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TRANSCRIPT
DERAYAH’S DIRECTION
Investment Outlook
1st Quarter, 2010
NOTICE OF DISCLAIMER
While every precaution has been taken in the preparation of this document, Derayah Financial assumes no responsibility for errors, omissions, or for any damages resulting from the use of the
information herein. Product or corporate names may be trademarks or registered trademarks of other companies and used for the purpose of explanation and evaluation, without intent to infringe.
Past performance is not indicative of future returns. This document is not and should not be construed an offer to sell securities or investment products. This document does not purport to incorporate
all relevant information and as such should not be deemed as a formal investment advice or recommendation. Investors should consult an authorized financial advisor and make individual decisions.
Derayah shall not be liable for any direct or indirect loss arising out of investments based on this document.
This disclaimer statement, presented on this page, is an integral part of this document. Should this page of the document, in its electronic or printed formats, be lost, deleted, destroyed or otherwise
discarded, this disclaimer statement applies despite the consequences.
CONTENTS
Summary of market performance for the last quarter1
2
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
3
EMERGING EQUITIES CONTINUED THEIR STELLAR PERFORMANCE IN Q4 2009
Returns
Sep – Dec 2009
3.7%
-0.8%
-0.9%
0.1%
8.3%
-3.2%
Developed equities1
Fixed income securities2
EM real estate3
Money market4
Emerging Equities5
Saudi Equities6
27.0%
9.0%
54.8%
0.5%
74.5%
27.5%
Returns
Jan – Dec 2009
Representative Benchmarks for asset classes:
1. Developed equities – MSCI World equity index
2. Fixed income - JP Morgan Global aggregate bond index
3. Real estate – MSCI EM real estate index
4. Money market – NCB 1 month SAR interbank offer rate
5. Emerging equities – MSCI Emerging Markets equity index
6.Saudi equities – TASI (Tadawul All Share Index)
Source: Bloomberg
4
-3.2%
-17.7%
-6.1%
-10.4%
-6.2%
-3.1%
2.0%
17.9%
11.5%
5.5%
5.4%
4.1%
US
(S&P 500)
UK (FTSE
100)
Japan
(Nikkei 225)
India
(BSE Sensex)
China
(Shanghai)
Brazil
(IBOV Index)
Saudi Arabia
(Tadawul)
UAE
(DFM 20)
Qatar
(DSM 20)
Kuwait
(KWSEIDX)
Bahrain
(BHSEASI)
Oman
(MSM 30)
Sep to Dec 2009 Jan to Dec 2009
De
ve
lop
ed
Em
erg
ing
GC
CPercent returns
27.5%
10.2%
1.1%
-10.0%
-19.2%
17.1%
23.5%
22.1%
19.0%
81.0%
80.0%
82.7%
Source: Bloomberg
BRAZIL, CHINA AND INDIA HAVE PROVIDED THE HIGHEST YTD RETURNS
In 2009,
Saudi Arabia
was the best
performing
GCC market
5
OVER THE LONG TIME HORIZON ALSO, EMERGING EQUITIES HAVE BEEN AT
THE FOREFRONT OF CREATING INVESTOR WEALTH
Indexed returns of various asset classes for the last 20 years from earliest available date
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jun/89
Jun/90
Jun/91
Jun/92
Jun/93
Jun/94
Jun/95
Jun/96
Jun/97
Jun/98
Jun/99
Jun/00
Jun/01
Jun/02
Jun/03
Jun/04
Jun/05
Jun/06
Jun/07
Jun/08
Jun/09
(Compounded annual returns)
CAGR
Value of 100 invested in June 1989
9.39%Emerging Equity1
9.06%Local Equity2
7.19%Fixed Income3
4.38%Developed Equity4
2.88%Money Market5
Real Estate6 -4.2%
Representative Benchmarks for asset classes:
1.Emerging equities – MSCI EM Equities Index
2. Local equities – Tadawul All Shares (TASI) Index
3. Fixed JP Morgan Global aggregate bond index
4 Developed Equity – MSCI World Index
5. Money market – NCB 1 month interbank offer rate
6. Real Estate – MSCI Emerging Market Real Estate Index
CONTENTS
Summary of market performance for the last quarter1
6
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/ Sukuk
DERAYAH TACTICAL ASSET ALLOCATION
7
Fixed Income
(Sukuk)
Moderately Overweight
Developed
Equity
Neutral
.Emerging
Equity
Moderately Overweight
Money Markets Neutral
.
Emerging
Real estate
Neutral
.
Asset class Recommendation Comments
+
GCC
Equity
Neutral
.
+
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
8
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
WE MAINTAIN OUR NEUTRAL STANCE ON GCC EQUITIES
9
Neutral
Investment RecommendationCurrent P/Es are higher than the long term
average for GCC markets
Current P/Es are higher than the long term
average for the TASI Index
Equities > GCC Equities
0
5
10
15
20
25
30
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09
Average 18.9x
Current 29.4x
0
5
10
15
20
25
30
Apr-06 Apr-07 Apr-08 Apr-09
Source: Bloomberg
Average 17..9x
Current 19.8x
P/E (Price to Earnings) ratios are calculated on current price vs. earnings for the previous four quarters
• GCC market is trading above its long-term
average P/E, which limits potential for upside
• Oil prices have stabilized and could show an
upward trend mainly due depreciation of the
USD, bolstering nominal flows into the region
• Larger budget outlay by key economies such
as Saudi Arabia is expected to add to the
momentum of economic activity to the region,
partially shielding it from global downturns
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money market
- Fixed income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
10
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
GCC Equity
Developed
Equity
Emerging
Equity
Emerging
Real Estate
Money
Markets
US
Euro Zone
Developed
Asia
WE MAINTAIN A NEUTRAL STANCE FOR DEVELOPED EQUITIES
11
Developed equities comprises three major markets:
Developed
equity
+
-
-
.
Moderately Underweight – Appreciation of Yen will
hamper the Japan’s economic growth
Moderately Underweight – Withdrawal of stimulus
plans will bear heavily upon the region’s growth
Moderately Overweight – US corporates have accumulated
high cash balances. There are also expectations of
increasing profitability in the coming quarters
Investment recommendation - Neutral on
Asset classFixed
Income/Sukuk
Equities > Developed Equities
-3
-2
-1
0
1
2
1965 1975 1985 1995 2005
WE RECOMMEND A MODERATE OVERWEIGHT STANCE ON US EQUITIES
12
Moderately Overweight
Investment RecommendationCurrent P/E for S&P 500 are lower than the long
term average
Cash balances of US companies have shown
improvement
Equities > Developed Equities > US
0
5
10
15
20
25
30
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Source: Bloomberg
Average 19.3x Current 18.9x
Source: Schroder’s
Current 1.3
US companies have accumulated strong cash
balances, which could be a positive catalyst for
the market. At the same time, expectations of
stronger US profitability in the coming quarters,
driven by a combination of recovery and rising
margins should benefit the market as well
Schroders
Morgan Stanley
Consumer spending growth in the US has been
stronger than expected, giving signs of better
economic recovery in 2010
Percentage of GDP
P/E (Price to Earnings) ratios are calculated on current price vs. earnings for the previous four quarters
WE RECOMMEND A MODERATE UNDERWEIGHT STANCE ON NON US DEVELOPED
EQUITIES
13
Moderately Underweight
Investment RecommendationCurrent P/Es are higher than the long term
average P/E for European Union
Current P/Es are higher than the long term
average P/E for Japan’s Nikkei
Equities > Developed Equities > Euro Zone / Developed Asia
0
5
10
15
20
25
30
Jan-04 Jan-06 Jan-08 Jan-10
Source: Bloomberg
Average 22.1x
Current 25x
-5
5
15
25
35
45
55
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
Source: Bloomberg
Average 25.3x
Current 47.9x
Withdrawal of monetary and fiscal stimulus will
hamper the performance of the European
economy and markets and when the tightening
starts in earnest, markets will consolidate at best
Morgan Stanley
BNP Paribas IM
The stronger Yen is weighing on the EPS revision
momentum and adding to deflationary pressures.
Lending remains muted and even relative trend
indicators do not point to a lasting performance
P/E (Price to Earnings) ratios are calculated on current price vs. earnings for the previous four quarters
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
14
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
Fixed
Income/Sukuk
GCC Equity
Developed
Equity
Emerging
Equity
Emerging
Real Estate
Money
Markets
Emerging
Europe
Latin
America
WE RECOMMEND AN MODERATE OVERWEIGHT STANCE ON EMERGING EQUITIES
15
Emerging
equity
+
Emerging
Asia
+
++
+
Moderately Overweight- Growth in this region will be
driven by economic recovery in Brazil
Moderately Overweight
Overweight- Growth in the emerging markets will be
lead by Asia
Investment recommendation - Moderately
overweight on emerging equity
Equities > Emerging Equity
WE RECOMMEND A MODERATE OVERWEIGHT STANCE ON EMERGING MARKET EQUITIES
16
Moderate Overweight
Investment RecommendationCurrent P/Es are higher than the long term
average for Emerging markets
Equities > Emerging Equity
0
5
10
15
20
25
30
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Average 13.9x
Source: Bloomberg
Current 23.0x
MSCI Emerging Markets Equity Index
All regions of the emerging world are in recovery.
In Asia, the recovery is broad and mature enough
to bring monetary policy tightening to the fore. It is
also well under way in Latin America, particularly
Brazil and Mexico
Barclays
Merrill Lynch
Rising export demand from the global economic
recovery will likely emerge as the new source of
growth in EMs in 2010. This should relatively
benefit EMEA, which has had an increase in
export orientation, in contrast to a rising home
bias in Latin America and, increasingly, in Asia.
Lead economic indicators indicate strong Asian
activity
-3
2
7
12
17
1989 1994 1999 2004 2009
Current 17
Source: Bloomberg
Source: BNP Paribas
P/E (Price to Earnings) ratios are calculated on current price vs. earnings for the previous four quarters
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
17
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
WE MAINTAIN OUR NEUTRAL STANCE ON EMERGING MARKET REAL ESTATE
18
Neutral
Investment RecommendationMSCI Emerging Markets Real Estate Index
Real Estate > Emerging Real Estate
Source: Bloomberg
0
20
40
60
80
100
120
140
160
180
May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09
Current 141
Low 78.3
Emerging market Real Estate has posted an
impressive recovery in 2009 from its lows of
2008.
The primary reasons for the rebound have been
• Relatively lower levels of leverage compared to
developed economies
• Low interest rates to lock-in cheap mortgage
rates (esp. in the residential sector)
• Continued genuine demand due to urbanization,
especially in selected markets like Saudi Arabia,
which should lead to upturn in prices in select
locations
However, uncertainty of the global economic
recovery is expected to restrict potential for
upward moves
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
19
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
WE RECOMMEND A NEUTRAL STANCE FOR MONEY MARKETS
20
Neutral
Investment RecommendationMoney market returns for SIBOR and USD LIBOR
Money Market
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Jan-02 Apr-04 Jul-06 Oct-08
Source: Bloomberg
1 month USD LIBOR
1 month SIBOR
• Money market instruments provide an ideal
avenue of capital preservation especially due to
our outlook of increased volatility of riskier
asset classes
• However, imminent economic recovery (though
unlikely)could result in opportunity loss for the
investor
• Higher Inflation (due to economic recovery)
could also mean that the real return on Money
Market Instruments are either close to zero or
even negative
- GCC Equity
- Developed Equity
- Emerging Equity
- Emerging Real Estate
- Money Markets
- Fixed Income/Sukuk
CONTENTS
Summary of economic performance for the last quarter1
21
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
GCC Equity
Developed
Equity
Emerging
Equity
Emerging
Real Estate
Money
Markets
Government
Debt
Investment
Grade
Corporate
High Yield
Corporate
WE RECOMMEND A MODERATELY OVERWEIGHT STANCE FOR FIXED INCOME
22
Fixed income comprises three different sub-classes:
-
++
Fixed Income/
Sukuk
Overweight- Credit spreads still lie above the pre-crisis
level
Overweight- With the interest rates expected to lie low for
some time, IG bonds remain attractive relative to cash
Moderately underweight- Withdrawal of monetary and
fiscal stimulus will put pressure on the government bond
yields
Investment recommendation - Focus on
corporate bonds+Fixed
Income/Sukuk
Fixed Income
++
WE MAINTAIN AN UNDERWEIGHT STANCE FOR GOVERNMENT BONDS/SUKUK
23
Moderately Underweight
Investment RecommendationSpreads between 10-year and 2-year US
Treasuries
US Treasury marketable securities issuances
Fixed Income > Government Debt
6.40 6.35 6.206.90
8.40
2005 2006 2007 2008 2009
US Treasury issuance 2005-2009, USD trillion
Source: US Treasury
• We expect yield curves in the major economies
to experience a bear flattening, with 2-year
yields rising faster than the 10-year. This would
be in anticipation of a tightening of monetary
policy by central banks, which has usually
followed a fall in the unemployment rate
• The expected withdrawal of QE(Quantitative
Easing) and the fiscal woes of some OECD
(Organization for Economic Co-operation and
Development) economies, such as the UK,
have also put pressure on government bond
yields
Schroders
-50
0
50
100
150
200
250
300
Dec-89 Dec-94 Dec-99 Dec-04
Average 103 bps
Current 271 bps
bps
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Mar-09 May-09 Jul-09 Sep-09
WE MAINTAIN OUR OVERWEIGHT STANCE FOR INVESTMENT GRADE AND HIGH YIELD
BONDS/SUKOOK
24
Source: Bloomberg
bps
Overweight: Investment Grade
Overweight: High Yield
Investment RecommendationInvestment grade bond spreads in US and Europe
have normalized
GCC Sukuk yields have followed in line with their
global peers*
Source: Derayah
Max 17.6%
Current 8.6%
* Equal weighted basket of local and foreign currency Investment grade sukuk, average maturity 3 years
Fixed Income > Corporate Investment Grade
0.0
100.0
200.0
300.0
400.0
500.0
600.0
Oct-02 Oct-04 Oct-06 Oct-08
Current 125.5
• While HY spreads have narrowed, spreads
continue to look attractive on valuation grounds
given that they are still elevated relative to pre-
crisis levels
• Interest rates are expected to stay low for some
time. This suggests that IG should remain
attractive relative to cash given the strong
search for yield amongst investors
Schroders
BNP Paribas
As US non-financial companies reduce their debt
levels while profits grow again, we expect
fundamental improvements to support market
spreads
CONTENTS
Summary of economic performance for the last quarter1
25
Outlook for various asset classes2
Derayah’s recommended tactical asset allocation3
26
7% 6%
92% 93%Money Market
Fixed income
Q4-20091 Q1-20102
The minimum risk portfolio intends to
• Mimic the return of cash; and
• Have very low volatility / risk
The portfolio is best suited for investors who intend to
preserve capital and accept minimum risk.
Suitable investor profile includes
• Investors who need their money in a relatively short
time frame
• Investors who are negatively impacted by any loss in
value
• Risk Averse investors
1 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the prior quarter i.e. Q4 2009 2 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the current quarter i.e. Q1 2010
Minimum risk portfolio
Portfolio Characteristics:
• Expected Annual Volatility: 1%
• Historical Probability of loss in any year: 0Based on Historical Data from 1985 to 2009
27
The low risk portfolio intends to
• Generate higher return than cash and
• Have low volatility
The portfolio is best suited for investors who choose
to invest primarily in fixed income assets with an
intention to preserve capital while accepting some risk
for higher returns.
Suitable investor profiles include
• Investors who seek regular cash flow from their
investments
• Investors who value lower risk while accepting a lower
return
Low risk portfolio
23%27%
62% 55%
5%7%
2%2%
2%2%
5% 7%
Fixed Income
GCC Equity
Developed Equity
Money Market
Emerging Equity
Emerging Real Estate
Q4-20091 Q1-20102
1 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the prior quarter i.e. Q4 2009 2 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the current quarter i.e. Q1 2010
Portfolio Characteristics:
• Expected Annual Volatility: 5%
• Historical Probability of loss in any year: 8%Based on Historical Data from 1985 to 2009
28
The conservative risk portfolio intends to
• Achieve a balance between risk and return
• Have relatively low volatility
The portfolio is best suited to an investor who favors a
diversified portfolio with a tilt towards safety.
Suitable investor profile includes
• Investors who want to balance risk and return of their
portfolio
• Investors who have uncertain liquidity needs
Conservative portfolio
Fixed Income
GCC Equity
Developed Equity
Emerging Equity
Emerging Real Estate
62%55%
12%
14%
7%
6%
8%
8%
12%16%
Q4-20091 Q1-20102
1 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the prior quarter i.e. Q4 20092 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the current quarter i.e. Q1 2010
Portfolio Characteristics:
• Expected Annual Volatility: 10%
• Historical Probability of loss in any year: 28%Based on Historical Data from 1985 to 2009
29
The moderate risk portfolio intends to
• Generate higher returns by focusing more on capital
appreciation and
• Have medium volatility
The portfolio is best suited for investors who intend to
adopt a higher risk approach and is more oriented to
higher returns than lower risk.
Suitable investor profile includes
• Investors who are comfortable with higher volatility to
earn higher returns
• Investors who have a long term investing horizon
• Investors who's lifestyle would not be damaged by loss
of value.
Moderate risk portfolio
38%
29%
17%
21%
12%
11%
15%
16%
18%24%
Fixed Income
GCC Equity
Developed Equity
Emerging Equity
Emerging Real Estate
Q4-20091 Q1-20102
1 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the prior quarter i.e. Q4 2009 2 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the current quarter i.e. Q1 2010
Portfolio Characteristics:
• Expected Annual Volatility: 15%
• Historical Probability of loss in any year: 32%Based on Historical Data from 1985 to 2009
30
The aggressive portfolio intends to
• generate high returns over the long term
• have high volatility
The portfolio is best suited for investors who can
accept high risk to generate high long term returns.
Suitable investor profile includes
• Young investors who have a long investment horizon
• Investors who are looking for capital appreciation to
increase their savings pool
• Investors who’s lifestyle would not be affected by any
decline in investment value
Aggressive portfolio
GCC Equity
Developed Equity
Fixed income
Emerging Equity
Emerging Real Estate
21%
4%
21%
27%
15%
15%
21%
22%
22%
32%
Q4-20091 Q1-20102
1 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the prior quarter i.e. Q4 2009 2 This allocation is the final portfolio that includes Derayah’s recommendations for Tactical shifts to the Strategic Asset Allocation
for the current quarter i.e. Q1 2010
Portfolio Characteristics:
• Expected Annual Volatility: 20%
• Historical Probability of loss in any year: 36%Based on Historical Data from 1985 to 2009
31
Strategic Portfolio vs. Derayah Tactical Allocation
1Tactical Portfolio structure is based on Derayah’s view on performance of various asset classes that the investors can get exposure to via Investment funds on
our platform. Tactical asset allocation aims at taking advantage of temporary dislocations in various markets to generate excess return for investors.
* The benchmark represents the return of Derayah’s long term Strategic Portfolio. Please refer to Appendix for composition of Derayah Strategic Portfolios
CUMULATIVE PERFORMANCE COMPARISON (Q3 2009 AND Q4 2009)
0.66%
5.92%
10.08%
12.66%
15.02%
0.54%
5.96%
9.75%
12.40%
14.44%
Minimum Risk Low Risk Conservative Moderate Aggressive
Benchmark* Derayah Tactical Portfolio
32
APPENDIX
DERAYAH’S FRAMEWORK FOR PORTFOLIO STRUCTURING AND TACTICAL ASSET
ALLOCATION
33
1.Develop strategic
asset allocation
2.Synthesize tactical
asset allocation shifts
3.Recommend tactical
allocation to investors
• Derayah has developed
its proprietary framework
that creates an efficient
frontier including a
diversified set of asset
classes
• For various risk levels
the target portfolio is
designed to maximize
risk adjusted returns
based on historical and
expected future
performance of these
asset classes*
• Derayah collates analyst
expectations on
expected performance
of various asset classes
from a selected set of
global Asset
Management firms
• Derayah creates its own
consensus rating for
each asset class based
on its framework and
analyst expectations.
This rating is then used
to arrive at the tactical
shifts for the weights in
each asset class
included in the portfolios
• Tactical asset allocation
recommends that the
investors adjust their the
long term asset
allocation to take
advantage of
opportunities rising from
short term market
dislocations to generate
higher returns
• Derayah incorporates
the tactical adjustments
(Step 2) on the strategic
asset allocation (Step 1)
to design the portfolios
1. FOR THE STRATEGIC ASSET ALLOCATION, WE PERFORMED A MEAN-VARIANCE
OPTIMIZATION USING THE FOLLOWING INPUTS
34
Historical Correlations among various asset classes2
Historical Risk and return for various asset classes1
1Maximum available time period starting January 1970
Mean Variance Optimization – Developed by Harry Markowitz, Mean-variance optimization, is a quantitative asset allocation
technique which allows investors to use diversification to balance the risk and return in their portfolio.
Standard Deviation - A measure of the variability of a data set, or a probability distribution. A low standard deviation indicates that the
portfolio has low uncertainty i.e. returns tend to be very close to the mean, while high standard deviation indicates that the returns are
more uncertain and are spread out over a large range of values.
The output
from the
process is
multiple
optimized
portfolios
that are
suitable for
investors
with various
levels of
risk
tolerance
ASSET CLASS
MSCI
World
JPM Agg
Index
MSCI
EM/Real
Estate
SAR
Interbank
rates
MSCI
Emerging
Mkts
MSCI
GCC
Countries
MSCI World 1.00
JPM Agg Bond Index 0.13 1.00
MSCI EM/Real Estate 0.21 0.12 1.00
SAR Interbank rates -0.12 -0.13 0.05 1.00
MSCI Emerging Mkts 0.72 0.00 0.25 -0.11 1.00
MSCI GCC Countries 0.57 0.12 0.16 -0.08 0.58 1.00
MSCI
World
JPM Agg
Bond
Index
MSCI
EM/Real
Estate
SAR
Interbank
rates
MSCI
Emerging
Mkts
MSCI GCC
Countries
Historical Risk (St Deviation) 14.88% 3.65% 32.00% 0.46% 24.27% 30.03%
Historical Returns 6.38% 7.28% -4.61% 2.85% 10.65% -15.19%
1. COMPOSITION OF BENCHMARKS*
35
Indices representing Asset Classes:
Murabaha - SAR Interbank Rates Index
Sukuk - JPMorgan Aggregate Bond Index
Real Estate - MSCI Emerging Markets Real Estate Index
Developed Equity - MSCI World Equity Index
Regional Equity - MSCI GCC Countries Index
Emerging Equity - MSCI Emerging Markets Equity Index
93%
27%
6%
56%
57%
31%
7%
2%
6%
11%
15%
1%
7%
14%
21%
27%
2%
8%
16%
22%
1%6%
15%22%
30%
Murabaha Sukuk Real Estate Dev Equity Regional Equity Emerging Equity
Min Risk Low Risk Conservative Moderate Aggressive
* As represented by Strategic portfolios
2. WE COLLECTED AND SYNTHESIZED THE SHORT TERM TACTICAL SHIFTS OF
SEVERAL INVESTMENT STRATEGISTS
36 (++) Overweight (+) Moderately Overweight (--) Underweight (-)Moderately Underweight
Asset Class Sub Asset Class
Fixed Income Short Term Govt Debt - US - ++ +
Fixed Income Short Term Govt Debt - Europe --
Fixed Income Short Term Govt Debt - Developed Asia
Fixed Income Short Term Govt Debt - EmergingCountries -- -
Fixed Income Corporate - Investment Grade ++ ++ + - - ++
Fixed Income Corporate - High yield -- - -
Money Markets USD --
Money Markets EUR
Money Markets SAR --
Real Estate MENA
Real Estate Emerging Markets
Equities Developed Markets
Equities US -- + + ++
Equities Euro Zone + -- - - -
Equities Developed Asia - - --
Equities Emerigng Markets ++ ++ ++ +
Equities Emerging Asia ++ ++ ++ +
Equities Emerging Europe - --
Equities Latin America - --
Equities Africa --Equities GCC
37
3. WE THEN APPLIED THESE TACTICAL SHIFTS TO OUR STRATEGIC PORTFOLIOS
Minimum Risk
Low Risk
Conservative
Moderate
Aggressive
Strategic portfolios Tactical portfolios
Minimum Risk
Low Risk
Conservative
Moderate
Aggressive
Fixed Income(Sukuk)
Developed Equity
GCC Equity
Money Markets
Emerging Real estate
EmergingEquity
+
.
+
++
.
-
3. THE CHANGES IN ALLOCASTION ARE GUIDED BY THE QUANTITATIVE SHIFTS
BASED UPON THE FOLLOWING GRID
38
Portfolio Shift View
80% PILE ON!!!
50% Bullish
25% Overweight
10% Moderately Overweight
5% Slightly Overweight
0% Neutral
-5% Slightly Underweight
-10% Moderately Underweight
-25% Underweight
-50% Bearish
-80% AVOID!!!
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Website: www.derayah.com
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