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1The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
Section Three
Why Asset Allocation Matters
2
Lehman Aggregate
Bond Index
AverageBondFund
Investor
AverageStock Fund
Investor
InflationS&P 500
Annualized Returns1985–2005
Our Investment Philosophy
Individual Investors Have Underperformed Benchmarks
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
11.9%
3.0%3.9%
9.7%
1.8%
*THE ABOVE PRICES, QUOTES, YIELDS, ETC. HAVE BEEN OBTAINED FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT CANNOT BE GUARANTEED. ERRORS AND OMISSIONS EXCEPTED.
3
Source Ibbotson Associates. Note Study based on ten years of quarterly data.
Cross products account for 2.1% of the variance.
Asset Allocation Policy91.5%
Other Factors2.1%
Market Timing1.8%
Security Selection4.6%
The Brinson, Hood & Beebower Study, conducted in 1987, and updated in 1991, found that nearly 92% of the variation in pension funds' returns from 1977 to 1987 were attributable to the asset allocation decision.
• The Phillips Group believes that portfolios should be managed in accordance with a strategic asset allocation plan that thoroughly reflects an investor’s long-term objectives and risk tolerance.
• Research has shown that allocation of assets among stocks, bonds, and cash equivalents is the primary determinant of long-term investment results. Since each asset class responds differently to shifts in the economy and financial markets, each asset class adds its own dimension to a portfolio’s performance. Active and effective allocation is the key to enhancing results.
• Many non-U.S. stocks and bonds have historically had relatively low correlations with U.S. stocks and bonds as well as with each other. A carefully selected portfolio of domestic and international securities offers significant diversification opportunities while potentially lowering the portfolio’s volatility and increasing its returns.
Our Investment Philosophy
Step One: The Importance of Asset Allocation
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
4
Our Investment Philosophy
Step Two: Combine Low Correlated Assets
US Growth
International
US Value
Short-Term Bonds
REITs
CashNo Correlation 0
High Correlation 1.0
1984–2005
US Small-Cap
Intermediate-Term Bonds
High Yield
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
*THE ABOVE PRICES, QUOTES, YIELDS, ETC. HAVE BEEN OBTAINED FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT CANNOT BE GUARANTEED. ERRORS AND OMISSIONS EXCEPTED.
5
US Stocks
(29.2)%
(42.7)
(14.2)
(17.2)
(29.6)
(14.7)
(13.4)
(40.9)
(25.2)%
2.2%
4.6
1.5
21.7
2.3
5.2
4.7
36.5
9.8%
Dec 68–Jun 70
Jan 73–Sep 74
Jan 77–Feb 78
Dec 80–Jul 82
Sep 87–Nov 87
Jun 90–Oct 90
May 98–Aug 98
Apr 00–Mar 03
Average
US Bonds
Our Investment Philosophy
The Benefit of Low Correlation
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
*THE ABOVE PRICES, QUOTES, YIELDS, ETC. HAVE BEEN OBTAINED FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT CANNOT BE GUARANTEED. ERRORS AND OMISSIONS EXCEPTED.
6
Our Investment Philosophy
Why Stock and Bond Combinations
7
8
9
10
11
12
13
5 7 9 11 13 15 17
1970−2005
100% Bonds
100% Stocks
60/40
Risk (%)
30/70
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
7
Our Investment Philosophy
Step Three: Combine Growth and Value
16.4%
10.2%6.2%
23.5%
31.1%
24.5%
12.4%
22.2%
10.0%
(6.7)%
3.7%
40.8%
80 81–88 89–91 92–93 94–99 00–05
Value Stocks
Growth Stocks
Annualized Returns
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
*THE ABOVE PRICES, QUOTES, YIELDS, ETC. HAVE BEEN OBTAINED FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT CANNOT BE GUARANTEED. ERRORS AND OMISSIONS EXCEPTED.
8
1970−2004
% in Foreign Stocks
Past performance is no guarantee of future results.Through December 31, 2004 US Stocks are represented by the S&P 500 Index of stocks. Foreign stocks are represented by the MSCI (Morgan Stanley Capital International) EAFE Index. The chart presents various combinations of the US and Foreign Stock components, including the highlighted 70% U.S/30% foreign combination. An investor cannot invest directly in an index, and its results are not indicative of any investment, including the Wealth Strategies Funds. Volatility is defined as the annualized standard deviation of portfolio returns for the period from 1970 to 2004. Source: MSCI, Standard & Poor’s and AllianceBernstein.
Volatility (%)
Our Investment Philosophy
Step Four: Globalize the Portfolio
13
14
15
16
17
0 10 20 30 40 50 60 70 80 90 100
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
9
Oil & Gas
Banking
AutomobilesToyotaDaimler Chrysler
BPShell
HSBC HoldingsUBS
Non-US Share of IndustryBy Market Value: December 31, 2005
Examples
82%
72%
60%
International investing is subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditionsSource: MSCI World Index
Our Investment Philosophy
Larger Universe of Opportunity
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
10
Correlations with US Stock Market1975–2004
ExxonMobil 79%
AFLAC 75
Intel 71
Motorola 68
Coca-Cola 68
Colgate-Palmolive 67
Avon 65
McDonald’s 65
Gillette 61
IBM 60
MultinationalUS Companies
% of Sales Outside US
EAFE Index
Past performance is no guarantee of future results. Through December 31, 2004Morgan Stanley Capital International (MSCI) EAFE Index, unhedgedIndexes are unmanaged and do not include fees and expenses associated with an investment in a mutual fund. An investor cannot invest directly in an index, and its results are not indicative of any specific investment including any AllianceBernstein mutual fund. See page 39 for a description of each index.Source: MSCI, Standard & Poor’s and AllianceBernstein
0
1.00Performance in step with S&P 500
No relationshipwith S&P 500
0.56
0.87
Our Investment Philosophy
US Multinationals Do Not Diversify as Well
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
11
Rebalancing increases the consistency of returns
Unrebalanced
Higher Probability
Lower Probability
Rebalancing increases the median return
Rebalanced
Unrebalanced
Median Return
Rebalancing reduces the likelihood of bad outcomes
Ancillary Services
Step Five: Rebalance
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
12
Hypothetical Average Annual Return1970–200418.6%
11.1%8.8%
12.4%
Timing Styles withPerfect Foresight
67% Right* 50% Right* AnnuallyRebalanced 50/50
BlendPast performance is no guarantee of future results.The chart above shows the average annual historical return of an investment in “growth” stocks and “value” stocks (as defined below) where the investors decision to time the growth or value cycle, on an annual basis, is shown in percentages of how correct in hindsight their timing to switch was. A 50/50 blend investment with automatic rebalancing annually is in yelow. The “growth” and “value” stocks used in this presentation are determined as follows: beginning with all publicly traded stocks on the US stock exchanges (not just the S&P 500), the 30% of stocks with the highest price-to-book ratios represent “Growth.” The 30% of the stocks with the lowest price-to-book ratios represent “Value.” The middle 40% of the companies are excluded. These returns do not include fees and expenses associated with an investment in a mutual fund. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including any AllianceBernstein mutual fund.*Assumes an attempt to market time but invest in the lower performer (value or growth) during the years in which the difference between the two was highest, missing the best 33% or best 50%Source: Fama/French and AllianceBernstein
Our Investment Philosophy
Step Five: Rebalance
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
13
Past performance is no guarantee of future results.Rolling periods are measured from January 1, 1970 through December 31, 2004The 50/50 growth and value composite is a hypothetical composite comprising 50% “growth stocks” (i.e., the top 30% of all stocks publicly traded on American exchanges ranked by price-to-book ratios) and 50% value stocks (i.e., the bottom 30% of such stocks). The 50/50 portfolio is rebalanced monthly, as necessary, to maintain its growth and value proportions; transaction charges for rebalancing are not taken into account Source: Fama/French, Standard & Poors
Our Investment Philosophy
Blending Styles Adds Consistency
58% of the time
91% of the time78%
of the time 70% of the time
12-Months 3-Year 5-Year 10-Year
% of Time Rebalanced 50/50 Blend Outperformed the S&P 5001970–2005
The Phillips Group of
A Division of Wiley Bros. – Aintree Capital, LLC
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