guaranteed “income trusts” using life insurance and ... · dr. trump or mr. burns business...
TRANSCRIPT
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President
David Sung
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Who We Are
Founded in 1994
$4.8 billion in AUM
Vancouver, Toronto, Kelowna, Richmond
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Time of Change
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How can we make entertainment more accessible?
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How can we make transportation more reliable?
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How can we make it easier for customers to get their products?
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How can we diversify beyond stocks and bonds?
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A History of Innovation
2003 2005 2006 2009 2010 2011 2013 2014
Launch of original
SPIRE LP
Global Equity
Real Estate
Primary Mortgage
Balanced Mortgage
Preferred Shares
High Yield Bonds
SPIRE U.S.
Global Bond
Tactical High Income
Van Edge – Digital
Caledonian – Royalty
Renewal 2 – Sustainable
Private Equity LP
Alternative Strategies
Precious Metals
Bonds
NWM Core Portfolio
Bonnefield – Farmland
U.S. Equity Income
1995-
2003
Individual
Real Estate LPs
Mortgage Investments
+ NWM develops
Private Giving
Foundation First Private
Investment Pool
(Strategic Income
Fund)
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A History of Innovation
2016 2017 2015
SPIRE Value Add Grosvenor Partnership
NWM Farmland LP
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Chief Investment Officer
Rob Edel
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Our Agenda
2016 in Review Investment Strategies
Dr. Trump
Treatment
Options
Economic
Diagnosis
Make the Economy
Great Again
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2016 in Review S&P 500
Trump
Bump
Election
Uncertainty Search For
Yield
Recession
Fears
Brexit Trump Elected
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2016 in Review U.S. 10 Year Treasury Bond Yields
Trump
Bump
Election
Uncertainty
Search For
Yield
Recession
Fears
Brexit Trump Elected
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U.S. GDP Purchasing Manager Index
2016 in Review U.S. Economy
New Jobs NFIB Small Business Optimism
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WSJ – July 30, 2016
2016 in Review U.S. GDP
Symptom: • Why isn’t the economy great?
4.1% 3.8% 2.7% 2.1%
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Economic Diagnosis Why the Economy isn’t “Great”
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Economic Diagnosis Doctor Robert Gordon – Productivity Slowdown
WSJ – Aug 10, 2016
Dr. Robert Gordon
Productivity Slowdown • Supply-side secular stagnation
• Productivity gains from IT over
• Norm is lower productivity
“We wanted flying cars, but instead we got 140 characters.” - Peter Thiel
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Economic Diagnosis Doctor Larry Summers – Secular Stagnation
Dr. Larry Summers
Secular Stagnation • Not enough demand
• Leads to lower investment
• Lack of demand creates lack of supply
• Need to borrow more – fiscal stimulus
Business Insider – Aug 17, 2106
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Economic Diagnosis Doctor’s Reinhart & Rogoff – De-leveraging
Dr. Carmen Reinhart
Dr. Kenneth Rogoff
Deleveraging • Too much debt
• Deleveraging takes 8 years
• Recoveries are weaker
https://www.newyorkfed.org/microeconomics/hhdc.html
Recession
• Deleveraging made recession worse
• But GDP Growth was slowing
well before deleveraging began
• Debt increased because GDP slowed
WSJ – Oct 6, 2016
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Economic Diagnosis Doctor Mervyn King – Savings Glut
Dr. Mervyn King
Savings Glut • Unsustainable trade imbalance
• Since early 2000’s
• US growth - consumption
• Asia/Europe growth - Exports
• US consumer add debt
• China buy US Treasury’s
• Lower US interest rates
• Lower US inflation WSJ – Nov 16, 2016
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Treatment Options Dr. Trump or Mr. Burns
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POSSIBLE OUTCOMES
OF A TRUMP
PRESIDENCY AT
VARIOUS PLACES ON
THE RISK CURVE
NUCLEAR WAR
BRINGING EMBARASMENT TO
AMERICA ON THE WORLD
STAGE
GOOD DEALS
SOME COOL
INFRASTRUCTURE
STUFF
MEXICO PAYING
FOR THE WALL
Treatment Options Dr. Trump or Mr. Burns
Business Insider
Probability
Return + -
TRUMP IMPEACHED
DUE TO RUSSIAN COLLUSION
TRADE WAR
WITH CHINA
This presentation is not an endorsement of President Trump or an endorsement of any of President
Trump’s policies. NWM has had no contact with any Russian foreign nationals in the past, nor do we
intend to in the future. Any statements to the contrary are fake news.
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Treatment Options Dr. Trump or Mr. Burns – Five Pillars
TRUMP UNIVERSITY
FACULTY OF ECONOMICS
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JP Morgan Eye on the Market – Michael Cembalest Jan 23, 2017
George Mason University • Regulations across 22 industries reduce GDP 0.8%/yr.
• Economy would be 25% larger if no regulations since 1980
World Bank - Ease of Doing Business Report • U.S. 51/190 for starting a business
• 2012 – 40 days to get a construction permit
• 2016 – 81 days
1950 – 5% of workers required a license or certificate
2016 – 30%
Treatment Options Dr. Trump or Mr. Burns – Deregulation
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WSJ – Nov 28, 2016
U.S. companies hold
$2 trillion offshore
Treatment Options Dr. Trump or Mr. Burns – Tax Reform
JP Morgan Eye On The Market Michael Cembalest Feb 8, 2017
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Bloomberg – Jan 11, 2017
Average U.S. commuter
wastes over 40 hours/yr.
waiting in traffic
$1 trillion spent over 10 years
Moody’s Analytics:
Every $1= $1.21 in GDP
Treatment Options Dr. Trump or Mr. Burns – Infrastructure Spending
WSJ Mar 10, 2017
$1 trillion = +5% to Debt
$4.6 trillion = ~ +25% to Debt
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The Daily Shot – Aug 24, 2016
The 1%
Top 2-5%
Top 1%
Treatment Options Dr. Trump or Mr. Burns – Trade
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$347 Billion
$69 Billion
$65 Billion
$63 Billion
• U.S. Trade Deficit ~ $500 billion
• Not just Tariffs - VAT
• U.S. Exporter pay VAT
• Foreign Exporters get a VAT Credit
Treatment Options Dr. Trump or Mr. Burns – Trade
Oxford University • Nearly 50% of U.S. Jobs will be automated in 20 years
McKinsey &Co. • 45% of today’s activities can be automated
• But less then 5% can be full automated
Deloitte • Automation could lift global productivity 0.8% - 1.4%/yr
over next 50 years
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Pew Research - 2020-2040 • Working population +0.3%
• 500,000 less +0.1%
• 1,000,000 less -0.1%
Treatment Options Dr. Trump or Mr. Burns – Immigration
Pew Research • 8 million undocumented workers
• 5% of civilian workforce
• 92% between 18-64 years old
• 70% in Agriculture and Construction
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Treatment Options Make the Economy Great Again - Education
Math U.S. #38 of 71
Canada #9 of 71
Reading U.S. #39 of 71
Canada #3 of 71
Science U.S. #24 of 71
Canada #7 of 71
WSJ – Dec 8, 2016
President’s Council of Advisors on Science and Technology U.S. will need ~1 million more STEM
professionals over next decade than will currently produce. Need to increase STEM degrees by 34%.
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Treatment Options Make the Economy Great Again - Healthcare
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The 2016 Long-Term Budget Outlook
Treatment Options Make the Economy Great Again – Entitlement Spending
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WSJ – Aug 21, 2016
Low/Negative Interest Rates • Lowers consumer confidence – communicate fear
• Hurts savers
• Increases wealth gap – low rates helps financial assets
Treatment Options Make the Economy Great Again – Monetary Policy
Monetary Policy • Need to normalize interest rates
• If only U.S. then US$ will increase
Trade • Need to balance trade flows
• China, but also Germany
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Investment Strategies Equities – Bull Market
Strategas – Mar 20, 2017
Second Longest
Fourth Highest
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Investment Strategies Equities
WSJ - Jan 27, 2017 RBC - Jonathan Golub “In Defense of Trump Rally – Dec 13, 2016
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Investment Strategies Equities – Active Management
Bloomberg – Jan 26, 2017
Correlation low
% of Managers beating benchmark high ?
During QE everything went up.
As interest rates normalize,
correlations will decrease
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Economy starting to reflate
Trump policies could help
Risks are too the upside
Monetary policy to finally normalize
Equities in the short term
Active Management
Diversification!
Summary
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Chairman & CEO
John Nicola
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Federal Budget March 22nd
Issues and Questions
• Size and length of deficits
• Response to border taxes
• Changes to capital gains tax?
• Impact of SBD on incorporated
professionals
• Restrict who can incorporate
• Limit Income splitting
• Limit retention of corporate
earnings
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Where is America?
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Three Themes
Demographics
Shale Oil
U.S. Isolationism
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Trumped?
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Populism
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n
25% swing in 100 years
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Demographics are destiny?
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By The Numbers
35 years
130% increase
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Demographics
It’s
windy
today.
No,iit’s
Thursday.
So am I,
let’s get a
beer.
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Senior Moments
https://familyinequality.wordpress.com/2013/02/04/is-low-fertility-americas-problem/
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Demographics
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More
Saving
Less
Spending
Peak
Spending
Age 50
Is this deflationary?
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+60% gas production
-65% oil imports
Will the U.S. need any foreign energy?
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Observations
• Demographics matters and in this
case the US wins
• Shale oil is a game changer
• Globalization is under pressure
• The US is more independent then
perhaps any other single country
• Russia is aging and in decline
• The Euro shows how hard it is to
have a monetary union without a
fiscal one
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A Genius Bromance
Daniel Kahneman • Introvert
• Holocaust Survivor
• Psychologist
• Taught at UBC
• Nobel Prize 2002 in
Economics
Amos Tversky • Extrovert
• Israeli Sabra
• Psychologist
• Taught at Stanford
• Died before Nobel
prize
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Loss Avoidance
Win
85%
Lose
15% Guaranteed Win Majority
Guaranteed Loss
Win
15%
Lose
85% Majority
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Seven Habits of Highly
Ineffective Investors
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We’re in the
Gifted Program
Over-Optimism
80% Think they are in the top 50%
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Gambling with House Money
Can we up
the minimum
bet?
Investors increase their
aggressiveness when they win first.
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Increase risk when
market rises
Reduce risk when
market drops
Gambling with House Money
Can we up
the minimum
bet?
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4-5% annual loss of return
The Impact of Emotion in Investing
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Emotional Investing
5.8%
1.8%
Fund Investor
Vanguard Value Fund
10-year return (01/2017) Name Fund Investor
Vanguard
Growth Stock
Index
8.1% 5.3%
Vanguard
Small Cap
Value Index
7.5% 4.2%
Vanguard
Small Cap
Growth index
8.1% 7.2%
http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/index-investing/how-factor-based-investors-take-bigger-risks/article34179810/
-2.8%
-0.9%
-3.2%
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Managing Assets More Efficiently
Canadian Equities,
16.7%
High Yield Bonds, 7.3%
Preferred Shares, 4.5%
Alternative Strategies,
15.0%
Real Estate, 20.0%
Mortgages, 11.0%
Bonds, 9.0%
Foreign Bonds, 5.4%
Cash, 4.0%
Foreign Equities, 12.1%
11.4%
Re-Balance
-7.5%
7.48%
Blended
2015
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What Happened ?
• Prices were down 35%
• Yields were up more than 50%
• Rate resets and new bank preferreds were the
reason
• Taxes on income 20% less than interest (equal to
bonds paying 8%)
• Good chance of capital recovery over five years
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A Tale of Two Shares
7.9% after fees
5.3% before fees Purchases at
depressed prices
35% recovery
In one year
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The Vulcan Investor
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• Good investor behaviour is difficult
• 90% of investors do not earn the benchmarks
• Volatility can bring on bad behaviour
• Diversification is both safe and effective
• Picking quality assets takes time and patience
Behaviour and Diversification
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Many Happy Returns?
Can a 4% real rate of return be achieved
without significant increase in risk?
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Above Normal
Drivers
• Aging populations
• Reduced productivity growth
• Rising interest rates
• Lower profit margins
• Higher Taxes
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What Are The Odds?
Higher PE = lower future
returns
http://mebfaber.com/2010/06/09/shiller-pe-
ratios-and-10yr-annualized-real-returns/
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Passive vs. Active Investing
146,000 results
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How Do ETFs Compare Over 10 Years?
10% 10% 22%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Canadian
equities
Canadian Bonds S&P 500 MSCI
ETFFunds1st quartile over ten years
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Active vs. Passive Investing
What is an Active Manager?
• 2007 Yale Study (Updated 2013 FAJ)
• Cremers and Petajisto
• Focused positions (example
Oakmark Select with 20 positions)
• Not always within the benchmark
• Different trading strategies and not
market weighted Source: Goldman Sachs Asset Management
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Passive vs. Active: Another Side
Can you find this?
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6.9%( .54% MER)
11.7%(.53% MER)
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Active vs. Passive Investing
4.03%
6.84%
7.73%
Average Return, 5 years
ETFs NWM Active Client Returns
Dalbar Effect means
Average investor
lower than this
Disciplined rebalancing
and asset allocation creates results better
than buy/hold
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Summary
The Absent Super Power Know Thyself and Behave well
Low Cost Active investing Rebalanced
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THANK YOU
This presentation contains the current opinions of the presenter and such opinions are subject to change without notice. This material is distributed for informational purposes only and
is not intended to provide legal, accounting, tax or specific investment advice. Please speak to your NWM Advisor regarding your unique situation. Forecasts, estimates, and certain
information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or
investment product. NWM fund returns are quoted net of fund-level expenses. Past performance is not indicative of future results. All investments contain risk and may gain or lose
value. NWM is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities’ commissions.
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QUESTION & ANSWER