View
214
Download
0
Tags:
Embed Size (px)
Citation preview
Alternative/Traditional Investment Management ConvergencePresentation to the Montreal Stock Exchange Canadian Annual Derivative Conference
Yvan Fontaine, CFA
Château Frontenac, Quebec
August 18, 2005
2
Alternative/Traditional Investment
Definition of alternative/traditional investment
Alternative investments related to fixed income
Future trends in alternative/traditional investments in fixed income
3
Investments with a low correlation to traditional asset classes
Hedge Funds
Investments without a specific line in an investment policy
Definition ofAlternative/Traditional Investment
4
Typical U.S. Investment Policy
Stocks Domestic International Emerging Markets Small Cap
Bonds Domestic International High Yield Emerging Markets
Real Estate
Alternative Investments Hedge Funds
Definition ofAlternative/Traditional Investment
5
Definition ofAlternative/Traditional Investment
Typical Canadian Investment Policy
Variable Income Domestic Stocks
U.S. Stocks
International Stocks
Fixed Income Short Term
Domestic Bonds
Mortgages
Miscellaneous or others
6
Alternative InvestmentsRelated to Fixed Income
International
Emerging Debt
High Yield
Distressed Bonds
Mezzanine Bonds
Private Placements
Convertible
Credit Derivatives (CDO, CLO,CDS)
7
Alternative InvestmentsRelated to Fixed Income
International
Emerging Debt
High Yield
Distressed Bonds
Mezzanine Bonds
Private Placement
Convertible
Credit Derivatives (CDO, CLO,CDS)
Overlay
Hedge Funds
Portable Alpha
8
Future Trends inAlternative/Traditional Investments
Excellent historical Canadian bond returns
Important reduction in risk premiums
Removal of the foreign content limit
Recent Canadian dollar appreciation
Low equity returns, low interest rates
Pension funds matching problems
9
Excellent HistoricalCanadian Bond Returns
Source: JP Morgan
10
Important Reductionin Risk Premium
Source: Datastream
11
Important Reductionin Risk Premium
40.5
36
134
0
20
40
60
80
100
120
140
160
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04
10-year U.S. Swap Spread
12/31/0404/01/97
05/15/00
Bps
Source: Bloomberg
12
Changes in the Foreign Content Limit & Recent Canadian Dollar Appreciation
Source: Bloomberg
13
Future Trends in Fixed Income
Customized benchmarks, better matching
Stable or increased fixed income portion of asset mix
More tools given to the domestic manager Access to foreign securities, use of derivatives
Problem of leverage
More international allocation
Portable Alpha Replicate views with derivatives
Leverage of the T-bills portion of a beta stock portfolio