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					Surviving the Markets

                         Presented by
                  Jeff Pantages, CFA
                  Chief Investment Officer




             Alaska Permanent Capital Management
                  900 W 5th Avenue Suite 601
                      Anchorage, AK 99501
                       www.apcm.net
                        907-272-7575
                       jeff@apcm.net
It Was The Worst of Times…
       the Best of Times…
               100%
                                                                         79%
               80%

               60%
                                   37%
               40%      27%
                                                            32%
                                                                                   29%
                                              26%
Total Return




                                                                                             19%
               20%                                                                                       14%


                0%
                                                                                             -5%          -4%
               -20%

               -40%                          -31%
                       -37%        -36%                                            -38%
                                                           -43%
               -60%                                                      -53%

               -80%
                      Large Cap   Mid Cap   Small Cap   International   Emerging   REITs   Corporate      U.S.
                        Equity     Equity     Equity        Equity      Markets              Bonds     Treasuries




                                                        2009
                                                        2008
                                                                                                                    1
Mutual Fund Flows ($ billions)


                               2008        2009
Money Market Funds              +528       -534


Stock Mutual Funds                  -213    -4


Taxable Bond Funds                  +22    +284


   Through November of each year.
   Source: ICI
                                                  2
Stock market roller coaster
                             S&P 500 Index
                                                               1600


                                                               1400


                                                               1200


                                                               1000
                                             Dec 31st
                                             1115.10
                                                               800


                                                               600
    1997       1999   2001     2003   2005     2007     2009
   Bloomberg
                                                                      3
What happened?
 A housing bubble burst revealing:
   – A fragile and interconnected financial system with too much leverage/debt
   – And not enough regulations or regulators

 The resulting PANIC of 2008
   – The financial markets and banking system froze – it was near impossible
     to get credit and roll your debt
   – Stocks plummeted and credit spreads jumped to Great Depression levels
   – The global economy fell off a cliff in Q4 2008

 Policymakers around the globe intervened
   – Central bankers eased in unprecedented ways
   – Governments assisted in bailouts and fiscal stimulus

                                                                                 4
Federal Reserve pushed interest rates to zero!




                                                 5
              stretching
More           for yield,
money has    than at the
been lost…     point of a
                    gun.
The Fed’s Balance Sheet has Exploded!
            Balance Sheet of The Federal Reserve
                                          in Billions $
                                                                          2,500
             MBS and Agency Debt
             Credit to AIG
             Asset-Backed Securities and CP                               2,000
             Maiden Lane Entities
             Credit Facilities
             Other Fed Assets
                                                                          1,500
             Repos and Currency Swaps
             Securities Lent to Dealers
             Traditional Security Holdings
                                                                          1,000



                                                                          500



                                                                           0
 Oct 2007                Apr 2008                         Oct 2008   Apr 2009
                                                                                  7
Fiscal stimulus from Washington…
           $792 billion and counting!




                                        8
1/3 of Stimulus is Spent

         $7 9 2 , 0 0 0 , 0 0 0 , 0 0 0

   $164 B          $150 B                 $267 B            $93 B   $119 B

     21%                19%                33%               12%      15%




 Spent     In Process     Left to Spend   Tax Cuts Issued   Tax Cuts Remaining



  As of January 11, 2010
  Source: Government Agencies and ProPublica Research
                                                                                 9
Recession has been deep




                          10
Recession has been long




                          11
Comparison of Financial Crises
                                3200                                                                                              80
                                3000
                                                                                                  October 2009
                                2800                                                                                              70
                                                                                                  2.8 Trillion
                                2600
                                2400                                                                                              60
                                                                                                 February 2009
  in billions of U.S. dollars




                                2200
                                                                                                  2.2 Trillion
                                2000                                                                                              50
                                1800
                                1600                                                                                              40
                                              Banking Losses (left scale)                         October 2008
                                1400
                                                                                                  1.4 Trillion
                                1200          Percent of GDP (right scale)                                                        30
                                1000
                                 800                                                                                              20
                                 600
                                 400                                                                                              10
                                 200
                                   0                                                                                              0
                                        U.S savings          Japan banking crisis   Asia banking crisis    U.S. subprime crisis
                                       and loan crisis           (1990-99)              (1998-99)            (2007-present)
                                         (1986-95)

            Sources: World Bank; and IMF staff estimates.
            Note: U.S. subprime costs represent staff estimates of losses on banks and other financial institutions. All costs
            are in real 2007 dollars. Asia includes Indonesia, Malaysia, Korea, the Philippines, and Thailand.
                                                                                                                                       12
Comparison of Financial Crises




                                 13
Comparison of Financial Crises


 “An examination of the aftermath of severe
  financial crisis show deep and lasting
  effects on asset prices, output, and
  employment”
                     -Rogoff & Reinhart
                      The Aftermath of Financial Crisis
                      January 2009




                                                          14
Recovery will be sluggish




  Source: CBO and APCM
                            15
Consensus believes economy is in recovery




                                            16
Enormous pool of unemployed workers




                                      17
Inflation should be tame…for a while longer




                                              18
Oil prices expected to remain high




                                     19
Getting closer to a bottom?




  *Based on BW’s estimate of the underlying rate of home price growth from 1890 to 2007
   Data: Robert H. Shiller, Irrational Exuberance, second edition
                                                                                          20
Price to Rent Ratio




                      21
IMF Global Outlook

            The IMF's Global Economic Forecasts
                 2000-07    2008      2009        2010

    Advanced       2.6%      0.6%     -3.4%       1.3%


    Emerging        6.4      6.4       1.7        5.1


    World           4.2      3.0       -1.1       3.1




                                                         22
Fallout from the crisis

 Economic growth likely to be subpar as we rebuild savings and
  spend less

 Fiscal policy stimulus and budget deficits are okay in short term
    – but the long term?

 Monetary policy on steroids – what is the “exit” strategy?

 Regulatory reform including:
    – Strengthening capital, liquidity, risk management, and pro-cyclical tendencies
      at banks
    – Resolving TBTF problem posed by systemically important
      institutions…Glass-Stegall?…Volcker Rule?
    – Consider a macro-prudential systemic risk regulator to identify “asset bubbles”
      (Lean or clean?)

                                                                                        23
CBO says debt will soar




                          24
What is an investor to do?




                             25
Don‟t watch CNBC!




                    26
APCM’s view
 It’s a muddle through economy with low inflation now
  (but watch out later!)…

 Stocks will do better than cash and bonds this year…but
  the E in P/E ratios needs to grow

 Favor large cap over small, favor emerging over developed
  internationally

 Favor corporate bonds over Treasury/Agency debt (go up
  the capital structure in bank debt)

 Stay diversified and implement modest tilts


                                                              27
Stock Valuation: Reasonable
                                    Price/Earnings Ratio
             45
             40

             35

             30
P/E Ratio




             25

             20

             15

             10

              5

              0
               1880       1900        1920       1940   1960   1980    2000     2020

            Source: Shiller (P/E 10 Year Earnings)                    Average = 16.3   28
Bond Valuation: Pricey!




                          29
Personal Investing Tips

 Develop reasonable expectations and diversify


 It’s tough to beat the market


 Stay the course, and avoid market timing


 Seek tax advantages



                                                  30
According to a nationwide survey…


“Investors expect the U.S. stock market to
 return an annual average of 13.7 percent

 over the next 10 years.”

                           The Wall Street Journal
                           January 16, 2010


                                                     31
Stock Returns by Decade

                            25
                                    19.2                      19.4
                            20                                                           17.6     18.2
Percent Annual Return (%)




                            15
                                                      9.2
                            10                                          7.8
                                                                                 5.9
                             5
                                             -0.1
                             0
                                                                                                            -0.9
                            -5
                                   1920's   1930's   1940's   1950's   1960's   1970's   1980's   1990's   2000's


                            Source: Morningstar Ibbotson                                   Average = 9.8%
                                                                                                                    32
Returns in the Oughts (2000’s)



                              70% Bonds            50% Bonds            30% Bonds
                              30% Stocks           50% Stocks           70% Stocks

                    6%           5.4%
                                                      4.7%
                    5%
Annualized Return




                    4%                                                     3.1%
                    3%
                    2%                                                               Inflation
                    1%
                    0%

                         Annualized Returns - January 1, 2000 to December 31, 2009
                                                                                                 33
Personal Investing Tips

 Develop reasonable expectations and diversify


 It’s tough to beat the market


 Stay the course, and avoid market timing


 Seek tax advantages



                                                  34
What are the odds of active outperformance?
Based upon 40 years of performance for 198 balanced funds…

                                                                        Traits of Outperformers
                                 16%
                              Outperform
                                                                  Lower average expense ratio
    48%
                                                                                        Not
  No Significant                                                  Lower turnover
   Difference
                                      36%
                                   Underperform
                                                                                       Good!
                                                                  More assets under management
                                                                        $1.9 billion, on average, vs. $538 million




    Source: University of Chicago Center for Research in Security Prices Survivor Bias-Free US mutual Fund Database . Vanguard Calculations

                                                                                                                                              35
Managers don’t beat the market!
       Percentage of Equity Mutual Funds That Outperformed The Index
                       Percentage of Equity Mutual Funds
                                That Outperformed The Index
100%




75%




50%
               37%
                                                          32%
                                     27%
25%
                                                                                13%

 0%
          All Large Cap Funds    All Mid Cap Funds   All Small Cap Funds   International Funds
               (S&P 500)             (S&P 400)            (S&P 600)             (S&P 700)


         Over a 5 year period ending June 30, 2009. Equal weighted. Net Returns.
         Source: Standard & Poor’s
                                                                                                 36
Personal Investing Tips

 Develop reasonable expectations and diversify


 It’s tough to beat the market


 Stay the course, and avoid market timing


 Seek tax advantages



                                                  37
Average investors have bad timing…

                                  Annualized Returns from 1988-2007
                          14%

                          12%
Annualized Total Return




                          10%

                          8%

                          6%                11.6%
                          4%

                          2%                                                      4.5%
                          0%

                                      Average Stock Fund               Average Stock Fund Investor


                          Source: Quantitative Analysis of Investor Behavior by Dalbar, Inc. (2008)
                                                                                                      38
If something sounds too good to be true…




                                           39
Personal Investing Tips

 Develop reasonable expectations and diversify


 It’s tough to beat the market


 Stay the course, and avoid market timing


 Seek tax advantages



                                                  40
It’s not what you earn, it’s what you keep

 Taxes are going up!

 IRAs, 401(k)s, etc

 Municipal bonds make sense

 Seek low fees and low turnover

 Year end tax planning



                                             41
Be realistic, but be optimistic!


“Of all the scientists that ever lived,
more than 90% are alive today.”

                      Organization for Economic
                    Cooperation and Development
                                      March „00



                                                  42
It’s a Great Country!



"There is nothing dumber than betting against
America. It hasn't worked since 1776."


                                  Warren Buffett




                                                   43
               Thank You




The high-quality answer to corporate, non-profit,
    and affluent individuals’ investment needs.

                 www.apcm.net

				
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