Post on 14-Feb-2020
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Investment Cubism 2017
Presented by:
Jeffrey GundlachCEO, DoubleLine
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Lagging Behind
• Percentage of U.S. Equity Funds outperformed bybenchmark
5-year 10-year 15-year
Large-Cap 88% 85% 92%
Mid-Cap 90% 96% 95%
Small-Cap 97% 96% 93%
Source: S&P Dow Jones Indices as of December 31, 2016, Wall Street Journal
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Max Beckmann
Self Portrait with Tuxedo1927
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2007 2007 through 2017
Fund universe based on US stock market, long-only mutual funds and ETFs; 2017 annualized on partial years flows. * Through April 30, 2017Source: Bloomberg, Morningstar, DoubleLine
-$1,500
-$1,000
-$500
$0
$500
$1,000
$1,500
$2,000
US
Equ
ity
Fun
ds
Cu
mu
lati
ve F
low
($
bn
)
Passive US Equity Funds
Active US Equity Funds
Active Cum Flows: -$1.0 TnPassive Cum Flows: $1.7 Tn
Active vs. Passive Equity Flows Cumulative Since
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U.S. Equity Funds Cumulative Net Flows1993 through 2017
Fund universe based on US stock market, long-only mutual funds and ETFs; 1993 and 2017 annualized on partial years flows. * Through April 20, 2017.Source: Bloomberg, Morningstar, DoubleLine
-$500
$0
$500
$1,000
$1,500
$2,000
$2,500
US
Equ
ity
Fun
ds
Cu
mu
lati
ve N
et F
low
s ($
bn
)
Passive US Equity Funds
Active US Equity Funds
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• The S&P 500 is maintained by a committee of market professionals.
• Having the index committee means the S&P 500 is actively managed.
• There are no rigid or absolute rules for the S&P 500.
• When the unexpected happens the index committee can respondquickly.
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“Bill Miller noted that the S&P 500’s track record of being very hard to beat suggested that the index committee were actually good active managers”
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“I know it’s been 15 years since we've been in the playoff. Well get ready, we’re going.”
-Rex Ryan
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“Insanity in individuals is sometimes rare; but in groups… itis the rule”
Friedrich Nietzsche
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“In Heaven, all the interesting people are missing”
Friedrich Nietzsche
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“Woman was God’s second mistake”
Friedrich Nietzsche
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“There are no facts only interpretations”
Friedrich Nietzsche
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Performance: Active vs. Passive Managers Has
Been Cyclical
Source: Morningstar Direct, Baron CapitalThe analysis is based on monthly rolling 3-year returns for the period 12/31/1981 to 6/30/2016.US OE Large includes all share classes in Morningstar’s US OE Large Growth, US OE Large Value, and US OE Large Blend categories. The passive fund performance is calculated as the average 3-year performance of all index fund share classes in each category. The performance of active funds is calculated as the average 3-year performance of all non-index fund share classes in each category. Results for each category are then averaged and the differences between active funds’ averages and passive funds’ averagesare calculated.
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“Reports of my death have been greatly exaggerated.”Mark Twain
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U.S. Represents over 50% of Global Market Cap
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... but only 24% of GLobal GDP
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GDP Weighted Global Equity Index vs. ACWI (1995-2017)
-50
0
50
100
150
200
Cumulative Returns of GDP Weighted Equity Basket vs. MSCI ACWI
GDP Weighted Equity Basket
MSCI ACWI
(25.00)
(20.00)
(15.00)
(10.00)
(5.00)
-
5.00 GDP Weighted Outperformance
GDP weighted index uses top 10 countries by share of GDP. Rebalanced every 5 years.MSCI ACWI = MSCI ACWI index is a free-float weighted equity index. It includes both emerging and developed world markets. You cannot invest directly in an index.
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S&P Capitalization / U.S. GDP
December 31, 2000 through April 21, 2017Source: BiancoGDP = Gross Domestic product is the amount of goods and services produced within a given country. S&P = S&P 500 is Standard & Poor’s Index is a capitalization weighted index of 500 companies. SAAR = Seasonally adjusted annual rate. You cannot invest directly in an index.
19CAPE® ratios adjusted for inflation by using headline CPI deflated earnings. April 21, 2017 CAPE® uses March 2017 CPI dataSource: Bloomberg, DoubleLineS&P = S&P 500 is Standard & Poor’s Index is a capitalization weighted index of 500 companies. MSCI = MXEF Index is the MSCI Emerging Markets index is a free –float equity index that captures large and mid-cap EM markets. You cannot invest directly in an index.
December 31, 2004 through May 7, 2017
CAPE Ratio - S&P 500 vs. MSCI Emerging
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Markets December 31, 2004 through May 6, 2017
Source: Bloomberg, DoubleLineS&P = S&P 500 is Standard & Poor’s Index is a capitalization weighted index of 500 companies. MSCI = MXEF Index is the MSCI Emerging Markets index is a free –float equity index that captures large and mid-cap EM markets. You cannot invest directly in an index.
Price -to-Book Ratio - S&P 500 vs MSCI Emerging
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Source: BloombergS&P 500 is Standard & Poor’s 500 Index is a capitalization-weighted index of 500 U.S. stocks. MSCI EM Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. You cannot invest directly in an index.
Performance: S&P vs. MSCI
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S&P 500 vs. MSCI EM Relative Performance (3 yrs)May 6, 2014 through May 7, 2017
Source: Bloomberg, DoubleLineS&P = S&P 500 is Standard & Poor’s Index is a capitalization weighted index of 500 companies. MSCI = MXEF Index is the MSCI Emerging Markets index is a free –float equity index that captures large and mid-cap EM markets. You cannot invest directly in an index.
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SPX/ MSCI EM and DXY (30 yr) May 11, 1987 through May 7, 2017
Source: BloombergS&P 500 is Standard & Poor’s 500 Index is a capitalization-weighted index of 500 U.S. stocks. MSCI EM Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. You cannot invest directly in an index.
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USD and Fed Hiking Cycles
Source: Bloomberg, DoubleLine
60
70
80
90
100
110
120
130
140
150
-10
5-1
00
-95
-90
-85
-80
-75
-70
-65
-60
-55
-50
-45
-40
-35
-30
-25
-20
-15
-10 -5 0 5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
10
01
05
Cu
mu
lati
ve P
erf
orm
ance
Weeks Around First Fed Hike
2015-Now
1983
1999
1994
2004
1986
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Trump And The U.S. Dollar (December 31, 2007 to May 7, 2017)
"I love the concept of a strong dollar, in many respects obviously I like a strong dollar. But when you look at the havoc that a strong dollar causes," he said on CNBC. "While there are certain benefits, it sounds better to have a strong dollar than in actuality it is.” Donald Trump
Source: Bloomberg, DoubleLineDXY = U.S. dollar indicates the international value of the US dollar measuring the exchange rate between the US dollar and other major world currencies. You cannot invest directly in an index.
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-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
-60%
-40%
-20%
0%
20%
40%
EM vs. SPX 3y Return Active vs. SPX 3y Return (RHS)
EM Equities and Active Managers Relative
Correlation: 0.86
Note: Active manager performance is based on median monthly performance of large cap equity mutual funds that launched prior to January 1995. Active manager proxy is composed of 25 managers from large cap equity peer group created by Bloomberg. The managers are US centric and constituents represent >$200bn in AUM.
EM and Active outperforms
EM and Active underperforms
Source: DoubleLine; Bloomberg
S&P = S&P 500 is Standard & Poor’s Index is a capitalization weighted index of 500 companies. MSCI = MXEF Index is the MSCI Emerging Markets index is a free –float equity index that captures large and mid-cap EM markets. RHS = right hand side. You cannot invest directly in an index.
Performance Tend to Correlate
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“Index funds make as much sense as anything else, right?”
The Voice of Reason:
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“I am under pressure to cut manager fees”
The Voice of Conscience:
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“Index funds have been outperforming lately”
The Voice of Practicality:
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“Toss them out of the window”
The Voice of Gundlach:
31This is the opinion of the speaker. Performance is no guarantee of future results. This is not a solicitation to buy or sell.
Long – EEM (Emerging Markets ETF)
Short – SPY (S&P 500 ETF)
Leverage 1x
Investment Recommendation: