pavia. october – december 2014 asset and portfolio management
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Pavia. October – December 2014 Asset and Portfolio Management. Program: phases of an efficient investment’s process. Define Investor’s characteristics and goals Strategic Asset Allocation Studying Market’s behavior Forecasting Returns Macroeconomic Analysis Fundamental Analysis - PowerPoint PPT PresentationTRANSCRIPT
Pavia. October – December 2014
Asset and Portfolio Management
Program: phases of an efficient investment’s process1.Define Investor’s characteristics and goals
2.Strategic Asset Allocation
1. Studying Market’s behavior
2. Forecasting Returns• Macroeconomic Analysis• Fundamental Analysis
3. Portfolio’s Construction• Risk Budget Approach• Optimization
3.Tactical Asset Allocation
1. Tactical Risk Management (ex ante)
2. Technical Analysis
4. Fund selection
1. The process
2. The model for selection
5. Control and Reporting
1. Risk Management (ex post)
2. Performance Analysis
1. Investor’s characteristics and goals
4
1 – Define investor’s characteristics and goals
It is very important to define:
1. Risk Profile
2. Time Horizon
3. Approach (benchmark vs Total Return)
4. Constraints:
• Investible universe (equities, bonds, credits, etc)
• Type of underlying (stocks, mutual funds, Etf, Hedge Funds)
• Maximum / minimum exposure
Define correctly investor’s characteristics is fundamental: if you make a mistake at this level is very difficult that the investor will be satisfied, even if you will be right in forecast returns
Responsability: Private Banker
5
Benchmark driven: the investor choose an index of the market (benchmark), the goal oh the fund manager is try to bet the index (over performance)
1. The strategic asset allocation is actually delegated to the benchmark chosen
2. The asset managers stay concentrated to tactical asset allocation and fund (security) selection
3. NO volatility control over time
4. The hope is that without volatility constraints over long time period the investor get higher returns (Is that true?)
Total Return: without a benchmark asset managers try to maximize expected return given a certain level of risk (Value at Risk). The goal is to achieve extra return vs risk free with a define level of risk (volatility)
• The asset manager control all the process: dynamic asset allocation and fund (security) selection.
• Flexible approach, with 2 explicit goals:
1. volatility control and capital protection (stability of returns)
2. over performance vs risk free (o risk free + X basis points)
1 – Investment’s approach
2. Strategic Asset Allocation
7
Phases of Strategic Asset Allocation
1 – Define Investible universe on a global basis:
1. Monetary Instruments
2. Government bond (1-3 years, 3-5 years, 5-10 years)
3. Corporate Bond (Investment Grade and High Yield) and Emerging Markets Bonds
4. Global Equity (Europe, USA, Japan, Asia ex Japan, Emerging)
5. Commodities
2 – Studying Markets Behavior
• Analysis of Assets classes over a defined time horizon (usually 2 / 5 years, weekly frequency)
• Calculation of annualized statistical indicators (DNA of different Assets Classes)
• Expected returns
• Standard deviations
• Correlations (matrix of interaction among financials activities)
3 – Studying economic and markets environment
1. Macroeconomic analysis
2. Fundamental Analysis
4 – Portfolio’s construction
• Risk Budget Approach (Risk’s constraints and allocation)
• Optimization (Mean Variance and Black and Litterman)
2. Strategic Asset Allocation
Investible Universe and market’s behavior
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1 - Investible Universe
Monetary Unstruments< 12 mesi Euro
Government Bonds US
Germany
Bonds with spreads PIGS
Corporate Bonds (IG)
Risky Assets Global Equitis Commodities
Corporate HY / Emerging Bonds
Capital Protection
Decorelation
Carry
Extra Return
Short Terms Bonds
Passive Mutual Funds
ETFs
Risk Budget
Risk Budget
Risk Budget
Risk Budget
Views
Views
Views
Views
Dynamic Risk Management
Role
Strategical Tactical
Underlying
Active Mutual Funds
ETFs
Active Mutual Funds
ETFs
Driver Exposure
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2 - Markets behavior: what the history tells us
Markets seem «crazy» and irrational in the short term, but this is not true if we consider a longer time horizon:
Each financial activity has owns characteristics (DNA), in terms of
Returns (annualized)
Volatility (annualized)
Interaction with the others (correlation).
In particular the interaction between different assets is more important than the features of a single one. Each portfolio’s risk-return profile is not equivalent to the sum of all the risk-return profiles of the portfolio’s assets (the importance of diversification!).
Markets behavior often express recurring rules
Is on the basis of those rules and those characteristics that is possible to set up solid and efficient portfolios (strategic component).
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2 - Markets behavior: the numbers
Analysis of Financial’s Activities (DNA)
MonetarioInflation linked
Renta fija AAA Euro
Periféricos Euro
Corporate IG ST Euro
Corporate IG Global
Corporate HY
Deuda Emergente
Renta Variable Global
Commodities
Volatilidad Anualizada
0,1% 4,7% 5,2% 1,5% 1,5% 3,8% 7,8% 6,0% 14,4% 16,2%
Rentabilidad Anualizada
0,9% 7,9% 7,6% 3,8% 3,6% 8,5% 9,2% 11,2% 12,1% -9,7%
Matriz de Correlación
MonetarioInflation linked
Renta f ija AAA Euro
Periféricos Euro
Corporate IG ST Euro
Corporate IG Global
Corporate HY
Deuda Emergente
Renta Variable Global
Commodities
Monetario 100,0% 5,2% 1,4% 20,4% 10,5% 11,4% 4,7% 9,9% 1,8% -9,5%Inflation linked 100,0% 68,8% 15,3% 23,1% 34,9% -13,3% -3,4% -29,6% -11,5%
Renta fija AAA Euro 100,0% 19,2% 45,5% 44,4% -0,3% 3,5% -21,1% -15,7%Periféricos Euro 100,0% 28,8% 19,1% 20,4% 15,1% 13,4% -4,8%
Corporate IG ST Euro 100,0% 82,3% 60,3% 59,0% 19,1% 18,7%Corporate IG Global 100,0% 68,0% 69,0% 16,2% 23,5%
Corporate HY 100,0% 63,1% 41,1% 35,5%Deuda Emergente 100,0% 38,2% 50,3%
Renta Variable Global 100,0% 36,0%Commodities 100,0%
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3 – Studying economic and markets environment
To improve returns for units of risk over time is important to consider also yours views of economic and market environment
To estimate correctly dynamics in financials markets is important to:
Identify a series of investment’s themes (risks factors) that consistently drive returns across global markets and asset classes (long-term valuation, short-term momentum, fund flows, risk premium, macroeconomic policy)
Identify metrics able to describe each investment theme (growth, inflation, multiple, volumes, etc)
Compare owns expectations of the evolution of each risk factor with markets expectations
Basically there are two main disciplines for strategic exposures
Macroeconomics analysis – studying economic cycle
Fundamental Analysis – studying asset’s value and earnings cycle
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3 – Risk factors for markets forecasting
Valuation
Metrics: Price Momentum, volumes, RSITool: Technical analysis
Liquidity
Earnings cycle
Metrics: Growth, Inflation, cash PolicyTool: Macroeconomic analysis
Macroeconomic
Metrics: Multiples (PE, PB, DY), Fair Value (DDM, DCF), Fed Model (B/E Yield)Tool: Fundamental analysis
Metrics: Earnings growth, margins, revenuesTool: Fundamental analysis, quantitative analysis
Metrics: cash policy, yield curve, M1 / M2, foreingns reserves, companies cash flowsTool: Macro research, balance sheet analysis
Momentum
2. Strategic Asset Allocation
Macroeconomic Analysis
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3 – Macroeconomic Analysis
> Economic Cycle Analysis
> Economic Clycle and Market Trend
> Expectations Role
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Economic Cycle: Introduction
Definition: alternation of phases (expansion – contraction) characterized by a different pathos in the economic activity
Key Variables for markets:
1. Gross Domestic Product economic growth
2. Inflation prices increase
3. Economic Policy: cash and fiscal
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Economic Cycle: GDP
Definition: sum of the markets values of all final goods and services domestically produced in a country in a given year
Components: C + I + G + (X-M)
C = Consumption
I = Investments
G = Government Spending
(X-M) = Net exports
Periodical: quarterly looking at other, more frequent, indicators is necessary
USA EUPersonal consumption 71% 56%Gross private investment 14% 22%Government spending 18% 20%Net exports -3% 2%
TOT 100% 100%
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GDP: Consumption
Components: durable goods + non durable goods + services
Leading indicators:
> Labour market indicators:
1. Unemployment rate (monthly)
2. jobless claims (weekly)
3. nonfarm payrolls (monthly)
> Personal income (monthly)
> Durable good orders (monthly)
> Real estate market indicators:
1. Price (monthly)
2. Housing starts (monthly)
> Consumer Confidence USA (monthly)
> U. of Michigan’s index of Consumer Sentiment USA (monthly)
> Consumer Confidence EU (monthly)
Real indicators
Sentiment indicators
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GDP: Investments
Components: residential investments + capital expenditures + inventories
Leading indicators:
> Industrial production (monthly)
> Retail sales (monthly)
> New orders (monthly)
> Philadelphia Fed USA (monthly)
> Chicago Purchasing Manager USA (monthly)
> ISM: PMI manufacturing, services and composite (monthly)
> Sentix, Zew and IFO EU (monthly)
Real indicators
Sentiment indicators
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Inflation
π = (Pt- Pt -1) / Pt -1
1. π >0 and increasing Inflation
2. π >0 and decreasing Disinflation
3. π <0 Deflation
Indicators:
> GDP deflator (quarterly)
> Consumer Price Index (monthly)
> Producer Price Index (monthly)
For each indicator there are general data and core data (ex food & energy)
There are rate-numbers
Only the percentage variations are important
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USA consensus
Fonte Bloomberg - Pagina ECFC
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EU consensus
Fonte Bloomberg - Pagina ECFC
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Economic calendar
Fonte Bloomberg – Pagina WECO
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Economic cycle and market’s returns
High growth Potential output Zero growth or negative
Inflation
Commodities + + +Equity ++Credits + +Bond - - -Liquidity - - -
Commodities + + +Equity ++Credits + +Bond - -Liquidity - - -
Commodities + Bond =Liquidity =Equity - Credits -
Disinflation
Equity + + +
Credits + +
Commodities + +
Liquidity –
Bond - -
Equity + +
Credits + +
Commodities +
Bond =
Liquidity =
Bond + + +
Equity =
Credits =
Commodities =
Liquidity =
Deflation
Bond + + +
Liquidity + + +
Equity - - -
Credits - - -
Commodities - - -
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Economic cycle and trend of the market: role of macroeconomic analysisEurosystem Staff forecast for year 2006 Data ex post, 2006
Eurosystem Staff forecast for year 2007 Data ex post, 2007
Eurosystem Staff forecast for year 2008 Data ex post, 2008
1. Expectations change and they adapt themselves to new events and data (adaptive expectations)
2. The aim does not consist in becoming infallible forecasters
3. The speed of adaptation to new evidences is the matter
March-08 June-08 September-08 December-08PIL % 1,3 - 2,1 1,5 - 2,1 1,1 - 1,7 0,8 - 1,2CPI % 2,6 -3,2 3,2 - 3,6 3,4 - 3,6 3,2 - 3,4
December-05 March-06 June-06 September-06 December-06PIL % 1,4 - 2,4 1,7 - 2,5 1,8 - 2,4 2,2 - 2,8 2,5 - 2,9CPI % 1,6 - 2,6 1,9 - 2,5 2,1 - 2,5 2,3 - 2,5 2,1 - 2,3
2006PIL % 3,0CPI % 2,2
2008PIL % 0,4CPI % 3,85
2007PIL % 2,1CPI % 2,35
March-07 June-07 September-07 December-07PIL % 2,1 - 2,9 2,3 - 2,9 2,2 - 2,8 2,4 - 2,8CPI % 1,5 - 2,1 1,8 - 2,2 2,4 - 2,8 2,0 - 2,2
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Economic cycle and trend of the market: role of macroeconomic analysis1. Building an own main scenario
• It is important to have a central scenario and an alternative one based on the analyzed indicators2. Adapting the scenarios to the evidences
• The scenarios can change through time due to new data and new events 3. Rebuilding and monitoring what the market incorporates
• Every moment the market incorporates a specific scenario of growth-inflation• The market is one of the best forecaster (the best?), efficient and conservative• Are the markets the reflection of the economy, or the opposite? During last years often the oppositehas been often true (see currencies)
4. Analyzing and understanding if and why yours and market’s scenarios differ one from another
• In order to find investment’s opportunities it is necessary to identify the differences between your own scenario and the one incorporated by the market
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EuroYen
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EuroDollaro
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Expectations’ role: what the market incorporates
1. Growth: yield curve
spread corporate
sectors’ trends (cyclical – defensive)
2. Inflation: break even inflation
commodities
3. Cash policy: future on Fed Funds and on Eonia
2 years yields
2. Strategic Asset Allocation
Fundamental Analysis
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> Introduction to fundamental analysis
> Valuation’s methods:
> DCF e DDM
> Multiples
> Conclusions
Fundamental Analysis
30
Introduction to fundamental analysis
Valuation process: analyze the relationship between Value and Price of financials assets
Issue: identify the “theoretical fair value” of an asset that should be different, at least temporarily, than the market price.
By selecting assets undervalued is possible to get extra returns compare to the market’s average.
When is used
1. Security Selection (equities, bonds, real assets)…
2. Asset Selection
3. Generally speaking in the active management
Is useful only if:
4. The investment’s time horizon is medium/long
5. The investment process is structured and disciplined
31
Intruduction to fundamental analysis
Fundamental analysis works better in inefficient markets, where markets price often differs from fair value
Should anyway be used also in efficient markets. Markets becomes efficient for the action of many investors looking for returns and undervaluation, therefore there are possibilities of temporaries inefficiencies also in efficient markets
Valuation is not objective. Every valuation model depends on inputs and estimations that we put into the valuation’s process
The valuation’s process is much more important than the result (fair value). A transparent and coherent process is helpful in order to better understanding the value’s drivers of financials assets
32
Valuation’s methodologies
Discounting cash flows
1. DDM (Dividend Discount Model). Is the simplest methodology. It allows to estimate the equity value as the Net Present Value (NPV) of the future Cash Flow to equity (dividends)
2. DCF (Discounted Cash Flow). Is the methodology most complete. It allows to estimate the value of the Firm (equity + debt) as the Net Present Value (NPV) of future cash flow to firm
Multiples
3. PE (Price to Earnings)
4. PB (Price to Book)
5. PS (Price to Sales)
6. PEG (Price to Earnings Growth)
7. Fed Model (relative valuation equity – bond)
33
Valuation’s methodologies - DDM e DCF
DDM: Equity value
DCF: Firm Value (Equity + Debt)
n
t te
te
k
CF1 )1(
Equity Value
Ke= Cost of Equity
n = life of the asset
CFe= Cash flow to Equity (dividends)
Firm (EV) Value
WACC= Weighed Average Cost of Capital
n = life of the asset
CFf = Cash flow to firm
n
t t
tf
WACC
CF1 )1(
34
Value drivers in a DCF model:
1. Cash flows to firm (CF), that depends on:
• Sales Growth
• Profitability – Margins (EBITDA & EBIT margins)
• Investments for future growth (CAPEX)
• Net Working Capital variations (NWC)
2. Discount rate: Weighted Average Cost of Capital (WACC)
3. Terminal value of the firm
Firm Value and DFC
35
There are 3 options for estimating sales growth:
> Compare growth estimations with historical data
> Make assumptions on market growth and market’s share expectations
> Compare growth estimates with analyst estimates
Estimating sales growth needs:
> Good knowledge of company history and sector perspective
> Keep in touch with analyst and company management
> High level of discipline making our assumptions
Value drivers in DCF Model: Sales Growth
36
There are 3 options for estimating margins
> Compare estimates with historical data
> Compare estimates with competitors
> Compare estimates with analysts assumptions
Capex spending shows how the company invest for future growth and consist of 2 elements:
Net Capex: shows how much the company invests in new equipment in addition to what is necessary to maintain the efficiency of the existing facilities.
Non Cash Working Capital: allows us to consider the level of inventories and the policy regarding accounts receipts and payments (rise in inventories means drain in cash flow).
Value drivers in DCF Model: Margins and Capex Spending
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Value drivers in DCF Model: Discount rate
Discount Rate = weighted average cost of capital (WACC)
WACC =
Cost of equity = return required by investors to invest into the firm compare to risk free
Cost del debt = rate of interest paid by the firm on own debt
1. Depends on credit profile of the firm
2. Is calculated by using financials indicators of rating’s agencies
= Financial leverage
EquityDebt
DebtDC
EquityDebt
Equity E C ebtostquityost
EquityDebt
Equity
38
DCF: estimation of cost of equity
Cost of equity is calculated using the CAPM (Capital Asset Pricing Model)
K = Rfr + (Beta * RP)
K = Cost of equity (expected return)
Rfr = Risk-free rate
Beta
RP = Risk Premium
Exemple: ENI
Risk Free = 3.5%
Beta = 1 (Bloomberg)
Risk Premium = 4.5% (should be different but on average stay between 4% and 5%)
Cost of equity for ENI = 3.5% + 1*4.5% = 8%
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WACC =
exemple: ENI
Cost of Equity = 8%
Cost of Debt = 6%
Cost of Debt after tax = 6% x (1- 45%) = 3.3%
Debt = 16.3 bn € (al 31/12/2007)
Equity = 42.9 bn € (al 31/12/2007)
WACC = = 8% x 0.72 + 3.3 % x 0.28 = 6.68%
Note: Leverage and WACC
Se ENI would have debt of 3 x Ebitda ~ 90 bn €
WACC = = 8% x 0.32 + 3.3% x 0.68 = 4.8%
DCF: estimation of WACC
EquityDebt
DebtDC
EquityDebt
Equity E C ebitoostquityost
Tax Rate
9.423.16
16.33.3%
42.916.3
42.9 % 8
9.4290
16.33.3%
42.990
42.9 % 8
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DCF: ratios that affects cost of equity
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Debt risk
4242
Return
Bond asset return
Rfr = Free Risk asset return
α = risk premium
L = liquidity premium (same qualities securities)
LRR rf
4343
Risk
Definition: returns’ variability around expected medium return
Rational investor theory: given two securities that offer the same expected return, investors will prefer the less risky one
Risk types in fixed interest bonds’ market
1. Credit risk
2. Market risk
3. Liquidity risk
Instruments for risk evaluation
4. Rating (credit)
5. Duration (market)
4444
Credit risk : Rating
Definition: evaluation of a potential borrower's ability to repay debt
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Market risk: Duration
Definition: Measure of the sensitivity of the asset's price to interest rate movements
It is a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows
Fixed interest and zero coupon bonds
Formula
N
tt
t
r
Ct
PD
1 )1(
1
P = Price
C = Cash flows (coupon and debt)
r = Interest rate
N = Time to maturity (yearly, quarterly,…)
4646
Liquidity risk
Definition: lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss
> Liquidity
< Costs (market debt)
< Tempi
Instruments to evaluate the liquidity of a fixed income asset
1. Exchanges’ scale on the secondary market
2. Emission size
3. Market makers’ number
4. Bid/Ask spread
5. Quotations’ transparency
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We are at the last step of our DCF Model
There are 2 options to calculate terminal value:
Liquidation Value. Usually is calculated using multiples: what kind of multiple shall we consider on sales, Ebidta, etc. to sell our company? Better methodology for fast growing company or restructuring stories
Stable Growth. The alternative is to estimate the appropriate stable growth level for the future. Better methodology for mature companies for which there is good visibility on growth rate
Value drivers in DCF Model: Terminal Value
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Relative valuation - Multiples 1/3
The value of financials asset should be estimated by putting in relation the price and a series of fundamentals indicators.
Multiples allows relative valuation, looking at how the markets is pricing similar assets (peer comparison).
Markets inefficiencies among similar assets are easier to get and exploit. Using multiples it is possible to compare different assets over time.
It is important to remember that multiples should change over time, given the same fundamentals, according to some factors:
1. Liquidity
2. Earnings cycle
3. Sentiment
There are different type of multiples:
4. earnings
5. book value
6. sales
7. normalized for growth (Price Earnings Growth)
8. relative (Fed Model)
49
Relative valuation - Multiples 2/3
Multiples of earnings
Price-earnings ratio or PE: ratio between price and EPS (earnings per share)
1. PE Forward (earnings estimated for the next 12 months)
2. PE Trailing (on realized earnings in the last 12 months)
Multiples of operating earnings
Enterprise Value / EBITDA o EBIT (*)
Cash Earnings multiples
Price/Cash Flow (earnings + amortization)
*Ebitda = Earnings Before Interest Taxes Depreciation & Amortization
*Ebit = Earnings Before Interest Taxes
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Relative valuations – Multiples 3/3
Multiples on Book Value (BV)
Price / Book value: ratio between price and the value of own capital
Enterprise Value (EV) / Capital: ratio between (Equity + Debt) and Capital
Multiples on sales
Enterprise Value (EV) / Sales: ratio between EV and sales
Multiples normalized for growth
PEG = PE / Expected Growth Rate. Allows to compare peers normalizing multiple for the growth factor
Realative multiples
Fed Model: Bond Yield (10Y) – equity Yield (Earnings / Price). Express relative valuation between equity and bond markets
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Equity Market - Valuation
FED Model MSCI Europe
-15%
-13%-11%
-9%-7%
-5%
-3%-1%
1%3%
5%
7%9%
11%
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Price to Book MSCI Europe
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PB Mean
Price to Earnings MSCI Europe
0
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120
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PE Mean
Dividend Yield MSCI Europe
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DY Mean
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Fundamental analysis – some conclusions
Disciplined evaluation process improve risk – return profile of the investment
DCF models help to better understanding companies' operational dynamics and therefore to better interpret different phases of the markets
It is important to knows the evaluation’s drivers (sales, margins, cash flows) to catch market’s movements
Multiples allow to get a picture of the evaluation context immediately, and help to compare evaluation over time
It is important to remember that even with non change on fundamentals, multiples should change over time as a function of macro and market environment.
2. Strategic Asset Allocation
Portfolio’ s Construction
54
3 – Portfolio’s construction The aim of Strategic Asset Allocation is to build solid and efficient portfolios over the long
run.
• Forecast accurately is difficult and not enough to generate stable performances in the long period. Must have a framework in terms of rules and instruments for portfolio construction.
• It requires a solid asset allocation tool and systematic approach to risk allocation and management.
1. Knowing the risk exposure and the potential losses of the portfolio
2. Knowing each tool’s contribution to overall risk
3. Be able to intervene to modify the risk level
4. Allows invested capital protection (discretionary choices are not enough)
• In that sense risk management ex ante is a tool for managing portfolios, not only a tool for controlling risk exposure. At the end portfolio management is the “discipline” of managing risk ex ante.
> If the phase of forecasting should be also qualitative and intuitively managed, the phase of portfolio’s construction in by definition quantitative. Combining 10 assets classes, 2616 (!!!) different portfolios can be created (thus compared)
> There is empirical evidence that optimized portfolios generate better and more stable performances for units of risk (Sharpe Ratio)
55
Increasing activities’ number:
• efficient frontier improves, shifting upward
• single activities’ portfolio's variances contribution ( ) tends to 0, whereas covariance’s
contribution ( ) tends to the mean covariance
Diversification: Importance of activities’ number
The more negatively correlated and more assets compose the portfolio, the better the benefit of the diversification is
i iih2
R
σ
n securities
n -1 securities
n -2 securities
EFFICIENT
FRONTIER
i j jiijjihh 222
n. attività
σ
ijσ
56
Is impossible to forecast the best Asset Class on a systematic ways
History tells us that no exist asset class able to produce stable and positive return each year
Obbl. Gov. 3-5 Debito Emerg. Corporate HY Debito Emerg. Commodities Corporate HY Commodities Obbl. Gov. 3-5 Corporate HY Commodities Debito Emerg.
6,1% 13,1% 28,2% 11,7% 37,7% 11,7% 9,7% 8,8% 60,6% 26,2% 8,5%
Monetario Obbl. Gov. 3-5 Debito Emerg. Corporate HY Az. globale Debito Emerg. Debito Emerg. Monetario Debito Emerg. Az. globale Obbl. Gov. 3-5
4,6% 8,7% 25,7% 11,4% 24,2% 9,9% 6,3% 4,0% 28,2% 18,1% 3,3%
Corporate HY Monetario Az. globale Obbl. Gov. 3-5 Debito Emerg. Az. globale Monetario Debito Emerg. Az. globale Corporate HY Corporate HY
3,3% 3,4% 8,6% 5,6% 10,7% 5,7% 4,0% -10,9% 22,7% 15,2% 3,1%
Debito Emerg. Commodities Obbl. Gov. 3-5 Az. globale Corporate HY Monetario Obbl. Gov. 3-5 Corporate HY Commodities Debito Emerg. Monetario
1,4% -1,7% 3,8% 4,6% 3,1% 2,9% 3,4% -27,1% 11,4% 12,0% 0,9%
Az. globale Corporate HY Monetario Monetario Obbl. Gov. 3-5 Obbl. Gov. 3-5 Corporate HY Commodities Obbl. Gov. 3-5 Obbl. Gov. 3-5 Commodities
-13,2% -2,1% 2,4% 2,1% 2,9% 0,5% 1,6% -36,0% 5,5% 1,5% -4,2%
Commodities Az. globale Commodities Commodities Monetario Commodities Az. globale Az. globale Monetario Monetario Az. globale
-19,3% -33,7% -3,2% 0,9% 2,1% -9,6% -4,2% -38,7% 0,7% 0,4% -4,6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The best approach is a dynamic and systematic management of diversification
3 – Portfolio’s Construction: why is so important to diversify
57
3 – Indicators for allocating and managing Risk
Main indicators to estimate ex-ante risk:
1. VAR (Value at Risk) = maximum possible loss for a time horizon, given a certain level of probability
2. Expected Volatility = standard deviation of portfolio’s returns; indicates the possible returns’ fluctuations around the mean
3. Beta (equity) and Duration (bond)
4. Risk attribution for asset classes and financials tools
Expected volatility provides a simple information of portfolio overall risk. Limits of Var methodology:
5. It forces a return’s distribution estimation, often mistaken
6. It does not explain the “rare event” outside the estimated probability
7. It is dangerous to declare to clients
58
3 – Volatility breaking down
It is important to break down the result in order to understand the different risk sources. The two main fundamental indicators are:
1. MCTR = Marginal Contribution To Risk; indicates how total portfolio volatility varies with an infinitesimal increase of the weight of a security
2. CAR = Contribution to Active Risk; indicates the contribution of the single security to the overall risk of the portfolio
Increasing securities’ weight, overall risk decreases
Increasing securities’ weight, overall risk increases
59
3 – Inputs for Risk Budget, Optimizations and Portfolio’s Construction
Analysis of Financial’s Activities (DNA)
MonetarioInflation linked
Renta fija AAA Euro
Periféricos Euro
Corporate IG ST Euro
Corporate IG Global
Corporate HY
Deuda Emergente
Renta Variable Global
Commodities
Volatilidad Anualizada
0,1% 4,7% 5,2% 1,5% 1,5% 3,8% 7,8% 6,0% 14,4% 16,2%
Rentabilidad Anualizada
0,9% 7,9% 7,6% 3,8% 3,6% 8,5% 9,2% 11,2% 12,1% -9,7%
Matriz de Correlación
MonetarioInflation linked
Renta f ija AAA Euro
Periféricos Euro
Corporate IG ST Euro
Corporate IG Global
Corporate HY
Deuda Emergente
Renta Variable Global
Commodities
Monetario 100,0% 5,2% 1,4% 20,4% 10,5% 11,4% 4,7% 9,9% 1,8% -9,5%Inflation linked 100,0% 68,8% 15,3% 23,1% 34,9% -13,3% -3,4% -29,6% -11,5%
Renta fija AAA Euro 100,0% 19,2% 45,5% 44,4% -0,3% 3,5% -21,1% -15,7%Periféricos Euro 100,0% 28,8% 19,1% 20,4% 15,1% 13,4% -4,8%
Corporate IG ST Euro 100,0% 82,3% 60,3% 59,0% 19,1% 18,7%Corporate IG Global 100,0% 68,0% 69,0% 16,2% 23,5%
Corporate HY 100,0% 63,1% 41,1% 35,5%Deuda Emergente 100,0% 38,2% 50,3%
Renta Variable Global 100,0% 36,0%Commodities 100,0%
60
3 - Risk Budgeting and Portfolio’s Construction
Asset Class PesoContributo al
rischio
Contributo al rischio
normalizzato
Monetario 23% 0% 1%Liquidez 8% 0% 0%Periféricos Euro 6/12m 15% 0% 1%
Renta Fija Core 5% 0% 0%Renta fija AAA Euro 0% 0%Renta fija gobierno real 5% 0% 0%
Renta Fija Spread 30% 1% 14%Corporate IG ST Euro 10% 0% 2%Corporate IG Global 20% 0% 12%
Actividad de riesgo 42% 3% 85%Corporate HY 8% 0% 11%Deuda Emergente 14% 1% 17%Renta Variable Global 17% 2% 51%Commodities 3% 0% 7%
TOT 100%
Vol max 10,0%Vol cartera 4,0%Risk Budget 40%
Constraints:
Data from history: 104 weekly returns Risk Profile: balanced Maximum Volatility: 10% Strategic Risk Budget: 40% Duration: maximum 5 years Max Equities + Commodities: 40%
61
3 - Optimization
A. Classic model: Mean-Variance
Minimize risk given a certain level of target return
Efficient Frontier
B. Model with views: Black- Litterman
Mean Variance + Views of Investment Committee
Efficient Frontier adjusted according to Asset Allocation’s Inputs
62
1 - Risk budget: example
Risk profile:
1. Low (L): max volatility = 4%
2. Medium (M): max volatility = 7%
3. High (H): max volatility =10%
Base Portfolio (without views): Risk budget = 25%
Target volatility L = 25%*4% = 1%
Target volatility M = 25%*7% = 1,75%
Target volatility H = 25%*10% = 2,5%
σ
Target portfolios
R
1% 1,75% 2,5%
L
MH
63
1 - Example: output
Portafogli della FE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0,2
%
0,4
%
0,8
%
1,2
%
1,5
%
1,9
%
2,3
%
2,7
%
3,1
%
3,5
%
3,9
%
4,3
%
4,8
%
5,3
%
5,9
%
6,5
%
7,2
%
8,2
%
9,4
%
Risk
Monetario Obbligazionario GovtCorporate AzionarioCommodities
Efficient Frontier
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00%
Risk
Re
t
Efficient Frontier
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00%
Risk
Re
t
Target porfolio
Efficient Frontier Portfolio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0,2%
0,2%
0,3%
0,5%
0,6%
0,8%
0,9%
1,1%
1,3%
1,4%
1,6%
1,8%
2,0%
2,2%
2,4%
2,6%
2,8%
3,0%
3,2%
3,5%
Risk
Cash Govt Bond Corporate Equity Commodities
3. Tactical Asset Allocation
65
3- Tactical Asset Allocation
To improve returns for units of risk over time is important to adapt strategic exposures according to short terms markets movements
Basically there are two main disciplines for tactical allocation
Tactical Risk Management – capital protection
Technical Analysis – studying price movements
3. Tactical Asset Allocation
Tactical Risk Management
67
Risk management (ex ante) for Tactical Asset Allocation To reduce volatility over time and try to protect capital part of the investment process must be
delegated to risk management tools not only to markets forecast
Independently of your forecast it is important having methodologies to adapt your portfolio according to markets movements (often market itself is the best predictor..)
The quality of portfolio management depends also on the stability of return (management of volatility)
> Risk managemnt ex ante:
1. Capital protection instruments (Total Return Products)
2. Tracking Error ex ante (Benchmark’s products)
Responsibility: portfolio’s management department
68
Risk management ex ante: CPPI
CPPI (Constant Proportion Portfolio Insurance) is a quantitative management methodology strongly oriented to risk control
It is based on dynamic portfolio rebalancing according to market’s movements. Basically correspond to portfolio's insurance: portfolio has a floor that must be protected.
This strategy well performances in trend phases (up or downtrend)
CPPI better performance if:
1. Main objective is volatility minimization (capital protection)
2. The issue is Sharpe Ratio maximization (return for each unit of risk)
Strategies opposite to CPPI:
3. Constant Mix: buys equities when they loss and sells when they grow. This strategy well performance along “lateral” markets and bad along bear or bull markets
4. Buy-and-hold: buy at the beginning and do not operate
69
1. “Risky Asset”
2. “Risk-Free Asset”
Components of dynamic portfolios:
The two components’ weights are periodically optimized to benefit from eventual market increases, giving capital protection.
CPPI: functioning
• Classical CPPI criteria:
“Risky Asset” = m (Nav – Floor) where:
m = constant multiplierNAV = net assetFloor = protected level
CPPI is worth only for m > 1 otherwise 2 special cases:
(a) m=1, floor= cash value -> “buy-and-hold” strategy.
(b) 0<m<1, floor= 0, -> “constant-mix” strategy .
70
CPPI - Example
Nav = 100 (net asset)
Floor= 75 (wealth protection level)
Multiplier = 2
Equity investment = 2 * (100 - 75) = €50
1. Initial asset allocation = 50 € equity, 50 € cash.
2. Net asset value remains >= 75 unless equity value is more than 25 €, thus –50%.
3. Ratio 1/m = max loss endurable to protect the floor. 1/m in this case is –50%.
When risky activity loss value, total asset decreases
4. Equity value from €50 to €45, Nav decreases to € 95 (=45+50).
Appropriate equity allocation:
5. 2 * (95-75) = €40
6. sell €5 equity; buy €5 cash 40 € equity, 55 € cash.
On the contrary, if equity gains -> buy.
71
Portfolio rebalancing
UP
DOWN
Risk-Free Asset
Risky Asset
45
60
Risk-Free Asset
Risky Asset
50 50
Risk-Free Asset
Risky Asset
5540
72
4 – Equity portfolio: tracking error management
Optimization
Titolo Settore Peso
ENI SpA Energy 19.52%
Tenaris SA Energy 2.57%
Saipem SpA EnergyBuzzi Unicem SpA Materials 0.61%
Italcementi SpA MaterialsFinmeccanica SpA Capital Goods 1.64%
Prysmian SpA Capital Goods 0.51%
Impregilo SpA Capital GoodsAtlantia SpA Transportation 1.59%
Fiat SpA Automobiles & Components 1.94%
Pirelli & C SpA Automobiles & Components 0.34%
Luxottica Group SpA Consumer Durables & Apparel 1.05%
Bulgari SpA Consumer Durables & Apparel 0.42%
Geox SpA Consumer Durables & ApparelLottomatica SpA Consumer Services 0.81%
Autogrill SpA Consumer ServicesMediaset SpA Media 1.56%
Arnoldo Mondadori Editore SpA Media 0.19%
Seat Pagine Gialle SpA Media 0.16%
Gruppo Editoriale L'Espresso SpA MediaParmalat SpA Food Beverage & Tobacco 1.04%
UniCredit SpA Banks 11.00%
Intesa Sanpaolo SpA Banks 11.32%
Unione di Banche Italiane SCPA Banks 4.33%
Banco Popolare SC Banks 2.85%
Banca Monte dei Paschi di Siena SpA BanksBanca Popolare di Milano Scarl BanksMediobanca SpA Diversified Financials 1.77%
Assicurazioni Generali SpA Insurance 11.18%
Alleanza Assicurazioni SpA Insurance 1.31%
Fondiaria-Sai SpA Insurance 0.70%
Unipol Gruppo Finanziario SpA InsuranceMediolanum SpA InsuranceSTMicroelectronics NV Semiconductors & Semiconductor 1.75%
Telecom Italia SpA Telecommunication Services 4.92%
Fastweb Telecommunication ServicesEnel SpA Utilities 11.09%
Terna Rete Elettrica Nazionale SpA Utilities 1.84%
Snam Rete Gas SpA Utilities 2.03%A2A SpA Utilities
Quantitative Screening Fundamentals analysis
Final Portfolio
+ +
=
Pair trades, only on particulat stocks
+
+
Markets exposure (80% - 100%)
Risk and performance
control
73
4 - Optimization and minimization of tracking error
1. Way to replicate a portfolio with a wide number of securities in one with less securities in order to:
• Reduce the transactional costs of re-balancing
• Provide a background for the following active bets
2. Way to immunize the portfolio from: market, currency, sectors, style and size exposure
3. Way to concentrate on stock-picking
Titolo Settore PesoENI SpA Energy 18.82%Tenaris SA Energy 1.88%Saipem SpA Energy 1.39%Buzzi Unicem SpA Materials 0.34%Italcementi SpA Materials 0.27%Finmeccanica SpA Capital Goods 1.50%Prysmian SpA Capital Goods 0.37%Impregilo SpA Capital Goods 0.29%Atlantia SpA Transportation 1.59%Fiat SpA Automobiles & Components 1.94%Pirelli & C SpA Automobiles & Components 0.34%Luxottica Group SpA Consumer Durables & Apparel 0.98%Bulgari SpA Consumer Durables & Apparel 0.35%Geox SpA Consumer Durables & Apparel 0.14%Lottomatica SpA Consumer Services 0.55%Autogrill SpA Consumer Services 0.27%Mediaset SpA Media 1.52%Arnoldo Mondadori Editore SpA Media 0.15%Seat Pagine Gialle SpA Media 0.12%Gruppo Editoriale L'Espresso SpA Media 0.08%Parmalat SpA Food Beverage & Tobacco 1.04%UniCredit SpA Banks 10.37%Intesa Sanpaolo SpA Banks 10.69%Unione di Banche Italiane SCPA Banks 3.70%Banco Popolare SC Banks 2.22%Banca Monte dei Paschi di Siena SpA Banks 1.71%Banca Popolare di Milano Scarl Banks 0.81%Mediobanca SpA Diversified Financials 1.77%Assicurazioni Generali SpA Insurance 10.93%Alleanza Assicurazioni SpA Insurance 1.06%Fondiaria-Sai SpA Insurance 0.45%Unipol Gruppo Finanziario SpA Insurance 0.41%Mediolanum SpA Insurance 0.33%STMicroelectronics NV Semiconductors & Semiconductor 1.75%Telecom Italia SpA Telecommunication Services 4.80%Fastweb Telecommunication Services 0.12%Enel SpA Utilities 10.78%Terna Rete Elettrica Nazionale SpA Utilities 1.53%Snam Rete Gas SpA Utilities 1.72%A2A SpA Utilities 0.93%
Titolo Settore Peso
ENI SpA Energy 19.52%
Tenaris SA Energy 2.57%
Saipem SpA EnergyBuzzi Unicem SpA Materials 0.61%
Italcementi SpA MaterialsFinmeccanica SpA Capital Goods 1.64%
Prysmian SpA Capital Goods 0.51%
Impregilo SpA Capital GoodsAtlantia SpA Transportation 1.59%
Fiat SpA Automobiles & Components 1.94%
Pirelli & C SpA Automobiles & Components 0.34%
Luxottica Group SpA Consumer Durables & Apparel 1.05%
Bulgari SpA Consumer Durables & Apparel 0.42%
Geox SpA Consumer Durables & ApparelLottomatica SpA Consumer Services 0.81%
Autogrill SpA Consumer ServicesMediaset SpA Media 1.56%
Arnoldo Mondadori Editore SpA Media 0.19%
Seat Pagine Gialle SpA Media 0.16%
Gruppo Editoriale L'Espresso SpA MediaParmalat SpA Food Beverage & Tobacco 1.04%
UniCredit SpA Banks 11.00%
Intesa Sanpaolo SpA Banks 11.32%
Unione di Banche Italiane SCPA Banks 4.33%
Banco Popolare SC Banks 2.85%
Banca Monte dei Paschi di Siena SpA BanksBanca Popolare di Milano Scarl BanksMediobanca SpA Diversified Financials 1.77%
Assicurazioni Generali SpA Insurance 11.18%
Alleanza Assicurazioni SpA Insurance 1.31%
Fondiaria-Sai SpA Insurance 0.70%
Unipol Gruppo Finanziario SpA InsuranceMediolanum SpA InsuranceSTMicroelectronics NV Semiconductors & Semiconductor 1.75%
Telecom Italia SpA Telecommunication Services 4.92%
Fastweb Telecommunication ServicesEnel SpA Utilities 11.09%
Terna Rete Elettrica Nazionale SpA Utilities 1.84%
Snam Rete Gas SpA Utilities 2.03%A2A SpA Utilities
Benchmark
Minimum tracking error portfolio:
• Market coverage 70%• Sectors’ and market neutral• “Style and size bias” monitoring
74
4 - Quantitative screening
1. Way to limit the broad investible universe within logical criteria
2. First step of the active portfolio management
DJ STOXX 600(600 stocks)
Quantitative Screening
100 securities
Financial Analysts
50 securities
For a good quantitative screening it is necessary:
1. Breaking down the investible universe in comparable subgroups (sectors)
2. Implementing the screening models in subgroups, according to specific indicators applied to each group
75
4 - Risk management
1. Tracking error
2. Tracking error decomposition
76
3. Tactical Asset Allocation
Technical Analysis
77
> Introduction
> Trend Analysis
> Chart types
> Moving Averages
> Oscillators
> Market size
Context
78
Technical Analysis
Why useful: once fundamental analysis says an asset is under or overvalued, technical analysis helps in determine the market entry and exit timing
Strength point: flexibility and adaptability:
1. Applicable to any market and activity
2. It identifies what fundamental analysis fails to, as asset price patterns
3. Mix of analysis methodologies easily affordable
4. No difficult data retrieval
5. Useful in formulating short, medium and long term forecasts
Technical analysis contribute to limit mistakes identifying stop profits and losses
79
2 – Market has three trends ( long, medium, short )
Primary trend is the most important and lasts more than a year. Can be bullish or bearish
Secondary trend traces corrective phases of the primary trend, moving in countertrend compared to it. Can last from three weeks to months
Minor trend, short lasting, easily “manipulable”, thus can be ignored
Examinee graphic bias enables to identify three trend typologies:
1. Uptrend, when quotations move drawing a set of increasing troughs and peaks
2. Downtrends, when quotations move drawing a set of decreasing troughs and peaks
3. Sideways, when quotations move draw a set of troughs and peaks which confirm previous levels
80
3 – Trend line
Trend lines are straight lines which define the identified trend
The bullish trendline is obtained by linking a set of increasing troughs, the bearish trendline is obtained by linking a set of decreasing peaks
The larger the number of troughs or peaks reached are and the longer the time horizon is, the more significant are the trendlines
The break of a trendline, along with an increase in volumes and with the impossibility of shortly recovering of the lost level, indicates that the actual upward movement is near the reverse tendency
The correction movement subsequent to the break of a trendline causes a re-trace of the previous movement generally included between 33 and 66%, in the most cases the re-trace places aroud 50%
81
AMERICAN EXPRESS - da 05/03 a 12/07 - Long uptrend trendline
82
4 – Volumes must support the trend
Volumes must move in the same direction as the trend one, thus during the trends:
1. uptrend, volumes increase during bullish phases and decrease during bearish phases
2. downtrend, volumes increase during bearish phases and decrease during bullish phases
Volume is an important confirmation of the trend
The maximum peak of volumes occurs short before the trend inversion in action, independently to its direction. This is one of the most important alarm signal provided by the volumes.
Chart types
Chart types most used are:
1 – Line chart2 – Bar chart3 – Candlestick chart 4 – Point & Figure chart
For the graphic representation arithmetic or log scale can be used
84
1 – Line chart
Line chart does not provide much information, the one point represents the closing price of the evaluated asset
This chart type is generally used to represent:
1. economic data
2. indicators
3. very long graph
85
2 – Bar chartBar chart provides more pieces of information:
1. open, left dash
2. close, right dash
3. minimum, inferiore tip of the vertical line
4. peak, upper tip of the vertical line
5. maximum daily range, difference between peak and minimum
86
3 – Candlestick chart Candlestick chart provides visual information for both single and composed figures:
1. Bullish market, white body
2. Bearish market, black body
3. opening, white rectangle lower side and black rectangle upper side
4. closing, white rectangle upper side and black rectangle lower side
5. minimum, figure’s lower extremity
6. peak, figure’s upper extremity
7. maximum daily range, difference between peak and minimum
8. shadow, lines outside the rectangle representing price levels not sustainable in that specific period. The longer the lines, the more significant they are
87
Nasdaq composite – from 05/08 to 10/08 – Candlestick chart
88
Moving Averages
Moving averages provide market’s direction. Their sensibility derives from the data numbers which has created with
Three types of moving averages are used: simple, weighted and exponential
Simple moving average is the ratio between the sum of the data of a specific period and the total of the values
Weighted and exponential moving average are made up to overweight data momentum
For more correct analysis combination of moving averages are frequently used. Averages follow the trend, thus during uptrends they are bullish oriented and vice versa
89
S&P 500 - form 04/00 to 10/08 – Simple Moving Average at 100 and 200 days
90
Oscillators
Oscillators are secondary indicators subordinated to trend analysis.
During well defined trend phases (bullish or bearish) oscillators are useful in order to:
1. Point out short term “excesses” (overbought or oversold)
2. Signal “strength” losses of the in action trend (momentum)
3. Anticipate the end of the trend (negative or positive divergences)
Oscillators are tools extremely useful during “lateral” markets as peaks and minimums of the graph exactly coincide with oscillator’s peaks and minimums, given that they both move sideways
91
1 – Oscillators
Momentum + ROC (Rate of Change)
“Momentum” and ROC are oscillators that estimate the speed and acceleration with which prices move
Momentum = Closing price x – Closing price of x-n
ROC = 100 * [(closing price x – closing price x-n) / closing price x-n]
Values obtained oscillate around zero line. A value over/under these levels indicates increasing/decreasing prices during the esteemed period.
RSI (Relative Strength Index)
Oscillator estimates market’s strength, resolving the problem of erratic movements and satisfying the constant need of a superior and inferior track
RSI = 100 – {100 / [1+ (average of the uptrend closings of n days / average of the downtrend closing of n days)]}
Values obtained oscillate between zero and 100, furthermore, conventionally, a upper line and a lower line at a level of 70 and 30 respectevely (80 and 20 for more sensible oscillators)
92
Market size
Advance / Decline line
The indicator is made up with the total of the cumulated differences between the securirties componing an uptrend index and those downtrend, given a specific period
Markets made up of marked trend must be confirmed by a huge numbers of securities coherent (with their fluctuations) with that movement
% of equities over/under a moving average
The indicator highlights the number of securities over or under the specified moving average. The most used moving averages are those at 50, 100 and 200 days
This indicator usually moves alongside the index trend
Divergence points between indicator, index and excess hypothetical situations must be taken into account
Securities which mark new peaks/minimums
The indicator is made up calculating the equities’ number that registered new peaks and new minimums at 53 weeks
The basic principle is that an upside marked must come with a fair number of new net peaks
4. Global Fund Selection
94
2 – Portfolio management: financials tools selection
Portfolio Return = asset classes returns + alfa generation – costs (management fees).
To create stable returns is very important to allocate costs efficiently
Identify Optimal trade off between costs and Alfa generation
Concentrate costs where there is evidence of Alfa generation (active funds). Typically equities and credits markets
Minimize costs where there is not evidence of Alfa generation (passive funds or Etfs). Typically money markets and governments bonds markets
Importance of open architecture: possibility to buy the best products for each asset class or markets
Responsibility: fund’s analysis department
95 GLOBAL FOCUS LIST
Fund Selection Team Risk Management
A team focused on the analysis and selection of third party funds globally with the objective of:
1. Homogenize the fund selection procedure
2. Elaborate a Global Focus List
3. Continuous monitoring of the funds within the list
In a process with the following characteristics:
4. Independence
5. Open Architecture
6. Proprietary Model
7. Integrated into the bank: Risk Management division involved in the fund admission process
Global Funds Selection Process
96
To enhance the selection model interaction among product specialist of different units
Adapting the Focus List to the local needs of every Division (registration, distribution, niches, etc).
Homogenize the fund selection
Elaborate a Global Focus List
Monitoring
Determination of niches and funds recommended at a global level.
Compatible with all the platforms: Custody, Advisory and Discretionary Management.
A monthly Committee will revise the focus list and analyze new niches from a double perspective; distribution and management
Dynamic review and monitoring of the recommended Focus List.
Global Team Analysis
97
Team dedicated to the selection of funds globally, with the aim of:
Indipendence
Own & Third Partis Funds Analysis
Quantitative & Qualitative Analysis
Risk – Funds Ammission
Selection process consistent in all units
Global Focus List
Systematic
Monitoring
Global Team Analysis
98
Fund Universe of 20.000 Funds / 400 Fund Houses
Track-record, liquidity, AUM
Risk – Return Binomial
Team Management Quality
Minimum Requirements
Quantitative Model
Qualitative Model
Due-diligenceRisk Management Team
The Best Funds80 Funds / 40 Fund Houses
Fund Selection Process
99
Start Point: no restrictions in choosing the best funds
Wide range via the platform AllFundsBank
Open Architecture: 20.000 Funds out of 400 Fund Houses available Broader investment funds universe
No restrictions in choosing from the largest number of fund houses and funds
Searching for the best funds and the most prestigious and specialized fund houses
400 Fund Houses20.000 Funds
Universe of Analysis
100
First qualitative and quantitative screening:
Asset Under Management: minimum 100 Million Euro or equivalent
Liquidity: Daily NAV
Track Record: minimum 1 years of fund’s history
Documentation: availability of information needed to analyze and process the credit rating of the fund and housing management
Minimum Requirements
101
+Qualitative Rating
Weight of 40%
Quantitative Rating
Weight of 60% Minimum fund analysis requirements:
€100 MM of AUM or equivalent
Daily NAV
One year from inception (3 years preferably)
Enough documentation to elaborate a proper rating of the fund and the asset management company
Funds Selection: the importance of Proprietary Model
102
Absolute Ratios
1 and 3 Rolling years
Relative Ratios
1 and 3 Rolling years
Info Ratio:
Jensen’s Alpha :
R2:
ET
MRFRIR ii
.
tmtp RRRR
YX
XY
SS
SR
22
22
Quantitative Rating
Weight of 60%
Profitability:
Standard Deviation :
Sharpe Ratio :
Maximum Drawdown
Sortino Ratio
Kurtosis
Skewness
tR
ft
tt RFRSR
3)( 4
n
xx
Kurtosis
3)()2()1(
xx
nn
nS i
deviationDownside
Rfanualizadantabilidad Re
Proprietary Model
103
Quantitative analysis is necessary… but before arriving to a conclusion funds should be analyzed from a different point of view too
Proprietary Model
104
Qualitative Rating
Weight of 40%
AM Company Valuation
Based on:
Transparency
Service
Information quality, etc
Fund Manager Valuation
Made by the asset class analyst after meeting the manager team
Questionnaires with key information regarding:
Investment Process
Organization
Risk Management, etc...
Due Diligence
Minimum qualitative fund analysis requirements:
Access to portfolio details
Monthly information of AUM´s evolution
Monthly Attribution
At least, quarterly meeting or CC with the fund managers
Communication of relevant information regarding investment process, team changes, NVA suspension, etc.
Proprietary Model
105
Once the analysis and selection of funds has been completed, according to the model explained in the previous pages, Control and Risk department will centralize the admission process and the monitoring of the funds
The admission process implies:
1. Send a request to Risk Management in order to evaluate the inclusion of a fund. The following documentation must be attached:
Asset management company
Asset management company’s Due Diligence
Audited financial accounts (last 2 years)
Fund
Fund’s due diligence
Latest factsheet
Full prospectus and/or offering memorandum
Audited financial accounts
Once a year the admitted funds list, volumes and general situation will be reviewed
Risk Management
106
E
Q
U
I
T
Y
TEMATICS
ABSOLUTE
RETURN
I
N
C
O
M
E
F
I
X
E
D
GLOBAL FOCUS LIST
Bi-Weekly CommitteeLOCAL
FOCUS LISTS
The result: Global Focus List
107
The committee’s objective is to establish which funds compounds the Global Focus List as well as those of the Local Focus List in each business unit
The Fund Committee is the place where the Fund Selection Team will:
Present the current Focus List.
Include in the Focus List a potential new entry requested by different divisions if there is a real demand due to diversification or investment needs
Will follow the funds evolution included in the Focus List.
Fund Committee
108
Critical Alerts (C)
Follow Up Alerts (FU)
Relevant management team changes
NAV suspension
Reputational Risk (sanctions o irregulars practices)
Control Alert
Underperformance vs. peers
AUM drop > 20% month
Max. Drawdown
2 Standard Dev. break
Investment process change
M&A
UNDER REVISION (UR)
MAX 3 MONTHS
DECISION
HOLD
SELL
DUE DILIGENCE
MAX 48 HOURS
Funds Selection Process: Monitoring single instrument
109
ALERTS QUICK UPDATES & FOLLOWING
Critical (C)
Follow up (FU)
Focus Fund Committee assistants
MONTHLY QUARTERLY DOCUMENTATION
Asset class
Focus Fund
Markets
Asset class + fund FL
Intranet
+
+
Key Information elaborated by Fund Selection Team:
The issue of alerts, quick updates and following updates will be sent to all the committee members by e-mail.
The team will elaborate a monthly and quarterly document of each asset class and each time there is a meeting with a Focus List PM.
The process: the importance of communication
110
The goal is not to select the best fund of the month but select funds that are firmly in the top quartile.
The Focus List of Funds have outperformed the market average in all categories
Results
5. Control and Reporting
112
3 – Control and reporting> Risk management ex-post: verify that risk constraints (volatility, Var) are respected
1. Volatility ex-post
2. VaR ex-post
3. Risk Attribution ex post
> Performance analysis: absolute and for units of risk
• Benchmark
Security Selection: (Rp-Rb)*Wb
Asset Allocation: (Wp-Wb)*Rb
Interaction Effect: (Rp-Rb)*(Wp-Wb)
• Total return
Asset Allocation: Rb*Wp
Security selection: (Rp-Rb)*Wp
Rp is the Return of the asset (security) in the portfolio, Rb is the Return of the asset in the benchmark, Wp is the weight of the asset in the portfolio and Wb the weight of the asset in the benchmark.
113
3 – Risk management ex post: indicators for control
Daily verify mandate constrains respect
1. Ex-post volatility: square root of the sum of the daily square returns’ standard deviations (Rt) and the returns mean sample ( )
n = observations’ number
2. VaR ex-post: α-esim percentile of a normal distribution with mean and variance equal to mean ( ) and variance sample ( ) of daily observed returns
Zα = α-esim percentile of a normal standardized
3. Tracking Error Volatility (TEV): historical volatility of the mean sample gap between asset return (i) and benchmark return (b):
)(ˆ bii RRTEV
1
)(ˆ 1
2
n
RRn
t t
R
R 2 ˆZRVaR
114
3 – Ex-post risk control
4. Information Ratio (IR): active return divided by tracking error, where active return is the difference between the return of the security and the return of a selected benchmark index, and tracking error is the standard deviation of the active return
5. Sharpe Ratio (SR):measure of the excess return per unit of risk in an investment asset or a trading strategy (used for total return approach)
• Maximum Draw Down (MDD): max cumulated loss from the former peak during a specific time horizon [t0, T]
i
rfii
RRSR
i
bii TEV
RRIR
)()(max 21],[ 021
0tRtRMDD
TtttTt
115
> Monitoring absolute portfolio performance
> Determining performance’s contribution of each asset class
> Breaking down of asset allocation and stock picking contributions with Brinson model:
Benchmark
Asset Allocation: (hp- hb)*Rb
Stock picking: (Rp- Rb)*hb
Interaction Effect: (Rp- Rb)*(hp- hb)
Total Return
Asset Allocation: Rb*hp
Stock picking: (Rp-Rb)*hp
hp = weight asset in the portfolio, hb = weight asset in the benchmark
Rp = return of the asset in the portfolio, Rb = return of benchmark
4 – Performance analysis
Breaking down DELTA RETURN against benchmark
Breaking down portfolio RETURN
116
4 – Performance: benchmark VS Total Return
Benchmark
Strategic Asset Allocation Benchmark
Tactical Asset Allocation Management
Monitoring delta contribution against benchmark and breaking down in:
>Tactical Asset Allocation
>Security selection
>Interaction Effect (security selection effect induced by asset allocations decisions)
Total Return
Strategic and tactical Asset Allocation Management
Monitoring portfolio absolute return and breaking down in :
> Asset Allocation
> Security selection
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4 – Example: Benchmark
Growth StrategyUpdate date 08-30-2013 TOT PTF TOT PTF TOT PTFStart Date 04-16-08 -1,50% 1,49% 8,14%
TOT BCMK TOT BCMK TOT BCMKAA = Asset Allocation -1,11% 1,41% 5,33%
SP = Selection DELTA AA SP IN DELTA AA SP IN DELTA AA SP IN
IN = Interaction effect -0,39% -0,30% -0,18% 0,09% 0,08% -0,33% 0,17% 0,23% 2,80% 0,80% 2,07% -0,07%
Asset ClassPresent Weight
Bcmk Weight
Delta PerfDelta
ContributionAA SP IN Perf
Delta Contribution
AA SP IN PerfDelta
ContributionAA SP IN
Cash 11,9% 5,0% 6,9% 0,01% 0,00% 0,00% 0,00% 0,00% 0,02% 0,00% 0,00% 0,00% 0,00% 0,05% 0,03% 0,00% 0,01% 0,02%Bond 10,8% 20,0% -9,2% 0,02% -0,06% 0,00% -0,11% 0,05% 0,35% -0,07% -0,03% -0,07% 0,03% 0,86% -0,31% -0,07% -0,43% 0,20%
SANTANDER EURO CREDIT 4,4% 0,04% 0,00% 0,00% 0,00% 0,00% 0,33% -0,01% -0,01% 0,00% 0,00% 1,11% -0,02% -0,03% 0,02% -0,01%
PIMCO GLOBAL IG 6,4% -0,95% -0,06% 0,00% -0,12% 0,05% -0,25% -0,06% -0,02% -0,07% 0,03% -2,91% -0,29% -0,04% -0,45% 0,21%
Equity 77,3% 75,0% 2,3% -1,31% -0,34% -0,30% -0,07% 0,03% 1,30% -0,13% -0,30% 0,25% -0,08% 5,78% 2,94% 0,88% 2,51% -0,44%Global 14,2% 14,2% -0,11% -0,16% 0,03% 0,02% 0,26% 0,03% 0,14% 0,10% -0,06% 0,73% -0,49% -0,29%
MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,3% -2,81% -0,08% -0,08% 0,00% 0,00% 1,45% -0,01% -0,13% 0,07% 0,05% 12,58% -0,01% -0,13% 0,07% 0,05%
JPM GLOBAL FOCUS "B" 6,9% -2,12% -0,03% -0,08% 0,03% 0,02% 3,69% 0,23% 0,01% 0,13% 0,09% 10,37% 0,11% 0,35% -0,16% -0,09%
Europe 27,5% 35,0% -7,5% -0,75% 0,23% 0,04% 0,25% -0,05% 4,32% -0,09% -0,40% 0,41% -0,09% 6,31% 1,25% -0,70% 2,57% -0,62%
MFS MER-EUROPEAN VALUE-I1€ 5,5% -0,90% 0,00% 0,01% -0,01% 0,00% 3,07% -0,15% -0,08% -0,09% 0,02% 11,60% 0,10% -0,15% 0,32% -0,08%
INVESCO PAN EUROPEAN EQUITY 11,4% 1,30% 0,25% 0,02% 0,30% -0,07% 8,52% 0,27% -0,16% 0,56% -0,13% 18,27% 0,87% -0,28% 1,51% -0,37%
THREADNEEDLE PAN EUR-€ 10,8% -1,02% -0,01% 0,02% -0,04% 0,01% 3,88% -0,21% -0,16% -0,06% 0,01% 12,10% 0,28% -0,28% 0,74% -0,18%
USA 19,2% 20,0% -0,8% -2,84% 0,02% -0,22% 0,00% 0,24% 0,47% 0,27% 0,04% 0,13% 0,09% 14,14% 1,82% 0,92% 0,53% 0,37%
JPM US Select Equity D Acc USD 12,1% -2,81% -0,14% -0,14% 0,00% 0,00% 1,90% 0,20% 0,03% 0,10% 0,07% 18,65% 1,04% 0,59% 0,26% 0,19%
ROBECO US PREMIUM EQ-I$ 7,2% -2,93% -0,09% -0,08% -0,01% 0,00% 1,21% 0,07% 0,02% 0,03% 0,02% 21,61% 0,78% 0,34% 0,27% 0,18%
J apan 6,8% 8,0% -1,2% -2,27% -0,04% 0,02% -0,07% 0,01% -2,92% 0,01% 0,02% -0,02% 0,00% 12,41% -0,27% -0,22% -0,06% 0,00%
SCHRODER INTERN SELECT FUND-JAPANESE6,8% -3,06% -0,04% 0,02% -0,07% 0,01% -3,04% 0,01% 0,02% -0,02% 0,00% 12,03% -0,27% -0,22% -0,06% 0,00%
Asia Ex J apan 4,1% 5,0% -0,9% -0,51% -0,04% 0,00% -0,05% 0,01% 1,19% -0,11% -0,01% -0,11% 0,02% -4,56% 0,08% 0,03% 0,06% -0,01%
M&G Investment Fund-ASIAN 4,1% -1,50% -0,04% 0,00% -0,05% 0,01% -1,02% -0,11% -0,01% -0,11% 0,02% -3,39% 0,08% 0,03% 0,06% -0,01%
Emerging 5,4% 7,0% -1,6% -1,60% -0,15% 0,02% -0,22% 0,05% -2,31% -0,21% 0,02% -0,30% 0,07% -12,18% 0,07% 0,11% -0,10% 0,06%
ABERDEEN GL-EMMKT EQTY-I2 5,4% -4,72% -0,15% 0,02% -0,22% 0,05% -6,48% -0,21% 0,02% -0,30% 0,07% -13,44% 0,07% 0,11% -0,10% 0,06%
TOT 100,0% 100,0% 0,0%
Month to date Quarter to date Year to date
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4 – Example: Total ReturnRainbow 7Update date 08-30-2013 AA = Asset Allocation TOT AA SP TOT AA SP TOT AA SP
Start Date 12-15-08 SP = Selection -0,64% -0,62% -0,02% 0,87% 0,51% 0,35% -0,12% -0,45% 0,33%
Asset Class Present Weight Perf Contribution AA SP Perf Contribution AA SP Perf Contribution AA SP
Monetario 27,38% 0,01% 0,01% 0,00% 0,01% 0,02% 0,06% 0,00% 0,05% 0,05% 0,14% 0,02% 0,13%Obbligazionario Gov 10,09% 0,02% 0,02% 0,00% 0,02% 0,41% 0,11% 0,04% 0,07% 0,96% -0,01% -0,06% 0,06%
CCT-eu 15/12/2015 10,09% 0,22% 0,02% 0,00% 0,02% 1,08% 0,11% 0,04% 0,07% 2,86% 0,17% 0,08% 0,09%
Obbligazionario IG 31,80% -0,26% -0,09% -0,08% -0,01% 0,47% 0,22% 0,15% 0,07% 0,51% -0,14% 0,03% -0,17%SANTANDER EURO CREDIT 9,12% 0,04% 0,00% 0,01% 0,00% 0,33% 0,03% 0,05% -0,02% 1,11% 0,10% 0,12% -0,02%HENDERSON H. EURO CORPORATE BOND "I2" 8,70% -0,25% -0,02% -0,03% 0,01% 0,94% 0,08% 0,04% 0,04% 0,77% -0,14% -0,15% 0,01%PIMCO GLOBAL IG 5,93% -0,95% -0,06% -0,02% -0,03% -0,25% -0,01% 0,03% -0,04% -2,91% -0,20% 0,04% -0,23%M&G European Corporate Bond 8,05% -0,18% -0,01% -0,03% 0,02% 1,61% 0,13% 0,04% 0,09% 2,00% 0,10% 0,02% 0,08%
Attività di rischio 30,73% -1,65% -0,58% -0,55% -0,04% 1,52% 0,48% 0,32% 0,16% 3,57% -0,12% -0,43% 0,31%Obbligazionario Emergenti 5,20% -2,68% -0,18% -0,14% -0,04% -1,76% -0,09% -0,08% -0,01% -9,84% -0,66% -0,76% 0,10%
MFS Emerging Markets Debt Fund 5,20% -3,32% -0,18% -0,14% -0,04% -1,93% -0,09% -0,08% -0,01% -9,15% -0,66% -0,76% 0,10%Obbligazionario Corporate HY 5,92% -0,59% -0,06% -0,04% -0,02% 1,63% 0,08% 0,10% -0,01% 2,18% 0,16% 0,11% 0,05%
GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 5,92% -0,93% -0,06% -0,04% -0,02% 1,43% 0,08% 0,10% -0,01% 3,05% 0,16% 0,11% 0,05%Azionario 18,60% -1,95% -0,37% -0,40% 0,03% 2,27% 0,43% 0,26% 0,17% 8,20% 0,48% 0,27% 0,21%
Globale 9,66% -2,04% -0,25% -0,21% -0,05% 1,53% 0,15% 0,08% 0,07% 9,69% 0,23% 0,17% 0,06%JPM GLOBAL FOCUS "B" 4,00% -2,12% -0,09% -0,08% 0,00% 3,69% 0,14% 0,06% 0,08% 10,37% 0,10% 0,10% -0,01%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 5,66% -2,81% -0,17% -0,13% -0,04% 1,45% 0,01% 0,02% -0,01% 12,58% -0,10% -0,13% 0,04%Europa zona € 4,92% -1,10% -0,05% -0,08% 0,03% 5,11% 0,20% 0,16% 0,04% 5,75% 0,33% 0,12% 0,22%BGF-EURO MKTS FUN-D2 4,92% -0,37% -0,05% -0,08% 0,03% 6,23% 0,20% 0,16% 0,04% 12,74% 0,33% 0,12% 0,22%Stati Uniti Hedged 3,02% -3,16% -0,06% -0,10% 0,04% 1,51% 0,10% 0,04% 0,05% 14,15% 0,33% 0,31% 0,01%THREADNEEDLE AMER SEL "2" INA (EURHDG) 3,02% -2,04% -0,06% -0,10% 0,04% 3,28% 0,10% 0,04% 0,05% 15,24% 0,33% 0,31% 0,01%Emergenti 1,00% -1,60% 0,00% -0,01% 0,01% -2,31% -0,01% -0,02% 0,01% -12,18% -0,45% -0,43% -0,02%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,00% -0,49% 0,00% -0,01% 0,01% -0,96% -0,01% -0,02% 0,01% -11,81% -0,45% -0,43% -0,02%
Commodities 1,01% 2,97% 0,02% 0,03% -0,01% 3,83% 0,04% 0,04% 0,00% -4,35% -0,10% -0,05% -0,05%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,01% 2,47% 0,02% 0,03% -0,01% 4,40% 0,04% 0,04% 0,00% -7,75% -0,10% -0,05% -0,05%
TOT 100,00%
Duration 2,28
Month to date Quarter to date Year to date
119
Module 5. Case Study
120
Phases of an investment’s process
1. Identify investor’s characteristics and goals
• Risk profile
• Approach (Total Return vs Benchmark)
• Time horizon
2. Portfolio management
• Forecast risk and return for each asset class
• Construct efficient portfolios (optimization)
• Choosing the most efficient financials instruments (stocks, Etf, mutual funds, etc)
• Risk management ex ante (CPPI, risk attribution)
3. Control and reporting
• Risk analysis ex post
• Performance attribution
121121
1 – Total Return Approach: Risk profile
7%
0 – 35%
65% - 100%
Moderate
3 years
10%
0 – 50%
50% - 100%
Equilibrate
5 years
Medium HighLow
Maximum volatility
Equity:
Bond:
Mifid profile:
Investment term:
4%
0 – 20%
80% - 100%
Conservative
2 years
122122
2 - Macroeconomic Forecasts2013 Forecast 2014 Forecast
WorldGDP 3,1% 3,9%Inflation 2,6% 3,0%
USAGDP 1,8% 2,9%Inflation 1,5% 1,6%Fed Funds 0,2% 0,2%10 yrs Interest Rate 2,8% 3,8%
EuropeGDP -0,4% 1,0%Inflation 1,5% 1,6%BCE Funds 0,5% 0,5%10 yrs Interest Rate 2,0% 2,9%
JapanGDP 1,7% 1,5%Inflation 0,0% 1,8%O/N Call Rate 0,02% 0,02%10 yrs Interest Rate 1,0% 1,7%
EmergingGDP 5,2% 5,6%Inflation 4,5% 4,6%
123123
Central scenario
Recovery as U Recovery as W80% 20%
Developed economies benefit from the cycle of stocks and emerging demand. Comsumption, even slighly, increases both to avoid negative GDP data
Recovery from the supply side is not supported by demand in developed economies. Increased risk of relapse in the US than in Europe
Probability of strong increase of raw materials, thanks to the economic recovery
Correction of the rise of raw materials, without the slightest touch of 2009
The lending improves slowly both on supply and demand side
Specific episodes of financial stress. Lending below the historical average
Small inflationary pressures as for the weakness of demand in the OECD
Very low inflation
Interest rates stable in the medium term. The central banks start to thinkn about exit strategy
Expansionary monetary policy and backwardness of the exit strategy. Rates steady until 2014
124124
Our scenario (80%)
We’re positive on fundamental side. Last economic data support our scenario of a global sustainable growth:
• USA: last data confirm the strengthening of the economy
• Eurozone: signals of recovery, although remains some differences between core economies and peripheral countries
• Emerging: lack of momentum, even if macro context is still positive. Chinese data shows a moderate growth, but more healthy and sustainable
Central Banks are still supporting economic growth through accommodative monetary policies
– Fed: markets are expecting the beginning of tapering for the end of the year
– ECB: interest rates will remain low for a long time. Draghi adopts a new way of communication (pre-commitment)
– Emerging markets: monetary policies still supportive, even if some central banks adotped restrictive measures to defend currencies
– Japan: first positive results for Abeconomics
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1. European equities still undervalued
2. At these levels the market discounts a progressive and gradual exit from the recession
3. Valuations are not an issue nor a driver for the markets. The ratings could become an important element for the continuation of the rebound only if the fundamentals continue to improve
2 - Equity Valutations
126
2 – Parameters’ estimation for portfolio construction
CashInflation linked
Govt Bond AAA
Govt Periph.
Euro
Corporate IG Short
term Euro
Corporate IG Global
Corporate High Yield
Emerging Debt
Global Equity
Emerging Equity
Commodities
Annualized Volatility 0,1% 5,6% 5,1% 1,5% 1,4% 4,2% 6,6% 7,3% 12,9% 18,2% 14,0%
Annualized Returns 0,7% 1,5% 3,3% 3,7% 3,4% 4,8% 9,9% 3,8% 18,3% 0,9% -11,6%
Corretlation Matrix
CashInflation linked
Govt Bond AAA
Govt Periph. Euro
Corporate IG Short
term Euro
Corporate IG Global
Corporate High Yield
Emerging Debt
Global Equity
Emerging Equity
Commodities
Cash 100,0% 15,7% 7,5% 29,9% 17,3% 20,0% 10,5% 17,4% 5,9% 7,6% -7,1%
Inflation linked 100,0% 71,3% 18,4% 31,8% 58,1% 4,9% 28,2% -13,3% -3,0% -8,2%
Govt Bond AAA 100,0% 24,2% 46,4% 53,6% 6,0% 19,3% -3,4% 4,7% -17,0%
Govt Periph. Euro 100,0% 37,3% 24,5% 27,4% 20,3% 14,2% 11,9% -4,7%
Corporate IG Short term Euro 100,0% 74,4% 59,8% 60,4% 36,0% 45,6% 28,6%
Corporate IG Global 100,0% 60,4% 77,5% 25,8% 40,5% 25,7%
Corporate High Yield 100,0% 60,5% 45,2% 44,5% 39,3%
Emerging Debt 100,0% 46,9% 58,5% 48,5%
Global Equity 100,0% 76,2% 40,4%
Emerging Equity 100,0% 47,7%
Commodities 100,0%
Historical data of the last 2 years (weekly basis)
127
Optimal Portfolio: Example High Risk
INPUT:
1. Statistics: 104 data on a weekly basis
2. Profile: High Risk
3. Max volatility: 10%
4. Risk Budget: 40%
5. Duration: max 5 years
Asset Class WeightRisk
Contribution
Normalized Risk
Contribution
Cash 33% 0,1% 3%Cash 8% 0,0% 0%Govt Periph. 6/12 m 25% 0,1% 3%
Governement Bond "core" 0% 0,0% 0%Govt Bond AAA 0% 0,0% 0%Inflation Linked 0% 0,0% 0%
Corporate IG 25% 0,4% 9%Corporate IG ST Euro 15% 0,1% 3%Corporate IG Global 10% 0,2% 6%
Risky Assets 42% 3,6% 88%Corporate HY 10% 0,5% 11%Emerging Debt 8% 0,5% 12%Developed Equity 19% 2,2% 53%Emerging Equity 1% 0,2% 4%Commodities 4% 0,3% 8%
TOT 100% 4%
Vol max 10%Risk Budget 40%Duration 2,8YTM 2,5%
128
Tactical Asset Allocation
Equity: 130% - Overweight, neutral bias
We had a BUY signal at the beginning of the month. With the change of the strategic
weight, it also changes the signal of the relative weight
Notes:
Theorical exposure of assets can range from 0% until 200% of the strategic weight
Weight of 100%: theorical exposure = strategic weight
Strategic Weight Last Committee
New Strategic Weight
Signal as regards to new strategic weight
Equity 17,0% 20,0% 130%
129
Tactical Asset Allocation: CPPI
Theor. Weight
Ptf Weight
Delta
Equity 26,70% 20,12% -6,58%Commodities 1,46% 1,38% -0,08%
High Risk
130
Strategic Portfolio: security selectionAsset Class Weights
Cash 16,2%Government Bond 10,0%
CCT-eu 15/12/2015 10,0%
Corporate IG 30,4%SANTANDER EURO CREDIT 10,0%HENDERSON H. EURO CORPORATE BOND "I2" 3,5%PIMCO GLOBAL IG 8,4%M&G European Corporate Bond 8,5%
Risky assets 43,4%Emerging Debt 7,5%
MFS Emerging Markets Debt Fund 7,5%Corporate HY 8,0%
GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 8,0%Equity 26,5%
Global 13,9%JPM GLOBAL FOCUS "B" 6,8%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,1%Eurozone 7,0%BGF-EURO MKTS FUN-D2 7,0%USA Hedged 4,3%THREADNEEDLE AMER SEL "2" INA (EURHDG) 4,3%Emerging 1,3%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,3%
Commodities 1,5%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,5%
TOT 100,0%
131
Performance attributionRainbow 10Update Date 09-13-2013 AA = Asset Allocation TOT AA SP TOT AA SP TOT AA SP
Start Date 12-31-08 SP = Selection 1,02% 1,16% -0,14% 2,06% 1,80% 0,26% 0,73% 0,56% 0,17%
Asset Class Weights Perf Contribution AA SP Perf Contribution AA SP Perf Contribution AA SP
Cash 18,09% 0,00% 0,00% 0,00% 0,00% 0,02% 0,04% 0,00% 0,04% 0,06% 0,11% 0,01% 0,10%Liquidità 6,62% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%BTP 3,00% 010414 6,85% 0,02% 0,00% 0,00% 0,00% 0,32% 0,02% 0,00% 0,02% 1,45% 0,04% 0,00% 0,04%SPAGNA 4,75% 300714 4,63% 0,02% 0,00% 0,00% 0,00% 0,54% 0,03% 0,00% 0,02% 2,27% 0,02% 0,00% 0,02%
Government Bond 11,91% 0,01% -0,01% 0,00% -0,01% 0,41% 0,10% 0,04% 0,06% 0,97% -0,12% -0,14% 0,02%BGF Euro Short Duration Bond Fund 4,98% 0,06% 0,01% 0,00% 0,00% 0,65% 0,01% 0,00% 0,00% 0,98% 0,01% 0,00% 0,00%CCT-eu 15/12/2015 6,93% -0,22% -0,01% 0,00% -0,01% 0,85% 0,09% 0,04% 0,05% 2,63% 0,11% 0,05% 0,05%
Corporate IG 25,91% -0,10% -0,08% -0,04% -0,05% 0,37% 0,10% 0,11% -0,01% 0,52% -0,19% 0,08% -0,27%SANTANDER EURO CREDIT 9,92% -0,01% 0,00% 0,01% -0,01% 0,33% 0,03% 0,06% -0,02% 1,11% 0,11% 0,14% -0,03%HENDERSON H. EURO CORPORATE BOND "I2" 3,50% -0,11% 0,00% -0,01% 0,00% 0,83% 0,03% 0,01% 0,02% 0,66% -0,04% -0,05% 0,01%PIMCO GLOBAL IG 5,50% -0,26% -0,02% -0,02% 0,00% -0,51% -0,04% 0,02% -0,06% -3,16% -0,32% -0,01% -0,30%M&G European Corporate Bond 7,00% -0,66% -0,06% -0,02% -0,04% 0,94% 0,08% 0,02% 0,06% 1,33% 0,06% 0,00% 0,05%
Risky assets 44,08% 2,79% 1,11% 1,19% -0,09% 4,38% 1,80% 1,63% 0,16% 6,69% 0,96% 0,62% 0,33%Emerging Debt 7,41% 0,92% 0,04% 0,07% -0,03% -0,85% -0,09% -0,05% -0,04% -9,00% -0,90% -0,98% 0,08%
MFS Emerging Markets Debt Fund 7,41% 0,49% 0,04% 0,07% -0,03% -1,45% -0,09% -0,05% -0,04% -8,70% -0,82% -0,87% 0,06%Corporate HY 7,94% 0,71% 0,03% 0,06% -0,02% 2,35% 0,14% 0,18% -0,04% 2,90% 0,25% 0,22% 0,04%
GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 7,94% 0,40% 0,03% 0,06% -0,02% 1,84% 0,14% 0,18% -0,04% 3,46% 0,25% 0,22% 0,04%Equity 27,31% 4,11% 1,05% 1,09% -0,04% 6,50% 1,69% 1,46% 0,23% 12,70% 1,75% 1,48% 0,27%
Global 14,24% 3,67% 0,53% 0,51% 0,02% 5,26% 0,76% 0,62% 0,14% 13,71% 0,88% 0,76% 0,12%JPM GLOBAL FOCUS "B" 7,03% 4,28% 0,29% 0,25% 0,04% 8,13% 0,54% 0,35% 0,18% 15,09% 0,37% 0,32% 0,05%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,21% 3,35% 0,24% 0,26% -0,02% 4,85% 0,23% 0,27% -0,04% 16,36% 0,17% 0,14% 0,03%Eurozone 7,24% 5,16% 0,26% 0,36% -0,10% 10,53% 0,54% 0,59% -0,04% 11,21% 0,73% 0,52% 0,21%BGF-EURO MKTS FUN-D2 7,24% 3,75% 0,26% 0,36% -0,10% 10,21% 0,54% 0,59% -0,04% 16,98% 0,73% 0,52% 0,21%USA Hedged 4,46% 3,35% 0,18% 0,14% 0,03% 4,91% 0,31% 0,21% 0,11% 17,97% 0,64% 0,59% 0,05%THREADNEEDLE AMER SEL "2" INA (EURHDG) 4,46% 4,09% 0,18% 0,14% 0,03% 7,51% 0,31% 0,21% 0,11% 19,95% 0,64% 0,59% 0,05%Emerging 1,37% 5,69% 0,08% 0,07% 0,01% 3,25% 0,07% 0,05% 0,02% -7,19% -0,56% -0,54% -0,03%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,37% 6,29% 0,08% 0,07% 0,01% 5,27% 0,07% 0,05% 0,02% -6,26% -0,56% -0,54% -0,03%
Commodities 1,42% -1,38% -0,01% -0,02% 0,01% 2,41% 0,05% 0,03% 0,01% -5,67% -0,15% -0,10% -0,06%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,42% -0,80% -0,01% -0,02% 0,01% 3,56% 0,05% 0,03% 0,01% -8,49% -0,15% -0,10% -0,06%
TOT 100,00%
Month to date Quarter to date Year to date