Global Equity Index Management

Transcription

1 N O R T H E R N T R U S T Global Equity Index Management Vermogensfondsen bijeenkomst November 2015 Gerard van Leusden Director Business Development gv34@ntrs.com Northern Trust Corporation northerntrust.com

2 Expertise in Asset Management Northern Trust is a multi-asset class investment manager with index management as a core business. Total firm assets under management: $886.8 billion as of September 30, 2015 Northern Trust Assets Under Management: $886.8 Billion Index Management Assets Under Management: $409.2 Billion Global Index $409.2 billion Fixed Income $324.6 billion Multi-Manager Solutions $44.0 billion Active Equity $37.0 billion U.S. Equity $188.9 billion International Equity $144.0 billion U.S. Fixed Income $72.1 billion International Fixed Income $4.2 billion Other $72.1 billion As of September 30, 2015 (updated quarterly). Source: Northern Trust Strategic Development Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K, NT Global Advisors, 50 South Capital Advisors, LLC and personnel of The Northern Trust Company of Hong Kong Limited and the Northern Trust Company to offer investment products and services to personal and institutional markets. As of 09/30/2015, Northern Trust Corporation had assets under management totaling $886.8 billion. For purposes of compliance with the Global Investment Performance Standards (GIPS ), we have defined our firm as Northern Trust Asset Management Services, a subset of Northern Trust Asset Management, and includes those investment products managed by NTI, NTGIL, NTGIJ, and TNTC that are distributed through national channels. As of 09/30/2015 Northern Trust Asset Management Services had assets under management totaling $721.0 billion. 2

3 Why Indexing? Diversification Costs Reputational Risk Liquidity Select strategy and manager, capabilities? Active manager access Be Active with Passive (Asset Allocation) Active should be really Active, index hugging Risks? The market up, you re up The market down, you re down Buying yesterdays winners? Synthetic / Physical Smart Beta 3

4 Active Manager Headwinds Active managers have struggled to outperform across the full range of global equity market segments. S&P SPIVA Report Year End 2014 Percentage of Funds Outperforming their Benchmarks Fund Category 1 Yr. (%) 3 Yrs. (%) 5 Yrs. (%) 10 Yrs. (%) U.S. Large Cap Core U.S. Small Cap Core International (ex U.S.) Funds International (ex U.S.) Small Cap Funds Global Funds Emerging markets Source: S&P SPIVA U.S. Scorecard Year-End The SPIVA (S&P Index Versus Active) Scorecard, produced bi-annually by S&P, presents analysis of U.S. actively-managed mutual funds performance relative to relevant benchmarks. Funds are sorted according to Lipper classifications and compared to the relevant S&P benchmark for each category. 4

5 The trend of Active and Passive? Source: ETFGI 5

6 6 The trend of Active and Passive?

7 Intelligent Indexing : Portfolio Construction Our process seeks to minimise active risk. Build portfolio using Axioma risk model Quantify risk tolerance Minimise active portfolio risk (mis-weights to the index) Constrain portfolio with security/industry/ sector/country/risk factor level Utilise futures positions to maintain equity exposure Portfolio Construction Typical Portfolio Characteristics MSCI World Implementation MSCI World SC Multi-dimensional Risk Controls MSCI EM MSCI EM SC Expected Tracking Error (+/-)* 2 bps 5-10 bps 5-10 bps bps Results: An optimal trade list, reflecting our risk-controlled approach, balancing total transactions costs and active risk. Stock Mis-weights (+/-) 2bps 5 bps 5 bps 7 bps Country Exposure (+/-) 5 bps 10 bps 5 bps 15 bps Industry Exposure (+/-) 5 bps 10 bps 5 bps 15 bps Sector Exposure (+/-) 5 bps 10 bps 5 bps 15 bps *Tracking error is an ex-ante prediction of tracking error based on security level optimization and weights. The estimated range is annualized and expressed in basis points for the purpose of comparison. Actual/Experienced tracking error can deviate significantly based on, but not limited to, securities lending impact, foreign exchange, cash drag, futures, sampling efficiency, transaction costs. 7

8 Key Themes 25 years of experience and more than $65 billion* in diverse socially-screened strategies ESG Customised World and Emerging Market ESG screen capturing UN Global Compact, Tobacco and Controversial Weapons. Emerging Market Governance screen providing additional screen to those markets requiring additional Governance. Low Carbon screening high carbon producers to reduce exposure to those perceived to incur higher costs associated with carbon production or extraction. Smart Beta & Engineered Equity Active Design and Passive Management of non-market cap indexes. We manage in excess of $10.7 billion** against factor based and engineered equity strategies. Using Quality as a factor, the cross section of Quality and other factors such as Low Volatility, Value, Income or ESG, we can engineer a targeted universe to track. CCF Preserving investor wealth Preservation of home jurisdiction tax treaty relationships. Pooled fund structure provides uplift in performance by minimising WHT Vehicle receives beneficial tax treatment as co-ownership of underlying assets are retained by investors and not the fund. 8 *As at 30 st June 2014 **As at 30 st September 2014

9 Withholding Tax Leakage? Iers/Lux fonds Mandaat + Volledige transparantie + Flexibiliteit: - Eigen Benchmark - Eigen Custodian - Securities Lending keuze - Flexibiliteit uitsluitingen -/- Grote minimum omvang -/- Hoge vaste kosten + Pooled Fund + Kosten Efficient + Dagelijks verhandelbaar + UCITS compliant + Gereguleerd -/- Zeer beperkte belasting Transparantie -/- Geen Flexibiliteit Common Contractual Fund + Pooled Fund + Belasting transparent + Kosten Efficient + Dagelijks verhandelbaar + UCITS compliant + Gereguleerd -/- Geen Flexibiliteit Nederlands Charitatiev e I nstelling, Wereld aandelen Bmk 21.20% 19.50% 2.14% Fonds 21.60% 19.88% 1.86% Verschil 0.40% 0.38% 0.28% 9

10 Characteristics The NT World Custom ESG Equity Index Fund (June15) Tracking Error Attribution Characteristics Deletes Characteristics Controversial Weapons Global Compact Tobacco Controversial Weapons & Global Compact Controversial Weapons & Tobacco Global Compact & Tobacco Controversial Weapons & Global Compact & Tobacco NT World Custom ESG benchmark 17.5bps 45.8bps 18.6bps 48.6bps 27.2bps 48bps 51.6bps Characteristics NT World Custom ESG benchmark # of Securities 1595 Expected Tracking Error (+/- )* 2 bps Stock Mis-weights (+/-) 2 bps Country Exposure (+/-) Industry Exposure (+/-) Sector Exposure (+/-) Tracking error attribution at US$ 150mn Tracking error as of Dec bps 5 bps 5 bps Quality Score Number of Securities MSCI World Index % Global Compact % Controversial Weapons % Tobacco % Total % Custom Index Relative Country Weights v MSCI World Custom Index Relative Sector Weights v MSCI World AUSTRALIA BELGIUM DENMARK FRANCE HONG KONG ISRAEL JAPAN NEW ZEALAND PORTUGAL SPAIN SWITZERLAND UNITED STATES -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities -2.5% -1.5% -0.5% 0.5% 1.5% 2.5% Information is provided to illustrate typical sectors and securities in which the portfolio may invest and to reflect representative portfolio characteristics. It should not be considered investment advice or a recommendation to buy or sell any security. There is no guarantee that securities remain in the portfolio or that securities sold have not been repurchased. It should not be assumed that any investments were profitable or will prove to be profitable, and past performance does not guarantee future results 10

11 Important Information This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. This presentation is intended only for the exclusive benefit and use of our clients. Northern Trust and its affiliates may have positions in, and may effect transactions in, the markets, contracts and related investments described herein, which positions and transactions may be in addition to, or different from, those taken in connection with the investments described herein. The information in this presentation reflects prevailing market conditions and our judgment as of this date, which are subject to change. Past performance is no guarantee of future results. All material has been obtained from sources believed to be reliable, but the accuracy, completeness and interpretation cannot be guaranteed. This presentation is for your private information and is intended for one-on-one use with current or prospective clients of Northern Trust. The information does not constitute investment advice or a recommendation to buy or sell any security and is subject to change without notice Issued by Northern Trust Global Investments Limited (NTGIL). NTGIL is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered in England Registered Office: 50 Bank Street, London E14 5NT. Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, and personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company. As of 09/30/2015, Northern Trust Corporation had assets under management totaling $886.8 billion. For purposes of compliance with the Global Investment Performance Standards (GIPS ), we have defined our firm as Northern Trust Asset Management Services, a subset of Northern Trust Asset Management, and includes those investment products managed by NTI, NTGIL, NTGIJ, and TNTC that are distributed through national channels. As of 09/30/2015 Northern Trust Asset Management Services had assets under management totaling $721.0 billion. 11