prestel and partner family office forum zurich november 2014 low correlations within portfolio...
Post on 13-Dec-2015
224 Views
Preview:
TRANSCRIPT
Prestel and Partner Family Office Forum Zurich
November 2014
Low correlations within portfolio building
1 STEPHAN GERWERT /// CHRISTIAN HAMMES
STEPHAN GERWERT /// CHRISTIAN HAMMES
SECTION 1 Quick look at theory
SECTION 2 Why?
SECTION 3 Challenges and practical implications when working with correlation
SECTION 4 Investment ideas within the liquid and illiquid portfolio
Agenda
3
STEPHAN GERWERT /// CHRISTIAN HAMMES
Three main aspects
1. Correlation talks about the dependence of at least two variables among each other.
2. Correlation is a general concept not just bound to portfolio-theory.
3. Correlation either positive, negative or zero and range bound from -1 to +1
5
STEPHAN GERWERT /// CHRISTIAN HAMMES
Why do investors care about correlation?
Diversify a portfolio and reduce volatility
Source: Goldman Sachs. 15.8.14 / Left triangle = 5 year correlation
Examples (5y corr.)
•DAX / EuroStoxx50: 0,93
•DAX / S&P GSCI: 0,45
•DAX / Gold: 0,17
•DAX / RexP: -0,44
7
STEPHAN GERWERT /// CHRISTIAN HAMMES
Why should investors care about correlation?
Morphia
US Capital Costs rise
EM Hard Landing
EU Debt
Crisis intensifies
Growth Slowdown
Growth Slowdown
Bond Bubble bursts
Bond Bubble burstsInflationInflation
New Iron Curtain
Abenomics fail
Current Status
Main Scenarios
Side Scenarios
Geopolitical /
Regional Implications
8
Trouble in South China
Sea
STEPHAN GERWERT /// CHRISTIAN HAMMES
SECTION 3
Challenges and practical implications when working with correlation
STEPHAN GERWERT /// CHRISTIAN HAMMES
1. Correlation does not imply causation.
=> Make use of short term deviations where threre is a cause-effect relationship.
What aspects relating to correlation do investors tend to forget?
10
2. The correlation value cannot be interpreted the same for different variables.
=> Expected intermarket relationships should hold true.
3. Correlation among two variables is not a constant and market manipulation is huge.
=> Make use of mean reversion.
4. Tough to measure correlation for illiquid assets.
=> Be pragmatic, use common sense and don´t make a science out of it
5. Constantly high correlation among similar assets are a fact.
=> Focus on fundamentals and relative strength
STEPHAN GERWERT /// CHRISTIAN HAMMES
SECTION 4
Investment ideas within the liquid and illiquid portfolio
STEPHAN GERWERT /// CHRISTIAN HAMMES
Real 10 year return expecations of liquid asset classes
Source: Research Affiliates
GOALGOAL
12
VOLATILITY
STEPHAN GERWERT /// CHRISTIAN HAMMES
The usual suspects
• Liquid portfolio:
Commodities
• Illiquid portfolio:
Hedge Funds (to heterogeneous to go into detail; some are liquid)
Private Equity
Real Estate
Infrastructure
Land and Forestry
Luxury Goods (art, watches, wine, cars)
13
STEPHAN GERWERT /// CHRISTIAN HAMMES
Invest in preparedness, not prediction
• Insurance Linked Securities
• Private Debt
• Factoring
• Microfinance
• Volatility
• Distressed debt
• Smart Beta
• Quantitative strategies
• …
14
Net Return: 7% - 8% p.a.
Volatility: 3% - 4% p.a.
Max. Drawdown: < 5%
top related