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Asset Allocation Strategies 資產配置有計策 Investor Education Day 31 January 2015

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Page 1: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Asset Allocation Strategies資產配置有計策

Investor Education Day

31 January 2015

Page 2: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Why Asset Allocation為何要做資產配置?

• Change in life stage or financial situation

• Change in market condition

• Risk and Reward management

Page 3: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Asset Allocation資產配置

WHY

• Change in life stage or financial situation

• Change in market condition

• Risk and Reward management

WHAT

• Asset Class

• Region

• Sector

• Currency

Page 4: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Different asset classes perform well at different times資產類別的表現因時而異

Periodic table of investment returns (2000-2013)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EM Equities Commodities EM Equities Commodities EM Equities Real Estate EM Equities Real Estate Commodities Cash EM Equities CommoditiesCorporate

BondsReal Estate

51.6% 32.4% 16.1% 23.2% 70.9% 26.3% 55.5% 37.9% 50.2% 4.7% 66.6% 21.3% 9.0% 28.0%

Japanese Equities

Corporate Bonds

Asia Pacific Equities

Government Bonds

Japanese Equities

European Equities

Japanese Equities

European Equities

EM EquitiesGovernment

BondsAsia Pacific

EquitiesReal Estate US Equities

European Equities

45.4% 10.8% 14.3% 21.7% 68.9% 20.5% 42.6% 31.1% 21.6% -3.0% 64.7% 16.9% 6.1% 18.7%

Commodities Real Estate Real EstateCorporate

BondsAsia Pacific

EquitiesCommodities

Asia Pacific Equities

Asia Pacific Equities

Government Bonds

Corporate Bonds

Real EstateAsia Pacific

EquitiesGovernment

BondsJapanese Equities

36.7% 9.8% 10.2% 11.9% 58.4% 18.4% 35.3% 28.8% 18.7% -6.4% 62.2% 16.3% 5.2% 18.6%

Asia Pacific Equities

CashCorporate

BondsHigh Yield

BondsReal Estate

Asia Pacific Equities

Real Estate EM EquitiesAsia Pacific

EquitiesHigh Yield

BondsEuropean Equities

EM EquitiesHigh Yield

BondsUS Equities

36.1% 4.7% 8.0% 5.2% 46.8% 15.2% 33.1% 22.8% 12.7% -17.7% 52.1% 15.7% 4.5% 15.7%

European Equities

Government Bonds

Cash CashEuropean Equities

EM EquitiesEuropean Equities

US Equities CashJapanese Equities

High Yield Bonds

High Yield Bonds

CashHigh Yield

Bonds

18.8% -0.2% 3.6% 2.9% 41.0% 14.1% 21.9% 15.0% 4.4% -32.2% 52.0% 13.4% 1.6% 14.1%

US EquitiesHigh Yield

BondsHigh Yield

BondsReal Estate Commodities

Government Bonds

US EquitiesHigh Yield

BondsCorporate

BondsUS Equities US Equities

European Equities

Japanese Equities

Asia Pacific Equities

17.7% -0.2% 3.3% -5.3% 32.4% 9.9% 15.5% 12.0% 3.4% -34.4% 45.4% 12.0% 0.8% 9.2%

CashEuropean Equities

Government Bonds

Asia Pacific Equities

US EquitiesHigh Yield

BondsCommodities

Government Bonds

European Equities

Asia Pacific Equities

Japanese Equities

US Equities Real EstateCorporate

Bonds

3.4% -19.5% 2.3% -12.5% 28.7% 7.0% 14.8% 8.7% -2.1% -39.1% 30.7% 11.5% 0.5% 8.5%

Real Estate US Equities US Equities EM EquitiesHigh Yield

BondsCorporate

BondsHigh Yield

BondsCorporate

BondsHigh Yield

BondsEM Equities Commodities

Corporate Bonds

Asia Pacific Equities

Cash

1.7% -22.5% -6.1% -15.8% 18.7% 4.7% 7.6% 7.6% -2.1% -42.4% 28.4% 7.8% -8.7% 0.8%

Corporate Bonds

Japanese Equities

European Equities

European Equities

Government Bonds

US Equities Cash Cash US EquitiesEuropean Equities

Corporate Bonds

Government Bonds

Commodities EM Equities

-0.3% -33.3% -9.8% -17.4% 10.0% 3.4% 2.3% 3.3% -6.0% -46.7% 23.4% 7.8% -9.1% 0.6%

Government Bonds

Asia Pacific Equities

Japanese Equities

US EquitiesCorporate

BondsCash

Corporate Bonds

Japanese Equities

Japanese Equities

Real EstateGovernment

BondsCash EM Equities

Government Bonds

-1.3% -33.6% -22.0% -17.9% 6.2% 2.1% 0.2% 0.8% -11.4% -49.9% 7.1% 1.0% -10.6% -0.9%

High Yield Bonds

EM Equities CommoditiesJapanese Equities

CashJapanese Equities

Government Bonds

Commodities Real Estate Commodities CashJapanese Equities

European Equities

Commodities

-2.2% -35.9% -22.1% -21.7% 2.2% -1.4% -5.6% -13.4% -16.8% -59.4% 1.2% -3.9% -14.0% -10.9%

Source: DataStream, 31.12.2013

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Page 5: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

This means investors should diversify their portfolios投資者應該分散投資組合

Different asset classes offer different risk and return characteristics.

In a portfolio, contributions will come from different assets over the market cycle.

The aim is to deliver a less volatile yet still attractive return in the long term.

Growth assets:Equities, real estate and commodities.

Defensive assets: Government and investment grade corporate bonds and cash.

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US S&P 500 Index

HK Hang Seng Index

5-Year Comparison

US S&P 500 Index

Bloomberg US Corporate Bond Index

5-Year Comparison

Page 6: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

How the Chinese look at risk中國人眼中的危機 –危中有機

The symbol for risk is made up of these two elements

OpportunityDanger

RISK: In investing, danger and opportunity are

two sides of the same coin

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Page 7: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Actually, nothing is risk-free任何投資皆涉及風險

Inflation erodes the real value of money over time – to receive a real return you have to take on some risk.

For illustration only.

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Page 8: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Absolute risk is the potential for loss of capital

Relative risk is the potential for your chosen investments to underperform their reference index or peer groups

The level of return investors target depends on… the level of risk they are prepared to take投資回報目標取決於風險承擔能力

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Page 9: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Why construct a portfolio?為何要建立資產組合?

A mixed portfolio of assets provides diversification that helps to smooth out the

volatility of returns and provides a more balanced overall return when we account for

risk

The aim is to deliver a less volatile yet still attractive return in the long term, with

contributions coming from different asset classes at different times over the course of

the investment cycle

Portfolio

Cash

Bonds

Equity

Property

Commodities

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Page 10: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Considering your time horizon注意自己的投資年期

Your goals & time horizon shape your risk tolerance and strategy投資策略及風險承受能力取決於投資目標及年期

You should consider how long you plan to invest in the market.

This has a major impact on asset allocation.

What risks are you prepared to take in terms of asset price volatility to meet your long-term goals?

If you have a longer time horizon, you can usually afford to take more risk

A 30-year old may weight the majority of his portfolio to equities

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Page 11: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Constructing your investment portfolio建構個人投資組合

1. Define your return objectives and time horizon.

2. Determine your tolerance to risk.

3. Find the optimal portfolio for the return you seek.

4. Select products carefully, considering track record, style and

strategy.

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Retirement in 10 years timeChildren’s university education in 15 years

Knowledge and experienceAbility vs willingness to take RiskConservative vs aggressive

% in stock / bond / cashGrowth, balanced, and income oriented

Direct investment or fundsPassive vs active

Page 12: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Modern Portfolio Theory (MPT) 現代資產組合理論Aims to maximise return for a given level of risk 爭取最大回報

A group of assets in a portfolio can provide a more attractive combination of risk and

return than individual assets, which have high specific risks.

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10 Year Risk/Return by Asset Classes

Page 13: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

The Investment & Credit Cycle投資與信貸周期

Page 14: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Growth & Inflation Cycle增長與通脹周期

Page 15: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Business Cycle and Asset Class Performance經濟周期與資產類別表現

Page 16: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Stock vs Bond相對價值 –股票與債券

Page 17: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Developed vs Emerging相對價值 –成熟與新興市場

Page 18: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Developed vs Emerging Equity Markets

相對價值 –成熟與新興股票市場

Page 19: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Developed vs Emerging Equity Markets

相對價值 –成熟與新興股票市場

Page 20: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Regional Stock Market Performance相對價值 –地區股票市場表現

Page 21: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Stock P/E相對價值 –股票市盈率

Page 22: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Relative Value - Bond相對價值 –債券

Page 23: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Development of RMB Products人民幣投資產品的發展

• 人民幣掛鈎存款

• 其他人民幣結構性投資產品,例如與人民幣計價紙黃金計劃掛鈎

• 人民幣計價基金

Page 24: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Knowing how our brains are wired can make us better investors

了解自己的思路從而制定更佳的投資策略

Investors are prone to a range of psychological biases.

These help to create inefficiencies in financial markets.

They also help to explain irrational booms and busts like the dot.com bubble.

We make ‘cognitive’ errors on a

routine basis by using rules of

thumb and over-simplifications.

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Page 25: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

A quick guide to behavioural finance行為金融學

Traditional economic models developed in the 1950s assumed markets were efficient and investors were rational.

Growing doubts about ‘efficiency’ after stock market crashes accelerated interest in behavioural finance, which had its origins in psychology experiments in the 1970s.

‘New’ economicsLed by Daniel Kahneman, Amos Tversky and Richard Thaler

Showed:Investors are not rational.

Development of Behavioural Finance

Informed by Behavioural Finance, Psychology, Sociology and Neuroscience

1950 1970 Now

Efficient Markets HypothesisModern Portfolio Theory

Developed by Eugene Fama andHarry Markowitz

Assumed: Markets are efficient &investors are rational.

19801960 1990 2000 2010 Future

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Page 26: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Thinking fast and slow快思‧慢想

Fast: System 1 Slow: System 2

Quick, automatic,

intuitive and emotional.

Default option for

information processing.

Examples:

Detecting hostility in

someone’s voice.

Judging which object is

more distant.

Slow, conscious, more

deductive and logical.

‘Lazy’ – effort required

means we often defer

to System 1.

Examples:

Parking in a narrow

space.

Filling out a tax form.

Slow

Rational

Logical

Deductive

Structured

Quick

Intuitive

Practical

Automatic

Emotional

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Page 27: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Self deception自欺欺人

Confirmation bias

Hindsight bias

Narrative fallacy

Overconfidence

Cognitive dissonance

Information overload

Illusion of control/illusion of knowledge

Hyperbolic discounting

Types of biases不同種類的偏見

Social社會意識偏頗

Herding

Priming

Imitation

Simplification簡單化

Framing and nudging

Representativeness

Gambler’s fallacy

Anchoring

Loss aversion

Familiarity and mere exposure effect

Recency

Halo effect

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Page 28: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Hindsight bias – an example of self-deception後視偏差

Past events seem more predictable than they actually were

Investors see the future as predictable because past events appear to have followed a linear pattern.

In reality, the world is much more complex than that and simplifying narratives are only created after the fact.

Investors can protect against hindsight bias by:

Conducting forward-looking research

Taking a contrarian view

Regularly reviewing portfolios

Page 29: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Anchoring– an example of simplification bias錨定效應

Investors have a tendency to irrationally anchor onto nominal numbers.

Common anchors include share prices, growth rates and stock market levels.

Dividends make better anchors than

share prices

Beware holding onto losing stocks due

to being anchored on the price you

bought at

Tips

Page 30: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Loss aversion shapes our perception of risk損失厭惡 –製造風險意識

Which would you choose?

Lose $900 for sure or take a 90% chance to lose $1000?

Win $900 for sure or take a 90% chance at $1000?

We have a subconscious, irrational fear of losing.

We are more likely to avoid risk at the detriment of achieving real returns.

Evidence suggests we are twice as pained by a loss as we are pleased by the same amount of gain.

Page 31: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Herding – an example of social biasWe prefer the safety of the crowd…

羊群效應

Herding can artificially push up the value of sectors and stocks and cause bubbles

‘Chasing the market’ is a poor strategy

Take an unconstrained approach

Consider investment styles that target value stocks

Be a contrarian

Tips:

Don’t be a sheep

Page 32: Asset Allocation Strategies · Asset Allocation Strategies ... strategy. 1 1 Retirement in 10 years time Children’s university education in 15 years Knowledge and experience Ability

Q & A