Dallas-Fort Worth Financial Planners Association...YTD 2015 3Q 2015 Market Review As of September 30, 2015 (40) (30) (20) ... U.S. Outlook – Inflation to Remain Low Mellon Capital
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11/2/2015
1
Dallas-Fort Worth Financial Planners Association
NOVEMBER 3, 2015
For the sole use of Dallas-Fort Worth Financial Planners Association in response to their specific request.
This presentation is for educational and informational purposes only.
Market Review
As of September 30, 2015
5
10Asset Class Performance
YTD 2015 3Q 2015
(20)
(15)
(10)
(5)
-
Ret
urn
s (%
)
Additional information in Disclosure Statements at the end of this presentation2
Data sources: Long Corp Bonds (Barclays U.S. Long Credit Index), U.S. Bonds (Barclays U.S. Aggregate Index), Global Bonds (WGBI 1+ World Index), High Yield (Barclays U.S. Corporate High Yield Index), EM Bonds (JP Morgan GBI-EM Global Index), World Stocks (MSCI World Index), EM Stocks (MSCI Emerging Markets Index), U.S. Stocks (S&P 500 ®Index), Gold (Bloomberg Commodity IndexSM
Additional information in Disclosure Statements at the end of this presentation3
(50)
Data sources: MSCI World, MSCI Emerging Markets & S&P
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
50
Global Growth Concerns Fuel Uncertainty During Q3
US/Europe/Japan Implied Volatility IndexesJune 2015 to September 2015
1015202530354045
Imp
lied
Vo
lati
lity
Additional information in Disclosure Statements at the end of this presentation4
VIX VSTOXX VNKY
Data sources: Bloomberg, Citigroup, JPMorgan, HSBC, Markit, Consensus Economics
Volatility rose sharply and liquidity became constrained
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
11/2/2015
3
60ger
s
Economic Fundamentals Intact; but Caution Warranted
Composite Purchasing Managers IndexJanuary 2015 – September 2015
40
45
50
55
60
po
sit
e P
urc
has
ing
Ma
nag
Ind
ex
>5
0 =
Ex
pa
nsi
on
Contraction
Expansion
Additional information in Disclosure Statements at the end of this presentation5
Co
m
US UK Japan Eurozone China
Data sources: Bloomberg, Citigroup, JPMorgan, HSBC, Markit, Consensus Economics
IMF projects slowing emerging markets, higher developed world growth
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
42016 IMF Growth Projections
Diverging Growth and Monetary Policy
As of September 30, 2015
1
2
3
Re
al G
DP
Gro
wth
Ra
te
Projected Growth Rate of Advanced Economies in 2016
Additional information in Disclosure Statements at the end of this presentation6
0UnitedStates
Euro Area Japan UnitedKingdom
Canada
Forecasts are based on Mellon Capital models, which are confidential and proprietary.Data source: IMF, Consensus Economics, Inc., Mellon Capital, Morgan StanleyPAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Diverging growth rates and inflation expectations are becoming more apparent
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4
100%
U.S. Outlook – Growth to Remain on Pace
Mellon Capital GDP Forecast
20%
40%
60%
80%P
rob
ab
ility
Jul-15
Aug-15
Sep-15
Additional information in Disclosure Statements at the end of this presentation7
0%Low
(< 2%)Medium(2-4%)
High(4%+)
Forecasts are based on Mellon Capital models, which are confidential and proprietary.
Increasing global growth concerns have increased potential for slower growth scenarios.
100%
U.S. Outlook – Inflation to Remain Low
Mellon Capital Inflation Forecast
20%
40%
60%
80%
Pro
ba
bili
ty
Jul-15
Aug-15
Sep-15
Additional information in Disclosure Statements at the end of this presentation8
0%Low
(<1%)Medium(1-3%)
High(3%+)
Forecasts are based on Mellon Capital models, which are confidential and proprietary.
Low energy prices and slowing employment growth impacting inflation outlook
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5
The Fed’s Dilemma
125
13012%
Declining Unemployment, Rising WagesJanuary 2007 – September 2015
95
100
105
110
115
120
125
4%
6%
8%
10%
Additional information in Disclosure Statements at the end of this presentation9
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
1. NAIRU – Non Accelerating Inflation Rate of UnemploymentAverage hourly earnings indexed to 100 as of January 2007Data sources: Bureau of Labor Statistics, US Department of Labor, Congressional Budget Office, DataStream, Mellon Capital
Unemployment rateShort term NAIRUCumulative avg hourly earnings (RHS)
1
30
Conflicting Labor Market Signals
As of September 30, 2015
Fed’s Labor Mandate
0
5
10
15
20
25
Average Current Average Current
Pe
rce
nt
1 1
Additional information in Disclosure Statements at the end of this presentation10
U6 Unemployment Long Term UnemployedAverage Current Average Current
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
1. Average for the time period 1/1/2000 to 12/31/2007 (pre-Great Recession).Data sources: Bloomberg, I/B/E/S, Mellon Capital
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Inflation Pressures Subdued
As of September 30, 2015
Fed’s Inflation Mandate
2.5
0.0
0.5
1.0
1.5
2.0
Fed YoY Core 2 Yr 2 Yr Inflation
Pe
rce
nt
Additional information in Disclosure Statements at the end of this presentation11
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
1. Core PCE (Personal Consumption Expenditure)2. Inflation Breakeven is the difference between the yield on a nominal fixed-rate bond and the real yield on an inflation-linked bond (such as TIPS) of similar maturity and credit quality.3. Data shown is as of 8/31/15 which is most recent available data.Data sources: Bureau of Labor Statistics
FedTarget
Inflation
YoY CorePCE
Inflation
2 YrBreakeven
2 Yr InflationSwap2,3 31
110
x
Consumer Confidence Trends UpwardJanuary 2013 to September 2015
U.S. Economic Expansion is Dollar Supportive
50
60
70
80
90
100
Co
nfi
de
nce
Ind
ex
Additional information in Disclosure Statements at the end of this presentation12
University of Michigan The Conference Board
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
U.S. economic growth expected to be strongest in developed markets in 2015 & 2016
Forecasts are based on Mellon Capital models, which are confidential and proprietary.Data sources: University of Michigan & The Conference Board
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7
U.S. Dollar Still has Potential to Strengthen
Trade Weighted USD Exchange RateSeptember 1970 – September 2015
elU
SD
Ind
ex (
DX
Y)
Lev
Additional information in Disclosure Statements at the end of this presentation13
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Low unemployment and benign inflation in the US similar to two Fed tightening cycles where the dollar strengthened significantly
Data sources: DXY Index
Recent Eurozone Growth Lifted by Weaker Euro
As of September 30, 2015
6%
8%
Real GDP Growth, SA, YoYMarch 2009 – March 2015
8%
-6%
-4%
-2%
0%
2%
4%
6%
Additional information in Disclosure Statements at the end of this presentation14
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SA – Seasonally AdjustedYoY = Year over YearData sources: Eurostat, Mellon Capital
-8%
Eurozone Germany France Italy
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8
Eurozone Inflation Subdued; QE2 Looks Probable
3%
Annualized Monthly HICP DataJanuary 2009 – September 2015
0%
1%
2%2% ECB CPI ‘target’
ECB QE1 announced
Additional information in Disclosure Statements at the end of this presentation15
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-1%
HICP HICP ex energy
Data source: Eurostat, ECB, Mellon Capital
Eurozone Labor Market Remains Challenged
25%
30%
Unemployment Rate, SAJanuary 2008 – September 2015
5%
10%
15%
20%
25%
EuroArea
Germany
France
Italy
Spain
Additional information in Disclosure Statements at the end of this presentation16
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
0% Greece
SA = Seasonally AdjustedData source: Eurostat
11/2/2015
9
Youth Unemployment Potentially a Long Term Drag
Unemployment Rate, SADefined Youth as Unemployment Among Those Under 25
January 2008 – September 2015
60%
70%
10%
20%
30%
40%
50%
60%
EuroArea
Germany
France
Italy
Spain
Additional information in Disclosure Statements at the end of this presentation17
SA = Seasonally AdjustedRed circle highlights extremely high level of unemployment by any standards, and potentially could be a drag on the Eurozone economy for some time to come.Data sources: Eurostat
0%Greece
Abenomics Running out of Steam?
80
85
3%Increase in
Diminishing Growth Impact from Weaker YenDecember 2012 – September 2015
85
90
95
100
105
110
115
120-2%
-1%
0%
1%
2% consumption tax from 5% to 8%
Additional information in Disclosure Statements at the end of this presentation18
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.Data sources: Japan Cabinet Office, DataStream
120
125-3%
Japanese GDP Growth QOQ (LHS) JPY/USD (RHS)
11/2/2015
10
Improving Business Sentiment
10
15
Tankan SurveySeptember 2012 – September 2015
-25
-20
-15
-10
-5
0
5
10
Additional information in Disclosure Statements at the end of this presentation19
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-25
Business Conditions - AllNon-manufacturing - forecastManufacturing - forecast
Data sources: Bank of Japan, DataStreamThe Tankan Survey is an economic survey of Japanese business issued by the central Bank of Japan, which is used to construct economic policy.
105
110
tes
4)
Earnings Outlook Varies Significantly by Market
Revision in Expected 2015 EarningsDecember 31, 2014 to September 30, 2015
80
85
90
95
100
105
2015
Ear
nin
gs
Est
imat
(In
de
xed
to 1
2/31/
2014
Additional information in Disclosure Statements at the end of this presentation20
Germany Japan UK US
Data sources: I.B.E.S.PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
11/2/2015
11
15%
20%
Expected 2015 EPS Growth RateEstimate as of September 30, 2015
Global Stocks Show Fundamental Differences
-15%
-10%
-5%
0%
5%
10%
15%
EP
S G
row
th R
ate
Additional information in Disclosure Statements at the end of this presentation21
Germany Japan UK US
Data sources: I.B.E.S.PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
10 Year Government Yields Less Long-Term Cash
Global Government Bond Yields Persistently Negative
As of September 30, 2015
AUS
CAN
GER
U.K.
U.S.
JPN 3Q 2015
2Q 2015
Additional information in Disclosure Statements at the end of this presentation22
-1.50% -1.00% -0.50% 0.00% 0.50%
AUS
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.Data sources: Bloomberg, I/B/E/S, Mellon Capital
Central bank actions continue to artificially suppress global yields
11/2/2015
12
China’s Economy is Slowing, But Also Rebalancing
12%
Real GDP Growth, Year over Year, % Change2011 - 2015
As of September 30, 2015
2%
4%
6%
8%
10%
Additional information in Disclosure Statements at the end of this presentation23
0%2011 2012 2013 2014 2015
Real GDP Primary industry
Secondary industry Tertiary industry
Source: National Bureau of Statistics, China; DataStream; Mellon CapitalQuarterly data, from Q1 2011 through Q3 2015
Chinese Consumer is Resilient
25%
Retail Sales Outpacing Industrial GrowthJanuary 2009 – September 2015
5%
10%
15%
20%
Additional information in Disclosure Statements at the end of this presentation24
0%
Industrial Production YoY Retail Sales YoY
Source: National Bureau of Statistics, China; DataStream; Mellon CapitalMonthly data from January 2009 through September 2015
11/2/2015
13
Chinese Infrastructure Spending Offsets Weakness Elsewhere
25%
30%
Infrastructure Spending Continues at a Higher PaceMarch 2012 – September 2015
-10%
-5%
0%
5%
10%
15%
20%
25%
Additional information in Disclosure Statements at the end of this presentation25
Data sources: National Bureau of Statistics, China; DataStream; Mellon CapitalQuarterly data, from Q1 2012 through Q3 2015
Closing Thoughts
Developed market equity prospects remain intact, selectively
In our view:
Expect Chinese growth to moderate as the economy reorients
EM likely to remain under pressure
Government bond markets will remain distorted by QE
Remain cautious on energy market oversupply
Additional information in Disclosure Statements at the end of this presentation26
Outlook based on Mellon Capital’s models which are confidential and proprietary.
11/2/2015
14
Disclosure Statements
Mellon Capital Management Corporation (“Mellon Capital”) is an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940. Mellon Capital is a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”). The firm is defined as Mellon Capital and includes assets managed as dual officers of The Bank of New York Mellon and as dual employees of The Dreyfus Corporation. AUM, client and employee counts are as of September 30, 2015, unless noted otherwise. Mellon Capital’s AUM includes assets managed in overlay strategies ($3.3 billion) as of September 30, 2015. BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. Any collective investment funds presented are maintained by The Bank of New York Mellon. Employees of Mellon Capital manage the assets of any collective investment funds in their capacity as dual officers of The Bank of New York Mellon. Any collective investment funds presented are not deposits of, and are not insured or guaranteed by, any bank, the FDIC or any other government agency. Please refer to the Schedule A for the Fund (and for each other fund such Fund invests in) for important additional information.
Mellon Capital Management and its abbreviated form Mellon Capital are service marks of Mellon Capital Management Corporation.
This presentation does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. This material (or any portion thereof) may not be copied or distributed without Mellon Capital’s prior written approval. Statements are current as of the date of the material only.
Performance is expressed in U.S. dollars unless noted otherwise. Performance results for one year and less are not annualized. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. The active risk targets and information ratio targets shown in this presentation are the long run ex-ante targets. The active risk levels and information ratios may be higher or lower at any time. There is no guarantee that the active risk targets and information ratio targets will be achieved.
The following provides a simplified example of the cumulative effect of management fees on investment performance: An annual management fee of 0.80% applied over a five-year period to a $100 million portfolio with an annualized gross return of 10% would reduce the value of the portfolio from $161,051,000 to $154,783,041. The actual management fee that applies to a client’s portfolio will vary and performance fees may apply. The standard fee schedules for Mellon Capital’s strategies are shown in Part 2A of Mellon Capital’s Form ADV.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Past results are not indicative of future performance and are no guarantee that losses will not occur in the future. Future returns are not guaranteed and a loss of principal may occur.
The information provided in this presentation should not be considered a recommendation to purchase or sell a particular security. Any specific securities identified do not represent all of the securities purchased, sold or recommended for advisory clients, and may be only a small percentage of the entire portfolio and may not remain in the portfolio at the time you receive this report. Top Ten Holdings are determined by the market value weighting of securities held in the portfolio as of the date shown. You should not assume that investment decisions we make in the future will be profitable or will equal the investment performance of the past.
Charts and graphs herein are provided as illustrations only and are not meant to be guarantees of any return. The illustrations are based upon certain assumptions that may or may not turn out to be true.
Please note that this presentation does not comply with all of the disclosure requirements for an ERISA “section 404(c) plan,” nor does it contain all of the disclosure required by Rule 404a-5 as described in the Department of Labor regulations under section 404(c). Plan sponsors intending to comply with those regulations will need to provide the plan participants with additional information. The information provided in this presentation does not constitute individual investment advice for a participant or investor, is only informational in nature and should not be used by a p p p p y yparticipant or investor as a primary basis for making an investment decision.
The indices referred to herein are used for comparative and informational purposes only and have been selected because they are generally considered to be representative of certain markets. However, some indices shown may not be the appropriate benchmark for certain strategies. Rather, the information regarding the indices is included merely to show the general trends in the periods indicated and is not intended to imply that any portfolio is similar to the indices in composition or risk. Comparisons to indices as benchmarks have limitations because indices have volatility and other material characteristics that may differ from the portfolio, investment or hedge to which they are compared. The providers of the indices referred to herein are not affiliated with Mellon Capital, do not endorse, sponsor, sell or promote the investment strategies or products mentioned herein and they make no representation regarding the advisability of investing in the products and strategies described herein.
Standard & Poor’s®, S&P®, S&P 500® Index, Standard & Poor’s 500®, S&P 500 Low Volatility High Dividend Index®, S&P Small Cap 600® Index, S&P Mid Cap 400® Index, and S&P MLP Index are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by The Bank of New York Mellon (together with its affiliates and subsidiaries). The S&P 500® Index, S&P 500 Low Volatility High Dividend Index®, S&P Small Cap 600® Index, S&P Mid Cap 400® Index, and S&P MLP Index are products of S&P Dow Jones Indices LLC or its affiliates, and have been licensed for use by The Bank of New York Mellon (together with its affiliates and subsidiaries). The Bank of New York Mellon’s and/or Mellon Capital Management’s products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such product(s).
The Dow Jones, Dow Jones U.S. Total Stock Market IndexSM, Dow Jones U.S. Completion Total Stock Market IndexSM, and Dow Jones U.S. Select REIT IndexSM are products of S&P Dow Jones Indices LLC (“SPDJI”), and have been licensed for use by Mellon Capital Management Corporation and The Bank of New York Mellon. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Mellon Capital Management Corporation and/or The Bank of New York Mellon. The Bank of New York Mellon’s and/or Mellon Capital Management’s products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the above-mentioned indexes.
“Bloomberg®” and the Bloomberg Commodity Indexes are service marks of Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) and have been licensed for use for certain purposes by The Bank of New York Mellon Corporation. Neither Bloomberg nor UBS Securities LLC and its affiliates (collectively, “UBS”) are affiliated with The Bank of New York Mellon Corporation, and Bloomberg and UBS do not approve, endorse, review, or recommend The Bank of New York Mellon Corporation and or Mellon Capital’s products. Neither Bloomberg nor UBS guarantees the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity Indexes.
Russell Investments is the owner of the trademarks and copyrights relating to the Russell 1000® Index, the Russell 1000® Growth Index, the Russell 1000® Value Index, the Russell 2000® Index, the Russell 2000® Growth Index, the Russell 2000® Value Index, the Russell 2500TM Index, the Russell 3000® Index, the Russell Midcap® Growth Index, Russell Top 200 ® Value Index, and the Russell Midcap® Value Index.
Data provided is for informational purposes only and may not be used for any other purpose including as the basis for any other fund, derivative or financial product.
The funds or securities referred to herein are not sponsored, endorsed or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based.
Nasdaq®, OMX®, Nasdaq-100®, and Nasdaq-100 Index®, are registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by Mellon Capital. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
Australian prospects and clients, please note the following: If this document is used or distributed in Australia, it is issued by BNY Mellon Investment Management Australia Ltd (“BNY IMI Australia”) (ABN 56 102 482 815, AFS License No. 227865) located at Level 6, Macquarie Place, Sydney, NSW 2000. BNY IMI Australia holds an Australian Financial Services Licence authorizing it to provide financial services in Australia. BNY IMI Australia also introduces the capabilities of BNY Mellon affiliated United States asset managers or investment advisers, such as Mellon Capital Management Corporation, in Australia. Mellon Capital is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act of 2001 in respect of financial
i id d i A t li M ll C it l d fi i l i th t b id d b M ll C it l l t d b th SEC d U it d St t l hi h diff f A t liservices provided in Australia. Mellon Capital, and any financial services that may be provided by Mellon Capital, are regulated by the SEC under United States laws, which differ from Australian laws. This material is for wholesale clients only and is not intended for distribution to, nor should it be relied upon by, retail clients.
Japanese prospects and clients, please note the following: BNY Mellon Asset Management Japan Limited (“BNY AMI Japan”) provides information about the investment advisory skills and products of BNY Mellon’s investment management firms in Japan. Mellon Capital provides sub-advisory services to BNY AMI Japan. The presentation is not an invitation of subscription and provides information only. BNY AMI Japan is not responsible for the accuracy and completeness of the information contained in this presentation. Past performance and simulated performance are not a guarantee of future performance or principle and returns. The information may be amended or revoked at any time without notice.
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