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Ignis Absolute Return Emerging Market Debt Fund
May 2013
This fund is still subject to full regulatory approval and therefore all information is subject to change
This presentation is intended for professional clients and investment professionals only and should not be relied upon by retail investors.
Ignis capabilities**
Ignis
Fixed Income €65.3bn
Equities €12.9bn
Real Estate €3.6bn
Advisors (FoF/Alts)
€2.2bn
Solutions (LDI/ALM) €39.2bn^
Key facts
Founded in 1899
Part of the Phoenix Group
AuM: €84.2bn*
140 investment professionals
Pragmatic: outcome-focused and innovative
Talent driven: creative and passionate people who
look at the world differently
Building on our heritage: evolving to address client
needs in a changing world
Aligned with clients: we are co-investors
2 *Source: Ignis at 31/12/2012 (including €11.4bn of stock-lending collateral). **AuM by business unit/investment capability (31/12/2012). ^Ignis Solutions is responsible for €39.2bn of liabilities under management.
May 13
Ignis Absolute Return Emerging Market Debt Fund
Stable, experienced team
Flexible, innovative approach
Proprietary technology and investment tools
Led by Ignis CIO Chris Fellingham
Emerging market debt team led by Dan Beharall
May 13
3
Ignis Absolute Return Emerging Market Debt Fund
Ignis Fixed Income: a broad range of capabilities
*Source: Ignis at 31/12/2012.
37%
28%
3%
29%
3%
Direct funds under management - €65.3bn*
Rates (DM and EM) Credit
Stock Lending Liquidity
Other
Designed to deliver:
Strong risk-adjusted returns in all market conditions by capturing non-correlated alpha
Carefully controlled volatility
Low correlation with traditional asset classes
Investing in:
A broad range of EMD instruments
Lowly correlated sources of alpha
Opportunities at a market country and instrument level
Ignis Absolute Return Emerging Market Debt Fund
May 13
4
Ignis Absolute Return Emerging Market Debt Fund
Fund details subject to regulatory approval.
Delivering consistent performance
May 13
5
Ignis Absolute Return Emerging Market Debt Fund
98%
100%
102%
104%
106%
108%
Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13
Performance
Emerging Market Debt Absolute Return Fund (not publically marketed)
SONIA*
All data for illustrative purposes only. The Bothwell Emerging Market Debt Absolute Return Fund is invested in by our Life Company client and is not publicly marketed to external investors. The new fund launch subject to regulatory approval. Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/04/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.60% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. *Source: Lipper; SONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. The performance data does not take account of the commissions and costs incurred on the issue and redemption of shares (including the initial charge). **Source: Ignis, ex post rolling 20 day volatility since 31/01/2012 to 30/04/2013. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
0%
5%
10%
Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13
Volatility** Annualised standard deviation
6.9%
0.6%
Emerging Market
Debt Absolute
Return Fund
MSCI World Index
Citigroup World Gov’t Bond Index
Citigroup European
Gov’t Bond Index
iBoxx Non Gilt GBP
iBoxx Non Sovereign
EUR
Barclays Capital
Global High Yield
JP Morgan Emerging Market
Bond Index USD
Emerging Market Debt Absolute Return Fund
1.00
MSCI World Index -0.02 1.00
Citigroup World Gov’t Bond Index
-0.02 -0.30 1.00
Citigroup European Gov’t Bond Index
-0.03 -0.03 0.76 1.00
iBoxx Non Gilt GBP 0.05 -0.41 0.65 0.52 1.00
iBoxx Non Sovereign EUR 0.05 -0.28 0.64 0.68 0.76 1.00
Barclays Capital Global High Yield
0.17 0.72 -0.24 -0.08 -0.24 -0.16 1.00
JPM Emerging Market Bond Index USD
0.18 0.39 0.18 0.25 0.06 0.16 0.61 1.00
Low correlation to other risk assets
May 13
6
Ignis Absolute Return Emerging Market Debt Fund
Correlation
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40
-0.60
-0.80
-1.00
All data for illustrative purposes only. The Bothwell Emerging Market Debt Absolute Return Fund is invested in by our Life Company client and is not publicly marketed to external investors. The new fund launch subject to regulatory approval. Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/04/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.60% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. Source: Bloomberg for all market index data (local currency shown) from 01/02/2012 to 31/01/2013. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Emerging market debt has performed well, but limited scope for yields to fall further
Emerging market debt: Limited potential for long-only returns
Source: Bloomberg; underlying indices are JPMorgan GBI Broad, FTSE Actuaries UK Gilts All Stock, JPMorgan GBI European, JPMorgan EMBI+ Composite,
JPMorgan GBI-EM Broad and JPMorgan Broad CEMBI Composite (all converted to EUR). 2008 yields represent the 01/01/2008 values; 5-year annualised
returns are 01/01/2008-01/01/2013 returns and current yields are as of 01/05/2013.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
May 13
7
Ignis Absolute Return Emerging Market Debt Fund
Asset class 2008 yield
(%) 5 year pa
performance (%) Current yield (%)
Prospective return?
Global Government Bonds 3.60 5.08 1.73 ?
UK Gilts 4.40 5.12 2.37 ?
European Government Bonds 4.45 6.36 2.29 ?
EM Sovereign External Debt 6.51 12.62 4.61 ?
EM Local Market Debt 7.03 8.92 5.22 ?
EM Corporate Debt 6.78 11.01 4.79 ?
EM debt markets are intrinsically different from each other, providing distinct sources of alpha
Emerging market debt: Diverse set of investable asset classes
May 13
8
Ignis Absolute Return Emerging Market Debt Fund
Type Markets Currency Sov Sprd
Corp Sprd
US Rates
EM Rates
EM Real
EM FX
External EM Sovereign External Debt USD ✓ ✓
Em Sovereign External CDS USD ✓
EM Corporate External Debt USD ✓ ✓ ✓
Local EM Sovereign Local Debt Local ✓ ✓
EM Local Rates Local ✓
EM Corporate Local Debt Local ✓ ✓ ✓
EM FX/Tbills only Local ✓
EM Local Inflation-Linked Local ✓ ✓ ✓
Frontier Markets EM Frontier Local Debt Local ✓ ✓
Aims to deliver absolute returns through:
Technical approach
Broad investment scope
Opportunistic capability
Robust risk management
Ignis Absolute Return Emerging Market Debt Fund A differentiated approach
May 13
9
Ignis Absolute Return Emerging Market Debt Fund
Fund details subject to regulatory approval.
Targeting a broader opportunity set:
Market direction
Country bonds, rates and FX
Intra-country asset relative value
Intra-market micro relative value
0
5
10
15
20
25
-1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%
Freq
uen
cy
Histogram showing distribution of weekly returns*
Normal distribution at current volatility
Positive skew of returns
1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -1.0% -0.8% -1.2% -1.4% -1.6%
Performance (since launch): 6.92%
Average weekly return: 0.10%*
Annualised standard deviation: 2.48%
Information ratio: 2.05
May 13
10
Ignis Absolute Return Emerging Market Debt Fund
All data for illustrative purposes only. The Bothwell Emerging Market Debt Absolute Return Fund is invested in by our Life Company client and is not publicly marketed to external investors. The new fund launch subject to regulatory approval. Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/04/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.60% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP..*Based on weekly data from 03/02/2012 to 26/04/2013. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
We believe
Long-term economic fundamentals will drive long-term market returns, but short-term dynamics are the key driver of short-term emerging market debt returns
To generate strong risk-adjusted returns a manager must identify diversified alpha sources:
- Focusing on quantitative and market-driven perspectives, as well as traditional country analysis
- Identifying discrete and uncorrelated ‘layers’ of market opportunity
- Seeking both long and short-term opportunities
Philosophy
May 13
11
Ignis Absolute Return Emerging Market Debt Fund
High Yield
Credit
Frontier
Markets
Emerging
Market
Local
Emerging
Market
External
Investment
Grade Credit
G7
Government
Beta (duration)
Slope
Relative value
Butterfly
Volatil ity
Relative value
volatil ity
Illiquidity
Co
mp
lexity
Optimising return potential
May 13
12
Ignis Absolute Return Emerging Market Debt Fund
For illustrative purposes only
We aim to operate nearer the curve for maximum potential success rate
Liquid/efficient/ highly followed
Less followed/ greater opportunity
Opportunity set classified into four distinct sources of alpha
Fundamental and quantitative analysis applied across each area
Generating stand-alone ideas or feeding through to populate other layers
May 13
13
Ignis Absolute Return Emerging Market Debt Fund
Investment process: multi-layered approach
Instrument
Micro
Country
Asset class
Mo
re q
uan
titative
Mo
re fun
dam
ental
Team manage €475m EM debt assets
Disciplined, team-based approach
Individual specialisms
Managing external debt since 1997, local debt since 2003
Ignis emerging market debt team: Diversified skill set
May 13
14
Ignis Absolute Return Emerging Market Debt Fund
Role Years’
experience Years at
Ignis Investment perspective
Background
Dan Beharall Head of EM Fixed Income
17 2 Fundamental Henderson (AMP), Bankers Trust Intl
Sailesh Lad Deputy portfolio manager
16 1 Market Henderson, Bluebay, Moore Capital, Credit Suisse
Mikhail Volodchenko Market analyst 5 5 Quantitative Ignis
Source: Ignis at 30/04/2012
Work with Ignis Rates team to debate global macro themes including:
- Global growth and inflation prospects
- G7 fiscal and monetary policy
- Key geopolitical issues
Track broad valuation metrics to appraise perceived value at asset class level:
- Yield advantage versus core rates
- Term premium available
- Relationship with other risk markets
Asset class layer – determine beta/duration target
May 13
15
Ignis Absolute Return Emerging Market Debt Fund
Asset class
Macro
Continued Developed Market liquidity provision
Risk assets performing well
Fundamental
Domestic data worsening
FX pressures supportive
Market
Continued inflow momentum, plus sovereign wealth funds
Supportive portfolio positioning
Outcome
Position: long duration in local bond markets
Strong performance driver in 2012
Trade example: Long duration in local bond markets during 2012
Source: Ignis, Bloomberg at 15/03/2013
May 13
16
Ignis Absolute Return Emerging Market Debt Fund
Asset class
1
3
5
7
9-120
-100
-80
-60
-40
-20
-
20
Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12
%
No
rmal
ised
mar
ket
leve
ls
Risk Asset Performance
S&P 500 US Treasury 10yr Yield
JPM EMBI GD Hard Currency Bond Index Spread Yield Difference JPM GBI-EM Local Index vs 5yr UST (RHS)
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
-
0.2
0.4
Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12
%
EM Term Premium vs G5
-3-2-1
- 1 2 3 4 5 6 7 8 9
Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12
%
EM Inflation and GDP Growth Inflation
GDP Growth
Identify the key drivers of interest rates for each country
- Key economic and political themes
- Market sentiment/positioning
- Asset flows
Blend of perspectives critical
Use forward rates to understand market expectations
Set country exposures
Country layer – set country exposures
May 13
17
Ignis Absolute Return Emerging Market Debt Fund
Country
Macro
Hunt for yield continues – Nigeria is a high yielding market
Market
JP Morgan announcement that Nigeria will be added to its Index
Fundamental
Research trip confirmed reform momentum
Outcome
Position: long of Nigerian bonds
Trade profitable; continue to hold
Trade example: long Nigerian bonds
Source: Bloomberg at 07/03/2013
May 13
18
Ignis Absolute Return Emerging Market Debt Fund
7
9
11
13
15
17
19
Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13
%
Nigerian 10 year bond yield
JPM Index announcement: trade entered
Country
Use of full range of instruments to maximise risk-adjusted returns
Relative valuation analysis to assess best ways of implementing country views
Variety of quantitative tools/screens used to understand relative value between available instruments
Quant screens supported by qualitative analysis
Instrument layer: selecting the best instrument type
May 13
19
Ignis Absolute Return Emerging Market Debt Fund
Instrument
Market
Growing interest in Philippines’ onshore bonds
Fundamental
Maintained positive view on Philippines
Quantitative
Analysis of historic spread between onshore and offshore Philippines’ bonds highlighted departure from historic norm
Cross market comparison of onshore/offshore spreads pointed to likely mean reversion
Outcome
Switched from offshore to onshore position
Profits taken following reversion to mean
Trade example: onshore versus offshore relative value
Source: Bloomberg at 07/03/2013
May 13
20
Ignis Absolute Return Emerging Market Debt Fund
Instrument
-120
-100
-80
-60
-40
-20
0
20
40
Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13
Bp
s
Spread between onshore/offshore Philippines’ bonds
Switch to onshore
Profit taken
Highlight attractive opportunities within an asset type
Use quantitative analysis including correlation and regressions
Determine best implementation of macro, country or asset views
Also identifies stand-alone relative value opportunities
Micro layer – choosing individual securities
May 13
21
Ignis Absolute Return Emerging Market Debt Fund
Micro
Market
Turkish 10 year bonds over subscribed
Fundamental
Clear indication from Turkish monetary authorities of intention to cut interest rates to support FX objectives
Quantitative
Relative value analysis suggested that curve was too flat for this stage in the interest rate cycle and versus peers
Outcome
Position: long 5 year, short 10 year Turkish local bonds
Profits taken
Trade example: Turkish local bond steepener
Source: Bloomberg at 07/03/2013
May 13
22
Ignis Absolute Return Emerging Market Debt Fund
Micro
-40
-20
0
20
40
60
80
100
120
Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13
Bp
s
Spread between Turkish 5y and 10y bonds (slope)
Trade entered
Profit taken
Broad universe of investments
May 13
23
Ignis Absolute Return Emerging Market Debt Fund
Instruments traded
EM bonds
Interest rate swaps
Credit default swaps
Forward FX
FX options
Swaptions
Exchange traded futures and options
Derivatives management at Ignis
Derivatives excellence programme
€127bn* notional derivatives traded in 2012
Independent counterparty risk committee
Positions collateralised daily for cash
*Source: Ignis at 31/12/2012.
Tactical risk management
May 13
24
Ignis Absolute Return Emerging Market Debt Fund
Aggregated portfolio risk
Country risk
Position risk
• Total VaR
• Total Exposure
• Rate sensitivity
• FX exposure
• Correlation
• Stop loss/review
Risk measurement and monitoring undertaken independently
Diverse range of contributors to alpha generation
Source: Ignis, based on desk estimates, indicative only, base currency, based on the Bothwell EMD Absolute Return Fund. Data at 30/04/2013.
All data for illustrative purposes only. Fund launch subject to regulatory approval.
May 13
25
Ignis Absolute Return Emerging Market Debt Fund
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%Historic alpha attribution by market
FX
Fixed Income
Source: Ignis, ThinkFolio, indicative only, base currency, based on the Bothwell EMD Absolute Return Fund. Data at 30/04/2013. All data for illustrative purposes only. Fund launch subject to regulatory approval.
Current positioning by country
May 13
26
Ignis Absolute Return Emerging Market Debt Fund
-4
-3
-2
-1
0
1
2
3
4
5FX Exposure
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6Duration Contribution
External
Local
Delivering performance
May 13
27
Ignis Absolute Return Emerging Market Debt Fund
98%
100%
102%
104%
106%
108%
Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13
Performance
Absolute Return Emerging Market Debt Fund
SONIA*
All data for illustrative purposes only. The Bothwell Emerging Market Debt Absolute Return Fund is invested in by our Life Company client and is not publicly marketed to external investors. The new fund launch subject to regulatory approval. Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/04/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.60% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. *Source: Lipper; SONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. The performance data does not take account of the commissions and costs incurred on the issue and redemption of shares (including the initial charge). Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
6.9%
0.6%
Appendix
DANIEL BEHARALL, MSc – Head of Emerging Markets Fixed Income Investment Experience: 17 years Daniel joined Ignis Asset Management’s Fixed Income Team in December 2010 from Henderson Investors, where he spent fifteen years, beginning as a quantitative analyst at AMP, transitioning to a portfolio manager at AMP/Henderson and becoming head of emerging market debt in 1998. He joined AMP (Henderson) from Bankers Trust International, where he was a derivatives analyst. He graduated from The London School of Economics in 1993 with a BSc (Econ.) with Maths and IT. He then went on to further his education and graduated from City University Business School in 1999 with an MSc (with distinction) in Mathematical Finance. Daniel is IMC qualified and is an Associate of the UK Society of Investment Professionals.
SAILESH LAD, BA (Hons) – Portfolio Manager, Emerging Markets Fixed Income Investment Experience: 16 years Sailesh joined Ignis Asset’s Management’s Emerging Markets Fixed Income team in January 2012. Throughout his career he has been dedicated to looking at Emerging Markets, whether external, local debt or foreign exchange across all time zones, making use of all instruments available to best implement trading strategies. Sailesh joined Ignis from Henderson Global Investors and previously worked at Bluebay Asset Management, Moore Europe Capital Management, Credit Suisse and Moore European Capital Management, where he began his career. Sailesh holds a first class honours degree in Financial Economics from Coventry University is IMC qualified and is FSA registered.
MIKHAIL VOLODCHENKO, CFA, MSc – Market Analyst, Emerging Markets Fixed Income Investment Experience: 5 years Mikhail joined Ignis Asset Management in June 2008 as a performance analyst. He then moved to the Client Investment Office as an Investment Analyst in June 2009 before transitioning to an Investment Risk Manager in June 2011. Mikhail joined the Emerging Market Debt Team in February 2013 as an Emerging Markets Fixed Income Analyst. Mikhail graduated from University College London in 2006 with an upper second BSc Hons in Mathematics and Management studies. He then went on to complete a MSc (with distinction) in Finance from Imperial Business School in 2008. Mikhail is a CFA Charterholder.
EMD team biographies
May 13
29
Ignis Absolute Return Emerging Market Debt Fund
Disclosure
This material is prepared and presented for informational purposes to provide an introduction to the business activities of Ignis Investment Services Limited. It relates to the discretionary investment management services of Ignis Investment Services Limited, it does not constitute an offer to sell or a solicitation of any offer to invest in Ignis Investment Services Limited or any funds managed by Ignis Investment Services Limited. It is provided to the named recipient only and may not be passed to any other person. The views expressed do not constitute investment advice. This material does not form any part of any contract for the sale or purchase of any investment. This communication has promotional purposes and is intended as a summary. It does not constitute an invitation, offer, solicitation or recommendation to purchase or sell shares in the Strategy. It is only intended for distribution to Investment Professionals. Distribution of this document and the offering of shares in certain jurisdictions may be restricted by law and accordingly persons into whose possession this document comes are required to inform themselves about and to observe such restrictions. The views expressed do not constitute investment advice. This document does not form any part of any contract for the sale or purchase of any investment. Past performance is not a guide to future performance. The value of investments can fall as well as rise and is not guaranteed. This communication does not attempt to provide a full analysis of those matters with which it deals and is provided for general information purposes only. This document has been issued by Ignis Investment Services Limited registered in Scotland Number SC101825. Registered Office: 50 Bothwell Street, Glasgow G2 6HR. Authorised and regulated by the Financial Services Authority.
May 13
Ignis Absolute Return Emerging Market Debt Fund
30