- 1. Kames Strategic Global Bond FundMaking your Fixed Income
allocationwork harderMarch 2013David Roberts Joint Head of Fixed
Income
2. Introducing Kames CapitalSpecialist investment management
business Our investment capabilities268 employees, including 83
investment professionals in Edinburgh, London and theFixed
incomeEquities NetherlandsFunds under management of 64
billion*PropertyMulti-assetExpertise in four principal areas: fixed
income, equities, properties and multi-asset Our clientsClients in
the UK, Europe and AsiaCorporate pension fundsWholly-owned
subsidiary of AEGON NV, one of Public funds the worlds leading
financial services businesses Financial institutions
Charities/foundations Wealth managers Financial advisersSource:
Kames Capital as at 31 January 2013. *As at 31 December 20122 3.
Our investment capabilitiesTotalRetail Team*client fundspooled
funds Products and services Credit Core plus Fixed2235.1 billion5.0
billion High-yield Absolute return income Strategic bond Ethical
All companies Unconstrained Equities 2319.3 billion1.3 billion High
dividend Absolute return Smaller companies Ethical Direct (pooled
and segregated) Property 14 1.2 billion - Indirect Specialist e.g.
healthcare Asset Allocation Service Multi-asset10 4.0 billion0.5
billion Inflation Linked Strategic AssetsSource: *Kames Capital as
at 31 January 2013. AUM as at 31 December 2012.In addition, Kames
Capital manages 4.7 billion in cash and other assets in categories
not attributable to the asset classes shown.3 4. Government Bonds:
Bubble.or just overvalued?Bond market bubbleBond market
overvaluationPrices not justified by economic fundamentals Prices
not justified by economic fundamentalsObservable ex-postObservable
ex-anteIrrational price movementsRational price movementsPanic
buyingPredetermined buyingDramatic pop and deflateOrderly loss of
valueGovernment bonds lack many of the attributes of a speculative
bubble4 5. Asset class flexibility is key for 2013Asset class
Current environmentStrategy Yields at historically low
levelsGovernment Short duration, but not Growth outlook remains
difficultbondsnegative duration Financial repression remains
Valuations still attractive on a long-term Modest overweight,
skewedInvestmentbasis to quality eg. securitised,grade Sovereign
debt crisis necessitates Northern Europe, USprudence Total return
prospects attractive Stick to higher quality highHigh yield
Preference for US High Yield over yieldEuropean High Yield Hard
currency sovereigns remain very Selected exposure to
stockEmergingexpensivespecific corporatesmarkets Value in some
corporates Avoid sovereigns US housing market beginning to
stabilise Non Agency RMBS (OptionRMBS US unemployment fallingARM
sub-segment ) offers Supportive technicalsoutstanding
valueProjected beta is of the opinion of the fund manager as at
March 20135 6. Investment grade strategy buy the spread but not the
duration900800700Benchmark spread (sa)6005004003002001000May 10Jan
07 Jun 07Mar 11Jan 12 Jun 12 Feb 09 Oct 10Nov 07 Apr 08 Jul 09Dec
09Nov 12Sep 08 Aug 11Non-Gov A ratedBBB ratedFinancialsSource:
Barclays as at 1 February 2013 6 7. High yield valuation spreads
still attractive High yield spreads and default ratesImplied
default rates vs actual experiences 20% 2,000 60.00%5 year
cumulative default rate 44.68%41.08% 15% 1,500Default rate %39.28%
Spread bps 40.00%29.31% 10% 1,000 27.22% 25.04% 22.98% 20.00%13.78%
5%50012.61%10.07% 5.80%1.88% 0%0 0.00%BBBBB B Jan 85 Jan 88 Jan 91
Jan 94 Jan 97 Jan 00 Jan 03 Jan 06 Jan 09 Jan 12Jul 86Jul 89Jul
92Jul 95Jul 98Jul 04Jul 07Jul 10Jul 13Jul 01 Credit RatingGlobal
Speculative DR Implied 5yr cumulative default rate, 40% recovery
rate EURAverage DRImplied 5yr cumulative default rate, 40% recovery
rate USDProjected Global Speculative DR Actual 5yr cumulative
default rates (since 1970) worstHY SpreadsActual 5yr cumulative
default rates (since 1970) averageSource: Left hand chart - Moodys
Investors Service, Merrill Lynch and Kames Capital as at 31 January
2013. Right hand chart - Deutsche Bank, Kames Capital, data as at
31 December 2012,average recovery rates and default experiences
since 19707 8. High yield valuation capital upside limitedPrice
history by rating segment11511010510095908580 Feb 12Feb 13Mar 12Jun
12 Jan 13Dec 12Apr 12May 12 Jul 12Oct 12 Nov 12Aug 12 Sep 12Global
BB HY non finGlobal B HY non fin CCC & lower HY (RHS)Source:
Bloomberg, Merrill Lynch as at 28 February 2013 8 9. Expertise in
High Yield the advantage of a global approachCurrent full peer
group analysis 3yr Global EUR USD 16 1616 14 1414 12Kames12 Kames12
KamesReturn (%pa) Return (%pa) Return (%pa) 10 101088 866 644 422
200 00 5 1015 200 51015 200 51015 20Risk (pa) Risk (pa) Risk
(pa)Source: Lipper Hindsight, Kames Capital as at 28 February 2013.
Returns and risk calculated on a monthly basis (annualised). Risk
is standard deviation. Shown in local currency. Global chart -
peergroup is Lipper Global Bond Global High Yield. For illustrative
purposes Kames High Yield Global Bond has been added to the Lipper
Global Bond EUR High Yield and Lipper Global Bond USDHigh Yield as
shown above9 10. Non Agency RMBS very attractive fixed income asset
class US housing market is recovering Non Agency RMBS a great way
of gaining exposure to this Specifically the sub-sector Option ARMs
(Adjustable Rate Mortgages)Desired attributeBenefitHigh original
mortgage balance ~$500kHouse still has some value, aids
recoveryPreference for non-judicial states i.e. California over
Speeds up any repossession processFloridaSelected original
underwriters Relatively better quality of borrowers and
assets2006/07 vintages with fast amortisationCapital payback
opportunity greatestSuper senior tranches only, with lots ranking
below youSubordinated bonds absorb losses first 10 11. RMBS
understanding the cash flowsHomeowner servicing mortgageHome sold
or repossessed and soldHome saleproceeds Super seniorSuper
seniorInterestdebtdebt paymentsSubordinated Subordinateddebtdebt
Any losseson mortgage11 12. Asset class flexibility is key for
2013Asset class Current environmentStrategy Projected beta Yields
at historically low levelsGovernment Short duration, but not Growth
outlook remains difficult -1 to +1%bondsnegative duration Financial
repression remains Valuations still attractive on a long-term
Modest overweight, skewedInvestmentbasis to quality eg.
securitised, +3 to +5%grade Sovereign debt crisis necessitates
Northern Europe, USprudence Total return prospects attractive Stick
to higher quality highHigh yield Preference for US High Yield
over+5 to +7% yieldEuropean High Yield Hard currency sovereigns
remain very Selected exposure to stockEmergingexpensivespecific
corporates 0 to +2%markets Value in some corporates Avoid
sovereigns US housing market beginning to stabilise Non Agency RMBS
(OptionRMBS US unemployment fallingARM sub-segment ) offers +8 to
+10% Supportive technicalsoutstanding valueProjected beta is of the
opinion of the fund manager as at March 2013 12 13. Kames Strategic
Global Bond Fund Flexibilities Investment grade corporate bonds
0-100% Government bonds 0-100% High yield bonds 0-100%What we own
and will own Emerging market bonds0-100% Non-base currency exposure
0-10% Cash 0-20% Foreign Exchange 0% Ordinary Equity0%What we
havent owned Private Placement Debt 0%and wont own Convertible
Bonds0% Local Currency Debt0% 13 14. Kames Strategic Global Bond
Fund positioningActive asset allocation100.0Asset allocation Dec
2007 Jan 201390.080.0Min (%) Max (%)70.0 Government 0.048.060.050.0
Cash-3.917.640.0 Investment Grade35.485.030.0 High Yield
4.232.520.010.0 US RMBS0.0 5.6 0.0 -10.0Nov 11May 11 Aug 11 Feb 08
Feb 09 Feb 10 Feb 12 Feb 11Nov 07Nov 08Nov 09Nov 10Nov 12May 08May
09May 10May 12 Aug 08 Aug 10 Aug 12 Aug 09 Cash Govt IGHY US
RMBSSource: Kames Capital as at 31 January 201314 15. Kames
Strategic Global Bond Fund Strategic global bond portfolio Total
return fixed income fund /$///CHF/SGD track your clients needs1
year 2 years 3 years4 years 5 yearsFund 8.98%12.06%23.59%
64.12%58.23%Median 4.66%10.32%14.47% 30.80%29.39%Quartile 12 1
11Outperformance 4.32% 1.74% 9.12% 33.32%28.84%Source: Lipper as at
28 February 2013. NAV to NAV, income re-invested. Total return,
local currency, B Inc USD class. Launch date 8 November 2007. Past
performance is not a guide to the future.15 16. Kames Strategic
Global Bond Fund performanceCumulative 5 year returns7060
58.23%5040 % growth30 29.39%2010 0-10-20Jun 08Jun 09Jun 10Jun 11Jun
12Feb 08Feb 09Feb 10Feb 11Feb 12Feb 13Oct 08Oct 09Oct 10Oct 11Oct
12 Apr 08 Dec 08 Apr 09 Dec 09 Apr 10 Dec 10 Apr 11 Dec 11 Apr 12
Dec 12 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Kames Strategic Global
Bond B Inc USD Lipper Global - Bond Global medianSource: Lipper as
at 28 February 2013. NAV to NAV, income re-invested. Total return,
local currency, B Inc USD class. Launch date 8 November 2007. Past
performance is not a guide to the future.16 17. Making your fixed
income allocation work harderActive asset allocation 900100.0 800
90.0 700 80.0Benchmark spread (sa) 600 70.0 500 60.0 400 50.0 300
40.0 200 30.0 20.0 100 10.0 00.0Aug 11 Jan 07 Jun 07Jan 12Jun 12
Nov 07Dec 09 May 10Nov 12Sep 08Jul 09Mar 11 Oct 10Apr 08 Feb
09-10.0Nov 11May 11 Aug 11Feb 08 Feb 09 Feb 10 Feb 12 Feb 11Nov
07Nov 08Nov 09Nov 10Nov 12May 08May 09May 10May 12 Aug 08 Aug 09
Aug 10 Aug 12 Non-GovA ratedBBB ratedFinancials Cash Govt IGHY US
RMBSCumulative 5 year returns 70Global 6016 5014 4012Kames% growth
30Return (%pa) 20 10 10 8 06 -104 -202Jun 11 Aug 11Jun 08Jun 09Jun
10 Jun 12 Feb 11Dec 08 Dec 09Dec 10Dec 12 Oct 08Oct 09 Oct 10 Oct
12Aug 08 Aug 09Aug 10Aug 12 Apr 08 Apr 09 Apr 10 Apr 12 Dec 11Oct
11Feb 08 Feb 09Feb 10Feb 12 Feb 13 Apr 110 Kames Strategic Global
Bond B Inc USDLipper Global - Bond Global median 0510 15 20Risk
(pa)Source: Top left chart - Barclays as at 1 February 2013. Top
right chart - Kames Capital as at 31 January 2013. Bottom left
chart - Lipper as at 28 February 2013. NAV to NAV, income
re-invested.Total return, local currency, B Inc USD class. Launch
date 8 November 2007. Past performance is not a guide to the
future. Bottom right chart - Lipper Hindsight, Kames Capital as at
28 February2013. Returns and risk calculated on a monthly basis
(annualised). Risk is standard deviation . Shown in local currency.
Peer group is Lipper Global Bond Global High Yield 17 18.
Appendices 18 19. Peer group analysis 5 years Risk return
(pa)Sharpe ratio (pa) 152.0 13 1.51.4 11 Kames 9 1.0Return (%pa) 7
0.7 0.5 5 0.3Barclays 3 Global0.0 Aggregate-0.2 1-0.5 -1 Fund
-305101520 Risk (pa)Source: Lipper Hindsight, Kames Capital as at
28 February 2013. Returns and risk calculated on a monthly basis
(annualised). Risk is standard deviation. Shown in local currency.
Index is BarclaysGlobal Aggregate USD TR USDH19 20. Kames Strategic
Global Bond FundLaunch date8 November 2007Fund manager David
Roberts and Philip MilburnSupport managerColin Finlayson Invests
across fixed income universe, ranging from AAA government bonds
through toInvestment policies high yield and emerging market
corporate bonds in any currency. Second quartile over rolling 12
months and top quartile over a rolling 3 year periods inPrimary
performance target the Lipper global bond global sector. To
outperform the Barclays Capital global aggregate index by +2% p.a.
over rolling 3Secondary performance target year periods. Investment
grade corporate bonds0-100% Government bonds0-100% High yield
bonds0-100%Asset allocation ranges Emerging market bonds 0-100%
Unhedged currency 0-10% Cash0-20%Base currencyUS DollarHedged share
classes Sterling, Euro, US Dollar, Yen, Swiss Franc, Singapore
Dollar20 20 21. Strategic Global Bond Fund asset allocation by
currency since launchGovernment Bond Allocation - Currency
SplitStrategy50% 11. Initial high allocation to Government45% bonds
in the midst of the global40% 2 3 financial crisis35%2. Sold down
on growing evidence of30% coherent policy response and25%economic
recovery20% 3. Positions rebuilt as Sovereign crisis15%spreads -
purposely avoiding Euro zone markets10%5%0% Aug 10 Aug 08 Aug 09
Aug 12May 11 Aug 11Nov 11 Feb 08Feb 09 Feb 10 Feb 12May 08 May
09May 10May 12 Feb 11Nov 07Nov 08Nov 09Nov 10Nov 12 AUD
CADEURGBPNZD SEK USD YENSource: Kames Capital as at 31 December
2012. Chart excludes derivatives weighting. 21 22. Strategic Global
Bond Fund asset allocation by currency since launchInvestment Grade
Allocation - Currency Split Strategy 90%1. Low weighting at launch
80%3 22. Growing macroeconomic certainty 70% Investment Grade was
the 60% preferred market on a risk/reward 1 and liquidity basis
50%3. Core allocation to bonds in G10 40% currency blocs maintained
30% throughout, reducing over time 20% 10%0% Aug 08Aug 09 Aug 10
Aug 12Nov 11May 11 Aug 11 Feb 08 Feb 09 Feb 10 Feb 12 Feb 11Nov
07Nov 08Nov 09Nov 10Nov 12May 08 May 09May 10May 12AUDEUR GBP NZD
USDSource: Kames Capital as at 31 December 2012. Chart excludes
derivatives weighting. 22 23. Strategic Global Bond Fund asset
allocation by currency since launchHigh Yield Allocation - Currency
Split Strategy 40%1. Low weighting given levels of 35% 3 volatility
and uncertainty post- 30% 2 Lehman Brothers collapse 25%2.
Aggressive increase on confidence that a sustainable 20%1systemic
recovery was on track 15%3. Allocation pared back by reducing Euro
based exposure 10% from Q2-2011 as Euro Crisis intensified5%0% Aug
08 Aug 09 Aug 10 Aug 12May 11 Aug 11Nov 11 Feb 08Feb 09 Feb 10 Feb
12May 08 May 09May 10May 12 Feb 11Nov 07Nov 08Nov 09Nov 10 AUDCAD
CHFEURGBP USD Nov 12Source: Kames Capital as at 31 December 2012.
Chart excludes derivatives weighting.23 24. Kames Capitals fixed
income team focused and experiencedJoint heads of fixed income
Stephen JonesDavid Roberts Joint Head of Fixed Income Joint Head of
Fixed Income 22 years experience 24 years experience Rates &
government bonds specialistCredit specialistGovernment
bondsInvestment grade creditSpecialist creditJohn McNeill Stephen
SnowdenEuan McNeilPhilip Milburn25 years experience 18 years
experience 16 years experience 16 years experienceRates &
government bonds Credit Non-financials High yieldSandra Holdsworth
Gregory Turnbull Schwartz Philip Small Melanie Mitchell25 years
experience19 years experience27 years experience 25 years
experienceRates & government bondsFinancialsNon-financials High
yield Colin FinlaysonGarvin PeoplesLaura GallagherDebbie King 12
years experience 6 years experience 17 years experience 12 years
experience Rates & government bonds FinancialsNon-financials
High yieldGreg MackayPaul Dilworth Claire McGuckin15 years
experience 7 years experience 19 years experienceRates &
government bonds FinancialsHigh yield Iain BuckleTeam and product
support22 fixed income professionals16 years experience Asset
backed securitiesKevin TelferPatrick GillespieAverage industry
experience of17 years experience20 years experienceFixed income
specialist Investment assistant 17 years Daniel Uhlemann James
Lynch Average tenure with Kames 5 years experience 7 years
experience Collateral manager Capital of 6 years Quant
analystSource: Kames Capital as at 31 December 2012. 24 25.
Important informationThis document is not intended for retail
distribution and is directed only at investment
professionals/qualified Investors. It should not be distributed to,
or reliedupon by, private investors. All data in this presentation
is sourced to Kames Capital unless otherwise stated. The views
expressed and information provided isaccurate at the time of
writing. The views expressed in this document represent our
understanding of the current and historical positions of the
market. Theyshould not be interpreted as a recommendation or
advice. Past performance is not a guide to future performance. The
value of investments and the incomefrom them may go down as well as
up and is not guaranteed.This document and information contained
herein has been prepared for the audience at the Citywire Vienna
Forum only. It may not be reproduced, redistributedor passed on to
any other persons or published in whole or in any part for any
purpose.This document is accurate at the time of writing but can be
subject to change without notification.Kames Capital Investment
Company (Ireland) plc, is an umbrella type open-ended investment
company with variable capital registered in the Republic ofIreland
(Company Number 442106), registered office at 25-28 North Wall
Quay, International Financial Services Centre, Dublin 1. Board of
Directors: AndrewBell (UK), Mike Kirby (Ireland) and Bronwyn Wright
(Ireland). Kames Capital Investment Company (Ireland) plc is
regulated by the Central Bank of Ireland.Kames Capital is an Aegon
Asset Management company and includes Kames Capital plc (Company
Number SC113505) and Kames Capital ManagementLimited (Company
Number SC212159). Both are registered in Scotland and have their
registered office at Kames House, 3 Lochside Crescent,
Edinburgh,EH12 9SA. Kames Capital plc is authorised and regulated
by the Financial Services Authority, (FSA reference no: 144267).
Kames Capital plc is theInvestment Manager and Marketing Agent for
Kames Capital Investment Company (Ireland) plc. Kames Capital
Management Limited is an appointedrepresentative of Scottish
Equitable plc (Company Number SC144517), an Aegon company, whose
registered office is 1 Lochside Crescent, Edinburgh Park,Edinburgh,
EH12 9SE (FSA reference no: 165548).Kames Strategic Global Bond
Fund is registered for sale in the UK, Channel Islands, Ireland,
Netherlands, Switzerland, Luxembourg, Germany, Malta andAustria
only.FP ID: 2013/15401 25
