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Balanced Account Strategies in a Low Interest Rate Environment
Jeffrey Brewer, Managing Director
Bespoke financial vision
Central Bank Rates Fall to Record Lows
Source: Bloomberg LP Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 2
0.0%
1.0%
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4.0%
5.0%
6.0%
Sep
-02
Jan-
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Ma
y-03
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-03
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-12
Target Rates
ECB Rate Fed Funds
Coordinated Central Bank action has produced historic low interest rates
Global Stocks are Still Attractive
Stock dividend yields are rarely higher than 10 Year U.S. Treasury yields.
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 3
Opportunities
Source: Bloomberg LP
-6.0%
-3.5%
-1.0%
1.5%
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6.5%
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-6.0%
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Stock vs Bond Yields
Yield Differential MSCI Dividend Yield 10YR U.S. Treasury Yield
Global Stocks are Still Attractive
The yield differential between equity earnings and Treasuries is significant
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 4Source: Bloomberg LP
-4.0%
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2.0%
4.0%
6.0%
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Jun-95
Dec-9
5
Jun-96
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Stock Earnings Yield vs Treasury Yield
Yield Differential 10YR U.S. Treasury Yield MSCI Earnings Yield
Opportunities
Focus On Portfolio CorrelationGlobal bonds provide a diversifier for balanced portfolios
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 5
Opportunities
Correlation analysis uses monthly data from Dec 31, 1996 to Jan 31, 2013 for the S&P 500 Total Return Index and the Bank of America/Merrill Lynch Global Broad Market Excluding US Dollar Index
Source: Anchor Investment Management, Bank of America/Merrill Lynch, Bloomberg.
S&P500 Total Return Index Global Bond Index ex USDS&P500 Total Return Index 1.00 0.16Global Bond Index ex USD 0.16 1.00
Correlation
Focus On Countries With Better Fundamental Metrics
Total National Debt as % of GDP vs Central Bank Benchmark Interest Rates
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 6
Opportunities
*Non-financial corporate debt includes financial corporate debt.**Government debt includes state and local government debt.***Total national debt includes government, state, local, household and corporate (financial and non-financial) debt; does not include off-balance sheet liabilities.Source: Anchor Investment Management, Bloomberg, National Statistic Offices and Central Banks.
Mexc
io
Brazil
*
Norway
Sweden
New Zealand
Singapore
Australia U.S.
CanadaU.K.
Switzerla
ndJapan
Eurozo
ne**0%
100%200%300%400%500%600%700%800%900%
0%1%2%3%4%5%6%7%8%
Government Debt State and Local Government Debt Household DebtNon-Financial Corporate Debt Financial Corporate Debt Benchmark Rate
Debt/GDP Benchmark Rate
Substitute Duration Risk for Credit RiskShort duration BB high yield bonds provide a substantial yield pick up without much duration risk in a low return interest rate environment.
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 7
Opportunities
Source: Bloomberg, Bank of America/Merrill Lynch
Index metrics:
Rating: BBDuration: 2.4 yearsYield: 3.4%Spread: 275 bps
-20%
-10%
0%
10%
20%
30%
40%
50%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ann
ual R
etur
n
BB Corporate Bonds 1-5 Years
Annual Return Average Annual Return (7.4%)
The chart is be used for informational purposes only and Anchor does not guarantee future returns. Investment returns will vary and any historical results may not be considered representative of future returns.
Licensed to conduct Investment Business by the Bermuda Monetary Authority Page 8
A Laddered Fixed Income Approach Limits Interest Rate Risk
US Government Bond Market Ladders Historical Annual Performance
The chart is be used for informational purposes only and Anchor does not guarantee future returns. Investment returns will vary and any historical results may not be considered representative of future returns. .
Source: Crestmont Research
Opportunities
Money is Moving East KPMG’s “The Wealth Report 2012” found that there are 18,000 centa-millionaires (those with $100 million in disposable assets) in Southeast Asia, China and Japan—more than those in North America (17,000) and in Western Europe (14,000). This
figure is expected to more than double in China and India over the next five years.
Licensed to conduct Investment Business by the Bermuda Monetary Authority
Page 9
Opportunities
Licensed to conduct Investment Business by the Bermuda Monetary Authority Page 10
Jeffrey C. Brewer, Managing DirectorAnchor Investment Management Ltd.
Mr. Brewer serves as Managing Director and Director of Research of Anchor Investment Management Ltd. He has 30 years of investment experience and extensive training in both the equity and fixed income disciplines. Prior to founding Anchor in 1996, Mr. Brewer was Director of Research of C.A.S.E. Management Inc. in the United States where he headed the investment policy board. Prior to this he was Vice President and Director of U.S. Quantitative Research at Daiwa Securities of America in New York City. He began his career as a quantitative research analyst and the co-developer of the C.A.S.E. Research System. He founded CASE International Ltd. (Bermuda) in 1985. Mr. Brewer graduated from Duke University in 1982 with a degree in Management Science. He currently sits on several investment policy boards and is a Director of Neptune Group Ltd.
Contact Details: [email protected]: www.anchor.bmTelephone: 441-296-3515