The World as I see it....
FELIX STEPHEN
Head of Strategy & Research
ADVANCE Asset Management Limited
May 2014
The future...
“You can't connect the dots looking forward;
you can only connect them looking
backwards.
So you have to trust that the dots will
somehow connect in your future.
You have to trust in something - your gut,
destiny, life, karma, whatever.
This approach has never let me down, and it
has made all the difference in my life”
Steve Jobs
(Co Founder, Chairman and CEO
Apple Inc, Pixar, NeXT Inc)
(24th Feb 1955 – 5th Oct 2011)
1
Uncertainty, Predictability & Time
(We live in a world of heightened uncertainty)
Source: Dr Tim Jones & Advance Asset Management
2
Demographic dividends have been of exceptional support
for financial assets and housing markets
Source: Soc Gen & Advance Asset Management
3
Global Headline Inflation Trends (Disinflation)
Source: Haver Analytics & Advance Asset Management
4
The importance of credit in a modern economy
Source: UBS & Advance Asset Management
5
USA: Money Supply, Credit & Inflation Trends
Source: Fed, US Dept of Commerce, Nomura Research Institute & Advance Asset Management
6
US Households are paying down debt even at historically lowest
Interest Rates
Source: FRB, Dept, of Commerce, NRI & Advance Asset Management
7
QE and the impact on US Employment
(What exactly is QE supposed to be doing?)
Source: Bloomberg & Advance Asset Management
8
What drives people to make an investment decision?
Risk / Return
Fear / Greed
9
Investor decisions are influenced by information and emotion
Risk Appetite
Euphoria
Greed drives
decision making
Panic
Fundamental research
drives decision making
Fear drives
decision making
10
Eastern Europe and The South China Sea regions
Source: GlobalconflictMaps.com & Advance Asset Management
11
South China Sea
Source: UNCLOS, CIA, BBC & Advance Asset Management
12
Growth of Wealth Management Products in China
Source: UBS, Bloomberg & Advance Asset Management
13
Core scenario anticipates a gentle decline in growth
Source: Soc Gen, Bloomberg & Advance Asset Management
14
Likely progression of a crisis
Source: Soc Gen & Advance Asset Management
15
Foreign Ownership of Asian Government Bonds
Source: UBS, Bloomberg & Advance Asset Management
16
Ponzi Finance: Speculative and leveraged investing
Source: NYSE, Bloomberg & Advance Asset Management
17
Ponzi Finance: Speculative and leveraged investing
Source: NYSE, Bloomberg & Advance Asset Management
18
Post GFC House Price Movements........
Source: OECD, Goldman Sachs, & Advance Asset Management
19
A summary of Macro-prudential housing policies.......
Source: Goldman Sachs, & Advance Asset Management
20
A sharp decline in implied & realised volatility is due to tighter
regulation and easy monetary conditions and.....
Source: CitiGroup, Bloomberg & Advance Asset Management
21
The distribution of Risk - The Bell Curve
Central banks and regulators have been instrumental in reducing “Tail Risks”
Source: Stockcharts.com & Advance Asset Management
22
Our response to uncertainty and volatility: SAA,DAA & TAA
Active Asset Allocation Strategies
DAA (LHS)
TAA (LHS)
SAA (LHS)
Financial Market Cycle (RHS)
High Risk
Peak
Portfolio
Risk
Allocation
Financial
Market
Cycle
Low Risk
Trough
Through 2 Financial Market Cycles
23
The future...
“ In a time of drastic change, it is the learners who
inherit the future. The learned usually find
themselves equipped to live in a world that
NO LONGER EXISTS”
Eric Hoffer
(American Social Writer & Philosopher)
25th July 1902 – 21st May 1983
24
Disclaimer
This information is of a general nature only and has been prepared without taking into account the objectives, financial
situation or needs of any particular person. Before acting on the information, a person should consider its appropriateness
having regard to these factors. The information is made available for use by advisers only and must not be passed on to
clients. The Advance Multi-Blend Funds (Funds) are issued by Advance Asset Management Limited ABN 98 002 538 329 AFSL
No. 240902 (Advance).
Before deciding whether to acquire or to continue to hold an investment in a Fund, investors should obtain and consider the
current Product Disclosure Statement for the Fund, available from www.advance.com.au. Past performance is not a reliable
indicator of future performance. While the information in this document is given by Advance in good faith, it does not
warrant that it is accurate, reliable, free from error or omission. Information from third parties is believed to be reliable
however it has not been independently verified. Advance is a member of the Westpac Banking Corporation (Westpac)
Group of companies.
An investment in the Fund does not represent an investment in, deposit with or other liability of Westpac or any other
member of the Westpac Group. It is subject to investment risk, including possible delays in repayment and loss of income
and principal invested. Neither Westpac, nor any other member of the Westpac Group, stands behind or otherwise
guarantees the capital value or the performance of an investment in a managed fund issued by Advance. Subject to any
terms implied by statute which cannot be excluded, neither Advance nor any other company in the Westpac Group or their
directors, employees and associates accept any responsibility for errors in, or omissions from the information.
25
Questions?
Follow Felix’s weekly podcast at advance.com.au