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If beta becomes risky:Alpha to hedge anddiversify againstincreasing correlation.
Asbjrn Trolle Hansen
February 2010
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Multi Asset Investment approach
Implementation of Asset Allocation
Nordea Multi Asset Fund
Agenda
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Multi Asset Investment approach
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Multi Assets investment strategy: Based on asset allocation in 9 dimensions
1.
Curren-cies
Multi Assets Core Investment Strategies
2.
Equityvs. FI
3.
EquityCountry
4.
EquityIndustry
5.
EquityCluster
6.
EquityStable
7.
FI Credit
8.
FI AssetAlloc.
9.
Commo-dities *
Team
More than 25 investment professionals Proven asset allocation approach run by experienced team
Strong track record across strategies
* Exposure to commodities to be implemented at a later stage for the Multi Asset Fund
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Multi Assets approach: Focus on value creation
Traditional Approach Multi Assets Approach
Strategy Top down approach
Based on business cycles
Bottom up asset pricing
Information Flow, Relative Value, Equilibrium Pricing
Diversification Few strategies with high
correlation Asset allocation across nine core investment
strategies with low correlation
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Overview: Strategic and Tactical Asset Allocation
Time
Tactical Asset Allocation
3M 3Y
1Y
Information Flows
Strategic Asset Allocation
Relative Value Equilibrium
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Earnings growth 2010
Long bond yields Trend *) Trailing (reported) 09 est Mean (2010)
4,1% 45 % 9 % 13 % 43 %
4,3% 40 % 5 % 9 % 38 %
4,5% 36 % 2 % 6 % 34 %
4,7% 31 % -1 % 2 % 30 %
4,9% 27 % -4 % -1 % 26 %
5,1% 23 % -7 % -4 % 22 %
5,3% 20 % -10 % -7 % 18 %
5,5% 16 % -12 % -9 % 15 %
5,7% 13 % -15 % -12 % 12 %
EPS, S&P 500: 77,0 57,9 60,0 76,0
Expected Performance if the market should reach Fair value at end of 2010:
Valuation (US stocks)
4,5%
-0,6 %
3,5 %
-2,2 %
5,2%
-4,0 %
-2,0 %
0,0 %
2,0 %
4,0 %
6,0 %
8,0 %
30Y Govt bond
Taxes
RiskPremium
Inflation
Cost of Capital
Fair Value:
P/E = 1 / 5,2% = 19,3
Valuation today:
P/E = S&P500/Est earn 2010
= 1097 / 76 = 14,4
Price target end10: 34 %
Valuation
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Normalised Valuation
S&P 500 Earnings
-
5
10
15
20
25
Q1,
88
Q2,
89
Q3,
90
Q4,
91
Q1,
93
Q2,
94
Q3,
95
Q4,
96
Q1,
98
Q2,
99
Q3,
00
Q4,
01
Q1,
03
Q2,
04
Q3,
05
Q4,
06
Q1,
08
Q2,
09E
Q3,
10E
Quarter
lyEarnings
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
NetDebtSe
rviceCosttoEBITS&P Operating Earninbgs
US GDP implied earnings
Debt service cost / EBIT
S&P 500 Earnings
-
5
10
15
20
25
Q1,
88
Q2,
89
Q3,
90
Q4,
91
Q1,
93
Q2,
94
Q3,
95
Q4,
96
Q1,
98
Q2,
99
Q3,
00
Q4,
01
Q1,
03
Q2,
04
Q3,
05
Q4,
06
Q1,
08
Q2,
09E
Q3,
10E
Quarter
lyEarnings
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
NetDebtSe
rviceCosttoEBITS&P Operating Earninbgs
US GDP implied earnings
Debt service cost / EBIT
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Current Year US Earnings Estimates
Market: 0,8 %Energy 0,4 %Materials 1,6 %Industrials 0,8 %Consumer discretionary 1,2 %Consumer Staples 0,2 %Healthcare -0,1 %Financials -3,4 %Technology 4,6 %Telecom -0,3 %
Utilities -0,1 %
Next Year
Market: 0,9 %Energy 2,3 %
Materials 1,9 %
Industrials 0,8 %
Consumer discretionary 1,1 %
Consumer Staples 0,0 %
Healthcare -0,1 %
Financials -1,6 %
Technology 3,7 %
Telecom -0,9 %Utilities -0,5 %
US Earnings Estimates
US Sales Estimates
Market: 0,4 %Energy 1,7 %
Materials 0,5 %
Industrials 0,2 %Consumer discretionary 0,2 %
Consumer Staples 0,0 %
Healthcare 0,1 %
Financials 0,5 %
Technology 1,3 %
Telecom 0,0 %
Utilities -0,8 %
Next Year US Sales Estimates
Market: 0,6 %Energy 2,1 %
Materials 1,3 %
Industrials 0,4 %
Consumer discretionary 0,4 %
Consumer Staples 0,0 %
Healthcare 0,2 %
Financials 0,6 %
Technology 1,6 %
Telecom 0,1 %Utilities -1,3 %
Current Year
Cross checking on fundamental momentum
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PE 12m fwd
0,0 5,0 10,0 15,0 20,0 25,0
US Small Cap (Russel 2000)
MSCI Japan
MSCI Taiwan
Denmark (KFX)
Finland (FNHEXPO)
Sweden (OMX)
Australia (SP200)
MSCI Singapore
MSCI Malaysia
MSCI Mexico
US (S&P500)
Poland (WIG20)
Hong Kong (HSI)
MSCI Brazil
Germany (DAX)
Switzerland (SMI)
UK ( FT100)
MSCI EMU
France (CAC40)
H-Shares
Norway (MSCI)
EuroStoxx 50
MSCI Thailand
Hungary (B UX)
MSCI Korea
MSCI Turkey
Russia (RTS)
OECD PPP
Mexican Peso
New Turkish Lira
Po lish Zloty
South Korean Won
Hungarian Forint
Iceland Krona
British Pound
New Zealand Dollar
Canadian Do llar
Euro
Japanese Yen
Swedish Krona
Australian Dollar
Swiss Franc
Norwegian Krone
Danish Krone
-80% -60% -40% -20% 0% 20% 40% 60%
Source: Datasream IBES january 8th 2010. US = S&P 500, Korea = MSCI Korea Source: Bloomberg January 12th 2010
Getting it aggressively, or
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Despite recent positive returns of Stable Equities the earnings and dividend yields are still fairly highcompared to bond yields
We are confident that Stable Equities have clear support on valuation because the implied risk
premium is relatively high and earnings are more visible
Cash flows from stable companies have proven historically to be inflation protected and assuch could maybe even be compared to low real rates
Source: Datastream and Bloomberg. Data as of ultimo December 2009.
Earnings rev isionsrevisions f or 2010 earnings
75
80
85
90
95
100
105
jan-09
mar
-09maj
-09jul-09
Stable equities MSCI World
ValuationP/E 12 month fw d
6,00
8,00
10,00
12,00
14,00
16,00
18,00
sep-07
nov-07
jan-08
mar
-08maj
-08jul-08
sep-08
nov-08
jan-09
mar
-09maj
-09jul-09
MSCI World Stable equities
getting it defensively
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Implementation of Asset Allocation
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Tactical Asset Allocation: Tools & Output
Only TAA core bets can be used to operate within themax/min constraints
A more diversified TAA process can be obtained byincluding the Multi Asset Fund
To take all TAA risk through the Multi Asset Fund is theidea behind the VaR based approach
FX
EQ Cluster
Commodities
EQ vs FI
EQ Country
EQ Industry
EQ Stable
Credit AA
FI AA
MultiAssetFund
EQ
FI
TAA core bets
TAA core(+) bets
Strategies
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Bonds 40%
Emerging Markets bonds
45%
5%
Equities
Local 0%
Global 45%
Total Assets 100%
Benchmark
30%
0%
10%
0%
0%
Min
60%
10%
60%
10%
60%
Max
5%
High Yield bonds
0% 10%
Investment grade bonds 5% 0% 10%
Investment Guidelines
Example of traditional balanced mandate
Benchmark portfolio is found by using theOptimiser (efficient frontier)
Risk budget for TAA is defined by min and max
restrictions on the individual asset classes (oralternatively by a tracking error limit). Inevitably theabsolute risk level will vary over time.
Performance is measured as the differencebetween the portfolio and the BM. BM performanceis based on performance of relevant indices e.g.
MSCI world for Global Equities and EFFAS forbonds.
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Investment Process Max Loss Based
SAAMax Loss
TAAMax Loss
TotalMax Loss
distributedon the
differentrisk types
Part of total assets is allocated to the Multi Asset Fundaccording to the defined TAA risk budget
The Multi Asset Fund secures operational efficientexposure to the best 20-30 tactical strategies
MultiAssetFund
Dynamic SAA portfolio (uses 10Y return expectations)updated every quarter and re-optimised for a given
SAA Max Loss level
Max loss target on the SAA part determined by theoverall risk budget
Strategic strategies mainly implemented through funds
Description
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PF3PF2
PF1
Optimal SAA Portfolios
Expected Return
3.9%
4.5%5.6%
8.6%
10.1%
10.0%
Expected Risk
3.6%
3.0%8.2%
15.3%
20.0%
10.0%
Asset Class
Bonds
Government & Mortgage (50/50)
European Investment GradeGlobal High Yield
Stocks
Global Stocks
Emerging Markets Stocks
TAA-Overlay
Multi Asset Fund
Expected Return
Expected Risk
Total
Bonds
Stocks
Value-at-Risk 99%, 1Y
Value-at-Risk 99%, 1Y, MEUR
PF1
49.9%
15.8%4.3%
17.8%
12.2%
-
5.6%
5.8%
100.0%
70.0%
30.0%
7.8%
78.0
PF2
40.5%
15.3%4.2%
22.9%
17.1%
-
6.2%
7.3%
100.0%
60.0%
40.0%
10.5%
105.4
PF3
31.2%
14.7%4.1%
27.9%
22.1%
-
6.7%
8.8%
100.0%
50.0%
50.0%
13.4%
134.2
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Allocation between SAA and TAA VaR
PF2
40.5%
15.3%4.2%
22.9%
17.1%
-6.2%
7.3%
100.0%
60.0%
40.0%
10.5%105.4
105.4
0.0
100.0%
0.0%
Asset Class
Bonds
Europe Gov. & Mort. (50/50)
European Inv. GradeGlobal High Yield
Stocks
Global Stocks
Emerging Markets Stocks
TAA-Overlay
Alpha 10Expected Return
Expected Risk
Total
Bonds
Stocks
VaR 99%, 1YVaR Total PF 99%, 1Y, MEUR
VaR SAA PF 99%, 1Y, MEUR
VaR TAA PF 99%, 1Y, MEUR
Strategic Share in Risk
Tactical Share in Risk
Allocation to TAA from BondsAllocation to TAA from Stocks
PF2 + TAA1
34.8%
14.8%4.5%
21.6%
16.4%
7.9%6.5%
7.4%
100.0%
54.1%
38.0%
10.5%105.4
94.9
10.5
90.0%
10.0%
74.3%25.2%
PF2 + TAA2
29.2%
14.4%5.1%
20.1%
15.3%
15.9%6.9%
7.5%
100.0%
48.7%
35.4%
10.5%105.4
84.3
21.1
80.0%
20.0%
71.1%29.0%
PF2 + TAA3
24.1%
13.8%5.6%
18.6%
14.1%
23.8%7.2%
7.7%
100.0%
43.5%
32.7%
10.5%105.4
73.8
31.6
70.0%
30.0%
69.2%30.6%
Value-at-Risk 99% Risk Contribution, MEUR
0
20
40
60
80
100
120
105.4
PF2
94.9
10.5
PF2+TAA1
84.3
21.1
PF2+TAA2
73.8
31.6
PF2+TAA3
Strategic Risk Budget Tactical Risk Budget
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Asset allocation overlay versusMedium Risk Balanced Fund **
* Bonds: Effas 3-5Y; Global Equities: MSCI World NDR
50% Bonds / 50% Global Equities *
Asset allocation overlay clearly outperforms a medium risk balanced fundAsset allocation overlay versus
Efficient Frontier
Asset allocation overlay (10% vol.)
** Returns are based on an exposure weighted composite of actual overlay accounts for periods January 2004 through to December 2006. During the periods January 2007 through December 2007, returns are based on the Alpha 15 fund with returnsscaled to 10% target volatility. Return figures are shown net of administrative and transaction costs, management fee (1.0% p.a.), and performance fee (20%). Returns for January 2008 and onward are actual (net of fees) results of the Alpha 10 fundshare class B (EUR) for institutional clients. Past performance is not indicative of future returns.
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2004 2005 2006 2007 2008 2009
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0% 2% 4% 6% 8% 10% 12% 14%
Expected Risk
ExpectedReturn
PF2 + TAA1PF2 PF2 + TAA2 PF2 + TAA3
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Nordea Multi Asset Fund
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Domiciled in Luxembourg, regulated by CSSF under UCITs higher diversification rules
Use of liquid instruments only: No illiquid assets (CDOs, ABS, loans, private equity, etc.)
Exposure is measured by Value at Risk (VaR)
Dynamic risk management: If volatility is high, leverage limits are reduced, effectively
controlling the risk for the fund
The Fund will not borrow securities or cash to create leverage
Any short exposure will only be achieved via the use of derivatives
Rigorous stress testing: Extreme market scenario tests are conducted on a regular basis
Counterparty risk: Cash at risk with brokers (margins on derivatives) is monitored under
strict UCIT rules
Multi Asset Fund (UCIT III): Comparison with traditional non-UCIT Hedge funds
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Most investors continue to bet their risk budget on the optimization of a limited number
of beta risks. Why?
The alpha based Multi Asset approach creates superior risk adjusted returns through
bottom up asset pricing and diversification across nine low correlated strategies.
The Nordea 1 Multi Asset Fund encapsulates the complexity of the TAA overlay
in a UCIT III compliant fund allowing for an easy implementation.
Allocating risk budget to an alpha based TAA overlay offers higher return potential than
a pure beta based SAA portfolio without increasing the overall risk budget.
Summary
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Appendix
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Alpha 10 Fund
Positive Months 49 of 72 68.1%
Monthly Annually
Standard Deviation 2.11% 7.32%
Downside Deviation 1.21% 4.19%
Value at Risk (95% Confidence) 2.67% 2.26%
Value at Risk (99% Confidence) 4.11% 7.25%
Annualised Performance
EUR
December 31, 2009
Characteristics
This report is for the period Jan 1, 2004 to Dec 31, 2009. Performance and risk figures are based on calculations using monthly time intervals with all figures for periods greater than 1 year annualised. Returns are based on an exposure weightedcomposite of actual overlay accounts for periods January 2004 through to December 2006. During periods January 2007 through December 2007, returns are based on the Cayman Island domiciled Alpha 15 fund. Returns for the series are scaled to 10target volatility with estimated transaction costs of 0.30% p.a. Return figures are shown net of administrative and transaction costs, management fee (1.0% p.a.), and performance fee (20%). Returns for January 2008 and forward are actual (net of fees)results of the Luxembourg domiciled Alpha 10 fund share class B (EUR) for institutional clients. Past performance is not indicative of future returns.
-6,00%
-4,00%
-2,00%
0,00%
2,00%
4,00%
6,00%
8,00%
Jan04
Apr04
Jul04
Okt04
Jan05
Apr05
Jul05
Okt05
Jan06
Apr06
Jul06
Okt06
Jan07
Apr07
Jul07
Okt07
Jan08
Apr08
Jul08
Okt08
Jan09
Apr09
Jul09
Okt09
Monthly Return
Currency:
End date:
Sharpe Ratio 0.96
Period Product Volatility
1 year 16.46% 7.24% 2.27
2 years 5.28% 8.17% 0.65
3 years 5.42% 7.44% 0.73
5 years 9.90% 7.11% 1.39
SinceInception
9.79% 7.32% 1.34
Annual Performance
Product VolatilityReturn/ Risk
Ratio
2005 23.60% 4.45% 5.30
2006 10.74% 7.17% 1.50
2007 5.69% 5.69% 1.00
2008 -4.82% 8.02% -0.60
2009 16.46%
Return/ RiskRatio
Period
NoteMulti Asset Fund performance:
January 2010: -2.4%
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Keskuskatu 3A
FI-00020 HelsinkiFinland
+358 9 165 48302
Regerinsgatan 59
SE-10571 StockholmSweden
+46 8 579 42000
Strandgade 3
DK-1401 Copenhagen KDenmark
+45 3333 3001
Essendropsgate 9
NO-0368 OsloNorway
+47 2248 6670
Hauptstrasse 15
D-61462 KnigsteinGermany
+49 61 74 968 60
55 Basinghall Street
London EC2V 5NBUnited Kingdom
+44 (0)20 7726 9151
437 Madison Avenue
New York, NY 10022United States
+1 212 603 2852
Nordea Investment Management
Compliance Statement and Other Information
As you will be aware the new legislation on investment services according to the new EU Directive, called The Markets in Financial Instruments Directive (MiFID) in European Economic Area (EEA), covering all EU member states and Norway
became effective on 1 November 2007.The purpose of MiFID is to increase consumer protection and transparency in investment services. The new legislation obliges al l institutions offering investment services to categorise their customers as Non Professional Customers, ProfessionalCustomers or as Eligible Counterparties.As an investor, we have categorised you as a Professional investor.Please note that this material is intended as general information to the recipient. No representation is made that the estimates, data or information herein are complete and the information can be subject to change without notice. The reader mustinterpret the information himself/herself and is encouraged to discuss the assumptions with Nordea Investment Management. Nordea Investment Management does not assume any responsibility and cannot be held responsible for the informationcontained in this document. Similarly Nordea Investment Management cannot in any way be held liable for any effects caused by using any part of the information in the document.
Jan Albersjan.albers@nordea-ag.de
Tel: +49 6174 9686 81
Hans C. Bidstruphans.bidstrup@nordea-ag.de
Tel: +49 6174 9686 96
Bjrn I. Magnussenbjorn.magnussen@nordea-ag.de
Tel: +49 6174 9686 82
Contact for institutional investors and segregated mandates
Nordea Investment Management AG
Hauptstrasse 15D-61462 Knigstein im Taunus
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Contact for third-party and SICAV investors
Die genannten Teilfonds sind Teil von Nordea 1, SICAV, einer offenen Investmentgesellschaft luxemburgischen Rechts. Den ausfhrlichen und die vereinfachten Nordea 1, SICAVVerkaufsprospekte und unseren aktuellen Jahresbericht/Halbjahresbericht erhalten Sie kostenlos in Papierform bei unserer Vertriebsstelle in Luxemburg, bei der Zahl- undInformationsstelle in Deutschland oder bei den berechtigten Vertriebsstellen. Zahl- und Informationsstelle in Deutschland ist Nordea Bank Finland plc, Niederlassung Deutschland,Grneburgweg 119, D-60323 Frankfurt am Main. Fremdwhrungsanlagen sind Wechselkursschwankungen unterworfen. Fonds, die in Schwellenlnder anlegen, sind grerenKursschwankungen ausgesetzt. Nordea Investment Funds S.A. verffentlicht ausschlielich produktbezogene Informationen und erteilt keine Anlageempfehlungen. Herausgeber:Nordea Investment Funds S.A., 562, rue de Neudorf, P.O. Box 782, L-2017 Luxemburg. Weitere Informationen bei Ihrem Anlageberater er bert Sie als ein von Nordea InvestmentFunds S.A. unabhngiger Berater. Wertentwicklung errechnet von Nettoanteilswert zu Nettoanteilswert in EUR, bei Wiederanlage der Ertrge, ohne Bercksichtigung desAusgabeaufschlages. Stand 29.01.2010. Wertentwicklungen in der Vergangenheit sind keine Garantie fr zuknftige Ertrge. Der Wert der Anteile kann schwanken und wird nichtgarantiert. Alle geuerten Meinungen sind, falls keine anderen Quellen genannt werden, die von Nordea Investment Funds S.A. Diese Prsentation darf ohne vorherige Erlaubnis
weder reproduziert noch verffentlicht werden. In diesem Dokument genannte Unternehmen werden zu rein illustrativen Zwecken angefhrt und stellen keine Aufforderung zum Kaufoder Verkauf der jeweiligen Werte dar.
Christan BetzelVertriebsdirektor Institutionelle Kunden
Nordea Fonds Service GmbHBonner Str. 323D-50968 Kln
Tel: 0221 / 168070-11Mobil: 0173 / 5804337Fax: 0221 / 168070-27
christian.betzel@nordea.com
Thomas MarnerVertriebsdirektor Institutionelle Kunden
Nordea Fonds Service GmbHBonner Str. 323D-50968 Kln
Tel: 0221 / 168070-12Mobil: 0151 / 11640002Fax: 0221 / 168070-27
thomas.marner@nordea.com
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