. 1. 1STRONG FOCUSON INVESTMENTEXCELLENCE
  2. 2. 2
  3. 3. 2 How Much Is This?US$5,850,000,000,000 US$5.85 Trillion US$5.85 Trillion
  4. 4. 3
  5. 5. 5 What Does This Number Represent? US$5.85 Trillion In Money Market Accounts & CDsSource: Money Market Accounts and CDs (Time Deposits at FDIC-insured commercial banks and savings institutions): FDIC. As of 9/30/12.
  6. 6. 6 A Similar Story in Canada C$580 Billion In Money Market Funds & GICsSource: Investor Economics, Household Balanced Sheet, as of September 30, 2012.
  7. 7. 7 The Problem? 0.41% Average Money Market Fund Yield As of September 30, 2012Source: Morningstar Research Inc., as of September 30, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money MarketCAD Peer Group Average which contained 176 funds.
  8. 8. 8 It Won’t Buy You Much After one year, a $10,000 investment would yield: MONEY MARKET FUNDS 1-YEAR GICs 10-YEAR GOVERNMENT BONDS $41 $78 $173 Yields as ofSeptember 30, 2012 0.41% 0.78% 1.73% Source: As at September 30, 2012. Money Market Funds: Morningstar Research Inc., Canadian Money Market Funds are represented by the Morningstar Money Market CAD Peer Group Average which contained 176 funds.1-Year GICs: Bank of Canada. 10-Year Government Bonds: Bloomberg.
  9. 9. 9The Dilemma Facing Many Investors Their investments are at a standstillMONEY MARKET FUNDS 1-YEAR GICs 10-YEAR GOVERNMENT BONDS
  10. 10. 10 8The Dilemma Facing Many Investors Their investments are at a standstill BUYING A HOMEMONEY MARKET FUNDS UNIVERSITY EDUCATION 10-YEAR Government Bonds 1-YEAR GICs RETIREMENTTheir investment goals remain the same
  11. 11. 12Today’s Discussion• How We Got Here• What Most Investors Are Missing• Taking the Next Step
  12. 12. How We Got Here
  13. 13. 14Seeing Is Believing
  14. 14. Availability BiasOur thinking is stronglyinfluenced by what ispersonally most relevant,recent or dramatic.Simply put—we rememberthe PAIN.
  15. 15. 16The Building Blocks for a Wall of Worry1. Source: Bloomberg LP.2. Source: Bureau of Labor Statistics.3. Source: RealtyTrac.
  16. 16. 17The Result: Prolonged Pessimism and SkepticismSource: Kauffman Economic Outlook: A Quarterly Survey of Leading Economic Bloggers, fourth quarter 2011.
  17. 17. 18How Did the Market Perform?S&P 500 Annual Returns and Franklin TempletonAnnual U.S. Investor Sentiment Survey Results11. Source: © 2012 Morningstar. All rights reserved. The information contained herein: (1) is 3. Source: 2011 Franklin Templeton Global Investor Sentiment Survey designed inproprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; partnership with ORC International. Included 1,049 online responses fromand (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its participants age 18 and older in the U.S. from January 6, 2011 to January 7, 2011.content providers are responsible for any damages or losses arising from any use of this 4. Source: 2012 Franklin Templeton Global Investor Sentiment Survey designed ininformation. Indexes are unmanaged and one cannot invest directly in an index. partnership with Duke University professor Dan Ariely and Qualtrics. Included 1,1422. Source: 2010 Franklin Templeton Global Investor Sentiment Survey designed in online responses from participants age 18 and older in the U.S. from January 30,partnership with ORC International. Included 1,010 telephone responses from participants 2012 to February 13, 2012.age 18 and older in the U.S. from March 25, 2010 to March 28, 2010.
  18. 18. 19Pessimism Continues to Guide U.S. Investor DecisionsEquity Fund Net FlowsSource: Investment Company Institute.
  19. 19. Loss AversionStudies have shown that thepain of a loss is almost twiceas strong as the reward feltfrom a gain.
  20. 20. 21We Learn the Pain of Loss EarlyUsed with permission.
  21. 21. 22Perceived Safety May Come at a CostMoney Market Funds’ Average Yield Before and After Inflation10-Year Period Ended September 30, 2012Source: Morningstar Research Inc., as of September 30, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money Market CAD Peer GroupAverage which contained 176 funds.
  22. 22. 23Can You Afford to Wait?Number of Years to Double Your MoneyBloomberg, as of September 30, 2012. Canadian Money Market Funds are represented by the Morningstar Money Market CAD Fund Category which contained 176funds. 1-Year GICs yield data is obtained from the Bank of Canadas website. 10-Year Canadian Government Bonds yield is obtained fromBloomberg. Average Time to Double Investment is calculated using the following formula: (Natural Log (2) / Natural Log (1+Yield)), Formula for Natural Logis LN. Amount earned on a 1-Year $10,000 investment assumes the investment is made on the as of September 30, 2012.
  23. 23. 24What Do Investors Believe Over the Long Term?Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or generalmarket conditions.Source: 2011 Franklin Templeton Investor Sentiment Survey designed in partnership with ORC International. Included 1,049 online responses from participants age 18 andolder in the U.S. from January 6, 2011 to January 7, 2011. Stocks represented 30.12% of responses.
  24. 24. HerdingWe are programmed to feelthat the consensus view mustbe the correct one.
  25. 25. 26It’s Hard to Go Against the CrowdUsed with permission from Candid Camera.
  26. 26. 27The Problem of Going with the FlowS&P 500 Performance vs. Equity and Bond Fund Net New FlowsThis chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton,Mutual Series or Bissett fund. Past performance does not guarantee future results.Sources: © 2012 Morningstar; Equity and Bond Fund Flows: ICI. Flows are represented by monthly rolling 12-month net new cash flows. Indexes are unmanagedand one cannot invest directly in an index.
  27. 27. 28The Benefits of Staying InvestedS&P/TSX Composite TRI Returns20-Year Period Ended September 30, 2012Source: Bloomberg, as of September 30, 2012. Indexes are unmanaged, one cannot invest directly in an index.
  28. 28. What Most InvestorsAre Missing
  29. 29. 30U.S. Household Debt Service Has Been DecreasingRatio of Debt Payments to Disposable Personal IncomeSource: Federal Reserve. Most recent data available. Based on the ratio of debt payments to disposable personal income.
  30. 30. 31U.S. Unemployment Has Declined From Its PeakSource: U.S. Bureau of Labor Statistics.
  31. 31. 32The World’s Middle Class Is GrowingPercentage and Size of the Middle Class Population in the WorldSource: United Nations, World Bank, Surjit S. Bhalla, Second Among Equals: The Middle Class Kingdoms of India and China,May 2007 and oxusinvestments.com.
  32. 32. 32 33Global Consumption Is IncreasingAutomobile Sales—China vs. U.S. (6-Month Rolling Average)Sources: China Automobile Sales: China Automotive Information Net; U.S. Automobile Sales: Bloomberg. As of 9/30/12. Based on a six-month rolling average.
  33. 33. 34U.S. Corporate Cash Near All-Time HighS&P 500 Companies’ Total Cash as a Percentage of Total AssetsSource: Ned Davis Research Group, Inc. Based on historical data since 1977. The historical average cash level for 3/31/77–9/30/12 was 9.65%. As of 9/30/12 itwas 13.49%.
  34. 34. 35Payout Potential Appears StrongS&P 500 Index Dividend Payout RatioSource: Compustat via FactSet. © 2012 FactSet Research Systems Inc., all rights reserved. The information contained herein: (1) is proprietary to FactSet ResearchSystems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet ResearchSystems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of futureresults. Indexes are unmanaged, and one cannot invest directly in an index.
  35. 35. 36U.S. Equity Valuations Are Below Long-Term AveragesS&P 500 Index 1-Year Forward P/E Ratio15-Year Period Ended September 30, 2012Source: © 2012 FactSet Research Systems Inc.
  36. 36. 37World Equity Valuations Are Below Historical AveragesWorld Markets 1-Year Forward P/E Ratio5-Year Period Ended September 30, 2012Source: Bloomberg as of September 30, 2012
  37. 37. 38Investors Still Not ConvincedS&P 500 Index Performance vs. Bloomberg U.S. WeeklyConsumer Comfort Index (January 2000–September 2012)Sources: S&P 500: © 2012 Morningstar; Bloomberg U.S. Weekly Consumer Comfort Index: Bloomberg. Indexes are unmanaged and one cannot invest directly in an index.
  38. 38. 39“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” — SIR JOHN TEMPLETON Templeton Funds Founder and Former Chairman
  39. 39. Taking the Next Step
  40. 40. 41How to Step Back into the Stock Market Earn Build a Capitalize on Income Position Opportunity
  41. 41. 42 Earn Income Re-Entering the Stock Market with Bissett Strategic Income Fund–Series A $320 $20,000 Bissett Strategic Income Fund–Series A $698 2.2xSource: Morningstar Research Inc., as of December 31, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money Market CAD Peer GroupAverage which contained 176 funds.
  42. 42. 43Earn IncomeTake Action withBissett Strategic Income Fund–Series A
  43. 43. 43 44 Build a Position Scaling In with a Globally Diversified Combination Globally Diversified CombinationSource: Morningstar Research Inc. as of September 30, 2012. The portfolio assumes 33.33% in Bissett Canadian Dividend Fund, 33.33% in Franklin US RisingDividends Fund and 33.33% in Mutual Global Discovery Fund.
  44. 44. 45 Build a Position Scaling In with a Globally Diversified CombinationGrowth of Monthly $1,000 Investments in 3-pack Portfolio (Rebalanced Annually)vs. $60,000 Lump Sum Investment in Canadian Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. The hypothetical combined portfolio assumes 33.33% in Bissett Canadian Dividend Fund, 33.33% in Franklin U.S. Rising DividendsFund and 33.33% in Mutual Global Discovery Fund. For illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthly investmentbegins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but the performance does not include the effect ofany direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total return. No investment strategy, including dollar cost averaging,can guarantee a profit or protect against a loss in a declining market. Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar costaveraging involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  45. 45. 46 Build a Position Scaling In with a Globally Diversified Combination Globally Diversified CombinationSource: Morningstar Research Inc. as of September 30, 2012. The portfolio assumes 33.33% in Bissett Canadian Equity Fund, 33.33% inFranklin U.S. Rising Dividends Fund and 33.33% in Mutual Global Discovery Fund.
  46. 46. 47 Build a Position Scaling In with a Globally Diversified CombinationGrowth of Monthly $1,000 Investments in 3-pack Portfolio (Rebalanced Annually)vs. $60,000 Lump Sum Investment in Canadian Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. The hypothetical combined portfolio assumes 33.33% in Bissett Canadian Equity Fund, 33.33% in Franklin U.S. Rising Dividends Fundand 33.33% in Mutual Global Discovery Fund. For illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthly investment beginsSeptember 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but the performance does not include the effect of any directfees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total return. No investment strategy, including dollar cost averaging, canguarantee a profit or protect against a loss in a declining market. Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar costaveraging involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  47. 47. 48 Build a Position Scaling In with Bissett Canadian Dividend Fund–Series ASource: Morningstar Research Inc. as of September 30, 2012.
  48. 48. 49 Build a Position Scaling In with Bissett Canadian Dividend Fund–Series AGrowth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investmentin Canadian Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthlyinvestment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but theperformance does not include the effect of any direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, wouldlower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous orperiodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investingregardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  49. 49. 50 Build a Position Scaling In with Bissett Dividend Income Fund–Series ASource: Morningstar Research Inc. as of September 30, 2012.
  50. 50. 51 Build a Position Scaling In with Bissett Dividend Income Fund–Series AGrowth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investmentin Canadian Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthlyinvestment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but theperformance does not include the effect of any direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, wouldlower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous orperiodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investingregardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  51. 51. 52 Build a Position Scaling In with Bissett Canadian Equity Fund–Series ASource: Morningstar Research Inc. as of September 30, 2012.
  52. 52. 53 Build a Position Scaling In with Bissett Canadian Equity Fund–Series AGrowth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investmentin Canadian Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthlyinvestment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but theperformance does not include the effect of any direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, wouldlower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous orperiodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investingregardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  53. 53. 54 Build a Position Scaling In with Franklin U.S. Rising Dividends Fund–Series ASource: Morningstar Research Inc. as of September 30, 2012.
  54. 54. 55 Build a Position Scaling In with Franklin U.S. Rising Dividends Fund–Series AGrowth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investmentin U.S. Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthlyinvestment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but theperformance does not include the effect of any direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, wouldlower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous orperiodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investingregardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  55. 55. 56 Build a Position Scaling In with Mutual Global Discovery Fund–Series ASource: Morningstar Research Inc. as of September 30, 2012.
  56. 56. 57 Build a Position Scaling In with Mutual Global Discovery Fund–Series AGrowth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investmentin Global Equities5-Year Period Ended September 30, 2012Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthlyinvestment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but theperformance does not include the effect of any direct fees described in the funds prospectus (e.g. advisory fee or income taxes payable) which, if applicable, wouldlower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous orperiodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investingregardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.
  57. 57. 47 58 Capitalize on Opportunity Buying an Attractive Value with Templeton International Stock Fund–Series AGeographic Weightings (As of September 30, 2012)As of 9/30/12. Holdings are subject to change. For updated information, please call Franklin Templeton Investments at 1.800.387.0830 or visit www.franklintempleton.ca.The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings.
  58. 58. 59 Capitalize on Opportunity Increase your Growth Potential with Templeton International Stock Fund–Series AGrowth of $10,000*January 3, 1989 to September 30, 2012 $35,200 over 45% more growth Templeton International $24,231 Stock Fund–Series A $22,685 International Equity Category Average MSCI EAFE GR Index (CAD$)Source: Morningstar Research Inc. as of September 30, 2012. * Since inception (January 3, 1989). Source: Morningstar Research Inc. as of September 30,2012. The growth of $10,000 begins at the date of the funds inception (January 3, 1989). Figures include reinvestment of income,capital gains, return of capital and dividends, but the performance does not include the effect of any direct fees described in the fundsprospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total returns.
  59. 59. 60 Capitalize on Opportunity Buying an Attractive Value with Templeton Emerging Markets Fund–Series AHigher Projected Growth Rates for Emerging Economies are Driving Changes inGlobal Markets and ConsumptionSource: IMF October 2012 *Includes Indonesia, Malaysia, Philippines, Thailand and Vietnam
  60. 60. 61 Capitalize on Opportunity Buying an Attractive Value with Templeton Emerging Markets Fund–Series AEmerging vs. Developed Markets: Emerging vs. Developed Markets:Public Debt % of GDP Government Debt Per CapitaDecember 21, 2002 – December 30, 2011 2011 U.S. DollarsSource: Factset; EIU *Developed Markets : G7. Emerging Markets : 87 non-OECD Countries. Total domestic, external and IMFgovernment debt, as a % of nominal GDP. Usually but not exclusively central government
  61. 61. 62Today’s Discussion• How We Got Here• What Most Investors Are Missing• Taking the Next Step
  62. 62. 63The Importance of Working with Your Financial Advisor• Keeps emotions out of investing• Builds a long-term investment strategy that is appropriate for your risk tolerance and goals• Ensures you stay on course with regular reviews and adjustments to your investment strategy
  63. 63. 64Important Legal InformationThe historical annual compounded rates of return as of December 31, 2012 are: Bissett StrategicIncome Fund–Series A units 8.4% 1-year and since inception (December 29, 2011); Bissett CanadianDividend Fund–Series A units 1 year 8.8%, 3 years 8.5%, 5 years 4.9% and 7.7% since inception(December 22, 2003); Bissett Dividend Income Fund–Series A units 1 year 7.7%, 3 years 8.1%, 5years 3.7%, 10 years 5.8% and 5.6% since inception (November 24, 2000); Bissett Canadian EquityFund–Series A units 1 year 13.9%, 3 years 7.7%, 5 years 2.9%, 10 years 7.2%, and 5.5% sinceinception (November 24, 2000); Franklin U.S. Rising Dividends Fund–Series A units 1 year 5.5%, 3years 7.3%, 5 years 1.7%, 10 years -0.8%, and -3.7% since inception (November 24, 2000); MutualGlobal Discovery Fund–Series A units 1 year 12.6%, 3 years 5.4%, 5 years -0.3% and 5.6% sinceinception (February 17, 2003); Templeton Emerging Markets Fund–Series A units 1 year 12.3%, 3years 0.6%, 5 years -2.7%, 10 years 8.4% and 6.2% since inception (September 20, 1991); TempletonInternational Stock Fund–Series A units 1 year 13.9%, 3 years 0.3%, 5 years -4.9%, 10 years 2.9%,and 5.7% since inception (January 3, 1989). These include changes in unit value and reinvestment ofall distributions but do not take into account sales, redemption, distribution or optional charges orincome taxes payable by any unitholder which may have reduced returns. Commissions, trailingcommissions, management fees and expenses may all be associated with mutual fund investments.Please read the prospectus before investing. The indicated rates of return are the historical annualcompounded returns, including changes in unit value and reinvestment of all distributions and do nottake into account sales, redemption, distribution or optional charges or income taxes payable by anysecurityholder that would have reduced returns. Mutual funds are not guaranteed, their values changefrequently and past performance may not be repeated.
  64. 64. Franklin Templeton Investments Corp. 5000 Yonge Street, Suite 900 Toronto, Ontario M2N 0A7 Toll-free: 1-800-387-0830 franklintempleton.ca© 2013 Franklin Templeton Investments Corp. All rights reserved. TSCA PPT 12/12

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