2012 Investment Outlook Kevin Rendino Sr. Portfolio Manager - - PowerPoint PPT Presentation

▶
2012 investment outlook
SMART_READER_LITE
LIVE PREVIEW

2012 Investment Outlook Kevin Rendino Sr. Portfolio Manager - - PowerPoint PPT Presentation

Nov 30, 2022 381 likes •594 views

2012 Investment Outlook Kevin Rendino Sr. Portfolio Manager BlackRock Basic Value January 18, 2012 The US economy continues to muddle through yet again US Economy P ositives Negatives Increasing growth in employment Still high

slide-1
SLIDE 1

2012 Investment Outlook

January 18, 2012

Kevin Rendino

  • Sr. Portfolio Manager

BlackRock Basic Value

slide-2
SLIDE 2

Positives

  • Increasing growth in employment
  • Strong corporate earnings
  • Stable cost structure
  • Low and falling inflation
  • Improving consumer credit growth
  • Good labor productivity
  • Banking system on the mend
  • Politics

The US economy continues to muddle through yet again

Negatives

  • Still high unemployment
  • Low business and consumer sentiment
  • Weak housing market
  • Fiscal tightening
  • Poor real wage growth
  • Households deleveraging
  • Politics

US Economy

slide-3
SLIDE 3

The US economy continues to muddle through yet again

Source: ISI. Data through November 2011.

US unemployment rate

2 4 6 8 10 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

slide-4
SLIDE 4

US earnings grow but more slowly than past 2 years

S&P 500 Per Share Profits Consensus Estimate @ Jan. 1 Full year Growth 2009 $60.80 2010 $77.00 $85.28 +40.3% 2011E $95.50 $97.00E +13.7% 2012E $107.78 $103.00E +6.2%

Source: Brown Brothers, BlackRock

slide-5
SLIDE 5

Business Loans Improving

slide-6
SLIDE 6

Consumer Loans Improving

slide-7
SLIDE 7

US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession

S&P 500 Target: 1350+ Total return: 10%+

  • Yield
  • Earnings

2% 6% 1250 1325

  • P/E improvement

2%+ 1325 1350+

Components of Return

slide-8
SLIDE 8

Multiples to remain low

  • Lack of investor demand (historic

returns zero)

  • Aging population
  • Concern about profit margins
  • Uncertainty premium
  • Sovereign debt risks (Europe)

Multiples to rise

  • Current risk aversion lasted longer

than any since 1930s

  • Absence of recession, high

inflation, high interest rates

  • At historic extreme (like WWII,

Korea, high inflation)

  • Dividends rising
  • Buybacks and M&A

US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession Possible Catalysts – US economy ok in 2012 – Absence of Euro collapse – Some political uncertainties resolved – Housing bottoms

slide-9
SLIDE 9

US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession

Source: Deutsche Bank

S&P 500 P/E history

5 10 15 20 25 30 Dec-28 Dec-30 Dec-32 Dec-34 Dec-36 Dec-38 Dec-40 Dec-42 Dec-44 Dec-46 Dec-48 Dec-50 Dec-52 Dec-54 Dec-56 Dec-58 Dec-60 Dec-62 Dec-64 Dec-66 Dec-68 Dec-70 Dec-72 Dec-74 Dec-76 Dec-78 Dec-80 Dec-82 Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Recession S&P 500 Trailing P/E Average

slide-10
SLIDE 10

US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession

Source: Strategas Research Partners

Stocks cheap, bonds expensive, housing bottoming Average S&P 500 Trailing “P/E” by Decade Average Bond “P/E” by Decade

(100/10-Year Treasury Yield)

Average House “P/E” by Decade

(US Median Home Price/Median Rent)

18.1 12.5 11.7 19.5 20.1 13.1 5x 10x 15x 20x 25x '60s '70s '80s '90s '00s Current 21.1 13.6 9.9 15.5 23.1 51.9 5x 15x 25x 35x 45x 55x '60s '70s '80s '90s '00s Current 11.0 15.2 17.9 18.7 21.8 16.2 5x 10x 15x 20x 25x '60s '70s '80s '90s '00s Current

slide-11
SLIDE 11

Dividends and buybacks hit a record high

Buybacks Plus Dividends ($ billion) 1990 145 2001 324 1991 132 2002 329 1992 144 2003 350 1993 156 2004 491 1994 170 2005 706 1995 222 2006 858 1996 254 2007 1050 1997 298 2008 761 1998 363 2009 587 1999 372 2010 652 2000 353 2011E 880

Source: FactSet, J.P. Morgan

slide-12
SLIDE 12

Dividends and buybacks hit a record high

Source: J.P. Morgan

Percentage of profits used for dividends or buybacks

37%38% 43% 48% 43% 46% 57%59% 65%65% 84% 46% 32% 47% 52% 41% 33% 37% 55% 78% 63% 54%

30% 40% 50% 60% 70% 80% 90% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cash Return as a % of Corp Profits

annualized

slide-13
SLIDE 13

WHAT COULD GO RIGHT?

  • Europe moves toward resolution
  • US heads toward fiscal responsibility
  • US manufacturing renaissance develops
  • Housing recovery in US commences
  • Consumer and business confidence improves

WHAT COULD GO WRONG?

  • Eurozone debt crisis becomes a systemic banking crisis
  • US heads back toward double dip
  • China has a hard landing
  • Political divide in US widens; class warfare breaks out
  • Middle East tensions cause $150 oil
slide-14
SLIDE 14

Eurozone progress

1. ECB guarantees European bank access to funding (removes possibility of a bank liquidity crisis) 2. ECB to be lender of last resort for banks, but not for government bonds 3. Measures of fiscal discipline agreed upon; enforcement mechanism uncertain 4. Eurozone rating downgrades likely 5. Government hiring freezes and capital spending cuts insure Eurozone recession 6. Earnings estimates for European companies to fall further 7. Political decisions continue to trump economic decisions

The European debt crisis begins to ease even as Europe experiences a recession

slide-15
SLIDE 15

Despite slowing growth, China and India contribute more than half of the world’s economic growth

GDP growth forecasts, 2012

  • 1.0

0.4 1.9 2.3 3.2 7.2 7.9

  • 2
  • 1

1 2 3 4 5 6 7 8 EA UK Japan US Global India China Percent y-o-y

Forecast contributions to global GDP growth

2011 2012 Global growth (% y-o-y) 3.7 3.2 Contributions to growth (pp): Developed markets 0.8 0.6 United States 0.4 0.5 Euro area 0.3

  • 0.2

United Kingdom 0.0 0.0 Japan

  • 0.1

0.1 Emerging markets 3.0 2.6 China 1.6 1.4 India 0.5 0.5

Note: Contributions to growth are on a purchasing power parity (PPP) basis. Source: Nomura Global Economics

slide-16
SLIDE 16

Emerging Market Economies

Positives

  • Strong domestic demand growth
  • Rising productivity
  • Positive employment growth
  • Rising real wages
  • Consumer purchasing power growth

Negatives

  • Slowdown in Europe
  • Inflation concerns
  • Scattered asset bubbles
  • Rising labor costs
  • Political tensions

Despite slowing growth, China and India contribute more than half of the world’s economic growth

slide-17
SLIDE 17

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT TO BE SHOWN OR DISTRIBUTED TO CLIENTS 17

Basic Value Key Investment Professionals

Team members average over 19 years of investment experience

  • Portfolio managers define investment process and strategy and make buy and sell decisions
  • Portfolio managers and research analysts conduct fundamental research on all potential investments
  • Manage $11.3 bn dollars

Basic Value Team draws on BlackRock’s broad resources

  • Risk & Quantitative Analysis
  • Equity & Fixed Income Research Analysts

( ) years of investment experience 31 December 2011

Brooke Williams (13) Information Technology, Industrials Geri Gunn (28) Consumer Discretionary, Consumer Staples Research Analysts Chris Parliman (10) Energy, Utilities Product Specialist Scott Malatesta (19) Product Specialist Kevin Rendino (23) Senior Portfolio Manager Carrie King (25) Associate Portfolio Manager Health Care, Media, Defense, Telecom

Portfolio management team BlackRock basic value resources

William Rubin (18) Financials

slide-18
SLIDE 18

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT TO BE SHOWN OR DISTRIBUTED TO CLIENTS

Basic Value philosophy and core beliefs

  • The price we pay relative to the business we buy is the most important driver of investment returns
  • Markets overreact to near-term internal or environmental challenges creating attractive valuations
  • Out-of-favor companies and industries create opportunities to identify investments that offer asymmetric return-to-risk

potential

  • Companies with strong franchises, managements, and balance sheets are the best positioned to turnaround, gain

market share, and improve profitability in an industry recovery

A portfolio of strong business franchises, purchased at the right price,

  • utperform over a market cycle
slide-19
SLIDE 19

FOR FINANCIAL PROFESSIONAL USE ONLY – NOT TO BE SHOWN OR DISTRIBUTED TO CLIENTS

BlackRock Basic Value: Portfolio Positioning

Focus on market leaders

  • Solid balance sheets
  • Strong competitive positions
  • Proven management teams
  • Attractive valuations
  • Strong cash generation
  • Dividend increases
  • Share repurchases

Continued concentration on stock and sector selection vs. broad market trends

Balanced approach with cyclical exposure through Information Technology and Energy offset by positions in more defensive sectors of Consumer Staples, Healthcare and Telecommunications

slide-20
SLIDE 20