Natixis Souverains EuroA way to transform euro-zone sovereign risk into credit opportunities
Citywire Berlin Conference, 07-09 November 2012
Intended for professional clients only.This material may not be distributed, published, or reproduced, in part or in whole
Natixis Souverains Euro: a portfolio adapted to a new market environment.
30/10/20122
A New Market Configuration
The distinction between peripheral (where the credit risk prevails) and core (interest rate risk + liquidity premium) countries is no longer relevant in light of the widening spreads of the AAA-rated issuers during the second half of 2011.
The overall market behaves like a credit market.
Issuer segmentation has increased:• Most at risk AAA-rated countries
• Creditworthy countries but difficult to tap the market
• Insolvency
30/10/20123
Euro Sovereign Debt Investment philosophy
Sovereign debts yields move according to macroeconomics fundamentals but also to
domestic issues
Risk appetite impacts sovereign debts valuations
The granularity of the sovereign universe is low
Duration and curve strategies can deliver alpha globally but also at country level
Our convictions are built qualitatively with fundamental and technical inputs
Intra-country spreads and diversifications increase the number of strategies
Repeatable alpha must be associated with a rigourous risk framework
Strategy calibration includes all possible market risks indicators
04/10/20124
Core beliefs Investment principles
Specialist Committees
Interest rates Credit
Inflation
Sector Teams
Euro sovereign debtselection/ Agencies &
supranationalsCovered
Cyclical Defensive
Financial ABS
5 30/10/2012
Idea Generation
Objective: • Views on asset classes
Optimal organization to define our views & rating
• A short decision process
• A committee dedicated to country allocation since 2008
Objective: • Security selection (rating)
Idea Generation
Provides inputs for Natixis Souverains Euro
Emerging/Currency
Performance
30/10/20126
Performance of the Euro Fixed Income Government Bond Composite
30/10/20127
Referring to any ranking or award does not guarantee future results of the fund or the investment manager. The figures given refer to previous years. Past performance is not a reliable indicator of future performance. The full GIPS disclosure is provided in Appendix.
Euro Fixed Income Government Bond Composite January 2009-September 2012
90
95
100
105
110
115
120
125
Februa
ry-09
April-0
9Ju
ne-09
Augus
t-09
Octobe
r-09
Decem
ber-0
9Feb
ruary-
10Apri
l-10
June
-10Aug
ust-1
0Octo
ber-1
0
Decem
ber-1
0Feb
ruary-
11Apri
l-11
June
-11Aug
ust-1
1Octo
ber-1
1
Decem
ber-1
1Feb
ruary-
12Apri
l-12
June
-12Aug
ust-1
2
Basi
s 10
0 Ja
nuar
y 20
09
Perf. Gross of feesPerf. Benchmark
Performance of the Euro Fixed Income Government Bond Composite’s Most Representative Account
30/10/20128
As of 28/09/2012
Account(cumulative, nof)
Benchmark(cumulative, nof)
Excessreturn
AnnualizedTracking
Error
Information ratio
1Y 7.99 6.98 +1.02 0.97 0.97
3Y 15.34 11.12 +4.22 1.00 1.25
AUM €m 28/09/12
Perf YTD 28/09/12
Quartile 1Y Lipper*28/09/2012
Decile 3Y Lipper*28/09/2012
I/A EUR Share of the account 914 7.94 1 1
Spurce: Natixis Asset Management
*As at end-September 2012. Quartile rankings: each fund is ranked by quartile among a universe of funds marketed in France and belonging to the same Lipper category. Referring to any rankor award does not guarantee future results of the fund or the investment manager. The figures given refer to previous years. Past performance is a not a reliable indicator of future performance
Historical Tracking Error – Euro Fixed Income Government Bond Composite’s Most Representative Account.
Sept. 2007- Sept. 2012
Information Ratio
*Source: MPI Stylus Pro, As at end June 2012, Universe: Lipper "Bond Eurozone“ category made up of 72 funds that are marketed in France .
9
• Moderate tracking error and rising alpha generation result in greater information ratio
30/10/2012
The Increasing Weight of Country Selection as Alpha Driver
• Country selection has been essential in the Euro Fixed Income Government Bond composite’s most representative account’s outperformance since 2008.
*Source: Point, calculations Natixis AM, as of 30/09//2012
-1.0 -0.5 0.00.51.01.52.02.53.03.54.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
(%)
Global duration contribution Global maturity contributioncountry selection contribution Global excess-return
10 30/10/2012
Diversified Strategies with Country & Maturity Selection
• Strong convictions per country and per maturity have multiplied the sources of added value (Euro Fixed Income Government Bond’s most representative account as at end August 2008).
30/10/201211
Country Allocation/Selection Attribution
-100-50
050
100150200250300350400
2009 2010 2011 2012
(bp)
France Germany Greece Ireland
Italy Portugal Spain Total
*Source: Point, calculations Natixis AM, as of 30/08/2012
Recent strategies
30/10/201212
Global Duration Management
30/10/20121313
• The range of modified duration decisions has narrowed in recent years reflecting more management being done at country level and no major trend on the average yield.
Global Duration of Natixis Souverains Euro
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
(% o
f ben
chm
arck
)
0%
1%
2%
3%
4%
5%
6%
Modified Duration Euro Sov. Avg Yield (EMTS Index)
Source: Natixis AM, as of 12/09/2012.
Country Allocation : Spain
30/10/20121414
• Different strategies for Spain with a majority of underweight positions, and a regular outperformance
Spanish allocation of Natixis Souverains Euro
-0.40
-0.30
-0.20
-0.10
0.00
0.10
0.20
Dec-0
9
Mar-1
0May
-10
Aug-1
0
Oct-10
Dec-1
0
Mar-1
1May
-11
Aug-1
1
Oct-11
Dec-1
1
Mar-1
2May
-12
Aug-1
2
(mod
ified
dur
atio
n ve
rsus
ben
chm
ark)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
(%)
Exposure 5 Yr Rate (%, r.h.s.)
+7 bp +19 bpImpact : +25 bp
Source: Natixis AM, as of 12/09/2012.The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.
Country Allocation : Spain Curve Strategy
30/10/20121515
• A steepening anticipation throughout the last few years, until very recently
Spain: maturity allocation of Natixis Souverains Euro
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Dec-09
Mar-10
May-10
Aug-10
Oct-10
Dec-10
Mar-11
May-11
Aug-11
Oct-11
Dec-11
Mar-12
May-12
Aug-12
(mod
ified
dur
atio
n ve
rsus
ben
chm
ark)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
(%)
2-10 Yr Exposure 2-10 Yr slope (%, r.h.s.)
Stee
peni
ng p
ositi
onFl
atte
ning
pos
ition
Source: Natixis AM, as of 12/09/2012.The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.
Country Allocation : Greek Strategies
30/10/20121616
•A large exposure on short term Greece which matured last August, with a strong positive impact on performance •No other holdings : Greece’s under performance also positively contributed
Greece: allocation of Natixis Souverains Euro
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Dec-0
9
Mar-1
0
May-1
0
Aug-1
0
Oct-10
Dec-1
0
Mar-1
1
May-1
1
Aug-1
1
Oct-11
Dec-1
1
Mar-1
2
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
Exposure (% of assets, l.h.s.) 2 Yr Rate (%, l.h.s.) mod.duration (vs bench.)
+210 bp +8 bpImpact : +49 bp
Source: Natixis AM, as of 12/09/2012.The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.
Outlook for Euro-Zone Sovereign Debt
30/10/201217
G4 Interest Rates : Scoring and Conclusion On 10 Yr €
18 30/10/2012
Impact scores: -, =, +
Conclusion scores rank from -2 to +2, -1 meaning higher rate
Source: Natixis AM, as at 24/10/2012
Yield : bearish above 1.40%, 1.60% as a support, if 1.69 broken then 1.73, 1.95, 2.07
=/-Technical A.
Fair value : 1.95% on 10y -Equilibrium Model
Consensus Duration slightly Short and Peripherals are now overweight vs core !
=/-Consensus
Year end issuance : net <0 for Core, high pressure for peripherals (25% remaining)
=Flows
Signals : Higher Yield / Steeper curve-Quant. Model
Still waiting for spanish official demand for OMT=/-Conclusion
Better economic data in the US=/-Macro
CommentImpact(1 month)
Inputs :
Yield : bearish above 1.40%, 1.60% as a support, if 1.69 broken then 1.73, 1.95, 2.07
=/-Technical A.
Fair value : 1.95% on 10y -Equilibrium Model
Consensus Duration slightly Short and Peripherals are now overweight vs core !
=/-Consensus
Year end issuance : net <0 for Core, high pressure for peripherals (25% remaining)
=Flows
Signals : Higher Yield / Steeper curve-Quant. Model
Still waiting for spanish official demand for OMT=/-Conclusion
Better economic data in the US=/-Macro
CommentImpact(1 month)
Inputs :
Sovereign Debt Selection Conclusions
30/10/20121919
• Outperformance of Belgium and Finland in the Core countries.
• Our anticipations recently changed, from Negative to Neutral or Positive, on Spain, Italy and Ireland, as a result of the ECB OMT operations.
The anticipation ranges from -2 to +2 and expresses a change of spread versus Germany : -2
equals strong widening
Source: Natixis AM, as at 24/10/2012
2Y 5Y 10Y 30Y TotalFinland 0 0 2 0 1Netherlands 0 0 -1 0 0Austria 0 1 1 0 1France 0 0 0 0 0Belgium 0 1 1 1 1
Spain 0 0 0 0 0
Italy 1 1 1 1 1Ireland 1 1 1 0 1Portugal 0 -1 -1 -2 -1
Opportunities
• Core country interest rates and ECB key policy rates should remain low in light of the mild recession anticipated in the Euro zone for 2012
- The 2-year German yield (+0,11% as of 18 October 2012) has reached the nadir and should remain stable at this historically low level in 2012 and probably next year too. The 10-year German yield should remain close to our model’s equilibrium level.
• AAA downgrade: both a threat and an opportunity
- S&P put most Euro-zone countries under watch and stripped France and Austria of their AAA rating on 13 January 2012. Further downgrades would have an impact on AAA indices.
- Market perception, which affects spread volatility, has quickly changed during the summer. Foreign central banks bought French, Belgium, Austrian and Finnish debts during the last few months. They diversified their German holdings and their perception of the zone’s stability has improved.
• The euro crisis is fading but not over yet.
- The auctions in the Euro zone are well on their schedule, particularly for the Core countries which might seek to pre-fund their 2013 borrowing needs by taking advantage of low spreads and yields.
- In Spain and Italy, the last quarter is always essential for their funding needs and, at some point, they will have to finance their debt on longer maturities. In fact, so far this year, they have favoured short maturities (generally within 3 years) with the LTRO operations. After they officially ask for financial support, the OMT operations should offer them support.
- With the new measures taken by the ECB and the federalisation of the banking sector, financial pressures should ease within the Euro Zone but these solutions have a great cost in terms of growth and social pressure may be an issue in some countries in the months to come.
30/10/201220
Source: Natixis AM, as at 18/10/2012
Why allocate to Euro-zone government and not credit or global bonds?
21
Sovereign Rates versus Credit
Source: Natixis AM, Barclays (12/10/2012)
• Credit spreads have narrowed strongly since the crisis of 2008 (barclays index) :
5 Yr € average yields
0%
1%
2%
3%
4%
5%
6%
7%
8%
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Sovereign rate Corporate rate
22
Allocating to Government bonds ex Euro? Correlations
• Correlation is very high and stable between Euro and G4 (US, UK, Jap, Euro).• Emerging markets bring a strong diversification :
12M rolling correlation of normalized returns
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Emerging Markets / G4 Euro / G4 Euro AAA / G4
Source: Natixis Asset Management , Barclays (10/10/2012)
23
Appendices
30/10/201224
Fair Value Model : 10-Year € Yield Valuation
• The market price and fair value have recently converged as a result of weaker macro data and less “flight to quality” premium
-2
-1
0
1
2
3
4
5
6
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
Jun-
03
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
-2
-1
0
1
2
3
4
5
6
Bund 10-year yield (Generic Bloomberg, %)
Distance to Fair Value (%)
Fair Value (%)
Source: Bloomberg, Natixis AM
10-year German Bund Yield (spot & fair value)
Variables : ISM, money-market, foreign holdings
25 30/10/2012
Source: Natixis AM, as at 04/10/2012
Sovereign Volatility versus Credit
Source: Natixis Asset Management , Barclays (12/10/2012)
• During crisis volatility rises and is currently higher on sovereigns :(12m rolling volatility on 5yr barclays index)
Volatility
0%
1%
2%
3%
4%
5%
6%
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Sovereign Credit
26
27
Awards 2012
Citywire Awards
• Olivier de Larouzière ranked 3 out of 27 in the 2012 Citywire ranking of the Best managers in the euro zone Bond - Lipper Global France category over a 3-year period(1)
• Olivier de Larouzière is rated AAA in the euro zone Bond - Lipper Global France category(2)
Swiss Lipper Fund Awards
• Best Fund in the euro zone bond category over a 3, 5 and 10-year period(3)
30/10/201228
The figures given refer to previous years. Past performance is a not a reliable indicator of future performance. Referring to any ranking or award does not guaranteefuture results of the fund or the investment manager. (1) Source: Lipper, within a universe of funds marketed in France and belonging to the same Lipper category (Bond Eurozone) which comprises 116 constituents over 3 years. (2) Source: Citywire. (3) Source: Lipper. Universe: Funds registered for sale in Switzerland. The methodology can be found on Lipper website www.lipperweb.com
28
29
Olivier de LarouzièreHead of Interest Rates, Senior Portfolio Manager
Olivier de Larouzière began his career in 1994 at Ecureuil Gestion, the fund management arm of the French Savings Bank. He successively managed money market, European and global fixed income funds. He joined BNP-Paribas in 1998 as fixed income proprietary trader and then Credit Lyonnais Asset Management in 2001 as senior fixed income portfolio manager. Olivier de Larouzière joined Ixis Asset Management in 2003 as Head of Euro Aggregate investment team. In 2005 he became Head of the Euro Government and Aggregate investment team. In 2007, Olivier de Larouzière began working as head of the Interest Rates and Currency team within Natixis Asset Management. Since 2010, Olivier has been the head of the Euro Fixed Income team.
Olivier de Larouzière holds a diploma of Advanced Studies in Mathematics Applied to Economic Studies from the University of Paris IX - Dauphine.
Olivier de Larouzière has 17 years of experience and has been working within our company for more than 9 years
.
Biography
Legal information
Natixis Asset ManagementRegistered Office: 21 quai d’Austerlitz – 75 634 Paris Cedex 13 – Tel. +33 1 78 40 80 00Limited Liability Company, Share Capital 50 434 604,76 eurosRegulated by AMF under n°GP 90-009RCS Number 329 450 738 Paris
Natixis MultimanagerRegistered Office: 21 quai d’Austerlitz – 75 634 Paris Cedex 13 – Tel. +33 1 78 40 32 00 Regulated by AMF under n°GP 01 054 A French simplified joint-stock company Share Capital of 7 536 452 euros – RCS Number 438 284 192 Paris
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None of the information contained in this document should be interpreted as having any contractual value. This document is produced purely for the purposes of providing indicative information. It constitutes a presentation conceived and created by Natixis Asset Management from sources that it regards as reliable.
Natixis Asset Management reserves the right to modify the information presented in this document at any time without notice and particularly the information concerning the description of the management processes which does not in any way constitute a commitment on behalf of Natixis Asset Management.
Natixis Asset Management will not be held responsible for any decision taken or not taken on the basis of information contained in this document, nor in the use that a third-party may make of it.
Figures mentioned refer to previous years. Past performance does not guarantee future results. Reference to a ranking and/or a price does not indicate the future performance of the UCITS or the fund manager.
The funds mentioned in this document have received the approval of the French Financial Market Authority (AMF) or have received authorization to be marketed in France. The risks and costs related to investment in a fund are described in the fund’s prospectus. The prospectus and the periodical reports are available on request from Natixis Asset Management. Potential subscribers must be in possession of a copy of the prospectus before making any subscription.In the case of funds that qualify for a special tax status, we remind potential investors that the special tax conditions depend on the individual situation of each customer and that such conditions may be subject to future modification.
Under Natixis Asset Management’s social responsibility policy, and in accordance with the treaties signed by the French government, the funds directly managed by Natixis Asset Management do not invest in any company that manufactures sells or stocks anti-personnel mines and cluster bombs.
30 30/10/2012
Additional Notes
This material has been provided for information purposes only to investment service providers or other Professional Clients or Qualified Investors. It is the responsibility of each investment service provider to ensure that the offering or sale of fund shares or third party investment services to its clients complies with the relevant national law.
In Germany and Austria This material is provided by NGAM S.A. or its branch office NGAM S.A., Zweigniederlassung Deutschland. NGAM S.A. is a Luxembourg management company that is authorized by the Commission de Surveillance du Secteur Financier and is incorporated under Luxembourg laws and registered under n. B 115843. Registered office of NGAM S.A.: 51, avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg. Registered office of NGAMS.A., Zweigniederlassung Deutschland (Registration number: HRB 88541): Im Trutz Frankfurt 55, Westend Carrée, 7. Floor, Frankfurt am Main 60322, Germany.
The above referenced entity is a business development unit of Natixis Global Asset Management, the holding company of a diverse line-up of specialisedinvestment management entities worldwide. The investment management subsidiaries of Natixis Global Asset Management conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions.
Although Natixis Global Asset Management believes the information provided in this material to be reliable, it does not guarantee the accuracy, adequacy, or completeness of such information.
The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the portfolio manager(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material.
This material may not be distributed, published, or reproduced, in whole or in part.
All amounts shown are expressed in USD unless otherwise indicated.
Additional Notes – Authorized Countries – Professional Investors – Germany & Austria Customized