Upload
bandonfunds
View
657
Download
3
Embed Size (px)
DESCRIPTION
Citation preview
Bandon Isolated Alpha Fixed Income Fund
April, 2011
Seeks
Attractive
Risk-Adjusted
Non-Correlated Returns
Using Global Fixed Income Exposures
For Financial Professional Use Only
0636-NLD-4/4/2011
2
Bandon Overview
Privately owned firm based in Portland Oregon
Registered Investment Advisor with the Securities and Exchange Commission
History of translating institutional manager research into SMA structures
Founder, has implemented hedge fund manager research for investors since 2004
Strategies delivered through strategic relationships with specialized institutional managers
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. 0636-NLD-4/4/2011
Bandon Capital Management – Alternatives Democratization Specialist
3
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
0636-NLD-4/4/2011
4
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 will likely come to an end
Many high quality 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
0636-NLD-4/4/2011
5
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
0636-NLD-4/4/2011
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
6
Fund Overview
Performance Goal*: Greater of US T-bills plus 4 – 6% or 7 - 9% over a market cycle
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. 0636-NLD-4/4/2011
The fund utilizes a diverse set of global absolute return-oriented fixed income strategies that seeks positive returns through all fixed income market environments by taking both long and short positions
Risk Objective*: Annualized standard deviation of 3-6%
Utilizes an active risk management process seeking to limit volatility and downside risk
Barclays Correlation Objective*: Between -.33 and +.33 over a market cycle
Unconstrained to a benchmark seeking little to no correlation to traditional investments
* 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.
7
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. 0636-NLD-4/4/2011
Seeks to deliver on its goals by providing exposure to isolated active decision making constrained only by the universe of fixed income securities and exposure by strategy.
Portfolio Characteristics
Bottom up / Research Driven
Systematized / Fundamental
~ 50%
~ 50%
Global Unconstrained Active Credit /
Duration NeutralCredit
Sovereign Active Duration / Credit
NeutralInterest Rate
Target AllocationReturn Driver Methodology Strategy Type
* 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.
We believe the Interest rate strategies will provide returns completely uncorrelated to the credit component, particularly during periods when credit is stressed / widening.
Unlike other unconstrained fixed income products, the fund seeks to have no bias to being long versus short, looking to capture opportunity within the principal return drivers for fixed income.
8
Institutionally Oriented Sub-Advisers
Founded in 2003 with 14 full time employees, 4 founding partners
13 years experience managing active duration investment strategies
Over $1 Billion* in assets under management from institutional clients
Strategic business partnership with Federated Investors, Inc.
Dix Hills Partners, LLC – Interest Rate Specialist
*As of March 31st, 2011.0636-NLD-4/4/2011
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
9
Potential Interest Rate Exposure
Japanese 10yr JGB
UK 10yr Gilt
German 10yr Bund
US 10yr 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.
Overall portfolio duration is actively managed without a bias to being either long or short with a predetermined band for potential exposure for the fund:
0636-NLD-4/4/2011
-5 to +5 years of duration
Sovereign Futures
10
Institutionally Oriented Sub-Advisers
*As of March 31st, 2011.0636-NLD-4/4/2011
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, 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
11
Potential Credit Exposure
*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:
0636-NLD-4/4/2011
Strategy
12
Fixed IncomeBeta
How Does a Fixed Income Alternative 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. 0636-NLD-4/4/2011
13
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. 0636-NLD-4/4/2011
14
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
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. 0636-NLD-4/4/2011
15
Operational and Administrative Considerations
Available Custodians Pershing, Fidelity/NFS, TD Ameritrade Trust Company of America
Investor Class Ticker BANIX
Minimum Investment $10,000.00
Expense Cap 1.95%
Tax Reporting 1099
– A, C & R share classes available upon capital commitments
For more information please contact Mike Miller at 503-477-8100 or [email protected] www.bandonalts.com
0636-NLD-4/4/2011
16
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 firms 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. 0636-NLD-4/4/2011
17
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, but 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. 0636-NLD-4/4/2011
18
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. 0636-NLD-4/4/2011
19
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 is 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 is 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 is 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 is 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 Coefficient: The correlation coefficient, r, indicates both the strength and direction of the relationship between the independent and dependent variables. Values of r range from -1.0, a strong negative relationship, to +1.0, a strong positive relationship. When r=0, there is no relationship between variables x and y.
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. 0636-NLD-4/4/2011
20
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, especially 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%
0636-NLD-4/4/2011
21
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 2: 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. 0636-NLD-4/4/2011
22
Appendix 3: 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. 0636-NLD-4/4/2011