CII STUDENT PRESENTATION NOVEMBER 2016 TWITTER @USTEWART WWW.7IM.CO.UK
MAKING MONEY IN A MAD WORLD 2
GREXIT BREXIT TREXIT OR JUST SHOW ME THE EXIT 3
4
A Hard BREXIT? 5
A changing landscape 6
Unexpected Outcomes • The Vote • New Prime Minister • Euro Triumvirate • Laboured Labour • Markets Reactions 7
And more to come? • President Trump or Clinton • A New Merkel • End of Hollandaise? • UK Election? • & What is Brexit? 8
REFERENDUM BECOMES A NEVERENDUM? 9
A KEY MOMENT OF POLITICS & ECONOMICS 10
A RECAP
Sterling - US Dollar SOURCE: BLOOMBERG 16/06/2016 – 18/10//2016 12
Sterling - US Dollar (since 1971) SOURCE: BLOOMBERG 4/1/1971 – 18/10/2016 13
FTSE 100 vs FTSE 250 SOURCE: BLOOMBERG 16/6/2016 – 18/10/2016 14
FTSE 100 vs FTSE 250 It’s all about where you make your money : Revenue exposure SOURCE: FACTSET 15
The considered media view 16
More stimulants…rates & QE? 17
RISING RATES – RISING FEARS? 18
Geo political scares 19
An unexpected bear? 20
Unprecedented stimuli • Low Rates • Infrastructure Spending • Quantitative Easing • Commodity Price falls 21
GDP growth still positive Average global growth close to static but changes in regional growth rates notable. SOURCE: FACTSET 22
Oil ‘Stimulus’ Still to Come? Big falls in the oil price have always been followed by periods of higher GDP growth in G7 economies So far, consumers have saved much of the oil windfall. This may change… SOURCE: FACTSET 23
Commodities – rolling 5 years SOURCE: FACTSET. Copper, Gold, Crude Oil (WTI) 24
Unemployment is falling GREEN – EUROPEAN, RED - UNITED STATES, BLUE - UNITED KINGDOM SOURCE: FACTSET 25
Purchasing Managers Index US/EU Purchasing managers surveys indicate a growing economy. SOURCE: FACTSET 26
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USA – higher pressure? Housing improving, Rates Change? Economic growth unemployment falling Trump vs Clinton Corporate & Frackers Fracked Earnings Congress 28
US wage growth is rising SOURCE: FACTSET. 29
US house prices are strong SOURCE: FACTSET 30
US manufacturing rebound Recent surge in New Orders components is consistent with decent pick up in YoY manufacturing growth in US SOURCE: FACTSET 31
The world benefits Countries who export to the US 32
Regional storms 33
Eurozone The Future of the Euro ? Further financial QE = & integration Growth? BREXIT? Company German & Immigration & earnings rising at Italian Banks Borders double digit rates 34
Eurozone recovery Recovery in credit demand is continuing in Europe – bodes well for GDP growth? SOURCE: FACTSET 35
“Truth in engineering” 36
EZ survey data – holding up SOURCE: FACTSET 37
Watch it Shorty! 38
P-Russia 39
Russia • Year 2 Recession • Budget pain • Central Bank Reserves • Sanctions Effects? • Government spending • Geo-politics 40
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China • Industrial production up (6.2% vs. 5.9% consensus) • Consumer spending up 10.6% vs. 9.9% expectations • ‘Rust belt’ benefitting from improvements in commodity prices • Foreign capital reserves beating consensus • Government spending also up, funded by debt • Decline in private fixed investment 42
Chinese demand SOURCE: GENERAL ADMINISTRATION OF CUSTOMS, CHINA 43
The China sea-sores 44
China in transition Services matter more than manufacturing and construction… and are growing far faster. SOURCE: FACTSET 45
Purchasing Managers Index Purchasing managers surveys indicate a growing economy. SOURCE: FACTSET 46
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Japan • Shinzo Abe claims victory • A vote for Abenomics? SOURCE: GOOGLE IMAGES 48
Japan Debt 220%+ of Islands Dispute Back In Recession GDP Corporate Cash & Abe-nomics Nappy Sales Yen Weakness 49
Broken brics? China Russia India Change of Life Economics post Post election Election Brazil South Africa Turkey Weaker Exports Political issues On the Cusp 50
...Favour commodity importers MSCI Emerging Markets MSCI Asia Ex Japan China China South Korea South Korea Taiwan Taiwan Brazil Brazil South Africa South Africa India India Mexico Mexico Russia Russia Malaysia Malaysia Indonesia Indonesia Thailand Thailand Turkey Turkey Poland Poland Chile Chile Philippines Philippines Hong Kong Singapore SOURCE: ISHARES / 7IM 51
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Under new ‘Nannygment’ 53
UK Jobs & growth vs No Power or The 2 Unions Inflation? Transport strategy World’s Investment & Fixing the 6 th - 8 th -10 th Personal Tax Financing system ? Reform? 54
Post referendum issues • Confidence • Inward Investment 15 vs 16 • Debt Funding • Spending Corporate/Personal • Political Leadership • Prime Minister • Government / Opposition 55
Brexit key economic issues • Currency £ volatility • Trading Agreements Single Market access • Employment • Immigration EU/Non EU • Employment Rights • 2017 Growth Outlook (BoE slashed) • Inflation • Budget Collar Loosens 56
UK – 2015 pulling power 42,000 new jobs 20% Increase UK UK No1 in Europe Manufacturing INWARD UK 3 rd Globally INVESTMENT Leads 1,065 Projects UK top for HQs UK ECONOMY 57
Krankies – The love child 58
PMI UK x 3 SOURCE: FACTSET 59
Jobs, wages, confidence, sales SOURCE: FACTSET 60
The long and winding road Inflation likely to stay low in the mid-term SOURCE: BANK OF ENGLAND 61
Government deficit SOURCE: FACTSET 62
Understanding our debt • Annual Government Income: £716 • Money Spent: £784 • Debt Interest: £36 (47) • Debt: £1,752,000,000,000 63
Key risks to the view • Eurozone Green/K shoots • China change of life • UK Brexit nerves • US debt, deficit & demand 64
The symbiotic relationship 65
Inflation? Headline was in line with expectations • But core rose above consensus SOURCE: FACTSET 66
Considered view 67
Someone Changed The Rules! • Pensions - Your Problem • Annuities - Your Problem • Health & Age Care – Your Problem & Then Low Interest rates When Safe becomes Risky - Government Bonds Your Life Span 68
REBUILDING INVESTMENT CONFIDENCE 69
Key word for economy - confidence 70
Power of compounding Today’s value of £100 invested at the end of the of 69 years 1 – without reinvesting income Nominal Equities £9,148 2 – gross income reinvested Nominal Equities £179,265 71
Being out of the market RETURNS OF THE FTSE100 OVER THE LAST 20 YEARS AND THE EFFECT OF BEING OUT OF THE MARKET PERFORMANCE OF A £10,000 INVESTMENT BETWEEN 2 JANUARY 1996 & 31 DECEMBER 2015 AND THE CONSEQUENCE OF MISSING THE BEST TRADING DAYS OUT OF THE 5,056 DAYS EXAMINED SOURCE – BLOOMBERG. DATA BASED ON 20-YEAR ANNUALISED RETURNS FROM FTSE100 TOTAL RETURN INDEX 72
EXPECTED RETURNS ------------- EXPECTED OUTCOMES 73
Choosing next year’s top asset class Could you? SOURCE: BLOOMBERG, THOMSON Reuters as at 1 JANUARY 2015 74
It works! SOURCE: BLOOMBERG, THOMSON Reuters as at 1 JANUARY 2015 75
It works! SOURCE: BLOOMBERG, THOMSON REUTERS AS AT 1 JANUARY 2016 THE VALUE OF INVESTMENTS MAY FLUCTUATE IN PRICE OR VALUE AND YOU MAY GET BACK LESS THAN THE AMOUNT ORIGINALLY INVESTED. PAST PERFORMANCE IS NOT A GUIDE TO THE FUTURE. 76
All data refers to C Class Accumulation Units As at 30 September 2016 40 35 30 25 20 15 Returns 10 5 0 -5 -10 -15 -20 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Annual Performance Average Expected Return Expected Minimum Return Expected Maximum Return MORNINGSTAR STUDY 2016
All data refers to C Class Accumulation Units As at 30 September 2016 40 35 30 25 20 16.9 14.5 15 11.9 11.1 Returns 9.0 10 6.7 6.3 5.5 5 2.7 0.7 0 -5 -5.2 -10 -10.0 -15 -20 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Annual Performance Average Expected Return Expected Minimum Return Expected Maximum Return MORNINGSTAR STUDY 2016
All data refers to C Class Accumulation Units As at 30 September 2016 40 35 30 25 20 Returns 15 10 5 0 -5 -10 -15 -20 1 2 3 4 5 6 7 8 9 10 11 12 Years Invested Average Expected Return Expected Minimum Return Expected Maximum Return MORNINGSTAR STUDY 2016
All data refers to C Class Accumulation Units As at 30 September 2016 40 35 30 25 20 Returns 15 10 5 0 -5 -10 -15 -20 1 2 3 4 5 6 7 8 9 10 11 12 Years Invested Average Expected Return Expected Minimum Return Expected Maximum Return Actual Compound Return MORNINGSTAR STUDY 2016
Smart passive innovation FTSE100 81
S&P 500 total return Source: YCHARTS 82
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