Equity. Is small beautiful? Understand. Act.

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1 Equity Is small beautiful? Understand. Act.

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3 Is small beautiful? Content 4 Is small beautiful? 4 Global growth prospects are improving 7 Comparison of trends in previous economic cycles 10 Larger risk budgets seem to favour small caps 10 Dividends still attractive, even in the small cap segment 10 Valuation is small beautiful? 14 M&As are common, especially in the small and mid cap segments 15 Active management, especially among small and mid caps 16 Information processing 17 Small caps are beautiful Imprint Allianz Global Investors GmbH Bockenheimer Landstr Frankfurt am Main Global Capital Markets & Thematic Research Hans-Jörg Naumer (hjn) Ann-Katrin Petersen (akp) Stefan Scheurer (st) Data origin if not otherwise noted: Thomson Reuters Datastream Allianz Global Investors 3

4 Is small beautiful? Is small beautiful? As the prospects for growth improve, share prices of small caps seem to be continuing their upward trend. Given the current capital market environment, however, investors should be asking themselves how small caps will react in an inflationary economy (in future). Are dividends attractive, even in the small cap segment? Just as important: what else might drive sustainable outperformance compared with large caps? Global growth prospects are improving In year five following the outbreak of the global financial crisis, the world economy seems to be finding its feet again, although the growth trend forecast is merely moderate. And yet, as international central banks provide cheap money, it is the small caps around the world, in particular, that seem to be benefiting and / or tending to outperform global large caps. Table 1 clearly illustrates this by comparing absolute performance between small and large caps in each case following unconventional action by the European Central Bank (ECB) and / or the US Federal Reserve (Fed), over periods of 1 to 12 months. Chart 1: Small caps drove performance indexed MSCI World Small Cap Index (Total Return) MSCI World Large Cap Index (Total Return) MSCI World Index (Total Return) Source: Datastream, Allianz Global Investors Global Capital Markets & Thematic Research, as of September It is not possible to invest directly in an index. Past performance is not an indication of future results. 4

5 Looking back over a longer period (January 2001 September 2013) shows that, while investors on the global stock markets may have earned a return of about 80 % (measured against the MSCI World Total Return in US dollars), the Small Cap Total Return Index (issued by MSCI, global investments, measured in US dollars) nearly trebled over the same period. Which just goes to show that admittedly helped by the cheap money provided by the central banks better performance over the long term compensated investors for the higher risk associated with small caps; and this in spite of capital markets labouring under crises such as the dotcom bubble around the turn of the millennium, the financial market crisis or the EU debt crisis (see Chart 1). Another interesting phenomenon is the annual performance of small companies from a regional perspective compared with their larger peers, the so-called blue chips. Global large caps managed to earn an annual return of 2.8 % p. a. since January 2001, whereas annual global small cap performance has exceeded 8 %. At 8 % p. a., small cap performance in Europe was well ahead of European large caps, which just about managed to earn an annual return of 1.7 %. Best performers overall were small caps from North America, which recorded annual share price gains in excess of 9 %. By contrast, North American large caps lagged far behind with an annual return of about 3 %. Small caps in Japan may have only earned 3.6 % each year, but Japanese large caps were the only asset class to actually record negative performance (of 0.4 % p. a.) over the analyzed period (see Chart 2). On balance therefore, small caps significantly outperformed large caps over the indicated period at both global and regional level, generating a positive real return after appropriate deduction for inflation. Classification from large caps to nano caps When does a company qualify as large cap? Up to what level of market capitalization does a company rank as small cap? Large cap Mid cap Small cap Micro cap Nano cap Market capitalization of EUR 10 billion and more Market capitalization of between EUR 4 billion and EUR 10 billion Market capitalization of between EUR 200 million and EUR 4 billion Market capitalization of between EUR 10 million and EUR 200 million Market capitalization of less than EUR 10 million Source: Allianz Global Investors Global Capital Markets & Thematic Research, as of September Investments in smaller companies may be more volatile and less liquid than investments in larger companies. 5

6 Is small beautiful? Table 1: Central bank provision of cheap money benefited global small caps in most cases Large Cap Small Cap EM World Japan North America Germany Europe EM World Japan North America Germany Europe After QE1 +1 M 14 % 11 % 9 % 13 % 17 % 13 % 19 % 17 % 16 % 9 % 26 % 21 % +3 M 26 % 18 % 16 % 20 % 21 % 19 % 45 % 28 % 25 % 23 % 33 % 29 % +6 M 51 % 38 % 34 % 24 % 42 % 44 % 77 % 57 % 55 % 27 % 74 % 66 % +12 M 60 % 48 % 46 % 28 % 49 % 53 % 99 % 74 % 77 % 26 % 95 % 79 % After QE1 +1 M 0 % 2 % 2 % 10 % 5 % 0 % 0 % 4 % 6 % 9 % 5 % 3 % +3 M 1 % 7 % 9 % 15 % 9 % 5 % 1 % 10 % 13 % 19 % 12 % 8 % +6 M 2 % 9 % 13 % 8 % 14 % 7 % 0 % 14 % 19 % 14 % 16 % 12 % +12 M 8 % 1 % 6 % 9 % 7 % 7 % 16% 0 % 7 % 5 % 6 % 10 % After QE3 +1 M 1 % 1 % 1 % 2 % 0 % 0 % 2 % 1 % 3 % 1 % 2 % 0 % +3 M 6 % 1 % 2 % 9 % 4 % 3 % 5 % 1 % 2 % 8 % 7 % 4 % +6 M 7 % 11 % 7 % 42 % 10 % 12 % 13 % 15 % 11 % 38 % 18 % 17 % +12 M 8 % 19 % 17 % 64 % 17 % 18 % 11 % 26 % 23 % 60 % 29 % 33 % After LTRO1 +1 M 6 % 6 % 6 % 5 % 11 % 7 % 6 % 7 % 7 % 3 % 10 % 11 % +3 M 11 % 13 % 13 % 20 % 22 % 13 % 16 % 15 % 13 % 14 % 18 % 20 % +6 M 5 % 6 % 7 % 6 % 10 % 5 % 8 % 6 % 4 % 4 % 15 % 12 % +12 M 16 % 18 % 17 % 19 % 33 % 20 % 19 % 19 % 17 % 14 % 32 % 29 % After LTRO1 +1 M 2 % 1 % 3 % 3 % 0 % 1 % 2 % 1 % 2 % 4 % 0 % 1 % +3 M 8 % 5 % 2 % 13 % 6 % 7 % 7 % 6 % 4 % 10 % 1 % 6 % +6 M 4 % 1 % 4 % 10 % 3 % 2 % 4 % 2 % 0 % 7 % 2 % 2 % +12 M 5 % 13 % 13 % 21 % 13 % 14 % 10 % 14 % 13 % 22 % 23 % 19 % PerformanceLarge Caps > Small Caps (Underperformance) Performance Large Caps = Small Caps Performance Large Caps < Small Caps (Outperformance) QE: Quantitative Easing of the Federal Reserve; LTRO: Long-Term Refinancing Operations of the European Central Bank Source: Datastream, Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. 6

7 Chart 2: Added returns from small caps 10.0 % 8.0 % 6.0 % 4.0 % 2.0 % 0 % 2.0 % World Europe Germany Japan North America Large Cap Return (p. a.) Small Cap Return (p. a.) Source: Datastream (MSCI Total Return Indizes), Period: 01 / / 2013; Allianz Global Investors Global Capital Markets & Thematic Research. Past performance is not an indication of future results. Comparison of trends in previous economic cycles The above analysis is, however, based on averages, since both small and large caps can perform differently in phases of economic recovery or downswings (see Chart 3). Generally speaking, large caps seem to perform better than small caps during phases of recession or weak economic development. Or to put it differently: any losses they made were not as severe as those generated by small and medium-sized companies. The driving factor is the declining or increasing appetite for risk that investors develop during downswings and phases of recovery. When risk appetite is diminishing, investors generally focus mainly on the liquidity of the securities, preferring companies with large market capitalization and, consequently, high levels of liquidity as they expect to be able to sell them again more quickly. In such phases, lower capitalized stocks tend to fade into the background. There does, however, seem to be a snag in this theory during the period under review, given that large caps were only able to outperform small caps in recessions 7

8 Is small beautiful? Chart 3: Small Caps Have Generally Driven Performance During Upturns 60 % 50 % 40 % 30 % 20 % 10 % 0 % 10 % 20 % 30 % 40 % 50 % MSCI World (Small Cap) MSCI World (Large Cap) Source: Datastream (MSCI Total Return Indizes); Allianz Global Investors Global Capital Markets &Thematic Research, as of Q Past performance is not an indication of future results. or phases of weak economic development during the financial market crisis (2008) and the EU debt crisis (2011). In the wake of the dotcom bubble at the start of the 21st century ( ), it was the small caps that beat their large peers in relative terms. Over the long term, however, the statement seems to hold true, as evidenced by our analysis of US small and large cap performance during periods of recession as defined by the American National Bureau of Economic Research (NBER) since the beginning of the 1970s. On the other hand, small caps seem to perform in some cases much better than large caps in times of economic recovery in particular. They outperformed large caps significantly, in some cases every year in the years that followed up until The same holds true in 2009 and 2010, when small caps again outperformed large caps. Although past performance is not an indication of future results, a certain analogy does seem to be emerging between performance and economic development. And, as mentioned at the beginning, small caps should benefit more from this economic recovery than large caps. For example, the 6-month difference in return between Euro- 8

9 pean small caps and large caps demonstrates close alignment to the leading indicators issued by the Organisation for Economic Co-operation and Development (OECD) for Europe (also based on 6-month changes) (see Chart 4). Added to which, the OECD s leading indicators are currently showing a trend at the long-year average. If economic recovery gains more pace, the upward trend of the leading indicators should continue, and the yield gap between small caps and large caps should widen further. As described, small caps have outperformed their larger peers quite significantly in some cases. The key to earning positive real returns potential after deduction for inflation especially in times of financial repression (see Chart 5). Chart 4: Small and large caps vs. OECD leading indicators for Europe 30 % 20 % 10 % 0 % 10 % 20 % 4 % 3 % 2 % 1 % 0 % 1 % 2 % 3 % 4 % Yield differential (6M % Change) MSCI Europe Small Caps vs. Large Caps OECD Leading (6M % Change, rhs) Average OECD Leading Indicators rhs Source: Datastream, Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. Chart 5: Small caps More risk, may be more return 30 % 25 % % 15 % 15.7 % 17.7 % % 5 % 6.6 % 8.2 % % 0.0 Return p. a. Risk p. a. Sharpe Ratio Large Caps Small Caps Source: Datastream (MSCI Total Return Indizes), Period: 01 / / 2013; Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. 9

10 Is small beautiful? Larger risk budgets seem to favour small caps Our analysis also revealed that small caps can demonstrate much better performance than large caps, especially during the first quarter of each year. Evidence of this is available not only at global level: the statement also holds true from a regional perspective (see Chart 6). Small caps outperformed large caps by nearly 2 % in relative terms in the emerging markets and Japan, for example, in the first quarter since 2001 on average. Outperformance in Germany and Europe ranged between 4 % and 5 %. At global level, outperformance is a good 2 %. One reason for this relative outperformance could be the supposedly larger risk budgets at the disposal of international investors at the start of each year. Dividends still attractive, even in the small cap segment By the same token, in some instances small caps generate higher returns potential not only from better share price gains but also in terms of dividend yield than can be earned from 10-year government bonds (see Chart 7). For example, the average dividend yield generated by global small caps is just over 2 %, or 2.5 % by European small caps. This is somewhat surprising as one might assume that companies with low levels of capitalization would tend to invest their excess cash flow in future business development rather than pay dividends to their shareholders. However, when focusing on generating positive real returns against a backdrop of financial repression, the dividend yield of small caps could provide added stimulus to sustaining purchasing power. Another remarkable fact: analyzing the respective indices on the basis of price, i. e. excluding dividend payments by the companies, reveals that performance by virtually all MSCI large cap indices is negative positive returns potential are only visible among global (0.3 %) and North American (1.1 %) large caps. The inverse conclusion is, therefore, that dividends contribute the lion s share to large cap performance. We reached the same conclusion in our study entitled Dividend stocks an attractive addition to a portfolio. This showed that, over the last 40 years, dividend payments accounted for more than 40 % of the annualized total return on equity investments. In this context, small cap performance measured on the basis of MSCI price indices is remarkable by contrast. Annual performance in the small cap segment exceeded 6 % at global level and 5 % at European level, while North American small caps earned a return of nearly 8 % each year. In this case, it could be the share buyback programmes that US companies initiated instead of paying dividends, which accounted for the difference in performance. Valuation is small beautiful? Based on the significant outperformance of large caps by small caps in recent years, one might assume that valuations have progressed a long way in the segment of small cap companies. Taking the price-earnings ratio based on estimated profits over the next 12 months as the basis for valuation, small caps do indeed appear to be overvalued to the tune of % (depending on the region in question) relative to large caps (see Chart 8). Although we should not ignore the fact that, in the past, this segment has always traded at a premium compared with large caps (reasons for this are given below). By contrast, basing valuations on the price-book 10

11 Chart 6: Larger risk budgets seem to favour small caps Relative Performance Small Caps vs. Large Caps 6.0 % 5.0 % 4.0 % 3.0 % 2.0 % 1.0 % 0.0 % 1.0 % 2.0 % 3.0 % Emerging Markets World North America Japan Germany Europe Q1 Q2 Q3 Q4 Source: Datastream (MSCI Total Return Indizes), Period: Q1/2001 Q2/2013; Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. Chart 7: Dividends still attractive, even in the small cap segment 4.0 % 3.5 % 3.0 % 2.5 % 2.0 % 1.5 % 1.0 % 0.5 % 0.0 % World Europe North America Japan Germany Dividend yield Large Caps Regional inflation Dividend yield Small Caps Yield 10 y govt bond Source: Datastream (MSCI Total Return Indizes); Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. 11

12 Is small beautiful? Chart 8: Valuation based on price-earnings ratio (PER) Small Caps vs. Large Caps Europe (12m fwd PE) US Small Caps vs Large Caps (12m fwd PE) Small Caps vs. Large Caps Japan (12m fwd PE) Average Europe Average USA Average Japan Source: Datastream, Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. ratio (PBR) puts the presumed over-valuation into a more relative perspective. On this valuation basis, small caps are equal to or, in most cases, below their long-term average of the last 10 years, and thus, in some cases, far-removed from their peak valuations at the end of 2007 (see Chart 9). From a regional perspective, Japan is currently valued most cheaply in terms of both small caps and blue chips, and is also cheaper than its long-term average. Yet Japanese companies earn the lowest return on capital (4.7 %) compared with other regions. While North American small caps are valued on a par with their long-term average and may be most expensive by regional comparison, those same North American companies are currently earning a return on capital in excess of 8%. Generally speaking, therefore, a company generating a higher return on capital and thus on the capital employed is valued at a higher price, based on PBR, and vice versa. This improved profitability, which is also evident vis-à-vis large caps, is illustrated in Chart 10, which compares the return on capital generated by North American small caps versus large caps. Although profitability slumped around 2009, the positive trend of the last 10 years is clearly recognizable. So what might justify a relatively higher valuation of small caps? Small caps are more dependent on economic cycles than large caps, particularly since the sector weighting of small caps is heavily oriented towards cyclical economic sectors. Ultimately, the higher risk associated with investing in smaller cap stocks should be reflected in higher risk and liquidity premiums, i. e. better performance. Small and medium-sized companies are often still growing. They are striving to conquer their markets before becoming large cap companies. The stronger growth compared to large cap companies is correspondingly reflected in profits that increase more strongly in the future, which could justify a higher valuation. Small caps should also profit from Mergers & Acquisitions (M&A) transactions. 12

13 Chart 9: Valuation based on price to book ratio (PBR) High Large Caps Small Caps Low EM World North America Japan Germany Europe EM World North Japan Germany Europe America Latest Average ( 10 y) Source: Datastream, Period: 03 / / 2013; Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. Chart 10: Small caps seem to have become more profitable 0.7 % 0.6 % Small Caps more profitable 0.5 % 0.4 % 0.3 % 0.2 % 0.1 % 0.0 % 0.1 % 0.2 % 0.3 % Large Caps more profitable Mar. 03 Sep. 03 Mar. 04 Sep. 04 Mar. 05 Sep. 05 Mar. 06 Sep. 06 Mar. 07 Sep. 07 Mar. 08 Sep. 08 Mar. 09 Sep. 09 Mar. 10 Sep. 10 Mar. 11 Sep. 11 Mar. 12 Sep. 12 Mar. 13 Sep. 13 Small Cap Return on Equity relative to Large Cap North America Average Source: Datastream, Period: 03 / / 2013; Allianz Global Investors Global Capital Markets & Thematic Research, as of September Past performance is not an indication of future results. On the other hand, the following arguments support a lower valuation: Admittedly, small and medium-sized enterprises can also operate or even lead the market in some cases in profitable niches where the margins are potentially better than in mature saturated markets. The risk (volatility) of smaller cap stocks compared to their larger peers is, however, probably higher as a rule, not least because of the lower liquidity compared to large caps. Being less easy to trade than large cap stocks, their share prices are more susceptible to fluctuation since inflows and outflows of investor cash have a larger effect on the prices of small cap companies. Added to which, smaller caps are less frequently the subject of analysis, i. e. investing in smaller stocks can harbour more risk, given the reduced availability of research / information. This should be reflected in lower prices and thus lower valuations. 13

14 Is small beautiful? M&As are common, especially in the small and mid cap segments A trend recently seemed to be emerging on the capital markets: mergers & acquisitions appear to be topping the agendas of companies and corporate leaders again. The situation is helped by the lower cost of refinancing for companies, thanks to the cheap money being made available by the central banks. The equity markets as a whole might see an additional boost from this development, but particular beneficiaries should be companies with a market capitalization of less than EUR 10 billion: the small caps and mid caps. Taking the US as an example, Chart 11 shows that the number of takeovers in the small and mid cap segment is significantly greater than among large caps. The following figures relate to all global M&A transactions between 2001 and 2012: About 780 small and mid caps in the USA but only around 50 large caps. Some 530 small and mid caps in the UK compared to just over 70 large caps. About 1,040 small and mid caps in Japan, vs. 30 large caps. Another interesting observation is of the sharp rise in takeovers, especially after crises such as the TMT bubble of 2000 / 2001 and the financial market crisis of 2008 / 2009 as companies seek additional growth (see also Financial Repression: A Driving Force for Mergers and Acquisitions? ). Chart 11: Takeovers, especially of small and mid caps, are common Number of takeovers in the US Small Caps Mid Caps Large Caps Chart 12: Higher premiums for small and mid caps Average premium paid in the US (in %) 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 10 % Ø Premium Small Caps: 25.0 % Ø Premium Mid Caps: 27.2 % Ø Premium Large Caps: 6.5 % Small-Caps Mid-Caps Large-Caps Ø Small Caps Ø Mid Caps Ø Large Caps Source: Bloomberg, S&P Indices, AllianzGI Global Capital Markets & Thematic Research, as of Q

15 Buyers seem willing to pay a premium for growth as a commodity in short supply (based on average prices over the 20 trading days prior to announcement of a takeover). Although studies prove that M&As do not necessarily always add value one reason being the over-estimation of synergy effects it is interesting to study the premiums paid between 2001 and 2012 (basis: Standard & Poor s indices): The average premium paid in the USA was about 25 % for small caps and nearly 27 % for mid caps. By contrast, the premium for large caps was only around 6 % (see Chart 12). The average premium paid in the UK was about 20 % for small caps and around 15 % for mid caps, compared to around 11 % for large caps. The average premium paid in Japan was about 7 % for small caps and around 5 % for mid caps. By contrast, the premium for large caps was around 4 %. Although global M&A volumes at the end of 2012 fell some 20 % short of the previous year s level and well short of the long-term average over the past nearly 20 years, the recent upward trend will probably continue, especially given the cheap refinancing conditions, attractive valuations of many com- panies and high levels of liquidity, which is seeking worthwhile returns. Just as important: since organic growth has become a scarce commodity among companies in industrialized companies, they seem to be increasingly keeping an eye out for means of expanding externally or for attractive niches. Active management, especially among small and mid caps Admittedly, soaring share prices have pushed up the market capitalization of some small and mid caps to such an extent that they now rank as large caps. As a result, the investment universe has shrunk somewhat, but nevertheless remains large. Example: More than 1,600 companies in total are listed in the MSCI World Index. Of these, around 1,000 classify as small or medium-sized enterprises (as of September 2013), which equates to a share of about 60 % (see Chart 13). Generating excess returns in this broad segment requires, above all, active management, and stock picking becomes even more important for secondary stocks than it is for blue chips. Active management is, however, not just beneficial in the small and mid cap segments; it is even more so for investors looking for exposure to even smaller market segments among the micro caps (market capitalization below EUR 200 million). Chart 13: The investment universe for small and micro caps is, of course, larger Weighted by market capitalisation (in EUR) Weighted by number of companies Small Cap 4.2 % Mid Cap 16.5 % Large Cap 79.3 % Small Cap 23 % Mid Cap 39 % Large Cap 38 % Source: Datastream, Allianz Global Investors Global Capital Markets & Thematic Research, as of September

16 Is small beautiful? Information processing Some market participants have the ability to process information better and faster; an advantage that can be used to generate high yields, especially in the area of small and micro caps. This applies when analyst coverage for individual companies is low (see Chart 14). Numerous analysts and professional investors are interested in large cap companies, whereas much less attention is paid to small and micro caps. Since information efficiency is lower, price-related information is likely to circulate less quickly. Anyone who is well informed can use the information advantage to generate higher returns. A good fundamental analytical process can offer advantages, especially in the case of small and micro caps, since it can exploit the lower information efficiency while separating the wheat from the chaff. So many of tomorrow s winners can be identified today (see also our study entitled Active Management ). Chart 14: Average number of analysts per security NASDAQ S&P 600 SDAX FTSE 250 Topix 500 S&P 400 Tec Dax Topix 100 MDAX S&P 500 Stoxx 600 FTSE 100 Dow Jones S&P 100 EuroStoxx 50 DAX Source: Bloomberg, Allianz Global Investors Global Capital Markets & Thematic Research, as of September

17 Small caps are beautiful Although small caps have already been outperforming to a certain extent over a longer period, there are still opportunities that make secondary stocks interesting for future investments. Small caps should benefit, not just from higher risk budgets at the start of each year, or an increased number of takeovers. They could also continue to profit from the expected economic recovery, which makes them an attractive addition to a well-structured portfolio. Stefan Scheurer 17

18 Is small beautiful? Do you know the other publications of Allianz GI Global Capital Markets & Thematic Research Risk. Management. Reward. Smart Risk investing in times of financial repression Strategic Asset Allocation Managing Risk in a time of Deleveraging Active Management The New Zoology of Investment Risk Management Constant Proportion Portfolio Insurance (CPPI) Portfolio Health Check : Preparing for Financial Repression Financial Repression Shrinking mountains of debt International monetary policy in the era of financial repression: a paradigm shift Financial Repression and Regulation: Paradigm Shift for Insurance Companies & Institutions for Occupational Retirement Provision Silent Deleveraging or debt haircut? that is the question Financial Repression A silent way to reduce debt Financial Repression It is happening already EMU You can find our wide-ranging supply of publications on the euro on our Market Insights section Bonds Duration Risk: Anatomy of modern bond bear markets Emerging Market currencies are likely to appreciate in the coming years High Yield corporate bonds US High-Yield Bond Market Large, Liquid, Attractive Credit Spread Compensation for Default Corporate Bonds Why Asian Bonds? Dividends Dividend Strategies and Troughs in Earnings Revisions Dividend Stocks an attractive addition to a portfolio Dividend strategies in an environment of inflation and deflation High payout ratio = high earnings growth in the future Changing World Renewable Energies Investing against the climate change The green Kondratieff Crises: The Creative Power of Destruction Demography Pension Discount rates low on the reporting dates IFRS Accounting of Pension Obligations Demographic Turning Point (Part 1) Pension Systems in a Demographic Transition (Part 2) Demography as an Investment Opportunity (Part 3) Behavioral Finance Reining in Lack of Investor Discipline: The Ulysses Strategy Overcoming Investor Paralysis: Invest more tomorrow Outsmart yourself! Investors are only human too Two minds at work All our publications, analysis and studies can be found on the following webpage: / AllianzGI_VIEW 18

19 Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission (SEC); Allianz Global Investors Europe GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); RCM (UK) Ltd., which is authorized and regulated by the Financial Services Authority in the UK; Allianz Global Investors Hong Kong Ltd. and RCM Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No Z]; and Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan. 19

20 Allianz Global Investors GmbH Bockenheimer Landstr Frankfurt am Main October 2013

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