Lazard US Corporate Income Portfolio R6 Shares · NASDAQ:RLCIX
Lazard US Corporate Income Portfolio R6 Shares — Lazard Asset Management — Investor Presentation (November 2018)
33 slides from Lazard US Corporate Income Portfolio R6 Shares's investor presentation, Nov 7, 2018
Slide 1: Under the Bonnet at Lazard: The Economic Environment Post QE
“Under the Bonnet at Lazard” The Economic Environment Post QE Wednesday 7 November 2018 Ron Temple Head of US Equities and Co-Head of Multi-Asset For Professional Investors Only
Slide 2: What to Watch through 2019
What to Watch through 2019 Economically: US Household Finances Protectionism China Rebalancing European Politics Investment Implications for: Interest Rates Equities Opinions as of November 2018 and are subject to change. 1 Lazard Asset Management
Slide 3: Household Wealth Has Begun to Recover across the Board
US Household Finances Household Wealth Has Begun to Recover across the Board Median Inflation-Adjusted Household Net Worth by Wealth Percentile Index (2001 = 100) 140 130 90-100 120 110 75-89.9 100 90 50-74.9 80 70 Median 60 50 25-49.9 40 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 As of 2016
Slide 4: Wage Growth Remains below Pre-crisis Levels
US Household Finances Wage Growth Remains below Pre-crisis Levels Average of Three Common Wage Measures YOY Change (%) 5.0 Atl. Fed 4.5 Wage Growth Tracker 4.0 AHE, all 3.5 employees 3.0 2.5 ECI Wages & Salaries, 2.0 civilian workers ex- incentives 1.5 Average 1.0 2007 2008 2009 2010 2011 2012 2013
Slide 5: Wage Gains Are Broadening
US Household Finances Wage Gains Are Broadening Cumulative Change in Real Hourly Wages by Wage Percentile, 2007–2017 (%) 2007-2014 2014-2017 2007-2017 15 11.8 10.3 10 6.3 6.5 5 3.7 3.1 2.7 2.5 2.0 1.6 0 -5 -10 10th 20th 30th 40th 50th 60th 70th 80th 90th 95th As of 2017 Sample based on all workers a
Slide 6: There Are 7.1 Million Vacant Jobs in the US
US Household Finances There Are 7.1 Million Vacant Jobs in the US Job Openings Rate Quits Rate (%) (%) 5.0 3.0 4.5 2.5 4.0 3.5 2.0 3.0 2.5 1.5 2.0 1.0 1.5 1.0 0.5 0.5 0.0 0.0 2001 2004 2007 2010 2013 2016 2001 2004 2007 2010 2013 2016 Job Openings Rate Pre-Recession Average Quits Rate Pre-Recession
Slide 7: The Phillips Curve: Could Pent Up Inflation Be Next?
US Household Finances The Phillips Curve: Could Pent Up Inflation Be Next? Wage Growth vs. Unemployment Average of Three Wage Growth Measures (%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 R² = 0.89 R² = 0.61 1.0 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 1999-2007 2008-2010 2011+ Sep-2018 Unemployment Rate (%) As of Se
Slide 8: Protectionism: Tensions on Multiple Fronts
Protectionism Protectionism: Tensions on Multiple Fronts 2017 US Imports Covered by Proposed Tariffs ($ Billions) 350 300 Rest of World 250 NAFTA 200 150 China 100 50 EU28 0 Sec. 201 Sec. 232 Sec. 301 Sec. 301 Sec. 232 Sec. 232 Washers & Steel & China China - Autos & Parts Uranium As of 2017 CSPV Al
Slide 9: Section 301: US Tariffs More Focused on Producer Goods
Protectionism Section 301: US Tariffs More Focused on “Producer” Goods 2017 US Imports from China ($ Billions) 200 180 160 140 122 41 120 100 101 80 60 114 40 76 20 42 0 Capital Equipment Intermediate Goods Consumption Goods Subject to Tariffs Not Subject to Tariffs As of 18 September 2018 Approxima
Slide 10: Section 301: Tariffs Don't Just Impact the US & China
Protectionism Section 301: Tariffs Don’t Just Impact the US & China Share of Targeted US Imports from China (%) Computer & Electronic 87 Products Miscellaneous 68 Manufacturing Transportation 65 Equipment Electrical Equipment & 60 Components Machinery 59 ex-Electrical Chemicals 32 0 20 40 60 80 100
Slide 11: Protectionism: What Passport Should an iPhone Carry
Protectionism Protectionism: What Passport Should an iPhone Carry Apple iPhone X Bill of Materials Components Manufacturer Headquarters Cost Display / Touchscreen Module Samsung Display Korea $110 Major Mechanical / Electro-Mechanical Elements Samsung Display Korea $61 Cameras Samsung Display Korea
Slide 12: China's Potential GDP Growth = Population + Productivity
China Rebalancing China’s Potential GDP Growth = Population + Productivity China’s Working Age Population Is Declining 5-Year Compound Annual Growth Rate (%) 4 3 2 1 0 -1 -2 1955 1965 1975 1985 1995 2005 2015 2025 2035 2045 As of June 2017 Population estimates through 2015. Population projections be
Slide 13: China Is Aging Rapidly – Aging Lowers Productivity Growth
China Rebalancing China Is Aging Rapidly – Aging Lowers Productivity Growth Share of Population Aged 65+, Years to Increase from 10% to 20% 1950 1975 2000 2025 2050 2075 2100 UK >74 France >67 Germany 56 Switzerland 65 Italy 44 USA 59 Spain 46 Canada 40 Japan 21 Russia 52 South Korea 17 China 18 Bra
Slide 14: Rebalancing from Industry to Services Is Underway
China Rebalancing Rebalancing from Industry to Services Is Underway Share of Nominal GDP (%) 55 50 45 40 35 30 1992 1995 1998 2001 2004 2007 2010 2013 2016 Industry Services As of September 2018 Source: China National Bureau of Statistics, Haver Analytics 13 Lazard Asset Management
Slide 15: China's Growth Drivers Have Changed
China Rebalancing China’s Growth Drivers Have Changed Key drivers of growth have evolved over time: 1. Low labor costs 2. Inexpensive land 3. Lack of environmental and labor protection 4. Inadequate private property protection 5. Government subsidization 6. Misallocation of capital through banking s
Slide 16: China's Labor Has Become Less Competitive
China Rebalancing China’s Labor Has Become Less Competitive Average Wages, 2001-2016 (USD/Hour) CAGR ‘01-’16 7 China, 14% East Coast 6 China 15% 5 Malaysia 5% 4 Thailand 7% 3 Mexico -1% 2 Vietnam 12% 1 Philippines 5% 0 Indonesia 10% 2001 2003 2005 2007 2009 2011 2013 2015 As of December 2016 USD per
Slide 17: Even Labor in China's Interior Is No Longer Inexpensive Enough
China Rebalancing Even Labor in China’s Interior Is No Longer Inexpensive Enough Average Wages, 2016 (USD/Hour) Range of China’s Provinces* 10 9 8 7 6 5 4 3 2 1 0 Max Eastern North Big South Southwest Middle Middle Northeast Min Viet- Phillipines Indo- Coastal Coastal Northwest Coastal Yangtze Yello
Slide 18: China's Leverage Has Increased Substantially
China Rebalancing China’s Leverage Has Increased Substantially Nonfinancial Debt as a % of GDP (%) Change since 300 ‘11 255.3 255.7 261.2 243.3 Overall 150% 250 225.7 211.0 200 194.6 177.8 181.6 181.1 Nonfinancial 137% Corporations 150 141.3 100 Households 208% 50 Government 147% 0 2008 2009 2010 20
Slide 19: Direct Lending Growth Remains Stable
China Rebalancing Direct Lending Growth Remains Stable Contribution to Bank Asset Growth YOY Change (%) 18 16 14 12 10 8 6 4 2 0 2014 2015 2016 2017 2018 RMB Loans Other Assets As of September 2018. Source: IMF, People’s Bank of China, Haver Analytics 18 Lazard Asset Management
Slide 20: High Frequency Indicators Have Slowed
China Rebalancing High Frequency Indicators Have Slowed High Frequency Economic Indicators YOY Change (%) 12 30 Fixed Asset 10 25 Investment 8 20 Retail Sales 6 15 4 10 Real Industrial 2 5 Value Added 0 0 -2 -5 Fixed Asset Investment, 2016 2017 2018 Infrastructure (RHS) As of September 2018 Fixed as
Slide 21: Authorities Have Eased Policy in Response to Trade Friction
China Rebalancing Authorities Have Eased Policy in Response to Trade Friction Three-Month SHIBOR Total Social Financing Outstanding (%) YOY Change (%) 5.5 28 26 5.0 24 4.5 22 4.0 20 3.5 18 16 3.0 14 2.5 12 2.0 10 1.5 8 2015 2016 2017 2018 2011 2013 2015 2017 TSF ex Equity incl Local Government Bonds
Slide 22: European Politics Remain a Risk
European Politics European Politics Remain a Risk Member State Current Government Next Election • Took >4 months to form a weak coalition • AfD 3rd largest party in parliament Germany By October 2021 • Recent state elections signal problems ahead • Merkel stepping down as CDU party leader • En March
Slide 23: Italy's Governing Coalition Made Expensive Promises…
European Politics Italy’s Governing Coalition Made Expensive Promises… Italian Fiscal Deficit in Draft 2019 Budget (% of GDP) 3.0 Minimum Citizenship Income 2.5 Flat tax Investment 2.0 Pension reform 1.5 Scrap VAT hike 1.0 No policy change 0.5 Other Spending cuts 0.0 Tax amnesty -0.5 2017 2018F 2019
Slide 24: … and Its Support Is Rising
European Politics … and Its Support Is Rising Weekly Average of Opinion Polls Dates to Watch (%) 40 • European Commission (EC) has until 22 5 Star Oct to request clarifications on Italy’s draft budget 35 Movement 29 • EC has until 29 Oct to send the budget October back for a “serious breach of compl
Slide 25: What to Watch through 2019 in the Economy
Summary What to Watch through 2019 in the Economy US household finances: • Middle class wages and balance sheets are pivotal to sustaining the growth cycle. • Wage growth is likely to grind higher in the base case. Protectionism: • The trade conflict is likely to deepen. • Analyzing the implicat
Slide 26: ~37% of Euro Zone Government Debt Has a Negative Yield
Investment Implications - Rates ~37% of Euro Zone Government Debt Has a Negative Yield Share of Government Bonds with Negative Yield by Amount Outstanding (%) 70 60 50 40 30 20 10 0 Slovakia Ireland France Austria Finland Spain Slovenia Japan Italy Germany Netherlands Belgium Portugal Euro Zone As o
Slide 27: Net of FX Hedging Costs, US Treasuries Are Less Attractive
Investment Implications - Rates Net of FX Hedging Costs, US Treasuries Are Less Attractive Unhedged Bond Yields 2 Year 5 Year 10 Year UK 0.81 1.09 1.51 Japan -0.13 -0.08 0.13 United States 2.94 3.05 3.22 Germany -0.64 -0.17 0.44 France -0.50 0.01 0.72 Hedged Bond Yields (European Investor) 2 Year 5
Slide 28: Fed Funds Futures Might Be Too Dovish
Investment Implications - Rates Fed Funds Futures Might Be Too Dovish Projected Fed Funds Rate YOY Change (%) 4.0 3.5 Implied by 3.0 Fed Funds Futures 2.5 2.0 1.5 Median 1.0 FOMC Projection 0.5 0.0 Dec-2018 Dec-2019 Dec-2020 Longer Run As of 2 November 2018 Source: Federal Reserve, Bloomberg 27 Laza
Slide 29: Valuations Reflect Improved Outlook
Investment Implications – Equities Valuations Reflect Improved Outlook Forward P/E (Next 12 Months), Past 10 Years (x) +2 Std Dev +1 Std Dev 11/2/2018 10- Year Average 30 25 20 15 10 5 0 S&P 500 MSCI Europe ex MSCI UK MSCI Japan MSCI EM MSCI China UK (Emerging Markets) As of 2 November 2018 Average
Slide 30: Different Markets = Different Valuations
Investment Implications – Equities Investment Implications - Different Markets = Different Valuations % of Index S&P 500 MSCI Europe* MSCI Japan* MSCI EM* Consumer Discretionary 10.0 10.4 19.6 8.9 Consumer Staples 7.3 13.8 8.4 6.5 Energy 5.7 8.3 1.3 8.4 Financials 13.6 19.2 12.7 24.5 Health Care 15.
Slide 31: TAB
TAB
Slide 32: Biographies
Biographies Ronald Temple, CFA Managing Director, Co-Head of Multi-Asset and Head of US Equity Lazard Asset Management LLC (New York) Ronald Temple is a Managing Director and Co-Head of Multi Asset and Head of US Equity, responsible for oversight of the firm's multi asset and US equity strategies as
Slide 33: Disclosures
Disclosures This presentation and all research and materials enclosed are property of Lazard Asset Management LLC © 2018 Lazard Asset Management LLC. Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to
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