the tortoise and the hare - maseco asia · 2017. 1. 16. · the tortoise and the hare issue 1 |...

The Tortoise andthe hare

ISSUE 1 | January 2017

The Year in Review

As 2017 has just got going, it is an appropriate time to look back and summarize what happened in markets, portfolios

and economies last year. Despite increased political uncertainty, financial markets managed to finish 2016 on a positive

note.

The main stories of the year were:

» A terrible start of the year for equities

» Political events like the Brexit vote and the US Presidential Election

» Increased volatility in FX markets

» Policy mix shifting away from just easy monetary policy

» A late year rally in bond yields

CurrenciesDuring the year currency swing were very strong. Particularly the British Pound caused some investors great pain and

others jubilation, by losing over 19% of its value against the US Dollar. It also dropped versus all other major currencies

in 2016. The Euro only devalued mildly and the Japanese Yen actually gained ground versus USD over the full year, but

that included a sharp price correction of nearly 35% in Q4 as an effect of the US Presidential Election outcome.

Figure 1: 5 Yr US Dollar Appreciation vs GBP, EUR & JPY

Source: UK Forex

The Year in Review

CommoditiesCommodity prices recovered some ground in 2016 after declines in previous years. Particularly the oil price moved up

from its extreme lows after fears over a supply glut seemed to have been excessive. The Bloomberg Sub WTI Crude Oil

Index for example rose over 7%. OPEC in November agreed its first output cut in 8 years. Gold prices moved up earlier

in the year until the outcome of the US Presidential Election, when optimism picked up and market volatility declined, with

the VIX index closing the year at 13 or 22.6% below the previous year end.

Figure 2: 5 Yr Alternatives cumulative change - Oil, Gold & Commodities

Source: Morningstar, Bloomberg Sub WTI Crude Oil Index, LBMA Gold Price Index and Bloomberg Commodity Index

Emerging marketsEmerging markets delivered good results in 2016, both in bonds as well as in equity. The start of the year was very

difficult for EM equities as Chinese GDP growth slowed to 6.9%, its lowest increase since 1990. The asset class then

recovered some distance from historically cheap levels at the beginning of the year, when long term Shiller P/E ratios fell

below 10. From the BRIC countries, Brazil performed the strongest, as the Bovespa Index returned about 39% for the

year. In August President Dilma Rousseff had lost a historical Brazilian impeachment vote.

On the bond side, no matter if investors were holding EM local currency or hard currency bonds, they enjoyed an annual

gain of about 10%. EM currencies also experienced considerable volatility and dispersion over that time frame. The US

Dollar lost nearly 18% of its value against the Brazilian Real for the full year but the Mexican Peso came to the centre of

attention later in the year given comments from the Trump campaign and the US Dollar gained about 19% versus the

Peso.

Figure 3: 5 Emerging Markets cumulative change - Equity, Local Currency Gov Bonds & Hard Currency Gov Bonds

Source: Morningstar; MSCI EM Index, JPM EMBI Plus Index and JPM GBI-EM Global Diversified Index

United KingdomMuch has been speculated about the likely health of the UK economy following the Brexit vote but so far GDP growth

has held up well (see below). The unemployment rate has fallen to an 11 year low of 4.8%. Inflation is coming back into

conversations, with the most recent reading of an annualised quarter over quarter rise of 1.2% (see below). The Bank

of England has lowered the interest rate to a record low in August 2016 of 0.25% in response to the Brexit vote and also

extended its asset purchase to cover corporate bonds.

Figure 4

Source: Tradingeconomics.com

Euro areaLooking at the Eurozone, the headline numbers do not look too dissimilar, with an inflation rate increase of 1.1% and

GDP growth of 1.7% reported most recently (see below). However, the dispersion of Southern European countries

vs its neighbours in the North is still significant. For example, Germany enjoyed small though healthy growth while

The Year in Review

unemployment dropped to nearly 4% and Debt to GDP ratio is nearing the 70% mark. Towards the other end of the

spectrum, Italy still has an unemployment rate of nearly 12% and Debt to GDP ratio is still at its historic peak of 132%.

The ECB kept the deposit rate at zero but surprised many market participants in December, when they announced that

they will reduce asset purchases from EUR 80 to 60bn a month in Q2 2017.

Figure 5


United StatesThe US is clearly further ahead in the economic cycle, as the FED is expecting GDP growth to exceed 2% in 2017, above

the latest reading for 2016 (see below). Consumer sentiment is at a 13 year high and jobless claims recently fell to a 43

year low. The FED has raised the interest rate from 0.5 to 0.75% during its December 2016 meeting and it is expected to

raise rates further in 2017. Many observers anticipate that the incoming Trump administration will increase government

spending and reduce regulatory burdens and corporate tax rates, which is expected to lead to further economic growth.

Figure 6


The Year in Review

The Year in Review

JapanJapanese monetary policy is pulling out all the stops to create growth and leave the deflationary environment and so far

Japan continued its moderate recovery trend. In January, the Bank of Japan moved to negative interest rates, -0.1%. In

June, the bank even turned to a new policy measure by targeting to keep 10-year bond yields at a level of around 0%.

Inflation has crept back into positive territory in Q4 (see below).

Figure 7


MASECO Asia’s strategic Asset Allocation decisions reviewed There is significant research and evidence to support the fact that investors are compensated for taking certain kinds

of risk over an extended period of time. Last year the results were mixed in terms of the premia that investors received,

but the long term story remains compelling. In general, we follow an evidence based approach to investing and believe

investors can be compensated by investing in the following premia:1

» Equity risk

» Small cap equity risk

» Value equity risk

» Direct profitability

» Emerging market equity risk

» Credit risk in fixed income (principally investment grade)

» Duration risk in fixed income (up to a point)

In addition to overweighting these asset classes and styles in clients’ portfolios, we also act upon research that indicates:

» Markets are generally efficient2.

» Diversification reduces risk3.

» Generally investors are not compensated with additional return over time for the additional risk they take when

overweighting their home country – a phenomenon known as Home Country Bias.

» That most global bond indices are market weighted and their largest constituents are generally the most heavily

indebted government bonds globally (Japan, US and Europe) thus not providing investors with the best risk-reward

global bond portfolio.

» Real Assets such as REITs and Commodities can provide investors with returns above the rate of inflation and are

generally not highly correlated with other asset classes in diversified portfolios.

» Asset classes, not managers, provide investors with return4 and most portfolio managers underperform their

benchmarks5.

How did these Premia and strategic allocations perform in 2016 versus the longer termThe table below provides an overview of the performance of each risk premium for the last five calendar years and

longer periods. In each case, we consider an index representative of the investment style and then compare to a

base index (both defined in the appendix), to be able to assess what the value add has been. Each premium is then

discussed separately.

Figure 8

Source: MASECO LLP. The figures shown relate to the past and past performance is not an indicator of future results.

Looking at 2016, the chart shows all bars are blue in colour, indicating that 2016 was a year where all the investment

styles added value. Comparing this to the annualised figures from a 2009 inception on the far right show the majority of

investment styles are shown in blue, confirming the anticipated value add in the longer term.

Equity Risk Premium6

Dimson, Marsh and Staunton7 have highlighted in their research on a number of occasions that investors in all

developed countries have been compensated 4.4% annually for taking equity market risk over a long period of time.

The S&P 500 appreciated 11.96% outperforming the “risk free rate of return”8 which appreciated only 0.28%. Non US

equities9 appreciated 6.45% in local currency terms, in dollar terms this is translated to a gain of 2.75% for US investors,

outperforming the “risk free rate of return” by 2.49%.

Furthermore, at the moment, the US equity markets are relatively expensive compared to other equity markets as well as

its historical figures. Specifically, the Shiller P/E10 of 28 as of December 31 2016 is in the top quartile of historical values.

Or in other words, US large cap stocks were only more expensive twice before in its long history: just before “Black

Tuesday” in 1929 and in the “Dot.Com bubble” at the end of the last century.

The Year in Review

Figure 9

Source: Research Affiliates; the end of the lines indicate minimum and maximum Shiller P/E values.

The green boxes show the range inside the 25th and 75 percentile.

Small Company Premium11

Eugene Fama and Kenneth French demonstrated in their definitive research called the ‘Three Factor Model12 that

investors are compensated for the additional risk associated with investing in small company and value (inexpensive)

stocks. In 2016, investors favoured small companies and were rewarded. In the US, small company stocks13 returned

9.3% more than the S&P500, as it provided a positive return of 21.3%. Non-US small company stocks did worse than

their US counterparts in relative terms, outperforming by only 1.6%. In absolute terms, the gain to a US investor was

4.3%.

Value Company Premium In the same research paper, Fama and French also demonstrated that investors are compensated for the additional

risk associated with investing in value (inexpensive) stocks. 2016 was a great year for value stocks. In the US, value

stocks14 appreciated by 18.4%, beating the S&P 500 by 6.4%. Outside of the US, value stocks15 gained 7.4% in USD

terms, out-performing the broader non US equity market by 4.6%.

Emerging Market Equity Risk PremiumMSCI started tracking equity returns in emerging markets in 1988. Emerging markets are significantly under-represented

in global equity indices compared to their contribution to world GDP and they have the potential to grow much more

quickly than developed countries. Consequently, we believe that emerging market equities are under-represented in

most investors’ portfolios and that developed market equities are over-represented, despite the additional risk associated

with emerging markets. MASECO Asia’s strategic asset allocations are overweight emerging market equities. In 2016

emerging markets16 gained by 9.7% in local terms, compared to a 9% rise for developed equity markets17. In USD

terms, emerging markets gained 11.2%, which was 3.7% better than developed market equity returns.

At the moment, as you can see from the earlier graph, emerging market equities are still cheap. The Shiller P/E of 11

as of December 31, 2016 is in the bottom quartile of historical values and also lower than the current readings for this

indicator for other regions.

The Year in Review

Fixed Income Credit Premium (Investment Grade)Investors are usually compensated in the long run for taking credit risk when investing in corporate bonds. Rewards can

be even greater for investing in ‘high yield bonds’ that carry significant credit risk but those bonds fluctuate significantly in

price and are much more highly correlated with equity risk. We generally prefer to take credit risk with investment grade

rated securities in our bond allocation and take higher risk within our equity allocation. Investors were compensated

for taking credit risk in 2016. During the year, US Corporate Bonds18 appreciated 2.3%, providing a premium of 1.2%

over the return from US Treasuries19 (in both cases considering shorter duration indices, in line with our preference

described below). Fixed income credit premium also appeared in most international bond markets.

Duration Risk PremiumInvestors can often be compensated for taking a modest amount of duration risk (interest rate risk) when investing in

bonds. Under such conditions, bonds with longer duration would typically offer even greater returns. However generally

investors are not adequately compensated for investing in bonds with very long maturities, as those bonds fluctuate

significantly in price and the increase in return is not commensurate with the additional volatility (where bonds have

negative returns, greater duration will generally lead to greater losses). We generally prefer to keep duration risk low in

our bond allocation and take risk within our equity allocation. In relation to these shorter duration bonds, investors were

compensated in 2016 with US Treasuries appreciating by 1.1%, adding 0.8% on top of the return from cash.

Straying from the Global Government Bond Indices The major global government bond indices are all market cap weighted and consequently composed of the most heavily

indebted countries in the world. Investing in these bond indices would be the equivalent of investing approximately

34% of a fixed income portfolio into dollar denominated US Treasury Bonds, 22% into Japanese yen denominated

Government Bonds (JGBs) and 31% into euro denominated of Eurozone countries20. We do not believe that this is a

sensible strategy as why would an investor want to lend their money to the most heavily indebted countries in the world

(all other things being equal). Consequently, we allocate a portion of clients’ portfolios with an active manager who

seeks to invest in a wider universe that includes government bonds of both developed and emerging markets, which

may benefit from credit rating upgrades, currency appreciation and interest rate opportunities. In 2016, the Global Bond

fund21 outperformed by 5% - appreciating by 6.61% in absolute terms, whereas the global government bond index as

described above22 only managed a 1.6% gain for the year. As current yield levels are good predictors of future bond

performance, the chart below compares yields between emerging market countries the Global Bond fund has exposure

to with yields in developed market countries.

Figure 10: Two- and 10-Year Government Bond Yields, As at 15 November 2016

Source: Templeton 2017 Global Investment Outlook

The Year in Review

Real Estate Investment Trusts (REITS) & CommoditiesWe include these two asset classes in a portfolio in order to add an additional source of return that is not highly

correlated with the two main asset classes of equities and fixed income, thereby increasing the diversification benefit;

and in the long term we believe this lowers volatility and improves the risk adjusted returns. In general, real estate and

commodities have not been highly correlated with most of the other components of a diversified portfolio but have

provided investors with returns greater than inflation, thereby assisting to maintain the real value of the portfolio. In 2016

both premia were significantly positive. Global REITs23 outperformed inflation by 5.2% in USD terms, while returns from

Commodities24 exceeded the US inflation rate by more than 10%.

Active Funds: Underperformance AgainS&P publish their SPIVA (S&P Index vs Active) reports bi-annually in an attempt to demonstrate whether active fund

managers or indices outperform over a one, three and five year time frame. As SPIVA published in their bi-annual report

from the summer of 201625, active managers continue to show poor results.

Over a 1 year period:

» 81% of actively managed Large Cap equity funds underperformed their benchmarks

» 77% of actively managed Large Cap Value equity funds underperformed their benchmarks

» 91% of actively managed Small Cap equity funds underperformed their benchmarks

» 55% of actively managed International equity funds underperformed their benchmarks

» 42% of actively managed Emerging Market equity funds underperformed their benchmarks

» 64% of actively managed Government Intermediate Bond funds underperformed their benchmarks

» 60% of actively managed Investment Grade Short Term bond funds underperformed their benchmarks

Over a 5 year period the figures were often even worse for actively managed funds:

» 92% of actively managed Large Cap equity funds underperformed their benchmarks

» 89% of actively managed Large Cap Value equity funds underperformed their benchmarks

» 98% of actively managed Small Cap equity funds underperformed their benchmarks

» 60% of actively managed International equity funds underperformed their benchmarks

» 68% of actively managed Emerging Market equity funds underperformed their benchmarks

» 71% of actively managed Government Intermediate Bond funds underperformed their benchmarks

» 27% of actively managed Investment Grade Short Term bond funds underperformed their benchmarks

The Year in Review

Summary: 2016 was a good year for investors following our evidence-based approachMost clients can look back at 2016 investment returns with a smile. Despite strong currency movements, no matter if

you were looking at returns from a GBP, EUR or USD angle, results were positive. The same statement can be made for

portfolio at opposite ends of the risk spectrum. Returns were often even in the double digits across equity markets and

other risky assets like commodities or REITs this year did not disappoint either. But more importantly, as one looks down

the risk spectrum, low duration fixed income produced a positive outcome as well.

Looking at the same time period from a relative angle, the active funds selected by MASECO Asia for our Core portfo-

lios proofed to be positive outliers to the sad statistic for the active manager universes shared in the previous section.

Compared to their respective fund benchmarks, 34 out of 38 investments, or 89.48%, produced better results, after all

management fees and cost.

However, we are not getting too excited, as we know, that the expectation for fund performance should be no different

from that for market performance over the short term: Good times will follow bad times and vice versa. What is most

important for us are the long term results, because those also matter for our clients. The research we base our convic-

tions on goes back multiple decades. We will work hard in 2017 and beyond to ensure that in the future we can report

similarly satisfactory results!

The Year in Review

Appendix

Figure 11

Risk WarningsPast performance is not a reliable indicator of future results.

The illustrations are in US Dollars unless otherwise stated. Currency fluctuations may increase or decrease the returns

of any investment.

There can be no guarantee or assurance that a client’s portfolio will not incur a loss over any particular time period.

Fees and charges do not apply in respect of any index, indices are unmanaged, do not incur fees and cannot be in-

vested in directly.

Pro forma results such as those shown do not represent actual trading; returns will be affected by advisor and fund

management fees, trading costs, and other applicable charges.

This document is for illustrative purposes only and does not constitute a solicitation to buy or sell securities nor does

it purport to be a complete description of our investment policy, markets or any securities referred to in the material.

Please note that not all clients have exactly the same portfolios or the same investment vehicles. Depending on a

client’s risk appetite, time frame, implementation strategy, currency reference or other reasons, their portfolio may

differ from our Strategic Allocation.

The Year in Review

References

1. To be considered a dimension of expected return, a premium must be:

» Sensible

» Persistent across time periods

» Pervasive across markets

» Robust to alternative specifications

» Cost-effective to capture in well-diversified portfolios

2. The Nobel laureate Eugene Fama wrote the Efficient Market Hypothesis in the 1960’s and there has been many

subsequent articles and research since then in support of his findings. Eugene F. Fama, “Efficient Capital Markets: A

Review of Theory and Empirical Work,” Journal of Finance 25, no.2 (May 1970): pages 383-417

3. Harry Markovitz won the Nobel Prize in Economics for his work on Modern Portfolio Theory which states that diver-

sification reduces risk. Harry M. Markowitz, (1991) ‘Portfolio Selection: Efficient Diversification of Investments’ 2nd ed.

Blackwell.

4. According to the well-known study: Brinson, G., Hood, R., and Beebower G., (1986) ‘Determinants of Portfolio

Performance’, Financial Analysts Journal, vol. 42, No. 4, pp 40-48. 94% of the portfolios variation in returns is due to

the asset allocation strategy (as opposed to market timing or security selection which account for less than 6% of the

portfolio’s variation of return).

5. SPIVA Scorecards, mid-year 2016

6. The return of equities above the risk-free rate of return. The rate of interest on a short term US treasury bill is often

used as the risk-free rate of return.

7. Elroy Dimson, Paul Marsh and Mike Staunton (2002). Credit Suisse Global Investment Returns Sourcebook 2009 and

Triumph of the Optimists, Princeton University Press.

8. Barclays Short Treasury 1-3 months TR USD index

9. MSCI World ex USA NR Index

10. The Cyclically Adjusted Price-Earnings (CAPE) ratio also known as the Shiller Ratio or the P/E 10 ratio was devel-

oped by Dr. Robert Shiller (who won the Nobel Prize for his work on 10/14/2013) and Dr. John Campbell in a paper

written in 1988 and can be traced to the principles of Graham.

11. The difference in return between small cap equities and large cap equities.

12. Fama, Eugene F.; French, Kenneth R. (1992) “The cross-section of expected stock returns” Journal of Finance

13. Russell 2000 TR Index

14. Russell 3000 Value TR Index

15. MSCI World ex USA Value NR Index

16. MSCI Emerging Markets NR Index

17. MSCI World NR Index

The Year in Review

18. BofA Merill Lynch US Corporate A 1-5 Yr YR Index

19. BofA Merill Lynch US Treasuries 1-5 Yr YR Index

20. Citi World Government Bond Index as of Nov 30th 2016.

21. Templeton Global Bond Fund Advisor Class (net of fees). We use a fund in this instance to illustrate the premium, as

it is not possible to replicate the manager’s unconstrained approach through an index. However not all clients will hold

this fund and/or many client’s will hold more than 1 fund in this sector.

22. Citi World Government Bond Index in USD

23. S&P Global REITs Index

24. Bloomberg Commodity TR Index

25. Standard and Poors SPIVA Scorecards, Mid-Year 2016. Comparing active fund managers to their respective index

over timeframes from 1 to 10 years.

The Year in Review

Quarterly Indicators

Economic Indicators GDP growth (%) Projections

Index Unemployment rate (%)

Current A/C Balance*

Budget Balance*

Industrial Production

(% )**2015 2016 2017

US 4.6 -2.6 -3.2 -0.6 2.6 1.6 2.2UK 4.8 -5.7 -3.7 -1.2 2.2 1.8 1.1Euro Area 9.8 3.2 -1.8 0.6 2.0 1.7 1.5Japan 3.1 3.7 -5.6 4.6 0.5 0.5 0.6

Source: Economist (5th Jan 2017) Source: IMF, World Economic Outlook, October 2016

Interest rates (%) - Government bonds Inflation (%) Projections

1 month 3 month 2 years 10 years 2015 2016 2017

US 0.6 0.6 1.2 2.4 0.1 1.2 2.3UK 0.1 0.2 0.2 1.3 0.1 0.7 2.5Euro Area (DE) -1.1 -0.9 -0.8 0.3 0.0 0.3 1.1Japan - -0.4 -0.2 0.1 0.8 -0.2 0.5

Source: FT.com as of 5th January 2017 Source: IMF, World Economic Outlook, October 2016

Foreign exchange

USD/JPYGBP/USDGBP/JPYGBP/EUREUR/USDUSD/CHF

Source: FT.com as of 31st December 2016

*Quarter % Change from 30/09/2016 to 31/12/2016

**YTD % Change from 31/12/2015 to 31/12/2016

Volatility Index (%)

Index Current1 year change

52 week high

52 week low

VIX 13.0 -22.6% 27.4 11.2VDAX 14.9 -36.8% 42.2 14.4

Source: FT.com as of 5th January 2017

YTD % change**

116.641.24

144.121.17 17.38%

* % of GDP 2016 estimate ** change on 1 year ago

31/12/2016 30/09/2016 31/12/2015 Qtr % change*

EurozoneUK

Japan

1.02

101.27

131.54

1.12

1.30

1.16

0.971.05

-1.5%

120.30

177.30

18.79%

1.09

34.79%

-3.01%

1.47

1.36

3.1%

23.0%

3.0%

19.3%

15.8%

1.00

13.46%

3.26%

US

EurozoneUK

Japan

US

MASECO Asia Limited is a discretionary wealth management firm specialising in developing and implementing wealth planning and tax-efficient investment strategies for American families in Hong Kong and broader Asia. Being expatriates themselves and having resided outside the US for almost a decade, the MASECO Asia partners idenitified a gap in the provision of sound, practical and creative advice for US citizens and green card holders in Asia. we decided to use the expertise to create a first class service within a wealth management firm - without the often conflicting demands of ownership by a large institution. With this philosophy as its core, MASECO Asia is focused, forward-thinking, and most importantly, put its clients first.

Asset Class Indices

Fixed Income Summary (%)

Index Q4 2016 2016 YTD 2015 2014 2013 3 Yr (Annualised)

5 Yr (Annualised)

Citi World Government Bond Index LCL -3.1 3.0 1.3 8.5 0.2 4.2 3.4

Citi World Government Bond Index USD -8.5 1.6 -3.6 -0.5 -4.0 -0.8 -1.0

Markit iBoxx Liquid Investment Grade TR USD -3.7 6.4 -0.7 8.7 -2.4 4.7 4.6

BofAML Global High Yield TR USD 0.5 14.8 -4.2 -0.1 8.0 3.2 7.2

JPM Emerging Market Bond Index GD TR USD -4.0 10.2 1.2 7.4 -5.3 6.2 5.9

Source: Morningstar as of 31st December 2016

Equity summary (%)


5 Yr (Annualised)

S&P 500 TR USD 3.8 12.0 1.4 13.7 32.4 8.9 14.7

Russell 3000 Value TR USD 7.2 18.4 -4.1 12.7 32.7 8.6 14.8

Russell 2000 TR USD 8.8 21.3 -4.4 4.9 38.8 6.7 14.5

MSCI EAFE NR LCL 7.1 5.3 5.3 5.9 26.9 5.5 11.8

MSCI EAFE NR USD -0.7 1.0 -0.8 -4.9 22.8 -1.6 6.5

MSCI EAFE Value NR USD 4.2 5.0 -5.7 -5.4 23.0 -2.1 6.3

MSCI EAFE Small Cap NR USD -2.9 2.2 9.6 -5.0 29.3 2.1 10.6

MSCI EM NR LCL -1.4 9.7 -5.8 5.2 3.4 2.8 5.6

MSCI EM NR USD -4.2 11.2 -14.9 -2.2 -2.6 -2.6 1.3

MSCI ACWI NR LCL 4.1 9.0 1.3 9.3 25.5 6.5 11.9

MSCI ACWI NR USD 1.2 7.9 -2.4 4.2 22.8 3.1 9.4

STOXX Europe 600 NR EUR 5.8 1.7 9.6 7.2 20.8 6.1 11.3

FTSE AllSh TR GBP 3.9 16.8 1.0 1.2 20.8 6.1 10.1


Real Assets (%)


5 Yr (Annualised)

S&P Global REIT TR USD -4.9 6.9 0.6 22.8 2.8 9.7 10.9

Bloomberg Commodity TR USD 2.7 11.8 -24.7 -17.0 -9.5 -11.3 -9.0

LBMA Gold Price PM USD -13.4 8.1 -12.1 0.1 -27.3 -1.7 -5.6

Bloomberg Sub WTI Crude Oil TR USD 7.2 7.1 -44.4 -41.7 6.8 -29.7 -20.0


Risk Warnings Past performance is not a reliable indicator of future results. The illustrations are in US Dollars unless otherwise stated. Currency fluctuations may increase or decrease the returns of any investment. There can be no guarantee or assurance that a client’s portfolio will not incur a loss over any particular time period.F ees and charges do not apply in respect of any index, indices are unmanaged, do no incur fees and cannot be invested in directly. Pro forma results such as those shown do not represent actual trading; returns will be affected by advisor and fund management fees, trading costs, and other applicable charges. This document is for illustrative purposes only and does not constitute a solicitation to buy or sell securities nor does it purport to be a complete description of our investment policy, markets or any securities referred to in the material. Please note that not all clients have exactly the same portfolios or the same investment vehicles. Depending on a client’s risk appetite, time frame, implementation strategy, currency reference or other reasons, their portfolio may differ from our Strategic Allocation.

All expressions of opinion are subject to change without notice and are not intended to be a guarantee of future events. This document is for information only and does not constitute a solicitation to buy or sell securities nor does it purport to be a complete description of our investment policy, markets or any securities referred to in the mate-rial. Opinions expressed herein are not intended to be a forecast of future events or a guarantee of future results or investment advice and are subject to change without notice or based on market and other conditions. Any reference to model portfolios, which is used for internal purposes, is purely illustrative. The value of investments and the income from them may fluctuate and can fall as well as rise. Past performance is not a guarantee of future results. You may not recover what you invest.

Although information in this document has been obtained from sources believed to be reliable, MASECO Asia Limited does not guarantee its accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use. Throughout this publication where charts indicate that a third party (parties) is the source, please note that the source references the raw data re-ceived from such parties.

MASECO Asia Limited and its affiliates do not provide tax or legal advice and levels and bases of taxation can change. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the pur-pose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular cir-cumstances from an independent tax advisor.

Neither asset allocation nor diversification assures a profit or pro-tects against a loss in declining financial markets. Currency fluctua-tions may increase or decrease the returns of any investment.

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevail-ing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer’s credit rating, or creditworthi-ness, causes a bond’s price to decline. High yield bonds are subject to additional risks such as increased risk of default and greater vola-tility because of the lower credit quality of the issues.

Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the sec-ondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk toler-ance before investing in high yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.

Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.

Alternative investments referenced in this report are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns on transferring interests in the fund, potential lack of diver-sification, absence of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodi-ties and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other

disruptions due to various factors, including lack of liquidity, partici-pation of speculators and government intervention.

The prices of real assets (for example, precious metals) tend to fluc-tuate widely and unpredictably, and have historically experienced periods of flat or declining prices. Prices are affected by global sup-ply and demand, investors’ expectations with respect to the rate of inflation, currency exchange rates, interest rates, investment and trading activities of hedge funds and commodity funds, and global or regional political, economic or financial events and situations.

REITs investing risks are similar to those associated with direct in-vestments in real estate: lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.

The indices are unmanaged, are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include expenses, fees or sales charges, which would lower performance.

International investing entails greater risk, as well as greater poten-tial rewards compared to investing in your local stock market. These risks include political and economic uncertainties of foreign coun-tries as well as the risk of currency fluctuations. These risks are mag-nified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics.

Investing in smaller companies involves risks not associated with more established companies, such as business risk, significant stock price fluctuations and illiquidity.

Interest on municipal bonds is generally exempt from US federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax exemption applies if securi-ties are issued within one’s state of residence; if applicable, local exemption applies for issues within one’s city of residence.

The initial interest rate on an inflation-linked security may be lower than that of a fixed rate security of the same maturity because inves-tors expect to receive additional income due to future increases in CPI. However, there can be no assurance that these increases in CPI will occur.

Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities.

Investments or investment services referred to may not be suitable for all recipients.

IMASECO Asia Limited (CE# BHR224) is authorized and regulated by the Securities and Futures Commission of Hong Kong to carry out Type 9 Regulated Activities. All information in this document is intended for financial professionals or Professional Investors (as defined under the Securities and Futures Ordinance of Hong Kong) only.

US Treasury Department Circular 230 disclosure: To ensure compli-ance with requirements imposed by the IRS, we inform you any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to an-other party any transaction or matter addressed herein.

the tortoise and the hare - maseco asia · 2017. 1. 16. · the tortoise and the hare issue 1 |...

Documents