The Cavanal Hill Macroeconomic Perspectives First Quarter 2016

Transcription

1 2016 Cavanal Hill Investment Management, Inc. The Cavanal Hill Macroeconomic Perspectives First Quarter 2016

2 About Cavanal Hill Investment Management Cavanal Hill is a multi-billion dollar investment adviser to high-net-worth individuals and institutions. Our firm s seasoned investment team follows proven, disciplined investment processes to manage fixed income, equity, and cash assets. Our unique investment approach looks beyond conventional Wall Street wisdom to discover stock and bond opportunities and takes advantage of those that are within our clients risk tolerance levels. Cavanal Hill Investment Management, Inc. ("Cavanal Hill") is an SEC registered investment adviser and a wholly-owned subsidiary of BOKF, NA, a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company ("BOKF"). Cavanal Hill s equity team leverages its own primary stock research with insights from company management and secondary street research to form the basis of their buy/sell decisions. The firm s fixed income team uses proprietary credit and interest rate modeling tools to analyze investment opportunities within the high grade corporate, municipal, mortgage-backed and government bond markets. Our Investment Professionals Fixed Income Management Team J. Brian Henderson, CFA President Michael P. Maurer, CFA Senior Fixed Income Portfolio Manager Rich Williams Senior Tax Free Fixed Income Portfolio Manager Michael J. Kitchen, CFA, CTP Cash Management Portfolio Manager Russell Knox, CFA Fixed Income Portfolio Manager Tyler Bosworth Junior Portfolio Manager Douglas Benton Senior Municipal Credit Manager Leslie Lukens-Martin Senior Municipal Credit Analyst Keaton Hoppe Municipal Fixed Income Analyst Equity Management Team Matt Stephani, CFA Senior Equity Portfolio Manager Thomas Mitchell, CFA Equity Portfolio Manager Mike Schloss Senior Equity Analyst Brandon Barnes, CFA Equity Analyst Kendall Toyne Equity Analyst Quantitative Equity Team Wes Verdel, CFA Senior Quantitative Equity Portfolio Manager Rob Gaston Quantitative Systems Analyst Trading Team Patti Robertson Head of Trading Chris O Connell Equity Trader Ryan Friedl Fixed Income Trader Our Investment Strategies Tax Exempt Cash/Fixed Income Strategies Equity Strategies Fundamental Multi-Asset Class Strategies Taxable Cash/Fixed Income Strategies Equity Strategies Quantitative Alternative Strategies 2

3 First Quarter 2016 Market Returns Period Ending March 31, 2016 Leading U.S. Indices 1Q 16 Last 12 Months MSCI Emerging Market 5.71% % Barclays Aggregate Fixed Income 3.03% 1.96% Russell 800 MidCap 2.24% -4.04% Dow Jones Industrial 2.20% 2.08% Barclays Municipal Fixed Income 1.67% 3.98% Russell 1000 Value 1.64% -1.54% S&P % 1.78% Russell % 0.50% Russell 1000 Growth 0.74% 2.52% Russell % -9.76% Nasdaq -2.39% 0.66% MSCI EAFE -3.01% -8.27% 3 Source: MSCI, Barclays, S&P, Thomson One, Russell Investments, Bloomberg

4 Dow Jones Credit Suisse Hedge Fund Index Performance Through February 29, 2016 Dow Jones Credit Suisse Hedge Fund Index Returns YTD % 1 Year % -2.48% -4.95% Convertible Arbitrage -2.06% -1.99% Dedicated Short Bias 6.13% 13.14% Emerging Markets -4.29% -5.08% Equity Market Neutral -1.89% 2.07% Event Driven -4.80% % Fixed Income Arbitrage -1.80% -1.15% Global Macro -2.11% -4.90% Long/Short Equity -4.49% -3.29% Managed Futures 7.38% 1.51% Multi-Strategy -1.32% 0.55% 4 Source: Credit Suisse Hedge Index LLC

5 World Nominal GDP January 1, 1961 December 31, 2014 Y-o-Y % Nominal GDP has collapsed world wide /31/61 12/31/65 12/31/69 12/31/73 12/31/77 12/31/81 12/31/85 12/31/89 12/31/93 12/31/97 12/31/01 12/31/05 12/31/09 12/31/13 Source: World Bank 5

6 Nominal U.S. GDP Growth October 1, 1990 December 31, 2015 Y-o-Y % 8 6 Nominal GDP declining in the U.S. too! /01/90 10/01/93 10/01/96 10/01/99 10/01/02 10/01/05 10/01/08 10/01/11 10/01/14 Source: Federal Reserve 6

7 Total Debt Outstanding by Sector October 1, 1990 September 30, 2015 In trillions U.S. $ Too much debt was the source of the financial crisis and it s still a problem /01/90 04/01/92 10/01/93 04/01/95 10/01/96 04/01/98 10/01/99 04/01/01 10/01/02 04/01/04 10/01/05 04/01/07 10/01/08 04/01/10 10/01/11 04/01/13 10/01/14 Federal Government Households and Nonprofits State and local Governments Nonfinancial business 7 Source: Federal Reserve

8 U.S. Federal Surplus or Deficit June 30, 1901 September 30, 2015 In billions U.S. $ Vastly improved but still over spending by $450 billion per year /01/01 01/01/11 01/01/21 01/01/31 01/01/41 01/01/51 01/01/61 01/01/71 01/01/81 01/01/91 01/01/01 01/01/11 8 Source: Federal Reserve

9 U.S. Federal Deficit as a Percentage of GDP September 30, 1980 September 30, 2015 % At approximately 2.5% of GDP, U.S. Government is providing significant support to economy growing 3% nominally /01/80 01/01/84 01/01/88 01/01/92 01/01/96 01/01/00 01/01/04 01/01/08 01/01/12 Source: Federal Reserve 9

10 Corporate Profit Margins Remain High EBITDA/Revenue, LTM 10 Source: J.P. Morgan

11 Net Corporate Leverage is High Net debt 11 Net debt ex metals/mining, energy Source: J.P. Morgan

12 U.S. High Yield Effective Yield to Maturity March 2, 2011 March 17, 2016 % Credit concerns particularly acute in the high yield market /02/11 11/02/11 07/02/12 03/02/13 11/02/13 07/02/14 03/02/15 11/02/15 12 Source: Federal Reserve

13 % Net Percentage of Banks Tightening Lending Standards April 1, 1990 January 31, Banks tightening lending standards /01/90 04/01/92 04/01/94 04/01/96 04/01/98 04/01/00 04/01/02 04/01/04 04/01/06 04/01/08 04/01/10 04/01/12 04/01/14 Source: Federal Reserve 13

14 Crude Oil Prices: West Texas Intermediate (WTI) March 9, 2011 March 18, 2016 $/barrel Low oil prices driving most of the credit concerns /09/11 09/09/11 03/09/12 09/09/12 03/09/13 09/09/13 03/09/14 09/09/14 03/09/15 09/09/15 03/09/16 14 Source: Federal Reserve

15 Long-Term Mutual Fund Net New Cash Flow Taxable Tax-Free Date Total bond Investment Total taxable grade High yield Government Multisector Global Monthly Net New Cash Flow 01/31/14 2,490 2,057-2,858 3,554-2, , /28/14 8,778 7, , ,681 1,640 1,681 03/31/14 13,807 12,254 3,675 2, ,713 3,494 1,553 04/30/14 8,784 7,594 1, ,283 4,303 1,190 05/31/14 12,036 8,490 1, ,357 5,632 3,545 06/30/14 11,727 9,378 4,941-4, ,744 4,898 2,349 07/31/14 10,419 9,010 8,761-11,391 2,217 2,206 7,218 1,409 08/31/14 5,237 1,981 3,041-8,024 2,429 1,242 3,293 3,256 09/30/14-19,372-22,389-12,500-10,896 1, ,722 3,017 10/31/14-6,244-8,397-5,409-3, ,154-2,238 2,154 11/30/14 14,945 11,979 5,870 1,202 1,116 1,728 2,063 2,966 12/31/14-19,142-23, , ,793 4,435 01/31/15 9,988 5,388 2,593-1,869 3,114 1, ,600 02/28/15 17,156 14,526 5,368 4,692 1,590 2, ,630 03/31/15 6,308 4,827 2,162-3,972 1, ,756 1,482 04/30/15 6,733 6, , /31/15 5,474 6,106 3, , /30/15 8,238 9,969 16,911-6, ,778-1,648-1,731 07/31/15-8,194-7,539-8,411-3, , /31/15-23,535-22,089-11,083-5,439 1,645-1,077-6,134-1,446 09/30/15-20,006-19,519-9,604-3, , /31/15 4,358 1, ,951 1,253 1,887-3,236 2,381 11/30/15-5,050-7, ,181 1, ,288 2,482 12/31/15-27,209-32,978-1,789-14,931 1,298-4,702-12,855 5,770 01/31/16-5,150-9,424 1,954-6,080 3, ,032 4,273 Massive outflows from high yield mutual funds 15 Source: ICI

16 Total Federal Reserve Balance January 1, 2003 March 2, 2016 In trillions of U.S. $ /01/03 07/01/04 01/01/06 07/01/07 01/01/09 07/01/10 01/01/12 07/01/13 01/01/15 16 Source: Federal Reserve

17 % Central Banks At Their Lower Limits November 3, 2008 March 11, Bank of Japan and ECB lowered rates into negative territory! 11/03/08 05/03/09 11/03/09 05/03/10 11/03/10 05/03/11 11/03/11 05/03/12 11/03/12 05/03/13 11/03/13 05/03/14 11/03/14 05/03/15 11/03/15 Bank Of Japan Policy-Rate Balance Rate Federal Funds Target Rate ECB Main Refinancing 17 Source: Federal Reserve

18 U.S. and European Financial Stocks March 7, 2011 March 24, 2016 Index level 350 Index level Financial stocks not reacting well to possible negative rates, recent credit concerns, and disappointing economic growth /07/11 11/07/11 07/07/12 03/07/13 11/07/13 07/07/14 03/07/15 11/07/15 S&P 500 Financials Sector Index (left scale) 18 Euro STOXX Banks price (right scale) Source: Bloomberg, L.P.

19 U.S. Dollar, Japanese Yes and Euro March 7, 2011 March 16, 2016 Price of 1 USD in Japanese Yen Much weaker Yen and Euro haven't been a panacea for growth and inflation Price of 1 Euro in USD Stronger $ has been a headwind /07/11 09/07/11 03/07/12 09/07/12 03/07/13 09/07/13 03/07/14 09/07/14 03/07/15 09/07/15 03/07/16 U.S. dollar index (left scale) Japanese yen (left scale) Euro (right scale) 19 Source: J.P. Morgan

20 Net Exports Growth Contribution to Real GDP Contributions to Percent Change in Real Gross Domestic Product October 1, 2010 December 31, 2015 % quarterly, annualized Big drag from stronger U.S. dollar /01/10 07/01/11 04/01/12 01/01/13 10/01/13 07/01/14 04/01/15 20 Source: Federal Reserve

21 Japan s Inflation Expectations % Japan Breakeven 10 Year October 10, 2013 March 22, /10/13 02/10/14 06/10/14 10/10/14 02/10/15 06/10/15 10/10/15 02/10/16 21 Source: Federal Reserve

22 Germany s Inflation Expectations Germany Breakeven 10 Year March 14, 2011 March 22, 2016 % /14/11 03/14/12 03/14/13 03/14/14 03/14/15 03/14/16 22 Source: Federal Reserve

23 U.S. Inflation Expectations % U.S. Breakeven 10-Year August 1, 1998 March 22, /31/98 02/29/00 08/31/01 02/28/03 08/31/04 02/28/06 08/31/07 02/28/09 08/31/10 02/29/12 08/31/13 02/28/15 23 Source: Federal Reserve

24 10-Year Yields in Japan & Germany Near 0% Japan Vs. German 10-year Yield March 7, 2011 March 22, 2016 % % /07/11 03/07/12 03/07/13 03/07/14 03/07/15 03/07/16 Japan Generic Govt 10Y Yield (left scale) 24 Germany Generic Govt 10Y Yield (right scale) Source: Bloomberg, L.P.

25 Emerging Markets Private Non-Financial Sector Debt to GDP Ratios January 1, 1995 December 31, 2015 % debt to GDP Emerging market corporate debt has already doubled as a percent of GDP! Source: BIS

26 ishares MSCI Emerging Markets ETF (US) March 7, 2005 March 22, 2016 $/share Emerging market equities back to 2009 level /07/05 03/07/06 03/07/07 03/07/08 03/07/09 03/07/10 03/07/11 03/07/12 03/07/13 03/07/14 03/07/15 03/07/16 Source: Bloomberg, L.P. 26

27 Shanghai Stock Exchange Composite Index March 11, 2011 March 22, 2016 Index level /07/11 11/07/11 07/07/12 03/07/13 11/07/13 07/07/14 03/07/15 11/07/15 27 Source: Bloomberg, L.P.

28 Disclosure 1. Standard and Poor s, 2. MSCI Barra Indices, 3. Bloomberg Professional Service, Bloomberg Finance L.P. 4. Federal Reserve Board, 5. Office of Financial Research, January/February Credit can trees grow to the sky?, Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, February 9, Global Macro Research, Top of Mind, Goldman Sachs, March 2, US Fixed Income Markets Weekly, J.P. Morgan, February 28,

29 Disclosure Cavanal Hill Investment Management, Inc. ("Cavanal Hill") is an SEC registered investment adviser and a wholly-owned subsidiary of BOKF, NA, a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company ("BOKF"). Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the author at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This report is not to be considered a recommendation of Cavanal Hill s investment management services, any particular security, strategy or investment product, nor is it intended to provide personal investment advice. It does not take into account any specific investment objectives, financial situations, or particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. The information provided in this presentation is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Investments are not insured by the FDIC and are not guaranteed by Cavanal Hill or any bank, including any banking affiliates of Cavanal Hill. Investments are subject to risks, including the possible loss of the principal amount invested. Past performance does not guarantee future results. This document contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections, the securities and credit markets and the economy in general. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events and are inherently forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks. Cavanal Hill does not undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise. This report may not be reproduced, redistributed, retransmitted or disclosed, or referred to in any publication, in whole or in part, or in any form or manner, without the express written consent of Cavanal Hill. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report. For questions about this report, please contact Brian Henderson at (918)