Transcript Hewitt Associates Quarterly Update – Q1 2006

Aviva Morley Absolute TAA
Fund
Paul Moody
Head of Investment Development
Milan, 8 November 2007
This document is for professional advisers and market counterparty or
intermediate customers only. The content is not approved for use with
private/retail investors or pension scheme members.
Page 1
Agenda
 Introduction to Morley
 Introduction to GTAA
 Investment Philosophy and Process
 Risk Control
 Fund Performance
 Summary
Page 2
Introduction to Morley
Page 3
Part of the worldwide Aviva Group
Aviva UK
UK Fund Management
Aviva International
Morley Fund Management Group Ltd
Aviva Fund
Services SA
(Luxembourg)
Portfolio
Partners Ltd
(Melbourne)
Hibernian Investment
Management Ltd
(Dublin)
Morley Fund
Management Limited
(London)
Morley Fund Management
International Ltd
(Boston)
CUIM Polska SA
(Warsaw)

World’s fifth-largest insurance group*

59,000 employees

Largest in the UK

40 million customers worldwide

Standard and Poors A+ stable rating**
*Based on gross worldwide premiums for the year ended 31 December 2006
**Source: Standard and Poors. “An insurer rated ‘A’ has STRONG financial security characteristics, but is somewhat more likely to be affected by
adverse business conditions than are insurers with higher ratings.”
http://www2.standardandpoors.com/portal/site/sp/en/eu/page.article/2,1,5,0,1021558138686.html
Page 4
Critical mass in all asset classes
 Assets under management of € 250.3
billion across the full spectrum of asset
classes
 Experience stretches across wide range
of client types
By Asset Class
(€ bn) Total: 250.3*
Property,
48.34
Other, 8.81 Cash, 23.27
Equity,
87.93
 Largest UK based active manager
 Employs over 700 people, including 232
investment professionals
Fixed
Income,
81.99
Active asset allocation overlay on €120bn
Aggregate assets managed €4bn
* Represents asset managed by firms within the Morley group of companies as at 30 June 2007
Page 5
GTAA Investment team
Chief Investment Officer
Adrian Jarvis (Interim)
Head of Strategy and Multi
Asset Funds
Steve Cleal
Senior Economist
John Ip
(International)
Asset Allocation
Specialist
Hassan
Johaadien
Senior Economist
Stewart
Robertson
(UK & Europe)
Strategic Asset
Allocation
Specialist
Mirko Cardinale
Fund manager
Jonathan
Abrahams
Asset Allocation
Specialist
Sergio Ferreira
TAA Modelling &
Performance
Analyst
Niral Shukla
Quant Analyst
Jing Yiang
Quant Analyst
tba
Fund Manager
Carmen Magness
Portfolio Analyst
Nichola Guinn
Page 6
What is Tactical Asset Allocation?
 Exploits inefficiencies in asset prices resulting from:
 Investor sentiment, such as
excessive optimism or pessimism
 Structural anomalies such as
legislation, tax or market habit
Asset Class
Selection
Equity
Market
Selection
Currency
Selection
Bond
Market
Selection
 Non profit-maximising participants
A diversified
source
of Alpha
A diversified
source
of Alpha
Page 7
Morley’s strength in asset allocation
 Experience – Asset allocation team and process in place since 1999. Responsible for
€120bn of assets
 Track record* - Consistent out performance of the benchmark over the last eight years,
with no down years. Information ratio of 1.03 (refers to MPPL Balanced Managed Fund
overlay Q498 to Q207).
 Strong investment process – Combines rigorous fundamental analysis with skills of
experienced fund management team and independent risk management
 Consistency – Scenario based analysis combined with multiple diversified, relatively
small positions for consistent performance in all economic environments
Source Morley
* Decemeber 1998- December 2006
Page 8
Process
Page 9
Investment process – overview
We aim to deliver consistent excess returns
Page 10
Stage 1: Economic scenario analysis

Economists and strategists meet weekly to
discuss output of economic analysis to derive
scenarios of possible economic outcomes

Considering several possible scenarios
provides greater consistency of returns
irrespective of economic environment
‐
Synthesis of regional economic
outlooks
‐
Capture uncertainties around the
central case
‐
Scenarios chosen based on probability
and
significance for asset prices
‐
Quantified for impact on interest rates,
economic growth, corporate profits etc.
Central View
Economic Rebound
55%
Sub-Trend Growth
20%
Recession
25%
Source: Morley Fund Management
As at 24th September 2007
Output: Scenarios with projections for growth, inflation, rates, profits
Page 11
Stage 2: Forecasting returns

Economic forecasts are used to generate projections for assets under each
scenario

Bond forecasts are derived from yield movements and duration

Equity forecasts are driven by


Current dividend yield

Earnings growth forecasts

Predicted equity reratings
Currency forecasts are derived using a scorecard approach. Variables include:
Value measures (PPP)

Cyclical indicators

Fiscal and monetary policy

Momentum and market positioning
Output: A set of asset return forecasts for each scenario
Page 12
Stage 3: Optimal portfolio analysis

The asset return forecasts generated for the central scenario are input into the
optimiser to generate the ‘best’ portfolio i.e. that combination of assets that
maximises the expected return for a given level of risk

The optimiser incorporates a boot strap approach.

Rather than use a single time period for estimating the covariance matrix,
history is divided into numerous discrete periods. This generates solutions that
are robust to changing regimes

This process is repeated for each scenario under consideration, giving a
separate optimal portfolio for each scenario

A review of the returns that would be generated by each optimal portfolio under
each scenario is produced. This is in the form of a matrix of possible outcomes.
Output: An optimal portfolio for each scenario
Page 13
Stage 4: Portfolio selection
 Morley’s Asset Allocation Committee is
a small team responsible for selecting
the template for all Morley’s TAA clients
Morley’s Asset Allocation Committee
 The committee draw on their experience
to consider, challenge and develop the
internal research, in particular the
scenarios and candidate portfolios
Chief Investment Officer
(interim)
Adrian Jarvis
18 years experience
 In deciding the template, the AAC seek:
Asset Allocation Specialist
 To generate strong returns under
the central scenario
Hassan Johaadien
12 years experience
Head of Strategy and Multi Asset Funds
Steve Cleal
19 years experience
 To deliver respectable returns under
alternative scenarios
 A broad balance of return over time
from beta, markets and currency
Output: A robust set of asset positions
Page 14
Stage 5: Implementation

The success of the TAA process is critically dependent on the successful
implementation of the model portfolio across client mandates

A team of experienced portfolio managers monitor fund positions and initiate
derivatives trades where appropriate

Trade execution is undertaken by a separate, experienced team with a long
history of dealing significant volumes in global derivatives market

In 2006, €135bn of futures were executed

Morley’s market presence gives it access to timely market intelligence on trading
conditions

Regular contact with the largest investment banks ensures trades are executed in
the most cost effective manner

Daily risk reports enhance the understanding of the likely behaviour of the portfolio
under a variety of different market outcomes
Output: A fund designed to generate the alpha target
Page 15
Stage 5: Implementation
October 2007
Implementation for ATAA Fund Libor +20% p.a.
GTAA target
Relative risk-adjusted size
active
positions
Relative risk-adjustedof
size
of active
positions (+1% client)
GTAA positions
FTSE 100
+20%
Euro Stoxx 50
-16%
DAX 30
MIB 30
currency
15%
+20%
IBEX 35
-20%
TOPIX
-20%
S&P 500
+16%
ASX 200
+10%
Hang Seng
Korea
Singapore
South Africa
equity beta
21%
bond market
24%
+10%
GTAA Positions:
Long
Short
bond beta
0%
Mexico
GE 10Y Bond
+40%
equity market
40%
Canada 10Y Bond
UK 10Y Bond
-80%
US 10Y Bond
+40%
JA 10Y Bond
Japanese Yen
+20%
US Dollar
-10%
Euro
-10%
Cash
-20%
-80% -60% -40% -20%
0%
20%
40%
60%
80%
Page 16
Risk Control &
Performance
Page 17
Risk management
 Independent Risk Team measures:
 Value at Risk (VAR) daily using internal
proprietary model
 Volatility calculated using unweighted
covariance matrix approach
 Parallel analyses using two sets of historical
return data
 Scenario analysis to analyse impact of
extreme events (Asian crisis, Black Monday
etc.)
 The contribution to risk from each individual
asset is quantified based on its interaction
(covariance) with other portfolio assets
 Daily monitoring and formal monthly meeting
with fund managers
Monthly VAR, Aviva Morley Absolute TAA Fund
VaR (%)
Confidence Interval
VaR Monthly
(%)
99.50%
4.03
99.00%
3.64
98.50%
3.39
98.00%
3.20
97.50%
3.05
95.00%
2.55
84.00%
1.52
Source: Morley, as at 28 September 07
Page 18
Performance update – Absolute TAA fund performance since launch
Aviva Morley Absolute TAA (I) Share Price Returns
130
Performance %
Since launch (Jan 06)
125
120
25.76
Sharpe Ratio
Since launch (Jan 06)
1.09
115
Annualised Volatility (%)
110
Since launch (Jan 06)
11.43
105
Source: Lipper/Morley, as at 01-Oct-07
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Aviva Morley Absolute TAA I % Growth TR Def GBP
LIBOR GBP 1 Month % Growth TR Def GBP
Page 19
Biographies
Page 20
Adrian Jarvis
Adrian Jarvis
Chief Investment Officer (Interim)
Joined Investment Industry in 1990
Main Responsibilities
As CIO, Adrian has overall responsibility for investment
philosophy and process for equities and fixed income.
Adrian chairs the Asset Allocation Committee,
responsible for establishing the asset mix of Morley’s
balanced fund mandates and is ultimately responsible
for monitoring performance and risk control measures
across portfolios.
Experience & Qualifications
Adrian joined the firm (as Norwich Union Investment
Management Ltd (NUIM)) in 2000 as Senior
Quantitative Analyst with responsibility for developing
NUIM’s quantitative research capabilities. He has held
the position of Head of Strategy, responsible investment
strategy, quantitative research and quant funds leading
the team of economists, strategy and index fund
managers and derivatives specialists since February
2000.
Prior to joining NUIM Adrian spent three years at NPI
Asset Management, during which time he was promoted
from Director of Strategy & Quantitative Analysis to
Head of Global Asset Allocation. Previously he gained
extensive investment experience at CIN Management
as Assistant Director of Global Asset Allocation and
Shell International as Senior Quantitative Analyst.
Adrian holds a BSc and MSc in Economics from the
London School of Economics, and studied Investment
Management at the London Business School.
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Steve Cleal
Steve Cleal
Head of Strategy and Multi Asset Funds
Joined Investment Industry in 1987
Main Responsibilities
As a member of Morley’s Asset Allocation Committee,
Steve helps formulate the House Strategy for
investment markets. He is also responsible for ensuring
that the asset distribution of multi asset funds is in line
with House Strategy.
Experience & Qualifications
Steve joined the firm (as Norwich Union Investment
Management) in 1987. Prior to being appointed Head of
Balanced Funds in July 2000, Steve undertook a variety
of roles including managing a US strategy fund and
generating the firm's view on the UK and North
American economies. He has worked closely with a
number of internal and external clients, providing
guidance on investment and strategic issues. Steve
holds a BA (Hons) in Economics and Sociology from
Keele University and has completed the UKSIP
Investment Management Certificate.
Page 22
Hassan Johaadien
Hassan Johaadien
Asset Allocation Specialist
Joined Investment Industry in 1995
Main Responsibilities
To develop and apply Morley’s process for Strategic
Asset Allocation to create better benchmarks for client
funds and identify special opportunities. Also to develop
Morley’s TAA models and use them to propose tactical
trades for Morley’s Asset Allocation Committee.
Experience & Qualifications
Hassan joined Morley in July 2005. Previously he
worked for Shell Pensions as Head of Research.
Hassan holds a BSc in Statistics, Computing &
Economics from University College London. He also
holds the UKSIP Investment Management Certificate.
Page 23
Paul Moody
Paul Moody
Head of Investment Development – Specialist
Products
Joined Investment Industry in 1990
Main Responsibilities
Working with Morley’s Specialist Fund team on product
development and as ‘product specialist’ for asset
allocation, structured products, convertible bonds and
quantitative equity funds.
Experience & Qualifications
Paul joined Morley in 2000.
Paul previously developed Morley’s SRI 'Sustainable
Future' range of funds in the UK and Europe.
Prior to that, Paul worked for NPI, specialising in the
retail market. Following the purchase of NPI by
Henderson Investors, he developed SRI across the
AMP distribution outlets.
Paul holds a BA (Hons) in Economics, DipPFS
(Personal Finance Society Diploma) and the UKSIP
Investment Management Certificate.
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Important Information (1)
This document is for Investment Professionals only. It is not for Private/Retail investors.
Except where stated as otherwise, the source of all information is Morley as at 31 October 2007.
Any opinions expressed are based on the internal forecasts of Morley and they should not be relied upon as indicating any
guarantee of return from an investment managed by Morley. No part of this document is intended to constitute advice or
recommendations of any nature.
Performance figures sourced from Lipper Hindsight and illustrated on a bid to bid, gross income reinvested basis for the I
share class in the currency shown. Other information sourced from Morley. Past performance is not a guide to the future.
The value of an investment in the fund can go down as well as up and can fluctuate in response to changes in exchange
rates. A re-structure of the funds took place on 20 November 2006 that changed some of the fund names, objectives and
charges of the Aviva Morley SICAV. Please read the current Prospectus for full details of the current fund range before
investing.
Past performance is not a guide to the future.
The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken
as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to
whom it is unlawful to make such an offer or solicitation.
For Germany: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are
available free of charge from Morley Fund Management Limited, Zweigniederlassung Deutschland - An der Welle 4,60322
Frankfurt am Main, Frankfurt am Main, Deutschland or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L1930 Luxembourg. R.C.S. Luxembourg B25708.
For Austria: The "Raiffeisen Zentralbank Österreich AG", Am Stadtpark 9, 1030 Vienna, has been appointed by the
Company as the paying agent within the meaning of § 34 InvFG. Accordingly, the redemption of shares can be made via
the "Raiffeisen Zentralbank Österreich AG", Am Stadtpark 9, 1030 Vienna. The prospectus, the articles of association, the
last annual report and the semi-annual report, once published, are available at the office of the "Raiffeisen Zentralbank
Österreich AG", Am Stadtpark 9, 1030 Vienna or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930
Luxembourg. R.C.S. Luxembourg B25708.
Page 25
Important Information (2)
For Spain: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV which are
approved by and registered with CSSF in Luxembourg and CNMV in Spain are available free of charge from Morley Fund
Management Limited, Sucursal en España, Calle Pinar 5, 28006 Madrid, España or from Aviva Fund Services, 34 avenue
de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
For Switzerland: Fortis Foreign Fund Services AG, Rennweg 57, 8023 Zurich was authorised by the Federal Banking
Commission as Swiss representative of the Fund and acts also as paying agent. Copies of the Full and Simplified
Prospectus together with the Report and Accounts and articles of the SICAV are available free of charge from the head
office of the Swiss representative, Morley Fund Management Limited, Zweigniederlassung Deutschland - An der Welle
4,60322 Frankfurt am Main, Frankfurt am Main, Deutschland or from Aviva Fund Services, 34 avenue de la Liberté, 4th
floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
For Italy: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available
free of charge from Morley Fund Management Limited, Sede Secondaria di Milano, Corso Matteotti, 10, 20121 MI, Italia or
from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
For Luxembourg: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are
available free of charge from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S.
Luxembourg B25708.
For UK: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available
free of charge from Morley Fund Management Limited, No. 1 Poultry, London EC2R 8EJ or from Aviva Fund Services, 34
avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
Morley is a business name of Morley Fund Management Limited, registered in England No. 1151805. Registered Office:
No. 1 Poultry, London EC2R 8EJ. Authorised and regulated in the UK by the Financial Services Authority and a member of
the Investment Management Association. Morley is also a business name of Morley Fund Services Limited and
Morley Pooled Pensions Limited. All are Aviva companies.
Contact us at Morley Fund Management Limited, No. 1 Poultry, London EC2R 8EJ
MFM 07/942
Page 26