A new world disorder? Harnessing the insights of big data
Wednesday 3rd May 2017
Welcome Mary-Anne Daly, Deputy Chief Executive
Programme
9.30 am Registration and coffee 11.00 am Harnessing the data deluge Alex Tedder, Head of Global Equities, Schroders, 10.00 am Welcome and Ben Wicks, Head of Research Innovation, Mary-Anne Daly, Deputy Chief Executive Schroders 10.05 am The global economy 11.25 am Tea and coffee Richard Jeffrey, Chief Economist 11.50 am Making money from mathematics 10.20 am Investment strategy in a new David Harding, Founder and Chief Executive world disorder Officer, Winton Caspar Rock, Chief Investment Officer 12.15 pm Q&A 10.35 am Trump – the personality, the presidency and the “finely tuned machine” 12.35 pm Baby booms and the world economy Emily Maitlis, Journalist and BBC Newsnight Lord Willetts, Executive Chair of the Resolution presenter Foundation; former Minister for Universities and Science 1.00 pm Drinks and light lunch
2
The global economy Richard Jeffrey, Chief Economist
The global economy at a glance
Consensus forecast for GDP growth This is normal
Advanced economies vs. emerging markets GDP growth
Consensus 8 forecasts 7 6 4.7 4.9 5 4.4 4 3 % YoY 2 1.9 1 1.7 2.0 0 -1 -2 2010 2011 2012 2013 2014 2015 2016 2017 2018 Developed markets Emerging markets
Source: Datastream.
5 World trade A slow fix
World growth vs. world trade (% YoY) Intra/extra-eurozone trade (€ billion)
6 20 200 15 4 180 10 160 2 5 140 0 0 120 -5 -2 100 -10 -4 -15 80 -6 -20 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 With countries inside the eurozone World growth World trade (RHS) With countries outside the eurozone
Source: Datastream.
6 Inflation The deflation scare becomes a distant memory
US Eurozone 6 6
3 3 % YoY 0 0 % YoY
-3 -3 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Headline Core Headline Core UK 6
3 % YoY 0
-3 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Datastream. “Core” inflation excludes food and energy. Headline Core
7 Monetary policy The tone of the debate begins to change
US Federal funds rate European Central Bank main refinancing rate 6 6
5 5
4 4
3 3 % % 2 2
1 1
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bank of England official Bank rate 6
5
4
% 3
2
1
0 Source: Datastream. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
8 UK GDP growth Contributions and consensus forecasts
Expenditure contributions to UK GDP growth Consensus forecasts through time
2.5 GDP Household Government Fixed Net Inventory growth consumption expenditure investment trade change
2014 3.1 1.4 0.5 1.1 -0.4 0.5 2
2015 2.2 1.5 0.3 0.6 0.0 -0.2
2016 1.8 1.9 0.2 0.1 -0.4 0.0 1.5
2017F^ 1.7 1.2 0.2 0.0 0.7 -0.3 % YoY 1 2018F^ 1.3 0.7 0.1 0.1 0.4 0.0
0.5
0 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 2016 2017 2018
Source: Datastream, Bloomberg, Cazenove Capital. ^Based on average of City forecasts in April.
9 European politics in focus The political merry-go-round
European political calendar
Country Date Event
Netherlands 15th March General election
France 23rd April and 7th May Presidential election
UK 8th June General election
France 11th June – 18th June Parliamentary elections
Germany 24th September Federal elections
Italy Possibly in 2017 Early general election
Source: Schroders, Cazenove Capital.
10 UK general election 2017 Voting intentions
Source: Wikipedia/Absolutelypuremilk. UK Opinion Polling for the 2017 election including polls which started on or before 21st April 2017 (moving average is calculated from the last ten polls).
11
Joining the dots: investment, productivity and remuneration
Productivity (output per worker) Where did it all go wrong?
US Eurozone
4 4
2 2
0
% YoY 0 % YoY
-2 -2
-4 -4 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 UK
4
2
0 % YoY
-2
-4 Source: Datastream. 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
13 UK productivity vs. GDP growth
UK productivity vs. GDP growth
6
4
2
0 % YoY
-2
-4
-6 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: Datastream. UK GDP growth UK productivity growth
14 UK productivity A lost opportunity
UK productivity vs. trend
140
120 21% 100
80 Index level 60
40
20 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Source: ONS. Output per worker Output per worker (trend)
15 UK GDP growth What about the workers?
Labour market inputs to UK GDP growth
3.5
3.0
2.5
2.0
% 1.5
1.0
0.5
0.0 1993 2010 2013 2014 2015 2016 2017 2018 to 2007 to 2016 Forecast Forecast Productivity Workforce size Employment rate Source: Datastream.
16 UK GDP growth vs. real household disposable income The official headlines
UK GDP vs. real household disposable income
8
6
4
2
% YoY 0
-2
-4
-6 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 UK real household disposable income UK real GDP growth Source: Datastream.
17 UK productivity vs. wage growth Pounds in your pocket
UK productivity vs. real wages and salary per employee
6 5 4 3 2 1
% YoY 0 -1 -2 -3 -4 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Productivity - output per worker Real wages and salary per worker Source: Datastream.
18 UK fixed investment Not worth the risk?
Capital investment (ex-transport and construction), inflation-adjusted
10
5
0 % YoY -5
-10
-15 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Actual Trend Source: Datastream.
19 UK productivity growth vs. bond yield The law of unintended consequences
UK productivity growth vs. UK 10-year gilt yield, inflation-adjusted
8
6
4 % 2
0
-2
-4 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 UK 10-year gilt yield (real) UK productivity growth (YoY)
Source: Datastream. Past performance is not a guide to future performance.
20 Conclusion
Can you spot The Unbelievable Truth?
Investment and productivity growth are depressed, despite low interest rates or Investment and productivity growth are depressed, because of low interest rates
21
Investment strategy in a new world disorder Caspar Rock, Chief Investment Officer
Market review Returns to a GBP based investor (all figures in %)
Equities* Fixed income^
2016 Q1 2017 2016 Q1 2017
MSCI World +29.0 +5.3 US treasuries +20.6 -0.5
FTSE 100 +19.1 +3.7 UK gilts +10.1 +1.6
FTSE 250 +6.7 +5.4 German bunds +20.5 -0.6
MSCI EM +33.1 +10.2
Currencies vs. £ Commodities
2016 Q1 2017 2016 Q1 2017
US$ +16.2 -1.2 Brent crude oil +89.5 -8.3
Euro +13.7 +0.2 Copper +40.0 +4.1
Japanese yen +18.7 +3.3 Gold +31.0 +6.5
Chinese yuan +10.3 -0.4 Bloomberg Index +33.3 -3.5
Source: Datastream.*Total returns. ^Total returns of BofAML US treasuries all maturities, FTSE UK government all maturities, BofAML Germany government all maturities. Past performance is not a guide to future performance. 31st March 2017.
23 Our report card for the past year
– Overweight US equities – Continued strong performance of government bonds – Remained bullish on the dollar – Active equity managers Good performance from – struggled in a market with absolute return minded Positives Negatives violent rotations managers – Troy and Ruffer – Neutral equities in ultimately a Continued emphasis on non – strong year for risk assets GBP exposure in all portfolios – Switch to UK large cap – Increased weighting in Gold and Alternatives – Strong performance of UK and US Index-Linked holdings
24 What is a cynic?
“Knowing the price of everything and the value of nothing….”
Source: Gettyimages.
25 Who doesn’t seem to care about the valuation of individual bonds or shares?
Tracker Funds that buy Pension funds that are every stock in the index buying Index-linked Gilts to hedge their liabilities
26 How to create unloved and ‘orphaned’ assets
The impact of bond The impact of The impact of rating agencies index changes regulators on certain on portfolios… on prices areas of the market
27 The poor performance of passive funds
Property High-yield
28 The penetration of passives in the US equities market
% 30
25
20
15
10
5
0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Morningstar, BAML, ICI.
29 30 But buying an active fund must be an active decision
Passive
Active
31 Why hold alternatives in a portfolio?
Return
Complexity/liquidity
Risk
32 A framework for thinking about portfolios
Sentiment
Valuation Fundamentals
33 A positive economic backdrop Synchronised growth in developed and emerging economies
Developed vs. emerging markets GDP growth The world economy has started 2017 strongly
8 Consensus 7 forecasts 6 4.7 4.9 5 4.4 4 3 % YoY 2 2.0 1 1.7 1.9 0 -1 -2 2010 2011 2012 2013 2014 2015 2016 2017 2018 Developed markets Emerging markets
Source: Schroders, Cazenove Capital. Forecasts are not a reliable indicator of future performance.
34 Higher commodity prices driving headline inflation Core inflation to be supported by secondary effects
Headline CPI inflation in major economies Core CPI inflation in major economies 6 4.0
5 3.5
4 3.0 3 2.5 2
% YoY 2.0 % YoY 1 1.5 0 1.0 -1
-2 0.5
-3 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US UK Eurozone US UK Eurozone
Source: Datastream, Cazenove Capital. Forecasts are not a reliable indicator of future performance.
35 Source: Gettyimages.
36 Valuation Is anything cheap?
37 Investment views
– Synchronised growth in – Gilts remain expensive developed and emerging economies – European equity valuations are more attractive than those in – Inflation trending up in major the US Key economies Key macro investment – We are no longer US$ bulls themes – Major central banks face rising views pressure to normalise policy – Emerging markets and Asia are becoming more attractive – European politics in focus in 2017
Equity Fixed Income Alternative Cash
Neutral Negative Positive
38 Trump – the personality, the presidency and the “finely tuned machine” Emily Maitlis, Journalist and BBC Newsnight presenter
Global Equities: Harnessing the data deluge Alex Tedder, Head of Global Equities, Schroders, and Ben Wicks, Head of Research Innovation, Schroders
The age of information
“The stone age was marked by man's clever use of crude tools; the information age, to date, has been marked by man's crude use of clever tools.” (anonymous)
41 Financial markets More developed = fewer inefficiencies (example US Equity)
(%) 10.0
8.0
6.0
4.0
2.0
0.0
-2.0 Jun 05 Jun 08 Jun 11 Jun 14 Sep 04 Sep 07 Sep 10 Sep 13 Sep 16 Dec 03 Dec 06 Dec 09 Dec 12 Dec 15 Mar 06 Mar 09 Mar 12 Mar 15
Relative returns for 5th percentile funds
Source: Morningstar, Morningstar Category = US Large-Cap Blend Equity, primary share in GIFS Classification = Offshore Territories. Returns are net in USD. 5 year p.a. rolling relative returns on a quarterly basis. Past performance is not a guide to future performance.
42 Passive aggressive
Active & Passive equity fund flows in $bn, 12m rolling ($bn) 600
400
200
0
-200
-400
-600 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Global Passive Equity Flows (12m rolling) Global Active Equity Flows (12m rolling)
Source: Citi Research as at 31 March 2017.
43 Who’s killing the Active Fund Manager? CFA’s have flooded the market
How the Chartered Financial Analyst qualification took off
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: CFA Institute. Figures until 2005 show number of annual examination candidates; figures from 2006 show number of holders of CFA qualification.
44 The information explosion
It’s sometimes difficult to understand the scale of the problem when it comes to making sense of data.
Computers think in numbers, so making sense of a book or a company annual report is difficult for them – a typical book is over a million numbers (about a megabyte).
The world publishes over 2.2 million books per year, and photo uploads to social media duplicate this volume of data every 49 seconds.
Video streaming eclipses this again, with Netflix streaming covering the same volume of data as 1 year of photo uploads every 15 seconds.
Note: numbers indicate uncompressed data volumes. Compression significantly reduces the actual bandwidth consumed by these services.
45 Keeping pace with the data deluge Moore’s law helps us keep up… or does it?
As the volume of data has increased, so too has the available storage and processing power of computers. Growth of computing power
But there’s a problem. As data and processing power have grown exponentially, the volume of calculations we could perform has grown even faster – it has grown factorially.
Attempting to compare every data series to every other series is incalculable. Growth of data
1980 1985 1990 1995 2000 2005 2010 2015
Source: Schroders. Estimates derived from Moore’s law and combinatorial mathematics.
46 The combinatorial problem You have 100 pebbles, and need to divide them into two containers of equal weight
You have 100 pebbles, and need to divide them into two containers of equal weight. – You know nothing about the pebbles. They could be grains of sand or boulders, any weight from zero to infinity.
If you have to test all possible solutions, even at 1 trillion calculations per second it will take longer than the life of the universe.
Source: Schroders.
47 The new investor team – a hybrid model
Maths/Stats Programming, Knowledge algorithms
Data scientist
Knowing what makes Domain knowledge a difference (company, industry)
Investor
Financial Financial Accounting Markets
Source: Schroders.
48 Schroders’ approach to data insights Fast-growing and inspirational skillset
– Data Insights Unit established October 2014 – Data scientists, data consultants and data engineers
Psychology Physics Bioinformatics
Computer Science Operations Research Mathematics & Statistics
Motor Racing Investment Defence
Geospatial Web-crawling Machine Learning
Source: Schroders.
49
Data in action
Consumer spending data The raw picture: the big data
user_ref yob salary_rangepostcode transaction_dattransaction_desc credit_debamount tag_user 189332 1964 10K to 20K WD1 15/08/2014 visa ‐ tesco‐stores 6547 watford gb Debit 14.36 Supermarket 189332 1964 10K to 20K WD1 17/08/2014 visa ‐ tesco‐stores 6547 watford gb Debit 25 Supermarket 189332 1964 10K to 20K WD1 18/08/2014 visa ‐ london overground‐ watford 2 Debit 21 Public transport 189332 1964 10K to 20K WD1 18/08/2014 visa ‐ tesco‐stores 6547 watford gb Debit 10.95 Supermarket 189332 1964 10K to 20K WD1 19/08/2014
Source: Schroders. Companies shown are for illustrative purposes only and are not a recommendation to buy or sell any security.
51 Consumer spending data The rich picture: Brexit response
BBC News on 30 June 2016 (one week after referendum):
“There may already have been an impact on the economy or the public finances but we do not yet have data showing that….We're not going to get any reliable figures on that for a while.
Growth figures for March to June will be out on 27 July, but the referendum was really too late in the quarter for the result to make any difference, although uncertainty linked to the fact that the referendum was happening at all, probprobabablyly will make a difference.” X
Alternative data, gathered daily and quickly, suggested spending was holding up just fine
Referendum
Source: Schroders.
52 Geodata: Rapid insight into complex questions Merger analytics – Ladbrokes/Coral
Investor question: How many stores will Ladbrokes and Coral have to divest post-merger?
100 1800 4000 Combined branches
Lowest estimate Highest estimate
Source: Schroders. Companies shown are for illustrative purposes only and are not a recommendation to buy or sell any security.
53 Geodata: Rapid insight into complex questions Merger analytics – Ladbrokes/Coral
Instant modelling of divestment potential post-merger based on store-by-store analysis
June 2015 Predicted stores to close (out of 4,000): 400 May 2016 Regulator’s judgement of required closures: 350–400
Source: Schroders, https://www.gov.uk/cma-cases/ladbrokes-coral-group-merger-inquiry
54 Brand perception data Specific use cases: Impact of scandals – Samsung, VW, Chipotle
<3 months
7months 4 months
Source: Schroders. Companies shown are for illustrative purposes only and are not a recommendation to buy or sell any security.
55 Dynamic sectors Working towards ‘better sectors’ based on high-dimensional cluster analysis
3 year clustering analysis Daily returns local currency analysis Rebased prices
Day of date
Source: Schroders. Sectors shown are for illustrative purposes only and are not a recommendation to buy or sell any security.
56 Dynamic sectors Working towards ‘better sectors’ based on high-dimensional cluster analysis
Source: Schroders.
57 Conclusion
– Substantial investment by the firm in data science for investment – Focused on delivering insights for long-term alpha – Integrated with all asset classes – Two-way process of idea-generation – Intersecting an increasing array of datasets – Enjoy a scale advantage due to technology and skill bench required
“If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” Jim Barksdale, former CEO of Netscape
58 Appendix
ETF’s power trading patterns
US Stock Market intraday trading volume
30%
25%
20%
15%
10%
5%
0% 1:00 - 1:30 1:30 - 2:00 2:00 - 2:30 2:30 - 3:00 3:00 - 3:30 3:30 - 4:00 4:00 - 4:30 12:30 - 1:00 9:30 - 10:00 12:00: 12:30 12:00: 10:00 - 10:30 10:30 - 11:00 11:00 - 11:30 11:30 - 12:00 Percent of Daily Trading Volume
Source: Citi Research as at 31 March 2017.
60 Schroders Global Equities Sustaining an edge in challenging markets
Research Portfolio construction Engagement
The Schroders difference
Breadth of research coverage Risk-based construction Active ownership Over 70+ analysts based around Ensuring consistent alignment Regular dialogue with companies the world between portfolio risk and promoting improvement of long manager conviction term returns Global perspective Global Sector Specialists marrying Controlled factor risk Dedicated engagement resources local research with global analysis Alignment of risk and stock Impressive record of positive selection to drive enhanced response to change from hundreds Innovative use of data analytics performance consistency of companies Industry-leading capability to improve fundamental Fundamental risk framework research efforts Proprietary forward looking risk system designed to enhance Integration of ESG portfolio downside protection Assessing the durability of a company’s earnings
Source: Schroders, as at 30 September 2016.
61 Making money from mathematics David Harding, Founder and Chief Executive Officer, Winton
62
Introducing Winton
A British-based global investment management company, powered by data.
Winton David Harding Founded in 1997, Winton combines the rigour of the scientific method with advanced investment David Harding, Winton’s CEO and founder, has been at the forefront of data‐driven, systematic technology to invest in financial markets. investment for 30 years. • Develops intelligent investment systems that evolve as financial markets change through time. • Started two of the world’s leading systematic investment companies: AHL (Adam, Harding and Lueck, 1987) and Winton (1997). • One of Europe’s largest absolute return investors with over $30 billion in assets under advice and more than 450 people in nine offices around the world. • Navigated his funds through Black Monday, LTCM/the Russian Debt Crisis, the Dotcom Crash, the Quant Crisis and the Global Financial Crisis. • Manages assets for many of the world’s major pension funds, sovereign wealth funds, banks and fund platforms. • Built a substantial scientific research group at Winton with the ability to pursue ground breaking work in the automation of a long‐term investing strategy.
David Harding Employees by Department AHL/Winton Track Record Winton CEO and founder A focus on research, data and technology (AHL track record is shown from inception to inception of Winton)*
105 25 97 (log) 65
63 $1
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25 25 5 16 10
Growth Winton
AHL 1 1987 1992 1997 2002 2007 2012 2017
Employee numbers as at 31 March 2017. *This chart shows the net track records of AHL Diversified Program (Jan 1987 –Sep 1997, net of 6% management and 15% performance fee) and the Winton Diversified Program (from Oct 1997, net of 1% management and 20% performance fee). The AHL series is a composite track record supplied by a third party data provider and is based on the accounts that traded the AHL Diversified Program at the time. Winton’s returns are based on the oldest and largest account following the Winton Diversified Program. Performance of 63 other accounts which started at different times may differ from the performance shown in the chart. Past performance is not indicative of future results. Our Approach
Our decisions are driven by the empirical analysis of data, rather than instinct or intuition.
Market Allocations Strategy Allocations Diversified Sources of Returns Meats Base Metals US North America The Winton Diversified Program follows multiple strategies in more Proprietary Other than 100 markets, providing long‐term diversification from Slow TF Precious Metals Cash Europe traditional investments. Equities Fixed Other Crops Income • Commodit Futures Other Winton assesses liquidity and capacity to select investible ies Japan; Asia/Pacific Carry equities, futures and forward markets. Energies Currencies • Research‐backed trading systems generate return forecasts for Japan; Index Currencies Cash Momentu Asia/Pacific Futures Developed Equities m each market daily. Medium TF Europe Cash Equities Emerging North America Fast TF
Systematic Investment Process
Portfolio construction embodies the cumulative findings of our Return signals, risk and cost research. Forecast Monitoring • The program generates a target portfolio using return and Investment Risk Forecast Target New Portfolio volatility forecasts and inputs from Winton’s correlation and Universe Portfolio cost models. Cost • Portfolio sensitivity and exposure to a range of key factors and Model markets are monitored. Constraints Execution
64 WDP sector and market exposures are based on 20‐year simulated risk allocations. WDP strategy allocations are indicative; actual values are confidential. Winton ValueProposition 65 • The • stable Positive inception, Annualised of
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Winton’s flagship investment program, the Winton Diversified Program (WDP), is a diversified absolute return strategy that has been trading since October 1997.
Cumulative Returns Since Inception
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WDP (Actual) WDP (Risk‐Adjusted) Barclay Hedge Fund Index JPM US Bond Index MSCI World TR Index
Performance Over the Past Five Years (WDP Actual)
Q1 2016 –Q1 2017 Q1 2015 –Q1 2016 Q1 2014 –Q1 2015 Q1 2013 –Q1 2014 Q1 2012 –Q1 2013
‐1.4% ‐3.8% 19.4% 3.7% 2.6%
Source: BarclayHedge, Ltd., MSCI Inc., JPMorgan Chase & Co., Bloomberg and Winton Capital Management. WDP performance figures relate to the oldest and largest account following WDP. WDP risk‐adjusted figures relate to the same account. Prior to 01/2009 volatility has been adjusted lower to reflect more closely the risk levels at which WDP has operated post the ‘Global Financial Crisis’ (these results are simulated and do not represent actual trading; the accompanying disclaimers on the last page should be read carefully when reviewing this data; no representation is being made that any account will or is likely to achieve profits or losses similar to those being 66 shown); from 01/2009, actual returns are used. WDP returns are net of 1% management and 20% performance fee. Past performance is not indicative of future results. Legal Disclaimer
This document is solely for the person to whom it was communicated by or on behalf completely account for the impact of financial risk in actual trading. There are no liability for any inaccuracy or omission. Information obtained from third parties of Winton Capital Management Limited (“WCM” together with its affiliated numerous other factors related to the markets in general or to the implementation of has not been independently verified by Winton. companies, “Winton”). It is not intended for any person in any jurisdiction where any specific trading program which cannot be fully accounted for in the preparation of Winton would become subject to licence or registration regulations of that hypothetical performance results and all of which can adversely affect actual trading WCM is a company registered in England and Wales with company number 03311531. jurisdiction, or the publication or availability of this document is prohibited. This results. Simulated or hypothetical trading programs in general are also subject to the Its registered office at 16 Old Bailey, London EC4M 7EG, England and it is authorised document is confidential and you should not disseminate, distribute or copy it or any fact that they are designed with the benefit of hindsight. No representation is being and regulated by the UK Financial Conduct Authority. of its contents. This document has been provided for informational purposes only made that any investment will or is likely to achieve profits or losses similar to those and should not be construed as financial, investment, tax, legal, regulatory or other being shown. advice. The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and This document is not an offer to sell or the solicitation of any offer to buy securities in has been licensed for use by WCM. Copyright © 2016 S&P Dow Jones Indices LLC, a any investment vehicle or account sponsored, managed and/or advised by Winton subsidiary of McGraw Hill Financial Inc., and/or its affiliates. All rights reserved. (each a “Product”). In particular, it is not an offer or sale of securities in the United Redistribution or reproduction in whole or in part are prohibited without written States or to, or for the account or benefit of, any US person (as defined in relevant US permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow securities laws, including residents of the United States or partnerships or Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark corporations organised there). No fund referred to in this document (if any) has been of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark registered under the US Investment Company Act of 1940 and no interests therein are of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones registered under the US Securities Act of 1933. Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to Investments in Products are speculative and involve substantial risks, including the accurately represent the asset class or market sector that it purports to represent and risk of loss of the entire investment. No guarantee or representation is made that any neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates Product will achieve its investment objective. Past performance is not indicative of nor their third party licensors shall have any liability for any errors, omissions, or future results. interruptions of any index or the data included therein.
Investments in Products are to be made solely on the terms of the relevant offering The MSCI information may only be used for your internal use, may not be reproduced document, investment advisory agreement and/or WCM’s SEC Form ADV (“Legal or redisseminated in any form and may not be used as a basis for or a component of Documents”) and no reliance should be placed on this document. Prospective any financial instruments or products or indices. None of the MSCI information is investors should consider all of the risks of a Product and should therefore carefully intended to constitute investment advice or a recommendation to make (or refrain review the description of material risks disclosed in the Legal Documents, before from making) any kind of investment decision and may not be relied on as such. deciding to invest. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided This document contains forward‐looking statements that are based on current onan“asis”basisandtheuserofthisinformationassumestheentireriskofanyuse indicators, expectations and assumptions that Winton believes to be reasonable but made of this information. MSCI, each of its affiliates and each other person involved are subject to a wide range of risks and uncertainties and, therefore, there can be no in or related to compiling, computing or creating any MSCI information (collectively, assurance that actual results will not differ from those expressed or implied by such the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, forward‐looking statements. These statements speak only as of the date on which any warranties of originality, accuracy, completeness, timeliness, non‐infringement, they are made. merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any This document contains simulated or hypothetical performance results that have liability for any direct, indirect, special, incidental, punitive, consequential (including, certain inherent limitations. Unlike the results shown in an actual performance without limitation, lost profits) or any other damages. (www.msci.com). record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under‐ or over‐compensated for The information in this document is believed to be materially correct but Winton the impact, if any, of certain market factors, such as lack of liquidity and cannot makes no representation or warranty as to its accuracy or completeness and accepts
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Q&A
Baby booms and the world economy Lord Willetts, Executive Chair of the Resolution Foundation; former Minister for Universities and Science
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The Demographic Transition
• “First we stop dying like flies, then we stop breeding like rabbits.” • Result- a baby boom and then a baby bust • The Asian miracle and the Arab Spring • Now it’s Africa’s turn • Effects of Depression and then World War in the West • The pig in the python • What a baby boom does - an accelerator then a brake.
RF Over the past century, Britain has gone through baby boom and bust
Births per year (millions) by generation: UK
RF Intergencommission.org Three ways a society can age
• Reduce early deaths – “rectangularisation”
• Live longer when old – healthy or not
• A big cohort grows old with fewer young people behind
RF Voting power when there are lots of older people and they are more likely to vote
Turnout at General Elections by life stage: 1964-2015, UK
RF Intergencommission.org In the near term, benefit payments to older groups have been protected, while others’ benefits are falling in value
Benefit expenditure per head of population: Reduction between 2015-16 and 2020-21
RF Intergencommission.org Generational self-interest may drive views on policy
Preferred policy for paying for the rising cost of state pensions, by age: 2006, UK
RF Intergencommission.org Millennials so far are the first generation to earn less than their predecessors
Median pay by age for each generation: real weekly pay (RPIJ-adjusted), UK
RF Intergencommission.org But reasons to be positive: Opposition to policies that will benefit the young have softened across generations
Proportion saying they would support more homes being built in their local area: UK
RF Intergencommission.org Demographic strains across Western countries
Old-age dependency ratio (ratio of population aged 65+ per 100 of population aged 25-64)
RF Intergencommission.org Median ages
1950 2000 2015 2050
UK 34.9 37.6 40.0 43.3
Germany 35.3 40.1 46.2 51.4
China 23.7 29.8 37.0 49.6
USA 30.0 35.3 38.0 41.7
Afghanistan 19.4 15.7 17.5 29.8
Japan 22.3 41.3 46.5 53.3
RF Source: UN World Population Prospects The economic impact in Europe
• Average potential growth rate falls from 2.4% in 2007-2020 to 1.7% in 2021- 2040 and 1.3% in 2041-2060
• Average growth rate 2007-2060 is 1.7% per annum of which productivity is +1.8%, and labour input is -0.1%.
RF Source: EU 2009 Ageing report The Northern 7 vs the Southern 4
N7 S4
Women aged 11.7m 9.5m 30 to 39
Daughters aged 9.5m 5.5m 0 to 9
Replacement rate 80% 60%
RF Source: Lutz and Wilson: The New Generations of Europeans Japan
• No babies and no immigrants (apart from Mongolia)
• Robots or Neurographics
• Redistribute from old to young in the home
RF China
• China grow old before it grows rich
• Working age population falling
• The one child policy, gender balance and, the savings ratio
RF USA
• Favourable demographics
• But labour market not working
• And fiscal gridlock. The California scenario - whose children are we providing for?
RF Demographic drivers may be starting to push in the other direction: Global working age-to-dependent ratio turning
RF Intergencommission.org The Pinch How the baby boomers took their children’s future – and why they should give it back
David Willetts
May 2017
RF
Biographies
Biographies
Mary-Anne joined Cazenove Capital Management in 2001 and is Deputy Chief Executive of the business in the UK. In her responsibility as Head of Wealth Management, Mary-Anne sits on the board of Schroder & Co. Limited and is a member of the Group Wealth Management Executive Committee. She joined from Baring Asset Management’s Private Client Division where she had been Head of Client Service for four years, and prior to this, Managing Director of the BAM Paris office for three years. Previous to joining BAM, Mary-Anne spent seven years in the Corporate Finance Division of Baring Brothers in London and Paris and before that worked for Chase Manhattan Bank in London. Mary-Anne holds a BSc (Hons) degree in Economics from University College, London University. She has 29 years’ investment and banking experience and is a fluent Italian and Mary-Anne Daly French speaker. Deputy Chief Executive, Cazenove Capital
Richard joined Cazenove Capital Management in 2008, and in January 2009 was appointed Chief Investment Officer and an Executive Board Director. Following the purchase of Cazenove Capital by Schroders, Richard was appointed Chief Investment Officer of the combined UK wealth management business. More recently, he assumed the role of Chief Economist. Since completing a Master’s degree in quantitative economics in 1981, Richard has held various roles in the City. From 2002 to 2006, he was employed by Bridgewell Group, where he established and ran the research team. Between 1992 and 2002 he worked for Charterhouse Securities as Head of Research and Chief Economist. Prior to this, between 1981 and 1992, he was employed by Hoare Govett, ultimately heading up the economics and strategy team. As well working as a professional economist, Richard Richard Jeffrey has been involved with several ‘think-tanks’, including the Centre for Policy Studies, the Adam Smith Institute and Reform. Chief Economist, Cazenove Capital Richard Jeffrey is a Fellow of the Royal Society of Arts (FRSA), a Quondam City Fellow of Hughes Hall, Cambridge, a member of an Advisory Board at the Cass Business School, and a member of the Finance Committee of the University of Bristol. He is a frequent broadcaster on radio and television and has written for various newspapers and magazines.
88 Biographies
Caspar joined in September 2016 and is Chief Investment Officer. He joined from Architas Multi-Manager Ltd, a part of the AXA group, where he was Chief Investment Officer and responsible for all aspects of the investment activities, including investment philosophy, process and team. He also oversaw portfolio management at two of AXA group’s private banks. He previously headed up the multi manager business at AXA Framlington from 2006 to 2008. Prior to that, he managed a range of directly invested equity and bond portfolios, and was Head of European Equities at Framlington as well as a member of the Healthcare team. He has 29 years’ investment experience. Caspar Rock Chief Investment Officer, Cazenove Capital
Alex joined Schroders in July 2014 and is Head & CIO of Global Equities. Alex joined Schroders from American Century Investments in New York, where he was Senior Vice President and Senior Portfolio Manager (Global and Non-US Large Cap Strategies). He was lead manager of the American Century International Growth Fund (TWIEX) from July 2006 until March 2014 Prior to this, he was with Deutsche Asset Management Ltd, where he worked in various capacities including Managing Director and Head of International Equities / Portfolio Manager. He was lead manager of DWS International Select Equity Fund (MGINX) from May 1995 to September 2005. He also previously served as co-manager of DWS International Fund, DWS Worldwide 2004 Fund, Deutsche Global Select Equity Fund and Dean Witter European Growth Fund. Alex initially joined Schroders in 1990, Alex Tedder working in the UK and Germany where he was responsible for promoting European Equity mandates alongside Schroders' Head & CIO of Global Equities, Private Equity operation. Alex has an MA in Economics and Business Administration from the University of Freiburg/Fribourg, Schroders Switzerland.
89 Biographies
Ben joined Schroders in 2013 and is portfolio manager for Schroders’ Global Climate Change strategy and has lead responsibility for Data Insights across Schroders’ equity division. Prior to this, Ben was the Global Sector Specialist with responsibility for energy. Ben joined Schroders’ Global and International Equity team in March 2013 as an equity analyst supporting the team’s research effort for its Global Climate Change and Global Resources strategies. Ben initially joined Schroders in 1999 as a graduate. From 2000 Ben was an analyst with Schroders’ Pan European research team where he had responsibility for construction, basic materials and oil & gas sectors. He later became a global basic materials sector specialist and spent time working as an EAFE portfolio manager. Ben left Schroders in 2005 to work for the UK Government as a senior Ben Wicks analyst conducting geopolitical risk analysis before returning in 2013. Ben has a BA (Hons) from Oxford University in History Portfolio Manager & Head of Data and Modern Languages (French) . Analytics, Schroders
Emily Maitlis is one of the most recognized faces on television news. She is part of Newsnight’s core presenting team, recently leading their coverage of President Trump’s election and his first 40 days in office. She combines this role with working alongside David Dimbleby and Jeremy Vine to front the General, Local and US elections. Emily was part of the core news team for BBC’s News Channel and anchored BBC2’s new current affairs programme This Week’s World. Emily is also a documentary maker and in 2011, secured an exclusive television interview with Facebook founder Mark Zuckerberg, which formed the basis of her much-acclaimed BBC2 documentary, 'Inside Facebook: Zuckerberg's $100 Billion Gamble'. Her other documentaries have been on subjects as diverse as Donald Trump, Nicolas Sarkozy and Barbie. She has also interviewed major political figures such as Bill Clinton, Henry Kissinger and Christine Lagarde, as well as all four of the last UK prime ministers. She has interviewed key figures from the world of sport, entertainment, and business - David Beckham, Hugh Grant, George Soros, to name but Emily Maitlis a handful. Prior to working in news, Emily was a documentary maker in Cambodia and China. She spent six years working with NBC Asia, initially Journalist and BBC as a business reporter and then as a presenter in Hong Kong, covering the collapse of the tiger economies in 1997. She also covered the transfer Newsnight presenter of sovereignty over Hong Kong with Jon Snow for Channel 4. She then moved to Sky News in the UK as a business correspondent, and to BBC London News when the programme was re-launched in 2001. She speaks French, Spanish, Italian (and English) but, contrary to popular belief, her Mandarin Chinese isn't so hot.
90 Biographies
David Harding is the Founder and CEO of Winton. Since graduating from Cambridge University with a degree in natural sciences, he has started two of the world’s leading quantitative investment companies: AHL and Winton. Today Winton advises on over US$30billion of assets for clients all around the world. Winton is a British-based global investment management company. The firm was founded in 1997 on the belief that the scientific method offers the best approach to investing. By finding patterns in large volumes of data, Winton’s researchers build intelligent investment systems which evolve over time. The investment decisions are driven by statistical inference based David Harding on the empirical analysis of data, rather than instinct or intuition. Founder & CEO, Winton
The Rt Hon. Lord David Willetts is the Executive Chair of the Resolution Foundation. He served as the Member of Parliament for Havant (1992-2015), as Minister for Universities and Science (2010-2014) and previously worked at HM Treasury and the Number 10 Policy Unit. Lord Willetts is a visiting Professor at King’s College London, Governor of the Ditchley Foundation, Chair of the British Science Association and a member of the Council of the Institute for Fiscal Studies. Lord Willetts has written widely on economic and social policy. His book ‘The Pinch’ was published by Atlantic Books in 2010.
Lord Willetts Executive Chair of the Resolution Foundation
91 Disclaimers, risk warnings and regulatory status
Disclaimers We undertake to comply with our obligations under the Financial Services and Markets Act 2000 and the disclaimers set out in this section do not exclude or restrict liability for any duty to clients under this Act or any other applicable regulatory authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. The material in this document is for information purposes only and the services, securities, investments and funds described may not be available to or suitable for you. Not all strategies are appropriate at all times. We have taken all reasonable care to ensure that the information contained within this document is accurate, up to date, and complies with all prevailing UK legislation. However, no liability can be accepted for any errors or omissions, or for any loss resulting from its use. Any data and material provided ahead of an investment decision are for information purposes only. Unit and share prices are for information purposes only, they are not intended for trading purposes. We shall not be liable for any errors or delays in these prices or in the provision of this information, or for any actions taken in reliance thereon. We reserve the right to amend, alter, or withdraw any of the information contained in this document at any time and without notice. No liability is accepted for such changes. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
Risk warnings You should consider the following risks: Investment risk: Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. Taxation: Statements concerning taxation are based on our understanding of the taxation law in force at the time of publication. The levels and bases of taxation may change. You should obtain professional advice on taxation where appropriate before proceeding with any investment. Exchange rates: Investments in overseas securities are exposed to movements in exchange rates. These may cause the sterling value of units to go up or down. Debt securities: Investments in higher yielding bonds issued by borrowers with lower credit ratings may result in a greater risk of default and have a negative impact on income and capital value. Income payments may constitute a return of capital in whole or in part. Income may be achieved by foregoing future capital growth. Emerging markets: You should be aware of the additional risks associated with investment in emerging and developing markets. These include: higher volatility of markets; systems and standards affecting trading, settlement, registration and custody of securities all possibly lower than in developed markets; lack of liquidity in markets and exchanges leading to lower marketability of securities and greater price fluctuation; significant currency volatility, possibly resulting in adoption of exchange controls; lower shareholder protection or information to investors provided from the legal infrastructure and accounting, auditing and reporting standards.
92 Disclaimers, risk warnings and regulatory status
Risk warnings (continued) Unregulated collective investment schemes: Unregulated collective investment schemes and other non-mainstream pooled investments (NMPIs) are unlikely to offer a level of investor protection equivalent to that available for UK regulated investments. Such schemes may deal infrequently and may limit redemption. Structured products: Structured products are usually issued by financial institutions and in the event of these institutions going into liquidation or failing to comply with the terms of the securities you may not receive the anticipated returns and you may lose all or part of the money you originally invested. If you sell your investment before its maturity date the investment may achieve a price less than the original investment. The performance of these investments may depend on indices and defined calculations which may differ from direct investments. Gearing: Some of the investments we may make on your behalf could be in investment companies which use gearing as a strategy or invest in other investment companies which use gearing, such as investment trusts. The strategy which the issuer of such securities uses or proposes to use may result in movements in the price of the securities being more volatile than the movements in the price of underlying investments. Such investments may be subject to sudden and large falls in value and you may get back nothing at all if there is a sufficiently large fall. Regulated Mortgages: Schroder & Co. Limited is authorised by the Prudential Regulation Authority to administer, advise on, arrange (bring about) and enter into a regulated mortgage contract. Your home may be repossessed if you do not keep up repayments on your mortgage. All data contained within this document is sourced from Cazenove Capital unless otherwise stated. Where FTSE International Limited (“FTSE”) data is used, “FTSE” is a trade mark of the London Stock Exchange Group of companies and is used by FTSE International Limited under licence. All rights in the FTSE indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices or underlying data. No further distribution of FTSE data is permitted without FTSE’s express written consent.
Company particulars and regulatory status This document is issued by Cazenove Capital which is part of the Schroder Group and is a trading name of Schroder & Co. Limited, who together with connected companies provide the services described. Schroder & Co Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered office is at 31 Gresham Street, London EC2V 7QA. Registered Number 2280926 England. Services supplied by Schroder & Co. Limited and connected companies may be subject to value added tax (VAT). Schroder & Co. Limited is registered for VAT in the United Kingdom (GB 243868730). For the purposes of the Data Protection Act 1998, the data controller in respect of any personal data you supply is Schroder & Co. Limited. Personal information you supply may be processed for the purposes of investment administration by the Schroder Group, which may include the transfer of data outside of the European Economic Area. Schroder & Co. Limited may also use such information for marketing activities unless you notify it otherwise in writing. For your security, communications may be recorded or monitored.
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