-ii ii · dodge & cox global stock fund (a) the fund may classify a company in a different...
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The Global Investment Landscape:
Nebraska's Best Investment Opportunities
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Global Equity Investment Managers:
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Arrowstreet • Dodge & Cox • MFS • Wellington
II Nebraska
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Council July 19, 2018
THE GLOBAL INVESTMENT LANDSCAPE Active Global Management: Where in the World to Go and Why Steven Voorhis, Vice President Tara Shamia, Vice President Dodge & Cox Deeper into ex-US, Emerging Markets & Currency Kate Mead, Institutional Portfolio Manager Kim Hyland, Director - Relationship Management MFS Investment Management Deeper In to Sectors: Energy, Science, Finance, Other Sheldon Hanau, Director, Industry Research, Americas Julie Rancourt, Relationship Manager Wellington Management Big Data and Artificial Intelligence in Portfolio Management Alex Ogan, Partner, Portfolio Management Tony Troilo, Client Relationship Manager Arrowstreet Capital, LP
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170.7
98.1
50
70
90
110
130
150
170
190
2007 2009 2011 2013 2015 2017S&P 500 MSCI EAFE
2.7%
-1.1%
3.0%4.5%
-1.7%
2.7%
-19.1%
26.8%
2.7%5.3%
9.0%
14.8%
-30%
-20%
-10%
0%
10%
20%
30%
40%
P/E Change EPS Change Avg Yield TotalAnnualized
Local Return
Currency TotalAnnualizedUSD Return
Ten Year One Year
Valuations Are Lower Outside the United States March 31, 2018
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan-2018 Feb-2018 Mar-2018 Apr-2018MSCI EAFE MSCI EM S&P 500
MSCI EAFE Bogle ModelsQ1 2018 Returns
Source: Bloomberg, FactSet, MSCI. The above information is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, risks, and charges and expenses. To obtain a Fund’s prospectus and summary prospectus, which contain this and other important information, visit dodgeandcox.com or call 800-621-3979. Please read the prospectus and summary prospectus carefully before investing.
EM Outperformed U.S. and DM, U.S. Outperformed EAFE Shift Internationally from Valuation Driven to Earnings Driven
International Valuations Are Reasonable Earnings Growth Has Been Stronger in the United States
(1.5%)
1.4%
(0.8%)
Q1 ‘18 LTM
15%14%
25%
E-15009-041818-041217 |
6x
8x
10x
12x
14x
16x
18x
20x
22x
2004 2006 2008 2010 2012 2014 2016 2018
MSCI EAFE MSCI EM S&P 500
Forward P/E
16.9x
13.8x
11.9x
NTM Estimated Earnings per Share
DODGE & COX Investment Managers | San Francisco
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Dodge & Cox Global Stock Fund
(a) The Fund may classify a company in a different category than the Index. The Fund usually classifies a company based on its country of incorporation, but may designate a different country in certain circumstances. (b) Net Cash & Other includes cash, short-term investments, receivables, and payables. Source: Dodge & Cox, MSCI, State Street. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, risks, and charges and expenses. To obtain a Fund’s prospectus and summary prospectus, which contain this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus and summary prospectus carefully before investing.
Finding More Opportunities Outside the United States March 31, 2018
On a Bottom-up Basis, the Fund is Overweight Emerging Markets, Developed Europe, and the United Kingdom(a)
E-941-041618-110211 | DODGE & COX Investment Managers | San Francisco
0%
10%
20%
30%
40%
50%
60%
70%
United States Europe ex UK EmergingMarkets
UnitedKingdom
OtherDeveloped
Japan Net Cash &Other
Dodge & Cox Global Stock Fund MSCI World MSCI ACWI
(b)
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FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY.
MFS long term capital markets expectations
240775.1
Source: Wilshire Compass and MFS analysis. Forward looking results are based on the MFS Long Term Capital Market Expectations (LTCME)Whitepaper as of Jan 1, 2018. Forward looking expectations are annualized geometric total return and risk for a 10‐year horizon. Risk is defined as the annualized monthly standard deviation. Equities and REIT forecasts are unhedged for currency. Fixed income forecasts are hedged in USD. Please see appendix for methodology.
Projections are for illustrative purposes only and are not promises or estimates of actual returns
Non‐US equity markets may provide better opportunities moving forward
US cash
US aggregate bondsUS high‐yield bondsUS inv grade‐corporate bonds
US Treasury 7‐10
Emerging market debt
Global aggregate bondsUS equities (13.7%; 1.9%)
AsiaPac ex Japan equities (20.4%; 7.4%)
EAFE equities (16.5%; 5.7%)
Emerging market equities (21.4%; 8.3%)
Europe ex UK equities (19.4%; 5.1%)
Global equities (14.8%; 3.9%)Canadian equities (19.3%; 4.7%)
UK equities (16.5%; 7.3%)
Diversified hedge funds
Global REITs
Global Balanced
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0% 5% 10% 15% 20% 25%
Expe
cted
Return
Risk‐Volatility
MFS Long Term Market Expectations
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FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY.
A company’s domicile does not tell the whole story
340775.1
Source: MSCI Global, FactSet, as of 31 March 2018. MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.Left: Geographic distribution of index value by company’s domicile country/region and by company’s revenue country/region. Right: Company revenue distribution between home (domicile) country and outside home (domicile) country. For discussion purposes only.
Looking at where revenues are generated is important
43.0
13.3
4.0
0.2
7.0
3.8
26.7
2.0
54.9
15.1
5.7
0.1
8.0
3.8
12.2
0.0 20.0 40.0 60.0
North America
Europe Ex‐U.K.
U.K.
Developed Middle East/Africa
Japan
Asia Pacific Ex‐Japan
Emerging Markets
Other
Percentage
MSCI ACWI Index
Domicile Revenue
1.4%
98.6%
Nestle S.A. Revenue Distribution
Home Country Outside Home Country
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1 | PROPRIETARY & CONFIDENTIAL
When do big data techniques succeed?
Big data success stories
Driving a car
Speech
Understanding an image
What do these problems have in common?
Very large data sets (used to train complex machine learning algorithms)
Few barriers to successful modeling (humans solve these problems every day)
SAMPLE SIZE AND MODEL FIT
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2 | PROPRIETARY & CONFIDENTIAL
Big data for investment management
Challenges posed by small sample sizes and limited predictability If a model with many “dials to turn” is estimated using a moderate amount of
noisy data, overfitting is likely, leading to…
“In sample,” for the data used in estimation, the fit will appear very good
“Out of sample,” in actual forecasting, performance will be poor
Big data techniques for direct prediction of security returns? For monthly holding periods, data sets are small
Vast amounts of financial data are available, but not for what we want to predict – returns on tradeable assets
The best models do not fit well, and anomalies are subject to arbitrage
Where is big data most useful in investment management? Improved measurement of data inputs used in traditional processes
E.g. use satellite imagery of parking lots to measure same store sales
Use same store sales in a model for company revenue
Improved trade execution
PICK THE RIGHT TOOL FOR THE PROBLEM AT HAND
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Copyright © 2018 All Rights Reserved2001333894/483828_0/480381/437082
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DisruptionTitle Line 2What happened to Wal-Mart’s competitive moat?
For illustrative purposes only. This material is not intended to constitute investment advice, an offer, a solicitation of an offer or a recommendation to buy or sell shares. Past results are not necessarily indicative of future results and an invest-ment can lose value. | The specific security is included to illustrate the margin trend in the industry. It was selected because it is the larg-est company in the sector and was not selected for performance based reasons. Estimates are subject to change, they may have changed since this analysis was put together and this is not intended to rep-resent an analysis or forecast for Wal-mart. Actual occurrences and results may vary significantly from estimates. | Sources: Wal-Mart filings, October 2015 analyst day and Wellington Management analysis
1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017E0
2
4
6
8
10
EBIT % US stores
45-yr median240 bps decline from 2013 peak to 1974 low
Standard deviation: 45-yr (69 – 14) = 60 bps10-yr (04 – 14) = 20 bps
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Copyright © 2017 All Rights Reserved2000992671/443341_25/443341/G1093
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Nebraska InvestmentCouncil A19 July 2018
DisruptionTitle Line 2Tech: Big shifts over time
This is provided for illustrative purposes only and is not intended to constitute investment advice or a recom-mendation to buy or sell any security. The specific securities were selected because they are among the largest companies in the sector. They were not selected for performance based reasons. The securities identi-fied are not intended to reflect the holdings of any Wellington portfolio and are not representative of all of the securities purchased, sold, or recommended for cli-ents. Actual holdings will vary for each client and there is no guarantee that a particular client’s account will hold any or all of the securities listed. It should not be assumed that an investment in the securities identified has been or will be profitable | Source: Evercore ISI
% of tech company market capitalization
LUNortel
1Q70 1Q73 1Q76 1Q79 1Q82 1Q85 1Q88 1Q91 1Q94 1Q97 1Q00 1Q03 1Q06 1Q09 1Q12 1Q150
25
50
75
100
Mainframe PC Client-Server Internet Mobile & CloudLeading companies
IBM INTC MSFT YHOO AAPL
XRX AMD SUN AOL FB/GOOG
UIS CMPQ CSCO EBAY AMZN AWS
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