Taking “Smart Risk” to Achieve Active Return Investment Forum Andreas E. F. Utermann Global CIO of Allianz Global Investors Hong Kong, January 2014 Since its inception in San Francisco in 2011, our Investment Forum has established itself as a highlight in the AllianzGI calendar, serving as a source of inspiration and testing ground for our medium to long term investment outlook and thematic hypotheses. At our gathering in Hong Kong for our meeting this January, where the air was mild and sky was particularly clear, we were able to reflect on the bold decisions taken since we last held our forum there and to discuss the future investment horizon. Understand It was at the preceding Investment Forum in Hong Kong, back in June 2012, that our chief investment officers first discussed in detail the “Financial Repression” phenomenon, which to this day offers an important means of understanding – and ultimately acting on – the low-yield capital market environment. It is an environment in which the biggest risk is not to take any risk. At that Forum, we also concluded that measures would be taken to bring the Eurozone more closely together and that a breakup would be avoided. We identified three conditions for a stabilization of the European Monetary Union.1 While Europe is not out of the woods yet, policy makers have made sufficient See: Allianz Global Investors, “European Monetary Union (EMU): Break-Up or Closer Integration?”, 2013 2 Source: Mercer Database, calculations by Allianz Global Investors; data as of December 2013. 1 progress in each of these areas – most notably Mario Draghi’s de facto “lender of last resort” statement in summer 2012 – to ensure that bond markets in the Eurozone enjoyed a significant spread tightening. Political risks remain significant, however, and should not be underestimated. The relative stability of our macro scenario- an environment of low growth and still low inflation – gave us the opportunity this January to explore more specific trends that have been shaping capital markets and to consider how investments should be made in the future. For us as an active asset manager, one of the most important, if somewhat insidious, trends in the industry is that it is becoming more and more difficult to deliver an active return for clients, in particular in equity investments. This challenge can be charted over the last two decades using the Mercer database 2. In effect, lower volatility has driven down Understand. Act. Investment Forum tracking errors and active returns, as has the increase in stock correlations that coincided with the increase in institutional share ownership and the secular rise of indexing. The empirical evidence confirms, however, that, the more active managers are, the better the expected performance. Research shows 3 that there seem to be two distinct but related approaches for managers to generate alpha: (i) focused stock pickers, whose portfolios have a smaller set of conviction investments and generate a higher active share and higher tracking errors; and (ii) diversified stock pickers taking advantage of a wider range of alpha sources; these strategies are characterized by lower tracking errors, seeking to maximise the information ratio. Distinguishing between future winners and losers is at the heart of active investment when it comes to stock picking. This is particularly true in light of what economist Joseph Schumpeter termed “creative destruction”, and particularly pertinent given the application of Moore’s Law when we consider the rate of technological change. Hence, with input from McKinsey 4 and our San Francisco-based global head of research, we devoted a session to the “disruptive technologies” that could shape our future. The development and applications of advanced robotics, advanced materials and next-generation genomics are among the new technologies we are paying closer attention to as we scrutinize corporates’ business models, sector developments and economic growth drivers. In our discussion about ongoing macroeconomic trends we started to review the inflation outlook, understanding that inflation – or, more precisely, its opposite: deflation – can have a significant impact on all asset classes. Inflation has, if anything, surprised to the downside in recent months, and it is the threat of deflation rather than inflation that commands the attention of the latest generation of central bankers. Never- theless, we believe that inflation will stabilize and not turn into the type of deflation that has plagued Japan until recently. In this context, it is important to distinguish between “deflation” and “disinflation”. Whereas deflation is a period with falling prices usually accompanied by at least stagnation, disinflation is a period when inflation rates come down, but do not turn negative. We see that emerging markets and commodity exporters are putting pressure on traded-goods prices including commodities, that the deleveraging in the private sector is unlikely to be completed any time soon and that trend growth should therefore remain moderate, while global unit labor cost growth continues to be muted. Taken together with our scenario of moderate, but sustainable growth, which gained further support during the last few quarters, the price levels in the developed markets should stabilize before edging up in the next two to three years. In parts of Europe where we have seen deflation, this is part of a painful adjustment process to re-establish competitiveness. We do not expect a widespread repeat of the Japanese experience in the developed world for the following three reasons: 1. The current level of private-sector leverage is far lower than it was in Japan in the 1990s; 2. Monetary policy, be it that of the Federal Reserve (Fed) or that of the European Central Bank, is much more accommodative than in Japan at the beginning of what we now call the “lost decades”; and 3. The housing markets in the US and the peripheral countries of the Eurozone stabilized sooner. While not as obvious a pressure, an uptick in inflation should not be discounted by investors. Long-term inflation expectations are still well anchored, but the output gap in the US is closing after years of under-investment in the developed world and global broad money growth behaved well in relationship to nominal growth. With broad money growth being stable at 6 to 7 %, year-on-year growth is at average levels – so both significant inflation and deflation are unlikely in the coming quarters. Source: Cremers, Martijn and Petajisto, Antti 2007, “How Active is Your Fund Manager?”; in 2010 Petajisto published an updated analysis with data through to 2009 and found that the most focused funds underperformed during the latter part of the decade. 4 See McKinsey Global Institute “Disruptive technologies: Advances that will transform life, business and the global economy“, 2013 3 2 Act As at every Investment Forum, we have discussed the investment implications and how best to act on our insights. To start with our own investment processes, the evolution in active management needs to continue: With the support of our “Grassroots” teams and our buy-side company research, we need to continue to pick stocks and capture the big trends, including in, but not limited to, technology, which will reach far beyond the technology sector. The quality of our analysis and the conviction this gives us in our investments is what sets us apart. Opportunities for outperformance need to be captured by judiciously increasing the active share in a portfolio, expanding the investment universe (e. g. including small and mid caps instead of sticking to large-cap investments) and increasing operational excellence through alpha extensions, for example the 130 / 30 type, which permits to leverage 100 % convictions into 130 % investments. Our conviction is: the more active managers are, the more successful they should be. Taking our macro-economic scenario into account, the chase for active return needs to be combined with the willingness to take smart risk. As we have previously stated, we believe there is no alternative to taking risk: • Income solutions with a low duration risk might be the first choice for investors. • A next step might be corporate bonds, including high yields. There is still a huge demand for credit risk, and economic developments and earnings growth should continue to support the improvement of corporate balance sheets. • Notwithstanding their strong run so far, equities, notably dividend strategies, should remain in the focus. Developed-market equities have already enjoyed re-ratings, leading to an expansion in multiples; further share price growth will likely need to be underpinned by earnings growth, and will therefore be more selective. • Institutional investors would be well advised to go into more illiquid assets, which, in addition to generating steady cash flows, should command illiquidity premia in return for longer holding periods. In a low-yield, low-inflation environment there should be opportunities for active return for those who are willing to take smart risk. Andreas Utermann Imprint Allianz Global Investors Europe GmbH Bockenheimer Landstr. 42 – 44 60323 Frankfurt am Main Global Capital Markets & Thematic Research Hans-Jörg Naumer (hjn), Dennis Nacken (dn), Stefan Scheurer (st) Data origin – if not otherwise noted: Thomson Financial Datastream. Calendar date of data – if not otherwise noted: January 2014 Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. Investments in smaller companies may be more volatile and less liquid than investments in larger companies. Investments in emerging markets may be more volatile than investments in more developed markets. Dividends are not guaranteed. Bonds are subject to interest rate risk and the credit risk of the issuer. High-yield or “junk” bonds have lower credit ratings and involve a greater risk to principal. Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes and international economic and political developments. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission (SEC); Allianz Global Investors Europe GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Hong Kong Ltd. and RCM Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; and Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. 【ご留意事項】 本資料は、アリアンツ・グローバル・インベスターズ・ジャパン株式会社(以下、当社)のグループ会 社であるAllianz Global Investors Europe GmbH(以下、AllianzGI Europe)が作成したものです。 本資料は、情報提供を目的とした資料であり、当社の戦略の販売勧誘を行うものではありません。 内容には正確を期していますが、当社が必ずしもその完全性を保証するものではありません。 作成会社と当社はAllianz SE傘下のグループ会社です。 本資料に記載されている内容は既に変更されている場合があり、また、予告なく変更される場合 があります。 最終的な投資の意思決定は、商品説明資料等をよくお読みの上、お客様ご自身の判断と責任に おいて行ってください。 本資料の一部または全部について、当社の事前の承諾なく、使用、複製、転用、配布及び第三者 に開示する等の行為はご遠慮ください。 投資顧問契約および投資一任契約の対価とリスクについて ・当社の提供する投資顧問契約および投資一任契約に係るサービスに対する年間報酬は、最終的にお客 様との個別協議に基づき決定いたします。これらの報酬につきましては、契約締結前交付書面等でご確認 ください。 ・投資一任契約に係る報酬以外に有価証券等の売買委託手数料、信託事務の諸費用、投資対象資産が 外国で保管される場合はその費用、その他の投資一任契約に伴う投資の実行・ポートフォリオの維持のた め発生する費用はお客様の負担となりますが、これらはお客様が資産の保管をご契約されている機関(信 託銀行等)を通じてご負担頂くことになり、当社にお支払い頂くものではありません。これらの報酬その他の 対価の合計額については、お客様が資産の保管をご契約されている機関(信託銀行等)が決定するもので あるため、また契約資産額・保有期間・運用状況等により異なりますので、表示することはできません。 ・投資顧問契約に基づき助言する資産又は投資一任契約に基づき投資を行う資産の種類は、お客様と協 議の上決定させて頂きますが、対象とする金融商品及び金融派生商品(デリバティブ取引等)は、様々な 指標等の変動の影響を受けます。 従って、投資顧問契約又は投資一任契約の対象とさせて頂くお客様の 資産において、元本欠損を生じるおそれがあります。 ご契約の際は、事前に必ず契約締結前交付書面等 をご覧ください。 アリアンツ・グローバル・インベスターズ・ジャパン株式会社 金融商品取引業者 関東財務局長(金商) 第424号 一般社団法人日本投資顧問業協会に加入 DBIM20140124DBIM20140124-2
© Copyright 2024 ExpyDoc