Presentation on theme: "Important risk information"— Presentation transcript:
0 DWS alternatives suite A compelling option for alternative investing
1 Important risk information Although allocation among different asset categories generally limits risk, the investment advisor may favor an asset category that underperforms other assets or markets as a whole. The funds expect to invest in underlying funds that emphasize alternatives or nontraditional asset categories or investment strategies, and as a result, it is subject to the risk factors of those underlying funds. Some of those risks include stock market risk, credit and interest rate risk, volatility in commodity prices and high-yield debt securities, short sales risk and the political, general economic, liquidity and currency risks of foreign investments, which may be particularly significant for emerging markets. In the case of DWS Alternative Asset Allocation Fund, it may use derivatives, including as part of its global tactical asset allocation strategy. The funds expect to have direct and indirect exposure to derivatives, which may be more volatile and less liquid than traditional securities. The funds could suffer losses on its derivative positions. See the prospectus for additional risks and specific details regarding the funds’ risk profile.Risk information
2 Agenda A definition of alternatives 1 2 Why alternative investments? 3 DWS Investments’ alternatives4SummaryOur topics of discussion for today are as follows:How to define alternativesThe benfits of using alernativesHow to implement alternatives in a portfolioAnd lastly, addressing market challenges
3 Asset class representation CategoryIndex nameAsset allocation60% U.S. fixed income/40% U.S. large-cap equities (see below for asset class representation)Alternatives20% FTSE EPRA/NAREIT Global Real Estate Index20% HFRI Equity Market Neutral Index20% Barclays Capital US TIPS Index15% commodities blend (50% Goldman Sachs Commodity Index, 25% MSCI World Energy Index, 25% MSCI World Materials Index)10% MSCI Emerging Markets Equity Index10% JPMorgan Emerging Market Bond Index5% S&P Global Gold BMI IndexCashCitigroup Treasury Bill 3-Month Index (When interest rates rise, bond prices generally fall. Although U.S. government securities are backed by the full faith and credit of the U.S. government, their prices fluctuate. Investors may lose principal if the securities are sold prior to maturity.)Commodity50% Goldman Sachs Commodity Index, 25% MSCI World Energy Index, 25% MSCI World Materials Index (Commodities, including gold, gems, and other precious metals, are long-term investments and should be considered part of a diversified portfolio. Market-price movements, regulatory changes, economic changes, and adverse political or financial factors could have a significant impact on performance.)Emerging-market incomeJPMorgan Emerging Market Bond Index (Investing in securities of emerging markets presents certain risks, such as currency fluctuations, political and economic changes and market risks. Also, see fixed-income risk listed below.)Emerging-market equityMSCI Emerging Markets Equity Index (See emerging-market income risk listed above.)Floating-rate noteS&P/LSTA Leveraged Loan Index (Loan investments are subject to interest-rate risk such that wheninterest rates rise, the prices of the loan, and thus the value of the loan, can decline and the investor can lose principal value. Although the value of senior loans will fluctuate less in response to interest-rate changes than will fixed-rate debt securities, floating rates on senior loans reset only periodically, so changes in prevailing interest rates may cause a fluctuation in the strategy's value.)Global infrastructureMSCI World Infra Sector Capped Index (Infrastructure-related securities have greater exposure to market, economic, regulatory, political and other risks affecting such entities.)Asset class representationEquity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. See next slide for more asset class representations.
4 Asset class representation CategoryIndex nameGlobal real estateFTSE EPRA/NAREIT Developed Index (There are special risks associated with an investment in real estate, including credit risk, interest-rate fluctuations and the impact of varied economic conditions. Real estate investment trusts (or “REITs”) can also be affected by interest-rate moves, economic cycles, and tax and regulatory requirements.)GoldS&P Global Gold BMI Index (See commodity risk listed above.)International equityMSCI EAFE Index (Investing in foreign securities presents certain risks, such as currencyfluctuations, political and economic changes and market risk.)Large growthRussell 1000 Growth Index (Large-cap equity stocks are affected by how the stock market performs.)Large valueRussell 1000 Value Index (See large-growth risk listed above.)Market neutralHFRI Equity Market Neutral Index (Short sales involve the risk that the strategy will incur a loss by subsequently buying a security at a higher price than the price at which the strategy previously sold the security short.)Small growthRussell 2000 Growth Index (Stocks of small-cap companies involve greater risk than securities of larger, more-established companies, as they often have limited product lines, markets or financial resources and may be subject to more-erratic and more-abrupt market movements.)Small valueRussell 2000 Value Index (See small-growth risk listed above.)TIPSBarclays Capital U.S. TIPS Index (Although inflation-indexed bonds are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation, investments in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure.)U.S. large-cap equity (stocks)S&P 500 Index (See large-growth risk listed above.)U.S. fixed income (bonds)Barclays Capital U.S. Aggregate Index (Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall.)U.S. small-cap equityRussell 2000 Index (See small-growth risk listed above.)Asset class representationEquity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.
5 A compelling option for alternative investing A definition of alternatives
6 How the world is defining alternatives Asset classesAlternative strategiesInvestment vehiclesBeyond Morningstarstyle boxesAbsolute returnReal returnNew asset classesLong/short and risk- managed equityMulti-strategyManaged futuresTactical asset allocationRelative valueHedge fundsLimited partnershipsMutual fundsETFsHow the world is defining alternativesInvestments outside of traditional equity and fixed income are broadly known as alternatives.
7 The DWS Investments’ definition of alternatives No industry-standard definition: Morningstar, Lipper and industry reports all define alternatives differentlyThe DWS Investments’ definition of alternativesNew, less-efficient asset classesAsset classes with the potential to provide attractive returns with reduced risk when added to traditional asset allocationThe DWS definition of alternativesDiversification neither assures a profit nor guarantees against a loss.
8 Alternative categories today DefinitionAbsolute returnSeeks to provide positive returns in up and down marketsReal returnSeeks to maintain value during inflationary environmentsNontraditional/non-U.S. dollarSeeks diversification through less efficient asset classes, not limited to a geographic region, market or security typeAlternative categories todayWhile market neutral and absolute return strategies may outperform the market during periods of severe downturns, they may also underperform the market during periods of market rallies.
9 A compelling option for alternative investing Why alternative investments?Why alternative investments?
10 Why alternatives may fit into a portfolio Bring institutional defined-benefit thinking to individual investorsImprove diversification potential when added to a traditional portfolio consisting of stocks and bondsMay deliver better risk-adjusted returnsMay address market challengesOur view is that investors need greater diversification and protectionfrom movements in the market—and alternatives may fulfill these needs.
11 Asset allocation of defined benefit vs. defined contribution Institutions and defined benefit plans are increasing allocations to alternative asset classesAsset allocation of defined benefit vs. defined contributionSource: BNY Mellon and Callan DC Index as of 3/31/10. Percentages may not add up to 100% due to rounding.
12 Correlation to the S&P 500 Index (five years as of 12/31/11) Morningstar categoriesLargeValue1.00BlendGrowth0.98Short-Term Bond0.53Target DateMultialternative0.94Mid-Cap0.970.96Multisector Bond0.77Moderate AllocationInflation-Protected Bond0.34Small0.95Small BlendSmall GrowthHigh Yield Bond0.78Real Estate0.84Foreign Large Blend0.93DiversifiedEmer. Markets0.86As asset classes have become increasing more correlated, certain alternative investments offer lower correlation. In turn this, when added to a traditional portfolio of stocks and bonds, alternatives provide for greater diversification benefits.Consider alternatives for further diversification.Source: Morningstar as of 12/31/11. Categories are Morningstar’s. Correlations are historical and do not guarantee future results. Correlation refers to how securities or asset classes perform in relation to each another and/or the market. A 1.0 correlation indicates that two security types move in exactly the same direction. A –1.0 correlation indicates movement in exactly opposite directions. A zero correlation implies no relation in the movements.
13 Alternatives can complement a traditional portfolio Portfolio with alternativesAdding a 20% allocation of alternatives increased return by nearly 100 basis points and reduced volatility over 10 years ended 12/31/11.Alternatives can complement a traditional portfolio.ScenarioTraditional portfolioPortfolio with alternativesValue added10-year return4.72%5.68%+0.96%10-year volatility11.92%10.52%-1.40%Source: Morningstar as of 12/31/11. Past performance is no indication of future results. Volatility is represented by standard deviation. See slides 3-4 for asset class representations. Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. Performance for other time periods may not have been as favorable. 10-year returns and standard deviation, respectively, are as follows: U.S. large-cap stocks, 2.92%, 15.93%; U.S. small-cap equity, 5.62%, 21.09%; international equity, 4.67%, 18.73%; U.S. bonds, 5.78%, 3.70%; cash, 1.85%, 0.49%; alternatives, 9.09%, 11.36%.
14 Alternatives seek to address these market challenges U.S. dollar depreciationHigher interest ratesInflation concernsSeeking to address market challenges14
15 Implementation: increase diversification with alternatives Real returnAbsolute returnNontraditionalEquityFixed incomeKey featuresOne-strategy option to simplify investing processAbility to access institutional investment strategiesIncreased diversificationImplementation: increase diversification with alternativesPackaged-fund option to meet alternative allocationsDiversification neither assures a profit nor guarantees against a loss.1515
16 Diversifying with alternatives can help smooth the ride ALTERNATIVE ASSET CLASS CALENDAR YEAR RETURNS AS OF 12/31/112002200320042005200620072008200920102011Gold52.61%EM equity55.82%Gbl. real est.37.96%34.00%42.35%39.39%TIPS–2.35%78.51%35.06%13.56%TIPs16.57%45.58%25.55%28.35%32.17%Commodities32.45%Market neutral–5.92%Floating rate51.62%20.40%EM income9.20%14.24%40.69%Infrastructure21.31%25.54%29.06%19.58%–9.70%38.26%18.88%5.54%12.81%29.08%Commodities 20.82%15.35%20.13%18.62%–23.10%35.74%Alternatives13.03%1.52%Alternatives 9.65%EM income 28.83%16.63%14.91%15.30%12.04%–26.52%28.03%12.55%0.73%2.82%24.70%11.77%11.86%10.49%11.64%–29.10%26.67%11.83%–1.02%1.91%24.40%8.46%6.22%7.32%6.45%–32.66%25.95%10.13%–5.48%0.98%9.97%5.17%5.06%6.74%5.29%–44.76%14.75%6.60%–5.82%–6.17%8.40%4.15%4.97%2.77%2.08%–47.72%11.41%6.31%–17.23%–17.95%2.44%–5.54%2.84%0.41%–6.96%–53.33%1.17%3.79%–20.41%Stock (S&P 500 Index) calendar-year returns (as of 12/31/11)–22.10%28.68%10.88%4.91%15.79%5.49%-37.00%26.46%15.06%2.11%Excess return of alternatives vs. stocks (as of 12/31/11)31.75%–3.98%5.75%10.00%–0.49%6.55%10.48%0.21%–2.03%-3.13%Alternatives blendAlternatives are potentially well positioned relative to traditional asset classes for rising inflationSource: Morningstar as of 12/31/11. Performance is historical and does not guarantee future results. See slides 3-4 for asset class representation. Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. Returns during certain time periods were negative. Excess return calculation is the mathematical difference between the alternative blend (orange) and stocks (light blue).
17 A compelling option for alternative investing DWS alternatives suiteDWS alternatives
18 Simplifying alternative investments DWS Investments’ alternative asset allocation suitePlatform: a suite of alternative funds to complement traditional asset allocationDWS Investments is among only a few investment managers to offer a suite of funds to fit the needs of investorsVolatilityReturn potentialDWS Select Alternative Allocation FundDWS Alternative Asset Allocation FundNearly $1.1 billion AUM between the two funds as of 12/31/11.Simplifying alternative investmentsVisit for complete performance information.There is no guarantee that the funds will achieve their stated objectives.
19 DWS Investments’ alternatives: key differentiators Experienced investmentplatformMore than 40 global investment professionalsNearly $5 billion in alternative assets across alternative retail mutual funds*Provide individual investors with institutional investment strategiesSimplify portfolio construction with a packaged fund optionInstitutional thinkingResultsAbility to generate attractive return potential across various market conditionsDWS alternatives: key differentiators*Source: DWS Investments as of 12/31/11.
20 Goals and investment process Seek capital appreciation and diversificationInvestment processAllocate to a variety of alternatives asset classes to provide greater portfolio diversification. The strategies are rebalanced periodically to maintain the desired allocation.BenchmarkDWS Alternative Asset Allocation strategy blended benchmark: 70% MSCI World Index, 30% Barclays Capital U.S. Aggregate IndexDWS Select Alternative Allocation strategy blended benchmark: 60% MSCI World Index, 40% Barclays Capital U.S. Aggregate IndexStrategyImplementedAbsolute returnReal returnNontraditional/non-U.S. dollarMarket neutralFundXGlobal tactical asset allocation*OverlayCommodityGlobal real estateGlobal infrastructureInflation-protectedFloating-rate noteInternational incomeETFEmerging-market fixed incomeEmerging-market equityEmerging-market income (local currency)International and emerging-market small-capConvertiblesPreferred stocksGoals and investment process*The global tactical asset allocation strategy is not used in the DWS Select Alternative Allocation strategy. The strategy will not be used in DWS Alternative Asset Allocation Plus VIP until assets reach $50 million.
21 QS Investors: experienced alternatives platform Strategies are subadvised by QS Investors, LLC.QS InvestorsResearch platformRosemary Macedo (CIO)Colm O’CinneideJanet CampagnaChief executive officerPortfolio managersRobert WangInna OkounkovaThomas PicciochiGlobal resource baseAbsolute returnReal returnNontraditional/non-U.S. dollarDWS Disciplined Market Neutral Fund3 portfolio managersDWS Gold & Precious Metals Fund3 portfolio managersDWS Enhanced EM Fixed Income Fund8 portfolio managersGlobal tactical asset allocation strategy*2 portfolio managersDWS Enhanced Commodity Strategy Fund2 portfolio managersDWS RREEF Global Infrastructure Fund4 portfolio managersExperienced alternatives platformDWS Global Inflation Fund 5 portfolio managersDWS EM Equity Fund2 portfolio managersDWS RREEF Gl. Real Est. Securities Fund7 portfolio managersETFsInternational / EM fixed incomeInternational / EM small capPreferred stocksConvertibles*Global tactical asset allocation strategy (GTAA) is only available on DWS Alternative Asset Allocation Fund. It is not possible to invest directly in this strategy.DWS Floating Rate Fund4 portfolio managers5 investment professionals21 investment professionals14 investment professionals.
22 DWS Investments’ alternatives suite: investment process Asset allocationIdentify diverse, nontraditional asset classesAsset class forecasting: risk, return and correlationTactical views are implemented monthly via a global tactical asset allocationPortfolio constructionInnovative asset allocation tool—PortfolioChoiceDWS Investments’ strategiesExchange-traded funds (ETFs)Holdings analysisPortfolio implementationMonthly rebalancingQuarterly monitoring and periodic review of allocationsRisk managementDWS Investments applies institutional thinking to all asset allocation products, including the alternatives suite.DWS alternatives suite: investment process
23 Asset allocation: blurring of asset classes Building blocks of asset allocationTraditional asset classesAbsolute returnReal returnNontraditional/non-U.S. dollarIlliquidAsset allocation: blurring of asset classes
24 Volatility of individual asset classes vs. alternatives blend ASSET CLASS VOLATILITY (10 YEARS ENDING 12/31/11)Here we show the volatility of individual alternative asset classes vs. alternatives blend. You’ll notice that certain asset classes are riskier than others. It is key to chose the optimal blend of alternative asset classes for diversification and maximum portfolio efficiencyAlternative asset classesTraditional asset classesSource: Morningstar. Volatility is represented by standard deviation. See slides 3-4 for asset class representation.
25 DWS Alternative Asset Allocation Fund Nontraditional (25%)Emerging-market equity (7%)Emerging-market fixed income (8%)International and emerging-market small-cap (2%)Emerging-market debt—local currency (2%)International Treasury bond (2%)Convertibles (2%)Preferred stocks (2%)Real return (58%)Commodities (15%)Global real estate (12%)Global TIPS (11%)Floating-rate notes (10%)Global infrastructure (10%)GTAA strategyAbsolute return (17%)Market neutral (17%)Our allocation changes include:Increased allocation to real return bucket via commoditiesReduced allocation to absolute return and non-traditional bucketsWithin non-traditional bucket, reduced global real estate while increasing emerging fixed-incomeStarted utilizing exchanged-traded funds (ETFs) to gain broad exposure to international small-cap equities and international treasury bonds ex-USFor performance and other information about the DWS Alternative Asset Allocation Fund, please visitSource: DeAM as of 12/31/11. The strategy will be rebalanced periodically, so this asset allocation is subject to change. The Global Tactical Asset Allocation (GTAA) strategy may use instruments including but not limited to futures, options and currency forwards. Derivatives may be more volatile and less liquid than traditional securities, and the strategy could suffer losses on its derivatives positions.
26 DWS Select Alternative Allocation Fund Nontraditional (26%)Emerging-market fixed income (8%)Emerging-market equity (3%)International Treasury bond (6%)International and emerging-market small-cap (2%)Emerging-market debt (local currency (3%)Preferred stocks (2%)Convertibles (2%)Real return (57%)Global TIPS (13%)Floating-rate notes (14%)Commodities (13%)Global infrastructure (10%)Global real estate (7%)Absolute return (17%)Market neutral (17%)Our allocation changes include:Increased allocation to non-traditional bucketReduced overall allocation to real return bucket, but added to commodity exposureDecreased US fixed-income exposure by reducing US TIPS and adding international Treasury bondsWithin non-traditional bucket, reduced global real estate while increasing emerging fixed-incomeStarted utilizing ETFs to gain broad exposure to international small-cap equities and international treasury bonds ex-USFor performance and other information about the DWS Select Alternative Allocation Fund, please visitSource: DeAM as of 12/31/11. The strategy will be rebalanced periodically, so this asset allocation is subject to change. Derivatives may be more volatile and less liquid than traditional securities, and the strategy could suffer losses on its derivatives positions.
27 Summary of alternative investing Alternative asset classesProvide institutional thinking for individual investorsCan improve diversification potential and deliver better risk-adjusted return potential to a traditional portfolio of stocks and bondsMay address market challengesDWS Investments’ alternative investment team and processProvide a global platform with access to alternative asset classesOffer the same tools, team and investment philosophy for both institutional and individual investorsHave the potential to generate attractive returns across various market conditionsSummary of alternative investingDiversification neither assures a profit nor guarantees against a loss.