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A Unified Framework for Global Bond Allocation

Growth - Carry - Risk

Robert E. Blake, Ph.D.


April 2013

Formerly with:

4/5/2013

R Blake PhD (reb7@columbia.edu)

Global Bond Allocation: A Unified Framework


Comprehensive
Incorporates key growth indicators, carry/risk metrics, and market price

signals across 16 sovereign bond markets


Transparent
Intuitive but rigorous multi-factor framework based upon observable, publicly

available monthly historical data


Historical returns back-test

Effective
Back-test generates significant risk-adjusted

400% 300% 200% 100% 0% Jan-00

Cumulative returns (DM+EM) Cumulative returns (DM only)

historical returns from 2000-2013, with limited drawdowns during credit crisis

Jan-03

Jan-06

Jan-09

Jan-12

4/5/2013

R Blake PhD (reb7@columbia.edu)

Transparent
Intuitive scorecard approach
Global Bond Scorecard for April 2013 AUD CAD CHF DEM ESP FRF GBP ITL JPY MXN NOK PLN SEK SGD USD CLI level 0 0 0 0 -2 0 -2 2 0 0 0 0 2 2 -2 CLI momentum 1 1 0 -1 0 0 0 0 0 0 0 -1 1 -1 0 Carry/risk 0 0 -1 -1 1 0 0 1 -1 1 0 0 0 -1 0 EER -1 1 1 1 0 1 1 -1 1 Total Score 0 2 0 -2 -1 0 -1 3 -1 1 1 0 2 1 -2 Summary -- Long/overweight: CAD, ITL, SEK, ZAR; Short/underweight: DEM, USD
NA = Leading economic indicator value not yet available

ZAR NA NA 1 1 2

16 countries ranked at start of month for four variables:


Composite Leading Indicator (CLI) level, CLI momentum, risk-adjusted carry, and effective

exchange rate (EER) change


Scores (0, +1, etc.) generally based on rank for each variable
CLI level score receives 2x weight; G3 currencies receive no score

Net score = +2 or higher long/overweight; -2 or lower short/underweight

4/5/2013

R Blake PhD (reb7@columbia.edu)

Effective
Framework generates significant riskadjusted returns from 2000-2013, with limited drawdowns during credit crisis Results since 2007 suggest even greater effectiveness recently Inclusion of EM bonds raises returns relative to additional risk
Historical returns analysis 2000-2013 DM+EM DM only Ann. avg returns 32.1% 18.8% IR 1.65 1.24 Hit rate 68.4% 62.7% 2007-2013 DM+EM DM only Ann. avg returns 39.4% 24.8% IR 1.95 1.50 Hit rate 73.0% 68.9%

400% 300% 200% 100% 0% Jan-00

Cumulative returns (DM+EM) Cumulative returns (DM only)

Jan-03

Jan-06

Jan-09

Jan-12

Historical returns Year DM+EM DM only 2000 48.6% 22.4% 2001 22.5% 0.8% 2002 11.1% 11.3% 2003 17.6% 15.8% 2004 38.5% 25.8% 2005 3.9% -8.9% 2006 27.7% 24.8% 2007 23.4% 18.1% 2008 36.0% 14.7% 2009 35.6% 27.5% 2010 2.9% -16.5% 2011 68.9% 65.8% 2012 30.6% 20.7% Avg. ann. 32.1% 18.8%

4/5/2013

R Blake PhD (reb7@columbia.edu)

Robert E. Blake, Ph.D.


Broad-ranging skill set:

Global Macro Strategist International Economist Asset Allocation Research

Thorough understanding of international economics, policy & data releases; Substantial background in real-time market analysis; and Ability to combine both discretionary and quantitative investment solutions

Over 15 years experience in financial markets:


State Street Global Markets Bank of America Toyota Research & Planning

Royal Bank of Scotland/NatWest Citibank

Columbia University Ph.D. in International Economics


Dissertation on cross-country interest rate differentials published in International

Journal of Finance and Economics; Taught graduate students at Columbia University, Sun Yat-sen University (China)

4/5/2013

R Blake PhD (reb7@columbia.edu)

Disclaimer
The information provided herein is not intended to suggest or recommend any investment or investment strategy, does not constitute investment advice, does not constitute investment research and is not a solicitation to buy or sell securities. It does not take into account any investor's particular investment objectives, strategies or tax status. Clients should be aware of the risks trading foreign exchange, equities, fixed income or derivative instruments or in investments in non-liquid or emerging markets. Derivatives generally involve leverage and are therefore more volatile than their underlying cash investments. Past performance is no guarantee of future results. This communication is not intended for and must not be provided to retail investors. The products and services described in this communication may not be available in all jurisdictions.