Current Opportunities in Investment Markets 2017
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Dulari Pancholi
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2017 Current Opportunities
•
Trim US Equity Gains
•
Overweight Non-US Developed Market Equities
•
Emerging Market Equities Remain Attractive
•
Allocate to TIPS from Core Bonds
•
Reduce High Yield for Other Credit Strategies
•
Fund Emerging Local Debt from Risk Assets
•
Add Macro Hedge Fund Strategies
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Summary: Credit Beta Group Trends
3
Summary: Equity Beta Group Trends
4
Summary: Multi-Asset Beta Group Trends
5
Three Different way to Implement an Impact Strategy
6
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Varied across
asset classes
May lag
benchmarks due to
restricted universe
Low
Sizable and includes
mainstream managers
Performance studies
show neutral to positive
impact
Low/Medium
Growing in size, but most
funds are smaller and newer
Varied and will have sizable
tracking error due to sector
focus
High
Pro-actively seeking
opportunities in targeted
areas (e.g. Renewable
Energy)
ESG Factors built-in
as part of the
investment process
Screening out certain
securities for non-
financial reasons
V
O
T
E
TBD
Actively engage in
corporate voting
process to push key
agenda
Small but
growing
TBD
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Information Disclaimer
•
Past performance is no guarantee of future results.
•
Information on market indices was provided by sources external to NEPC. While
NEPC has exercised reasonable professional care in preparing this report, we
cannot guarantee the accuracy of all source information contained within.
•
The goal of this report is to provide a basis for substantiating asset allocation
recommendations.
•
All investments carry some level of risk. Diversification and other asset
allocation techniques do not ensure profit or protect against losses.
•
This report is provided as a management aid for the client’s internal use only.
This report may contain confidential or proprietary information and may not be
copied or redistributed to any party not legally entitled to receive it.
7
Dulari Pancholi, a Senior Research Consultant at NEPC, provides insights into current investment opportunities for 2017. The summary covers trends in credit beta groups, equity beta groups, and multi-asset beta groups, offering guidance on optimizing portfolio allocations across various asset classes.
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Presentation Transcript
Dulari Pancholi Senior Research Consultant, NEPC
2017 Current Opportunities Trim US Equity Gains Overweight Non-US Developed Market Equities Emerging Market Equities Remain Attractive Allocate to TIPS from Core Bonds Reduce High Yield for Other Credit Strategies Fund Emerging Local Debt from Risk Assets Add Macro Hedge Fund Strategies 2
Summary: Credit Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 Negative Negative Investment Grade Concerns around fund flows Developed Corporate Credit Spread compression elevates future risk-adjusted return concerns Neutral Negative High Yield Positive/ Neutral Positive Bank Loans Negative convexity, high percent of cov-lite is a concern Positive Positive Private Credit Europe and Asia are preferred over the US Emerging Market Credit Attractive real rates DM vs EM, FX volatility remain a concern but dispersed among EM countries Positive Positive EMD Local Structured Credit Positive Positive CLO Mezzanine over equity, unless equity has edge 3
Summary: Equity Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 International Equity allocations; complements small cap allocation Positive Positive Global Consider passive; For non core exposure consider concentrated/ flexible Neutral Neutral United States Liquid Consider scaling in throughout 2017 to take advantage of volatility Positive Positive International Consumption theme still exists; EM small is more expensive Positive Positive Emerging Markets Opportunistic special situations funds with flexible and nimble approaches Positive Positive Special Situations Illiquid Seek managers with strong local networks and those with industry or operational focus to drive growth and profitability Positive Positive Asia 4
Summary: Multi-Asset Beta Group Trends Beta Subset Q1 2017 Q2 2017 Comments: Q2 2017 Low return outlook strains ability to offer a differentiated return profile Negative Negative Benchmark Relative GAA Positive Positive Absolute Return Macro orientation offers low correlation Parity Risk Positive Positive Risk Parity Dynamic Tactically adjust risk exposure Positive Positive Systematic GM Core macro exposure & diversification Positive Positive CTA/Managed Futures Maintain positive view on diversification Global Macro Positive Positive Diversified Macro Core allocation within a macro portfolio Positive Positive Thematic Macro Emerging markets trading opportunities Neutral Positive Other Diversifiers Providing unique and uncorrelated exposure 5
Three Different way to Implement an Impact Strategy VOTE Active Negative Screening ESG Engagement Thematic Integration Actively engage in corporate voting process to push key agenda Strategy Focus Pro-actively seeking opportunities in targeted areas (e.g. Renewable Energy) ESG Factors built-in as part of the investment process Screening out certain securities for non- financial reasons Investment Universe Small but growing Sizable and includes mainstream managers Growing in size, but most funds are smaller and newer Varied across asset classes Performance Performance studies show neutral to positive impact May lag Varied and will have sizable tracking error due to sector focus benchmarks due to restricted universe TBD Level of Impact Low High Low/Medium TBD 6
Information Disclaimer Past performance is no guarantee of future results. Information on market indices was provided by sources external to NEPC. While NEPC has exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within. The goal of this report is to provide a basis for substantiating asset allocation recommendations. All investments carry some level of risk. Diversification and other asset allocation techniques do not ensure profit or protect against losses. This report is provided as a management aid for the client s internal use only. This report may contain confidential or proprietary information and may not be copied or redistributed to any party not legally entitled to receive it. 7
