0NEW ZEALAND INVESTMENT BRIEFING 2017
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N E W Z E A L A N D I N V E S T M E N T B R I E F I N G 2 0 1 7
MULTI -SECTOR PORTFOLIOS:WEATHERING THE PERFECT STORM
N E W Z E A L A N D I N V E S T M E N T B R I E F I N G 2 0 1 7
N i c k W h i t eG l o b a l D i r e c t o r o f P o r t f o l i o C o n s t r u c t i o n R e s e a r c h , A u s t r a l i a
1NEW ZEALAND INVESTMENT BRIEFING 2017
E Q U I T I E S : V O L AT I L E G R O W T H
Source: Thomson Reuters Datastream
500
1,000
1,500
2,000
2,500
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
S & P 5 0 0
2NEW ZEALAND INVESTMENT BRIEFING 2017
6 0 / 4 0 : A S M O O T H E R R I D E
Source: Thomson Reuters Datastream
S & P 5 0 0 , 6 0 / 4 0
50
150
250
350
450
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
S&P500 60/40 portfolio
3NEW ZEALAND INVESTMENT BRIEFING 2017
6 0 / 4 0 I N I T S P R I M E
Source: Thomson Reuters Datastream
2007-2016 EQUITY 60/40
Return (p.a.) 7% 6%
Volatility 15% 10%
Maximum Drawdown -50% -33%
Return/Risk 0.5 0.6
4NEW ZEALAND INVESTMENT BRIEFING 2017
D I V E R S I F I C AT I O N E F F E C TT H R E E - Y E A R C O R R E L A T I O N : U S E Q U I T I E S A N D B O N D S
Source: Bloomberg
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2000 2002 2004 2006 2008 2010 2012 2014 2016
5NEW ZEALAND INVESTMENT BRIEFING 2017
B U T W H AT I S “ N O R M A L ” ?T H R E E - Y E A R C O R R E L A T I O N : U S E Q U I T I E S A N D B O N D S
Source: Bloomberg
-15%
-10%
-5%
0%
5%
10%
15%
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012
Rolling 3-Year Correlation Rolling 3-Year Inflation
6NEW ZEALAND INVESTMENT BRIEFING 2017
S T R AT E G I C T H E M E S
• Climate risk• Opportunities for private investors
• Stress testing• Currency hedging• “Soft”/ “hard” hedges
• Assess inflation risk• Real assets v ILBs • Opportunity for macro strategies
• Lower returns • Illiquidity &
complexity• Market cap
shortcomings
STRUCTURALCHANGE
CAPITALABUNDANCE
FRAGMENTATION MONETARY TO FISCAL POLICY
7NEW ZEALAND INVESTMENT BRIEFING 2017
R E S P O N D I N G T O T H E C H A L L E N G E
Enhance robustness
TAKEACTION
Consider full range of tools
EXPAND THE TOOLKIT
Be clear on objectives
KNOWTHYSELF
Use scenario analysis
IDENTIFY WEAKNESSES
8NEW ZEALAND INVESTMENT BRIEFING 2017
TA K I N G A C T I O N
• Liquid alternatives• Real assets• Private debt
• Dynamic strategies
• Cash
ADDIT IONALFLEXIB IL ITY
LAYERS OF DEFENCE
• Inflation-linked• Synthetic
protection
EXPLIC IT HEDGES
9NEW ZEALAND INVESTMENT BRIEFING 2017
TRANS‐TASMAN SHARES
GLOBAL ACWI
LISTED REAL ASSETS
INFRA‐STRUCTURE
REALESTATE
GLOBAL AGGREGATE
BONDS
SHORT DURATION BONDS
NZ BONDS
CASH
LIQUIDALTS
P O R T F O L I O E V O L U T I O N – E N D O W M E N T
LISTED EQUITIES
REAL ASSETS
LIQALTS
DEFENSIVE FIXED INTEREST/CASH
PRIV EQTRANS‐TASMAN SHARES GLBL
SML CAP
EM EQ
GLOBAL ACWI
LOW VOL EQ
INFRA‐STRUCTURE
REALESTATE
SECURE FINANCE
ABSRETNBONDS
INV GDECREDIT
GLOBAL SOV BONDS
NZ BONDS
CASH
LIQUIDALTS
PRIVEQ
LISTED EQUITIES
REAL ASSETS
LIQUID ALTS
DEFENSIVE FIXED INTEREST/CASH
10NEW ZEALAND INVESTMENT BRIEFING 2017
TRANS‐TASMAN SHARES
GLOBAL ACWI
LISTED REAL ASSETS
GLOBAL AGGREGATE
BONDS
SHORT DURATION BONDS
NZ BONDS
CASH
P O R T F O L I O E V O L U T I O N – B A L A N C E D D C
LISTED EQUITIES
REAL ASSETS
DEFENSIVE FIXED INTEREST/CASH
TRANS‐TASMAN SHARES GLBL
SML CAP
EM EQ
GLOBAL ACWI
LOW VOL EQ
LISTED REAL ASSETS
EMDABSRETNBONDS
INV GDECREDIT
GLOBAL SOV BONDS
NZ BONDS
CASH
LIQUIDALTS
LISTED EQUITIES
REAL ASSETS
G'TH FIXINT
LIQUID ALTS
DEFENSIVE FIXED INTEREST/CASH
11NEW ZEALAND INVESTMENT BRIEFING 2017
S U M M A R Y
4
3
1
2Stress test portfolios
against multiple economic scenarios
The future may not look like the recent past
Challenge the status quo and expand the toolkit
Fix the roof when thesun is shining
12NEW ZEALAND INVESTMENT BRIEFING 2017