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Ten Issues for The Year(s) the Bill Comes Due 2

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Presentation on theme: "Ten Issues for The Year(s) the Bill Comes Due 2"— Presentation transcript:

0 01 April 2017 Ten Issues for Deutsche Bank Private Wealth Management Charity Trustees Investors Association Seminar April 2012

1 Ten Issues for 2012 1 The Year(s) the Bill Comes Due 2
7 Ten Issues for 2012 1 The Year(s) the Bill Comes Due 2 Global Economic Governance in Transition 3 Rewriting the “Social Contract” 4 The World is Getting Smaller and More Complex 5 Reason Should Dominate Emotion 6 Safe May Not be Safe 7 Walk Before You Run 8 Big Will Grow Bigger 9 Nimble... and Selective 10 Asian Growth Generates Performance At Last Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

2 The Year(s) the Bill Comes Due
7 1 The Year(s) the Bill Comes Due The Interest Rate Challenge Heavy Redemptions in Europe While the total bill is due over the coming decades, it is a deterioration of confidence that could cause the cost of funding this debt to become unmanageable. The gross interest expense on national debt was $414 billion in 2010, significantly higher than the amount of money used to fund programs such as the departments of labor, agriculture, veterans affairs and education. Developed economies’ fiscal problems could come under pressure in early 2012 as the Eurozone has heavy re-financing needs during the first four months of the year. Data Source: FactSet Data Source: Deutsche Bank, Bloomberg Finance LP Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

3 Creditors and Debtors in Euroland
2 Global economic governance in transition Creditors and Debtors in Euroland Account balance in bln. Euro Euro-Core Countries Germany, Finland, the Netherlands and Luxembourg are creditors High debt in the peripheral countries. However, France as core country is a major debtor Main creditor Creditor Balanced Debtor Main debtor Source: National Central Banks, DB Research, Deutsche Bank Global Investment Solutions; December 2011 Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

4 Rewriting the “social contract”
7 3 Rewriting the “social contract” Taxing the Consumer? U.S. Taxes at Historically Low Levels Public Spending at High Levels Both income and corporate tax rates continue to be at the lowest levels in history. Increasing demands on government “entitlements” will likely necessitate higher taxes. Most European countries will face their heaviest demographic burdens between 2025 and 2040, however Greece and Spain will face theirs sooner. Labour participation is another risk that further makes the pension system expensive. Greece, Italy and Spain, in particular, have low labour participation rate. One sustainable solution according to the International Monetary Fund is to increase the retirement age. Source: Factset, Deutsche Bank Data Source: Heritage Foundation, Tax Foundation and Internal Revenue Service Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

5 The world is getting smaller and more complex
7 4 The world is getting smaller and more complex Correlations to Remain Heightened Heightened Rolling Correlation Heightened Volatility Remains Over 90 trading days with price moves in excess of 1% have occurred eight times in last 30 years The correlation (90-day) between European equities (MSCI Europe ex UK) and U.S. equities (S&P 500) is near record high levels. Heightened volatility emerged again in 2011 as 95 trading days saw S&P 500 Index gains or losses in excess of 1%. This marked the third in four years in which more than 90 trading days saw swings of that magnitude. Over the last 30 years, the S&P 500 Index has seen more than 90 trading days with +/-1% changes only 8 times. Data Source: FactSet Data Source: FactSet Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

6 Reason Should Dominate Emotion
7 5 Reason Should Dominate Emotion Historically, Emotions have Lead to Subpar Performance Fund Flows to Equities Average Investor Has Missed a Lot of Alpha Fund flows tend to be a contrarian indicator. As inflows peak, the market is often more susceptible to experiencing a pullback. Currently, net new equity fund flows remain negative which could be a positive for equity performance. DALBAR’s 17th annual Quantitative Analysis of Investor Behavior Guide report shows that over the long term (last 20 years), the average equity and fixed income investor has dramatically lagged the “passive” benchmark indices. Data Source: ICI Data Source: FactSet, DALBAR Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

7 Safe May Not Be Safe Bond’s Could be More Volatile Than You Think
7 6 Safe May Not Be Safe Bond’s Could be More Volatile Than You Think Interest Rate Sensitivity: A Small Yield Increase Can Have a Huge Negative Effect Forecasted Range of Treasury Yields The high interest rate sensitivity of bonds (e.g. high duration) means it does not take much movement in yields to lead to negative performance. Data Source: Bloomberg Finance LP Footnote; Data as of and returns are 12 month returns. Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

8 Walk Before You Run Dividend Paying Stocks Remain Attractive
7 7 Walk Before You Run Dividend Paying Stocks Remain Attractive The Power of Dividend Compounding Dividends a Global Theme 69% 31% Since 1988, dividends have accounted for 69% of the total return of the FTALLShare. The dividend theme is a global theme as many major equity indices around the globe have dividend yields in excess of 2%. Data Source: FactSet, DB Data Source: FactSet,DB Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

9 Big Will Grow Bigger Fundamentals Globally Favour Large Cap
7 8 Big Will Grow Bigger Fundamentals Globally Favour Large Cap European Large Caps Trade at Discount U.S. Large Caps Trade at Discount UK large cap stocks are trading at a discount relative to UK mid and small caps. S&P 500 large cap stocks are trading at a discount relative to the S&P mid and small caps. Data Source: FactSet, DB Data Source: FactSet, DB Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

10 Be Nimble… and Selective
7 9 Be Nimble… and Selective Fundamental Factors Looking for Attractive Valuations The three most attractively valued sectors include healthcare, information technology, and energy. Data Source: FactSet Footnote: Relative to 15 year average P/E, P/BV, P/S, PEG, EV/EBITDA Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

11 Asian Growth Generates Performance At Last
7 10 Asian Growth Generates Performance At Last Asia has Financial Flexibility IMF 2011 Estimates – Debt-to-GDP Ratios by Country (Top 75 Countries)* Data Source: International Monetary Fund. Source: Deutsche Bank Investment Strategy Group. Footnote: *Ranked by 2011 estimates of GDP (in USD) Past performance is not indicative of future returns. No assurance can be given that any investment objectives and/or expected returns can be achieved.

12 What Does it Mean for Sterling Investors?
What to Do? Analyse the Facts There are major headwinds to recovery from excess indebtedness but fiscal contraction is not as severe as feared, yet, and deficits are diminishing. Growth Some key indicators around the world, principally ex-Europe are beginning to flash green: PMIs, Sales, Personal Income growth. Growth is not equally divided across the globe, geographic diversification post-crisis is important as de-correlation becomes evident. UK and US are well placed as are EMs Inflation CPI numbers are rolling over suggesting that policy ease in the West can be maintained and policy easing can occur in the EMs supporting local markets Financial Imbalances There is some indication that China recognises and is taking steps to avoid the build-up of further excess reserves. Germany by contrast continues to finance Southern European spending. This is unsustainable. Entitlement Spending Wealth creation and wealth distribution can conflict. Social expenditures will be constrained and pension ages raised. So far, agreement has been surprisingly easy to find? Safe May not be Safe Safe assets but “toxic” prices. Investors frequently “tax” their own returns by “buying high and selling low.” Risk assets offer high cash returns at historically low valuation metrics. Safe assets offer low or zero cash yields at unprecedented prices!

13 Deutsche Bank Private Wealth Management offers wealth management solutions for wealthy individuals, their families and select institutions worldwide. Deutsche Bank Private Wealth Management, through Deutsche Bank AG, its affiliated companies and its officers and employees (collectively “Deutsche Bank”) are communicating this document in good faith and on the following basis. This document is for information purposes only and is not intended to be an offer or solicitation, or the basis for any contract to purchase or sell any security, or other instrument, or for Deutsche Bank to enter into or arrange any type of transaction as a consequence of any information contained herein. It has been prepared without consideration of the investment needs, objectives or financial circumstances of any investor. 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Opinions expressed herein may differ from the opinions expressed by departments or other divisions or affiliates of Deutsche Bank. This document contains forward looking statements. Forward looking statements include, but are not limited to assumptions, estimates, projections, opinions, models and hypothetical performance analysis. The forward looking statements expressed constitute the author’s judgement as of the date of this material. Forward looking statements involve significant elements of subjective judgements and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. No representation or warranty is made by Deutsche Bank as to there reasonableness or completeness of such forward looking statements or to any other financial information contained in this document. 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