Alternative Investments in Down-Cycle Markets LEHMNABROTHER S Ron Lubash Februrary 4, 2001.

Slides:



Advertisements
Similar presentations
Gateway Strategy: Equity — Why Not?
Advertisements

A Project Report Presentation On “ SBI Mutual Fund”
U.S. IPO Market Update Presented by Guy Cohen Executive Director, Head of Israeli Investment Banking, Oppenheimer June 28, 2010.
Investment Companies Economics 71a: Spring 2007 Mayo 17, Malkiel 8 Lecture 4.8.
| 1 EO /15 Not FDIC Insured May Lose Value No Bank Guarantee | 1 EO /15.
Hedge Fund Strategies 101: Multi-Strategy Funds Hedge Fund Fundamentals | January 2015.
Alternative Investments “Outlook for the Investment Management Industry” San Antonio October 17, 2007 Bank Depository User Group Meeting.
© 2009 Morningstar, Inc. All rights reserved. 3/1/2009 Stocks and Bonds.
© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Stocks and Bonds.
Investment Approach ROCKBRIDGE INVESTMENT MANAGEMENT, LLC.
Mutual Funds and Hedge Funds Industry Research Fund Industry.
Hedge Fund Hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of investment.
CORPORATE FINANCIAL THEORY Lecture 2. Risk /Return Return = r = Discount rate = Cost of Capital (COC) r is determined by risk Two Extremes Treasury Notes.
How Stock Portfolios Create Excess Return Market Timing Strategic Themes Security Selection Contributing Factor Modest Low Impact on Portfolio Return Importance.
Alliance Trust PLC 127th Annual General Meeting Katherine Garrett-Cox Chief Executive 29 April 2015.
A quick introduction to investing by CEO Sarah Deming September 8, 2009.
Yale School of Management Hedge Funds William N. Goetzmann Yale School of Management.
Vicentiu Covrig 1 Mutual funds Mutual funds. Vicentiu Covrig 2 Diversification Professional management Low capital requirement Reduced transaction costs.
Hedge Fund Strategies 101: Long/Short Equity Funds Hedge Fund Fundamentals | January 2015.
13-1. McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 13 Investing in Mutual Funds.
Attribution Report Returns by Industry, Sector and Asset Classes
© 2008 Thomson South-Western CHAPTER 12 INVESTING IN STOCKS AND BONDS.
November, 2007 An Introduction to the Senior Loan Asset Class.
To Accompany “Economics: Private and Public Choice 13th ed.” James Gwartney, Richard Stroup, Russell Sobel, & David Macpherson Slides authored and animated.
Are Your Investments Working The Way You Expected?
İş Yatırım Menkul Değerler A.Ş. Ocak 2005 PERFORMANCE & FINANCIAL RESULTS 2008/Q3 December, 2008.
The 7Twelve ® Portfolio Craig L. Israelsen, Ph.D
Adding Value While Managing Risk
PROFESSIONAL ASSET MANAGEMENT 1. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
SMU Cox School of Business January 31, AMR INVESTMENT SERVICES, INC. 1) OVERSEE MANAGEMENT OF AMERICAN AIRLINES $16.5 BILLION PENSION PLANS 2)
The Montgomery Institute Investment Proposal December 2013.
Mutual Funds Internal use for N.CA office training.
For Dealer Use Only. 2 Key Features Tactical Asset Allocation Benefits of Indexing, Convenience of ETFs Experienced Portfolio Management Low Cost, Managed.
G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take.
G1 STOCKS Essential Questions 1.In what ways does the stock market impact the personal wealth of an individual and a business? 2.Why diversify within.
Stock Market general term to describe all stock transactions.
Dynamic Income & Dividends A Simple Strategy for Excess Returns DIAD Philip A. Venanzi Duquesne MBA Class of 2015.
Financial Markets Investing: Chapter 11.
1 st Quarter Investment Review This presentation must be preceded or accompanied by prospectuses.
The importance of Indexes for ETFs
City of Hallandale Beach DB Plan Update November 17, 2014.
CBA Investors Update Date: November 2012 Presentation by: Richard Muriithi Old Mutual Asset Managers (K) Ltd.
Prudential Balanced Fund (PRUBF1) November 2011 Fixed information Licensed Date: 5 October 2006 Listing date: 4 December 2006 Base Currency: VND Tenure:
1 FIN 408 International Investment Factors affecting Risk and Return Size and Number of International Open-end Funds Global market Correlations Correlation.
PROFESSIONAL ASSET MANAGEMENT. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
Research and Evaluation 4.1 INVESTMENT PRINCIPLES.
© 2008 RiverSource Distributors, Inc. All rights reserved. Securities products are distributed by RiverSource Distributors, Inc., Member FINRA. RiverSource.
1 The Benefits of Hedge Funds The First Seoul International Derivatives Securities Conference Thomas Schneeweis & Vassilis Karavas August 28, 2003.
CHAPTER 9 Investment Management: Concepts and Strategies Chapter 9: Investment Concepts 1.
Member FINRA/SIPC LPL FINANCIAL RESEARCH Putting Current Markets Into Perspective: Why to Stay Invested The economic forecasts set forth in the presentation.
 Hedge Funds. The Name  Act as hedging mechanism  Investing can hedge against something else  Typically do well in bull or bear market.
Hedging Strategy and Pension Fund Restructuring Presented to X  Alison Catherine Cristiana Jean-Talon and Co.
Stock Terminology (continued) Investors make money in stocks in two ways: –Dividends Companies may make payment to shareholders as part of the profits.
STRIKING A BALANCE How balanced funds may help investors to stay the course toward achieving their long-term goals Name Title Firm The views expressed.
Types of Mutual Funds. There are Five Main Classes of Mutual Funds: money market funds income funds Equity funds balanced funds index funds.
US ‘Fiscal Cliff’ & Eurozone debt crisis weigh on global economy The month started with the much awaited US presidential election followed by the leadership.
Personal Finance: Investment Fundamentals. Agenda Investment fundamentals Stocks Bonds Mutual funds.
Mutual funds (see Ch. 16 Hirschey and Nofsinger)
The Fourth Quarter in Review
Economics 71a: Spring 2007 Mayo 17, Malkiel 8 Lecture 4.8
MFIN 403 Financial Markets and Institutions
Review Fundamental analysis is about determining the value of an asset. The value of an asset is a function of its future dividends or cash flows. Dividends,
William N. Goetzmann Yale School of Management
2017 Annual Market Review.
Personal Finance Stocks (Equities)
2017 Annual Market Review.
Types of risk Welcome to today’s presentation. We’re here to help you make the most of your retirement plan and keep you informed of concepts that may.
Corporate Financial Theory
Beyond Investment Illusions
Investing Fundamentals
Presentation transcript:

Alternative Investments in Down-Cycle Markets LEHMNABROTHER S Ron Lubash Februrary 4, 2001

LEHMNABROTHER S “The economic landscape has changed dramatically over the last few months and the local market now faces a new reality of significantly diminished prospects for future growth.” (Jerusalem Post, 01/03/2001) Executive Summary Decreasing capital market growth Decreasing capital market growth Decline in Israeli high-tech growth Decline in Israeli high-tech growth Consumer slowdown in the U.S Consumer slowdown in the U.S Geo-Political instability Geo-Political instability Can investors increase their capital gains in such a down-cycle market?

LEHMNABROTHER S Year Global Market Overview

LEHMNABROTHER S Year 2000 – Highlights Total of 384 IPOs with average first day return of 55.6%, compared to 466 IPOs in 1999 with first day return of 69.9% Total of 384 IPOs with average first day return of 55.6%, compared to 466 IPOs in 1999 with first day return of 69.9% Total capital raising in IPOs was $66 billion compared to $64.7 billion in 1999 Total capital raising in IPOs was $66 billion compared to $64.7 billion in 1999 Major investments in telecom and computer software sectors Major investments in telecom and computer software sectors Scientific breakthroughs encouraged investment in the biotechnology sector Scientific breakthroughs encouraged investment in the biotechnology sector High returns on NIS investments High returns on NIS investments Source: SDC

LEHMNABROTHER S Year Capital Markets NASDAQNYSELSETOKYO Data in $ millions except numbers of IPOs Source: Autex $ Amount RaisedNumber of IPOs

LEHMNABROTHER S Dow Jones Historical Index 0 2,000 4,000 6,000 8,000 10,000 12, Source: Dow Jones web Site Down-cycle Period 1929 Down-cycle 1987 Down-cycle 2000 Down-cycle

LEHMNABROTHER S Year 2000 Wake Up Call Decreasing expectations in the global high-tech industry lead to a decline in most major capital markets Decreasing expectations in the global high-tech industry lead to a decline in most major capital markets Indications of slower growth in the U.S Indications of slower growth in the U.S Political turmoil and security concerns in Israel Political turmoil and security concerns in Israel Deceleration in Israeli economy’s growth rate Deceleration in Israeli economy’s growth rate

LEHMNABROTHER S Year 2000 Decline in Major U.S Indices On December 31, the NASDAQ was down 39.3% year-to-date, and Israeli technology stocks showed a 26% average drop On December 31, the NASDAQ was down 39.3% year-to-date, and Israeli technology stocks showed a 26% average drop 2000 was a record year for Israeli high-tech’s public and private funding, but a poor period on a return on investment basis 2000 was a record year for Israeli high-tech’s public and private funding, but a poor period on a return on investment basis -10% -6% -39% 16% 11% -4% 6% 2% 21% 7% 9% 10% -50% -40% -30% -20% -10% 0% 10% 20% 30% S&P 500 DJIA NASDAQ S&P MidCap 400 S&P SmallCap 600 Russell 2000 Jan 2001

LEHMNABROTHER S Lehman Brothers’ 2001 Forecast

LEHMNABROTHER S Lehman Brothers’ forecast for 2001 Global growth will decrease from 3.9% to 3.4% Global growth will decrease from 3.9% to 3.4% Deceleration of U.S growth Deceleration of U.S growth Expected drop in U.S consumer prices Expected drop in U.S consumer prices Price targets for the S&P 500 and DJIA are 1,675 and 13,000 respectively Price targets for the S&P 500 and DJIA are 1,675 and 13,000 respectively Expected returns are 21% for stocks, 8% for Lehman’s bond portfolio and 6% for cash Expected returns are 21% for stocks, 8% for Lehman’s bond portfolio and 6% for cash Technology sector should outperform the market over the next several years Technology sector should outperform the market over the next several years Expected devaluation of up to 5% in NIS/$ - ($1= 4.22NIS) Expected devaluation of up to 5% in NIS/$ - ($1= 4.22NIS) Source: Lehman Brothers` Research Reports

LEHMNABROTHER S Asset Allocation for Year 2001 Global asset allocation should consist of 60% Equities, 35% Bonds and 5% cash Global asset allocation should consist of 60% Equities, 35% Bonds and 5% cash Increasing exposure to Cyclical Stocks (Oil, Gas and Healthcare) Increasing exposure to Cyclical Stocks (Oil, Gas and Healthcare) Though still underweight, increasing technology exposure, mainly in the under-valued telecom sector Though still underweight, increasing technology exposure, mainly in the under-valued telecom sector Prospects of a stronger EURO hence, increasing exposure in continental Europe Prospects of a stronger EURO hence, increasing exposure in continental Europe Source: Lehman Brothers` Research Reports

LEHMNABROTHER S Down-Cycle Historical Perspective

LEHMNABROTHER S Dow Jones Down-Cycle Source: Dow Jones web Site Down-cycle

LEHMNABROTHER S Dow Jones – 1987 and 2000 Down-Cycles Source: Dow Jones web Site 1987 Down-cycle 2000 Down-cycle

LEHMNABROTHER S General Trends in Down-Cycle Behaviour Total of 14 down-cycles between the years with an average downturn duration of 14 months and index decrease of 19.5% Total of 14 down-cycles between the years with an average downturn duration of 14 months and index decrease of 19.5% An estimated 5% of stock assets were redeemed 6 weeks after the beginning of down-cycles An estimated 5% of stock assets were redeemed 6 weeks after the beginning of down-cycles Shareholders’ response to a down-cycle period tend to be spread over time Shareholders’ response to a down-cycle period tend to be spread over time Shareholders react moderately, enhancing their long-term investment objectives and horizons Shareholders react moderately, enhancing their long-term investment objectives and horizons Source: Investment Company Institute -(Mutual Fund Shareholders Activity During U.S Stock Market Cycles ) Note: Information includes 30 large Mutual funds which at that time held 80% of equity fund assets

LEHMNABROTHER S Case Study - October 1987 On average, monthly basis outflow was $7.5 billion On average, monthly basis outflow was $7.5 billion Approximately 70% of the outflow occurred on the first 3 days of down-cycle Approximately 70% of the outflow occurred on the first 3 days of down-cycle Share redemption was mainly in the second half of October, representing an approximately $8.2 billion outflow Share redemption was mainly in the second half of October, representing an approximately $8.2 billion outflow Only 5% of the stock-fund shareholders had redeemed shares during and since the market break Only 5% of the stock-fund shareholders had redeemed shares during and since the market break Net outflow moderated and tapered off in November and December 1987 Net outflow moderated and tapered off in November and December 1987 Note: Information includes 30 large Mutual funds which at that time held 80% of equity fund assets Source:Investment Company Institute -(Mutual Fund Shareholders Activity During U.S Stock Market Cycles )

LEHMNABROTHER S “Alternative Investment Opportunities”

LEHMNABROTHER S Return Per Asset Class ( ) Annual Ranges of Return -100% Highest Annual Return Lowest Annual Return Average Return 14.7% 29.1% 142.9% 54.0% 40.4% -5.1% -43.3% -9.2% -58.0% 0.0% -50% 0% 50% 100% 150% Small Company Stocks Large Company Stocks Long-Term Government Bonds Medium Term Government Bonds Cash 12.4%11.2%5.3% 3.8% Source: Ibbotson Associates. Note: Each bar shows the range of annual total returns for each asset class over the period

LEHMNABROTHER S Annual Returns By Region ( ) Annual Ranges of Returns -40% -20% 0% 20% 40% 60% 80% 100% 120% United States Internation al Europ e 37.4% 69.9% 79.8% 107.5% -26.5% -23.2%-22.8% -34.3% Pacifi c 13.5% 12.7%13.7% 12.1% Average Return Source: Ibbotson Associates (Highs and Low. From )

LEHMNABROTHER S Contributing Factors of Portfolio Performance

LEHMNABROTHER S Lehman Brothers’ Investing Synergies An additional 5-10% of non-correlated alternative investments to the portfolio can substantially reduce the standard deviation on the expected return The goal of modern Portfolio theory is to maximize return at a given risk An efficient portfolio will always have the highest expected return for a given level of risk

LEHMNABROTHER S Alternative Investments’ Opportunities Growth

LEHMNABROTHER S Alternative Assets - Sector Overview   Alternative investments implement various financial instruments (such as: Hedging tools, Bonds, Options)   Over $12 billion were invested in European hedge funds in 1999 by European and US Institutions and high net worth individuals, bringing total assets to $28 billion   Close to 60 new European hedge funds were launched in 1999, bringing the total number of hedge funds to approximately 200   The US market has over 2000 hedge funds. It is expected that over 300 funds will be launched in Europe over the next 3 years

LEHMNABROTHER S Alternative Assets - A Growing Asset Class Alternative Assets - Industry Overview Source: Hedge Fund Research, LLC * - estimates

LEHMNABROTHER S Alternative investment example: Lehman Brothers’ Offshore Multi-strategy Fund II

LEHMNABROTHER S Major Financial Objectives Take advantage of investment opportunities around the world Take advantage of investment opportunities around the world Implement a variety of financial instruments (such as: beta hedging, convertible arbitrage and event oriented analysis), in order to achieve a superior total return with moderate volatility over the long term Implement a variety of financial instruments (such as: beta hedging, convertible arbitrage and event oriented analysis), in order to achieve a superior total return with moderate volatility over the long term Employ a multi-manager investment approach Employ a multi-manager investment approach Leverage the capabilities of a global investment bank Leverage the capabilities of a global investment bank

LEHMNABROTHER S Risk vs. Return Profile Lehman’s Offshore Multi-Strategy Fund II provides a substantially higher return compared to traditional fixed income investments at a given risk level Multi Strategy Fund II S&P 500 Aggregate Lehman Bond Index

LEHMNABROTHER S Fund Performance

LEHMNABROTHER S Conclusions In a down-cycle market, an investor should strive for a diversified portfolio with a world wide perspective In a down-cycle market, an investor should strive for a diversified portfolio with a world wide perspective Alternative investments opportunities are designed to outperform the market utilising various financial instruments Alternative investments opportunities are designed to outperform the market utilising various financial instruments Today, more and more investors consider alternative investment opportunities as a material part in their portfolio Today, more and more investors consider alternative investment opportunities as a material part in their portfolio

LEHMNABROTHER S Thank You