PIMCO: The New Neutral - Philanthropy · 2018. 8. 24. · PIMCO Income Representative Account Add...
Transcript of PIMCO: The New Neutral - Philanthropy · 2018. 8. 24. · PIMCO Income Representative Account Add...
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PIMCO: The New Neutral
![Page 2: PIMCO: The New Neutral - Philanthropy · 2018. 8. 24. · PIMCO Income Representative Account Add value through continually shifting market conditions As of 31 December 2014 SOURCE:](https://reader035.fdocuments.in/reader035/viewer/2022070213/610b189b34c51e4ef568c31c/html5/thumbnails/2.jpg)
Your Global Investment Authority
Philanthropy Summit 2015
Investing in the New Neutral world
April 2015
PIMCO Australia Pty Ltd
ABN 54 084 280 508 AFS Licence 246862
Level 19, 363 George St. Sydney, NSW 2000
telephone: 02-9279-1771 facsimile: 02-
9279-2580
The financial services described in this
communication are only available in
Australia to persons who come within the
category of wholesale clients as defined in
the Corporations Act 2001 (Cth). They are
not available to persons who are retail
clients, who should not rely on this
communication.
For investment professional use only
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pg 2Your Global Investment Authority
Bio
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Secular Forum1.
intl_tab_10
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pg 4Your Global Investment AuthorityYour Global Investment Authority
PIMCO Investment Process
1cs_pimco_outlook_08
Output: Themes that guide
portfolio construction
Sector allocation ideas
Interest rate direction and volatility
Exchange rate expectations
Credit trends
Annual Secular Forum
(3 – 5 Year Outlook)
Assess long term trends: e.g.
demographics, political
factors
Quarterly Cyclical Forum
(6 – 12 Month Outlook)
Inflation and GDP forecasts
Fine tune the secular outlook
The New Neutral
• Lower potential growth
• Lower inflation
• Lower terminal policy rates
Where are we in the
cycle?• Fiscal austerity fading
• Continual policy support
• Household balance sheet
repair
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pg 5Your Global Investment AuthorityYour Global Investment Authority
The New Neutral in a nutshell
Aging population, weak productivity growth,
debt overhang and muted inflation
Slow growth (real and nominal)
Low interest rates
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pg 6Your Global Investment AuthorityYour Global Investment Authority
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1989 1992 1994 1997 1999 2002 2004 2006 2009 2011 2014
($)
Billio
n
Total Stock of Debt Outstanding
Total Stock of Sov Debt Outstanding
Global Deleveraging? Modest so far:
A large debt overhang remains
Global debt outstanding
As of 30 June 2014
SOURCE: BIS
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pg 7Your Global Investment AuthorityYour Global Investment Authority
Neutral Rate = The expected Fed Funds Rate when GDP, inflation, and employment are stable,
and monetary policymakers are neither "easing" nor “tightening.”
“The New Neutral:” PIMCO’s secular forecast
Mk_2cs_pimco_outlook_06a
OPTION A
SCENARIO
Fed gradually increases
to New Neutral
SCENARIO
Fed overshoots; economy
stutters; correction occurs
U.S. policy rate
Current rate
New Neutral:PIMCO’s forecast
Market expectation for neutral
rate
Better labor participation
Corporate spending
Economic growth
Debt overhang
Demographics
Geopolitical instability
NOMINAL*REAL
* Assuming 2% inflation
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pg 8Your Global Investment AuthorityYour Global Investment Authority
So how fast is nominal GDP likely to grow?
Rapid GDP growth is unlikely in an environment of low inflation and an aging population
Growth in the labor force
+
Increase in productivity per worker
+
Inflation
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pg 9Your Global Investment AuthorityYour Global Investment Authority
Labor force growth: The post-boom bust
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1949 1956 1963 1970 1977 1984 1991 1998 2005 2012 2019
5-y
ear
mo
vin
g a
vera
ge
Annualized labor force growth rate
Forecast
Demographic and other structural factors suggest labour force growth may stagnate
As of 31 March 2014
Source: HAVER, PIMCO
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pg 10Your Global Investment AuthorityYour Global Investment Authority
Demographic factors increasingly relevant for secular GDP growth
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029
Gro
wth
Yo
Y%
Working age population growth, UN projections
U.S. Japan
UK Italy
Germany China
As of 31 December 2013
SOURCE: United Nations, Haver, PIMCO
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pg 11Your Global Investment AuthorityYour Global Investment Authority
Productivity growth will be key
Productivity growth surged above 3% in the tech boom, but has averaged below 2% recently
As of 31 March 2014
Source: Bureau of Labor Statistics
0.0
1.0
2.0
3.0
4.0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Yo
Y c
han
ge, 5
y m
ov.
avg
. (%
, SA
)
U.S. nonfarm output/hr
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pg 12Your Global Investment AuthorityYour Global Investment Authority
Inflation will likely be modest going foward
US inflation averaged 4% per year between 1960 - 2014
0
2
4
6
8
10
12
14
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
20
11
20
14
Perc
en
t (%
)
CPI YOY Average
As of 31 December 2014
Source: Bloomberg
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pg 13Your Global Investment AuthorityYour Global Investment Authority
The New Neutral for interest rates
-5
0
5
10
15
20
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Perc
en
t
Nom GDP YoY FF rate UST 5Y
If nominal GDP grows at ~4.5%, then Fed Funds and bond yields may not have far to rise
Neutral?
As of 31 March 2014
Source: Federal Reserve, Bureau of Economic Analysis, PIMCO
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Smart Beta2.
intl_tab_12
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pg 15Your Global Investment AuthorityYour Global Investment Authority
Smart beta: Benchmark Efficiency
Global_advantage_phil_05
Traditional benchmarks are backward-looking and focused on
market capitalisation causing a structural bias towards highly
indebted countries
Smart beta benchmarks are forward-looking and help investors seize
opportunities in a New Neutral world across a multitude of fixed income
markets and sectors
Looks to avoid over-allocation to excessive borrowers and focuses on countries
with stronger underlying fundamentals
Designed to be more inclusive of newly developing countries, positioning investors
for future rather than past opportunities
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pg 16Your Global Investment AuthorityYour Global Investment Authorityglobal_advantage_perf_FUND
As of 31 December 2014
SOURCE: BofA Merrill Lynch, Barclays
The PIMCO Global Advantage® Index (GLADI ®) performance contains back-tested performance beginning 01 January 2004, which is prior to the actual launch of the index:
The Global Advantage ® Bond Index incepted on 12 January 2009
* Ten years ending 31 December 2014. All periods longer than one year are annualized
PIMCO Global Advantage® Bond Index vs. Barclays Global
Aggregate Bond Index risk and return (USD unhedged)
-6
-4
-2
0
2
4
6
8
10
12
14
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
An
nu
laiz
ed
retu
rn (
%)
Global Advantage® Bond Index
vs. Global Aggregate Bond Index
PIMCO Global Advantage®
Bond Index (USD unhedged)Barclays Global Aggregate Bond
Index (USD unhedged)
Barclays
Global
Aggregate
Bond Index
(USD
unhedged)
PIMCO Global
Advantage®
Bond Index
(USD
unhedged)
0
2
4
6
8
0 2 4 6 8
An
nu
alize
d r
etu
rn (
%)
Annualized standard deviation of monthly return (%)
Annualized returns versus volatility of return*
PIMCO Global Advantage®
Bond Index (USD unhedged)
Barclays Global Aggregate
Bond Index (USD unhedged)
Yield to maturity (%) 2.6 1.6
Duration (yrs) 4.9 6.5
Annulized returns (%)* 3.9 3.6
Annulized standard deviation (%)* 6.6 5.7
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pg 17Your Global Investment AuthorityYour Global Investment Authority
Active management3.
intl_tab_12
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pg 18Your Global Investment AuthorityYour Global Investment Authority
100
110
120
130
140
150
160
170
180
2010 2011 2012 2013 2014
Growth of $100 invested in the PIMCO GIS Global Bond Fund (NZD Hedged) - 5 yrs
Fund Benchmark
Active management…choosing the right manager matters
global_advantage_review_42_EM
As of 31 January 2015
The index of the fund is the Barclays Global Aggregate Index hedged into NZD
5 year net of fee
alpha: +257bp
Duration strategies
Sector rotation
Curve positioning
Credit selection
Quality bias
Country positioning
Macro forecasting
ACTIVE
MANAGEMENT
STRATEGIES
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pg 19Your Global Investment AuthorityYour Global Investment Authority
Alpha generation becomes even more relevant
1 Year 3 Years 5 Years 10 yearsSince
Inception
PIMCO StocksPLUS Fund (PSTKX) – Inception Date: 13 May 1993
PIMCO StocksPLUS Fund Net
of fees14.62% 19.18% 17.21% 7.97% 9.90%
S&P 500 Index 14.22% 17.47% 15.60% 7.61% 9.34%
Alpha + 97 + 230 + 220 + 93 + 119
PIMCO StocksPLUS Absolute Return Fund (PSPTX) – Inception Date: 28 June 2002
PIMCO StocksPLUS Absolute
Return Net of fees14.35% 19.49% 19.14% 9.61% 10.28%
S&P 500 Index 14.22% 17.47% 15.60% 7.61% 7.89%
Alpha + 85 + 278 + 430 + 273 + 314
Performance of StocksPLUS and StocksPLUS Absolute Return Fund
As of 31 January 2015
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pg 20Your Global Investment AuthorityYour Global Investment Authority
A rapidly expanding opportunity set…
Capital_Securities_Review_14
As of 30 June 2014
SOURCE: BIS
Estimated $100 trillion global debt market.
12/31/1989 6/30/2014
U.S. 60.7% 35.0%
Dev. Ex U.S. 38.2% 51.0%
EM 1.1% 14.0%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
USD
billio
ns
Global bond market EM: $14tn
U.S.: $35tn
Developed ex U.S.: $51tn
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pg 21Your Global Investment AuthorityYour Global Investment Authority
-10
0
10
20
30
40
50
60
70
80
90
100
110
120
Apr '07 Nov '07 Jun '08 Jan '09 Aug '09 Mar '10 Oct '10 May '11 Dec '11 Jul '12 Feb '13 Sep '13 Apr '14 Nov '14
Perc
en
tag
e o
f b
on
d e
xpo
sure
(%
)
Government-related¹ Agency mortgage Non-U.S. developed Non-agency mortgage CMBS ABS
Bank loans Corporates High yield Emerging markets Other
Investment processAdjust exposures dynamically given macroeconomic views
stru_766_04
PIMCO Income Representative Account
Add value through continually shifting market conditions
As of 31 December 2014
SOURCE: PIMCO1 Government Related may include nominal and inflation-protected Treasuries, agencies, interest rate swaps, Treasury futures and options, FDIC-guaranteed and government-guaranteed
corporate securities.
The representative account information presented is provided as supplemental information to the PIMCO Income Composite performance presentation
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pg 22Your Global Investment AuthorityYour Global Investment Authorityglobal_advantage_perf_FUND
Summary
Anticipate modest returns in a New Neutral world
3% for bonds
5% for stocks
Smart beta
Active management
Leverage
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pg 23Your Global Investment AuthorityYour Global Investment Authority
Disclaimer
The services and products provided by PIMCO Australia Pty Ltd are only available to persons who come within the category of wholesale clients as defined in the Corporations
Act 2001. They are not available to persons who are retail clients, who should not rely on this communication. Investors should obtain relevant and specific professional advice
before making any investment decision. The information contained herein does not take into account the investment objectives, financial situation or needs of any particular
investor. Before making an investment decision investors should consider, with or without the assistance of a securities advisor, whether the information contained herein is
appropriate in light of their particular investment needs, objectives and financial circumstances.
Investment management products and services offered by PIMCO Australia Pty Ltd are offered only to persons within its respective jurisdiction, and are not available to
persons where provision of such products or services is unauthorised.
Past performance is no guarantee of future results. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This
presentation contains the opinion of the manager as the date of this presentation, and such opinions are subject to change without notice. This presentation has been
distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment
product. The content of this presentation remains the property of PIMCO. No part of this publication may be reproduced in any form, or referred to in any other publication,
or conveyed to a third party without express written permission.
Copyright 2015 PIMCO
Tony Hildyard
Tel: 021 830720
Email: [email protected]
Address:
Level 19, 363 George Street
Sydney, NSW 2000
Tel: 02-9279-1771
Fax: 02-9279-2580
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PIMCO: The New Neutral