Transcript Presentation - Perfecting Investment Portfolios Conference

Wayne Peters Chief Investment Officer
April 2016
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Disclaimer
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Can we expect global growth rates (and consequently asset price
growth) to slow in the decades ahead?
If so, why? And what are the implication for investment portfolios?
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GDP growth rates are already slow
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Forecast GDP growth of major economies
Source: The Conference Board Global Economic Outlook 2016
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Ageing populations
+
Exorbitant debt levels
+
Technology induced deflation
=
Low growth
Shinzō Abe, Prime Minister of Japan
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1. Ageing populations
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Consumer spending by age
Source: US Consensus Bureau
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2. Exorbitant debt levels
Total private and public debt as a % of GDP
Source: Bank of Japan, Cabinet Office, Statistics Canada, Federal Reserve, Bureau of Economic Analysis, Office for
National Statistics of U.K., Statistical Office of the European Communities, Reserve Bank of Australia. Haver
Analytics. Through 2014. U.S. through Q2 2015.
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“When you combine ignorance and
leverage, you get some pretty
interesting results.”
Warren Buffett
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We are now in a ZIRP and NIRP world
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US Federal Reserve rates over last 50 years
Source: Board of Governors of the Federal Reserve System (US), Federal Reserve Bank of St. Loius
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10-year bond yields at all time lows
Source: Global Financial Data
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Negative government bond yields – paying to save
2y Government Bond Yields
%
0
Germany
Netherlands
Austria
Sweden
Finland
Belgium
France
Denmark
Ireland
Japan
-0.1
-0.2
-0.3
-0.4
-0.5
Source: Investing.com
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~25% of Global GDP is covered by NIRP
Source: FactSet, Oxford Economics, Wall Street Journal, GDP share measured in nominal US dollars
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3. Technology induced deflation
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Recently commodities have only gone in one direction
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FANGs’ market cap exceed S&P 500 Energy
P/E 85
P/E 466
P/E 349
P/E 32
Source: Bloomberg, Macro Risk Advisors, US Global Investors
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What does this landscape mean for investment portfolios?
Length of Previous Periods: Value
Underperforming Growth
Years
9
8
7
6
5
4
3
2
1
0
1999
1933
1977
1989
1937
Source: Franklin Templeton Investments, FactSet. Data as of 31/08/2015. Rolling 10yr annualised
Source: Franklin Templeton Investments, Fama & French, Kempen
returns excess returns of MSCI World Value Index vs. MSCI World Growth Index.
Capital Management. US stocks only
1927
1955 Current
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Performance of value and growth – 5 years
Source: Bloomberg
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Long term value performs
Source: Franklin Templeton Investments, Eugene Fama & Kenneth French. Templeton Global Research Library
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“It’s tough to make predictions,
especially about the future.”
Yogi Berra (1925-2015)
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We are now in a stock pickers market
• Excessive debt will constrain global GDP growth going forward
• Stock picking is essential
• Phenomena of a rising tide lifting all boats will no longer be the backdrop to
investment returns
• Valuations have improved relative to growth stocks
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Questions
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