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ING High Dividend Investing

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ING High Dividend Investing

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Dans un tel Dans le contexte économique actuel, nous pensons qu’un placement en actions à haut rendement du dividende constitue la stratégie d’investissement optimale.

Dans cette présentation, vous découvrirez notre philosophie d’investissement débutée en 1999 ainsi que nos fonds (Euro, Europe, US, Global) gérant près de 10 milliards d’euros.

Dans un tel Dans le contexte économique actuel, nous pensons qu’un placement en actions à haut rendement du dividende constitue la stratégie d’investissement optimale.

Dans cette présentation, vous découvrirez notre philosophie d’investissement débutée en 1999 ainsi que nos fonds (Euro, Europe, US, Global) gérant près de 10 milliards d’euros.

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ING High Dividend Investing

  1. 1. High Dividend Investing in 2011 DIY - Dividend, Income & Yield Presented by: Carl Ghielen, CEFA Client Portfolio Manager Geneva, Switzerland December 7, 2010 For institutional use only. Not for inspection by, distribution or quotation to, the general public.
  2. 2. Key Messages • Markets supported by QE2 Fed (strong liquidity flows) • Goals QE2: stimulating economy, stop declining inflation (expectations) • ECB on sideline, mainly because of solidly performing (German) economy • QE2 affects currencies: weak USD, strong EUR and Asian currencies • Sovereign debt worries resurface due to political discussion about succession of euro zone support facility • Neutral equities vs. fixed income; positive for commodities and real estate • Preference for emerging markets: high growth, low debt • Preference for yield: dividend, high yield, EMD • Interest rates and bond yields will remain lower for longer For institutional use only. 2 Not for inspection by, distribution or quotation to, the general public.
  3. 3. TAA Summary St r a t e g y R e co m m e n d a t i o n s + = - TA A CO M M EQ • Neutral equities vs. fixed income R EI T FI • (Slight) overweight commodities, real estate equities EQ U I T Y - Se c t o r s EN GY ST A PL S D I SC R ET • Defensive sector tilt H L TH M A TS INDUS IT U T IL F IN ' L • Themes: commodities (energy), earnings momentum T EL C O (IT) and cheap quality (health care, telecom) - Re g io n s G EM A SIA U SA JP N • Overweight emerging markets, underweight EU R developed markets - Si z e LGE SM L M ID - St y l e H D IV CO RE G RW T H V A LU E • High Dividend is our preferred style FI X E D - M arket s EM F X A BS IG C EM R a t e s IF L • Modest positions EM D H C HY • Overweight EMD, High Yield, Govt bonds SB L • Underweight Investment Grade GO V T For institutional use only. 3 Not for inspection by, distribution or quotation to, the general public.
  4. 4. Bond yields remain low and risk premiums attractive ‘New’ ranges to persist Source: Thomson Reuters Datastream, ING IM For institutional use only. 4 Not for inspection by, distribution or quotation to, the general public.
  5. 5. The “search for yield” is on Higher yielding credit obvious place to look Source: Thomson Reuters Datastream, ING IM For institutional use only. 5 Not for inspection by, distribution or quotation to, the general public.
  6. 6. Equities: three themes for 2011 • Some have it all: “Emerging” markets have emerged • Increase in corporate spending • The scarce asset premium: sustainable dividend income in developed markets & sustainable growth at reasonable prices in emerging markets For institutional use only. 6 Not for inspection by, distribution or quotation to, the general public.
  7. 7. Some have it all: Emerged equity markets • Low public and private debt levels • High economic growth • Superior corporate profitability • Valuations are still relatively attractive • Flooded by investors’ money flows. It is a crowded trade • Prominent voice in international decision-making • Still underrepresented in market indices relative to their GDP-weight For institutional use only. 7 Not for inspection by, distribution or quotation to, the general public.
  8. 8. “Emerging / emerged” versus “Developed” markets Net debt/Equity 12 Month earnings grow th EM versus DM 200% 80.0% 150% 60.0% 100% 40.0% 50% 20.0% 0% 0.0% jan/95 jan/97 jan/99 jan/01 jan/03 jan/05 jan/07 jan/09 96 98 00 02 04 06 08 10 -20.0% n/ n/ n/ n/ n/ n/ n/ n/ ja ja ja ja ja ja ja ja -40.0% EM DM Emerging World Return on Equity PE premium/discount emerging markets 17. 0 0 % 1.15 16 . 0 0 % 15. 0 0 % 1.05 0.95 14 . 0 0 % 13 . 0 0 % 0.85 12 . 0 0 % 0.75 11. 0 0 % 0.65 10 . 0 0 % 0.55 9 .0 0 % 0.45 8 .0 0 % 0.35 31/01/95 31/01/97 31/01/99 31/01/01 31/01/03 31/01/05 31/01/07 31/01/09 dec/95 dec/97 dec/99 dec/01 dec/03 dec/05 dec/07 dec/09 World EM Source: Datastream, ING IM For institutional use only. 8 Not for inspection by, distribution or quotation to, the general public.
  9. 9. But too much of a good thing can… • Create over optimism • Lead to inadequate allocation of capital => ROE declines • Provoke international frictions • Protectionism • Exchange rates • Transform a crowded trade into a bubble We are still far from bubble territory in EM For institutional use only. 9 Not for inspection by, distribution or quotation to, the general public.
  10. 10. Corporate spending: driver for developed markets Strong Corporate Cash Flows + Strong balance sheets Buy Backs Dividends M&A Capex Low/Medium Medium/High Corporate Confidence We are here For institutional use only. 10 Not for inspection by, distribution or quotation to, the general public.
  11. 11. There is room for companies to spend AverageNet debt/Equity non-financials Free Cash flow / Capex 70% 400% 350% 60% 300% 50% 250% 200% 40% 150% 30% 100% dec/93 dec/95 dec/97 dec/99 dec/01 dec/03 dec/05 dec/07 dec/09 93 95 97 99 01 03 05 07 09 c/ c/ c/ c/ c/ c/ c/ c/ c/ de de de de de de de de de How M&A is financed Global M&A volum e 70% 1500 60% 1250 50% 1000 40% 750 30% 500 20% 250 10% 0 0% Cash Stock Cash & Other 01 02 03 04 05 06 07 08 09 10 rt/ rt/ rt/ rt/ rt/ rt/ rt/ rt/ rt/ rt/ Stock m m m m m m m m m m Source: Datastream, Bloomberg, ING IM For institutional use only. 11 Not for inspection by, distribution or quotation to, the general public.
  12. 12. Attractive valuations Absolute Valuation Relative Valuation Trailing PE (US m arket) Earnings yield less real fed funds 35 12.0% 30 10.0% 25 8.0% 20 6.0% 15 4.0% 10 2.0% 5 0.0% jan/80 jan/83 jan/86 jan/89 jan/92 jan/95 jan/98 jan/01 jan/04 jan/07 jan/10 D -81 D -83 D -85 D -87 D -89 D -91 D -93 D -95 D -97 D -99 D -01 D -03 D -05 D -07 9 -0 -2.0% ec ec ec ec ec ec ec ec ec ec ec ec ec ec ec D Source: Datastream, ING IM Equity valuations are discounting zero earnings growth. This seems only plausible in a double dip scenario. For institutional use only. 12 Not for inspection by, distribution or quotation to, the general public.
  13. 13. Searching for sustainable dividend income in DM European dividend yield at par with corporate Trailing pay out ratio bond yield -3.5 60% -3 -2.5 50% -2 -1.5 40% -1 déc.- déc.- déc.- déc.- déc.- déc.- déc.- déc.- -0.5 02 30% 03 04 05 06 07 08 09 jan/73 jan/76 jan/79 jan/82 jan/85 jan/88 jan/91 jan/94 jan/97 jan/00 jan/03 jan/06 jan/09 0 0.5 • Dividends become an important income generator • Dividend yield approaching or exceeding bond yields, more specifically in developed markets • Low pay out ratios, strong balance sheets and high profitability support double digit dividend growth For institutional use only. 13 Not for inspection by, distribution or quotation to, the general public.
  14. 14. Dividends have lagged earnings Source: Datastream, ING IM We expect double-digit dividend growth provided corporate confidence returns For institutional use only. 14 Not for inspection by, distribution or quotation to, the general public.
  15. 15. Conclusion • Outlook for equities is good • Expect returns in line with earnings growth • Focus on growth markets • Corporate spending as the icing on the cake • Focus on yield For institutional use only. 15 Not for inspection by, distribution or quotation to, the general public.
  16. 16. ING High Dividend Strategies The search for yield For institutional use only. Not for inspection by, distribution or quotation to, the general public.
  17. 17. Boutique Structure For institutional use only. 17 Not for inspection by, distribution or quotation to, the general public.
  18. 18. Equity Value Boutique Equity Value Team Average experience 14 yrs 3 Equity Boutiques Strategy & Tactical Allocation Nicolas Simar (Head) Euro Top-Down Research Core/Specialties/ Emerging Markets Manu Vandenbulck Europe 12 members Moudy El Khodr Global Average exp. 14 yrs Herman Klein Global Adour Sarkissian US 5 Fixed Income Boutiques Pierre Nicolas Belgian MM/Core/Credits/Loans/ EMD/Structured Investments Central Trading Team Diagnostics Team Corporate Analytics Client Portfolio Manager 15 Traders 13 members Developed (19) & Emerging Carl Ghielen 13 + 2 in US Fixed Income traders: 7 (7) Markets Analysts Exp. 20 yrs Average exp. 13 yrs Average exp. 8 yrs Average exp. 13 yrs For institutional use only. 18 Not for inspection by, distribution or quotation to, the general public.
  19. 19. Pioneer in High Dividend strategies Stable & Consistent Process April 1999: May 2002: March 2005: September 2007: Euro High Dividend Off-Shore Fund Global High Dividend Global Equity Dividend International High Dividend Equity Income (4 Stars Superior Rating) Off-Shore Fund Closed-End Fund (IGD) Closed-End Fund (IID) (4 Stars) 1999 2010 Feb 2000: December 2004: March 2005: May 2007: June 2007: Global Dividend Aandelen Europe High Dividend U.S. High Dividend Asia Pacific ex-Japan International Equity Mutual Fund (4 Stars) Off-Shore Fund Off-Shore Fund High Dividend Dividend SMA/MF (3 Stars) (5 Stars) Off-Shore Fund June 2007: Global Equity Dividend SMA/MF High dividend investing since 1999 Fund ratings as of 30 September 2010 For institutional use only. Not for inspection by, distribution or quotation to, the general public. 19
  20. 20. Key Benefits High Dividend Strategies Attractive and consistent risk/return profile offering low Product volatility and clear defensive characteristics Actively managed with a contrarian bias Disciplined, repeatable and systematic investment process Process Risk control and portfolio positioning to ensure strategic diversification People Clear responsibilities and accountability Strong, stable and experienced investment team Performance Since 1999 Strong long-term track record For institutional use only. 20 Not for inspection by, distribution or quotation to, the general public.
  21. 21. Identifying the best dividend yielding stocks Outperform the equity market in the long run (through the cycle) Objectives Offer a lower volatility (downside protection, upside participation) Offer a higher dividend yield (>100bp versus market) Active portfolio management (high active share) Beliefs Alpha generation from bottom-up stock selection Conviction portfolios : select the names that offer value Fundamental, valuation driven investment style Aim to achieve attractive risk adjusted returns through the cycle For institutional use only. 21 Not for inspection by, distribution or quotation to, the general public.
  22. 22. Dividends are the primary source of total return… True across the world For institutional use only. 22 Not for inspection by, distribution or quotation to, the general public.
  23. 23. Universe reduction Process combines quantitative screening and fundamental analysis to identify attractively priced stocks with high and sustainable dividend yields Universe identification 60 000 names Liquidity screen (Market Cap > Eur 1 bln & ADV > Eur 300 mln) 600 – 1 200 names Dividend screen (Yield & Stability) Dividend Yield minimum: Global, Euro, Europe: 2.5% 300 - 500 names US: 2.0% Fundamental analysis & New ideas 150 - 200 names Portfolio construction 100 - 120 names Example: Global Universe For illustration purpose only. The above investment process may undergo changes depositing on the investment style and the market condition. For institutional use only. 23 Not for inspection by, distribution or quotation to, the general public.
  24. 24. Investment Process - Overview Quantitative Risk 1 Filter 2 Fundamental Analysis 3 Portfolio Construction 4 Management Identify opportunities Back top picks Build high conviction Achieve consistency portfolio Quantitative screening Dividend sustainability Active management Risk Control Historical data Attractive valuation Stock driven Sell discipline Conviction based Contrarian bias weighting Attractive yields Sustainable yields Diversified portfolio Consistent Risk Profile Active management within a disciplined framework For institutional use only. 24 Not for inspection by, distribution or quotation to, the general public.
  25. 25. Sell discipline & rebalancing Dividend Yield below 2% (1.5% for US) = liquidation Sell Stock price goes up (= dividend yield goes down) = profit taking / sell Dividend is reduced or cut = liquidation Reinvestment in less performing stocks (contrarian philosophy) or news ideas Rebalancing to original weight Rebalancing Profit taking on outperforming stocks Reinvestment in less performing stocks Disciplined & Contrarian For institutional use only. Not for inspection by, distribution or quotation to, the general public. ING Investment Management 25
  26. 26. Performances For institutional use only. Not for inspection by, distribution or quotation to, the general public.
  27. 27. Global High Dividend Since Oct YTD 3 years 5 years 1 year inception 2010 2010 (ann.) (ann.) (May02) (ann.) ING (L) Invest Global High +1.23% +10.06% +19.45% -7.75% -0.14% +1.16% Dividend MSCI World (net return) +1.89% +9.84% +19.68% -6.85% -0.46% -0.05% MSCI World High Dividend +1.54% +8.51% +17.87% -8.26% -0.61% +0.27% Yield (net return) Relative performance -0.66% +0.22% -0.23% -0.90% +0.32% +1.22% vs MSCI World Gross performance ING (L) Invest Global High Dividend fund in EUR, Benchmark: MSCI World Net return Index, as of 31 October 2010 Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner. • Strong relative performance over the summer months, evaporated in the Sep/Oct rally • Outperformance year to date, more so versus high dividend style indices • Clear style tailwind in the US and strong style headwind in Europe For institutional use only. 27 Not for inspection by, distribution or quotation to, the general public.
  28. 28. Global Style Returns YTD - Regions 20% Style working, but 15% not in Europe! 10% 5% 0% m ) ) k y g M th e th PE d e PB ze l it tu is ri n lu el at (6 2m w bi R en Si Va Yi R ea ro ita m e (1 om G th G iv sit tu e of D m w sit e en po e M Pr ro tu sit sit po om om e G e en po -5% po sit om sit rm M C om om om po po C te gs M om C om C in ng e C C rn ic Lo Pr Ea -10% -15% US Europe Asia Pac Source: Nomura Quantitative Solutions For institutional use only. 28 Not for inspection by, distribution or quotation to, the general public.
  29. 29. Global High Dividend: Portfolio Returns vs. Benchmark 30% 20% 10% 0% 6 out of 9 years outperformance -10% -20% -30% -40% -50% 2002 (May) 2003 2004 2005 2006 2007 2008 2009 2010 (Oct) Portfolio Benchmark 1.6 1.4 1.2 1 Long term outperformance 0.8 0.6 0.4 0.2 Portfolio: ING (L) Invest Global High Dividend CAP 0 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 Aug-02 Nov-02 Feb-03 Aug-03 Nov-03 Feb-04 Aug-04 Nov-04 Feb-05 Aug-05 Nov-05 Feb-06 Aug-06 Nov-06 Feb-07 Aug-07 Nov-07 Feb-08 Aug-08 Nov-08 Feb-09 Aug-09 Nov-09 Feb-10 Aug-10 Benchmark: MSCI World (net) Source: ING IM, Gross Returns as of 31 October 2010 Portfolio Benchmark For institutional use only. 29 Not for inspection by, distribution or quotation to, the general public.
  30. 30. Global High Dividend: Up and Down analysis 4% 3% 2.70% 2.82% 25 out of 40 2% outperformance 1% 0% (1%) 29 out of 60 (2%) outperformance (3%) -3.72% -4.14% (4%) (5%) Up (60 months) Down (40 months) Global High Dividend MSCI World Monthly return analysis as of 30 September 2010, Gross data versus MSCI World net return since inception of the ING (L) Invest Global High Dividend fund in May 2002. For institutional use only. 30 Not for inspection by, distribution or quotation to, the general public.
  31. 31. US High Dividend Since Oct YTD 3 years 5 years 1 year inception 2010 2010 (ann.) (ann.) (Mar05) (ann.) ING (L) Invest US High +2.93% +12.18% +20.71% -2.29% +4.26% +4.34% Dividend S&P500 (net return) +3.77% +7.32% +15.82% -7.13% +1.09% +1.50% MSCI US High Dividend Yield +2.83% +10.37% +19.29% -6.21% NA NA (net return) Relative performance -0.84% +4.87% +4.90% +4.84% +3.17% +2.84% vs S&P500 Gross performance ING (L) Invest US High Dividend fund in USD, Benchmark: S&P500 Net return Index, as of 31 October 2010 Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner. • Sep/Oct difficult months due to momentum-driven markets • Outperformance year to date versus benchmark and high dividend style indices • High Dividend style is working in the US in 2010 For institutional use only. 31 Not for inspection by, distribution or quotation to, the general public.
  32. 32. US High Dividend: Portfolio Returns vs. Benchmark 40% 30% 20% 10% 0% 5 out of 6 years outperformance -10% -20% -30% -40% -50% 2005 (Apr) 2006 2007 2008 2009 2010 (Oct) Portfolio Benchmark 1.6 1.4 Portfolio Benchmark 1.2 1 Long term outperformance 0.8 0.6 0.4 0.2 0 Mar-05 May-05 Jul-05 Mar-06 May-06 Jul-06 Mar-07 May-07 Jul-07 Mar-08 May-08 Jul-08 Mar-09 May-09 Jul-09 Mar-10 May-10 Jul-10 Sep-05 Nov-05 Jan-06 Sep-06 Nov-06 Jan-07 Sep-07 Nov-07 Jan-08 Sep-08 Nov-08 Jan-09 Sep-09 Nov-09 Jan-10 Sep-10 Portfolio: ING (L) Invest US High Dividend CAP Benchmark: S&P500 (net) Source: ING IM Performa Global, Gross Returns as of 31 October 2010 For institutional use only. 32 Not for inspection by, distribution or quotation to, the general public.
  33. 33. US High Dividend: Up and Down analysis 4% 3% 3.03% 2.82% 17 out of 24 2% outperformance 1% 0% (1%) (2%) 17 out of 43 outperformance (3%) -4.03% (4%) -4.87% (5%) Up (43 months) Down (24 months) US High Dividend S&P 500 Monthly return analysis as of 31 October 2010, Gross data versus S&P500 net return since inception of the ING (L) Invest US High Dividend fund in March 2005. For institutional use only. 33 Not for inspection by, distribution or quotation to, the general public.
  34. 34. Euro High Dividend Since Oct YTD 3 years 5 years 1 year inception 2010 2010 (ann.) (ann.) (Apr99) (ann.) ING (L) Invest Euro High +3.60% +1.29% +9.22% -7.16% +2.06% +4.56% Dividend MSCI EMU (net return) +3.70% +2.24% +9.76% -11.61% +0.39% +0.65% MSCI EMU High Div (net return) +5.30% -1.64% +5.96% -12.97% -1.55% +1.90% Relative performance -0.10% -0.95% -0.54% +4.46% +1.68% +3.91% vs MSCI EMU Gross performance ING (L) Invest Euro High Dividend in EUR, Benchmark: MSCI EMU Net return Index, as at 31 October 2010 Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner. • Strong relative performance over the summer months, evaporated in the Sep/Oct momentum-driven rally • High Dividend style clearly not working YTD in Euro-zone • Portfolio tilted towards undervalued, laggard names For institutional use only. 34 Not for inspection by, distribution or quotation to, the general public.
  35. 35. European Style Returns YTD Returns  15.0% Sector Neutral 10.0% 5.0% 0.0% ‐5.0% ‐10.0% ‐15.0% Momentum Momentum Momentum ROE PE PB Size Growth Rate Composite Composite Composite Composite Net Gearing Earnings changes Div Yield Composite Profitability Composite Long term Gearing Vol of (12mth) Growth Earnings Value Price (6M) Risk Source: Nomura Quantitative Solutions Style not working in Europe this year! For institutional use only. 35 Not for inspection by, distribution or quotation to, the general public.
  36. 36. Euro High Dividend: Portfolio Returns vs. Benchmark 40% 30% 20% 10% 0% 7 out of 10 years outperformance -10% -20% -30% -40% -50% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (Sep) Portfolio Benchmark 3 Portfolio 2.5 Benchmark 2 Long term outperformance 1.5 1 0.5 0 Apr-99 Aug-99 Aug-00 Aug-01 Dec-99 Apr-00 Dec-00 Apr-01 Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Aug-09 Aug-10 Dec-08 Apr-09 Dec-09 Apr-10 Portfolio: ING (L) Invest Euro High Dividend CAP Benchmark: MSCI EMU (net) Source: ING IM Performa Global, Gross Returns as of 31 October 2010 For institutional use only. 36 Not for inspection by, distribution or quotation to, the general public.
  37. 37. Europe High Dividend Since Oct YTD 3 years 5 years 1 year inception 2010 2010 (ann.) (ann.) (Dec04) (ann.) ING (L) Invest Europe High +2.91% +5.51% +12.93% -8.18% +1.28% +3.41% Dividend MSCI Europe (net return) +2.48% +7.06% +15.00% -9.26% +0.83% +3.61% MSCI Europe High Div (net) +4.05% +2.63% +10.99% -11.96% -1.09% +2.05% Relative performance +0.43% -1.55% -2.07% +1.08% +0.45% -0.20% vs MSCI Europe Gross performance ING (L) Invest Europe High Dividend in EUR, Benchmark: MSCI Europe Net return Index, as at 31 October 2010 Past performance may or may not be sustained in future and it does not indicate to the future returns in any manner. • Strong relative performance over the summer months, evaporated in the September rally • High Dividend style clearly not working YTD in Europe • Portfolio tilted towards undervalued, laggard names For institutional use only. Not for inspection by, distribution or quotation to, the general public. 37
  38. 38. Carl Ghielen – Client Portfolio Manager Investment experience: 20 years Carl is Client Portfolio Manager for Equity strategies. He is responsible for maximizing the commercial success of the boutique through attracting and retaining clients in partnership with sales, marketing and product. Carl has been working with ING Investment Management for 10 years as Senior Investment Manager, responsible for several equity strategies. Carl started his career in 1990 as Investment Advisor at General Investment Management in Eindhoven, an independent boutique asset manager. Prior to joining ING Investment Management, Carl worked from 1994 to 2000 for Mn Services (one of the largest pension funds in the Netherlands) as Senior Portfolio Manager European Equities. Carl holds a Master’s degree in Economics (focus: Business Economics) from Tilburg University. Carl holds a CEFA degree, a European equivalent to CFA. For institutional use only. Not for inspection by, distribution or quotation to, the general public. 38

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