The Many Paths to Real Asset Investing MODERATOR
Michael Underhill Chief Investment Officer Capital Innovations, LLC
PANELISTS
Jeff Sherman DoubleLine Capital LP
Chris Gaffney, CFA Everbank Wealth Management
Michael Weil American Realty Capital
The information herein reflects prevailing market conditions and our judgments as of the date of this document, which are subject to change. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Opinions and estimates may be changed without notice and involve a number of assumptions which may not prove valid. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice.
Disclosure
100 91
45 50
61
36 29
23
11.2 6.8 5.1 4 3.8
0
10
20
30
40
50
60
70
80
90
100
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2012
Purchasing power in cents of an investment in 1900 of 1 USD
1.0 1.1 2.2 2.0 1.6
2.8 3.4 4.4
9.0
14.7
19.6
25.2 26.3
Rising prices in the USA
Consumer price inflation in the United States, 1900-2012
Most Bonds and Some Stocks Could Suffer from an Increase in Long-Term Rates
Price Impact of a 1% Increase in 10-Year Rates Price Impact of a 1% Increase in 10-Year Rates Fixed Income Sectors S&P 500 GICS
Convertibles
Glob
al Econo
my
-10% -8% -6% -4% -2% 0% 2% 4%
Source: Standard & Poor’s, US Treasury, FactSet, Barclays, Capital Innovations, LLC
High Yield
Floating Rate
EMD (LCL)
MBS
Muni’s
EMD (USD)
Core Bonds
Corporates
TIPS
10-year
3.2%
2.1%
0.6%
-0.3%
-1.5%
-1.8%
-2.4%
-3.1%
-3.3%
-4.1%
-7.9%
-3.0% -2.0% -1.0% 0% 1.0% 2.0% 3.0%
1.5%
2.1%
1.3%
1.0%
0.6%
-0.8%
-0.9%
-1.5%
-2.0%
-2.3%
Materials
Info Tech
Energy
Cons. Disc.
Industrials
Financials
Telecom
Cons. Staples
Health Care
Utilities
The Reliability of Inflation Hedges Percent of Rising Inflation Years with Positive Returns
1965-2012
One-Year TIPS
10-Year TIPS
Commodity Stocks
REITs Commodity Futures
Precious Metals Futures
96%
84%
76% 76%
54% 49%
Real Cash Real Bonds Real Assets
Historical analysis is not a guarantee of future results. Individuals cannot invest directly in an index. TIPS are calculated from synthetic Alliance Bernstein real yields estimated from actual inflation and nominal yield curve variables before 1999, and they are sourced from Federal Reserve real yields thereafter; commodity stocks and precious metals futures are sourced from the Ken French Data Library; and REITs are represented by the NAREIT Index. Commodity futures prior to 1990 are on a US consumption-weighted basis and are sourced from the AllianceBernstein series prior to 1970 and from the MJK Commodity Futures Database between 1970 and 1990; they are represented by DJ-UBS thereafter. Commodity futures and precious metals futures are fully collateralized by three-month T-bills. Source: BLS, Commodity Research Bureau (CRB), DJ-UBS, Federal Reserve, Ken French, GFD, International Monetary Fund (IMF), London Times, MJK Associates, NAREIT, National Bureau of Economic Research (NBER), The New York Times, USDA, US Geological Survey (USGS), The Wall Street Journal..
50%
10%
40% No Real Assets
Risk (%)
6.5
5.5
5.0
4.5
4.0
3.5
6.0
3.0
9.75 9.80 9.85 9.90
36%
7% 26%
9% 6%
5% 3% 8%
40%
8% 32%
6% 4%
3% 2% 5%
45%
9%
36%
3% 2% 1% 1% 3%
30% Real Assets 5.81% Return 9.83% Standard Deviation
10% Real Assets 4.59% Return 9.76% Standard Deviation
3.99% Return 9.85% Standard Deviation
Source: Credit Suisse 2012 Survey
20% Real Assets 5.20% Return 9.76% Standard Deviation
U.S Stocks International Stocks U.S. Bonds TIPS U.S. REITs Natural Resources MLPs Commodities
A diversified allocation to real assets within a portfolio has historically offered lower risk and potential for enhanced returns Historical Effect of Allocating to Real Assets (January 2001- December 2012)
Improved Risk Return Profile with Real Assets
Traditional Allocation Inflation-Protected Allocation 0
20%
60%
80%
40%
100%
Diversified Stocks
Diversified Stocks
Diversified Bonds
Diversified Bonds
Cash Cash Real Cash
Real Assets
Real Bonds
“Traditional” vs. Inflation-Protected Allocation
Commodities, Real Estate, FX, Commodity-Related Equity Investments
Intermediate-Term Inflation-Linked Bonds
Short-Term Inflation-Linked Bonds
Real Investments Complement Traditional Counterparts
The Many Paths to Real Asset Investing MODERATOR
Michael Underhill Chief Investment Officer Capital Innovations, LLC
PANELISTS
Jeff Sherman DoubleLine Capital LP
Chris Gaffney, CFA Everbank Wealth Management
Michael Weil American Realty Capital
CURRENCIES AS AN ALTERNATIVE INVESTMENT STRATEGY
CHRIS GAFFNEY, CFA SENIOR VICE PRESIDENT, EVERBANK WORLD MARKETS
(A DIVISION OF EVERBANK)
© EverBank 2013. All rights reserved.
WHY ADD CURRENCIES?
Largest Asset Class in the global markets Market is dominated by trade related transactions Historically low correlation with equity markets
Modern Portfolio Theory
©2013 EVERBANK. ALL RIGHTS RESERVED
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Asset Class Returns vs. The "Average Investor" 20 Years Annualized (12/31/1991-12/31/2011)
Source: Richard Bernstein Advisors LLC., Bloomberg, MSCI, Standard & Poor's, Russell, HFRI, BofA Merrill Lynch, Dalbar, FHFA ,FRB, FTSE. Total Returns in USD. Average Investor is represented by Dalbar's average asset alloca]on investor return, which u]lizes the net of aggregate mutual fund sales, redemp]ons and exchanges each month as a measure of investor behavior. Tiburon CEO Conference presenta]on April 2013. 1
2
HOW TO INVEST?
FOREX markets – leveraged spot trading ETFs Direct investments in currency deposit accounts BRL, CNY, MXN, CHF, AUD Sovereign / Supranational debt issues European peripheral debt, BRL, PLN Un-hedged Foreign Equity exposure Managed Currency Funds EIIMX,
CHINESE RENMINBI
SOURCE: BLOOMBERG
©2013 EVERBANK. ALL RIGHTS RESERVED
Fundamental Snapshot Debt to GDP 22.9%
CA to GDP 2.6%
Budget Deficit to GDP -1.1%
Real GDP Growth 7.5%
Cash Target 6.0%
Inflation Rate 2.4%
Highlights • Growth Policies & Economic Reform • Controlled Revaluation & Currency Integration • Closely monitor “real” data and social unrest
Technical Snapshot
Spot Price 6.14
3-‐YR STDev 1.92%
Est. Downside Risk -‐1.45%
6.00 6.50 7.00 7.50 8.00 8.50
7/12/2013
5/3/2013
2/22/2013
12/14/2012
10/5/2012
7/27/2012
5/18/2012
3/9/2012
12/30/2011
10/21/2011
8/12/2011
6/3/2011
3/25/2011
1/14/2011
11/5/2010
8/27/2010
6/18/2010
4/9/2010
1/29/2010
11/20/2009
9/11/2009
7/3/2009
4/24/2009
2/13/2009
12/5/2008
9/26/2008
7/18/2008
5/9/2008
2/29/2008
12/21/2007
10/12/2007
8/3/2007
5/25/2007
3/16/2007
1/5/2007
10/27/2006
8/18/2006
6/9/2006
3/31/2006
1/20/2006
11/11/2005
9/2/2005
6/24/2005
4/15/2005
2/4/2005
11/26/2004
9/17/2004
7/9/2004
4/30/2004
2/20/2004
12/12/2003
10/3/2003
7/25/2003
China Spot 10 Yr
NORWEGIAN KRONE
SOURCE: BLOOMBERG
©2013 EVERBANK. ALL RIGHTS RESERVED
Fundamental Snapshot
Debt to GDP 34.1%
CA to GDP 12.4%
Budget Deficit to GDP 13.9%
Real GDP Growth -2.7%
Cash Target 1.5%
Inflation Rate 2.0%
Highlights
• Rock solid fundamentals • Commodity driven economy – oil revenues • NOT a part of the euro zone
Technical Snapshot
Spot Price 6.06
3-‐YR STDev 13.3%
Est. Downside Risk -‐11.84%
4.90 5.40 5.90 6.40 6.90 7.40 7.90
7/12/2013
5/3/2013
2/22/2013
12/14/2012
10/5/2012
7/27/2012
5/18/2012
3/9/2012
12/30/2011
10/21/2011
8/12/2011
6/3/2011
3/25/2011
1/14/2011
11/5/2010
8/27/2010
6/18/2010
4/9/2010
1/29/2010
11/20/2009
9/11/2009
7/3/2009
4/24/2009
2/13/2009
12/5/2008
9/26/2008
7/18/2008
5/9/2008
2/29/2008
12/21/2007
10/12/2007
8/3/2007
5/25/2007
3/16/2007
1/5/2007
10/27/2006
8/18/2006
6/9/2006
3/31/2006
1/20/2006
11/11/2005
9/2/2005
6/24/2005
4/15/2005
2/4/2005
11/26/2004
9/17/2004
7/9/2004
4/30/2004
2/20/2004
12/12/2003
10/3/2003
7/25/2003
Norway Spot 10 Yr
BRAZILIAN REAL
SOURCE: BLOOMBERG
©2013 EVERBANK. ALL RIGHTS RESERVED
Fundamental Snapshot
Debt to GDP 68.5%
CA to GDP -‐3.0%
Budget Deficit to GDP -‐2.6%
Real GDP Growth 1.9%
Cash Target 8.5%
InflaZon Rate 6.6%
Highlights
• InflaZon could lead to rate Zghtening • Commodity play with some rate protecZon • Closely monitor government intervenZon
Technical Snapshot
Spot Price 2.22
3-‐YR STDev 15.35%
Est. Downside Risk -‐4.4%
1.50 2.00 2.50 3.00 3.50
7/12/2013
5/3/2013
2/22/2013
12/14/2012
10/5/2012
7/27/2012
5/18/2012
3/9/2012
12/30/2011
10/21/2011
8/12/2011
6/3/2011
3/25/2011
1/14/2011
11/5/2010
8/27/2010
6/18/2010
4/9/2010
1/29/2010
11/20/2009
9/11/2009
7/3/2009
4/24/2009
2/13/2009
12/5/2008
9/26/2008
7/18/2008
5/9/2008
2/29/2008
12/21/2007
10/12/2007
8/3/2007
5/25/2007
3/16/2007
1/5/2007
10/27/2006
8/18/2006
6/9/2006
3/31/2006
1/20/2006
11/11/2005
9/2/2005
6/24/2005
4/15/2005
2/4/2005
11/26/2004
9/17/2004
7/9/2004
4/30/2004
2/20/2004
12/12/2003
10/3/2003
7/25/2003
Brazilian Real Spot 10 Yr
MEXICAN PESO
SOURCE: BLOOMBERG
©2013 EVERBANK. ALL RIGHTS RESERVED
Fundamental Snapshot
Debt to GDP 43.5%
CA to GDP -‐1.3%
Budget Deficit to GDP -‐2.5%
Real GDP Growth 0.8%
Cash Target 4.0%
InflaZon Rate 4.5%
Highlights
• Growth Policies & Economic Reform • Sustainable and Constant Debt Levels • PosiZve Current Account Trends
Technical Snapshot
Spot Price 12.67
3-‐YR STDev 13.2%
Est. Downside Risk -‐6.60%
10.00 11.00 12.00 13.00 14.00 15.00 16.00
7/12/2013
4/26/2013
2/8/2013
11/23/2012
9/7/2012
6/22/2012
4/6/2012
1/20/2012
11/4/2011
8/19/2011
6/3/2011
3/18/2011
12/31/2010
10/15/2010
7/30/2010
5/14/2010
2/26/2010
12/11/2009
9/25/2009
7/10/2009
4/24/2009
2/6/2009
11/21/2008
9/5/2008
6/20/2008
4/4/2008
1/18/2008
11/2/2007
8/17/2007
6/1/2007
3/16/2007
12/29/2006
10/13/2006
7/28/2006
5/12/2006
2/24/2006
12/9/2005
9/23/2005
7/8/2005
4/22/2005
2/4/2005
11/19/2004
9/3/2004
6/18/2004
4/2/2004
1/16/2004
10/31/2003
8/15/2003
Mexican Peso Spot 10 Yr
18
CURRENCY RETURNS
2007 2008 2009 2010 2011 2012 Thru 6/28/2013 Gold 30.94% 5.80% 24.37% 29.53% 10.61% 6.96% -‐26.74% Silver 14.57% -‐23.25% 48.03% 82.94% -‐9.35% 8.91% -‐35.59% Pla]num 36.74% -‐42.50% 54.22% 12.27% -‐21.15% 10.43% -‐13.13% Palladium 8.31% -‐52.61% 108.09% 79.07% -‐17.70% 7.74% -‐6.44% S&P 500 3.53% -‐38.49% 23.45% 12.78% 0.00% 13.41% 13.09%
Currencies in order of return for YTD 2013 (Rank): 2007 2008 2009 2010 2011 2012 2013 Chinese Renminbi 6.96% 6.97% 0.01% 3.33% 4.96% 1.13% 1.52% Hong Kong $ -‐0.28% 0.65% -‐0.05% -‐0.23% 0.04% 0.22% -‐0.08% Mexican peso -‐0.84% -‐21.10% 4.44% 6.17% -‐12.10% 8.29% -‐1.20% Danish krone 10.67% -‐4.29% 2.48% -‐6.67% -‐2.71% 1.62% -‐1.43% Euro 10.52% -‐4.48% 2.51% -‐6.56% -‐2.99% 2.00% -‐1.46% Hungarian forint 11.16% -‐9.38% 0.58% -‐9.49% -‐14.47% 9.97% -‐2.63% Swedish krona 5.89% -‐17.59% 9.41% 6.70% -‐2.71% 6.13% -‐3.07% Swiss franc 7.48% 5.86% 3.24% 10.69% -‐0.50% 2.67% -‐3.26% Singapore $ 6.62% 0.24% 1.79% 9.38% -‐0.91% 6.16% -‐3.68% Czech Koruna 15.57% -‐5.58% 4.08% -‐1.64% -‐5.03% 3.70% -‐4.87% Canadian $ 16.99% -‐18.07% 15.72% 5.49% -‐2.69% 2.70% -‐5.62% Bri]sh pound 1.33% -‐26.76% 10.81% -‐3.34% 0.35% 4.78% -‐6.58% New Zealand 8.93% -‐23.75% 24.79% 7.90% 0.49% 6.47% -‐6.74% Polish zloty 18.43% -‐16.74% 3.73% -‐3.36% -‐14.18% 11.65% -‐7.12% Indian Rupee 12.29% -‐19.24% 4.90% 4.28% -‐15.74% -‐3.07% -‐7.40% Brazilian Real 20.04% -‐23.09% 32.67% 5.01% -‐11.77% -‐8.78% -‐7.61% Norwegian 14.69% -‐21.97% 20.03% -‐0.94% -‐2.47% 7.58% -‐8.63% Australian $ 11.06% -‐19.30% 27.77% 13.95% 0.40% 1.57% -‐12.23% Japanese yen 6.78% 22.96% -‐2.56% 14.68% 6.28% -‐11.35% -‐12.61% South Africa 2.21% -‐26.61% 28.75% 11.48% -‐18.08% -‐4.71% -‐14.50%
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