Flexible solutions for the big changes we all face Investments that - - PowerPoint PPT Presentation
Flexible solutions for the big changes we all face Investments that are greater than the sum of their parts Ross Mackinnon, Head of UK Intermediary Business Development - Strategic Accounts, Sales Paradigm - October 2019 For professional
For professional investors only. Not for retail clients
Ross Mackinnon, Head of UK Intermediary Business Development - Strategic Accounts, Sales
Investments that are greater than the sum of their parts
Flexible solutions for the big changes we all face
Paradigm - October 2019
Greater than the sum of its parts…
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Source: Getty Images, BBC, 9 May 2019. BBC.com 2015 ‘And so, on the day the Tigers roared, England went out with the faintest of miaows. ‘
Moeen Ali James Anderson Gary Balance Ian Bell Ravi Bopara Moeen Ali Jofra Archer Jonny Bairstow Jos Buttler (wk) Tom Curran
2019 2015
Stuart Broad Jos Buttler (wk) Steven Finn Alex Hales Chris Jordan Eoin Morgan (capt) Joe Root James Taylor James Tredwell Chris Woakes Liam Dawson Eoin Morgan (capt) Liam Plunkett Adil Rashid Joe Root Jason Roy Ben Stokes James Vince Chris Woakes Mark Wood
Learning Objectives
At the end of this presentation, attendees will be able to:
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Describe the inescapable investment truths that will define the decade ahead Big changes in your world that may influence how you meet client requirements Understand how these can be combined in solutions that offer more than the sum of their parts
WIIFM
Big changes in the big wide world
The investment background for the next decade
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Inescapable truths, not short term predictions
Slower growth in the global labour force Poor productivity growth Ageing populations A growing role for China Low inflation Low risk-free interest rates
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Source: Schroders.
Disruption
Source: Schroders, as at 31 March 2019. 1Oxford dictionary.
2Clayton M Christiansen/The Innovator’s Dilemma.5
Disturbance or problems which interrupt an event, activity or process1
In the Food industry…
Burger robot start-up Creator opens first fully automated restaurant…
Source Schroders, as at 31 March 2019. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
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In Healthcare…
3d Printed Heart
Source: Schroders, as at 31 March 2019. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
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Disruptive innovation
It’s not linear: Disruption of £100bn financial services revenue by 2030…
Source: HSBC, Richard G Lipsey, Economic transformations: general purpose technologies and long term economic growth. PwC, Harnessing the Power of Disruption, 2019.
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2 4 6 8 10 12 9000–7000 BC 4000 BC 3000 BC 0 to 16th century 18/19th century 20/21st century
The acceleration of general-purpose technologies
How long to reach 50 million users
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Electricity
Television
Internet
Pokémon Go
Disruptive Technology…
Exponential growth, but it’s not simply driven by technological innovation…
Source: Accenture, IOT Internet of Things, 2019, PwC, Harnessing the Power of Disruption, 2019, “real opportunities will be found where the enablers of disruption collide”, with 5 main financial services enablers being technology, regulation, funding, ease of switching and talent.
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1980 1990 2000 2010 2020 2025
PC Internet Social Media Platforms
Artificial Intelligence IoT Blockchain Quantum Computing Robotics
Exponential Growth of Technology
Kurzweil’s 'Law of Accelerating Returns' Technology convergence creating the conditions for expanded Moore’s Law Artificial Intelligence to drive 'run- away reaction' of self-improvement cycles 'Singularity' (Artificial super-intelligence > Sum of human intelligence) by 2045
Disruption heat map?
It’s everywhere, across all sectors
Source: Schroders, as at 31 March 2019. PwC Harnessing the Power of Disruption, 2019: “The 2015 Pension Freedom Act and changes in distribution could enable 30% of revenue/£15.9bn in life and pensions to be disrupted by 2030 and 15%/£3.5bn in the mass market for savings and investment.
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Low but rising Medium High
Global industry group Keywords Real estate eCommerce vs. physical, online hospitality, demographics Insurance Data Household and personal products eCommerce, fragmentation Commercial and professional services Automation/AI, digitalisation Global industry group Keywords Utilities Renewables, energy mix, regulation Transportation Logistics, automation, AI Technology hardware Smartphones, connectivity Semis and semi equipment Processor power, memory capacity, speed, yield Materials Substitution, environmental/regulation Food, beverage and tobacco Fragmentation, demographics Food and staples retailing Online retail, data, marketing Energy Automation, renewables/substitution, regulation Diversified financials Digital platforms, data Consumer services (restaurants, hotels) OTA platforms, data Management Cash Digitalisation, blockchain Banks On-line banking Healthcare equipment and services Automation, data Global industry group Keywords Telecom services Fixed/mobile substitution, fibre/cable, 5G networks Software and services Cloud, CRM/ERP, automation, data Retailing Online retailing, advertising, logistics Pharmaceuticals and biotech Drug discovery, biosimilers Media Streaming, cord-cutting, digitalisation Consumer durables and apparel eCommerce, online retail, data Capital goods Automation, robotics Automobiles Electric vehicles, autonomous driving, regulation Global industry group Keywords
Probability of a job being automated in next 20 years?
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Source: The Future of Jobs – How Susceptible are Jobs to Computerisation? 2015. Service Automation: Robots and the Future of Work, Willcocks and Lacity, 2016. Only Humans Need Apply, Davenport and Kirby. Will Robots Steal Our Jobs? PwC, Schroders, September 2017.
25 50 75 100
Doctor Vicar Chief Executive Architect Lawyer Graphic Designer Public Relation Economist IT Programmer Market Researcher Lorry Driver Estate Agent Technical Writer Insurance Agent Accountant Paralegal Book Keeper Bank Clerk Bank Loan Officer Telemarketer
40% and 30% of jobs at risk in the US and the UK, but with opportunity…
Global climate change
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2°C 4°C 0°C 6°C 1°C 3°C 5°C
eventually must reach
Implication for GHG emissions
reduction per capita by 2050
The scale of change: opportunity and urgency
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2°C 4°C 0°C 6°C 1°C 3°C 5°C
eventually must reach
Implication for GHG emissions
reduction per capita by 2050
The scale of change: opportunity and urgency
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Source: IPCC (2014).
Agriculture, forestry and land use Buildings Transport Electricity and heat production Industry Other energy
Radical transformation in every sector
2°C 4°C 0°C 6°C 1°C 3°C 5°C
eventually must reach
Implication for GHG emissions
reduction per capita by 2050
Big changes in your world
Growing role in planning and delivering retirement income
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Not forgetting vulnerable clients, wealthier millennials and revenue disruption
Source: FCA 2018. PwC Harnessing the Power of Disruption, 2019: “The 2015 Pension Freedom Act and changes in distribution could enable 30% of revenue/£15.9bn in life and pensions to be disrupted by 2030.
FCA – Latest trends in the retirement income market
“Sales of drawdown products continue to grow at a faster rate compared to traditional annuity solutions” “During the financial year 2017/18 inflows into drawdown totalled £22.4 billion” “We found that 1 in 3 consumers who have gone into drawdown recently are unaware of where their money was invested. It was also found that some providers were ‘defaulting’ consumers into cash or cash-like assets.”
More complex/changing needs require new ways of thinking
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Source: Langcat, Spring 2019. Nucleus Census, 22 May 2019: 29% of advisory firms do not use client segments…
49% 45% 3% 30 40 50 60 70 80 90 £0K £200K £300K £400K £500K £100K
Starting wealth Building wealth Optimising wealth Later life Transition into retirement Age Growth seeking Income seeking
Remember the guidance for best practice..?
Source: FSA, 2012.
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Times have changed following PROD in 2018…
…segmentation now mandatory
70% unsure if they are able to evidence the suitability of products and services by client segment
Source: FCA January 2018, advisers are treated as distributors for PROD regulations. Independent adviser research conducted for financial technology business IRESS by financial consultancy, the lang cat 30 August 2018.
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The implied task? Get to clients (sooner)…
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At what age do you tend to start talking about retirement income planning with your clients?
…and create some urgency for next generation business
Source: Cicero Research, Retirement Income, The Price of Freedom, Adviser and Consumer Research, April 2018. Nucleus Census, 22 May 2019: 21% in 2018 falling to 15% in 2019 of advisory clients spending >40% of time with clients, 11% in 2018 rising to 31% in 2019 of advisory clients spending >40% of time on administration and finally, 29% of advisory firms do not use client segments…
Since 2015, it’s happening a decade earlier in the UK…
Mean 39.98 years in 2018 Mean 48.69 years in 2015
What’s the best aspect of your profession?
21% 15% 2018 2019
Advisers spending more that 40% of time with clients
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11% 31% 2018 2019
Advisers spending more than 40% of time
Spending quality time with client protects the long-term health of your business
Source: Nucleus adviser census 2019
A big prize further down the line…over the next decade
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Source: Cebr and Kings Court Trust, 2017.
Wealth transfer set to rise to
£115 billion
in 2027
(+66%)
£1 trillion expected to pass to the next generation in a decade and £5.5 trillion in 30 years Average value of an inheritance to jump to
£91,000
by 2027
(+47%)
2019 2030 2040 2050
£1 trillion £5.5 trillion
…another inescapable truth
Ensuring the most vulnerable are always treated well…
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“susceptible to detriment, particularly when a firm is not acting with appropriate care”
50% of UK adults display one or more characteristic of being potentially vulnerable
Source: FCA GC19/3 closes 4 October 2019 after FCA finds “some firms are clearly failing to consider the needs of vulnerable consumers, leading to harm”. FCA 2017 Financial Lives Survey found that 50% of UK adults show at least one characteristic of being potentially vulnerable. Consultation objective to improve consistency of outcome for vulnerable consumers across the industry and embed ‘doing the right thing’ into business culture. Conclusions so far include Transient, Personal, Offence…Langcat, 24 July 2019.
“We want to see doing the right thing for vulnerable consumers deeply embedded in the culture of firms”
Constants
Investors can have high/unrealistic expectations
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16% 31% 32% 14% 5% 2% 20% + 10 - 20% 5 - 9% 1 - 4% 0% or loss Don't know Thinking about your total investment portfolio over the next five years, what annual total (%) return (i.e. income and capital growth) do you expect to make, on average each year?
Source: Schroders Global Investor Study 2019.
is the annual total (%) return people expect to make, on average each year
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The Past
Source: Rupert Rucker’s Father. This image is for illustrative purposes only.
UK National Savings Certificate
Issued in 1986 UK Inflation in 1986
3.4%
Income requirement is front and centre of many investors’ minds
Source: Goldman Sachs. This image is for illustrative purposes only.
UK Inflation
2.6%
The Past The Present
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Income requirement is front and centre of many investors’ minds
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The Past The Present The Future
Source: Schroders. Source: Dimson, Marsh & Staunton, Credit Suisse Global Investment returns Yearbook 2018.
Real interest rates will remain low?
0.2 0.4 0.6 0.8
1900–1980
0.7 0.4 US UK Europe
%
We expect risk-free real rates to remain at 1900–1980 average = 1% to 3% below pre-crisis levels
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What Yield Is ‘Normal’?
The Past The Present The Future
Source: Elroy Dimson, Paul Marsh, and Mike Staunton, Triumph of the Optimists, Princeton University Press, 2002, and subsequent research.
1.9 4.5 5 10 15 20 Long-run average 1729 1750 1800 1850 1900 1950 2016
What yield is ‘normal’?
300 years of UK bond yields.
Investors can be trigger happy…
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Source: Schroders Global Investor Study 2019.
15% 13% 7% 4% Millennials (18-37)
Baby Boom. (51-70) Silent Gen. (71+) Percentage of people who make quicker, potentially less considered, changes to their portfolio when the political situation in their region is unsettled or when stockmarkets are volatile 1.9 2.7 3.7 4.0 Millennials (18-37)
Baby Boom. (51-70) Silent Gen. (71+) Excluding any pensions or property investments, on average, once people have put money into an investment product, how long do they stay invested? (years)
…client behaviour that appears likely to worsen
People are least happy when most likely to become clients
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Source: Washington Post and SSRN Papers, 31 August 2017, 7 x data sets covering 51 countries and 1.3m randomly sampled people on the pattern of psychological well-being from c16 – 90 years old.
Investors worry about running out of money in retirement…
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…a primary concern
Source: Schroder Adviser Survey, November 2018.
0% 10% 20% 30% 40% 50% 60% 70% 80% Running out of money for retirement/how long they will live for What is the total amount they need for retirement How much money they can take each year How much money they should save each year Not understanding drawdown Further falls in income Other 2016 2017 2018
Millennial money focus: not so different?
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Long-term future security goals
Top 5 current priorities after daily living costs by age
Source: Bdifferent survey of 1005 millennials 2018.
10 20 30 40 50 60
Saving for a holiday Rainy day saving Saving mortgage deposit Saving for/paying for car Saving for other specific items Paying credit cards Long-term saving for family Pension 20-25 years old 26-30 years old 31-36 years old
49% 3%
Solving for the above
Desirable characteristics
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“Consistency trumps intensity”
Working for your clients and for you – Future-proof approach that works in different market environments – Flexible to-and-through retirement solution that works across client segments – Source of natural higher income at a risk level suitable for many
Source: Bruce Lee in “Enter the Dragon”, 26 July 1973. PwC, Harnessing the Power of Disruption, 2019, “when customers are parting with a significant proportion of their wealth, trust plays an important role in their selection of a provider…more likely to select an incumbent player with a long track record and a trusted brand.”
Bringing it all together…
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Client profile
– Needs/wants – Attitudes – Circumstances
Execution options
– Annuity – Equity release – Asset cascade – Unit encashment – Natural income
Product considerations
– MPS/Multi-manager/ Multi Asset – DFM – Component funds – Platform
Learning Outcomes
At the end of this presentation, attendees will be able to:
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Describe the inescapable investment truths that will define the decade ahead Big changes in your world that may influence how you meet client requirements Understand how these can be combined in solutions that offer more than the sum of their parts
WIIFM
We work closely with…
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Schroders funds available:
Schroder Income Maximiser Schroder Recovery Fund Schroder ISF Global Bond Schroder ISF QEP Global ESG Schroder Tokyo Fund
Schroder Monthly Income Fund
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Overview (Schroder Mixed Distribution Fund until 2 September 2019)
Source: Schroders. For illustrative purposes only. This is not the current asset allocation.
Absolute Return High Yield Opportunities Global High Yield Sterling broad market Strategic bond European equities UK equities with up to 20% ex-UK Global equities Asian equities (ex-Japan)
annual yield
Equities Bonds
~50/50
Maximiser funds
Fixed income funds
up to
A regular, monthly income boost
Income paid on £50,000 invested at launch*
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.
Source: Schroders, Bloomberg, as at 22 July 2019. Unit price lines plotted to correspond to XD dates. Source for Z Acc share class: Schroders, Bloomberg, NAV to NAV, net of fees, net income reinvested in GBP. Z Inc share class NAV to NAV, price only, net of fees in GBP. *Fund launched 21 May 2012 at 50p per unit; Z Inc share class distributions began in 2013. Latest distribution subject to administrator confirmation
£57,110 Z Inc £84,340 Z Acc £20,914.58 income paid from Z Inc
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Schroder Monthly Income Fund
Performance since launch (Schroder Mixed Distribution Fund until 2 September 2019)
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.
Source: Schroders, bid to bid, net income reinvested in GBP, for the Z Acc share class, net of fees. *Fund launch date 21 May 2012. Source for ratings on Z Acc share class: Morningstar, Trustnet, Distribution Technology, Defaqto, Synaptic and FinaMetrica, all as at 03 July 2019. Please see Morningstar disclaimer at the end of the presentation. Following a review of its asset allocation model, Dynamic Planner will be moving the Schroder Mixed Distribution Fund from a DT risk profile 4 to 5. Dynamic Planner has re-categorised the fixed income holdings, classifying the holdings as a 5 instead of a 4 – the categorisation that was given since launch. Since its launch in May 2012 the fund has continued to adopt the same proven investment process. There have been no changes to the objective or the way the fund is being run.
3 months 1 year 3 years 5 years Since launch* Schroder Mixed Distribution Fund Z Acc 2.4% 2.3% 23.2% 31.0% 66.2% IA Mixed Investment 20%-60% Shares 3.0% 3.0% 18.1% 26.1% 51.2% Relative performance
+5.1% +4.9% +15.0% 2018 2017 2016 2015 2014 Schroder Mixed Distribution Fund Z Acc
7.9% 15.0% 0.5% 6.9% Schroder Mixed Distribution Fund Z Inc
7.9% 15.1% 0.5% 7.0% IA Mixed Investment 20%-60% Shares
7.2% 10.4% 1.3% 4.8% Periods ending 28 June 2019 Calendar year performance
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Schroder Monthly Income Fund
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Risk factors
– Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. – As a result of fees being charged to capital, the distributable income of the fund may be higher but there is the potential that performance or capital value may be eroded. – The fund can be exposed to different currencies. Changes in foreign exchange rates could create losses. – High yield bonds (normally lower rated or unrated) generally carry greater market, credit and liquidity risk. – A rise in interest rates generally causes bond prices to fall. – A decline in the financial health of an issuer could cause the value of its bonds to fall
– A failure of a deposit institution or an issuer of a money market instrument could create losses. – Equity prices fluctuate daily, based on many factors including general, economic, industry or company news. – In difficult market conditions, the fund may not be able to sell a security for full value
redemptions of its shares. – Failures at service providers could lead to disruptions of fund operations or losses. – The counterparty to a derivative or other contractual agreement or synthetic financial product could become unable to honour its commitments to the fund, potentially creating a partial or total loss for the fund. – A derivative may not perform as expected, and may create losses greater than the cost of the derivative. – When interest rates are very low or negative, the fund's yield may be zero or negative, and you may not get back all of your investment. – Because the fund intends to pay dividends regardless of its performance, a dividend may represent a return of part of your investment. – The fund uses derivatives for leverage, which makes it more sensitive to certain market or interest rate movements and may cause above-average volatility and risk
Marketing material for professional investors or advisers only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Schroders has expressed its own views and opinions in this document and these may change. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Information herein is believed to be reliable but we do not warrant its completeness or accuracy. Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned
have any liability in connection with the third party data. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or
Any references to securities, sectors, regions and/or countries are for illustrative purposes only. Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage. For your security, communications may be recorded or monitored. Issued in September 2019 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, who is authorised and regulated by the Financial Conduct Authority.
Important information
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