Wealth and Investment
Management
Compass
Q2 2016
Not all that it seems?
Muddling through
Equities - the full medical
Popular delusions and the madness of crowds
Contents
Welcome letter .......................................................................................... 4
Welcome letter from Arne Hassel, CIO, Global Investments & Solutions.
Not all that it seems? ............................................................................... 5
While the US consumer remains the keystone of our more sanguine take on the many risks
facing the world’s economy, Will Hobbs, Head of Investment Strategy, UK and Europe, considers
why many still believe that the US economy is in deep trouble.
Muddling through .................................................................................... 9
The Tactical Allocation Committee (TAC) share their latest thinking on the key tactical
adjustments to the Strategic Asset Allocation based on their short-term (three-six month)
outlook.
Equities – the full medical .................................................................... 12
Will Hobbs and the Investment Strategy team take a deep dive into the fundamental prospects
for developed world companies and how these prospects are currently being valued.
Popular delusions and the madness of crowds ............................. 18
If the most succinct rule of good investing is “buy low, sell high”, why, asks Greg B Davies, Head
of Behavioural Finance, is it that we repeatedly give in to our emotional impulses along the
investment journey and insist on doing the opposite?
Interest rates, bond yields, and commodity and equity
prices in context ..................................................................................... 20
Barclays’ key macroeconomic projections ....................................... 22
Global Investments and Solutions team ........................................... 23
Dear clients and colleagues,
April 2016
At the beginning of this year many market participants saw the fall in equity prices as a
precursor to the end of this economic cycle. Even in the absence of a recession, many forecasted
a further slide in equity prices, as markets were seen as too expensive.
We had a different view and saw this downturn as an opportunity to tilt further towards risk
assets. Our main arguments were that economic cycles don’t die of old age but mostly end
due to excesses, and we couldn’t find sufficient excesses to call an end to this cycle yet. We
also considered the fall in oil prices as a net benefit for economic growth over time, and the
economic downturn in China as manageable.
As always, when you go against the crowd you have to make sure your analysis isn’t flawed or
biased. The best way to do that is to test the arguments that could undermine your views. And
to do this with an open mind, making sure you give these arguments a fair hearing with best
interpretation. Karl Popper for investors.
Arne Hassel
CIO, Global Investments &
Solutions
In this second quarter Compass, the theme is growth and equities. In the first article, William
Hobbs, Head of Investment Strategy in UK and Europe, has written about the key driver of
global growth – the US consumer – and to what extent we can continue to rely on this driver.
One concern about recent income growth is that it is so unequally distributed that it will
translate into lower consumption growth, as the higher savings rates of the wealthier suck
spending growth out of the economy. Even though this inequality can have social and economic
ramifications, we currently don’t see it having a sufficiently strong impact on US consumption
patterns to change our tactical positioning.
Our second article outlines our tactical exposures relative to our long-term strategic asset
allocation and the major reasons for our positions. We are currently overweight equities, with a
strong overweight in Developed Markets Equities and neutral in Emerging Markets Equities. We
are underweight within the overall fixed income area, with the underweights being expressed
in Investment Grade and Emerging Markets Bonds, while being neutral Developed Government
Bonds and Cash & Short-Maturity Bonds, and slightly overweight High Yield Bonds. We continue
to be underweight Commodities and neutral Real-Estate and Alternative Trading Strategies.
In the following article, the Investment Strategy team addresses the argument that the equity
market might be so overvalued that we will see a substantial downturn in prices, even if we
manage to avoid a recession. Equity valuation is an area with a wide range of models and
views. To stay objective, it is important to check the full range of approaches and assumptions
and realise that no one has the definitive answer. Based on this type of effort we come to the
conclusion that stocks are not expensive.
Finally, anyone interested in counter-cyclical investing who would go against the crowd, should
have a close look at crowd behaviour. Greg Davies, Head of Behavioural Finance, has written
an article about crowd behaviour and what this means for investments. Even though crowds
can provide short-term momentum that can generate returns, this momentum can turn into a
dislocation where the price has moved far away from what is justified by reality. This is when the
comfort of staying with the crowd can quickly turn into the discomfort of losing money.
Buying low and selling high, being ‘counter-cyclical’, is much easier said than done. The
economist John Maynard Keynes said that “worldly wisdom teaches that it is better for
reputation to fail conventionally than to succeed unconventionally.” However, in our jobs we
should be more concerned about generating stable long-term returns for clients than to protect
ourselves with the cloak of conventionality.
From an investment point of view it is also worth remembering that it can be safer to go with
what is unpopular than with the latest trend or perceived wisdom. However, to do that you have
to communicate with clients and explain your investment philosophy and process. You also
have to build a team-oriented investment culture supporting counter-cyclical investing. The
final point is to make sure that unconventional or unpopular ideas are as diversified as possible.
Collecting a premium for taking on the unpopular can be similar to writing insurance. And just
like an insurance company you don’t want many things to go wrong at the same time for the
same reason.
However, while it often makes sense to go against the crowd, there is a risk that this turns into
an irrational urge to be different. The best way to inoculate yourself against behavioural biases
in general is to have a strong investment process that you follow objectively and dispassionately.
Even though this process should constantly evolve, it is important that the developments are
driven by objective research and not by the crowd.
As always, we hope you enjoy this edition of Compass and we welcome any feedback on the
content.
Warmest regards,
Arne Hassel
CIO, Global Investments & Solutions
4 | Compass Q2 2016
Investment Strategy
Not all that it seems?
“As everybody knows, but the haters and losers refuse to acknowledge, I do not wear
a wig. My hair may not be perfect, but it’s mine.” (Donald Trump)
Looking at the cast of characters currently vying for the Oval Office seat, many
are left with the sense that the American economy must be in deep trouble. Why
else would the electorate be swarming to such seemingly radical options? With the
American consumer still the keystone of our more sanguine take on the many risks
facing the world’s economy, such concerns obviously need to be taken seriously.
Halcyon days?
Most statistics would suggest that this is a great time to be a citizen of the United States.
Unemployment is low and still falling, gas is a bargain with wider measures of inflation
painting a similar picture for other goods and services. Many measures of crime and
violence, domestic and otherwise (Figure 1), continue to plunge lower. Meanwhile, both life
William Hobbs
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expectancy and the survival rate are still trending higher (Figures 2 and 3) and the death
Hao Ran Wee
rate lower (Figure 4). Income per capita is 10% higher than the levels that marked the end
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of the last cycle (Figure 5). However, all may not be as it seems.
But not for all...
There is a part of American society where trends in mortality and morbidity are heading
firmly in the other direction. White, non-Hispanic Americans, particularly those least
educated, are seeing higher suicide rates, more mental health issues and generally
deteriorating living standards1 . While we are still guessing at the exact causes behind
these disturbing trends, the hollowing out of US manufacturing, with low-skilled jobs being
outsourced to developing countries, is thought to be an important contributing factor.
Most statistics would
suggest that this is
a great time to be a
citizen of the United
States
While globalisation remains an overwhelmingly positive force when viewed
from2:a US
global
Figure
life expectancy
FIGURE 1: US crime rate
6000
5000
FIGURE 2: US life expectancy
800
82
700
80
600
4000
500
400
3000
300
2000
US Property Crime rate (lhs, per 100,000 people)
US Violent Crime rate (rhs, per 100,000 people)
1000
0
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: FBI, Barclays, as at 2012
200
100
0
6000
78
76
74
72
US life expectancy at birth (total, years)
70
68
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Datastream, Barclays, as at June 2013
Source: Datastream, Barclays, as at 30 June 2013
Rising morbidity and mortality in midlife among white non-Hispanic Americans in the 21st century – Case, Deaton 2015
1
Compass Q2 2016 | 5
Investment Strategy
perspective, the socioeconomic decline of this segment of American society is a poignant
reminder that not everyone benefits equally. Such trends may also help us understand at
least some of the popularity of the various presidential hopefuls2, with Donald Trump in
particular seeming to do well in states with the highest white, non-Hispanic, mortality rates3.
When trying to explain this lurch towards seemingly more unorthodox presidential
candidates on both sides of the political aisle, others have pointed to broader trends
in income inequality. Figure 7 illustrates that wage trends in the US remain unevenly
distributed, suggesting the gap between rich and poor continues to widen. We do,
of course, need to approach such statistics with care. Income growth will be biased
downwards for the lower quintiles, mainly because people who grow their earnings faster
will move into the higher quintiles – an effect that the statisticians struggle to adjust for.
Figure 8 is likely a cleaner representation showing income growth by job category, pointing
to a more nuanced conclusion.
Nonetheless, that such income inequality exists in the US and has widened significantly over
the last several decades is surely beyond dispute4. The necessarily dispassionate question
then becomes whether such disheartening statistics should undermine our confidence
in the prospects for US consumption, and therefore influence our recommended asset
allocation.
Figure 3: US survival rate
FIGURE 3: US survival rate
FIGURE 4: US death rate
Figure 4: US death rate
90
9.9
85
9.4
80
75
8.9
70
US survival rate to age 65 (% male)
US survival rate to age 65 (% female)
65
60
8.4
US death rate (per 1,000 people)
7.9
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
Figure 6: US manufacturing as % of GDP
Source:
Datastream,
Barclays,
as 2013
at 30 June 2013
Source:
Datastream,
Barclays,
as at June
Figure 5: US GDP per capita
Source: Datastream, Barclays, as at June 2013
FIGURE
US GDP Barclays,
per capita
Source: 5:
Datastream,
as at 30 June 2013
FIGURE 6: US manufacturing as % of GDP
110
17
108
16
106
15
104
14
102
13
100
98
US GDP per capita (real, 2005 dollars, base year = 2009)
2009
2011
Source: Datastream, Barclays, as at Nov 2015
2013
2015
12
11
1997
US manufacturing as % of GDP
1999
3
6 | Compass Q2 2016
2003
2005
Source: Datastream, Barclays, as at June 2013
Who Are Donald Trump’s Supporters, Really? – Derek Thompson, The Atlantic, March 1 2016
Death predicts whether people vote for Donald Trump, Wonkblog, Washington Post, 4 March 2016
4
Top Incomes in the Long Run of History – Atkinson, Piketty, Saez, 2011
2
2001
2007
2009
2011
2013
Investment Strategy
Consumption and Inequality
Intuitively, it makes sense that higher levels of income inequality should result in lower levels
of consumption growth. For our part, we’ve leaned heavily on the likely positive effects for
global aggregate demand resulting from lower oil prices reducing global wealth inequality.
Essentially, a person’s marginal propensity to consume is inversely related to his or her
level of wealth – the richer you are, the more you tend to save of your income, according to
established academic consensus5.
In theory, this should mean that as you force an increasing proportion of a country’s
earnings into the hands of fewer people, you should see the savings ratio rise and
Higher levels of
income inequality
should result in lower
levels of consumption
growth
consumption growth suffer. However, Figure 9 suggests that the well-documented
increases in income and wealth inequality in the US, seen over the last decade in particular,
have not yet changed the strong relationship between income and spending at the
aggregate economy level. There are multiple potential explanations for this. For us, the
most likely one is that income growth has not yet become so unequal that it confounds the
positive relationship between income and consumption growth.
Of course, where that threshold of inequality sits is subject to (heated) debate - the US
economy may be on the cusp of crossing that line where the relationship between income
and spending starts to diverge more meaningfully. There are already plenty of experts (and
film directors) telling us where such trends in inequality will inevitably lead. However, history
teaches us some caution is warranted here – marginal tax rates have been known to change
markedly over time, with societal discontent a vital influence.
A good example of this is the US economy of 1920 – 1930’s, characterised by even higher
levels of income inequality than those seen today6 (Figure 10). Under pressure from the
electorate, the authorities then opted for higher marginal tax rates for the rich, part of the
story that led to a boom in middle income consumption during the 1940s.
Of course, we are not saying such a political shift is inevitable, just that we should be
humble in how we think about extrapolating trends into the future, given that most longterm predictions are ultimately confounded by the twists and turns of history. For our part,
we would limit ourselves to suggesting that history proves that such problems are not
intractable, as long as society wills it.
FIGURE 7: US family income growth
Highest fifth
Fourth fifth
Third fifth
Second fifth
Lowest fifth
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Annual growth in US family income by quartile (geometric average, %, 2012-2015)
Source: US Census Bureau, Barclays, as at Dec 2015
Source: US Census Bureau, Barclays, as at 31 Dec 2015
Fiscal Policy and MPC Heterogeneity – Jappelli, Pistaferri, 2014
Inequality in the Long Run – Piketty, Saez, 2014
5
6
Compass Q2 2016 | 7
Investment Strategy
Income growth
With regards to our current view of the world, does any of this dent our faith in the US
consumer’s ability to keep the global show on the road? So far, no. Yes, income growth
is unequal, however, the most important point for us is that most workers’ incomes are
growing in both real and nominal terms. While this remains the case, the likelihood is still
that US consumption will also grow and the US and global economy with it. Meanwhile,
the global transfer of wealth implicit in the plunge in oil prices spans a far larger inequality
divide, suggesting we should remain confident of lower oil prices still having a positive
Figure 8: US income growth by occupation"
effect on global aggregate demand.
FIGURE 8: US income growth by occupation
Transport, material moving
Mgmt, Business, Finance
Hospitals
Production, transport
Goods producing
Sales and related
Construction, extraction, agriculture
All
Junior colleges, universities
Mgmt, professional and related
Service providing
Healthcare, social assistance
Natural resources, construction, maintenance
Installation, repairs
Education, health services
Production
Sales, office
Educational services
Professional
Elementary, secondary schools
Office, admin
School teachers
Registered nurses
Teachers
Services
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5
Annual growth in US total compensation (geometric average, %, 2012-2015)
Source: Datastream, Barclays, as at Dec 2015
Source: Datastream, Barclays, as at 31 Dec 2015
FIGURE 9: US compensation growth and consumption
15
Nominal year-on-year growth (%)
FIGURE
10: Income
inequality
in the USin the US
Figure
10: Income
inequality
25
23
21
10
19
17
15
5
13
11
0
9
Employee compensation
-5
Dec-55
Household consumption
7
Share of total US income - top 1%
5
Dec-65
Dec-75
Dec-85
Source: Datastream, Barclays, as at Dec 2015
8 | Compass Q2 2016
0
Dec-95
Dec-05
Dec-15
1913
1923
1933
1943
1953
1963
1973
1983
1993
2013
Source: Income Inequality in the US - Saez, Piketty, 2001, Barclays, as at 2014
Source: Income Inequality in the US - Saez, Piketty, 2001, Barclays, as at 1 Jan 2014
Tactical Asset Allocation
The view from the Tactical Allocation Committee
Muddling through
As the global economy continues to muddle through the current soft patch, we share
our thoughts behind our recommended tactical positioning. We continue to believe
that investors remain best served by leaning portfolios towards Developed Markets
Equities, and the US and Continental Europe in particular.
We maintain a Strategic Asset Allocation for five risk profiles, based on our outlook for each
of the asset classes. Our Tactical Allocation Committee (TAC), comprised of our senior
investment strategists and portfolio managers, regularly assesses the need for tactical
adjustments to those allocations, based on our shorter-term (three to six month) outlook.
Here, we share our latest thinking on our key tactical tilts.
William Hobbs
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[email protected]
Developed Markets Equities: Increased to Strong Overweight from
Overweight (20 January 2016)
The Tactical Allocation Committee took advantage of the dramatic plunge in investor risk
appetite seen at the start of the year to further add to Developed Markets Equities within
portfolios, taking our recommended position up to strong Overweight. We continue to
believe that while the next US and global economic recession is of course inevitable, it is not
imminent.
Seismic past moves in oil prices and the US dollar have warped our view of the world
economy, however we maintain that the world economy and its corporate sector are
capable of continuing to muddle through for the moment. As sentiment continues to
normalise amidst this ongoing economic growth, we suspect that further upside awaits for
Developed Markets Equities.
Investors should be
prepared for further
volatility as risk
appetite remains
fragile
This view that the effects of moves in oil prices and the dollar are indeed transitory is
particularly important for our view on US equities, where much commentary is suggesting
that the end of the profit cycle is upon us. We see this as a mistake and remind ourselves
that most of the time economic growth leads corporate profitability, not the other way
around. Profitability is also important to our call on Continental European equities, where
US
Europe
Consumer real disposable income continues to
grow at a healthy pace while earnings expectations
look achievable and valuations unremarkable
Corporate profitability has the greatest scope
to recover amidst rising corporate leverage and
continuing revenue growth
Compass Q2 2016 | 9
Tactical Asset Allocation
profits have further to recover in our opinion as domestically focused businesses in
particular are finally freed from the rolling existential crisis that has dogged the region for
the last few years.
Cash & Short-Maturity Bonds: Reduced to Neutral from
Overweight (20 January 2016)
With oil prices still
depressed, pressure
on energy credits is
likely to remain
Given the recent severe market disturbances, cash continues to play a pivotal portfolio
insulation role. While the fixed income universe remains unattractive at current extreme
valuations, cash offers a source of funds to invest into other asset classes when appropriate
opportunities arise. Evidence of some returning inflation in the US needs to be watched very
carefully obviously.
Developed Government Bonds: Neutral
With nominal yields on large chunks of the government bond universe negative or close
to it, investors will likely have to work hard to make real returns from these levels over the
next several years. Our view remains that such valuations underestimate the underlying
inflationary pressures within the US economy in particular, something that incoming inflation
data pay some testament to. While the level of (returns insensitive) central bank ownership
suggests that the bond market may lag a pick-up in inflation, our continuing small strategic
and tactical allocation to the area suggests that higher real returns lie elsewhere.
High Yield & Emerging Markets Bonds: Underweight
Junk credit is of tactical interest currently with yields in the ex-energy space now consistent
with a rise in defaults that we regard as unlikely in the context of our view of the immediate
prospects for the US economy. With oil prices still depressed, pressure on energy credits is
likely to remain. Emerging Markets Bonds are expensive and remain vulnerable to a reversal
of inflows during the slow process of monetary normalisation.
Emerging Markets Equities: Increased to Neutral from Underweight
(20 January 2016)
The TAC moved their recommended position in Emerging Markets Equities up to Neutral
earlier this year. The case for further meaningful downside is now harder to make in
the context of the underperformance already suffered by the space over the last several
years. Much bad news is already factored into our view, while the potential for a further
dramatic ascent of the US dollar, helpful in stoking fears of a repeat of the late 1990s, is also
somewhat diminished given a less extreme valuation.
Investment Grade Bonds: Underweight
The spread of investment grade credit over government bond yields remains within its
historical range. However, this leaves nominal yields in high quality corporate credit low in
absolute terms and may make the job of those trying to make positive real returns difficult.
Commodities: Underweight
The TAC continues to recommend an Underweight position in Commodities. China’s
slowdown is unhelpful of course, and stockpiles remain a headwind for further spot price
recovery in many areas, with oil and copper two notable examples.
10 | Compass Q2 2016
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Tactical Asset Allocation
Figure 1: Tactical asset allocation (TAA) tilts and strategic asset allocation (SAA) benchmark (moderate risk profile)
Expected
5Yr Returns
SAA
Strong
Underweight Neutral Overweight
Profile 3 Underweight
Strong
Overweight
Cash & Short
Maturity Bonds
1.5%
7%
Decreased 20th January: counterpart to increased
weighting to Developed and Emerging Markets
Equities
Developed
Government Bonds
1.4%
4%
CB buying and falling supply offset by high
valuations and likely recovery in risk appetite
Investment Grade
Bonds
2.3%
7%
Very expensive: little spread compression left to
go for, prefer lower-tier 2 banks and insurers
High Yield &
Emerging Markets
Bonds
5.0%
11%
Emerging Markets Bonds are expensive and
vulnerable to reversal of inflows during slow
process of monetary normalisation
38%
Quoted corporate sector remains cash generative
and well capitalised – as of 20th January, we have
increased this to a strong overweight as the gap
that seems to have recently opened between
market sentiment and the more benign economic
reality will eventually narrow
Developed Markets
Equities
7.9%
Emerging Markets
Equities
10.6%
10%
As of 20th January, we have increased this to a
neutral weight as the gap that seems to have
recently opened between market sentiment and
the more benign economic reality will eventually
narrow
Commodities
4.8%
5%
Monetary normalisation, more US-focused cycle
& rising supply threaten gold and other metals
Real Estate
8.0%
4%
Mixed: US and Europe offer best value; investable
Asian markets look expensive
Alternative Trading
Strategies
3.5%
14%
Regulation and lower leverage leave this
diversifying asset class without tactical appeal
As of July 2013, we use qualitative descriptions of our Tactical positions relative to their Strategic benchmarks, ranging from ‘strongly underweight’ to ‘strongly
overweight’. This is a shift away from the percentage-based reporting method we used in the past. Our Strategic Asset Allocation (SAA) models offer a mix of assets
that over a five-year period will, in our view, provide the most desirable mix of return and risk at a given level of Risk Tolerance. They are updated annually to reflect
new information and our evolving outlook. Our Tactical Asset Allocation (TAA) tilts these five-year SAA views to reflect our shorter-term cyclical views. For more detail,
please see our Asset Allocation at Barclays white paper and the February 2013 edition of Compass. Source: Barclays
FIGURE 2: Total returns across key asset classes
0.1%
0.1%
Cash & Short-Maturity Bonds
2015
Developed Government Bonds
1.4%
2016 (to 28 March)
-0.2%
Investment Grade Bonds
-14.9%
Emerging Markets Equities
Alternative Trading Strategies
4.4%
-0.9%
-1.7%
Developed Markets Equities
Real Estate
2.9%
- 4.3%
High Yield and Emerging Markets Bonds
Commodities
3.6%
2.7%
-24.7%
1.2%
-0.8%
2.7%
-3.6%
-2.2%
Note: Past performance is not an indication of future performance. Index Total Returns are represented by the following: Cash and Short-maturity Bonds by Barclays US
Treasury Bills; Developed Government Bonds by Barclays Global Treasury; Investment Grade Bonds by Barclays Global Aggregate – Corporates; High-Yield and Emerging
Markets Bonds by Barclays Global High Yield, Barclays EM Hard Currency Aggregate & Barclays EM Local Currency Government; Developed Markets Equities by MSCI
World Index; Emerging Markets Equities by MSCI EM; Commodities by Bloomberg Commodity TR Index; Real Estate by FTSE EPRA/NAREIT Developed; Alternative
Trading Strategies by HFRX Global Hedge Fund. The benchmark indices are used for comparison purposes only and this comparison should not be understood to mean
that there will necessarily be a correlation between actual returns and these benchmarks. It is not possible to invest in these indices and the indices are not subject to
any fees or expenses. It should not be assumed that investment will be made in any specific securities that comprise the indices. The volatility of the indices may be
materially different than that of the hypothetical portfolio.
Compass Q2 2016 | 11
Investment Strategy
Equities – the full medical
This quarter we take a deep dive into the fundamental prospects for developed world
companies and how these prospects are currently being valued. There remains a
mismatch between sentiment and fundamentals in our view, allowing us to continue
to take a positive view of Developed Markets Equities within our recommended
Tactical Asset Allocation.
Listen to the experts?
William Hobbs
Persistent doubts continue to hobble the performance of global stock markets. In the US,
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earnings growth expectations are again sinking fast (Figure 1), with sales growth forecasts
not far behind (Figure 2). Equity analysts are telling us that the horizon is darkening – are
they right this time?
Christian Theis
It is always worth remembering that analysts have not tended to be very good lead
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indicators over time. Their persistent tendency is towards excessive optimism, as
demonstrated by Figure 3, but neither have they been very good at predicting recessions.
If the hard economic data continues to defy shaky market sentiment, we may find that
analysts soon revert to their traditionally sunnier role.
Hao Ran Wee
For our part, we still contend that our view of the true underlying revenue and earnings
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trends for the US quoted corporate sector has been obscured by the surge in the US dollar
and plunge in oil prices seen over 2014 and 2015.
The difficulty here is how one disentangles the effects of currency movements on corporate
revenues and earnings. How much of the hit to revenues simply results from translating
overseas earnings back into that stronger dollar? What proportion is actually higher dollar
prices deterring business with US companies? Hedging policies, both physical and financial,
with disclosure sometimes limited, make these lines very hard to draw even with the benefit
of some hindsight. We will know more as the corporate earnings roll in over the quarters of
this year and next, though still not all obviously.
2: US taken
sales growth expectations
Our attempt to clean this up is necessarily rough around the edges –"Figure
we have simply
S earningsthegrowth
expectations
12-month trailing revenues of the US corporate sector and adjusted
" them for nonFIGURE 1: US earnings growth expectations
FIGURE 2: US sales growth expectations
MSCI one-year forward expected earnings growth (%)
18
9
16
8
7
14
6
12
5
10
8
6
4
Dec-10
MSCI one-year forward expected sales growth (%)
4
3
US
World ex-US
US ex-resources
World ex-US ex-res.
Dec-12
2
1
0
Dec-14
Source:
Datastream,
Barclays,Barclays,
as at Feb 2016
Source:
Datastream,
as at 29 Feb 2016
12 | Compass Q2 2016
Dec-10
US
World ex-US
US ex-resources
World ex-US ex-res.
Dec-12
Source:
Barclays,
as atas
Febat2016
Source:Datastream,
Datastream,
Barclays,
29 Feb 2016
Dec-14
Investment Strategy
dollar exposure using the Fed’s broad dollar trade-weighted index1. While imperfect, the
currency weightings of the broad dollar trade-weighted index approximate the international
revenue exposure of the S&P 500 (with deviations of a few percentage points for major
export destinations). This provides us with a rough but sensible approximation of the dollar
translation effect (Figure 4). The results would support anecdotal evidence from a variety
of globally exposed US corporations at recent earnings results2 – reported US corporate
revenue growth has, of course, been slowed appreciably by currency translation.
Finally, we take our analysis another step by controlling for both the dollar effect and the
bloodbath in commodity markets that has so decimated revenues within the commodity
producing companies. As Figure 5 illustrates, the resulting revenue trends are probably best
described as normal.
Many readers may wonder why we should make all these adjustments in the first place.
Figure 4: FX-adjusted revenue growth
Surely if we take out everything negative, we shouldn’t be surprised that everything looks
Figure 3: Earnings surprises (%)
so normal. The aim here is not so much to tell us what has happened, but what we might
FIGURE 3: Earnings surprises (%)
FIGURE 4: FX-adjusted revenue growth
Earnings surprises %
MSCI one-year forward expected sales growth (%)
80
20
60
15
40
10
5
20
0
0
-5
-10
-20
-15
-40
-60
-20
1989
1994
2004
1999
Mar-10
2009
Jan-11
2014
MSCI
MSCI UK
S&P 500
MSCI
MSCI
US
Figure
5: FX-adjusted
revenue
growth
World ex-Energy
Europe ex-UK
Europe
recesssion
Source:
Barclays,
asJan
at 2016
28 Jan 2016
Source: Datastream,
Datastream, Barclays,
as at
Nov-11
Sep-12
Jul-13
May-14
May-15
S&P 500 12m trailing sales per share (y/y %)
FX adj. S&P 500 12m trailing sales per share (y/y %)
Figure
6: Global oil demand
Source: Datastream, Barclays, as at 31 Dec 2015
Source: Datastream, Barclays, as at Dec 2015
FIGURE 5: FX-adjusted revenue growth ex-Energy
FIGURE 6: Global oil demand
12
10
8
15
6
10
4
5
2
0
0
-5
-2
-10
-4
-15
-6
-20
Mar-10
Jan-11
Nov-11
Sep-12
Jul-13
May-14
May-15
S&P 500 ex-Energy 12m trailing sales per share (y/y %)
FX adj. S&P 500 ex-Energy 12m trailing sales per share (y/y %)
Source: Datastream, Barclays, as at 31 Dec 2015
Source: Datastream, Barclays, as at Dec 2015
-8
2000
2003
Oil demand total y/y%
2006
2009
2012
Oil demand non-OECD y/y%
2015
Oil demand OECD y/y%
Source:
Datastream,
Barclays,
at2016
15 Feb 2016
Source: Datastream,
Barclays,
as atas
Feb
http://www.federalreserve.gov/releases/h10/weights/
Factset Earnings Guidance – Q4 2015
1
2
Compass Q2 2016 | 13
Investment Strategy
reasonably expect in coming quarters. If we accept that falling commodity prices tell us
more about supply than demand (Figure 6), then revenues linked to oil and commodities are
probably adding unnecessary noise. The same is true of the translational effect on overseas
earnings, as this is an effect that, as noted above, should fall out over the course of this year.
What about profits?
The same is true for return on equity, a more holistic measure of corporate profitability,
which has remained stable for both the US and World ex-US for four years now if we exclude
resources (Figure 7). On the same basis, both US and World ex US earnings are still on an
upward trajectory without any evidence of slowing (Figure 8) – further acquitting the US
companies not engaged in commodity extraction. Importantly, Figure 9 shows the strong
relationship between global output growth and return on equity. The inference here is that
if growth is okay, then corporate profits are likely to follow suit. Many of those currently
writing off the prospects for the US corporate sector mistakenly have the relationship the
other way around.
Figurewe
7: still
Developed
Equities
ROEto continue muddling along, and this
Overall,
expect the Markets
world’s major
economies
Figure 8: Developed Markets Equities earnings
should continue to support sales and earnings growth for the world’s corporate sector, long
after the base effects of dollar and oil fade.
FIGURE 7: Developed Markets Equities ROE
FIGURE 8: Developed Markets Equities earnings
MSCI return on equity (%)
MSCI trailing earnings (Index, Dec-08=100)
US
World ex-US
US ex-resources
World ex-US ex-res.
21
19
230
180
17
15
130
13
80
11
9
30
7
5
Jan-92
Jan-97
Jan-02
Jan-07
0
Dec-08
Jan-12
US
Mar-10
Jun-11
World ex-US
Sep-12
Jan-14
US ex-resources
Apr-15
World ex-US ex-res.
Source: Datastream, Barclays, as at 29 Feb 2016
Source: Datastream, Barclays, as at Feb 2016
Source: Factset, Barclays, as at Feb 2016
Figure
9: Developed Markets Equities ROE and GDP growth
Source: Datastream, Barclays, as at 29 Feb 2016
FIGURE 9: Developed Markets Equities ROE & GDP growth
FIGURE 10: MSCI World forward PE
PE (x)
20
YoY (%)
YoY (%)
18
6
5
16
24
21
4
14
12
3
18
10
2
8
6
1
4
Developed markets return on equity
2
Global real GDP (rhs)
0
-1
0
Dec-84
15
Dec-87
Dec-90
Dec-93
Dec-96
Dec-99
Dec-02
Dec-05
Source: Datastream, Barclays, as at 29 Feb 2016
Source: Datastream, Barclays, as at Feb 2016
14 | Compass Q2 2016
Dec-08
Dec-11
Dec-14
MSCI The World Index
12
10-year moving average
± one standard deviation
9
Dec-87
Dec-92
Dec-97
Dec-02
Source: Factset, Barclays, as at Feb 2016
Source: Datastream, Barclays, as at 29 Feb 2016
Dec-07
Dec-12
Investment Strategy
What do valuations tell us?
The problem with valuation is one of context. Much of the debate around valuations
assumes that history contains a precise answer to how much we should pay for a dollar,
euro or pound of corporate earnings generated today. However, while history provides useful
context and perspective for the investment debate, those looking for a precise playbook for
today’s markets will likely be disappointed. For instance, if we compare the market’s current
price to earnings ratios with the average of the last 10 years (Figure 10), we surely need
to acknowledge that this period contains the most serious recession in living memory – is
this useful context for a near future that probably does not contain such a record breaking
decline in profits? Those looking further back will still find biases both up and down that
dilute how carefully we should listen to the investment voices of the past.
Cyclically-adjusted PEs suffer from the same problem – why do we want to compare
the S&P 500 of today with its forebear of the late 19th century when it was 12 railroad
companies? Changing accounting standards and index composition tend to force relevant
comparison towards the modern era, where the above mentioned biases start to take over.
We still expect
the world’s major
economies to
continue muddling
along, and this should
continue to support
sales and profitability
growth for the world’s
corporate sector, long
after the base effects
of dollar and oil fade
Meanwhile, Tobin’s Q is theoretically as well as empirically flawed, as explored in previous
publications3.
This is where a form of relative valuation can come in handy. If, as theory would indicate,
a company’s share price (and therefore that of broader equity indices) should encompass
all future cash flows that this company/index will generate in the future discounted back
to a present value, then on our conservative assumptions detailed in Box 1, US equities in
particular, remain inexpensive. Such valuation metrics also have their critics of course, but
by separating out some of the building blocks involved in valuing equity, some light is shed
on some of the assumptions that the market may be making to justify current prices. As
explored in a bit more detail below, this leaves us suspecting that there is room for bond
yields to rise considerably and equities still to be unremarkably valued on well grounded
growth assumptions.
Box 1 - The dividend discount model
The dividend discount model (DDM) is a method of valuing a company’s stock price based on the theory that its stock is
worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to
value stocks based on the net present value of the future dividends. Within this model, there are three important moving
parts: the expected growth this company or index will generate over its life, the level of profitability growth the company/
index can sustain in the long-term, and how to discount those future cash flows to factor in the risk inherent in having to
wait for them.
These DDMs can achieve tremendous sophistication, by modelling various periods with different characteristics – for example,
periods in which companies undergo above-trend earnings growth. For us, we would prefer using the 1-stage Gordon Growth
Model, which posits that the long-run fair value of an equity index’s share is determined by the formula below:
FV = D(1+G)/(ERP+BY-G)
FV = Fair value per share
D = Current dividend per share incl. net buybacks
G = Long-term nominal growth in earnings
BY = Post-crisis average risk-free rate
ERP = Post-crisis average equity risk premium
Compass, December 2013 and January 2014
3
Compass Q2 2016 | 15
Investment Strategy
The reasons for preferring the 1-stage DDM (Gordon Growth Model) over more sophisticated multi-stage DDMs are
two-fold. Firstly, the proportion of the fair value accounted for by the extra stages in multi-stage DDMs tends to be
relatively small. Since the fair value per share is relatively insensitive to the extra stages incorporated, the potential benefits
of increasing the model’s sophistication is muted compared to the costs of invoking the extra assumptions required.
Second, we recognise that all DDMs are ultimately subject to many onerous assumptions, and therefore can only provide
us with a long-run approximation of an equity index’s fair value. Based on this understanding, we think the simplicity of the
Gordon Growth Model would provide protection against the danger of spurious precision, while being parsimonious at the
same time.
Admittedly, plenty of subjective discernment is required when it comes to selecting the appropriate figures for the long-run
variables. By far the most contentious of them all is the ERP, which is given by the formula below:
ERP = DY+G-BY
DY = Dividend yield incl. net buybacks
G = Long-term nominal growth in earnings
BY = Current risk-free rate
For the long-run nominal growth rate (G), we opted for a historical growth rate of 4% based on long-run S&P 500 earnings
growth since 1871. Alternatively, one might opt to use a higher growth rate of 6% based on a shorter timeframe of 50 years
(1966-2016), depending on how conservative one desires to be4. Meanwhile, our preferred risk-free rate is approximated by
the current 10-year US Treasury yield. Historically, both the dividend and net buyback yield has hovered around the 2% level
over the past fifteen years5. Putting them all together, this yields a sensible ERP range between 0% - 7% for the S&P 500
between 2000-2015 (Figure 11). Interestingly, the US ERP has been trending above its long-run average of 4% ever since the
post-crisis economic recovery. To take account of this, we would prefer to settle with a post-crisis ERP average of 5.5%.
Putting these numbers together would imply that as of late-March, the S&P 500 index is undervalued by approximately ~5%.
Furthermore, by tweaking each variable, we can obtain the varying degrees of undervaluation/overvaluation for the S&P 500
corresponding to each alternative scenario. From our sensitivity analysis, we see that the S&P 500 is currently inexpensive
according to most plausible alternative scenarios (Figure 12).
Figure 11: US equity risk premium
FIGURE 11: US equity risk premium
FIGURE 12: S&P 500 overvaluation
8
ERP/G (%)
3.50
3.75
4.00
4.25
4.50
7
4.50
-17
-23
-30
-36
-42
6
5.00
-5
-11
-18
-24
-30
5
5.50
7
1
-6
-12
-18
4
6.00
19
13
6
0
-6
6.50
31
25
19
12
6
3
2
1
Source: Datastream, Barclays, as at Mar 2016
0
-1
Mar-00
Sep-02
Mar-05
US Equity Risk Premium
Mar-07
Average
Sep-10
Std dev (+1)
Sep-12
Std dev (-1)
Source: Datastream, Barclays, as at Mar 2016
4
5
http://www.econ.yale.edu/~shiller/data.htm
How dilution and share buybacks impact equity returns – J.P Morgan, 2014
16 | Compass Q2 2016
Mar-15
Investment Strategy
Conclusion
Another US and
global recession is of
course inevitable, but
in our view not yet
imminent
Another US and global recession is of course inevitable, but in our view not yet imminent.
If we are right about the latter point, then there may be a disconnect for investors still to
exploit. As explored in more detail above, we do not have to work hard in terms of building
block assumptions to find upside in our Dividend Discount Model. While other valuation
measures are perhaps less conclusive, we remain comfortable concluding that equities are
inexpensively valued. The clear signs of mistrust in corporate fundamentals, highlighted
by the outperformance of ‘safe’ dividend paying companies (S&P dividend aristocrats), is
misplaced in our view (Figure 13). The still steady relationship between free cash flow (aka
‘cash earnings’) and earnings (Figure 14), with previous deteriorations in this metric proving
a good indicator of deteriorating corporate fundamentals, would support this view. Our
strong overweight recommendation on Developed Markets Equities remains well-founded.
Our preferred regions remain the US and Europe ex UK.
Figure 13: S&P 500 dividend aristocrats
Figure 14: MSCI World cash earnings
FIGURE 13: S&P 500 dividend aristocrats
10
FIGURE 14: MSCI World cash earnings
One-year rolling relative return (%)
Cash earnings/Earnings
3.0
8
2.8
6
2.6
4
2.4
2
2.2
0
2.0
-2
1.8
-4
-6
Dec-10
1.6
S&P 500 Dividend Aristocrats vs. S&P 500
Dec-11
Dec-12
Dec-13
Source: Datastream, Barclays, as at Mar 2016
Source: Datastream, Barclays, as at 2 Mar 2016
Dec-14
Dec-15
1.4
Jan-70
Jan-80
US recessions
Jan-90
Jan-00
Jan-10
MSCI The World Index
10-year moving average
± one standard deviation
Source: Factset,
FactSet, Barclays,
Feb
Source:
Barclays,asasatat
292016
Feb 2016
Scan or click on the QR code to
access the Knowledge Centre. Select
your region from the drop down
menu at the top of the page.
Compass Q2 2016 | 17
Behavioural Finance
Popular delusions and the madness of crowds
The most succinct rule of good investing is wonderfully simple: “buy low, sell high.”
We all know this, and most of us think it is so obvious as not to be worth saying at all.
And yet… and yet it is a rule that investors keep on breaking. In January, with sliding
markets grabbing the headlines, investors sold out of equities – to the tune of around
$60 billion1. Why is it we repeatedly give into our emotional impulses along the
investment journey, despite repeatedly denying (in saner moments) that we’d do so?
Why do we buy high, sell low?
The answer lies in the perennial truth that, in investing, there is usually a chasm between
the financially efficient decision and the emotionally comfortable decision. And in the face
of a threat, humans crave comfort more than they aspire to efficiency. There are few things
more uncomfortable than going against the herd, particularly when it seems to be costing
you money. The herd provides comfort, and can turn a fear-driven action into the only
Greg B Davies
+44 (0)20 8555 8395
[email protected]
accessible one. And if it turns out to be wrong in the end, then at least you have the comfort
of knowing that you were in good company.
Much has been made of the wisdom of crowds: the notion that the crowd often knows
something that investors individually do not. But, crucially, crowds are only wise when the
individual participants arrive at their opinions independently. When investors instead borrow
their opinion from the crowd, the result is a feedback loop that drives the aggregate opinion
ever further from reality. Ironically, as soon as a crowd is regarded as a source of wisdom, it
ceases to be so. The market doesn’t know anything; it is merely a reflection of the average
emotional state of its participants. And since we know that individual investors typically
have emotional states that are heavily influenced by myopic, often irrelevant, aspects of the
immediate context – and are divorced from dispassionate assessments of long-term risk
and return – we certainly shouldn’t consider this average emotional state to be any guide to
investment decisions. When the crowd stops weighing market fundamentals and turns to
itself as a signal, it becomes an emotional amplifier rather than a knowledge aggregator.
Of course in the short-term, this madness of the crowd can be self-fulfilling and drag the
market along with it – but in the long-run this merely creates a dislocation between popular
perception and reality, which must, at some point, snap back into place. It feels cool to be
with the in-crowd, but betting against reality must eventually be expensive.
One other aspect of the crowd is important: because crowds amplify emotion at the
expense of reason, they are frequently very indiscriminate in their opinions, and impervious
to facts and evidence. So not only do they push prices out of alignment with fundamental
value, but they often don’t differentiate between good and bad assets when doing so.
Two commonly-used phrases in the financial media these days are ‘risk on’ and ‘risk off ’ –
markets can fluctuate between days when everyone either seeks to buy risky assets (risk
on), or tries to dump them (risk off ). On these days, the herd is making blanket judgements
about entire categories of assets, and investors fail to discriminate between good and bad
stocks - they blindly sell everything. This effect can result from any label that becomes
1
Investors pull more than $60bn from mutual funds in January, Financial Times, 28 February 2016
18 | Compass Q2 2016
The most succinct
rule of good investing
is wonderfully simple:
buy low, sell high
Behavioural Finance
associated with emotional hopes or fears, but if investors can remain apart from the popular
delusion there are considerable opportunities in thoughtfully evaluating assets fallen victim
to it.
For example, if “Europe” is the fear du jour, investors will rush to sell anything even vaguely
European, regardless of underlying quality. For thoughtful investors, it might be beneficial
not just to buy in the face of such panic, but also especially to seek European stocks that are
unjustifiably unpopular, and therefore good value. For example, those which earn much of
their revenue outside Europe: they will be.
The madness of crowds implies an unpopularity premium: unpopular assets are likely to be
better value than those widely loved. This is particularly true of any that are out of favour
The madness of
crowds implies an
unpopularity premium:
unpopular assets are
likely to be better value
than those widely
loved
because they’re being judged by superficial emotional labels that are not truly reflective of
the underlying reality.
Classical finance theory tells us that ultimately the only thing the market should reward
investors for is risk: risky assets should earn better returns than safe assets because, in
aggregate, investors avoid risk unless they are paid for it. However, the reality seems much
more complex: small stocks earn more than they should compared to large stocks; value
stocks more than they should compared to growth stocks; and low volatility stocks earn
more than they should compared to high volatility stocks. All of these anomalies can be
explained by popularity: in general small companies are less well known and less popular
than large ones; value stocks appear more pedestrian and less exciting than growth stocks;
and low volatility stocks are shunned as less likely to beat the benchmark than their volatile
cousins2.
Investors are rewarded for embracing the unpopular. So if you prefer superior returns
to social validation, seek out the dull, the discarded, and the unjustly overlooked of the
investment world, and run against the herd.
2
Ibbotson & Kim, “Risk Premiums or Popularity Premiums?”
Scan or click on the QR code to see
the latest news and views from the
Behavioural Finance team.
Compass Q2 2016 | 19
Interest rates, bond yields, and commodity and equity prices in context*
FIGURE 1: Short-term interest rates (global)
FIGURE 2: Government bond yields (global)
Nominal Yield Level 3 Months (%)
8
Nominal Yield Level (%)
10
9
7
8
6
7
5
6
4
5
3
4
2
3
1
2
0
1
-1
Dec-90
0
Jan-87
Dec-94
Dec-98
Dec-02
Dec-06
Dec-10
Dec-14
Jan-92
Jan-97
Barclays Global Treasury
± one standard deviation
Global Government
10-year moving average
± one standard deviation
Jan-02
Jan-07
Jan-12
10-year moving average
Source: FactSet, Barclays
Source: FactSet, Barclays
FIGURE 3: Inflation-linked real bond yields (global)
FIGURE 4: Inflation-adjusted spot commodity prices
Real Yield Level (%)
4.0
Real Prices (USD, 1991=100)
340
3.5
310
3.0
280
2.5
250
2.0
220
1.5
190
1.0
160
0.5
0.0
130
-0.5
100
-1.0
Dec-96
Dec-99
Dec-02
Dec-05
Dec-08
Dec-11
70
Jan-91
Dec-14
Inflation Linked
10-year moving average
± one standard deviation
Jan-95
Jan-99
Jan-03
Bloomberg commodity Index
± one standard deviation
Jan-07
Jan-11
Jan-15
10-year moving average
Source: Bank of America Merrill Lynch, Datastream, FactSet, Barclays
Source: Datastream, Barclays
FIGURE 5: Government bond yields: selected markets
FIGURE 6: Global credit and emerging markets yields
Nominal Yield Level (%)
Nominal Yield Level (%)
5
± one standard deviation
Current
10-year average
4
10
3
8
2
6
1
0
12
4
Global
US
-1
UK
Germany
Japan
2
Investment
Grade
High Yield
± one standard deviation
Source for Figures 5-6: FactSet, Barclays
*Monthly data with final data point as of COB 3 March 2016. Past performance does not guarantee future results.
20 | Compass Q2 2016
Hard Currency
EM
Current
Local Currency
EM
10-year average
FIGURE 7: Developed stock market, forward PE ratio
FIGURE 8: Emerging stock market, forward PE ratio
PE (x)
26
PE (x)
28
24
26
24
22
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
Dec-87
Dec-93
Dec-99
MSCI The World Index
± one standard deviation
Dec-05
6
Dec-87
Dec-11
Dec-93
Dec-99
MSCI Emerging Markets
10-year moving average
Dec-05
Dec-11
10-year moving average
± one standard deviation
FIGURE 9: Developed world dividend and credit yields
FIGURE 10: Regional quoted-sector profitability
Yield (%)
8
Return on Equity (%)
19
7
17
6
15
5
13
4
3
11
2
9
1
7
0
Jan-01
Jan-04
Jan-07
Jan-10
Jan-16
Jan-13
5
3
Global Investment Grade Corporates Yield
Developed Markets Equity Dividend Yield
World
USA
UK
± one standard deviation
Eu x UK
Current
Japan
Pac x JP
EM
10-year average
FIGURE 11: Global stock markets: forward PE ratios
FIGURE 12: Global stock markets: price/book value ratios
PE (x)
PB (x)
19
2.8
17
2.4
15
2.0
13
1.6
11
1.2
9
World
USA
UK
± one standard deviation
Eu x UK
Current
Japan
Pac x JP
10-year average
EM
0.8
World
USA
UK
± one standard deviation
Eu x UK
Current
Japan
Pac x JP
EM
10-year average
All sources on this page: MSCI, IBES, FactSet, Datastream, Barclays.
Past performance does not guarantee future results.
Compass Q2 2016 | 21
Barclays’ key macroeconomic projections
FIGURE 1: Real GDP and consumer prices (% y-o-y)
Real GDP
Consumer prices
2015F
2016F
2017F
2015F
2016F
2017F
Global
3.2
3.1
3.7
2.0
2.6
3.0
Advanced
1.9
1.6
2.0
0.2
0.9
1.9
Emerging
4.2
4.2
4.9
4.9
5.2
4.6
United States
2.4
2.0
2.4
0.1
1.6
2.6
Euro area
1.5
1.4
1.7
0.0
0.1
1.0
Japan
0.5
0.4
1.0
0.5
-0.2
1.6
United Kingdom
2.2
1.6
1.8
0.0
0.8
1.6
China
6.9
6.2
5.8
1.4
1.8
1.8
Brazil
-3.8
-3.1
0.6
9.0
8.7
6.4
India
7.3
7.6
8.0
4.9
4.8
5.1
Russia
-3.7
-1.0
1.5
15.5
8.4
6.8
Source: Barclays Research, Global Economics Weekly, 24 March 2016
Note: arrows appear next to numbers if current forecasts differ from previous week by 0.2pp or more. Weights used for real GDP are based on IMF PPP-based GDP (5yr
centred moving averages). Weights used for consumer prices are based on IMF nominal GDP (5yr centred moving averages). There can be no guarantees that these
projections will be achieved.
FIGURE 2: Central bank policy rates (%)
Official rate
% per annum (unless stated)
Forecasts as at end of
Current
Q1 16
Q2 16
Q3 16
Q4 16
0.25-0.5
0.25-0.5
0.5-0.75
0.5-0.75
0.75-1.0
0.00
0.00
0.00
0.00
0.00
-0.10-0.10
-0.10-0.10
-0.10-0.10
-0.30-0.10
-0.30-0.10
Bank of England bank rate
0.50
0.50
0.50
0.50
0.50
China: 1y bench. lending rate
4.35
4.10
3.85
3.85
3.85
Brazil: SELIC rate
14.25
14.25
14.25
14.00
13.00
India: Repo rate
6.75
6.75
6.25
6.25
6.25
Russia: One-week repo rate
11.00
11.00
11.00
10.00
9.00
Fed funds rate
ECB main refinancing rate
Bank of Japan overnight rate
Source: Barclays Research, Global Economics Weekly, 24 March 2016
Note: rates as of COB 23 March 2016. There can be no guarantees that these projections will be achieved.
22 | Compass Q2 2016
Global Investments and Solutions team
EUROPE
Jaime Arguello
Olivier Asselin
Greg B Davies, PhD
Head of Multi Manager
[email protected]
Head of Specialist Investment
Management
Head of Behavioural and
Quantitative Finance
+44 (0)20 3555 8157
[email protected]
[email protected]
+44 (0)20 3555 3472
+44 (0)20 3555 8395
Roberta Gamba
Arne Hassel
William Hobbs
Head of Portfolio Construction
Chief Investment Officer
Head of UK and Europe
[email protected]
[email protected]
Investment Strategy
+44 (0)20 3555 3040
+ 44 (0) 203 134 1681
[email protected]
+44 (0)20 3555 8415
Rupert Howard
Antonia Lim
Discretionary Portfolio Management
Global Head of Quantitative Research Macro
Christian Theis, CFA
[email protected]
[email protected]
[email protected]
+44 (0)20 3555 3269
+44 (0)20 3555 3296
+44 (0)20 3555 8409
Hao Ran Wee
Macro
[email protected]
+ 44 (0)20 3134 0612
ASIA
Benjamin Yeo, CFA
Eddy Loh, CFA
Chief Investment Officer, Asia and
Middle East
Investment Strategy
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Compass Q2 2016 | 23
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Item Ref: IBIM5570 April 2016 | CP 55917-16