UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006...
Transcript of UCEMA10 4500 4000 3500 3000 2500 2000 1500 1000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006...
1
Global Asset Allocation:The New Paradigm
��� �� ���� � � � � � �� �� � � �� � � �� � � �
� � � � � � �� � � � � � �� �� � � � � � � � �
� � � �� � � �� � � � � � � � �
� � � � � � � � � � � � ! � �" �� � � � � � � � � � �� � �
2
3
#�$ $ % & #' '�( )* &+ ( , -�. * / %0 ( . 1
Source: Jeremy J. Siegle, Stocks for the Long Run
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
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[
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
¤�¥ ¥ ¦ § ¤¨ ¨�© ª« §¬ © ®�¯ « ° ¦± © ¯ ²
Evolution of Modern Portfolio Theory
7
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
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
10
�� � ��� � �� �� � � � ��� � � � ��
�� � � �� � � �� � � � �� � � �� � �
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
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.
12
���� ��� � !" #$ %�& # ! %' !" (�) � ! & # ! %�*
+� � � % ( � ( %�, � ! - .� ) ) #� � % (� !� ) / # %�0 ) ! $
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 :
14
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�
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
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%
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
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
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
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
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
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
'() *+, -). / * '�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
24
“Hello, Howard?The dividend from your feedlot
investment arrived today.”
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
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
� � �� ��
�� �� ���
���� ��
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
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
ìíî ïðñ òîó ô ï ì�õ õ ïî ö í ò õ õ ï õ
29
÷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
30
��� �� �� � ��� � ��� � �� ��� � � �� � � � �� � � �� � � �
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
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
[\] ^_ `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
��� �����
�
33
�@� �� �@� � � � �
� �� � �� �Z� � � � �� � �� �� �� ¡ � � ¡ � ¢� � �£ ¤ ¥ � � � � ¦£ � ��
� § � ¦� � �� ¦ ¡ � �� � ¡ �¨ � � ¦ ¡ � �� � � � £ � � ¡ � ¢ �� �� � �� � ¦
© Not only for diversification in foreign equities
© But also to access foreign alternative investmentopportunities previously unavailable to Domesticinvestors
34