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Bandon Isolated Alpha Fixed Income Fund
July 31, 2011
Unbiased
Unconstrained
Global Fixed Income
For Financial Professional Use Only
1688-NLD-8/9/2011
2
Bandon Overview
Privately owned firm based in Portland Oregon
Registered Investment Adviser with the Securities and Exchange Commission
Founder has implemented hedge fund manager research for investors since 2004
Strategies delivered through strategic relationships with specialized institutional managers
Seeks to deliver alternative return characteristics in both SMA and Mutual Fund format
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
1688-NLD-8/9/2011
Bandon Capital Management – Alternatives Democratization Specialist
3
Institutionally Oriented Sub-Advisers
Founded in 2003 with 14 full time employees, 4 founding partners
13 years experience managing active duration investment strategies
$850 Million* in assets under management
Strategic business partnership with Federated Investors, Inc.
Dix Hills Partners, LLC – Interest Rate Specialist
*As of June 30tth, 2011.1688-NLD-8/9/2011
As a Sub-Adviser Dix Hills seeks to produce positive total returns in all market environments by actively managing interest rates using a systematic directional interest rate forecasting framework based on macro economic, bond market valuation and momentum indicators.
The strategy is a disciplined, monthly, systematized fundamentally rooted interest rate forecasting process augmented with stringent risk controls
Forecast four different developed sovereign 10-yr ratesRisk management include hard stops and pre-defined exposure bandsResearch data of over 49 years
There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
4
Institutionally Oriented Sub-Advisers
*As of March 31st, 2011.1688-NLD-8/9/2011
Founded in 2007 – Delaware Investments institutional investment team transaction
Fixed Income manager dedicated solely to the institutional marketplace
Over $12.4 Billion* in assets under management including 4 MF Sub-Advisory mandates
64 employees, 9 portfolio managers, 15 research analysts, and 13 traders
Purchased by Fortress Investment Group, LLC in April of 2010 (FIG)
Logan Circle Partners, LP – Credit Specialist
As a Sub-Adviser, Logan Circle seeks to produce positive total returns in all market environments by implementing unconstrained, multi-sector, global credit based absolute return strategies while minimizing interest rate duration exposure
The approach is a disciplined and active, bottom-up driven process augmented with stringent risk controls
Views driven by rigorous, bottom-up, in-depth research and analysisRisk management focused on liquidity and hard stopsAbility to modify exposures without moving marketsAccess to primary debt capital markets
There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
5
10-Yr Yields (1/2/1962 - 3/31/2011)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1/2/1962 1/2/1968 1/2/1974 1/2/1980 1/2/1986 1/2/1992 1/2/1998 1/2/2004 1/2/2010
Composition of the Barclays US Aggregate Bond Index
3%
1%
19%
77%
Government
Corporate Credit - IG
Asset-Backed Securities /Commercial Mortgages
Emerging Markets Debt
Low developed government bond yieldsYields have declined for nearly 30 years providing a tail wind for bonds which may come to an end
Many fixed income indices are heavily exposed to government bondsWith the US gross public debt ballooning to over $12 Trillion government backed debt now represents more than 75%* of the Barclays Aggregate Bond Index
Why Fixed Income Alternatives?
* Includes domestic and sovereign debt, quasi government, such as agency government guaranteed and agency non-government guaranteed, municipal bonds and agency RMBS. Source: Barclays Capital as of December 31, 2010.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. Please see additional disclosures.
Duration: 5.05 yrs
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6
Past performance is not indicative of future results, which may vary. Please note that you cannot invest directly in an index.Source: Barclays Capital, Bloomberg; as of January 31, 20111.The above-posted illustration demonstrates a steady decline in coupon returns for the Barclays Capital US Aggregate Bond Index and a structural drop in Treasury yields over the past 30 years. With the share of Treasuries in the Barclays Capital US Aggregate Bond Index never falling below 20% over the past three decades and accounting for 34.0% of the index as of December 31, 2010, we believe the index’s historical total return structure is partly correlated to the declining Treasury yields. Source: Barclays Capital. 2.The return components (i.e total return) accounts for two categories of fixed income return: income (i.e. coupon return) and price return. Income includes interest paid by the fixed-income investments, whereas price return represents the change in the market price of the fixed income security, which, depending on market conditions, can be negative.
Over the last 30 years bonds have had large coupons offering attractive return that has been often times enough to offset price change during periods of rising interest rates:
Low Yields Create Multiple Challenges
1688-NLD-8/9/2011
Avg. CalendarYr Return: 7.9% 6.3%12.8%
Price Return Coupon Return 10-Year Treasury Yield
Yiel
d 1
0-Ye
ar T
reas
ury
YTD
201
1
Ret
urn
Com
pone
nt2
1980
1981
1982
1983
1984
1986
1987
1980s
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
1990s
2000
2001
2002
2004
2005
2006
2007
2008
2009
2010
2003
2000s
35%
30%
25%
20%
15%
10%
-5%
-10%-15%
5%
0%
21%
18%
15%
12%
9%
6%
3%
0%
-3%
-6%-9%
1985
7
XXXLimitedNon-US
Absolute Return< .3
Unconstrained.3 to .6
Strategic Income> .6
Core-Plus> .85
Core> .95beta / correlation
UnbiasedLong-Short
Long bias / hedging
Long bias / hedgingUse of shorting
Wide / Active / Tactical
Wide / Active / Tactical
Wide / Active / Tactical
Tight to a benchmark
Tight to a benchmarkAllocation Ranges
Varies / UnbiasedLong-Short
Varies / Long bias
Varies / Long only
Tight to a benchmark
Tight to a benchmark
Duration Parameters
Varies/LowVaries/MediumVaries/HighHighHighSensitivity to Interest Rates
Relative ValueStrategies
XXXNon-traditionalincome
XXXLimitedHigh Yield
XXXXXUS Gov / Agency / Investment Grade
The Fixed Income Toolbox
Figures are based on Bandon’s estimations and do not reflect averages of actual returns. Figures should be used as a general guide only. The information reflects Bandon’s view on existing actively managed fixed income mutual funds and is for discussion purposes only.
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8
Absolute Return Within Your Fixed Income Allocation
High YieldBank Loans
Barclay’sAgg
Emerging Market Debt
TIPS
Absolute ReturnFixed Income
High YieldBank Loans
Absolute ReturnFixed Income
Emerging Market Debt
TIPS
Barclay’sAgg
Replacing core fixed income during bear markets
A Fixed Income Diversifier
The information contained on this page is for discussion purposes only and is not intended to be a recommendation for a particular allocation. Allocations will vary based on each client’s needs, objectives and risk tolerance.
1688-NLD-8/9/2011
9
Fund Overview
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. 1688-NLD-8/9/2011
* The Performance, Risk and Correlation goals are current, subject to change, and should not be considered a predictor of investment return or risk characteristics. All investments involved the risk of loss and no measure of performance or risk is guaranteed. The fund aims to deliver its target return and risk over a full market cycle, which is likely to include stretches of both up and down performance.** Excludes developed market sovereign credit risks. Total fund notional exposure may exceed 100%.
Performance Goal*: Greater of 6 – 8% net or US T-bills + 4–6%
Credit**: +/-100% (max)
Duration: +/- 5 years (max)
Risk Objective*: 3-5% standard deviation
Correlation Objective*: Between -.33 and +.33 over a market cycle
Unconstrained to a benchmark, the fund utilizes a diverse set of global absolute return-oriented strategies.
Seeking: positive returns through all market environments.limited volatility and downside risk (stop loss on every position).little to no correlation to traditional investments.
10
Isolating Alpha
Japanese JGB
UK Gilt
German Bund
US Treasury
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above.
Interest rate and credit exposure is actively managed without a long bias by two institutionally oriented specialist managers utilizing the following investment types:
1688-NLD-8/9/2011
Interest Rates
Convertible Bonds
CDS
Bank Loans
ABS / MBS
Preferreds
Govt Bonds
High Yield Corp
Inv. Grade Corp
Credit
* The above are security type examples and do not represent the entire universe of potential investments for the fund or actual portfolio positions. Additional information regarding potential exposure can be found in the fund’s prospectus.
11
Performance and Statistics
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The Bandon Isolated Alpha Fixed Income Fund total annual operating expense ratio (gross) is 2.16% for Investor Class, 2.41% for class A shares, 3.16% for the class C shares and 2.66% for the class R shares The Fund's adviser has contractually agreed to reduce its fees and/or absorb expenses of the Fund, until at least January 31, 2012, to ensure that total annual fund operating expenses after fee waiver and/or reimbursement will not exceed 1.95%, 2.20%, 2.95% and 2.45% of each class's net assets, respectively, for Investor Class, Class A, Class C and Class R shares. Expense waivers and reimbursements are subject to possible recoupment from the Fund in future years on a rolling three year basis (within the three years after the fees have been waived or reimbursed) if such recoupment can be achieved within the foregoing expense limits.
Results shown reflect the waiver, without which the results could have been lower. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. A Fund's performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. To obtain performance information current to the most recent month-end, please call toll-free 1-503-477-8100.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD2011 0.70% -0.79% -1.30% -0.81% 0.82% 0.30% 0.51% -0.60%
Return Summary BANIX BarclaysLast Month 0.51% 1.59%
Recent Quarter 06/30/11 0.30% 2.29%
Since Inception 12/31/2010 -0.60% 4.35%
Ann. Standard Deviation 2.4% 3.5%
Sharpe Ratio (0.46) 2.15 4.35%Maximum Daily Drawdown -3.2% -1.4%
Exposure Analysis Excl Cash %'s
Long Market Value1 6,306,611 53%
Short Market Value1 (2,212,781) -18%
Net Market Value1 4,093,830 34%
Gross Market Value1 8,519,393 71%
Total Fund Assets 11,970,993 -0.60%Risk Summary BANIXRate Duration
Spread Duration 1.97 -2.05%Alpha vs Barclay's -1.11%
Beta vs Barclay's 0.00
Correlation vs Barclay's -0.01
Correlation vs S&P 500 0.06
Cumulative Growth1 (12/31/10 -Current)
Monthly Performance: Actual results 12/31/2011 to current
-3%
-2%
-1%
0%
1%
2%
3%
4%
12/31/2010 1/24/2011 2/14/2011 3/8/2011 3/29/2011 4/19/2011 5/11/2011 6/2/2011 6/23/2011 7/15/2011
BANIX
BarclaysAggregate
HFRX Ab Return-5 -4 -3 -2 -1 0 1 2 3 4 5
12
Targets alternative return characteristics in a Mutual Fund format
Secular decline in U.S. interest rates may be over
Price changes can overwhelm passive coupon return with yields near historic lows
Potential for absolute returns regardless of interest rate environment
Seeks non-correlation to traditional and alternative markets
Seeks clean isolated alpha within both of the principal fixed income risk factors
We believe the interest rate strategies will provide returns completely uncorrelated to the credit component, particularly during periods when credit is stressed / widening
Why Bandon Isolated Alpha Fixed Income?
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
1688-NLD-8/9/2011
13
Why Democratized Alternatives?
Investors have questioned traditional alternative investments structures because:
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above.
Traditional Alternative Structure vs. Bandon Alternative Mutual Funds
Limited Liquidity Daily Liquidity
High Minimum Investment As low as $10,000
Fraud Risk Regulated Transparency
K-1’s 1099
2% + 20% of profits + expenses 1.95% expense cap
1688-NLD-8/9/2011
There is no guarantee than any investment will achieve its objectives, generate positive returns, or avoid losses.
14
Operational and Administrative Considerations
Available Custodians Pershing, Fidelity/NFS, TD Ameritrade Trust Company of America
Investor Class Ticker BANIXC Class Ticker CBANX
Minimum Investment $10,000.00
Expense Cap 1.95%
Tax Reporting 1099
– A & R share classes available upon capital commitments
For more information please contact Mike Miller at 503-477-8100 or mike@bandonalts.com
www.bandonalts.com 1688-NLD-8/9/2011
15
Portfolio Manager Bios
Joseph A. Baggett, CFA - Mr. Baggett is a founder and Senior Portfolio Manager for Dix Hills Partners, LLC and its affiliate management company, Dix Hills Associates, LLC. Until his departure in January 2003, Mr. Baggett served as Executive Director, Quantitative Investments Group, UBS Global Asset Management in New York. At UBS, Joe was senior portfolio manager/research analyst for the quantitatively driven investment strategy group that managed over $6 billion in assets. Joe served as Model Developer and Portfolio Manager for Quantitative Fixed Income Strategies and Quantitative Allocation, LLC (“Q.A.”). Additionally, Joe was also a member of the Portfolio Management Team for UBS Tactical Allocation Fund, a $3 billion, fully flexible mutual fund that allocated between stocks (S&P 500), bonds (intermediate-term Treasury notes) and cash on the basis of a quantitatively-driven market valuation model. He has extensive experience in other traditional quantitative disciplines as well, including portfolio optimization, indexation, stock selection models, performance attribution/analysis, risk management and securities and derivatives trading. At UBS, he was also actively involved in marketing these products to institutional and individual prospects. Prior to UBS Asset Management, Joe worked as an Economist at PaineWebber, Inc., part of a three-person unit that produced the firm's U.S. economic growth, inflation and interest rate outlooks. Prior to PaineWebber, Joe worked at the Federal Reserve Bank of New York as an Assistant Economist, Domestic Financial Markets Division. Mr. Baggett holds a B.A. in Economics from Columbia University (Summa Cum Laude, Phi Beta Kappa). He also attended the University of Chicago Graduate School of Business, completing the first year of a two year M.B.A. program with a 4.0 G.P.A.
Andrew J. Kronschnabel, CFA - Mr. Kronschnabel is a senior portfolio manager at Logan Circle Partners. As a member of the portfolio management team he is responsible for the firm’s absolute return strategies with a specialization in high grade. Prior to joining Logan Circle Partners, he was a member of the portfolio management team at Delaware Investments where he was responsible for Core-based and high grade products from 2000 to 2007. Mr. Kronschnabel received a Bachelor of Science degree in international economics and politics from Colorado College.
William F. Woodruff - Mr. Woodruff is Bandon’s Founder, Managing Principal and Chief Investment Officer. He is responsible for all investment management activity at Bandon. Prior to founding Bandon in 2007, Mr. Woodruff spent four years with Beacon Investment Group and its subsidiaries, ultimately serving as a portfolio manager for the firm’s various hedge funds and alternative investment products. In that role, Mr. Woodruff evaluated and invested in a wide variety of alternative strategies. His primary focus was developing ways to democratize alternative strategies. These efforts lead to the creation of the trading approach for the DIRS Program that is now a flagship Bandon product. Mr. Woodruff began his career working for Portland, Oregon based Philips & Co. Securities in 2002. He holds a B.B.A. in Finance from the University of Portland.
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
16
Important Disclosures
The material contained in this document is for general information purposes only and is based on information that is considered to be reliable. However, Bandon makes this information available on an “as is” basis and make no warranties, express or implied, regarding the accuracy of the information contained herein, for any particular purpose. Bandon and its independent providers are not liable for any information errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The information herein should not be acted upon without obtaining specific legal, tax or investment advice from a licensed professional.
Bandon Capital Management, LLC, Dix Hills Partners, LLC and Logan Circle Partners, LLC are not affiliated with Northern Lights Distributors, LLC
Investors should carefully consider the investment objectives, risks, charges and expenses of the Bandon Isolated Alpha Fixed Income Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained at www.bandonfunds.com or by calling 503-477-8100. The prospectus should be read carefully before investing. The Bandon Isolated Alpha Fixed Income Fund is distributed by Northern Lights Distributors, LLC member FINRA.
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
17
Important Disclosures
Mutual Funds involve risk including the possible loss of principal. Closed-end funds are subject to investment advisory and other expenses, which will be indirectly paid by the Fund. There is a risk that issuers and counterparties will not make payments on securities and other investments held by the Fund, resulting in losses to the Fund. The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Emerging market countries may have relatively unstable governments, weaker economies, and less-developed legal systems with fewer security holder rights. The value of the Fund's investments in fixed income securities and derivatives will fluctuate with changes in interest rates. Currency trading risks include market risk, credit risk and country risk. Investments in foreign securities could subject the Fund to greater risks including, currency fluctuation, economic conditions, and different governmental and accounting standards. The Fund may invest in high yield securities, also known as "junk bonds." High yield securities provide greater income and opportunity for gain, but entail greater risk of loss of principal. Using derivatives to increase the Fund's combined long and short exposure creates leverage, which can magnify the Fund's potential for gain or loss. The default rate on underlying mortgage loans or asset loans may be higher than anticipated, potentially reducing payments to the Fund. As a non-diversified fund, the Fund may invest more than 5% of its total assets in the securities of one or more issuers. The Fund will incur a loss as a result of a short position if the price of the short position instrument increases in value between the date of the short position sale and the date on which the Fund purchases an offsetting position.
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
18
Definitions
S&P: Refers to the Standard and Poor's 500 Index which is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic equity market. This index is used for comparative purposes only.
Barclays Agg (BarCap): Refers to the Barclays Aggregate US Bond Index. The index is designed to measure performance of the broad based investment-grade, fixed rate, taxable bond market. This index is used for comparative purposes only.
IEF: An Exchange Traded Fund that seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 7-10 Year Treasury Bond Index.
TLT: An Exchange Traded Fund that seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 20+ Year Treasury Bond Index.
Alpha: A risk-adjusted measure of the active return on an investment. It is a measure of the manager’s contribution to performance. A positive annual Alpha indicates the portfolio outperformed the market on a risk-adjusted basis, and a negative Alpha indicates the portfolio underperformed in relation to the market.
Beta: Describes how the expected return of a stock or portfolio is correlated to the return of the financial market as a whole. A Beta greater than 1.00 indicates the portfolio is more volatile than the market, and a Beta less than 1.00 indicates the portfolio is less volatile than the market.
Duration: A measure of a bonds price sensitivity to yield. It can also be described as the percentage change in price for a parallel shift in yield.
Standard Deviation: Measures the degree of variation of monthly returns around the mean (average) return. The higher the volatility of the investment returns, the higher the standard deviation will be.
Correlation: Measures how closely the investment tracks the market (the "market" can be defined as an index).
Absolute Return: The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual fund - achieves over a given period of time.
Directional Trading: A strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in a security.
Event Driven: A strategy where positions seek profits from the consummation of a given event (e.g. takeover, merger, etc).
Cap Structure: A strategy that attempts to exploit a pricing inefficiency between two securities of the same company.
Paris Trade: The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in.
Opportunistic: A strategy that seeks to take advantage of short-term mispricing in securities.
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
19
Appendix 1: Fixed Income Return Drivers
Prepayment: Sensitivity to prepayment call feature
Credit: Sensitivity to underlying company fundamentals
Duration: Sensitivity to changes in interest rates
Chart: Multifactor Beta Research from Investing Separately in Alpha and Beta, CFA Institute Research Foundation, Clark, de Silva, Thorley 2009
We believe interest rates are the dominant risk exposure and should receive significant attention, particularly in the current low yield environment
We believe the current credit environment provides unique opportunities outside of interest rate risk factors
Interest Rate, 69%
Credit, 23%
Prepayment, 8%
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20
Fixed IncomeBeta
Appendix 2: How Does BANIX fit in a Portfolio?
Alpha / Beta Separation
AlternativeInvestments
BANIX
or
Fixed Income
BANIX
Non-Correlated Alternative
AlternativeInvestments
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
There is no guarantee than any investment will achieve its objectives, generate positive returns, or avoid losses.
21
Appendix 3: Alpha / Beta Separation
By going away from traditional actively managed product where Beta and Alpha are blurred together you gain control of your asset allocation. Giving you the choice of either minimizing costs or reducing beta.
90%
Beta
10% Alpha
Actively Managed Bond Portfolio0.58% total cost
BND0.12%
Exp Ratio
Cost of Alpha4.70%
Isolated Alpha (Cost Reduction)0.30% Avg cost
90%
Beta
10% BANIX
BND0.12%
Exp Ratio
Cost of Alpha1.95%
Isolated Alpha (Beta Reduction)0.58% Avg cost
75%
Beta
25% BANIX
BND0.12%
Exp Ratio
Cost of Alpha1.95%
BND: Vanguard Total Bond Market ETF.The portfolios are hypothetical examples created by Bandon and are provided for illustration purposes only. No assumptions should be made that the allocations above will be profitable or provide alpha. Allocations and their percentages should change based on an individual investor's needs. 1688-NLD-8/9/2011
22
PORTFOLIO & RISK MANAGEMENT
Jude Driscoll, CIO
High GradeAndy Kronschnabel, CFA
Stephen Mullin, CFA
High YieldTim Rabe, CFA
EM / Non-DollarScott Moses, CFATodd Howard, CFA
Structured ProductAl Leone, CFA
TRADING / TECHNICAL ANALYSIS
High GradeMatt BuchananDana CottrellLou Petriello
High YieldTom McClinticSpencer Tullo
EM / Non-DollarTodd Howard, CFA
Structured ProductJoseph Watkins
Kevin Hendrickson
FUNDAMENTAL RESEACH Brian Funk, CFA,
DirectorZach Bauer, CFA
Michael BorowskeIan Bowman
Evan Driedger, CFA
Michael FreyXimena GalvezBrent Garrels
Lee RubensteinGreg Zappin, CFA
Matt Higgins, CFAChris Moon, CFAMichael Recchiuti
Risk AnalyticsPaul Polichino
Credit Research Team
Appendix 4: Logan Circle - Investment Team
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
23
Appendix 5: Logan Circle – Investment Process
Proprietary ResearchRisk Management/Portfolio Review
1
34
Idea Generation
Portfolio ConstructionSell Discipline
Research
PortfolioManagement Trading
25 • Examination of critical industry trends.• Identification of potential relative value opportunities.• 5 Senior Analysts/Group Leaders closely monitoring 20-25 companies.• Industry Specialists Monitoring 50-75 Companies
• Research• Portfolio Management• Trading
• Directional (Long & Short)• Event Driven / Cap Structure• Pairs Trades• Opportunistic
• Research identifies negative change in fundamentals• Securities reach price targets or stop losses• Better opportunities arise (relative value)
• Forward Looking Risk Identification• Position Sizing• Portfolio Level Assessments
• Gross / Net Exposure• Strategy Allocation %’s
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
24
Appendix 6: Credit Strategies
*The examples are based on the holdings of the investment universe of Logan Circle. The Securities were not based on performance and should not be construed as recommendations or endorsements. These examples may or may not have been included in a composite at any given point in time. Ranges are subject to change.
Short Term Mispricing
Relative Value
Directional / Relative Value
Directional
Directional
Anadarko 7yr BondsPrudential 30yr bondsWellPoint Inc. 10yr bonds
Mispriced securityLiquidity imbalanceTypically hedged w / futuresVery short holding period
Opportunistic0% - 50%
Goldman/Morgan StanleyPrudential/MetLifeGE Capital/Capital One
Special situationsIdentifiable catalystsIndustry consolidationsIntermediate holding period
Pairs Trades0% - 50%
MGM 2011 SubsILFC 2012sBrazil 2014s
Higher current yieldExpress via cash or CDSLow interest rate sensitivitySpecial situations
Longs0% - 50%
TXU Bank LoansCNH 2013sHasbro 5yr CDS (Short)
Identifiable catalystsIndustry consolidationsLong & Short positionsSpecial situations
Cap Structure /Event Driven0% - 50%
CDX.IG14FDC 5yr CDSBasket Consumer/Retail
Shorts expressed via CDSSingle name or indexThematic basket tradesTypically used to hedge longs
Shorts- 50% - 0%
Category Characteristics Examples
Isolated active global credit decision making within predetermined exposure bands expressed by strategy type unconstrained by a benchmark:
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Strategy
25
Appendix 7: Active Duration Framework
A robust directional interest rate forecasting framework based on Macro economic, bond market Valuation and Momentum indicators.
1688-NLD-8/9/2011
overall forecast higher rates lower rates
STRONG WEAK STRONG
macro indicators expanding contracting
valuation indicators expensive cheap
momentum indicators rising rate declining rate
Forecast is for illustrative purposes only. Not an example of a current interest rate forecast.
26
Appendix 8: The Fixed Income Toolbox
The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information presented above. 1688-NLD-8/9/2011
When fixed income bear markets occur, a broader toolbox may prove useful.
ABS / MBS
Gov - Developed
Corp – Inv. GradeShort Term
TIPSFloating Rate
Corp
–High
Yiel
d
Intl
/ Em
ergi
ng
ABS / MBS
Gov - Developed
Corp – Inv. GradeShort Term
TIPSFloating Rate
Corp
–High
Yiel
d
Intl
/ Em
ergi
ng
Rate Hedge Credit Hedge
ABS / MBS
Gov - Developed
Corp – Inv. GradeShort Term
TIPSFloating Rate
Corp
–High
Yiel
d
Intl
/ Em
ergi
ng
Rate Hedge Credit Hedge
Potential for Short Exposure
1) Initial unconstrained fixed income products deviate from benchmark sectors, ultimately stretching out and taking different kinds of risks
2) Second stage unconstrained fixed income products have started using shorting to hedge out unwanted risk factors but remain long-bias
3) Bandon’s innovative approach is not only unconstrained to a benchmark but also lacks a long bias.
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