Presentation Title. Portfolio Review & Plan for Client A October 2011

Transcription

1 Presentation Title Portfolio Review & Plan for Client A October 2011

2 Table of Contents I. Strategy Objectives Better Oversight Efficient Fee Structure Improved Portfolio Management p 6 p 7 p 8 p 9 II. Execution Equity Fixed Income Other Assets Process p 15 p 19 p 23 p 24 Process p 24 2

3 Objectives Better oversight Efficient fee structure Improve Portfolio Management: 1) Strategic Current Set-up Several investment advisors looking at pieces of portfolio No shared info/communication IPS inconsistent amongst accounts Investment mandates charging fees while not outperforming Use of high fee securities (structured notes, hedge funds) Over 70 mutual funds Overall asset class breakdown close to BSP Growth portfolio A few missing sub- asset class exposures Superfluous diversification (over 320 securities) 2) Tactical Too many securities to execute effective portfolio shifts Objectives Looking at portfolio holistically One Captain of the ship : Client Co-Pilot: BigSur Consistent IPS for all accounts Eliminate investment mandates Eliminate sellable high fee securities Keep only mutual funds which add the most value Efficient diversification (consolidate number of vehicles while preserving asset class diversification) Use of hedges Use of liquid ETFs to execute portfolio shifts 3

4 Better Oversight Too many accounts, too many managers There are 17 different accounts for the portfolio o o 5 different investment advisors: managing pieces of portfolio, not portfolio as a whole There are 94 actively managed funds (excluding ETFs) in the portfolio 73 mutual fund managers 21 active hedge fund managers (excluding side pockets) Consolidation, reduce number of managers Focus on brokerage platforms: Broker 1 Broker 2 Adding Pershing Bank of New York Mellon Significantly reduce the number of actively managed funds Focus on high quality managers, relative outperformance Keep and add exposure to the best funds 4

5 Efficient Fee Structure Performance and Cost Efficiency: Eliminate Investment Mandates Global Investment Mandates not outperforming while total fees for account management are high Reduce very high exposure (over $25 million) to high fee securities Over $10 million in structured products Over $15 million hedge funds: recommend to sell most of the sellable assets 5

6 Improved Portfolio Management: Strategic The asset allocation of the portfolio is close to the BSP Growth portfolio* Asset Class BSP Growth Client A Cash 5.0% 4.2% Fixed Income 28.0% 29.7% Hybrids & Perpetuals 7.0% 0.0% Equity 40.0% 36.0% Alternative Investments ** 20.0% 30.1% **Large overweight in Hedge Funds: 14.4% (Client A) vs. 5.0% (BSP Growth) With the exception of a few missing sub-asset class exposures: Sub Asset Class Preferred Shares, Hybrids & Perpetuals BSP Growth Client A 7.0% 0.0% High Yield- Emerging Markets 4.0% 1.0% Commodities 2.5% 0.5% Gold 5.0% 2.3% 6

7 Improved Portfolio Management: Strategic & Tactical Portfolio has over 320 positions 150 single stock names 73 mutual funds 21 active hedge funds Difficult to manage/control risk of portfolio Reduce to no more than 100 positions Focus on more efficient diversification: keeping asset class diversification but having fewer vehicles, using: Diversified vehicles like ETFs Individual bonds and stocks A few mutual funds Manageable number of positions allows for better bottom-up analysis of portfolio Unable to execute effective tactical portfolio shifts Core ETF positions will allow us to quickly and efficiently execute: tactical shifts options strategies built around the positions 7

8 Improved Portfolio Management: Example Overlapping managers: Manager A* Manager A* Global Bond fund ($1.9 mm) and Manager A* Global Return fund $1.5 mm) The only difference in these funds is a 15% exposure to High Yield credit in the Global Return fund. The funds are otherwise positioned identically, with exposure to the same securities Using best in class managers Manager A* Global Fixed Income team focus on interest rates and FX- high yield is not their specialty BigSur uses Manager B* instead of Manager A* for High Yield exposure Portfolio currently has four High Yield mutual funds, all of which underperform Manager B* *We can not include names of specific managers in this presentation 8

9 Improved Portfolio Management: Hedges in the Portfolio Hedge Client A Ideas Risk-free assets US Treasuries In-line Extend duration; possibly sell out of shorter term Treasuries. Precious Metals Gold & Gold stocks Increase Safety asset; hedge against inflation, USD Other : Silver, Platinum, Palladium None Diversifying away from gold Emerging Markets Debt High Grade EM Debt in USD EM Local Markets Debt (in Local FX) Increase Increase EM countries in stronger fiscal positions than DM; improving corporate credit fundamentals; higher yields. Ex: Peru EM FX appreciation: positive growth, interest rate differentials, and structural capital inflows FX Large exporters None AUD, CAD, BRL Fiscally sound None NOK, SEK, SGD Volatility Sell volatility to produce income 1 sm. position Sell puts/ sell covered calls CTAs Managed Futures None No correlation with equity markets 9

10 II. Execution Equity p 15 Fixed Income p 19 Other Assets p 23 Process p 24 10

11 Equity Regional allocation within Equity Portfolio is generally in line with BSP views* Add exposure to Emerging Markets Reduce exposure to Europe Vehicles: Limit mutual funds to those which add most value Use of ETFs Fewer stock positions Sub-Asset Class Emerging Markets Europe Global US Large Cap US Mid Cap US Small Cap Select Recommended Vehicles ETF with EM exposure; Managed Fund with Asia exposure ETF with German exposure; Managed fund with European exposure ETF with Global Lg Cap exposure; ETF with Global High Div. Payers ETF with US Large Cap exposure; basket of individual id names ETF with Mid Cap exposure Sell positions 11

12 Equity Example of consolidating exposure into best in class vehicle Portfolio holds the below 5 Asian equity funds Consolidate into best performing vehicle- Fund 1 Data from 04/08-09/11 Ann. Return* Sd Std. Deviation i Fund 1 7.2% 31.5% Fund 2 6.4% 27.0% Fund 3 3.5% 25.2% Fund 4-0.2% 33.1% Fund 5-0.5% 29.4% Example of substituting mutual fund for ETF: higher fees, underperformance Data from 12/01-09/11 Ann. Return* Std. Deviation Mgmt Fee Energy Sector- mutual fund -2.4% 29.5% 1.75% Energy Sector- ETF 9.8% 21.7% 0.48% * Return calculations l are net of fees 12

13 Equity BSP Recommended Stock Portfolio Diversified by sector Global industry leaders High dividend payers, strong fundamentals *We can not list the companies in our recommended stock portfolio in this presentation 13

14 Fixed Income Sub-Asset Class High Grade Developed Markets High Grade Emerging Markets High Yield USD Non-USD USD Select Recommendations Extend duration in Treasuries Sell Treasury ETF ($1.5 mm): due to withholding Sell Manager D* Total Return ($3.3 3 mm): due to mgmt fee (0.5% ) vs. current yield ( 3.1% as of ) Swap from Manager A* Global Total Return to Manager A* Global Bond Fund Sell Euro bond funds Diversify exposure: Peru, Qatar, Dubai Non-USD Add to Asian local market exposure: Manager B* Asian Fund Emerging Markets Developing Markets Diversify exposure: Manager C* Latin America Corporate Bond Fund Swap funds into Manager B* US High Yield Fund *We can not include names of specific managers in this presentation 14

15 Other Assets Sub-Asset Class Commodities Gold Real Estate Hedge Funds Global l Allocation Funds Recommendations Add exposure to agriculture, base metals, oil Increase allocation; diversify into ETF with Gold mining companies, other precious metals Direct exposure through income-producing core investments Reduce exposure to 5%; eliminate sellable funds Sell Manager E* Active Asset Allocation fund *We can not include names of specific managers in this presentation 15

16 Process 1. Cancel mandates and transfer assets to self directed accounts 2. Asset Allocation Rebalancing Add missing asset classes Rebalance to reflect BigSur Growth Portfolio 3. Focus on security selection and clean up Eliminate sellable high fee securities Individual stock name selection Mutual fund selection 4. Open account at Bank of New York (Pershing) Best execution Negotiation of fees 16

17 Disclosures a. Client A is a hypothetical portfolio for illustration purposes only and does not necessarily represent any actual portfolios managed by other investment professionals. Similarly, Adviser's portfolio modifications shown are hypothetical in nature and do not contend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality. b. Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. c. Investments in securities, including mutual funds and Exchange Traded Funds, involves risk of loss of income and principal.