si o hnsorting out the news...economic growth, corporate profitability, geopolitical conditions, and...
TRANSCRIPT
![Page 1: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/1.jpg)
S i O h NSorting Out the News
Quarterly Investment Management Conference Call
October 19, 2011
Marc D. Stern
Chief Investment Officer
Peter J. Langas
Director of Investment Strategies
![Page 2: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/2.jpg)
Past performance is no guarantee of future results. This material is provided for your general information. It does not take into account the particular investment objectives, financial situation, or p g p y g p j , ,needs of individual clients. This material has been prepared based on information that Bessemer Trust believes to be reliable, but Bessemer Trust makes no representation or warranty with respect to the accuracy or completeness of such information. This presentation does not include a complete description of any fund or portfolio mentioned herein. Investors should carefully consider the investment objectives, risks, charges, and expenses of each fund or portfolio before investing. Views expressed herein are current opinions only as of the date indicated, and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a stock-specific or other investment recommendation, and our view of these holdings may change at any time based on stock price movements, new research conclusions, or changes in risk preference. Index information is included herein to show the general trend in the securities markets during the periods indicated and is not intended to imply that any referenced portfolio is similar to the indices in either composition or volatility. ySector and Industry classifications included in this presentation utilize the Global Industry Classification Standard (“GICS ”). GICS is the exclusive property and a service mark of Morgan Stanley Capital International Inc. (“MSCI”) and Standard & Poor’s (“S&P”), a division of The McGraw-Hill Companies, Inc. Neither MSCI nor S&P makes any express or implied warranties or representations or shall have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) with respect to GICS data or results obtained therefrom.
![Page 3: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/3.jpg)
Today’s Agenda
I. What were our expectations for 2011?
II. What has changed since the beginning of the year?
III. How have our portfolios performed?
IV Where do we stand now?IV. Where do we stand now?
V. How are our portfolios positioned?
3
![Page 4: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/4.jpg)
Our Expectations Entering 2011
Backdrop
Economic expansion
Markets
Interest rates rise from historic lowsEconomic expansion
– U.S. +3%
– Global +4%
Interest rates rise from historic lows
S&P 500 hits 1400, falls back late
in year
Strong corporate profits
– S&P 500 earnings per share of $100
4
![Page 5: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/5.jpg)
Dramatic Changes in 2011
January September 2011
Economic growth started strong
• Corporate profits continued to rise• Bond yields rose
January – September 2011
Middle East turbulence
push oil to $114 European policymakers
dither, raising specter of
• Bond yields rose• S&P 500 reached 1360
Japan twin disasters
interrupt trade
p $
Bruising debt-ceiling debate
sparks shutdown threats
S&P downgrade of U.S.
debt heightens anxiety
dither, raising specter of
new financial crisis
debt e g te s a ety
January February March April May June July August September
5
![Page 6: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/6.jpg)
Sharp Price Adjustments Across MarketsPercent Change from 2011 Peak
Stock Indexes Financial Stocks Commodities
-16%-20% -20% -22%
-30%
-14%
-25%
-31% -32%
38%
-46%-49%
-52%-56%
-60%
-38%
U.S. Europe India Japan ChinaGoldman
Sachs
BNP
Paribas
Barclays
Capital
Morgan
Stanley
Bank of
AmericaGold Corn Oil Copper Silver
O t b 1 15 2011 t (%)
P t h f 2011 k f S t b 30 2011
+8 +6 +4 (1) +6 +2 +7 +9 +13 +1 +4 +8 +10 +8 +7
October 1-15, 2011 returns (%):
Percent change from 2011 peak as of September 30, 2011.
Source: Bloomberg, FactSet, Morgan Stanley Capital International, Standard & Poor’s
6
![Page 7: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/7.jpg)
Yields Fell Even Further in Last 9 Months
14
165-Year Treasury Yield
10
12
%
6
8
Yiel
d %
2
4
Dec 2010: 2.06%
0
2
41 46 51 56 61 66 71 76 81 86 91 96 01 06 11
Sep 2011: 0.96%
As of September 30, 2011.Source: Global Financial Data, U.S. Department of the Treasury
7
![Page 8: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/8.jpg)
Bessemer Performance Year-to-Date
Wh t H tWhat Hurt
• Reduced bond weighting and shortened duration as yields fell
What Helped
• Favorable security selection in Global Small & Mid Cap, Real Return, and
• Global exposure while U.S. market held up better
• Stock selection in large cap, which
Global Opportunities led to outperformance
• Significant credit exposure provided g pwas positioned for continued recovery some protection
• Elevated cash levels during third quarter drop
8
As of September 30, 2011.
![Page 9: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/9.jpg)
Favorable Long-Term Results
Cumulative Returns Annualized Volatility
January 2005 – September 2011
27.7%25.7%
10.3%
25.7%
11.3%
19.6%11.5%
7.3%
16.1%
Bessemer Balanced Growth Global Balanced Growth Index U.S. Stock/Bond Mix 70/30 S&P 500 Index
As of September 30, 2011. Past performance is no guarantee of future results.
Volatility is measured by annualized standard deviation of monthly returns. This figure is most meaningful over multi-year periods.The Bessemer Balanced Growth Portfolio represents a model portfolio comprised of U.S. Large Cap, Non-U.S. Large Cap, Global Opportunities, Global Small & Mid Cap, Real Return, Fixed Income, Strategic Currency and three Bessemer hedge funds of funds. Investments cannot be made directly in this model portfolio. Relative weightings vary over time. Index information is included herein to show the general trend in the securities markets during the periods indicated and is not intended to imply that any referenced portfolio is similar to the indices in either composition or volatility. Please see the end of this presentation for a complete description of Bessemer’s portfolios and benchmarks.
9
![Page 10: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/10.jpg)
Sorting Out the News
B hi d th h dliBehind the headlines on:
Corporate fundamentals
State of the consumer
Housing
European debt
U S fi l iti U.S. fiscal position
Municipal bonds
Economic growth
10
![Page 11: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/11.jpg)
Corporate Fundamentals: Recent Headlines
“I E R S f Si f Sl d ”“Investors Eye Reports Season for Signs of Slowdown”- Financial Times, October 9, 2011
“Stocks Set to Rise After Strong Earnings”Stocks Set to Rise After Strong Earnings- MSNBC, October 14, 2011
“U S Exports Rise to Record as Trade Deficit Shrinks”U.S. Exports Rise to Record as Trade Deficit Shrinks- New York Times, September 8, 2011
“Congress Approves Biggest Free Trade Agreements Since 1994”g pp gg g- Bloomberg, October 13, 2011
11
![Page 12: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/12.jpg)
Corporate Fundamentals: Our Views
K P i t Corporate ProfitsKey Points
• Corporate profits stand at all-time high, up 60% since mid-2009
U S t 37% f t
Corporate Profits
1 800
2,000
• U.S. exports up 37% from two years ago
• Dividend increases total $40 billion year-to-date
• CEO survey shows confidence of 78 down
1,600
1,800
llion
s
• CEO survey shows confidence of 78, down from 113 earlier this year
• Same CEOs see growth in their own businesses (5:1 ratio of strength to 1,200
1,400 $ B
i
( gweakness)
1,000 Jun 09 Jun 10 Jun 11
As of September 30, 2011.
Conclusion:
Leading companies with broad global footprints are in remarkably strong financial shape.
12
Reflects U.S. corporate earnings for public and private companies.Source: Bureau of Economic Analysis
![Page 13: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/13.jpg)
State of the Consumer: Recent Headlines
“C C fid S E i Di ”“Consumer Confidence Sags, Expectations Dip”- Reuters, October 14, 2011
“No End to Job Worries”No End to Job Worries- Wall Street Journal, October 6, 2011
“A Job Is Becoming a Dim Memory for Many Unemployed”A Job Is Becoming a Dim Memory for Many Unemployed- Forbes, October 6, 2011
“Stocks Extend Gains as Retail Sales Top Forecasts”p- BusinessWeek, October 14, 2011
13
![Page 14: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/14.jpg)
State of the Consumer: Our Views
K P i t Household Debt ServiceKey Points
• Broad unemployment near record high
• Consumer expectations at 1980 level17%
18%
Higher debt payments
Household Debt Service
• Private sector payrolls up 2 million since last year, but below prior peaks
• Personal income rising at 4½% rate16%
17%
of I
ncom
e
payments
• Food/energy prices down 23%
• Retail sales rising at 3½% rate
• Debt service lowest in a decade 14%
15%
As
% o
Lower debt payments
13%80 86 92 98 04 10
Percent change from 2011 peak for food/energy prices as of September 30, 2011. Household debt service as of June 30, 2011.Household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income for U.S. consumers. Debt payments consist of the estimated required payments
Conclusion:
Despite serious challenges, consumers are proving resilient.
14
on outstanding mortgage and consumer debt.Source: Bloomberg, Federal Reserve, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics
![Page 15: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/15.jpg)
Housing Market: Recent Headlines
“Bi H i Bl N H S l F ll A i ”“Big Housing Blow: New Home Sales Fall Again”- USA Today, September 26, 2011
“Sales of Existing Homes Increase More Than Forecast”Sales of Existing Homes Increase More Than Forecast- Bloomberg, September 21, 2011
“Looking to Rent? Good Luck”- New York Times, October 16, 2011
“Deflating China Housing Bubble”- Reuters, October 7, 2011
15
![Page 16: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/16.jpg)
U.S. Housing Market: Our Views
K P i tKey Points
• Home prices down 31% since 2006 peak
• Distressed sale prices falling, while non-di t d i h b tt d
Housing Drag Is Receding
0.6
0.8
distressed prices have bottomed
• Affordability has reached record highs
• Residential construction lowest since 1940s (0 2)
0.0
0.2
0.4
DP
Gro
wth
(%
)
1940s
• Effect of housing on overall GDP is diminishing
(0 8)
(0.6)
(0.4)
(0.2)
Impa
ct o
n G
D(1.2)
(1.0)
(0.8)
96 99 02 05 08 11E
I l d t t f th h i t i i t di t d d i d d i t t i id ti l d id ti l t t
Conclusion:
Housing is not poised for a quick recovery, but the biggest impact is behind us.
16
Includes output of the housing sector minus intermediate goods and services consumed and investments in residential and nonresidential structures.Source: U.S. Department of Commerce, Empirical Research Partners Analysis
![Page 17: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/17.jpg)
China Housing Market: Our Views
K P i tKey Points
• Rent/price ratios suggest significant overvaluation
O l 11% f Chi h h24.7
China: Home Prices vs. IncomesYear-over-Year Percent Change
• Only 11% of Chinese home purchases are made by investors
• One-third of buyers pay all cash; down payment on mortgages averages 44%
16.9
10 412.1
17.2 14.5
11.3 12.8
payment on mortgages averages 44%
• Recent price rises have tracked income gains
• GDP growth remains above 9%
6.2 5.9
10.4 8.8
g
• Two-thirds of overall sales are in Tier 3 cities, with prices 70% below Tier 1
-1.9
2006 2007 2008 2009 2010 5-Year Avg
Average Selling Price Personal Income
Chi ’ h i i f D b 31 2010
Conclusion:
Tighter policies will subdue excesses in China’s larger cities, without precipitating a crash.
17
China’s home prices versus incomes as of December 31, 2010.Source: Credit Lyonnais Securities Asia
![Page 18: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/18.jpg)
European Debt: Recent Headlines
“G k G V P C i ‘Fi h f E i ’”“Greek Government Vows to Pass Cuts in ‘Fight for Existence’”- Reuters, October 14, 2011
“Spain and Italy Hit by Downgrades”Spain and Italy Hit by Downgrades- Wall Street Journal, October 8, 2011
“Slovakia Vote Highlights Euro Challenge”Slovakia Vote Highlights Euro Challenge- BBC News, October 11, 2011
“Europe’s Attention Shifts to Its Ailing Banks”p g- Der Spiegel, October 10, 2011
18
![Page 19: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/19.jpg)
A Coordinated Europe Is Seen As Destiny
Portugal/Ireland/Greece
All Other2%
Euro Zone GDP“The failure of Greece would be the failure of all of Europe. Remember in 2008, when the U.S. let Lehman Brothers fail, the global
Germany/France49%
Netherlands/BelgiumAustria/Finland
Greece5%
2%financial system paid the price. For both economic reasons and moral reasons, we can’t let Greece fail.”
– President Nicolas Sarkozy15%
President Nicolas SarkozyOctober 2011
“We expect a sustainable solution for Greece
Italy/Spain29%
We expect a sustainable solution for Greece that keeps it in the euro zone and ensures financial stability … We are determined to do whatever is necessary.”
Chancellor Angela Merkel– Chancellor Angela MerkelOctober 2011
GDP fl t 2011 ti t f S t b 30 2011
19
GDP reflects 2011 estimates as of September 30, 2011.Source: Bloomberg, FactSet
![Page 20: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/20.jpg)
European Debt: Our Views
K P i t A Path For The Euro ZoneKey Points
• Restructuring of euro zone debt necessitates “haircuts”
E b k it l i i ffi i t t
Provide European banks with additional capital
• Infusion of equity to absorb losses from restructuring of Greece’s debt
A Path For The Euro Zone
• European bank capital is insufficient to absorb government bond losses
• Dexia ranked as 12th safest European bank shortly before it collapsed
Implement European Stability Mechanism
• Substantial funding to “safeguard the stability of h
shortly before it collapsed
• Quest for lasting solution entails substantial complexity and uncertainty
the euro area”
Establish a European Treasury
• Issue Euro Bonds backed by tax revenue
C l iConclusion:
Crisis is moving into endgame; euro zone likely to be preserved,
but messy resolution adds to market turbulence.
20
![Page 21: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/21.jpg)
U.S. Fiscal Position: Recent Headlines
“U S B d G Wid T $1 T illi f Thi d Y ”“U.S. Budget Gap Widens, Tops $1 Trillion for Third Year”- Reuters, October 14, 2011
“U S Budget Panel Struggles to Reach Grand Bargain”U.S. Budget Panel Struggles to Reach Grand Bargain- Financial Times, October 16, 2011
“Congress Funnels Deficit-Cutting Ideas to Supercommittee”Congress Funnels Deficit Cutting Ideas to Supercommittee- USA Today, October 14, 2011
“Treasury Sells 10-Year Notes at Record Low Yield as Buyers Pour In”y y- Los Angeles Times, August 10, 2011
21
![Page 22: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/22.jpg)
U.S. Fiscal Position: Our Views
K P i t A O t it f CKey Points
• Current debt/GDP within global norms
• Strong demand for Treasury bonds
An Opportunity for Congress
• Debt-ceiling legislation created the Joint Select Committee on Deficit Reduction
12 b k d t id tif $1 5• Without significant action, outstanding debt will reach alarming levels soon
• Slow growth exacerbates the problem
k ll l
• 12-member group asked to identify $1.5 trillion in deficit reduction by Nov 23
• Deep philosophical divide discourages consensus
• Wake-up calls on entitlement programs and tax code received from Simpson-Bowles Commission and Standard & Poor’s
consensus
• Failure of Congress to approve package by Dec 23 triggers $1.2 trillion in across-the-board cuts
Concl sionConclusion:
At some point, the U.S. will make needed changes to spending and the tax code
– before a financial crisis develops, or afterwards?
22
![Page 23: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/23.jpg)
Municipal Bonds: Recent Headlines
“H i b P l i ’ C i l Fil f B k ”“Harrisburg, Pennsylvania’s Capital, Files for Bankruptcy”- Washington Post, October 12, 2011
“Fewer Defaults Seen by Municipal Bond Professionals”Fewer Defaults Seen by Municipal Bond Professionals- BusinessWeek, October 4, 2011
“Muni Bond Tax Break Seen Surviving”Muni Bond Tax Break Seen Surviving- Investment News, October 2, 2011
“Local Government Jobs Evaporate”- CNN Money, October 7, 2011
23
![Page 24: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/24.jpg)
Municipal Bonds: Our Views
K P i t St t /L l G t P llKey Points
• Long-term municipal default rate is 0.07% (2.50% for corporates)
H i b it ti i ’t t ti f
State/Local Government Payrolls
10
20
• Harrisburg situation isn’t representative of most cities
• Credit research can identify riskier securities (e.g., housing development 20
-10
0
(in
Thou
sand
s)
securities (e.g., housing development projects, health care facilities)
• Fiscal realities are driving cost reductions for state/local governments -40
-30
-20
Mon
thly
Cha
nge
• Tax code changes could crimp after-tax returns, but muni advantages will likely remain
-60
-50
Jan 09 Sep 09 May 10 Jan 11 Sep 11
Conclusion:
High-quality municipal bonds continue to provide important diversification
to an overall asset allocation.
24
State/local government data reflects 3-month rolling average as of September 30, 2011.Source: U.S. Bureau of Labor Statistics
![Page 25: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/25.jpg)
Economic Growth: Recent Headlines
“A Ri i F f E d d D ”“A Rising Fear of an Extended Downturn”- New York Times, September 30, 2011
“U S and Europe Risk Recession Warns IMF”U.S. and Europe Risk Recession, Warns IMF- Guardian, September 20, 2011
“U S Recession Fears Ease”U.S. Recession Fears Ease- Wall Street Journal, October 14, 2011
“G-20 Says No Threat of Recession Yet”y- Forbes, October 15, 2011
25
![Page 26: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/26.jpg)
A Different Downturn
N l C l Thi Ti
Accommodative policies are in place and
abundant liquidity is availableSolid
growth
Normal Cycle This Time
But low confidence is driving a collective
decision to wait:
• Companies waiting to expandHealthy
growth
• Companies waiting to expand
• Consumers waiting to buy big-ticket items
• Investors waiting to deploy cash
Healthy
cleansingExcesses
Tighter
policies
26
![Page 27: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/27.jpg)
Economic Growth: Our Views
Key Points
• U.S. economy has grown in 8 straight quarters
ld d % l
40
New Orders minus Inventories
• World trade up 5% versus last year, up 27% since 2009 low
• Global economy on track for 3% growth this year and next helped by China India 10
20
30
dex
Orders higher
Athis year and next, helped by China, India, and Brazil
• Euro zone growth outlook is very weak
• Risk of U S recession has increased -10
0
10
Ind Average
Inventories higherRisk of U.S. recession has increased
C i
-2070 78 86 94 02 10
Conclusion:
Dramatic summer events have raised recession risk; underlying corporate strength
mitigates economic downside.
R fl t diff b t d d i t di i ISM f t i f S t b 30 2011
27
Reflects difference between new orders and inventory readings in ISM manufacturing survey as of September 30, 2011.Source: Institute of Supply Management
![Page 28: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/28.jpg)
Range of Outcomes
Modest Growth Shallow Recession Deep RecessionLehman Brothers
Part II
Impact of • Advances toward • Progress comes • Missteps • DisorderlyImpact of
Policy Actions
Advances toward
solutions
gradually lifts
confidence
Progress comes
too late to avoid
slowdown, but
corporate
strengths persist
Missteps
intensify lack of
confidence
Disorderly
European
defaults rattle
financial system
Corporate Profits $105 $85 $75 $55
Earnings Multiple 13x 12x 12x 12x
S&P 500 1350 1025 900 650
Estimated
Probability40% 45% 10% 5%
Probability
28
As of October 15, 2011.
![Page 29: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/29.jpg)
Our Outlook
Positives
• Attractive equity valuations, especially versus bond yields
d b l h
Negatives
• Uncertainty about lasting government debt solutions in Europe and U.S.
l• Corporate earnings and balance sheets remain unusually strong
• Even after slowdown, global GDP growth of 3%
• Unusual movements in currencies, government bonds, and financial stocks suggest increasing stress
• Feedback loops raise recession risk andof 3%
• Huge investor liquidity
• Feedback loops raise recession risk and could trigger more selling
• Restoration of confidence takes time
Portfolio positioning:
• Retain defensive measures (e.g., elevated cash) to limit losses• Add selectively to defensive growth categories (e.g., high-yield bonds, covered calls)• Sacrifice some upside if high liquidity drives a market rally• Seek evidence of decisive policymaker actions before increasing risk in portfolios
29
![Page 30: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/30.jpg)
Portfolio Positioning
Objective: Participate meaningfully in rising markets,
while limiting losses in falling ones.
Commodities
Bonds
21%
4%
Hedge Funds
12%
C h
Small & Mid
Cap Equities
15% Cash
16%
Large Cap
Equities
15%
Credit
9%
Equities
18% Strategic
Currency
5%
Reflects Balanced Growth allocation as of October 17, 2011.
30
![Page 31: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/31.jpg)
Redefining Our Large Cap Portfolios
Key factors that drive our assessment:
Thinking globally Limiting volatility Maximizing resources
Key factors that drive our assessment:
Gl b l tf li kiU.S. Large Cap Large Cap Core
Global portfolio seeking superior returns and controlled volatility
Non-U.S. Large Cap Large Cap StrategiesGlobal portfolio seeking superior returns with complementary strategies
Objectives over full market cycles:
Deliver strong absolute returns
Outperform benchmark Control volatility
31
![Page 32: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/32.jpg)
Past performance is no guarantee of future resultsPast performance is no guarantee of future results.
2005 is the first full reporting period since Bessemer Trust’s Chief Investment Officer assumed responsibilities for investments. The Bessemer Balanced Growth Portfolio represents a model portfolio comprised of U.S. Large Cap, Non-U.S. Large Cap, Global Opportunities, Global Small & Mid Cap, Real Return, Fixed Income, Strategic Currency and three Bessemer hedge funds of funds. The Bessemer Growth Portfolio represents a model portfolio comprised of U.S. Large Cap, Non-U.S. Large Cap, Global Opportunities, Global Small & Mid Cap, Real Return, Strategic Currency and three Bessemer hedge funds of funds. The Bessemer Balanced Portfolio represents a model portfolio comprised of U.S. Large Cap, Non-U.S. Large Cap, Global Opportunities, Global Small & Mid Cap, Real Return, Fixed Income, Strategic Currency, and two Bessemer hedge funds of funds. Investments cannot be made directly in these model portfolios. Relative weightings vary over time. Returns for Old Westbury Global Opportunities Fund, Old Westbury Global Small & Mid Cap Fund, Old Westbury Real Return Fund, and Bessemer hedge funds of funds are after all fees and expenses. All other returns reflect performance of Bessemer Common Trust Funds and are before fees and expenses. The results also include the reinvestment of all dividends and capital gains.Global Small & Mid Cap Fund returns began April 5, 2005. Real Return Fund returns began April 28, 2005. Global Opportunities Fund returns began November 28, 2007. Bessemer hedge funds of funds returns began July 1, 2005 for the Bessemer Balanced Growth and Growth portfolios and February 1, 2008 for the Bessemer Balanced portfolio. Alternative investments, including Bessemer hedge funds of funds, are not suitable for all clients and are available only to qualified investors.The Global Balanced Growth Index represents a mix of the Barclays Capital U.S. Government/Credit Index (25%), S&P 500 Index (15%), S&P Global Large ex-U.S. Index (10%), S&P Global MidSmallCap Index (14%), S&P Global LargeMidCap Index (14%), Real Assets (7% consisting of Dow Jones-UBS Commodity Index [5%] and Barclays Capital U.S. TIPS Index [2%]), HedgeFunds (10% consisting of S&P Global Broad Market Index (Hedged) [7%] and Barclays Capital U.S. Government Index [3%]), and 3 Month Treasury Bills (5%) after 12/31/2010 and a mix of the S&P 500 Index (25%), S&P Mid Cap 400 Index (10%), MSCI EAFE Index (14%), MSCI World Small Cap Index (5%), MSCI Emerging Markets Index (3%), HedgeFund.net Fund ofof the S&P 500 Index (25%), S&P Mid Cap 400 Index (10%), MSCI EAFE Index (14%), MSCI World Small Cap Index (5%), MSCI Emerging Markets Index (3%), HedgeFund.net Fund of Funds Aggregate Index (10%), Dow Jones-UBS Commodity Index (2.5%), Barclays Capital U.S. Government/Credit Index (25%), Barclays Capital U.S. TIPS Index (2.5%), and 3 Month Treasury Bills (3%) before 1/1/2011. The U.S. Stock/Bond Index (70/30) is a composite of 70% S&P 500 Index and 30% Barclays Capital U.S. Government/Credit Index.Sources: Bank of America, Barclays Capital, Dow Jones, Federal Reserve, HedgeFund.net, Morgan Stanley Capital International, Standard & Poor’s, UBS
![Page 33: Si O hNSorting Out the News...economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a](https://reader031.vdocument.in/reader031/viewer/2022011821/5eaec394cfeab83d3f063871/html5/thumbnails/33.jpg)