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CPBI Pension Investment Forecast 2011
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Yield curve signal often disregarded, but usually works
10 year yields over Fed Funds through multiple recessionary periods
Source: Bloomberg. NBER –National Bureau of Economic Research
Annual Yie
ld
Year
US Asset Back Securities – Auto
US Asset Back Securities –Credit Card
US Leverage Loans
US Commercial Mortgage Back Securities
Annualized Cdn Bond CorrelationReturn Volatility
InformationRatioIndex
Source: 1- Government of Canada > 1 yr 2- BarCap Canadian Issue > 300 m Corporate Total Return Index 3- JP Morgan US Aggregate Bond Index Total Return Unhedged USD 4- BarCap ABS Auto Total Return Index Value Unhedged USD 5- BarCap Global Agg Credit Card Total Return Index Value Unhedged USD
Period: January 1, 2007 to December 31, 2010
Fixed Income risk categories within the asset class in North America
1.2
0.1
1.4
0.1
100%
80.6%
17.0%
73.9%
4
3
1
2
4.5%
25.3%
4.7%
25.3%
5.2%
3.5%
Cdn Government Bonds
0.9 (5.2)%7 5.2%4.9%
6.6%
3.5%
Canadian Credit
1.1 29.9%6.8%7.3%
US Credit
0.5 11.8%13.4%7.3%6
5
6- BarCap Global Agg US CMBS Total Return Index Value Unhedged USD 7- Market iBoxx USD Leveraged Loans TRI
Basis
Fixed
Fixed
Floating
Fixed
Floating
Fixed/Floating
Floating
Calculations: Marquest Asset Management Inc.
Carnegie Asset Management
Carnegie Asset Management
Bo Knudsen
|Carnegie Asset Management 10
You need to focus to succeed
Unconstrained stock-picking
Concentrated portfolio - maximum 30 positions
Long-term investment horizon
Stable team of experienced portfolio managers
|Carnegie Asset Management 11
Large cap quality – stable growth
Dividend Yield* 10 Year Bond Yield 3 Month T-Bills Yield** Corp Bond Yield***
British American Tobacco 4.80 3.44 0.57 4.74
Vodafone 5.40 3.44 0.57 4.49
Diageo 3.60 3.44 0.57 4.01
Nestlé 3.20 1.63 0.45 1.80
Philip Morris 4.20 3.07 0.12 4.05
Lorillard 5.30 3.07 0.12 6.43
Last updated: December 2010 * 2010E **T-Bills: UK = 6M, Switzerland = 2Y*** BAT: 12/12/19 , VOD: 11/26/18 , PM 03/26/20, LO 05/01/20, DIAG 05/15/18, NESTLE 02/14/18 (YTM)
|Carnegie Asset Management 12
The big consumption shift in China
Instant noodlePork
Beer
Mobile phone
Internet
Fixed phone
Sport shoes
Bicycle
PC
Bottled water
Disposable diaper
Auto
DairyAir traffic
Cosmetics
Grape wineJuice
Health care
Chocolate
Life insurance
Online travel
Fragrance
Pork
Beer
Mobile phone
Internet
Fixed phone
Sport shoes
Bicycle
PC
Bottled water
Disposable diaper
Auto
DairyAir traffic
Cosmetics
Grape wineJuice
Health care
Chocolate
Life insurance
Online travel
Fragrance
0% 50% 100% 150% 200% 250%
GDP per capita (PPP): China = 57% of world average in 2008
Penetration rates/per capita consumption in China relative to world average (as % of world average)
Mature marketsMature markets
Partly developed marketsPartly developed markets
Under-penetrated marketsUnder-penetrated markets
Mature marketsMature markets
Partly developed marketsPartly developed markets
Under-penetrated marketsUnder-penetrated markets
| 13
HDFC stock-pick
|
Stay focused!
Carnegie Asset Management 14
Specialists in emerging markets
2011 Pension Investment Forecast
Julian Mayo Co-CIO Charlemagne Capital (UK) Ltd
18th January 2011Canadian Pension and Benefits Institute
A Case for Emerging Markets
17A Case for Emerging Markets
Emerging economies as % of total world, 2008-2010
* GDP on PPP basis
Source: Merrill Lynch calculations, BP, Goldman Sachs, CIA World Factbook, IMF World Economic Outlook, MSCI, Nov 2010
Emerging markets increasingly dominate
80% of population 73% of foreign exchange reserves
50% of GDP* but only 13% of market capitalisation
18
Strong personal balance sheets
A Case for Emerging Markets
Personal debt
Source: CLSA, August 2010
Consumer debt as % of GDP
99%
18%12%
0%
20%
40%
60%
80%
100%
120%
USA China India
19
-3.8
-5.0
-2.4-2.6 -2.6
-2.4
-1.3
-0.5-0.9
0.3
-0.1-0.4 -0.2
-6
-5
-4
-3
-2
-1
0
1
98 99 00 01 02 03 04 05 06 07 08 09 10E
A Case for Emerging Markets
Figures are for Brazil, Russia, China, India, Korea and Taiwan
Source: UBS, April 2010
Strong finances
Fiscal balances as % of GDP
Low deficits – can afford to reflate
20A Case for Emerging Markets
Trade between Emerging Markets: e.g. Korea
Source: Nomura, CLSA, Oct 2010Intra-GEM trade increasing
Korea: exports to emerging market as % of total
20
25
30
35
40
45
50
Jul1993
Jul1994
Jul1995
Jul1996
Jul1997
Jul1998
Jul1999
Jul2000
Jul2001
Jul2002
Jul2003
Jul2004
Jul2005
Jul2006
Jul2007
Jul2008
Jul2009
Jul2010
21
Priavte consumption
45
50
55
60
65
70
75
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2010
% o
f G
DP
US Emerging Economies
Gross national savings
15
20
25
30
35
1980 1984 1988 1992 1996 2000 2004 2008
% o
f G
DP
Developed Markets Emerging Economies
A Case for Emerging Markets
Consumer story at infant stage
Source: IMF, The Economist Intelligence Unit, June 2010Move from exports to consumption
22
0
2
4
6
8
10
12
14
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
China Japan India Korea
A Case for Emerging Markets
Copper consumption per capita
Source: ICSG, World Bank, Macquarie Research, April 2010
Kilo
gra
ms
per
pers
on
Commodity story – years to run
23Disclaimer
Charlemagne Capital (UK) Limited advises funds which are Collective Investment Schemes recognised by the Financial Services Authority (“FSA”) under section 264 of the Financial Services and Markets Act 2000 for marketing to persons in the UK. In relation to such funds this document must not be relied on for the purposes of any investment decisions. Before investing in any fund(s) we recommend that recipients who are not professional investors contact their independent financial adviser and should read all documents relating to the particular fund(s) such as any report and accounts and prospectus, which specifies the particular risks associated with the fund, together with any specific restrictions applying and the basis of dealing. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. 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. The information in this document does not constitute investment, tax, legal or other advice and is not a recommendation or, an offer to sell nor a solicitation of an offer to buy shares in the fund(s) which may only be made on the basis of the fund’s prospectus/offering memorandum.
Charlemagne Capital (UK) Limited reasonably believe that the information contained herein is accurate as at the date of publication but no warranty or guarantee (express or implied) is given as to accuracy or completeness. The information and any opinions expressed herein may change at any time. Charlemagne Capital (UK) Limited also advises “Unregulated Collective Investment Schemes” (“UCIS”), the promotion of which within the UK or from the UK is severely restricted by statute. Such funds are only made available to Intermediate Customers and Market Counterparties as defined by the FSA and to persons falling within the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
This document is aimed only at persons with professional experience of participating in unregulated schemes and any other person who receives this document should not rely upon it. This document and shares in the fund(s) shall not be distributed, offered or sold in any jurisdiction in which such distribution, offer or sale would be unlawful and until the requirements of such jurisdiction have been satisfied. The purchase of shares in the fund(s) constitutes a high risk investment and investors may lose a substantial portion or even all of the money they invest in the fund(s).
Issued by Charlemagne Capital (UK) Limited - Authorised and Regulated by the FSA.
Charlemagne Capital (UK) Limited
39 St. James‘s StreetLondon SW1A 1JDUnited KingdomTel: + 44 (0)20 7518 2100Fax: + 44 (0)20 7518 2199
www.charlemagnecapital.cominstitutionalbusiness@charlemagnecapital.com
BAILLIE GIFFORD
Copyright © Baillie Gifford & Co 2009. Authorised and regulated by the Financial Services Authority.
CPBI Forecasting Conference
Confessions of an Optimist
T. Scott Nisbet
BAILLIE GIFFORD
26
Overview
• Optimism = smarter than pessimism
• Growth is exponential, so profit! (Imitation and Innovation)
• 3 clues to understanding the credit crunch
BAILLIE GIFFORD
27
Understanding the Credit Crunch
• 1917 and David Lloyd George
• 2008 and Abu Dhabi
BAILLIE GIFFORD
28
Understanding the Credit Crunch
The West Wing: Over-reaching and The end of the Roman Empire
© Gettyimages.com.
BAILLIE GIFFORD
29
Understanding the Credit Crunch
© Contour by Gettyimages.com.
The Wire: Anglosaxon capitalism and society are broken
BAILLIE GIFFORD
30
Shameful Bull market excess at Baillie Gifford
© Fotosearch
BAILLIE GIFFORD
31
Optimism
• Prevailing Pessimism and the First Scotsman
• But the Great Change is for the better
• And Growth is Exponential
BAILLIE GIFFORD
32
The Amazing Acceleration in GDP Growth
BAILLIE GIFFORD
33
Optimism and Making Money
• Drivers of faster growth:
• The power of Imitation (EM)
• The Beauty of Innovation (Technology)
• Find them and profit
BAILLIE GIFFORD
34
• (Anglosaxon) Media worries:• Chinese inflation, European
peripherals, North Korea psychological issues
• Serious worries :• Massive random event and... Our
Industry (greed and dishonesty)
Worry, Worry
BAILLIE GIFFORD
35
Conclusion
• Understand the credit crunch: once in a Century change of leadership
• Profit through optimism:
• Growth rate unprecedented
• Imitation and Innovation keys to this
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