BAILLIE GIFFORD
Copyright © Baillie Gifford & Co 2009. Authorised and regulated by the Financial Services Authority.
This presentation is intended solely for the use of Investment Professionals and should not be relied upon by any other person, it is not intended for use by Retail Clients.
5 Ideas on Investment…
…and 5 Investment Ideas
Portfolio Adviser Conference
June 2012
Patrick Edwardson
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Important Information and Risk Factors
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This is a marketing communication and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This presentation contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions.
Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, ScotlandTelephone: 0800 917 2112 Fax: 0131 275 3955 www.bailliegifford.comYour call may be recorded for training or monitoring purposes.
Copyright © Baillie Gifford & Co 2009.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
5 Ideas on Investment
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Thoughts on risk
How to deal with uncertainty
The world is changing
Alpha beats beta?
Giving yourself the best chance
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Thoughts on Risk
How should we define risk?
— The Oxford Thesaurus says:
— Danger, peril, jeopardy, hazard, chance, gamble
— The Oxford English Dictionary says:
— ―the possibility that something unpleasant will happen‖
— The intelligent investor says:
— ―The possibility that something unpleasant will happen
to your portfolio just when you need the money‖
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BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
The World Is Changing
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% of Total Population 1800 1890 1950 2010
United Kingdom 20.3 61.2 79.0 79.6
Germany 5.5 28.2 68.1 73.9
Italy 18.3 21.2 54.1 68.4
France 8.8 25.9 55.2 85.3
China 3.8 4.4 11.8 49.9
Japan 12.3 16.0 34.9 66.8
India 3.4 5.4 17.0 33.0
Source: Deutsche Bank/The World Economy: A Millenial Perspectives, Angus Maddison, OECD 2001: World
Urbanization Prospects 2009, DB Global Markets Research.
Urbanization Rates Since 1800
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
The World Is Changing
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Cumulative Labor Force Growth (age 15–64)
Source: Deutsche Bank/UN Population Division, DB Global Markets Research.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
How to Deal with Uncertainty
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* Active Currency is rescaled in the calculations to show an 10% exposure to a 10% vol portfolio rather than a 100% exposure to a 1% vol portfolio.
** These scenarios are viewed as special cases within the core scenarios.
^ The DG fund return assumes no added value through active management.
*** Trend growth is defined as global GDP growth of approx 3-4%, trend (global) inflation is 2.5-3.5%
Source: Baillie Gifford & Co.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
How to Deal with Uncertainty
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Securities may be categorised in more than one of the above buckets.
Source: Baillie Gifford & Co, as at 31 March 2012.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Alpha Beats Beta?
Investment Philosophy: Long Term
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Source: Baillie Gifford & Co, NYSE Group.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Alpha Beats Beta?
Investment Philosophy: Active Management
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BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Giving Yourself the Best Chance
Avoiding Behavioural Pitfalls
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BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
5 Investment Ideas
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Local currency emerging market debt
Insurance linked securities
High yield bonds
Dividend futures
Good, old-fashioned, equities?
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Local Currency Emerging Markets Debt
Why Local Currency EM?
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Growing asset class
Improving fundamentals
Structural changes
Compelling risk-adjusted return potential
Attractive in a portfolio context
Under-owned and under appreciated© iStockphoto.com
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Local Currency Emerging Markets Debt
Return Potential – Currencies
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Higher growth leads to
— Rising exchange rate
— Falling risk premiums
Link Between Growth and Exchange Rates
Source: Heston and Summers dataset 2007, Baillie Gifford & Co.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Insurance Linked Securities (ILS)
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Bonds where capital is only at risk if certain,
pre-specified natural events occur
Expected return
— C.6% p.a. over cash*
Risk
— Pre-specified natural events such as
hurricanes and earthquakes occurAs at 31 March 2012.
*Source: AON Benfield, Baillie Gifford & Co.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
High Yield Debt
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Global High Yield & Emerging Market Spreads
Source: BofA Merrill Lynch Bond Indices.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
High Yield Debt
Process in Action – High Yield bondsAt the start of 2009 High Yield bonds were
yielding 25% p.a.
Return
— Our analysis implied expected returns of 15%
p.a. over three years
— Even if defaults were twice as bad as the
1930s depression we still expected to make
money
Risk
— Fundamental risk that a very large number of
bonds default
— Possibility of further price falls in the very
short term
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High expected return with limited downside risk
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Listed Private Equity
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Big discounts = cheap way to get equity exposure?
Source: Collins Stewart and Morningstar.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Dividend Futures
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Historical and Implied Dividend Analysis
Source: DB Estimates & Calculations, Bloomberg Finance LP, Reuters, Markit, Data as at 28 May 2012.
BAILLIE GIFFORD
Portfolio Adviser Conf 0612.ppt
Ref: Powerpoint
Good, Old-Fashioned, Equities?
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