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Investment Strategy Monthly Slides January 2012 Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing Director.

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Presentation on theme: "Investment Strategy Monthly Slides January 2012 Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing Director."— Presentation transcript:

1 Investment Strategy Monthly Slides January 2012 Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing Director Philipp E. Lisibach, CFA Director Jimmy M. James Director Samuel M. Baumann Assistant Vice-President Scott P. Rosenblatt Assistant Vice-President Ryan P. Sullivan Assistant Vice-President Private Banking Americas As of January 10, 2012

2 This document is not complete without attached Important Legal Information. 2 Table of Contents Investment Strategy Overview Four Charts You Cant Miss Asset Allocation & Economic Outlook Valuations Fundamentals Sentiment Appendix – Global Asset Class Returns Global Asset Class Returns – Key Forecasts Key Forecasts (Click below to go to section)

3 This document is not complete without attached Important Legal Information. 3 Investment Strategy Overview As of 1/09/2012 Source: Private Banking (PB) Americas Investment Strategy & Advisory High growth equity sectors in a low economic growth environment. Increase stable over cyclical growth in equity portfolios. Position U.S. sector allocations towards stable growth sectors such as: - Health Care, Telecom, Utilities, Consumer Staples High dividend paying stocks and strategies during periods of low interest rates. Stay overweight emerging market equities. Increase municipal bond exposure, favoring 5-10 year maturities given yield curve shape. High credit quality during periods of high liquidity. Seek higher yield through different vehicles such as: - Senior Bank Loans, MLPs, REITs with good coupons and coverage ratios Certain investment vehicles referenced above may be available only to qualified, suitable investors.

4 This document is not complete without attached Important Legal Information. 4 Four Charts You Cant Miss Source: PB Americas Investment Strategy & Advisory As of 1/06/2012 Source: Bloomberg Low Bond Yields Make High Dividend Stocks Attractive U.S. Labor Market Continues To Improve Gradually As of 12/31/2011 Source: Bloomberg U.S. Households Have Meaningfully Reduced Their Financial Burden since 2008 As of 9/30/2011; Latest data available Source: Federal Reserve Data as of 11/30/2011 Source: National Association of Realtors U.S. Home Prices are Reaching a Bottom and Homes are Now at their Most Affordable Level in the Last 20 Years

5 Asset Allocation & Economic Outlook

6 This document is not complete without attached Important Legal Information. 6 Over-heatingSlowdownContraction Recovery Stocks Comm Bonds Cash Bonds Stocks Comm Cash Bonds Comm Stocks Credits Cash Comm Bonds Outperform Underperform Cycle Clock* *The Cycle Clock framework breaks the economic cycle into 4 phases (Overheating, Slowdown, Contraction & Recovery). For each of the 4 phases we examine which asset classes may perform better than other asset classes based upon historical performance data. However, past performance is not an indication nor a guarantee of future results. GDP robust Unemployment low Tighter rate policy Inflation rising GDP dropping Employment slowing Tight rate policy Inflation slowing GDP contracting Unemployment high Easier rate policy Inflation low GDP picking up Employment off Easy rate policy Inflation tame As of 1/09/2012 Source: Private Banking Global Research Our Cycle Clock indicator is currently in the Contraction phase. The move from Recovery to Contraction in early October was both atypical and unusual of a business cycle, and has only previously occurred over two short periods in 1985 and As such, our recommended asset allocation (neutral tactical and positive strategic views on equities) is less typical of a normal Cycle Clock.

7 This document is not complete without attached Important Legal Information. 7 Outlook Summary Alternative investments, such as private equity funds and hedge funds, are typically high-risk investment vehicles which are available only to qualified individuals or entities that are willing to assume above average risk and sustain limited liquidity with a portion of their net worth.

8 This document is not complete without attached Important Legal Information. 8 Guidance Allocations Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory The proposed Benchmark and Strategic Asset Allocations for each of the risk budgets referenced above are created by the Private Banking Americas Investments Strategy & Advisory group. The Benchmark Asset Allocation (BAA), for a 3-7 year time horizon, is the neutral position reflecting the predefined risk budgets and meets investment objectives over a full market cycle. The Strategic Asset Allocation (SAA), for a month time horizon, expresses views resulting in temporary deviations from the BAA to generate expected excess returns or reduce risk. Alternative investments are typically high-risk investment vehicles which are available only to qualified individuals or entities that are willing to assume above average risk and sustain limited liquidity with a portion of their net worth. Please refer to the attached Important Legal Information for important disclosure relating to alternative investments.

9 This document is not complete without attached Important Legal Information. 9 Economics: Global growth divergence: U.S. appears to gain momentum, Europe in recession. In 2012 global growth is expected to reach 3.5%, mainly driven by the ongoing U.S. recovery and emerging Asian economies. Elections in seven of the G20 countries, accounting for 35% of global GDP, will make politics a critical factor this year. There may be additional volatility in financial markets fuelled by crucial debates surrounding entitlement cuts and tax policy. The global growth pattern is expected to diverge further in 2012 with Europes leading indicators deteriorating and pointing to a recession. Meanwhile, U.S. indicators (rising purchasing manager indices) point to a modest acceleration in the near-term. The political transitions in many of the Middle Eastern countries remain a source of uncertainty in energy markets in Oil Price Rises Amid Tensions in The Middle East As of 1/06/2012 Source: Bloomberg Source: PB Americas Investment Strategy & Advisory U.S. Labor Market Continues To Improve Gradually As of 12/31/2011 Source: Bloomberg

10 This document is not complete without attached Important Legal Information. 10 Developed Markets U.S. Emerging Markets Asia Pacific ex-Japan Asia Canada Latin America UK Europe, Mid East, Africa Japan Europe ex-UK Regional Outlook Global Equities Valuations Look Undemanding Note: Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 1 Strategic Asset Allocation, see slide 8 for more information Equities : Sovereign issues continue to weigh on sentiment. Valuations look reasonable overall, however headline risk remains and equities are likely to trade with elevated volatility in the near term. The Eurozone looks attractive on a valuation basis, however lingering contagion risk keeps us cautious on the region. With inflation less burdensome and growth expected to slow, many emerging markets are likely to benefit from looser (or less tight) monetary policies (Brazil, China). Source: PB Americas Investment Strategy & Advisory As of 12/31/2011 Source: Bloomberg, DataStream *EAFE: Europe, Australasia, and Far East SAA 1 Equity Market Index 12 Month Target Scenarios DJ Euro Stoxx 50 FTSE 100Nikkei 225MSCI EM Spot2,3175,5728, Optimistic3,0016,36711,5001,441 Main2,7405,8099,8001,257 Pessimistic2,4905,2737, Data as of 12/31/2011 Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory / Indicates a strong investment conviction in over/underweight position. / Indicates a modest investment conviction in over/underweight position. Indicates a neutral investment conviction, or benchmark weighting position.

11 This document is not complete without attached Important Legal Information. 11 U.S. Sector Outlook Health Care Energy Consumer Staples Industrials Telecomm Services Consumer Discretionary Utilities Financials Information Technology Materials Average Strategist S&P 500 Year-end 2012 Target Note: Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. / Indicates a strong investment conviction in over/underweight position. / Indicates a modest investment conviction in over/underweight position. Indicates a neutral investment conviction, or benchmark weighting position. U.S. Equities: Macro data have continued to surprise to the upside. We remain positive, with a defensive sector allocation on U.S. equities. Consensus is for modest gains in Recent economic data releases (ISM manufacturing, consumer confidence, jobless claims) have surprised positively. An better macro environment should lead to an improved earnings outlook. Prolonged euro weakness a headwind for U.S. companies with significant revenues derived from the Eurozone, as earnings are impacted when translated back into USD. Source: PB Americas Investment Strategy & Advisory As of 1/5/2012 Source: Bloomberg S&P 500 Index 12 Month Target Scenarios S&P 500 Index Level Spot1,258 Optimistic1,462 Main1,299 Pessimistic1,145 Data as of 12/31/ Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory

12 This document is not complete without attached Important Legal Information. 12 Fixed Income: Preference for high quality credits, munis, and emerging market debt. In 2012 interest rates are expected to remain near zero in the U.S. Given the risk of extreme outcomes in Europe we favor high quality investment grade corporates. The fixed income segment of our Strategic Asset Allocation remains unchanged compared to last month. We continue to prefer exposure to high quality investment grade bonds and we maintain a small overweight position to emerging markets local currency denominated bonds with limited exposure to Europe. Municipal bonds have given up some of their attractive valuation compared to U.S. Treasuries, yet remain favorably valued. Default rates are expected to stay relatively low and tax revenues are projected to improve going forward with the continuation of the U.S. economic recovery. Fixed Income Outlook Positive Negative Neutral Note: Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 1 Strategic Asset Allocation, see slide 8 for more information Source: PB Americas Investment Strategy & Advisory As of 12/31/2011 Source: Thomson Reuters MMD, Bloomberg U.S. Municipal U.S. Investment Grade Corp. Emerging Markets U.S. Treasury Inflation Protected U.S. High Yield U.S. Treasuries U.S. Securitized Municipals Remain Attractive Compared to U.S. Treasuries SAA % Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory Dec-91Dec-95Dec-99Dec-03Dec-07Dec-11 Muni / Treasury Spread Average +1 Standard Deviation -1 Standard Deviation %

13 This document is not complete without attached Important Legal Information. 13 Currencies: EUR expected to be under pressure, emerging Asian currencies likely to gain. Volatility is projected to persist in 2012 as financial market funding conditions, elections, and economic growth remain risk factors. Safe haven currencies such as the USD, CHF, and JPY could benefit temporarily in time of elevated market volatility. EUR: The European Central Banks interest rate reduction cycle is expected to continue putting further pressure on the EUR vs. USD, as the relative yield advantage of the EUR fades. Emerging Asian currencies with strong external balances are preferred. Continued U.S. economic recovery is projected to be a positive for the Mexican peso (MXN), in the event of lower overall market risk. Positive Negative Neutral Note: Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Source: PB Americas Investment Strategy & Advisory USD vs. CHF EUR vs. USD USD vs. CAD NZD vs. USD USD vs. MXN AUD vs. USD USD vs. BRL USD vs. JPY GBP vs. USD Data as of 1/06/2012 Source: Bloomberg Currency Outlook EUR Reaches a 16-month Low vs. USD Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory

14 This document is not complete without attached Important Legal Information. 14 Commodities: 2011 was challenging; however depressed prices may present value. Macro uncertainty led by the financial crisis and economic growth uncertainty made 2011 a challenging year for commodities. The Dow Jones UBS Commodity Index finished the year down 13%. Precious metals, particularly gold, were the bright spot in 2011, gaining 10% for the year. As a result of its recent pullback, we believe gold is within fair value range. Further, a continued low interest rate environment may act as a catalyst for higher prices. Industrial metals remain neutral as growth concerns exist in both developed and emerging markets. Chinese trade data due in January will provide an indication on current state of demand. Positive Negative Neutral Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Source: PB Americas Investment Strategy & Advisory Commodity Outlook Data as of 12/31/2011 Source: Bloomberg, All Indices Rebased to 100 as of 12/31/2010 Precious Metals Industrial Metals Livestock Agriculture Energy Other Than Precious Metals, Commodities Struggled During 2011 Data as of 1/09/12 Source: PB Americas Investment Strategy & Advisory

15 This document is not complete without attached Important Legal Information. 15 Alternatives: Global Macro hedge funds continue to be top performing strategy. Through November 2011, the global macro hedge fund strategy – our top pick for most of 2011 – was able to navigate market volatility and generate consistent returns for most months of the year. Global macro is up 6.0% through November 2011, versus the S&P 500 index, up 1.1%. Hedge funds at large, as measured by the CS Dow Jones Index, are down 2.3%. Real property continues to be a strategic position in the Credit Suisse Global Asset Allocation Framework with a positive outlook. Well-placed and managed investments across regions and geographies may provide investors with an enhanced yield (see table). Private equity outlook remains constructive for the longer term. Current activity in the space is focused around secondary funds and smaller Leveraged Buy-out (LBO) transactions that involve less leverage and have more access to financing in the current environment. Source: PB Americas Investment Strategy & Advisory Data as of 11/30/2011; Latest data available Source: Private Banking Investment Strategy and Advisory Group, Bloomberg Global Macro Navigated Volatility and Provided Consistent Returns Through November 2011 Global Commercial Real Estate Continues to Offer Enhanced Yields Data as of11/30/2011 Source: Credit Suisse, Colliers, PMA, ** USD/Square Foot Alternative investments, such as private equity funds and hedge funds, are typically high- risk investment vehicles which are available only to qualified individuals or entities that are willing to assume above average risk and sustain limited liquidity with a portion of their net worth.

16 Valuations

17 This document is not complete without attached Important Legal Information. 17 U.S. Equities - The Valuation Math Favors Investors As of 12/31/2011 Source: Bloomberg S&P 500 Index 12-Month Forward P/E Ratio 11.7x

18 This document is not complete without attached Important Legal Information. 18 EAFE* Equities – Sovereign Debt Issues Remain an Overhang to the Eurozone As of 12/31/2011 Source: DataStream *EAFE: Europe, Australasia, and Far East MSCI EAFE - 12-Month Forward P/E Ratio 10.0x

19 This document is not complete without attached Important Legal Information. 19 Emerging Market Equities – At a Discount to Developed Market Equities As of 12/31/2011 Source: DataStream MSCI Emerging Market - 12-Month Forward P/E Ratio 9.1x

20 This document is not complete without attached Important Legal Information. 20 Municipals – Remain Attractive Compared to U.S. Treasuries As of 12/31/2011 Source: Thomson Reuters MMD, Bloomberg G.O. AAA Muni Yield as % of 10-Year US Treasury Yield 97.3% Dec-91Dec-95Dec-99Dec-03Dec-07Dec-11 Muni / Treasury SpreadAverage +1 Standard Deviation-1 Standard Deviation %

21 This document is not complete without attached Important Legal Information. 21 High Yield – Macro Environment Continues to Keep Spreads Under Pressure Barclays High Yield Index spread over U.S. Treasuries in basis points (bps) As of 12/31/2011 Source: DataStream 723

22 This document is not complete without attached Important Legal Information. 22 Emerging Market Debt – Growth Dynamics Make Spreads Attractive JP Morgan Emerging Market Bond Index spread over U.S. Treasuries in basis points (bps) As of 12/31/2011 Source: DataStream 426

23 Fundamentals

24 This document is not complete without attached Important Legal Information. 24 Global PMIs Are Beginning to Improve As of 12/31/2011 Source: Bloomberg Global Purchasing Managers Index U.S. Recessionary Level: 42

25 This document is not complete without attached Important Legal Information. 25 Indicators in a Downward Sloping Phase, Europe in Contraction As of 10/01/2011; Latest data available Source: OECD OECD Composite Leading Indicator Indices United StatesEurope Japan China

26 Sentiment

27 This document is not complete without attached Important Legal Information. 27 Sentiment – Investor Sentiment is Gradually Improving As of 12/30/2011 Source: Credit Suisse Global Strategy Research Credit Suisse Daily Risk Appetite Index Panic Euphoria

28 This document is not complete without attached Important Legal Information. 28 …And Has Become Less Bearish Over Recent Weeks. As of 12/30/2011 Source: American Association of Individual Investors AAII Bull – Bear Investor Sentiment Surveys Bullish Bearish

29 Appendix

30 This document is not complete without attached Important Legal Information. 30 Global Asset Class Returns As of 12/31/2011 Source: Bloomberg, DataStream, Cambridge Associates *Annualized **EAFE: Europe, Australasia, and Far East ***Latest data available as of 11/30/2011 ****U.S. Private Equity Index The Cambridge Associates only quarterly data available, latest data available 6/30/2011

31 This document is not complete without attached Important Legal Information. 31 Key Forecasts* Commodities 12/31/113M12M Energy WTI Crude Oil (USD/barrel) US Natural Gas (USD/mmbtu) Precious Metals (Spot, USD/ounce) Gold Silver Platinum Base Metals (USD/pound) Aluminum Copper Agriculture ($/bushel) Wheat Corn Real GDP (%) Inflation 12 Global U.S Eurozone Japan Non-Japan Asia Latin America Interest Rates*** 12/31/113M12M U.S – 2.4%2.4 – 2.6% Eurozone – 1.9%1.9 – 2.1% UK – 2.5%2.6 – 2.8% Japan – 1.1%1.1 – 1.3% Currencies (USD vs.) 12/31/113M12M Euro** Japanese Yen British Pound** Swiss Franc Canadian Dollar Australian Dollar** New Zealand Dollar** Mexican Peso Brazilian Real Data as of 12/31/2011 *3month, 12month, or Year-end forecasts as indicated; **Level with USD as counter currency, price change with USD as base currency, *** 10 year government bond Source: PB Global Research, CS Latin American Equity Strategy, Bloomberg, Thomson Reuters DataStream Global Equity Indices 12/31/1112M U.S. (S&P 500)1,2581,299 Eurozone (Euro Stoxx 50)2,3172,740 UK (FTSE 100)5,5725,809 Japan (Nikkei 225)8,4559,800 MSCI Emerging Markets9161,257 Brazil (Bovespa)56,75463,000 Mexico (IPC)37,07835,000

32 This document is not complete without attached Important Legal Information. 32 Important Legal Information This information is not intended to be a recommendation or opinion regarding the equity securities of the referenced companies. This material may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse Securities (USA) LLC (CSSU). This material has been prepared by the Investment Strategy & Advisory Group of the Private Banking USA business of CSSU and not by the CSSU research department. It is provided for informational purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The material is not intended to provide a sufficient basis on which to make an investment decision. It is intended only to provide observations and views of the Investment Strategy & Advisory Group, which may be different from, or inconsistent with, the observations and views of CSSU research department analysts, CSSU traders or sales personnel, or the proprietary positions of CSSU. Observations and views expressed herein may be changed by the Investment Strategy & Advisory Group at any time without notice. Past performance is not an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance. The material set forth above has been obtained from or based upon sources believed to be reliable but CSSU does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes in market factors. This material does not purport to contain all of the information that an interested party may desire and, in fact, provides only a limited view of a particular market. CSSU may, from time to time, participate or invest in transactions with issuers of securities that participate in the markets referred to herein, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or derivatives thereof. The material does not constitute objective research under FSA rules. The most recent CSSU research on any company mentioned is available to online subscribers at suisse.com/pbclientview. CSSU does not provide legal or tax advice. Consult your personal accounting, legal, and tax advisor with respect to any legal or tax implications. Private equity funds, hedge funds and other alternative investments are complex instruments that are not suitable for every investor, may involve a degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Before entering into any transaction, an investor should determine if the product suits his or her particular circumstances and should independently assess (with his or her professional advisers) the specific risks and the legal, regulatory, credit, tax and accounting consequences. CSSU makes no representation as to the suitability of any alternative investment product for any particular investor nor as to the future performance of any such products. Any offering of interest in any private equity fund, hedge fund or other alternative investment product shall only be made pursuant to the offering material for each such product, which will be provided to each prospective investor before making his or her investment decision and which contains information about such product's investment objectives, the terms and conditions of an investment in such product and also contains tax information and risk disclosures that involve significant risks, such as loss of entire investment, illiquidity, restrictions or transferring of interests, volatility of performance, and currency risks. Before deciding to invest in a private equity fund, hedge fund, or other alternative investment, prospective investors should read the relevant offering material for such product and pay particular attention to the risk factors contained therein. Prospective investors should have the financial ability and willingness to accept the risk characteristics of such investment. The issuer of a fixed income security may be, or become, unable to make coupon and / or principal payments. Fixed income investments typically decline as interest rates rise. Inflation erodes the real value of interest payments. Some fixed income investments are callable forcing early redemption.

33 This document is not complete without attached Important Legal Information. 33 Direct investments in senior secured or "leveraged" loans are typically made by sophisticated institutional investors. Sophisticated and suitable private clients may invest in leveraged loans via an investment in a mutual fund, exchange traded fund or an alternative investment fund, provided they meet the applicable investment qualification, i.e. generally an accredited investor or qualified purchaser. The primary risks associated with investing in senior secured loan funds are as follows: First, it is possible that the borrower of the senior secured loan will fail to make a scheduled interest payment, or potentially default on the principal amount. Furthermore, the amount of public information available with respect to senior secured loans is generally less extensive than that available for more widely rated, registered exchange-listed securities. Finally, because interest rates of senior loans reset frequently, in a declining interest rate environment, the loans' interest rates will be reset to lower levels, potentially reducing the investor's income. The Private Banking USA business in CSSU is a regulated broker dealer and investment advisor. It is not a chartered bank, trust company or depository institution. It is not authorized to accept deposits or provide corporate trust services and it is not licensed or regulated by any state or federal banking authority. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein. This material may be distributed in Mexico by Banco Credit Suisse (México), S.A., for information purposes only, this may not be construed as an offer or an invitation to enter into any transaction or purchase any security or investment product that may not be undertaken under Mexican applicable regulation. ©2012 Credit Suisse Securities (USA) LLC. All rights reserved Important Legal Information


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