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Global bond allocation model april pv

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The document summarizes a global bond allocation framework that incorporates growth indicators, carry/risk metrics, and market prices across 16 sovereign bond markets. It uses a monthly scorecard approach to rank countries based on factors like economic indicators, risk-adjusted carry, and exchange rates to determine long or short positions. Back-testing from 2000-2013 shows the framework generated significant risk-adjusted returns, including higher returns when including emerging markets, with limited losses during the credit crisis.

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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) 2 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 400% Cumulative returns (DM+EM) Cumulative returns (DM only) Back-test generates significant risk-adjusted 300% historical returns from 2000-2013, with limited 200% drawdowns during credit crisis 100% 0% Jan-00 Jan-03 Jan-06 Jan-09 Jan-12
4/5/2013 R Blake PhD (reb7@columbia.edu) 3 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 ZAR CLI level 0 0 0 0 -2 0 -2 2 0 0 0 0 2 2 -2 NA CLI momentum 1 1 0 -1 0 0 0 0 0 0 0 -1 1 -1 0 NA Carry/risk 0 0 -1 -1 1 0 0 1 -1 1 0 0 0 -1 0 1 EER -1 1 1 - - - 1 - - 0 1 1 -1 1 - 1 Total Score 0 2 0 -2 -1 0 -1 3 -1 1 1 0 2 1 -2 2 Summary -- Long/overweight: CAD, ITL, SEK, ZAR; Short/underweight: DEM, USD NA = Leading economic indicator value not yet available 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) 4 Effective 400% Cumulative returns (DM+EM) Cumulative returns (DM only) 300% Framework generates significant risk- adjusted returns from 2000-2013, with 200% limited drawdowns during credit crisis 100% 0% Results since 2007 suggest even Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 greater effectiveness recently Historical returns Year DM+EM DM only Inclusion of EM bonds raises returns 2000 48.6% 22.4% relative to additional risk 2001 22.5% 0.8% 2002 11.1% 11.3% 2003 17.6% 15.8% 2004 38.5% 25.8% Historical returns analysis 2005 3.9% -8.9% 2000-2013 DM+EM DM only 2006 27.7% 24.8% Ann. avg returns 32.1% 18.8% 2007 23.4% 18.1% IR 1.65 1.24 2008 36.0% 14.7% Hit rate 68.4% 62.7% 2009 35.6% 27.5% 2007-2013 DM+EM DM only 2010 2.9% -16.5% Ann. avg returns 39.4% 24.8% 2011 68.9% 65.8% IR 1.95 1.50 2012 30.6% 20.7% Hit rate 73.0% 68.9% Avg. ann. 32.1% 18.8%
4/5/2013 R Blake PhD (reb7@columbia.edu) 5 Robert E. Blake, Ph.D. Global Macro Strategist International Economist Asset Allocation Research Broad-ranging skill set: 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) 6 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.

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Global bond allocation model april pv

  • 1. A Unified Framework for Global Bond Allocation Growth - Carry - Risk Robert E. Blake, Ph.D. April 2013 Formerly with:
  • 2. 4/5/2013 R Blake PhD (reb7@columbia.edu) 2 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 400% Cumulative returns (DM+EM) Cumulative returns (DM only) Back-test generates significant risk-adjusted 300% historical returns from 2000-2013, with limited 200% drawdowns during credit crisis 100% 0% Jan-00 Jan-03 Jan-06 Jan-09 Jan-12
  • 3. 4/5/2013 R Blake PhD (reb7@columbia.edu) 3 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 ZAR CLI level 0 0 0 0 -2 0 -2 2 0 0 0 0 2 2 -2 NA CLI momentum 1 1 0 -1 0 0 0 0 0 0 0 -1 1 -1 0 NA Carry/risk 0 0 -1 -1 1 0 0 1 -1 1 0 0 0 -1 0 1 EER -1 1 1 - - - 1 - - 0 1 1 -1 1 - 1 Total Score 0 2 0 -2 -1 0 -1 3 -1 1 1 0 2 1 -2 2 Summary -- Long/overweight: CAD, ITL, SEK, ZAR; Short/underweight: DEM, USD NA = Leading economic indicator value not yet available 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. 4/5/2013 R Blake PhD (reb7@columbia.edu) 4 Effective 400% Cumulative returns (DM+EM) Cumulative returns (DM only) 300% Framework generates significant risk- adjusted returns from 2000-2013, with 200% limited drawdowns during credit crisis 100% 0% Results since 2007 suggest even Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 greater effectiveness recently Historical returns Year DM+EM DM only Inclusion of EM bonds raises returns 2000 48.6% 22.4% relative to additional risk 2001 22.5% 0.8% 2002 11.1% 11.3% 2003 17.6% 15.8% 2004 38.5% 25.8% Historical returns analysis 2005 3.9% -8.9% 2000-2013 DM+EM DM only 2006 27.7% 24.8% Ann. avg returns 32.1% 18.8% 2007 23.4% 18.1% IR 1.65 1.24 2008 36.0% 14.7% Hit rate 68.4% 62.7% 2009 35.6% 27.5% 2007-2013 DM+EM DM only 2010 2.9% -16.5% Ann. avg returns 39.4% 24.8% 2011 68.9% 65.8% IR 1.95 1.50 2012 30.6% 20.7% Hit rate 73.0% 68.9% Avg. ann. 32.1% 18.8%
  • 5. 4/5/2013 R Blake PhD (reb7@columbia.edu) 5 Robert E. Blake, Ph.D. Global Macro Strategist International Economist Asset Allocation Research Broad-ranging skill set: 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)
  • 6. 4/5/2013 R Blake PhD (reb7@columbia.edu) 6 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.