Global Capital Market Themes - Driving Investment Decisions

Extensive empirical research has found positive gross excess returns from exposure to risk factors (or risk premia) such as value, momentum, low size (or small cap) and low volatility stocks. Now, investors are sharply focused on the practical questions of how to implement exposure to these factors effectively.


MSCI was recently engaged by the Norwegian Ministry of Finance to analyze various factor strategies, examining their risk, performance, investability and capacity characteristics.

We share key findings from this new in-depth study and:

· propose a framework for gauging the investability of factor strategies, including their tradability/liquidity, turnover and replication costs, capacity, and degree of active tilt

· discuss a range of indexing methodological decisions which can affect the ability of an index to “capture” various factors

· highlight the tradeoffs between index investability and pure factor capture

· explore the benefits of combining multiple risk premia indices, across the dimensions of risk, performance and investability

Emerging markets have shown their mettle in the years following the GFC. Strong growth and increasing share of global GDP, healthy balance sheets, improving transparency and liquidity have improved Emerging Markets' appeal among institutional investors.

• With global developed markets making a strong start to 2013, does the relative appeal of EMs still hold true? What’s in store over the year ahead?

• Are institutional investors still under-allocated to Emerging Markets?

• What is driving EM returns and how can investors evaluate different components?

• What approaches are delivering results?

• We review an equal weighted country strategy that has produced consistent results and enhanced EM diversification.


Gaurav Mallik
Gaurav is a Senior Member of the Global Active Quantitative Equity Team at SSgA. He is responsible for portfolio management, research and positioning across multiple strategies within the group.
Prior to this role, he was a part of the quantitative credit research team at State Street Global Markets. He joined State Street Global Markets from SKG, Inc., a company he founded with State Street in 2001 focused on trading illiquid bonds. Gaurav has 7 years' experience in research and quantitative modelling on the sell-side.

Gaurav holds an MBA in Finance from Cornell University, a Master in Electrical Engineering, with a focus on Neural Networks, from Boston University and a BSc in Electrical Engineering from Robert Gordon's University in Aberdeen. He has written several papers on liquidity in credit markets and has presented research at academic and practitioner conferences.

Join Northern Trust as we present the key findings from our latest research paper “The New Active Decision in Beta Management?”

This report takes the baton from our 2012 research paper ‘Customised Beta – Changing Perspectives on Passive Investing‘ by exploring the world of alternative indices and how demand for these capabilities is altering the alpha/beta landscape.

During the webinar we will cover:
1.Topical insight from investors, consultants and index providers
2.Challenges faced by investors using alternative indices
3.Analysis of the role alternative indices has within portfolios – including performance modeling and forecasts
4.What this all means for you, the investor

Our primary objectives were to validate the trend we saw from our client base, and identify the challenges faced by investors.

The Northern Trust team wish to use these findings to guide you through this expanding investment opportunity, by providing tailored expertise to your unique investment needs.

How to tackle today’s urgent pension challenges and strengthen your fund for the long term

• Are you thinking what they’re thinking? The five-year trends predicted by a State Street survey of 150 European pension funds, conducted by the Economist Intelligence Unit.
• Learn about the best strategies for managing funding gaps and tackling shortfalls.
• Hear expert solutions to the growing data challenge for pension funds, amid the focus on governance and reporting.
• What steps are pension funds taking now to “future proof” their plans for the long term?

Speakers:
• Jörg Ambrosius, Senior Vice President, State Street Global Services
• Paola Bergamaschi, Senior Vice President, , State Street Global Markets
• Raymond Haines, Head of European Strategy and Research, Investment Solutions Group, State Street Global Advisors
• Nikolaus Schmidt-Narischkin, Managing Director at DB Advisors Fiduciary Management

Moderator:
• Brendan Maton, IPE

Creating opportunities out of the drama in Europe:
How a disciplined approach can generate attractive levels of income in a low yielding market environment

The issues
• Is the euro crisis over? Did the ECB draw a line in the sand with its OMT initiative and its stated intention to do “whatever it takes”. Or are we looking at a re-run of the dramatic pre-euro convergence of the late 1990’s?
• Do Italian / Spanish assets offer value? Many investors liquidated their Italian and Spanish fixed income assets in 2011 and 2012. Will they be tempted to buy them back?
• Should we be concerned about German sovereign credit quality?
• Will Europe’s periphery follow through with its structural reforms and what will be the upside?
• What is driving credit spreads: Fundamentals (arguably deteriorating in Europe at least) or abundant liquidity supplied by central banks? Or both?
• Can credit spreads tighten further?

The strategy
•How do we generate alpha in 2013? Pioneer will present some ideas to capture the upside and, perhaps more importantly, protect the downside in Europe in 2013.

SPEAKERS:
Cosimo Marasciulo, Head of Government Bond and FX, International
Garret Walsh, Head of Credit Research Europe

Simon Lee of eSecLending and
Matt Chessum of Aberdeen Asset Management
Will share their insights on
• Changes in
- Supply & Demand
- Participant behaviour
- Regulation
• Strategic opportunities for
- Revenue growth
- Liquidity
- Collateral management

Building a portfolio strategy to capture factor premiums

Introduction

Tail risk has gained a considerable profile because of the major risk events that characterised the global financial crisis of 2007-2008 and subsequent market volatility. Recent research by SSgA and the Economist has revealed that investors now seem more wary about the impact of tail risk events on their portfolios, having experienced significant drawdowns. They’re seeking ways to help guard their investments from future tail risk events. This webcast will discuss:

• Key findings of the SSgA and Economist research
• How have changing perceptions of tail risk affected the investment strategies of institutional investors?
• Where might investors look to address tail risk concerns?
• The merits of a blended convergent/divergent investment strategy
• The role of CTA and managed futures within a Tail Risk mitigation solution

Indexes in the Changing Investment Landscape
Current, possibly unintended, exposures within institutional portfolios:
How Defensive and Dynamic indexes can help you understand and manage risk
from Russell Indexes, Russell Investments

We invite you to join Russell market experts to hear why the intelligent use of risk-oriented indexes can be beneficial to institutional portfolios. They will offer an overview of risk-weighted indexes and look at how they differ from traditional indexes. They will also offer insight into Defensive and Dynamic Indexes and their ability to enable investors to go beyond traditional style measures to consider quality and volatility, in addition to stock price, to more comprehensively evaluate company risk.

Join Lloyd Raynor, Senior Consultant, Consulting—EMEA, Russell Investments and Rolf Agather, Managing Director of Research and Innovation, Russell Indexes, Russell Investments, to hear their perspectives on volatility management in institutional portfolios:

Lloyd and Rolf will share their insights on:
• What are risk oriented indexes and why are institutions interested?
• What are the current institutional exposures and what should drive institutional allocation targets?
• Developing a new process for analysis of market and manager performance
• How has a risk-based approach behaved in practice? The impact across extreme markets, up/down markets and sector weightings.

Insights into investment and economic analysis from Northern Trust

Every year, our investment experts produce a range of long-term forecasts which look at economic activity and financial market returns. They produce a report called the Capital Market Assumptions which provides a valuable five-year view on the markets.

We are offering you a unique chance to join our experts and hear first-hand how they formulate our forecasts and the key themes they will be watching over the coming years.

Join Jim McDonald, Chief Investment Strategist, as he shares the process we go through to develop these views and takes a detailed look at three of the key themes of our five-year outlook;

• Beyond monetary policy (Sticky & Sneaky inflation)
• The separation of company versus country
• Local politics for global problems

Hosted by:
Brendan Maton
IPE

Key Speakers:
Jim McDonald
Chief Investment Strategist
Northern Trust

Claire Meier
Senior Fixed Income Analyst, asset management
EMEA
Northern Trust

Speaker: Dr. Shane Shepherd, Head of Fixed-Income Research, Research Affiliates, LLC

Government policies designed to suppress interest rates and reduce debt payments are a form of “financial repression.” Particularly attractive to large developed-market nations who control their own currencies, recent examples include quantitative easing, mandatory lending to the government by domestic institutions, caps on interest rates, and limits on cross-border capital movements. When these policies produce negative real interest rates, they impose the equivalent of a tax on bond investors. Traditional bond indices, which are heavily weighted toward the biggest debtors, are adversely affected by these non-market forces. Shifting the rules to an approach based on a country’s economic size can greatly mitigate this exposure and lower credit and duration exposures.

Investing in Emerging Markets is hardly a new concept for investors across Europe; most investors now recognise the potential long term returns benefits of including emerging markets exposure within their portfolios. Although the story remains compelling, we believe there is a shift in dynamics that could change the way we invest in emerging markets.

Emerging markets have "grown up", the larger emerging market companies have become more correlated to the rest of the world while many sovereign debt issuers have established enviable fiscal positions. It has also become more challenging to find active managers who have capacity along with a strong track record of out performance. For equity investors this has led to strong inflows into passive emerging markets strategies, a quest for a broader emerging market exposure, and a plethora of new passive approaches to accessing emerging markets. In fixed income the time is now ripe to bring indexing discipline to a maturing market.
We will share our insights on:
• Changing dynamics and governance needs in Emerging Markets
• Alternative approaches to Emerging Markets; news indices, access through developed market exposure
• Efficient implementation given the changing dynamics
• The growing suitability of index strategies to local currency Emerging Debt Markets

There are many things to consider when investing in Emerging Markets. Northern Trust’s experts will highlight the evolving opportunity set, ways in which to get exposure and some of the new alternatively weighted indices. Finally we will take a look at implementation strategies for getting efficient beta exposure to emerging markets.

Exchange-traded funds have been growing at a rapid pace since the launch of the first ETF nearly 20 years ago. Today, the global ETF market boasts assets worth more than $1.7 trillion and the pace does not seem to be slowing down. According to last year’s Greenwich study, 40% of institutional investors plan to increase their ETF allocation in the next 12 months. But how are the most sophisticated investors utilising these seemingly retail investment tools?

Join experts from SPDR® ETFs, the exchange traded funds (ETF) platform of State Street Global Advisors (SSgA) to hear how institutional investors are currently using ETFs, which asset classes they are accessing with ETFs, and why ETFs are an attractive option for index exposure over other vehicles. The discussion will also address common misconceptions of ETFs.
• Using ETFs for strategic/tactical asset allocation, transition management, cash equitisation, rebalancing portfolios and liquidity management.
• Asset classes to consider accessing with ETFs.
• Comparing ETFs, futures and swaps.
• Addressing common misconceptions of ETFs.

Minimum Variance Indices have multiple usages for investors as part of their asset allocation:
• Indices provide a portfolio with lower volatility (i.e. risk) but with full exposure to relevant equity markets.
• Minimum Variance portfolios use less risk budget available to investors.
• Due to efficient portfolio construction no “overspending” of risk in relation to achievable return.
• Shortcomings and structural performance deficits of market cap weighted indices are mitigated through alternative weighting mechanism.

STOXX+ Minimum Variance Indices have been developed in collaboration with Axioma, a leading provider of portfolio constructions tools and risk models. Axioma provides the fundamental factor model used to calculate the rebalancing portfolios.

Multiple index versions to cater for a broader investor base
• Create a stand-alone minimum variance strategy index family (unconstrained version)
• Create a minimum variance improvement on market-cap. weighted benchmarks (regular version)

Unconstrained index version is a novelty and offers the following benefits:
• Full optimization to minimize risk
• With only very basic constraints, there is the freedom to provide increased optimality in resulting portfolio
• Resulting portfolio might have a bias towards certain properties (specific factor, geography etc.) as the aim is purely to minimize variance
• The freedom is expected to provide lower risk

Introduction to Webcast Topic:
Equity markets can be extremely volatile. A risk-budget investment framework penalises the use of equities as the risks have increased and expected returns have decreased. Nevertheless, equities must continue to be an essential part of portfolios in order to provide asset diversification and be a long-term hedge against inflation.

Join Rabobank International in discovering how managing equity risk within a portfolio can stabilise equity investment returns:
• Avoiding large losses or draw-downs can appreciably generate increased equity investment performance.
• By focussing on smart risk reduction, one can generate excess returns across different economic cycles and equity universes.
• Proper selection and weighting of equities based on risk criteria can bring substantial stability to an equity portfolio.
• Risk efficient investing is a "smart" alternative to both active and passive equity investing.

MSCI invites you to attend a special webinar on ‘Strategy Indices and Their Role in Institutional Portfolio Construction.”
The event will be hosted by Dimitris Melas, MSCI Executive Director and Global Head of New Product Research, and Roger Urwin, Special Adviser to MSCI and Global Head of Investment Content at Towers Watson.
Topics for discussion include:
* Definitions of alpha are evolving as investors recognise that strategy indices can capture various systematic risk premia (alternative beta) such as value, size, low volatility or momentum. Systematic factors are increasingly considered key drivers of long-term performance.
* Institutional asset allocation may be on the verge of a shift from diversification across active managers in multiple alpha mandates towards diversification across strategy betas in multiple index mandates.
* We present a risk budgeting framework for integrating strategy indices into institutional portfolios where allocations to risk premia strategies are based on their expected risk and performance characteristics.
* Increasing adoption of risk-based asset allocation, growing acceptance of the potential impact of systematic risk factors on long-term portfolio performance and the need to capture these factors through transparent and cost effective vehicles may drive further innovation and new product development in the indexing arena.

The turbulence and uncertainty that has confronted investors during the past 10 years has given rise to shift towards passive investing. In response, a new range of alternative and, increasingly, customised index approaches has been created to help investors address their specific concerns. The ability to tailor an index to provide specific exposures or risk/reward ratios, then passively manage to this index raises questions about the distinction between alpha and beta.

Northern Trust recently engaged in research to examine more closely the practical implications for investors of the evolving use of passive investments in institutional portfolios. In particular, our research highlighted some interesting trends, including:
- Investors' expectations for using passive management in the future,
- The effect of increasing passive use on investment decision making,
- Current concerns about achieving efficient beta, and
- Opportunities for removing unwanted biases and inefficiencies in existing indexes.