Скачать презентацию The End of the Equity Cult Duncan Gwyther Скачать презентацию The End of the Equity Cult Duncan Gwyther

ef1fb3f36a2c10234c4042a2eb2ef0c7.ppt

  • Количество слайдов: 27

The End of the Equity Cult? Duncan Gwyther Chief Investment Officer October 2010 The End of the Equity Cult? Duncan Gwyther Chief Investment Officer October 2010

The End of the Equity Cult • Two significant bear markets and continuing high The End of the Equity Cult • Two significant bear markets and continuing high volatility • Uncertainty over economic growth prospects • Regulation designed to make ‘the world a safer place’ - Solvency 2 etc Mean • Global bond yields have fallen to multi-decade lows, and • Insurance sector’s equity allocation just 4% (net of policyholder participation) • Bond fund flows are now greater than equity flows were in 2000 But • Sovereign debt crisis is real and ongoing • Inflation isn’t dead, so is there a ‘real’ problem meeting future liabilities? Source: Investment Company Institute, Morgan Stanley European Strategy 27 September 2010 2

Equity exposure - UK insurance companies Association of British Insurers Long-Term and General Insurance Equity exposure - UK insurance companies Association of British Insurers Long-Term and General Insurance Holdings Cash and Other Investments, 8% Property, 6% Overseas Public Sector Securities, 6% Unit Trusts, 13% Other Overseas Company Securities, 14% UK Public Sector Securities, 12% UK Ordinary Stocks and Shares, 15% Overseas Ordinary Stocks and Shares, 15% Source: Association of British Insurers 31 August 2010 Other UK Company Stocks and Shares, 11% 3

Equity exposure - UK insurance companies Morgan Stanley Research Estimate of Net Policyholder Participation Equity exposure - UK insurance companies Morgan Stanley Research Estimate of Net Policyholder Participation Equities, 4% Cash, 5% Other, 10% Govt Bonds, 30% Loans, 8% Str Credit, 11% Cov Bonds, 5% Source: Company data, Morgan Stanley European Strategy 27 September 2010 Corp Bonds, 27% 4

Fund flows - Solvency 2, equities not capital efficient 5 Fund flows - Solvency 2, equities not capital efficient 5

Fund flows - pension funds structural sellers Source: WM Pension Funds 31 Dec 2009 Fund flows - pension funds structural sellers Source: WM Pension Funds 31 Dec 2009 6

Fund flows - US equity mutual fund flow v performance Net Fund Flows to Fund flows - US equity mutual fund flow v performance Net Fund Flows to Equity Funds Relative to Global Equity Performance 50 30 40 30 Billions of Dollars 20 20 10 10 0 0 -10 -20 -30 Net new cash flow 9 20 0 8 20 0 7 20 0 6 20 0 5 20 0 4 20 0 3 20 0 2 20 0 1 20 0 0 20 0 9 19 9 19 9 8 -50 7 -40 6 -40 5 -30 % Total Return on Equities 40 % Total return on equities Source: Investment Company Institute and Morgan Stanley Capital International 2010 7

Fund flows - US bond mutual fund flow v performance Net Fund Flows to Fund flows - US bond mutual fund flow v performance Net Fund Flows to Bond Funds Relative to Bonds Returns 2. 5 20 2. 0 Billions of Dollars 1. 0 10 0. 5 0. 0 5 -0. 5 -1. 0 0 % Total Return on Bonds 15 1. 5 -5 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 -2. 0 Net new cash flow Total return on bonds Source: Investment Company Institute and Morgan Stanley Capital International 2010 8

Government debt - debt swap now a public ‘problem’ European Commission Forecasts for Budget Government debt - debt swap now a public ‘problem’ European Commission Forecasts for Budget Deficit v General Government Debt in 2010 14% United Kingdom Budget Deficit, % GDP 12% Ireland 10% Spain Greece Portugal France EU Euro Area 8% 6% Italy Germany 4% Sweden 2% 0% 20% 40% 60% 80% 100% 120% 140% General Government Debt, % GDP Source: European Commission 9

Government debt - initial debt is not the whole story % of GDP Source: Government debt - initial debt is not the whole story % of GDP Source: EU commission, Eurostat, CBO, IMF, Morgan Stanley Research 25 Aug 2010 10

Government debt - revenue available to repay debt matters Source: Eurostat, CBO, Morgan Stanley Government debt - revenue available to repay debt matters Source: Eurostat, CBO, Morgan Stanley 25 Aug 2010 11

Government debt - so how safe are sovereign bonds really? • Sovereign debt crisis Government debt - so how safe are sovereign bonds really? • Sovereign debt crisis is global • Private to public debt swap has to be ‘paid for’ • Increased taxes will raise sufficient revenue to cover the bill • Default – UK/English government has not defaulted on debt since 1594 – Other countries have – Gilts rank senior to all other government debt • ‘Financial oppression’ – Reneging on ‘unsustainable promises’ - pensions are an obvious target – Repaying debt in devalued money e. g. through unexpected inflation – Regulating institutions to purchase government debt at uneconomic prices • No insurance against financial oppression at current yields 12

Inflation - money supply in ‘real’ economy contracting 14/10/10 18 16 14 12 10 Inflation - money supply in ‘real’ economy contracting 14/10/10 18 16 14 12 10 8 6 4 2 0 -2 O N D J F M A M J J A S UK MONEY SUPPLY M 4 - 12 MONTH CHANGE SADJ O N D J F UK 12 M GROWTH RATE OF MFI STERLING NET LENDING EXCL. SECURITIS M A M J J A S O Source: DATASTREAM 13

Inflation - UK long-term expectations still well anchored 14/10/10 5. 00 4. 50 4. Inflation - UK long-term expectations still well anchored 14/10/10 5. 00 4. 50 4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 1. 00 0. 50 2006 2007 2008 2009 UK YOUGOV/CITIGROUP-INFLATION EXPECTATIONS FOR THE NEXT 12 MONTHS 2010 Source: DATASTREAM UK YOUGOV/CITIGROUP-INFLATION EXPECTATIONS, NEXT 5 -10 YEARS 14

Rolling rates of real return - bonds and equities Source: Quilter, Data. Stream 15 Rolling rates of real return - bonds and equities Source: Quilter, Data. Stream 15

Equities - excess equity return determined by dataflow 14/10/10 80 10 8 60 6 Equities - excess equity return determined by dataflow 14/10/10 80 10 8 60 6 40 4 20 2 0 0 -2 -20 -4 -40 -6 -60 -8 2000 2001 2002 2003 2004 2005 2006 EXCESS UK EQUITY RETURN OVER 6 M ROLLING PERIODS OECD LEADING INDICATOR, 6 M CHANGE R/H SCALE 2007 2008 2009 2010 -10 Source: DATASTREAM 16

Equities - unlike governments, companies have plenty of cash European companies have plenty of Equities - unlike governments, companies have plenty of cash European companies have plenty of cash Source: MSCI, Worldscope Cash on Balance Sheet (€m) : 800, 000 20 Cash on balance sheet Cash as % market cap - rhs Cash as % total assets - rhs 700, 000 18 16 600, 000 14 500, 000 12 400, 000 10 300, 000 8 200, 000 Cash as % of Market Cap/Total Assets (%) : 900, 000 6 100, 000 0 4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Morgan Stanley European Chartbook 7 October 2010 17

Equities - company cash flow is strong Cash flows are cheap to buy 10. Equities - company cash flow is strong Cash flows are cheap to buy 10. 0 Source: Fact. Set, Datastream, MSCI, Worldscope, IBES, Morgan Stanley Research 8. 0 FCF Yield for MSCI Europe (%) 6. 0 4. 0 2. 0 0. 0 -2. 0 -4. 0 -6. 0 -8. 0 1982 1984 1986 1988 1990 1992 1994 Source: Morgan Stanley European Chartbook 7 October 2010 1996 1998 2000 2002 2004 2006 2008 2010 e 18

Equities - company balance sheets are strong Corporate balance sheets are strong 2. 4 Equities - company balance sheets are strong Corporate balance sheets are strong 2. 4 75 Source: Fact. Set, Datastream, MSCI, Worldscope, IBES, Morgan Stanley 2. 2 Net debt to equity - rhs 70 60 1. 6 55 1. 4 50 Net debt to EBITDA 1. 2 Net debt to equity 65 1. 8 Net debt to EBITDA 2. 0 45 1. 0 40 0. 8 35 0. 6 30 1992 1994 1996 1998 2000 Source: Morgan Stanley European Chartbook 7 October 2010 2002 2004 2006 2008 2010 e 19

Equities - companies ready to ‘splash the cash’? Source: Morgan Stanley European Chartbook 7 Equities - companies ready to ‘splash the cash’? Source: Morgan Stanley European Chartbook 7 October 2010 20

Equities - UK dividend/corporate bond yield ratio Source: Citi Research European Portfolio Strategist 19 Equities - UK dividend/corporate bond yield ratio Source: Citi Research European Portfolio Strategist 19 August 2010 21

Equities - UK equity earnings/gilt yield ratio Source: Citi Research European Portfolio Strategist 19 Equities - UK equity earnings/gilt yield ratio Source: Citi Research European Portfolio Strategist 19 August 2010 22

Equities - cheaper than corporate debt = M&A? 14/10/10 13 12 11 10 9 Equities - cheaper than corporate debt = M&A? 14/10/10 13 12 11 10 9 8 7 6 5 4 3 2 95 96 97 98 99 GILT YIELD FTA 500 IND EARNINGS YLD CORP BOND BBB 00 01 02 03 04 05 06 CORP BOND AAA 07 08 09 10 Source: DATASTREAM 23

Equities - components of UK total return 30% 20% 10% 0% -10% -20% -30% Equities - components of UK total return 30% 20% 10% 0% -10% -20% -30% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20 YTD YRS ANN Income return Source: FTSE All Share, Data. Stream, to end 21 September 2010 Capital growth 24

The End of the Equity Cult - maybe not • Governments will grow their The End of the Equity Cult - maybe not • Governments will grow their way out of the unsustainable debt position • Default unlikely, ‘Financial oppression’ almost a certainty • Regulation mean institutions set up to be the ‘fall guys’ • Inflation may be tame short-term, but it is NOT dead longer term • Structural investor selling will continue to dampen equity returns • Equity valuations provide a large risk premium for future uncertainty • Companies will take advantage of the valuation anomalies through M&A • Dividends provide shorter-term ‘reward’ for ‘carrying’ the risk 25

Disclaimer This communication has been prepared only for the recipient and date shown on Disclaimer This communication has been prepared only for the recipient and date shown on the front page. It is not intended for any other persons and should not be relied upon by other persons. This presentation has been prepared for information purposes only and is not a solicitation or an offer to buy or sell any security. It does not purport to be a complete description of our investment policy, markets or any securities referred to in the material. The information on which the presentation is based is deemed to be reliable, but we have not independently verified such information and we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. Any reference to the Quilter model portfolio, which is used for internal purposes, is purely illustrative and should not be relied upon. All figures correct to 30 September 2010 unless otherwise noted. Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return. You may not recover what you invest. Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities. Levels and bases of taxation can change. Investments or investment services referred to may not be suitable for all recipients. Quilter is the trading name of Quilter & Co. Limited. A member of the London Stock Exchange and authorised and regulated by the Financial Services Authority. Quilter is a private limited company that is registered in England No. 01923571. The registered office is at 20 Bank Street, Canary Wharf, London E 14 4 AD. Quilter is a wholly owned subsidiary of Morgan Stanley Smith Barney. “Quilter” and the “Quilter” logo are registered Community Trade Marks and remain the exclusive property of Quilter & Co. Ltd. You are prohibited from using the Quilter marks for any purpose without the prior written authority of Quilter. Messages and telephone calls to and from Quilter may be monitored to ensure compliance with internal policies. 26

The End of the Equity Cult? October 2010 The End of the Equity Cult? October 2010