*For professionals only

Are Economic Developments the starting

point for any Multi Asset Approach?

* investing for their own account - according to MiFID definition

Dr. Asbjorn Trolle Hansen

Head of Multi Assets

December 2017

For Professionals Only

2

Source: Bloomberg

10

15

20

25

30

35

40

From 0 to 1 From 1 to 2 From 2 to 3 From 3 to 4 From 4 to 5 From 5 to 10 From 10 to99999

Volatility and Market cap adjusted News Flow

PHILIP MORRIS INTERNATIONAL

VISA INC-CLASS A SHARES

3M CO

ALTRIA GROUP INC

PROCTER & GAMBLE CO/THE

UNITEDHEALTH GROUP INC

MERCK & CO. INC.

HOME DEPOT INCAUTOMATIC DATA PROCESSING

KRAFT HEINZ CO/THE

CME GROUP INC

JOHNSON & JOHNSON

PFIZER INC

PEPSICO INC

ABBOTT LABORATORIES

Low number of news articles

High number of news flow articles (adjusted for market cap) gives

higher volatility

For Professionals Only

3

Universe of 8800 companies. Around 5.600 had valid news data for 2016 and was included.. Source: Bloomberg

12,9 12,9 12,7

8,7

4,6

0,5 1 1,5 3 999

Performance in 2017 split by news flow in 2016

The companies with highest market cap adjusted news flow in 2016

had the weakest performance in 2017 (5600 companies)

For Professionals Only

4

Universe: S&P500. Source: Bloomberg

12,8 13,7

10,0

3,3

7,7

0,2

-11,0

From 0 to 1 From 1 to 2 From 2 to 3 From 3 to 4 From 4 to 5 From 5 to 10 From 10 to99999

Newsflow intensity in 2016 and performance in 2017

The companies with highest market cap adjusted news flow in 2016

had the weakest performance in 2017 (S&P500)

For professionals onlyFor Professionals Only

5

Date: 13.11.17. Source: Twitter.

2017 seems to be a good year

For professionals onlyFor Professionals Only

Sources: Nordea Investment Management AB, Bloomberg. Date: 09.11.2017.

22 %

23 %

25 %

29 %

32 %33 %

42 %

Trump (2016) Bush (1989) Obama (2012) Kennedy (1960) Roosvelt (1944) Clinton (1996) Roosvelt (1932)

Obama still ahead…

7

The development of academic research around risk premia

The research around Risk Premia has developed over time…

50’s 60’s 80/90’s 2000’s

William Sharpe : One

factor model - BetaFama/French: multiple

factor model

Andrew Ang / Antti

Ilmanen a systematic

approach to factor

investing

Markowitz: Foundation

of Modern Portfolio

Theory

MPT /

Efficient

Frontier

CAPM /

Beta

Equity factor

risk: Value,

momentum,

size

Additional

factors and

risk premia

across asset

classes

For Professionals Only

8

To significantly reduce the overall risk of the portfolio

Risk balancing

The Economic Cycle

Return drivers working

in periods of recession

Return drivers working

in periods of recovery

Total performance

Illustrative performance

Peak

Trough

Peak

Recession

Expansion

Actual

growth

Growth

trend

Time

Output (GDP)

No need to make the correct macroeconomic call to achieve a positive Total Return in all

periods of the economic cycle

Time

Return

Note: For illustrative purposes only.

9

The Risk Premia can be split into Traditional Risk Premia...

Note: For illustrative purposes only.

Total Return

Asset Classes

Gov Bonds Corporate Bonds Equities Private Equity

Cash Cash Cash Cash

Duration Duration

CreditEquity

Illiquidity

Equity

For Professionals Only

10

US yield curve pricing in more “normalized” yields

US vs. German duration Practice

US treasuries more fairly priced than Europe: more attractive duration risk premium

Source: Thomson Reuters Datastream. Period under consideration: 30.09.2009 - 02.10.2017.

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

30/09/2009 30/09/2010 30/09/2011 30/09/2012 30/09/2013 30/09/2014 30/09/2015 30/09/2016 30/09/2017

Key Government Bond Yields (in %)

10 Year German Bond Yield

10 Year US Treasury Yield

For Professionals Only

11

Active FX Management

Example: Long JPY - Short AUD vs. MSCI World EUR HDG

Note: For illustrative purposes only.Source: Bloomberg, 31.05.2016. Period under consideration: 31.12.2015 to 31.05.2016.

Practice

For Professionals Only

12

… with an extensive universe of investable risk premia

… across various asset classes and instrumentsNote: For illustrative purposes only.

Source: Nordea Investment Management A.B., Multi Assets team.

More than 30 investable Risk Premia

Strategic

betaValue Momentum Low Vol Quality

Time

Variation

(TAA)

Liquidity

/ SizeInflation Growth Carry

Excess

Volatility…

Un

de

rlyin

g a

ss

et

cla

ss

es

Equity Indices /

Stocks✓ ✓

✓✓ ✓

Safe Govern.

Bonds

Credit Indices /

bonds

Currencies

Implied Volatility

Commodities

...

✓ Risk premia used in Beta+ strategies

For Professionals Only

13

June 16, 2017, Amazon to buy Whole Foods Market

Deal valued 13,6 bln usd

Date: 13.11.17. Source: Bloomberg. For illustrative purposes only.

For Professionals Only

P/E for next year for selected companies as it looked in 1999

14

2531

3642

75

96

IBM Intel Wal-Mart GeneralElectric

Microsoft Cisco

Date: 13.11.17. Sources: Nordea Investment Management AB, Bloomberg.

For Professionals Only

15

3,9 %1,9 %

6,7 %7,8 % 7,3 %

10,6 %1,5 % 4,7 %

2,0 %1,5 % 2,0 %

1,5 %

Intel GeneralElectric

IBM Wal Mart Microsoft Cisco

Earnings Dividends

Income Growth and Dividends for selected companies, 1999-2017

Date: 13.11.17. Sources: Nordea Investment Management AB, Bloomberg.

For Professionals Only

16

-2,1 %

-1,4 %

2,7 %

3,4 %3,6 %

4,3 %

General

Electric

Cisco Intel Wal Mart IBM Microsoft

Equity returns for selected companies, 1999-2017

Date: 13.11.17. Sources: Nordea Investment Management AB, Bloomberg.

17

For Professionals Only

Annualised risk premia return the last 20 years split in up and down markets

Risk premia returns

Note: Example for illustrative purposes only. Source: Nordea Investment Management AB., Multi Assets team.

For Professionals Only

18

Research Agenda

*Please note that as per UCIT directives the A10F & A15F are not invested directly in commodities. However, the asset class is included in the table as this is an illustration of the risk premia research the Multi Assets team conducts. Note: For illustrative purposes only. Source: Nordea Investment Management AB., Multi Assets team.

1. Identify investable risk premiums and estimate strength (Information ratio)

2. Group them into risk on, risk off, and directional

3. In excess of 30 investable risk premia available

a. Risk on example: Long Credit beta

b. Risk off example: Equity low risk anomaly

c. Directional example: Tactical duration call

Our Multi Assets Research Agenda

RISK PREMIA

Strategic

betaValue Momentum Low Vol Quality

Time

Variation

(TAA)

Liquidity

/ SizeInflation Growth Carry

Excess

Volatility…

UN

DE

RL

YIN

G

Equity Indices /

stocks b

Safe Govern.

Bonds c

Credit Indices /

bonds a

Currencies

Implied Volatility

Commodities*

…

19

For Professionals Only

Directional

Grouping risk premia into 6 SuperStrategies

Note: Example for illustrative purposes only. Source: Nordea Investment Management AB., Multi Assets team.

Example of Risk Premia Allocation…

Risk Balancing

Equity Fixed

Income

Currency Strategic

Risk

Balancing

Trading X-Asset

Momentum

20

…which could fit different risk/return profiles

Low Risk Solutions

Medium Risk Solutions

High Risk Solutions

Source (unless otherwise stated): Nordea Investment Management AB. The performance represented is historical; past performance is not a reliable indicator of future results and

investors may not recover the full amount invested. There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved.

Comparison with other financial products or benchmarks is only meant for indicative purposes. © Nordea Investment Management AB Mäster Samuelsgatan 21, M 540, SE-105 71

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