MULTI-SECTOR PORTFOLIOS: WEATHERING THE PERFECT … · WEATHERING THE PERFECT STORM NEW ZEALAND...

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


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


6 0 / 4 0 : A S M O O T H E R R I D E


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


6 0 / 4 0 I N I T S P R I M E


2007-2016 EQUITY 60/40

Return (p.a.) 7% 6%

Volatility 15% 10%

Maximum Drawdown -50% -33%

Return/Risk 0.5 0.6


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


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


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


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


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


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



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


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



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

MULTI-SECTOR PORTFOLIOS: WEATHERING THE PERFECT … · WEATHERING THE PERFECT STORM NEW ZEALAND...

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