UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006...

34
1 Global Asset Allocation: The New Paradigm

Transcript of UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006...

Page 1: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

1

Global Asset Allocation:The New Paradigm

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��� �� ���� � � � � � �� �� � � �� � � �� � � �

� � � � � � �� � � � � � �� �� � � � � � � � �

� � � �� � � �� � � � � � � � �

� � � � � � � � � � � � ! � �" �� � � � � � � � � � �� � �

2

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3

#�$ $ % & #' '�( )* &+ ( , -�. * / %0 ( . 1

Source: Jeremy J. Siegle, Stocks for the Long Run

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4

2�3 3 4 5 26 6�7 89 5: 7 ; <�= 9 > 4? 7 = @

Source: Ibbotson

Real Returns - Stocks and Bonds (30- Year Centered Geometric Moving Average 1992 - 2002)

0%

2%

4%

6%

8%

10%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Bills

Bonds

Stocks

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5

StocksBonds

T-Bills

ACB BD E AF FCG HI EJ G K LCM I ND OG M P

Maximum and Minimum Real Holding Period Returns (1962 - 2002)

33.5%

11.7%

28.7%

21.8%16.4%

10.4%7.7%

3.7%7.4% 6.6% 5.7% 4.0% 3.0% 1.6%

25.8%

13.9%16.4%

57.3%

-50%

-30%

-10%

10%

30%

50%

70%

1 2 5 10 20 30

-28.8%

-10.1%

-4.4%-7.4%

-4.4%-2.0%-1.3% 4.1%0.5%

-45.8%

-2.7%

-14.1%

-21.0%

-2.6% -1.9%-1.8%-2.9%-3.8%

Holding Period years

QSRUTWVXRZY\[̂]̀_badceYgfh[

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i�j j k l im m�n op lq n r s�t p u kv n t w

6

5

4

3

2

1

0

-1

-2

-3

-4

-5

-60 20 40 60 80 100

x yy{z |}�~ �� ��� ����� � � ��� � z ��

� � �� |�� �x�� �� ��� �� �}� � � � �� ��

y�� � |�� � � ��

�� �� � ��} � ��� � � ~ | �

Source: Goetzmann and Jorion, « Global Stock Markets in the Twentieth Century »

��� � ��� � � �� �¡  ¢£

6

%

# of Continuous Years Since 1921

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¤�¥ ¥ ¦ § ¤¨ ¨�© ª« §¬ © ­ ®�¯ « ° ¦± © ¯ ²

Evolution of Modern Portfolio Theory

7

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³�´ ´ µ ¶ ³· ·�¸ ¹º ¶» ¸ ¼ ½�¾ º ¿ µÀ ¸ ¾ Á

 ÃÄ Å Æ{Ç ÈÉ È{ÊË Ì Ì È{Í ÈË Ê Í ÈË Î È Ê ÏÐÑ ÒË É Î

Â Ó È{Ô Õ È{Ê ÌÇ Ñ Ï Ð É ÈÇ Ê Ñ Ð É ÈÇ

Â Ó È{Ô ÕË Ì Ì ÈÍ ÈË Ê ÍÖ Ñ Ð É ÈÇ

 ×ÐÑ Ô Ë ÉË ØÑ È Î ÒÙÚ Ø{ÔË É

 ÛË Ê Í Õ Ï ÐÑ Ò Ð Ê Ø Í Ç Ï ÅÐÑ Ð É ÈÜË Ç Ñ ÈË Ê É Ð É ÈÇ Ê

8

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ÝÞ�ß à�á Þâ ãä åæ ç�è å ã çé ã ä ê�ë ß ã è å ã ç

ì íî ï¡ð ñ ñòó

ì ôõ òö ÷ø ò ø ÷¡ù ö ú û ü õý ý ó òö ÷ø õ úþ

ì ü õ ð ú ÷ý ù ö ú û ÿó � ÷ õý �ö � ÷ õý þ

9

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�� � ��� � �� �� � � � ��� � � � ��

�� � � �� � � �� � � � �� � � �� � �

4500

4000

3500

3000

2500

2000

1500

1000

500

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

4500

4000

3500

3000

2500

2000

1500

1000

500

NASDAQMANIA INDEX*

* BASED ON A REGRESSION USING PREVIOUS BUBBLES IN THE JAPANESE NIKKEI, SILVER, GOLD, THE S&P 400, THE U.S. DOLLAR, TAIWAN EQUITIES, NICKEL PRICES AND COCOA PRICES.

Source: BCA

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11

Tough luck, Riley.Market’s up

1,200 points since you jumped.

Tough luck, Bang.Market’s up

1,200 points since you jumped.

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���� ��� � !" #$ %�& # ! %' !" (�) � ! & # ! %�*

+� � � % ( � ( %�, � ! - .� ) ) #� � % (� !� ) / # %�0 ) ! $

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13

12�3 4�5 26 78 9: ;�< 9 7 ;= 78 >�? 3 7 < 9 7 ;�@

A3 ? ? 92 5 ; >3 73 BC > 7D 2 9 C ;3 E FG 9 ;�H ? 7 :

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IJ�K L�M JN OP QR S�T Q O SU OP V�W K O T Q O S

Rolling 3-year correlation

Source: MSCI, Zephyr StyleAdvisor

XZY XXZY [

XZY \XZY ]

XZY ^XZY _

XZY `XZY a

XZY bXZY c

[ Y Xdfeg h b ^ dfeg h b ` deg h b b deg h c X deg h c \ deg h c ^ deg h c ` deg h c b dfeg h X X

i jkklm

nop q

rstujt

t rksvl

jm

wx y w{z | Y }~ � _ X X�f� � e� � }� � � �� � � �z |Y � }� � �f�� � � �f� � e�

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15

������� ����������� ���� �������� ���

�� ������ ��� ����� �¡��¢����£ �¤¥¡���� �������¦§���������¨

¥ ©«ª ¥ ©«ª ¥ ©«ª ¥ ©«ª¬¬¬ ¬

¥ ©«ª ¥ ©«ª ¥ ©«ª ¥ ©«ª ­­­ ­ ©©© ©©«ª ­©«ª ­©«ª ­ ©«ª ­ ©«ª

¬©«ª¬©«ª¬©«ª¬

©«ª®©«ª®©«ª®©«ª®

©«ª¯©«ª¯©«ª¯©«ª¯

©«ª°©«ª°©«ª°©«ª°

±± ±± ² ³ ´ µ ¶² ³ ´ µ ¶² ³ ´ µ ¶² ³ ´ µ ¶· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ ºµ ºµ º»µ º±± ±± ² ³ ´ µ º² ³ ´ µ º² ³ ´ µ º² ³ ´ µ º· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ ¼µ ¼µ ¼µ ¼±± ±± ² ³ ´ µ ¼² ³ ´ µ ¼² ³ ´ µ ¼² ³ ´ µ ¼· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ ½µ ½µ ½µ ½±± ±± ² ³ ´ µ ½² ³ ´ µ ½² ³ ´ µ ½² ³ ´ µ ½· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ ¾µ ¾¿µ ¾µ ¾±± ±± ² ³ ´ µ ¾² ³ ´ µ ¾² ³ ´ µ ¾² ³ ´ µ ¾· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ Àµ À¿µ Àµ À±± ±± ² ³ ´ µ À² ³ ´ µ À² ³ ´ µ À² ³ ´ µ À· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ Áµ Áµ Áµ Á±± ±± ² ³ ´ µ Á² ³ ´ µ Á² ³ ´ µ Á² ³ ´ µ Á· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ µ µ Âõ ±± ±± ² ³ ´ µ ² ³ ´ µ ² ³ ´ µ ² ³ ´ µ · ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ µ µµ µ¿µ µµ µ±± ±± ² ³ ´ µ µ² ³ ´ µ µ² ³ ´ µ µ² ³ ´ µ µ· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ Ä ÄÄ Ä¿Ä ÄÄ Ä±± ±± ² ³ ´ Ä Ä² ³ ´ Ä Ä² ³ ´ Ä Ä² ³ ´ Ä Ä· ¸ ¹· ¸ ¹· ¸ ¹· ¸ ¹ ´´ ´´ Ä ¶Ä ¶Ä ¶ÅÄ ¶

©©© © ©«ª©©«ª©©«ª©©«ª©­­­ ­

©«ª©©«ª©©«ª©©«ª©¬¬¬ ¬

©«ª©©«ª©©«ª©©«ª©®®® ®

©«ª©©«ª©©«ª©©«ª©¯¯¯ ¯

©«ª©©«ª©©«ª©©«ª©°°° °

©«ª©©«ª©©«ª©©«ª©ÆÆÆ Æ

©«ª©©«ª©©«ª©©«ª©ÇÇÇ Ç

©«ª©©«ª©©«ª©©«ª©ÈÈÈ È

©«ª©©«ª©©«ª©©«ª©ÉÉÉ É

Large Cap G

rowth - C

orrelationsLarge C

ap Grow

th - Volatility

Rolling 12-M

onth Periods

Ê Ë Ì Ì Í Î Ï Ð Ñ Ë Ò

Ó Ë Î Ï Ð Ñ Î Ñ Ð Ô

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16

ÕÖ�× Ø�Ù ÖÚ ÛÜ ÝÞ ß�à Ý Û ßá ÛÜ â�ã × Û à Ý Û ß

äÙ Ö�å Ý Ü Þçæ Õã × è ßé�ê ë ß�ì Ö Ý ä× Ö Ù ß â Ö â ß�ì â Þ Ú Ûí ã ÝÙ Þ â Ûî ïðñ

òóôõ óö ÷øù óú ûü ú ö ÷ýþ ÿ � ÷ý � øô ù ó ü ú ö ÷ý � � �ú � ø ÷ � � � ÷ � �

�� ���� �� �� �� � �� �� �� �� � �� �� �� �� �� ��

�� �� � � � � � � � �

� � � � �� �� �� ��

�� �� �� �� �� �� �� ��

� ���� ���� ���

� ��� �� � ��

���

���

�� ���� ���

Europe Global

1989 - 1996 1997 - 2002

* Minimum monthly return differential of 2%

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17

���� ��� �� ! "# $�% " $& ! '�( � % " $*)+ ", � $ ' ! " - "! ' # '� # � " $. / ' # 0 " 1 & 2 $( "% "�*3

60

70

80

90

100

110

120

01-Dec 02-Feb 02-Mar 02-Apr 02-Jun 02-Jul 02-Aug60

70

80

90

100

110

120

Best 3m eps revs 3rd quintile 4th quintile Worst 3m eps revs 2nd quintile

Cumulative performance of three-month earnings revisions style

Source: IBES, JP Morgan

Page 18: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

18

45�6 7�8 59 :; <= >�? < : >@ :; A�B 6 : ? < : >*CDE < F6 :GIH J :5*K L E 6 B > M8 5 5

NOP QR STU VWX O R Y SU Z W S[ \]^ T^ U QR [

_` abcd

bef cdg

h bfi aj

f kl m

Active Risk (%)

0

1

2

3

4

5

6

654321

SHORTFALL

Page 19: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

no*p q*r os tu vw x*y v t xz t u {*| p t y v t x~}

no*p q*r o {~� r x {p t � r w � vw x| p � v �� p �r o � v t � � y r | �w

� ���� � �� ��� ��� �� ��� �� � � � � � � � �� � �� � � �� � � � �

� � � � ��� � � � � � ��� �� � � � �� � � �� � � � � � � ��� �� � � �� � �

�  �� ¡ � � � � ��£¢ � �� � � � � � �� � � � �¥¤ � � �� �� �� � �� � � � �� � � � �� � � � � � � � � �

� � � �� � �� � � � �� � � � �� �� � �� � � �� � �� � � � � �¦ � � � � �� � � �� � � �

§ ¨©ª ª « ¬­I® ­ ¬I¯ ° ± ¨�²³ ¯ ´­µ ­ ²¶ ©�· ¸ ¹­ « ² ¬ § ° ´ º² µ

© °» ­µ ° ±­I¼ °µ ­· «¶ ½¾ ¾ ¾¿ ¶ À

01,000,0002,000,000

3,000,0004,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003E

To p 5

To p 10

19

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20

ÁÂ*Ã Ä*Å ÂÆ ÇÈ ÉÊ Ë*Ì É Ç ËÍ Ç È Î*Ï Ã Ç Ì É Ç Ë~Ð ÑÃ Ò Ç ËÏ Ó Å Ç Ô Õ ÉÖ ËÃ Ï

× Å Ö ËÃ Ï Ê

Page 21: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

Ø ÙÚÛ Ü�Ý Þ*ßà à Ý Ü�á âÛ ß ã ä�åà ß æ æ çÝ å âßà æ è á æ éá Ü Ü�Ý ãëê

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1D

ec-8

8

Nov

-89

Oct

-90

Sep

-91

Aug

-92

Jul-9

3

Jun-

94

May

-95

Apr

-96

Mar

-97

Feb-

98

Jan-

99

Dec

-99

World Sect Corr Europe Sect Corr

Returns and risk are more differentiated across sectors than countries.

World

Europe

ìí*î ï*ð íñ òó ôõ ö*÷ ô ò öø ò ó ù*ú î ò ÷ ô ò ö~û ü ôý öî ú þ ð ý öî ú õ

21

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ÿ� � ��� � ��� � � � �� � � � �� �� � �� ��

� �� � � � � � �� �� � � � ��

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

� � � � � �� � � � � � ! " � � � � � � � � #� � � � � # ! " � � #� � � � � $ � � � � � $ ! " � � $ � � � � � %� � � � � % ! " � � %� � � � � �� � � � � � ! " � � � � � � � & &� � � � & & ! " � & &

Stock Specific

Global Market

Local Market

Global Sector

Relative Contribution of Stock Returns*

*Source: Goldman Sachs22

Page 23: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

'() *+, -). / * '�0 0 *) 1 ( - 0 0 * 0

2 354 687 9 :5; <5=> 6 :8?

2 @ ; A5B ; C> D A5E

2 F> 4 4 ; DG ?23

Page 24: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

24

“Hello, Howard?The dividend from your feedlot

investment arrived today.”

Page 25: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

HIJ KLM NJO P K H�Q Q KJ R I N Q Q K Q

ST UV W5XY Z [\ [5] X

ST UV^ Y ZXY Z [ \ [] X

S_ X` ab Z\` \ XS Vdc [5]` \ X b ef [ \5gSh XY \ fc X i` j [ \` a

Sk l mSn op

S b qXc r [Y rn ` c sX \ ZS_ b ^ t W

Su X v rX wf Y v Z

S ifc c X Y xg

25

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26

yz{ |}~ �{� � | y�� � |{ � z � � � | �� � }� � �{ | ��� �� { �

Correlations with other asset classes

-0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8

90 U.S. T -B ill

LB Aggregate Bond

M SCI EAFE

Russell 2000 Va lue

S&P 500

Russell 2000 Growth

Buyouts Venture Capital All Private Equity

Source: Venture Economics, 10 years ending 3/00

� � �� ��

�� �� ���

���� ��

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27

�� ��� � �� � �� � �� � �

� � �� � �� � �� � �� � �� � �� � �� � �

� � �� � �� � �� � �� � � �� � � �� � � �� � � �� � � �� � � �� � � �� � � �� � �  � � �  � � �  � � �  � � � ¡� � � ¡� � � ¡� � � ¡� � � ¢� � � ¢� � � ¢� � � ¢� � � £� � � £� � � £� � � £� � � ¤� � � ¤� � � ¤� � � ¤� � � �� � � �� � � �� � � �� ¥ ¥ ¥� ¥ ¥ ¥� ¥ ¥ ¥� ¥ ¥ ¥� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �� ¥ ¥ �

�� ��� � � �� � � �� � � �� � � �

� � � �� � � �� � � �� � � �� � � �� � � �� � � �� � � �

� � � �� � � �� � � �� � � �

¦�§¦ § ¦�§¦ § § ¨ ©§ ¨ ©§ ¨ ©§ ¨ © §§ §§ ªª ªª«« «« ¬¬ ¬¬ ­­ ­­®® ®® ¯�° ± ² §¯�° ± ² §¯�° ± ² §¯�° ± ² § ªª ªª³³ ³³ ¬¬ ¬¬ ­®­® ­®­®

´µ ¶ ·¸ ¸º¹ »¼ ¸½ ¾¿ ¾ À ·Á ¸ ¶¹ ¿ » ¸½  ¶ à »¿ »Ä ¶Å ¶¿ ¸

Source: Hennessee Group

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ÆÇÈ ÉÊË ÌÈÍ Î É Æ�Ï Ï ÉÈ Ð Ç Ì Ï Ï É ÏÑ Ò É Ó�Ô É Õ�Ö Ë Ó Ï

× ØÙdÚ Û Ü5Ý Þdß àß ÞÝ áâ

× àdã â ä Ûå Þ áãæ çè âé Þ Û Ù ß âæ ê å ã á çÚ

× Ø Üdë ê ã28

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ìíî ïðñ òîó ô ï ì�õ õ ïî ö í ò õ õ ï õ

29

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÷øù úûü ýùþ ÿ ú ÷�� � úù � ø ý � � ú �

Evaluating Hedge Fund/Alternative Asset Managers

� �� �� � � � � � �

• Efficiency/Risk-adjusted return

• Correlation characteristic

• Regression/Covariance

• VAR Analysis

� �� �� � � � ��

• Background

• Strength of organization

• Key personnel

• Internal risk management

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Page 31: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

��� �� �� � ��� � ��� � �� ��� � � �� � � � �� � � �� � � �

Sample portfolio

"! # $% &"' $! &

( ) * $

"! # $% &' $! &

+ &) , $

-"./ 0 $ &

1"2 34 %

"! # $% &"' $! &

56 % 36 * , 6 ! $

MANAGER 1 Long/Short Macro Overview US Small DiscretionaryEquity Bottom Up Mid Cap

MANAGER 2 Global Macro Multi-Strategy Global SystematicDiversified

MANAGER 3 Convertible Company Specific Technology DiscretionaryBond Arb Research Driven

MANAGER 4 Merger Arb Opportunistic Global Discretionary

MANAGER 5 Bankruptcy/ Bottom Up US Debt/Equity Discretionary

MANAGER 6 Bond Arb Opportunistic Global Systematic

31

Page 32: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

789 :; <= 9 >@? : 7�A A :9 B 8 = A A : A

Risk Management Analysis

• C D EF G D HIJ I K D LD J M

• N M L I OP F M Q LJ I G M H I J D G RS

• TI PVU D I LJ F M W I G I P S M F M• X D J EZYJ K I G RD I G I P S M F M

32

Page 33: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

[\] ^_ `a ] b@c ^ [�d d ^] e \ a d d ^ df ehg _ _ ^ `i j

kml nmo pq rms tmuv wmx u ly z{| v}v v l }v wm~ v v l � ��� � r

0%

2%

4%

6%

8%

10%

Distribution of EAFE Currency Returns [%]

Annualized rolling 10 year Unhedged vs. Hedged returns (1974- September 2000)

-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

Source: Bloomberg and Ibbotson Associates

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33

Page 34: UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4500 4000 3500 3000 2500 2000 1500 1000 500 NASDAQ MANIA INDEX* * BASED

�@� �� �@� � � � �

� �� � �� �Z� � � � �� � �� �� ��   ¡ �   � ¡ � ¢� � �£ ¤ ¥ � � � � ¦£ � ��

� § � ¦� � �� ¦ ¡ � �� � ¡ �¨ � � ¦ ¡ �   �� � � � £ � � ¡ � ¢ �� ��  � �� � ¦

© Not only for diversification in foreign equities

© But also to access foreign alternative investmentopportunities previously unavailable to Domesticinvestors

34