Investing in an(un)conventional world

Han Dieperink

When Unconventional becomes Conventional

Unconventional Monetary policyUnconventional Fiscal Policy

Unconventional Economic PolicyUnconventional Trade Policy

Unconventional Climate Policy

Career Risk:

“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

John Maynard Keynes, The General Theory of Employment, Interest, and Money

Unconventional Politics

3

Globalization

Deglobalization

Progressive

Conservative

Populism

Elite

LEFTRIGHT

The men of

Davos Free trade

Protectionism

Environmental CrisisClimate Crisis

Food CrisisWater CrisisDebt Crisis

Income Crisis

Making America Great Againhttps://www.handieperink.com/blog/make-america-great-again

Unconventional Monetary Policy: Reflation

Stocks tend to Overshoot in times of Reflation

But bond investors lose

30%

35%

40%

45%

50%

55%

60%

65%

70%0

2

4

6

8

10

12

14

16

18

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source Gavekal

Global Demographic forces drive trends in long term real interest rates

10 year treasury (lhs)

Capital Providers Ratio (rhs)

Inverted yield curve (TTID)

Recession after:

• Tightening monetary or fiscalpolicy

• Massive external shock (oil)

• Financial Crash

Growth = Employment ≠ Inflation

Passive versus Active

• Unconventional Monetary Policy

• Risk on / Risk off

• High correlation, low dispersion

• Massive flows to passive

• Large part active is passive

• Cost disruption has worked

Peak Passive

Source: Morningstar

The use of benchmarks: fixed income

Fixed income benchmarks uninvestable:• Free float correction needed of approx. 75%: ECB, Basle III, Solvency 2, FTK

The future is more certain than the present

The use of benchmarks:

equity

A globalized world where liquidity is concentrated in a few marketplaces. ESG and thematics will gain versus regions and sectors.

Disruption:IPO’s and Unicorns• IPO: Heads you lose, tails you lose

• Abundant liquidity and tighter market regulations

• Platform companies don’t need money

• Who will buy a Unicorn after Uber, Lyft & Tesla?

• Shift in Asset-Mix: savings > treasuries > credits > low vol equities > equities > private equity

Biotech

• From 2% tot 10% of all US listed companies

• DNA and CRISPR-CAS

• Phase II and III expensive and lengthy and not interesting for IRR-focused private equity

• Volatility is an opportunity for active investors.

https://www.handieperink.com/blog/biotech-belangrijker-voor-beleggers

Dollar Smile

Weaker world economyRisk-aversion

US Dollar Safe haven

Slow growth USFed holds back

No fear of recession

Cyclical Outperformance USFed raises rates while rest of the world

is relatively dovish

Zwakkeredollar

US economy vs World economy

Wea

kd

olla

r

Str

on

g d

olla

r

https://www.handieperink.com/blog/de-lach-van-de-dollar

China for diversification

https://www.handieperink.com/blog/china-aandelen-en-obligaties

China, leader in 5G

https://www.handieperink.com/blog/semiconductor-supercyclus-nog-niet-ten-einde

Commodities: no structural asset class

• Long Supercycles

• No Structural Backwardation, no risk premium

• Investor positioning new risk

• Limited and Costly use as an Inflation Hedge

Unconventional Pension Reform

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

0 5 10 15 20 25 30 35 40 45 50 55 60 65

euro

Age, calculations based on 4% returns

The benefit of time

Lump sum gift Government100.000 euro at birth

Pension Contributions 40 years x12.500 = 500.000

https://www.handieperink.com/blog/pensioenprobleem-in-het-belastingparadijs

Robotics and IT-revolution

• Cambrian explosion at the end of the IT-revolution

• Potential Productivity Boom

• Consumption of the globalMiddle Class will double in thenext decade

• 90% comes from Asia

• India & Africa the next China0

10

20

30

40

Duitsland Oost-Europa China Wereldwijd

Source: Barclays

Total Cost per hour(€)

With humans With robots

https://www.handieperink.com/blog/de-robots-rukken-op

Unconventional Railways

• One tenth of the costs

• Flexible & Fast

• More capacity while creating space

• Lower carbon footprint

• Integration with self-driving cars

• Export product BV Nederland

• Great basis for Dutch inflation-linked bonds for institutional investors

• Impact on real estate prices

https://www.handieperink.com/blog/treinen-die-virtueel-sporen

The last frontier: Africa,how countries develop

• Basis:

• Y = GDP

• A = Technical progress• Convergence through internet &

mobile

• K = Capital• Investments % GDP

• L = Labour• Growth of the working

population (15-60 jaar)

• What’s needed:

• Macro-economic stability

• Inflation under control

• Institutes

• Legal System

• Chamber of Commerce

• Financial System

• Open Borders

• Trade Policy

• Foreign direct investments

• Education

• Read & Write

• Internet & Computing

Sustainability from onconventional to conventionalA Healthy financial return

• From mainstream to verypopular

• Marketing success SDG’s

• More transparancy throughBig Data & Machine Learning

• Internalization of externalcosts

• Shifting focus on the S in ESG

• Making money by solvingproblems

Unsustainable portfolio?

Sustainable

https://www.handieperink.com/blog/een-gezond-financieel-rendement

The power of narratives

Markets are efficient, humans are not:

• Complex cooperation communicated through a common goal is only possible by storytelling

• Investors use multiple disciplines. Behaviouralfinance includes sociology and psychology. Narrative economics adds journalism andmarketing.

• Via the internet stories go viral, experience is more important than reality.

• Fake becomes Real if people believe the story

Q @ A