1 Anfield Capital Management, LLC “Unconstrained” What it isn’t…and why it really matters right now!

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  • Slide 1
  • 1 Anfield Capital Management, LLC Unconstrained What it isntand why it really matters right now!
  • Slide 2
  • a long time ago . in a galaxy far far away All heck broke loose! And a generation of excess came home to roost in the form of a nasty debt, asset subordination and systemic leverage unwind It was clear things would take a long time to normalize And that fixed income investment management needed to adapt. 2 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
  • Slide 3
  • Fast Forward to the Need The historic interest rate bull market is coming to an end Fiduciaries need a solution, a tool, to manage the next 5 years Hence the birth of unconstrained fixed income investing So there is no need to exit debt markets altogether 3 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
  • Slide 4
  • Hot Topic: Alternative Fixed Income Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Survey of Advisors and Institutions 4 What do you value most in an alternative fixed-income product? Source: Morningstar
  • Slide 5
  • Opportunistic Bond Fund Ruler Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Unconstrained unpredictable The Goal: unconstrained opportunity set, not unconstrained risk In reality there are multiple rulers which should be: 1)Prospectus flexibility = 10 2)Management philosophy = 7 3)Risk adjusted performance/positioning = Ideally an 8 or 9 with typically the risk of other funds Unconstrained and highly aggressive (Hedge Fund like) 123456789 10 Not really unconstrained, mostly marketing Unconstrained yet disciplined Opportunistic Sweet Spot Unconstrained Strategic Income Hedge Fund Lite 5
  • Slide 6
  • Bond Fund Flexibility Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. For all rate environments Hedge Funds Universal Bond Funds Strategic Income Funds Multi-Sector Bond Funds Primary Investment Strategy Allocations to multiple sectors Long Investments Go-anywhere flexibility Active duration management Yield curve trading Hedged fixed income Long/short fixed income Relative value: pair trading Credit: event driven Stressed/distressed debt 6
  • Slide 7
  • Things Needed to be Truly Unconstrained 1.The ABILITY to manage the array of security types, sectors, markets etc. +1 : the AGILITY to use your ability 2.The MINDSET to use all that flexibility 3.The WILL to implement it (without commercial impediments of a product line-up) 7 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
  • Slide 8
  • Because You Can, Doesnt Mean You Should Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 8
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  • A Potential Solution For illustrative purposes. Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Overcoming the traditional allocation dilemma A Versatile Role in A Portfolio Multiple ways investors can make Anfield Universal Fixed Income Fund part of their overall strategy: As a core bond complement, with a distinct risk/return profile and absolute return orientation As an equity diversifier, potentially reducing overall volatility As a defensive holding, with the ability to pursue positive returns in any environment as well as manage duration amid challenging market conditions As a single fund alternative to an array of Satellite funds How the fund fits into a broader portfolio is ultimately a reflection of your individual circumstances. Illustration of a Typical Comprehensive Fixed Income Allocation Framework: 9
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  • MBS Mortgage-backed securityHY High Yield ABS - Asset-backed securityIG - Investment Grade Credit EM Emerging MarketCredit All grade credit Spread Duration measures the % price change for a % change in yield spread Risk Premia additional yield associated with one or more sources of investment risk 10 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. UFIFs Flexible Core Allows evolution with the market environment ToolKit: Sector Quality Long/Short Derivatives Currencies Leveraged Loans Structural Low/Negative Interest Rate Duration Market Interest Rate Risk Spread Duration / Risk Premia Defensive Increasing Interest Rates Aggressive Decreasing Interest Rates
  • Slide 11
  • UFIFs Flexible Core 2.17% as of 12/31/14 Shaded bars indicate economic recessions according to NBER The referenced US 10 Yr Treasury Rate is shown for illustration purposes only and does not reflect any fees, expenses or sales charges. This illustration is not meant to represent the Fund. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Allows evolution with the market environment 11
  • Slide 12
  • and why it really matters right now! 12
  • Slide 13
  • Divergence of the Dual Economy Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Fed Policy US Treasuries Real Estate Regulatory Reform Creates asset & systemic bubbles 13
  • Slide 14
  • Rates Dont Always Rise During Recovery 2.35% as of 8/31/14 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Steadily lower growth rates in last 4 recoveries have induced steadily lower policy rates Creating faster and a greater number of asset bubbles These bubbles have been imploding before inflation has a chance to accelerate and central banks can move to tighten In the last 4 cycles, US bond yields did not rise through the economic expansion US 10YR yield change during expansions % cumulative change in the US 10YR yield from the last day of the recession until the last day of the expansion for all expansions since 1953. Expansion dates are based on the NBER business cycle dates. The year next to each line shows the year of the expansion started. 14
  • Slide 15
  • Size of the Global Financial Economy For comparison: $ 63 trillion Value of all goods and services produced (GDP) $ 955 trillion total volume of foreign currency transactions $ 601 trillion off-exchange trading of financial derivates $ 87 trillion volume of shares and bonds 15 Source: Bundesbank, 2012
  • Slide 16
  • Recovery from the 08/09 Recession Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Experienced unusually weak real economy expansion 16
  • Slide 17
  • Not so for the Financial Economy Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. which may be overheating 17
  • Slide 18
  • Implications 1.The Fed and other central banks are behind and will be forced to raise rates sooner than expected 2.Risk assets can and will rally further 3.If the interest rate environment is normalized in a deliberate step-wise manner it does not have to be disorderly / disruptive to the real economy or capital markets but the broad bond market will still suffer re-pricing 4.There is still time to adopt a defensive fixed income posturebut time is running short 18 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
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  • 19 Red = zero to negative exposure Yellow = modest allocationGreen = attractive exposure, material allocation Current Strategy Summary
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  • Appendix 20
  • Slide 21
  • Core of Fixed Income Market Core of Fixed Income Allocation Remember - the CORE is the foundational part, NOT a reflection of fixed income issuance patterns which are driven by many forces We now have to address the other misconception: the Core must be generally stable or stationary While this makes it easier to define and explain, it also results in our Core being exposed to interest rate, credit and other cycles To avoid this, we have to continuously adjust our Core as the world unfolds 21 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
  • Slide 22
  • A Comprehensive Toolkit The Fund has broad discretion to apply what Anfield believes to be its best investment ideas across the global bond universe This greater investment discretion allows Anfield to adjust duration exposure, allocate across sectors, and otherwise express active views and tap into Anfields global toolkit 22 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Anfield Universal Fixed Income Fund Barclays Capital U.S. Aggregate Bond Index Portfolio Construction Method Manager discretion, based on Anfield's global economic outlook Market capitalization-weighted representation of current U.S. bond market Bond Universe U.S. Treasuries Yankee bonds and Eurobonds U.S. Treasuries U.S. and non-U.S. investment Asset-backed securities U.S. investment grade corporates grade corporates Convertible securities Agency bonds High yield bonds Preferred stock Mortgage-backed securities Non-U.S. sovereign debt Agency bonds Asset-backed securities Mortgage-backed securities Emerging markets bonds Yankee bonds Inflation-indexed bonds Municipal bonds Bank loans Foreign currencies Tools Duration Relative value trades Structural trades Sector rotation Yield curve positioning Currency hedging/allocation
  • Slide 23
  • 23 Red = zero to negative exposure Yellow = modest allocationGreen = attractive exposure, material allocation Current Strategy Summary
  • Slide 24
  • Benchmarking- 2 Epic Fallacies 1.Started out as a way to measure ex-post performance, then morphed into a way to categorize investment managers becoming the ex-ante paradigm Now ALM drives Required Return, which drives asset allocation, and allocation drives manager selection because you have to fit into a box to get funded. 2.Desire to define manager risk via benchmark relative guidelines This is in complete contravention to the reality and logic: Increased concentration of risk factors Reduced manager diversification (all have to operate the same zones) And if you believe the opportunity set is non-stationary, and forced buying and selling at ranges (guidelines) reduces tail risk; then the only logical conclusion is that stationary rules in a non-stationary world must result in a lower, flatter distribution of returns skewed to the left and therefore a lower mean return with higher risk over time the exact anti-thesis of the goal. 24 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
  • Slide 25
  • The Result? A construct of beat the benchmark not make smart investments and earn good risk adjusted returns Limitations for managers: their latitude and tools to get out of the way of trouble and capitalize on opportunity have been removed Concentrating risk factors Many guidelines are in % NAV space Assets, however, operate in risk factor space % NAV space % risk factor space 25 Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Investment guidelines and parameters are determined using this backwards logic, resulting in:
  • Slide 26
  • Disclosures 26 Anfield Capital Management, LLC is a registered investment advisor with the SEC. The purpose of this presentation is to provide general information on our products and services only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. We may change these materials at any time in the future without notice to you. We are not providing you with investment, tax, or legal advice. Past performance is not necessarily indicative of future performance. We are not offering to buy or sell any financial instrument or inviting you to participate in any trading strategy. This material was not intended or written to be used, and it cannot be used by an...

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