Inaugural Cambridge Investment Conference Tuesday, 5 th November 2013 - PowerPoint PPT Presentation

Inaugural Cambridge Investment Conference Tuesday, 5 th November 2013

October 2013  Is this the end of the secular bond bull market? The impact of monetary normalisation on global fixed income Presented by: Miles Geldard – Head of Jupiter Fixed Interest and Multi-Asset Team FOR INSTITUTIONAL INVESTORS AND ADVISORS ONLY. NOT FOR RETAIL INVESTORS

1  The debt bubble has produced a bloated & fragile financial system… …sorting out the mess is creating different problems Source: Cartoon purchased and licensed for use from politicalcartoons.com, 2012.

2 The systemic crisis required extraordinary interventions…   Manipulation of currency and bond markets have caused extreme valuation anomalies  The debt bubble created a bloated & fragile financial system  Unemployment is very high in many developed and emerging economies  Economic recovery is happening but may be self-defeating, if rates rise quickly  So central bankers will err on the dovish side…  …but the extraordinary monetary experiment will come to an end  Structural and psychological factors have caused investors to shun volatile asset classes and prize too highly perceived safe havens  Sovereign bonds “risk free” status needs to be questioned …but normal market pricing mechanisms must return The views expressed are those of the fund manager at the time of presenting and may change in the future.

3  Currency intervention has been unprecedented globally Swiss National Bank foreign exchange reserves excluding gold (in $ billions) 500 400 300 $ billions 200 100 0 1969 1974 1979 1984 1989 1994 1999 2004 2009 Better than protectionism, but creates large distortions Source: Bloomberg, SNB, Jupiter 28.09.12.

4  The stock of debt in the developed world is daunting  US debt and GDP Point of fragility Source: BofA Merrill Lynch Global Investment Strategy, Haver, 2012. The views expressed are those of the fund manager at the time of presenting and may change in the future.

5 Where’s the inflation?  Negative output gaps, especially in developed but also in emerging countries  Difference between actual and potential GDP (% of potential) Source: IMF, OECD, GS Global ECS Research, June 2013.

6  European banks are reducing lending and unemployment is high   EMU new loans to non-financial corps ( € bn) European Unemployment Rates 3m Moving Average Structural weaknesses remain Source: HSBC, ECB, Thomson Reuters Datastream, 2013.

7  US housing cycle has bottomed and consumers are more confident US is a source of strength for the global economy   NAHB housing market index* US mortgage rate & mortgage refis** NA HB Housing Market Index (LHS) US mortgage refinancing application index (LHS) US Consumer Confidence (RHS) 30Yr Mortgage Rate (RHS) 80 160 12,000 12% 70 140 10,000 10% 60 120 8,000 8% 50 100 40 80 6,000 6% 30 60 4,000 4% 20 40 2,000 2% 10 20 0 0 0 0% 2000 2002 2004 2006 2008 2010 2012 1998 2001 2004 2007 2010 2013 Risk to recovery is whether rising rates will snuff out growth *Source: Bloomberg as at 30.08.13. **Source: JPMorgan, AxioMetrics, CoreLogic, FHLMC, BEA June 2012. The views expressed are those of the fund manager at the time of presenting and may change in the future.

8 Central banks have backstopped the markets… but at what price?   Expansion of balance sheets by major central banks since the financial crisis Source: Standard and Poor’s, St.Louis FED and Bank of England, 2013. *End of month, not seasonally adjusted data in home currency.

9 “Bonds should come with a warning label” – Warren Buffett  Real 10 year government bond yields 9 Current Average US 0.8% 2.2% UK 0.0% 2.8% 7 DE 0.0% 2.7% 0.0% 1.8% JP 10 Year Real Rate (10yr – CPI) 5 3 1 -1 -3 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Even Japan now has negative real rates Source: Bloomberg, Jupiter 30.08.13. Yields quoted are not guaranteed and may change in the future.

10  Since 1987 no more than 2 countries have experienced deflation in any one year Percentage of countries with negative year on year inflation since 1800 Deflation has been the exception since the end of the Gold Standard Source: Deutsche Bank, GFD, 2012.

11  UK gilts have averaged 3% real yields. Real yields are now 0% QE has removed risk premium on government bonds  Capital gain / loss of 10 year UK Gilt at different nominal yields Change in Price (%) 20% Current UK 10% Bond Yield 0% 10% 20% 30% 40% 50% Average UK 10 year Gilt 60% Yield (Last 25yrs) 70% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Nominal Bond Yield (%) Risk of capital losses on government bonds if rates normalise Source: Bloomberg and Jupiter as at 30.09.13. Yields quoted are not guaranteed and may change in the future.

12  Low sovereign bond yields have pushed investors along the credit curve  Euro High Yield corporate bond spread vs. Default Rate Investors should focus on absolute level of yields as well as spreads Source: J.P. Morgan, MARKIT Group, S&P, 2013. The views expressed are those of the fund manager at the time of presenting and may change in the future.

13  Foreign flows into EM debt have been offsetting current accounts deficits   Foreign flows into South African bonds* Current Account balance (% of GDP)** 100 4% 80 2% 60 0% 40 -2% ZAR bn 20 -4% 0 -6% -20 -8% -40 -10% '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 2004 2006 2008 2010 2012 EM debt is vulnerable to US tapering and their own domestic issues *Source: I-Net Bridge 30.06.13. **Source: South African Reserve Bank as at 31.03.13. The views expressed are those of the fund manager at the time of presenting and may change in the future.

14  Huge flows have gone into bonds in developed and emerging markets Since 2006 there has been $1.3 trillion inflow to bond funds   US Credit mutual fund assets + dealer inventory ($bn) Emerging Market net cumulative financial flows ($bn)* Mutal Fund Assets Inc ETFs Dealer Inventory Portfolio Investment Direct Investment Bank Lending 900 900 800 800 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 95 00 05 10 05 07 09 11 13 Will investors have liquidity when they need it? Source: ICI, NY Fed, Bloomberg, Haver Analytics, Citi Research 27.08.13. Haver Analytics, Citi Research. *Sample excludes China, but includes 15 other countries across LatAm, Asia and Europe.27.08.13.

15 A normal environment is one without QE…   Excessive governmental and personal debt in developed economies  Un(der)employment is a political , and therefore a financial, problem  Escalation of conflict in MidEast remains a risk  But corporates are in good health and the global economy is in better shape  ZIRP and QE saved the financial system, now the system must survive normalisation  Central banks can (and will) anchor the short end of the yield curve…  … but sovereign bonds are certainly not risk free  Structural and psychological factors have caused investors to shun volatile asset classes and prize too highly perceived safe havens …so investors need to gradually normalise their portfolios The views expressed are those of the fund manager at the time of presenting and may change in the future.

16  Disclosure Jupiter Asset Management Limited (‘JAM’) is registered in England and Wales (no. 2036243). The registered office is 1 Grosvenor Place, London SW1X 7JJ. JAM is authorised and regulated by the Financial Conduct Authority for business conducted in the UK whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS. This presentation is intended for investment professionals and not for the benefit of private retail investors. However anyone attending the presentation or who has the opportunity to view the accompanying slides should bear in mind that the value of an investment and the income from it can go down as well as up. It may be affected by exchange rate variations and you may not get back the amount invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term. For your security we may record or randomly monitor all telephone calls. If. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Quoted yields are not guaranteed. Past performance is no guide to future performance. 7768_SelwynCambridge_MG

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Inaugural Cambridge Investment Conference Tuesday, 5 th November 2013

Commercial Real Estate Real estate strategies for charities Cambridge - 5 November 2013 www.cordeasavills.com www.cpfund.org.uk

Why property? Charity property strategies Practicalities 1

Why property? • We are moving out of recession • Interest rates are low • Property returns offer a huge spread over equities and bonds 1.70% 6.80% 3.70% Bonds 1 Equities 2 Property 3 1. 10 year generic bond yield 2. FTSE 100 dividend yield (at end April 2013) 3. All-property income yield last 12 months 2