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The importance of looking at real returns

The importance of looking at real returns. Presented by Fiona Barwick Director of Regional Research Mondrian Investment Partners. 10 July 2008. Introduction . Inflation trends in Asia What’s causing it? Consequences An investment approach that looks at inflation Conclusion.

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The importance of looking at real returns

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  1. The importance of looking at real returns Presented by Fiona Barwick Director of Regional Research Mondrian Investment Partners 10 July 2008

  2. Introduction • Inflation trends in Asia • What’s causing it? • Consequences • An investment approach that looks at inflation • Conclusion

  3. Inflation in Asia trending up

  4. Food and energy matters

  5. Globally rice and wheat yields have levelled off

  6. Rice and wheat prices spiking due to declines in inventories and concerns over supply

  7. Commodity cost curve move up sharply = cost push Lack of investment over recent years = supply unable to keep up with surging demand = cost push China’s rapid urbanisation and industrialisation, subsidised prices and low real interest rates leading to demand pull Prices are rising again in 2008 Commodities price inflation 1987 -2007 90th percentile, cash costs (base) Source: LME, Comex/Nymex, CRU, Clarksons, Macquarie Research, January 2008

  8. Ultimately monetary policy is key

  9. Broad money growth indicates inflation looks to be trending higher

  10. Overall real rates look too low

  11. Monetary policy looks too loose in several countries but better in others …

  12. Since 2002 low inflation has supported stable monetary policy and market returns

  13. But rising inflation increases market volatility through an increase in the equity risk premium and shrinking PE multiples

  14. Defensive characteristics – 1 July 1999 to 31 March 2008 Annualised returns (%) (net of fees) 2.5% 10.7% 7.8% 41.3% 34.5% -20.5% -31.9% Bull Mkt Periods(22 qtrs)Bear Mkt Periods (13 qtrs) Total Annualised (35qtrs) Return

  15. Risk-Reward comparison1 July 1999 to 31 March 2008 The returns presented in this graph are presented gross of advisory fees and other expenses associated with managing an investment advisory account. Actual returns will be reduced by such fees and expenses.

  16. Conclusion • Inflation is trending higher • Monetary policy is too loose • Markets will become more volatile • Mondrian’s approach looks at real absolute returns, preserving capital, lower volatility

  17. This information is intended only for professional financial advisers and should not be used or relied upon by private investors or any other persons. The price of units and the income from them can fall as well as rise and is not guaranteed. Investors might not get back their original investment. Where applicable, exchange rates may also cause the value of underlying overseas investments to go down or up.Past performance should not be taken as a guide to the future.The figures within this presentation, are provided by, and are the primary responsibility of Mondrian Investment Partners.Issued by Lincoln Unit Trust Managers Limited, incorporated in England registration number 1651703, registered office Barnett Way, Barnwood, Gloucester, GL4 3RZ. Telephone Customer Services 0800 282 621, Fax 01452 637156, www.lutm.co.uk. Lincoln Unit Trust Managers Limited is authorised and regulated by the Financial Services Authority and is a member of the Lincoln Financial Group. Member of the Investment Management Association. Any information offered will relate to the life assurance, pension and unit trust products of the Lincoln Financial Group. No personal financial advice or recommendations will be given. Calls may be monitored and recorded for security and training purposes.

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