Investing in a low yield world
David Irwin
2CTRL+ALT+DELETE
3
EQUITABLE ASSET MANAGEMENT GROUP
Insurance Managers Internal function of the company since 1920 $1.8 billion in assets under management – general
funds & segregated funds
History of Solid Investment Performance Solid investment portfolio, proven even through
weak economic conditions, which contributes to strong corporate earnings
Experienced in asset allocation Nimble, top-down management
INVESTMENT PHILOSOPHY
94%
LOOKING AT THE “BIG-PICTURE”
The economy&
valuations
ZIRPQE
LSAPWIT2
HISTORICALLY LOW RATES
INVESTORS NEED MORE YIELD
13
CANADA SAVINGS BONDS
US FED HAS DRIVEN EQUITY MARKETS HIGHER
THE RETURN OF THE CONSUMER
Consumer
GDP
contribution
CONSUMER DEBTDECREASING IN THE US
Source: Bloomberg
Source: Bloomberg
US
Canada
HOUSING PERMITS > HOUSING STARTS
SPENDING TRENDS IMPROVING
Consumer confidence
Personal consumption
ECONOMIC OUTLOOK
United States Canada
+2.9% +1.7%
S&P 500 SOURCES OF RETURN
S&P 500 RECORD PROFIT MARGINS
US MARKET OVERVALUED?
15.8x
Source: Bloomberg
EQUITIES LOOK BETTER THAN BONDS
Source: Merrill Lynch BBB Corporate credit yield, Bloomberg
Equities 6.0%
Corporate bonds 4.7%
KEY INVESTMENT RULES
Asset class selection comes first
Low interest rates => equities
Inflation => equities
No silver bullet portfolio BUT diversification is the best way to protect against catastrophic losses
A BALANCED APPROACH
ACTIVE MANAGEMENT
OUR TOP-DOWN APPROACH
Momentum
and sentiment
indicators
Thematic
drivers
Market valuation
PAR - NOT YOUR TYPICAL BALANCED FUND
USE OF ILLIQUID ASSETS
Commercial Mortgages: add diversification into an asset class challenging for clients to achieve on their own, by a team of experienced mortgage specialists.
Private Placement Loans: provide corporate bond type returns with reduced risk and/or higher yields.
Real Estate: adds equity-like returns with less volatility. Similar to commercial mortgages, a diversified portfolio of commercial real estate is challenging for clients to acquire and manage independently.
A high quality fixed income portfolio, with long
duration, supports the dividend scale
Investment Mix
Government 50%
Corporate 50%
Investment by Term
Years to Maturity Percentage
0 to 5 years 23%
5 to 10 years 19%
Over 10 years 57%
FIXED INCOME PORTFOLIO
Performance is enhanced with a solid real
estate portfolio, as well as a common and
preferred equity program.
Investment Mix
Equity Type Percentage
Common Stock 41.2%
Real Estate 41.8%
Preferred Shares 16.9%
Total Equity assets 100.0%
EQUITIES AND REAL ESTATE
The real estate portfolio is comprised of high quality,
income producing properties which are diversified
geographically across Canada and by property type.
35%
23%
42%
REAL ESTATE PORTFOLIO
-30
-20
-10
0
10
20
30
Net Par Account Yield
S&P/TSX Composite Index
5 Year GIC
Consumer Price Index
PAST PERFORMANCE
EQUITABLE LIFE ACTIVE BALANCED PORTFOLIOS
PORTFOLIO POSITIONING
Equitable Life
Active Balanced
Growth Portfolio
Equitable Life
Active Balanced
Portfolio
Equitable Life
Active Balanced
Income Portfolio
Global Neutral
Balanced
Global Equity
Balanced
Canadian Neutral
Balanced
Category Average MER 3.12% 3.04% 2.85%
Equitable Life Active Balanced Portfolios
2.42% 2.35% 2.40%
Equitable Life Active Balanced cost advantage
+0.7% +0.7% +0.4%
COMPETITIVE MER’S
YTD 1-YR 3-YR
Equitable Life Active Balanced Portfolio
8.2% 13.6% 6.8%
Global Neutral Balanced Peer Group
5.5% 12.3% 7.4%
Source: Morningstar, as of August 31 2014
PERFORMANCE
1.Style diversification
2.“Core” funds
3.Cost & transparency
REASONS TO OWN