October 17-18, 2013

AXA WF Emerging Markets Short Duration Bonds

Damien Buchet, CFA – Head of Emerging Markets Fixed Inc...
AXA WF Emerging Markets Short Duration Bonds




Emerging Markets Macro and Markets Snapshot



AXA WF Emerging Market ...
Emerging Markets expertise at AXA Fixed Income
Introduction to AXA Fixed Income
Our management style
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Active and collegial, with a team-based approach to investme...
Emerging Markets Fixed Income at AXA IM
Theo Zemek
Global Head of Fixed Income
Chris Iggo
CIO, Global Fixed Income
Emergin...
Our Emerging Markets investment philosophy

Fixed income assets provide the opportunity for income generation
and offer re...
Our Emerging Markets product range
INVESTMENT AIMS


Better transparency on expected returns and low volatility => AXA WF...
EM Macro and Markets : making sense of the recent meltdown
Worst meltdown since 2008 for EM fixed Income, now on the mend?

Source : Bloomberg as at 02/10//2013. JPGCCOMP= JP Morgan...
US 10Y Yields : Navigating through tapering, US Gov Shutdown, FED succession.

Source: Bloomberg as at 01/10/2013.
EM Fixed Income Fund Flows: Closer to the end or to the beginning?
Weekly fund flows into EM fixed income Funds (USD bn)

...
Currency Weakness : explained by fundamentals and/or positionning



Geared to US/JP/EU
recovery : North Asia
and Central...
EM Cyclical Indicators* : Improving growth momentum, low risk appetite

EM Economic Cycle Indicator
SLOWDOWN Above long‐te...
G3-induced global trade rebound to lift EM manufactured exports

Source: AXA IM Research & Investment Strategy as at Oct. ...
An Income Statement issue, not a Balance Sheet problem
FX reserves change as % of GDP on April-July 2013
ID
UA
TR
VZ
ZA
IN...
Fiscal house is in order, but needs some consolidation at the margin
Fiscal space in emerging economies, 2013
120

Public ...
Emerging Markets contribution to global growth remains outstanding…
…but will need a fresh wave of reforms over the next 2...
AXA WF Emerging Market Short Duration Bonds
AWF Emerging Markets Short Duration : very resilient in the meltdown

Source : Bloomberg as at 01/10/13. AWEMIUA = AWF EMS...
Income stream drives long-term returns in EM Fixed Income
Income Return*
10%
9%
8%
7%
6%
5%

Historical market annualised ...
AXA WF Emerging Markets Short Duration Bonds
Investment concept



Focus on the delivery of an optimal risk-return profil...
Investment universe and strategy capacity
Emerging Markets Short Duration credit
investment universe

Number of Bonds

Num...
An expanding short duration investment universe
Annual EM Corporate Credit Maturities ($ bn)*



Net issuance of EM corpo...
Emerging Markets default risk
S&P 12-month speculating default rates since 1997 (%)*

Emerging Markets defaults since 2011...
Emerging Markets vs. US credits
Higher yields for a lower credit risk



EM HY companies are less
leveraged their US peer...
Portfolio Analysis & Performance
Portfolio Analysis
Key characteristics

Fund breakdown by sector**
70%

Size

$696.5m

Yield*

5.26%

Duration*

2.64 year...
Portfolio Analysis
Local Currency exposure

Fund breakdown by sector*

15%

16%
14%

14% 14%

13% 13%

12%
9.4%

10%
7.8%
...
Country risk exposure
13%
12%

Hard  Currency Sovereign & Quasi Sovereign

Local  Currency Sovereign & Quasi Sovereign

Ha...
Top 10 holdings
Top 10 Holdings (% of fund)
Description

%

Rating*

Dominican Republic International Bond 9.04 01/23/18

...
Performance and growth in assets under management
In its first year the fund has grown to nearly $700m and returned +5% de...
Monthly Gross Performance Attribution in bp since Oct. 1st, 2012.

Cumulative Monthly Gross Performance Attribution Analys...
Investment information

Investment objective & strategy
Investment objective

To seek performance by investing mainly in s...
Appendix
JPM EMBI Global spreads : around the middle of the 5 year range

Source: Bloomberg as at 30/09/2013.JP Morgan EMBIG Divers...
Value opportunity : EM Hard Currency Spreads retracement since 08/05/13
Spre ads

Spreads
Country/Sector
Pakistan
Argentin...
EM USD Credits : relative value opportunity vs EUR & US Credits

€
Duration
Yield
Spreads

AAA - A
4.15
1.49
85.00

A

$
D...
Global EM investment process overview
Define Macro Environment

1

Top-Down Inputs:
•AXA IM’s Investment
Strategy team
•Ex...
Step 1 Investment Review Process
Meetings
EM Team
Monthly

Rates / Credit Teams

Global Economic and Market Assessment


...
EM Sovereign and Corporate Screening and Analysis
Emerging Markets
Fixed Income Universe



Issuer Screening
&
Credit Ana...
Emerging and Asian Markets team biographies
Damien Buchet, CFA - Head of Global Emerging Markets






Head of Global ...
Emerging and Asian Markets team biographies
Robert Andrew – Head of Asia Fixed Income






Head of Asia Fixed Income ...
Disclaimer
This presentation is intended for institutional non US investor use only and should not be relied upon by retai...
Disclaimer
This presentation is intended for institutional non US investor use only and should not be relied upon by retai...
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Axa emsd citywire miami oct 17 18 2013

  1. 1. October 17-18, 2013 AXA WF Emerging Markets Short Duration Bonds Damien Buchet, CFA – Head of Emerging Markets Fixed Income Iva Alexandrova – Emerging Markets Portfolio Manager Magda Branet, CFA – Emerging Markets Portfolio Manager Shiv Chopra, CFA – EM Portfolio Manager / Portfolio Engineer This presentation is for professional advisers only and must not be relied upon by retail clients. Circulation must be restricted accordingly.
  2. 2. AXA WF Emerging Markets Short Duration Bonds   Emerging Markets Macro and Markets Snapshot  AXA WF Emerging Market Short Duration bonds : Investment concept  Portfolio performance & Analysis  2 Emerging Markets expertise at AXA Fixed Income Reference material
  3. 3. Emerging Markets expertise at AXA Fixed Income
  4. 4. Introduction to AXA Fixed Income Our management style    Active and collegial, with a team-based approach to investment decision making Focussed on downside protection and income generation Robust blend of top-down and bottom-up analysis Our investment process   Fixed Income AUM (€bn) 391 371 322 273 221 158 218 2005 2006 2009 2010 342 283 225 2004 330 173 A strong top-down approach, where optimal portfolio construction is the main driver of performance “Portfolio Manager Analyst” model ensures reactivity and ownership throughout bottom-up credit selection 2002 2003 2007 2008 2011 2012 Jun-13 Why AXA Fixed Income  We combine the benefits of a stable, global organisation with multi-local knowledge and expertise Our investment process aims to achieve incremental, repeatable outperformance within a robust risk control framework Our wide range of expertise will allow us to work together to choose optimal strategies corresponding to your evolving constraints and the ever changing market environment Your challenges Our solutions   Yield enhancement in an environment of very low yields  Credit (Investment Grade & HY), Emerging Markets, Global Strategic Bonds  Protection against the downside risk of interest rates  Suite of Short Duration funds (Credit, HY, EMD), “Redex” share classes  Diversification within fixed income where appropriate  Universal Inflation, Local Currency EMD, High Yield, Global Strategic Bonds, Regional Credit  Low-turnover, fundamentally-driven credit strategy exempt from the flaws of traditional passive management   SmartBeta Credit strategy TM €391bn fixed income assets 100 investment professionals Source: AXA IM 30/06/2013. 4
  5. 5. Emerging Markets Fixed Income at AXA IM Theo Zemek Global Head of Fixed Income Chris Iggo CIO, Global Fixed Income Emerging & Asian Markets Paris, Singapore Damien Buchet, CFA (3/21) Head of Emerging Markets Rob Andrew (<1/18) Head of Fixed Income Asia EMERGING MARKETS FIXED INCOME TEAM 7 PM Analysts / 13 years of average industry experience • 2 Investment centres in Paris and Singapore • 6 nationalities, 4 CFA charter holders. • Sovereign and corporate credit research: 45 countries & 350 corporates covering 90% of the EM credit investment universe • €2.4bn in EM fixed income assets managed across all EM sub-asset classes (hard and local currency, sovereign and corporate credits) • A range of benchmarked and total return funds and mandates. GLOBAL FIXED INCOME GROUP €391bn Fixed Income AUM / 100 Investment professionals Paris Singapore Iva Alexandrova (6/13) Alvin Ong, CFA (1/4) Portfolio Manager/Analyst Portfolio Manager/Analyst • A unique top-down process, integrating all fixed income expertises • Substantial shared resources and synergies among teams. EM TRADING AND EXECUTION 3 experienced Emerging Markets traders based in London PORTFOLIO ENGINEERING GROUP 11 Portfolio Engineers; one dedicated to Emerging Markets Magda Branet, CFA (8/8) Su Hwei Tee (3/13) Portfolio Manager/Analyst Senior Credit Analyst Shiv Chopra, CFA (2/7) EM Portfolio Enegineer/PM Analyst* RESEARCH AND INVESTMENT STRATEGY TEAM 11 economists and strategists; two Emerging Markets specialists: • Based in Paris: Emerging Markets Economist • Based in Hong Kong: China & Emerging Asia economist Experienced team with global resources Source: AXA IM. Staff data as at 31/07/2013. AUM data as at 30/06/2013. Figures in parentheses denote years within the AXA Group followed by total years industry experience. *Shiv also belongs to the Portfolio Engineering Team and is the specialist Portfolio Engineer for the EM/Asia Team. 5
  6. 6. Our Emerging Markets investment philosophy Fixed income assets provide the opportunity for income generation and offer relative capital preservation Convictions We are “Top-Down” Investors Portfolio Construction follows a two-dimensional “Top-down” scale, considering both Fundamental and Technical issues We have a “Total Return” Bias Our portfolios aim to deliver an optimal Yield-LiquidityVolatility profile throughout the market cycle We are Risk Managers 6 Management Style Country research, corporate credit analysis and risk monitoring are central to our Investment Process
  7. 7. Our Emerging Markets product range INVESTMENT AIMS  Better transparency on expected returns and low volatility => AXA WF Emerging Markets Short Duration Bonds  Optimal and balanced risk/return profile from EM USD credits => AXA WF Global Emerging markets Bonds  Strong capital gain potential from undervalued EM currencies => AXA WF Emerging Markets Local currency Bonds AXA IM EM Fixed Income Funds : Risk/Return Profile High Carry : 6% Long Duration : 7y Medium Credit Risk  (BBB‐ Average rating) High Carry : 6.5% Medium Duration : 5y Lower Credit Risk  (BBB+ Average rating) Medium Carry : 5.5% Short Duration : <3y Higher Credit Risk  (BB Average rating) An EM tool box for a variety of risk/return profiles Source: AXA IM as at 31/05/2013. Return and Volatility are shown for the I Acc USD shareclass gross of fees over 1 year, except AXA WF Emerging Markets Short Duration Bonds which is shown since inception (05/09/2012). Past performance is not indicative of future results. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 7
  8. 8. EM Macro and Markets : making sense of the recent meltdown
  9. 9. Worst meltdown since 2008 for EM fixed Income, now on the mend? Source : Bloomberg as at 02/10//2013. JPGCCOMP= JP Morgan EMBIG Div Index (Sovereign USD) / JCBBCOMP = JP Morgan Corporate EMBI Global Index (Corporate Credits in USD) / JGENVUUG = JPM GBI EM Global div Index (EM Local Currency Bonds) 9
  10. 10. US 10Y Yields : Navigating through tapering, US Gov Shutdown, FED succession. Source: Bloomberg as at 01/10/2013.
  11. 11. EM Fixed Income Fund Flows: Closer to the end or to the beginning? Weekly fund flows into EM fixed income Funds (USD bn) Source: EPFR, Morgan Stanley, as at 04/10/2013 11
  12. 12. Currency Weakness : explained by fundamentals and/or positionning  Geared to US/JP/EU recovery : North Asia and Central Europe  No CAD* problems, some short term growth and/or positioning issues.  Portfolio positioning issues + CAD* deterioration, but, varying GDP models and no external debt issues. Source : Bloomberg as at Aug. 30th, 2013 . * : CAD = Current Account Deficit 12
  13. 13. EM Cyclical Indicators* : Improving growth momentum, low risk appetite EM Economic Cycle Indicator SLOWDOWN Above long‐term average and  decreasing EM Liquidity/Risk Appetite Cycle Indicator EXPANSION Above long‐term average and   increasing 3 SLOWDOWN Above long‐term average and   decreasing EXPANSION Above long‐term average and   increasing 1.5 Feb '08 2 1 1 0.5 0 -0.5 0 August '13 0.5 -1 1 Level -1 Level -1.5 -2 -0.05 -0.03 -0.01 0 C 0.01 0.03 0.05 -0.5 -3 -1 September '13 -4 February '08 -1.5 -5 CONTRACTION Below long‐term average and   decreasing -6 Acceleration RECOVERY Below long‐term average and   increasing CONTRACTION Below long‐term average  and  decreasing -2 RECOVERY Below long‐term average and   increasing Acceleration Source: AXA IM Research & Investment Strategy. The EM Economic Cycle Indicator is built using a set of high frequency cyclical data for 13 EM countries (Brazil, Chile, Mexico, Czech Republic,Poland, Hungary, Russia, Turkey, China, India, Thailand, Malaysia and Indonesia). The EM Liquidity and Risk Appetite indicator uses a set of variables representative of global risk and liquidity trends (VIX, cross currency spreads, equity markets, etc). 13
  14. 14. G3-induced global trade rebound to lift EM manufactured exports Source: AXA IM Research & Investment Strategy as at Oct. 1st, 2013 14
  15. 15. An Income Statement issue, not a Balance Sheet problem FX reserves change as % of GDP on April-July 2013 ID UA TR VZ ZA IN HU RU KZ TH BR MY PE MX PH -16 -14 -12 -10 Source: Citigroup -8 -6 -4 -2 0 2 Source: Morgan Stanley Source: IMF, Citigroup, national central banks, Haver Analytics. As at August 2013 *Uses foreign exchange reserves minus gold where available, measured in US$ / Morgan Stanley 15
  16. 16. Fiscal house is in order, but needs some consolidation at the margin Fiscal space in emerging economies, 2013 120 Public debt % of GDP 100 80 EG HU MY PL60 IN BR UA TH MX PH TR CZ 40 ZA CN 20 HK ID CL -6 SG CO KR Fiscal stability boundary RU 0 -4 -2 0 2 Cyclically adjusted primary balance % of GDP Sovereign Debt Dynamics Formula 4 Dt  Dt 1  (r  g )  pbt Source : IMF and AXA IM Research 16 Dt= Debt ratio at time t (Debt/GDP) r =interest rate on debt g =nominal growth rate of the economy pbt=primary balance at time t (budget balance excluding interest payments) in % of GDP
  17. 17. Emerging Markets contribution to global growth remains outstanding… …but will need a fresh wave of reforms over the next 2-5 years Global Real GDP growth, % MS Fcast 7 6 5 4 3 2 1 0 -1 Recession shading Source: IMF, Morgan Stanley Research forecasts 17 DM Contribution EM Contribution Period Average 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 -2
  18. 18. AXA WF Emerging Market Short Duration Bonds
  19. 19. AWF Emerging Markets Short Duration : very resilient in the meltdown Source : Bloomberg as at 01/10/13. AWEMIUA = AWF EMSD Fund I USD Share Class (White line) / JPGCCOMP= JP Morgan EMBIG Div Index (Sovereign USD – Orange line)) / JGENVUUG = JPM GBI EM Global div Index (EM Local Currency Bonds – Yellow line) 19
  20. 20. Income stream drives long-term returns in EM Fixed Income Income Return* 10% 9% 8% 7% 6% 5% Historical market annualised return* 4% (31/12/2001 to 31/12/2012) 3% Total Return 8.50% Price Return 1.13% Income Return 2% 7.32% 1% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Price Return* 20% 15% 10% 5% 0% -5% -10% -15% -20% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Historically, a focus on income pays off Source: AXA IM / JP Morgan as at 31/12/2012. *Composite of 1-5 year maturity buckets for 60% CEMBI Broad and 40% EMBIG Diversified. Past results are not necessarily indicative of future performance. No assurances can be made that profits will be achieved or that substantial losses will not be incurred. 20
  21. 21. AXA WF Emerging Markets Short Duration Bonds Investment concept  Focus on the delivery of an optimal risk-return profile along the market cycle. No market timing. Expected annualized volatility in normal market conditions: 2 to 4% Exposure to Sovereign and Corporate Credits, both Investment Grade and High Yield  Investment across entire EM Credit spectrum over 45 countries reduces default correlation risk Emerging Markets Short Duration Credit Universe: $532bn outstanding, 740 bonds, 335 issuers*  Portfolio performance is mostly driven by carry and reinvested coupons.  Capital gain potential from a tactical allocation to local currency bonds (15% maximum)  Average portfolio duration to worst of less than 3 years  A set of clear and transparent Internal Investment Guidelines  Research and risk management   Clear performance drivers A “Total Return” approach without reference to a market Index  Large opportunity set   Attractive RiskReturn Proposal 5.3% Yield to Worst, for a 2.6 years Average Duration and a BB average rating Intensive coverage of 45 countries and 350 corporates (90% of outstanding) by the EM team Source: AXA-IM as at 31/08/2013. Data is unaudited and sourced from our front office portfolio management system, ThinkFolio®. Please note that the yield calculations are based on the portfolio of assets and may NOT be representative of what clients invested in the fund may receive as a distribution yield. *As at 10/12/2012. The description set forth above represents investment and risk objectives only. No representation is made that the Fund will achieve such objectives. Yield figures quoted will vary in the future and are not guaranteed. Past performance is not a guide to future performance. There is no guarantee that the objectives of the investment strategy described herein will be 21 achieved.
  22. 22. Investment universe and strategy capacity Emerging Markets Short Duration credit investment universe Number of Bonds Number of issuers Outstanding ($bn) Overall EM Credit Universe 1723 (1274 Corps) 677 (579 Corps) 1376.3 (786 Corps) Less than 3Y maturity – outs > $150m 342 (242 Corps) 130 (102 Corps) 260 (154 Corps) Less than 5Y maturity – outs > $150m 740 (574 Corps) 335 (287 Corps) 532 (342 Corps) Less than 8Y maturity – outs > $150m 1061 (801 Corps) 441 (376 Corps) 835 (511 Corps)   4 to 5bn USD  Strategy Capacity   Investment policy is to cap maximum holding of a bond to 5% of its outstanding Minimum issue size considered for investments is USD 150 million. This policy allows for a 3-5 day average disposal period for most bonds in normal market conditions. Strategy capacity currently estimated to be around $4-5bn with 120-150 holdings Fast expansion of the investment universe will allow this capacity to increase A deep and diversified EM short duration universe Source: AXA IM EM database as at 10/12/2012. Corps: Corporations. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 22
  23. 23. An expanding short duration investment universe Annual EM Corporate Credit Maturities ($ bn)*  Net issuance of EM corporate debt is expected to remain around $100-150bn per annum over the next few years, with about 70-100 new issuers every year.  The current stock is expected to rise every year up to 2018, with an increasing proportion of high yield (30 to 50%)  Future supply will likely target the 2018-2021 maturities, to enter the “Short Duration” universe in future years Expanding universe will enhance the likely capacity of the strategy Source: JP Morgan as at 26/09/2013 23
  24. 24. Emerging Markets default risk S&P 12-month speculating default rates since 1997 (%)* Emerging Markets defaults since 2011** Year 2011 Russian Crisis Argentinean Crisis Dubai Inc Kazahk Banks 2012 2013 Issuer RTM Group Saska Cap Cana Satmex Trump Ocean Club Davomas Titan petrochemicals Sino Forest BLT BTAS CELPA Banco Cruzeiro do Sul New Reclamtion Group Rede Su Casita Axtel CEDC Urbi Corporation GEO Lupatech Homex Maxcom Magyar Telecom Country Russia Czech Republic Dominican Republic Mexico Panama Indonesia China China Indonesia Kazakhstan Brazil Brazil South Africa Brazil Mexico Mexico Russia Mexico Mexico Brazil Mexico Mexico Hungary Region EM Europe EM Europe Latin America Latin America Latin America Asia Asia Asia Asia EM Europe Latin America Latin America MENA Latin America Latin America Latin America EM Europe Latin America Latin America Latin America Latin America Latin America EM Europe  Default rates in Emerging Markets are generally lower than for developed markets over the long run  Defaults peaks in Emerging Markets are often linked to specific sovereign crises rather than systemic  Properly addressing the sovereign risk dimension remains key in avoiding defaults Lower systemic default risk than in developed markets Source: *Standard & Poor’s Global Fixed Income Research and Standard & Poor’s CreditPro as at 31/12/2012, **JP Morgan as at 30/09/2013; includes distressed exchanges. 24
  25. 25. Emerging Markets vs. US credits Higher yields for a lower credit risk  EM HY companies are less leveraged their US peers  EM Corporates enjoy higher credit spreads than similarly rated US peers 900 B CCC 800 HY Spread (bps) 700 600 B 500 BB HY 400 BB 300 BBB BBB IG 200 IG A 100 A 0 Source: BofA, September 2013 3.5 4.0 Source : BofA Merrill credit indexes, AXA-IM as at 02/10/2013 4.5 5.0 5.5 Duration (yrs) US 6.0 6.5 7.0 EM EM corporate issuers enjoy a lower leverage and higher credit spreads at each S&P rating level 25
  26. 26. Portfolio Analysis & Performance
  27. 27. Portfolio Analysis Key characteristics Fund breakdown by sector** 70% Size $696.5m Yield* 5.26% Duration* 2.64 years Average maturity 3.17 years Average rating BB Cash position 6.9% 10% EM local currency risk exposure 7.1% 0% Number of holdings 124 66% 60% 50% 40% 30% 20% 7% Cash 13% 11% 3% Sovereign & Non‐financials Quasi Sovereign Corporate Hard Currency 2.25% 5‐8 Years 13% 2.0% 1.6% 1.40% 1.40% Local Currency Cash 7% 0‐1 Years 6% 1.34% 1.2% 0.8% Sovereign & Non‐financials Quasi Sovereign Corporate Fund breakdown by maturity Local currency exposure 2.4% Financials <1% 1‐3 Years 31% 0.67% 3‐5 Years 43% 0.4% 0.0% Nigerian Naira Mexican Peso Polish Zloty Brazilian Real Philippines Peso Investment in Sovereign & Corporate credits with a tactical local currency exposure Source: AXA IM at 30/09/2013. *Yield and duration calculations include cash held within the portfolio, use the next-call method for all Financials in the portfolio and duration/yield-to-worst for all other holdings. **ML Lvl 2 breakdown. All breakdowns exclude currency forwards. Data is unaudited and sourced from our front office portfolio management system, ThinkFolio®. Please note that the yield calculations are based on the portfolio of assets and may NOT be representative of what clients invested in the fund may receive as a distribution yield. Yield figures are not guaranteed and will change in the future. Past performance is not indicative of future results. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 27
  28. 28. Portfolio Analysis Local Currency exposure Fund breakdown by sector* 15% 16% 14% 14% 14% 13% 13% 12% 9.4% 10% 7.8% 10% 10% 7.8% 7.1% 6.6% 8% 7% 5.9% 7% 6% 5% 3.6% 3.5% 1.7% 1.1% 4% 4% 1.2% 1.2% 1.6% 4% 3% 3% 3% CCC 2% 1.42 Cash 7% A 1% 1.2 B 31% 1 BBB 24% 0.8 0.59 0.55 0.6 0.4 0.2 0.02 0‐1 year 1‐3 years 3‐5 years 5‐8 years BB 35% Source: AXA IM as at 30/09/2013. *ML lvl 2 for Sovereign & Quasi Sovereign, ML lvl 3 for remainder of fund. **Rating is the worst of S&P, Moody’s and Fitch. All breakdowns exclude currency forwards except local currency exposure. Data is unaudited and sourced from our front office portfolio management system, ThinkFolio®. Past performance is not indicative of future results. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 1% Automotive Media Financial Services Services Consumer Cyclical Capital Goods Telecommunications Cons. Non‐Cyclical Cash Utility Fund breakdown by Rating** 1.6 1.4 Banking Energy Basic Industry Real Estate Sovereign & Quasi Sovereign Sep‐13 Aug‐13 Jul‐13 Jun‐13 May‐13 Apr‐13 Mar‐13 Feb‐13 Jan‐13 Dec‐12 Nov‐12 Oct‐12 Sep‐12 Spread Duration Contribution by Maturity Bucket 28 1% 0% 0% 0 2% 2%
  29. 29. Country risk exposure 13% 12% Hard  Currency Sovereign & Quasi Sovereign Local  Currency Sovereign & Quasi Sovereign Hard  Currency  Corporat es 11% Local  Currency  Corporat es Cash FX 10% 9% Portfolio Net Exposure 8% 7% 6% 5% 4% 3% 2% 1% 0% ‐1% ‐2% ‐3% ‐4% ‐5% ‐6% Investment across over 35 countries reduces default correlation risk Source: AXA IM as at 30/09/2013. Data is unaudited and sourced from our front office portfolio management system, ThinkFolio®. Past performance is not indicative of future results. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 29
  30. 30. Top 10 holdings Top 10 Holdings (% of fund) Description % Rating* Dominican Republic International Bond 9.04 01/23/18 1.45% B Afren 11 1/2 02/01/16 1.32% B+ Country Garden Holdings 10 1/2 08/11/15 1.31% BB- Kuwait Projects Co 8 7/8 10/17/16 1.30% BBB- Vedanta Resources Plc 6 3/4 06/07/16 1.30% BB- Israel Electric Corp 6.7 02/10/17 1.26% BB+ Emaar Sukuk 8 1/2 08/03/16 1.25% B+ Republic Of Angola 7 08/16/19 1.22% BB- Dubai Holding Commercial Operations Mtn 4 3/4 01/30/14 1.22% B Cemex Sab De Cv 9 01/11/18 1.20% B Source: AXA IM as at 30/09/2013. *Rating is the worst of S&P, Moody’s and Fitch. Data is unaudited and sourced from our front office portfolio management system, ThinkFolio®. Past performance is not indicative of future results. There is no guarantee that the objectives of the investment strategy described herein will be achieved. 30
  31. 31. Performance and growth in assets under management In its first year the fund has grown to nearly $700m and returned +5% despite the recent EM market sell-off. Cumulative Performance* Growth in AUM A resilient investment proposal in the recent EM fixed Income market correction Source: AXA IM as at 30/09/2013. *Performance is calculated using close prices, rebased to 100, net of management fees, for I Acc USD shareclass since launch on 06/09/2012. Past results are not necessarily indicative of future performance. No assurances can be made that profits will be achieved or that substantial losses will not be incurred. 31
  32. 32. Monthly Gross Performance Attribution in bp since Oct. 1st, 2012. Cumulative Monthly Gross Performance Attribution Analysis in bp since 01/10/12 Source: AXA IM Portfolio Engineering Group as at 30/09/2013. Gross performance as per the calculations of the Portfolio Engineering Team. Indicative only. The above figures may differ from official performance figures given system constraints and potential differences in market data sources. Performance attribution from FX does not include carry. The Nigerian Naira performance is not supported by our systems, hence is not included here. For illustrative purposes only. 32
  33. 33. Investment information Investment objective & strategy Investment objective To seek performance by investing mainly in short duration debt securities issued in the emerging debt universe in USD over a medium term period. Investment universe Transferable debt securities issued by emerging countries governments, corporations, public or private companies and supranational entities. The Fund may invest up to 15% of its assets in bonds in local currency Investment horizon Three years Investment team Damien Buchet, CFA, Iva Alexandrova and Magda Branet, CFA (portfolio managers) Fund structure Luxembourg SICAV Launch date 06 September 2012 Institutional shareclasses Retail shareclasses None (I) / 2% (F) 3% (A) / None (E) Annual Management Charge 0.55% (I) / 0.75% (F) 1.00% Minimum initial investment* $5,000,000 (I) / $500,000 (F) None** Minimum subsequent investment* $1,000,000 (I) / $10,000 (F) None EUR, USD, GBP, CHF (I) / EUR, USD (F) EUR, USD, GBP, CHF (A) / EUR (E) Yes Yes Initial Charge Currencies Available Hedged shareclass availability Source: AXA IM. *Subscriptions in USD or the equivalent in the relevant currency of the relevant class. **Minimum initial investment for A GBP (H) shareclass is $5,000 (or equivalent in the relevant currency of the relevant shareclass). There is no guarantee that the objectives of the investment strategy described herein will be achieved. 33
  34. 34. Appendix
  35. 35. JPM EMBI Global spreads : around the middle of the 5 year range Source: Bloomberg as at 30/09/2013.JP Morgan EMBIG Diversified Sovereign hard currency index. 35
  36. 36. Value opportunity : EM Hard Currency Spreads retracement since 08/05/13 Spre ads Spreads Country/Sector Pakistan Argentina Saudi Arabia Corp Mexico Corp S.Korea Corp Egypt Taiwan Corp Jamaica HK Corp Ecuador Qatar Corp Jamaica Corp Lebanon Bulgaria Hungary Russia Corp Iraq China Corp Romania Venezuela Corp Ivory Coast Malaysia Corp Philippines Corp UAE Corp CEMBI HY CEMBI HG Singapore Corp CEMBI Broad Belize Kazakhstan Kuwait Corp El Salvador China Lithuania KZ Corp Israel Corp Brazil Corp Type Sov Sov Corp Corp Corp Sov Corp Sov Corp Sov Corp Corp Sov Sov Sov Corp Sov Corp Sov Corp Sov Corp Corp Corp Corp index Corp index Corp Corp Index Sov Sov Corp Sov Sov Sov Corp Corp Corp Now 638 1,029 109 301 190 533 162 640 273 627 195 546 441 69 327 381 522 394 233 1,279 480 265 460 250 569 280 259 365 872 286 398 408 175 165 776 250 427 08/05/2013 747 1,203 120 327 203 569 170 671 283 642 199 549 435 68 320 366 501 375 221 1,213 448 243 422 228 516 252 234 329 768 251 345 351 150 140 657 210 356 Difference -109 -174 -11 -25 -13 -36 -9 -31 -10 -15 -3 -3 6 1 7 15 21 18 12 67 32 21 38 22 53 27 25 36 104 35 53 57 25 25 119 40 71 Ratio Vs Histo 85.4% 85.5% 90.7% 92.3% 93.4% 93.7% 95.0% 95.4% 96.5% 97.7% 98.4% 99.5% 101.4% 101.5% 102.2% 104.1% 104.2% 104.9% 105.4% 105.5% 107.1% 108.8% 109.1% 109.7% 110.3% 110.9% 110.9% 111.1% 113.5% 113.9% 115.2% 116.2% 116.7% 117.9% 118.1% 119.3% 119.9% Country/Sector Peru Corp Corp Dominican Republic Sov Chile Corp Corp India Corp Corp Poland Sov Chile Sov Russia Sov JP EMBIG DIV BMK Sov Index Indonesia Corp Corp Nigeria Sov Nigeria Sov Georgia Sov Egypt Corp Corp Colombia Corp Corp Serbia Sov Mexico Sov Croatia Sov Venezuela Sov South Africa Corp Corp Philippines Sov Malaysia Sov Sri Lanka Sov Ghana Sov Uruguay Sov Viet nam Sov Senegal Sov EMBIG Div IG SpreadSov Index EMBIG Div HY SpreadSov Index Brazil Sov Peru Sov Panama Sov Colombia Sov Turkey Sov South Africa Sov Gabon Sov Ukraine Sov Indonesia Sov Belarus Sov Source: AXA IM as at 02/10/2013; Bloomberg; JP Morgan Indexes. Past performance is not indicative of future results. 36 Type Now 340 429 363 379 147 167 221 339 718 341 341 416 301 356 420 209 370 1,076 450 172 152 464 554 198 320 558 221 614 241 179 206 187 279 269 353 973 314 952 08/05/2013 284 357 297 307 118 134 177 270 568 270 270 328 237 278 327 161 284 819 342 129 113 342 407 145 233 403 159 428 166 121 139 124 181 173 222 611 197 565 Difference 57 72 66 72 29 33 44 69 149 71 71 88 64 77 93 48 86 257 108 43 39 122 147 53 87 155 62 187 75 58 67 63 98 96 131 362 117 387 Ra tio Vs Histo 120.0% 120.2% 122.3% 123.5% 124.6% 124.6% 124.9% 125.4% 126.3% 126.3% 126.3% 126.8% 126.9% 127.8% 128.4% 129.8% 130.3% 131.4% 131.7% 133.3% 134.5% 135.7% 136.1% 136.6% 137.3% 138.5% 138.7% 143.7% 145.2% 147.9% 148.2% 150.8% 154.1% 155.5% 159.0% 159.2% 159.4% 168.5%
  37. 37. EM USD Credits : relative value opportunity vs EUR & US Credits € Duration Yield Spreads AAA - A 4.15 1.49 85.00 A $ Duration Yield Spreads AAA - A 6.30 2.84 111.00 A EM Corp ML Duration Yield Spreads AAA - A 5.21 3.02 157.00 A EM Sov ML Duration Yield Spreads AAA - A A 4.52 1.87 110.00 6.34 2.93 118.00 5.11 3.07 164.00 BBB 4.27 2.70 199.00 IG BBB 6.65 4.01 208.00 IG BBB 5.49 4.64 303.00 IG BBB 7.29 4.35 214.00 IG BB 4.42 2.16 141.00 B 3.47 4.29 394.00 BB 6.46 3.37 155.00 B 5.21 5.36 345.00 BB 5.38 4.02 247.00 3.96 6.79 559.00 4.82 6.73 461.00 B 4.69 6.36 493.00 BB 3.67 9.72 855.00 B 6.06 5.68 374.00 5.01 9.59 782.00 CCC+< 3.54 10.40 968.00 CCC 4.34 10.32 845.00 CCC 3.15 18.52 1800.00 CCC 6.68 10.79 846.00 HY 3.60 5.42 482.00 All € Corps 4.42 2.16 141.00 HY All US Corps 4.90 6.12 6.76 4.10 478.00 224.00 HY All EM Corp 4.17 5.05 8.57 5.25 731.00 378.00 HY All EM Sovs 5.50 8.47 660.00 EM Corporate Credits currently offer a 50-80% spread premium to US peers at each rating level Source : AXA IM Database, Bloomberg as at 02/10/2013, Indices Merrill-Bank of America. Past performance is not indicative of future results. 37
  38. 38. Global EM investment process overview Define Macro Environment 1 Top-Down Inputs: •AXA IM’s Investment Strategy team •External experts •AXA Fixed Income portfolio managers Define Active Strategies 2 FI CIO summarises macro views to build a framework for Alpha Groups* Alpha Groups define market expectations and active strategies using MVST analysis: • Macro • Valuation • Sentiment • Technical Portfolio Construction 3 Active strategies and market forecasts Alpha Group forecasts and recommendations define Portfolio Construction: •Portfolio Engineering Group (PEG) calibrates risk exposure and optimises allocations •Rigorous security and instrument selection •Effective trade execution Efficient use of risk budget and trade implementation Portfolio construction delivers our performance Continuous Strategy Review 5 Continuous MVST factor analysis and performance reviews: •Investment committees •FI dealers meetings •Team meetings •Formal weekly Alpha Group calls •Ad-hoc discussions Risk Monitoring 4 Risk is continuously monitored: •Proprietary and third party risk models •Weekly review of exposures, risk metrics and active strategy performance •On-going adjustment of exposures to maintain risk targets PEG and portfolio managers continuously manage portfolio risks and performance Active portfolio management *Alpha Groups: small sub teams of the FI team split by expertise: country allocation/term structure/inflation/investment grade/high yield/emerging markets. 38
  39. 39. Step 1 Investment Review Process Meetings EM Team Monthly Rates / Credit Teams Global Economic and Market Assessment  Ongoing assessment of global top down influences  Team-based market assessment and investment themes guiding strategic country and technical risk allocations  Weekly fine tuning of strategic options and investment themes  Weekly rolling country and corporate credit sectors review and scoring.  Portfolio risk control and ongoing optimisation with Portfolio Engineering Group  Tactical calls & position monitoring Fixed Income and Investment Strategy Teams EM Investment Committee (EM Alpha Group) Monthly Weekly Active Strategy Group (EM & Global Rates Teams) Macro Investment Themes Strategic Country Allocation Technical Risk Allocation Proposed EM Strategies for Global Funds US/EU Duration Calls Investment Team Meetings Markets, Strategy, Business Development Research Committee Weekly Weekly Country / Sector Analysis EM Portfolio Risk Review EM Team & PEG Daily 39 EM Team Morning Meeting (Paris, Singapore, London)
  40. 40. EM Sovereign and Corporate Screening and Analysis Emerging Markets Fixed Income Universe  Issuer Screening & Credit Analysis Template Yield – Volatility – Liquidity  Bond Screening  Portfolio constraints     Portfolio Construction Source: AXA IM 40 Proprietary Credit Analysis :  PM Analyst model  45 countries and 350 corporates covered (90% of outstanding)  Specific research templates for sovereigns and corporates  Internal database of 1800 bonds Market Indicators & Comparable Analysis Internal scoring of bonds based on Yield / Volatility / liquidity 4 distinct risk buckets (Liquidity / Low Vol / Carry & Rolldown / Momentum Total Return Benchmarked / Free Alpha Yield / Maturity / Rating / Sector constraints
  41. 41. Emerging and Asian Markets team biographies Damien Buchet, CFA - Head of Global Emerging Markets     Head of Global Emerging Markets, responsible for overseeing and developing our EMD offering 20 years of asset management and trading experience on Emerging Markets Joined AXA IM in 2010. He started his career in Hong Kong with Société Générale as an analyst on Hong Kong and Chinese corporates, then as an Asian equity fund manager based in Hong Kong for Crédit Agricole Group. In 1996, he joined Barep Asset Management (Alternative Asset Manager of SG Group) as fund manager for Emerging Markets Debt. He developed and managed Barep’s product offering on Emerging Markets absolute return funds, of which Barep Nouveaux Horizons and Barep Global Credit, from 1999 to 2005. After a stint at CCR Gestion (Commerzbank Group) to develop an EM Global Macro investment process, he became head of Emerging Markets proprietary trading and structuring at Dexia. Graduated from EDHEC Business School (Lille, France) and is a CFA Charter holder Iva Alexandrova – Portfolio Manager     Portfolio manager within the Emerging Markets Fixed Income Team, with a specific focus on Hard Currency emerging debt. 13 years industry experience Joined AXA IM in 2007 as an assistant portfolio manager in the Global Rates team, having previously worked at First Investment Bank Ltd., Sofia, Bulgaria as an FX and Rates trader on the foreign exchange desk (2004-2006), in the International Department (2002-2004) and in the Customer Service Department (1999-2001). Holds a Master’s in Banking and Financial Techniques from the University Panthéon-Assas Paris II (2006-2007) and a Master’s in Finance from the University for National and World Economy in Sofia (2005-2006). She graduated with a Bachelor’s degree in Banking and Finance from the same university Magda Branet, CFA– Portfolio Manager     Portfolio manager within the Emerging Markets Fixed Income Team, with a particular focus on Emerging local currency markets Eight years industry experience Joined AXA IM in 2005 and prior to her appointment within the investment team in 2010, was a bond and emerging markets strategist and developed a cross-asset allocation model aimed at diversified/balanced funds. She focused mainly on Central and Eastern European countries where she developed a strong macroeconomic expertise. Graduated in Finance from Orléans University and from Paris Dauphine University in Applied Economics and obtained a Master’s degree from Paris Dauphine in Asset Management. She is a CFA Charterholder Shiv Chopra, CFA,MBA - Portfolio Engineer / Portfolio Manager - Analyst     Portfolio Engineer in the Emerging Markets Fixed Income Team where he works on portfolio construction, monitors the consistencies of investment strategies and runs quantitative simulations. Additionally, he covers specific emerging market credit sectors including Oil and gas credits, and assists the team in external client communication. Seven years industry experience Joined AXA IM in 2011 having previously worked for 5 years on the Institutional Lending desk at HDFC Ltd, a leading private sector lender in India, where he was responsible for corporate loans financial analysis. Holds a Bachelors Degree in Accounting & Finance (First Class Honours) from the University of Delhi, a Masters in Business Administration from HEC Paris (Excellence Scholar) and is a CFA Charterholder. Source: AXA IM as at 31/08/2013 41
  42. 42. Emerging and Asian Markets team biographies Robert Andrew – Head of Asia Fixed Income     Head of Asia Fixed Income and is responsible for the Asian Fixed Income team and oversees the management of Asian Fixed Income portfolios 18 years industry experience Joined AXA IM in 2013 having previously been Head of South Asian Investments at Manulife Asset Management for two years where he was accountable for the profitability, asset growth and smooth operation of the front, middle, and back offices in Singapore, Indonesia, Malaysia, Philippines, Vietnam and Thailand. Prior to this, he was with ABN Amro Asset Management where he held key fixed income portfolio management roles in London and in Singapore for 11 years. During his time in London, he managed global fixed income portfolios on behalf of central banks and sovereign wealth funds. He then moved to Singapore to take up his new role of Head of Asia Pacific Fixed Income. Prior to this, he worked with the Reserve Bank of Australia where he fulfilled roles in economic analysis, exchange rate analysis, portfolio management and prudential supervision in Sydney and in London for 5 years Graduated from the University of New England with a first class Bachelor of Economics Su Hwei Tee - Senior Credit Analyst     Senior Credit Analyst within the Asian Fixed Income team, covering Asian credits across the financial, utilities, industrial and property sectors. 13 years industry experience Joined AXA IM in 2010 having previously worked as a Credit Analyst with UOB Asset Management where she was responsible for analysing Asia Pacific ex-Japan telecommunications, utilities, oil & gas and Indonesian coal mining sectors. Before UOB AM she was a Fixed Income Analyst with Nikko Asset Management for 3 years, responsible for Asian local currency bond market research. Prior to that she was a Credit Analyst with Mitsubishi Turst, responsible for analysing Asia Pacific ex-Japan investment grade corporates Holds a Bachelor of Business Studies from Nanyang Technological University of Singapore Alvin Ong, CFA - Portfolio Manager     Portfolio Manager within the Asian Fixed Income team Four years industry experience Joined AXA IM in October 2011 as a Portfolio Manager Assistant in the Asian Fixed Income team, responsible for assisting in the management of the Asian credit and sovereign portfolios. Prior to joining AXA IM he was a Fixed Income Portfolio Manager with the Monetary Authority of Singapore investing Singapore’s foreign reserves in both global credits and Japanese government bonds. Holds a Bachelor of Engineering, majoring in Electrical Engineering, from Nanyang Technological University of Singapore and is a CFA Charter holder. Source: AXA IM as at 31/08/2013 42
  43. 43. Disclaimer This presentation is intended for institutional non US investor use only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited. This document is being provided for informational purposes only. The information contained herein is confidential and is intended solely for the person to which it has been delivered. It may not be reproduced or transmitted, in whole or in part, by any means, to third parties without the prior consent of the AXA Investment Managers Inc (the “Adviser”). Nothing herein is or should be construed as an offer to enter into any contract, investment advice, a recommendation of any kind, a solicitation of clients, or an offer to sell or an offer to invest in any particular fund, product, investment vehicle or derivative. The information contained herein is not complete, may not be current, and is subject to change. The Adviser is under no obligation to update such information. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. This material is not directed at, nor is it available for distribution to, U.S. investors or any persons in any jurisdictions in which the Adviser or its affiliates are prohibited by law from making this information available. An investment in strategy may be offered only pursuant to a prospectus, subscription agreement and other related documents (the "Offering Package"). Any information regarding the Fund contained herein is qualified in its entirety by the more complete disclosures, risk factors and other terms that are contained in the Offering Package. Any decision to invest in the strategy should be made after reviewing the Offering Package carefully, conducting such diligence and investigations as the investor deems necessary and consulting the investor’s own legal, accounting and tax advisors in order to make an independent determination of the suitability and consequences of an investment in the strategy. The Advisor disclaims any and all liability relating to a decision based on or for reliance on this material. This presentation does not constitute an offer or solicitation to sell shares/units in any of the funds referred to, by anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation .The strategy described in this presentation are administered and managed by companies within the AXA Investment Managers Group and can be marketed in certain jurisdictions only. It is your responsibility to be aware of the applicable laws and regulations of your country of residence. Further information is available in the prospectus or other constitutional document. Information concerning portfolio holdings and sector allocation is subject to change and, unless otherwise noted herein, is representative of the target portfolio for the investment strategy described herein and does not reflect an actual account . Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. The holdings shown herein should not be considered a recommendation or solicitation to buy or sell any particular security, do not represent all of the securities purchased, sold or recommended for any particular advisory client, and in the aggregate may represent only a small percentage of an account’s portfolio holdings. The securities described herein are not suitable for all investors and nothing in this material or any subsequent document or any communication should be construed as a recommendation by the Advisor or any of its respective affiliates to invest , or to refrain from investing in any other transaction. The information contained in this material is not based on the particular circumstances of any named recipient. It does not take into account the particular investment objectives, financial situation or needs of individual clients. Potential investors must make their own investment decisions whether or not to invest . The Advisor is not acting in the capacity of advisor or fiduciary of any recipient. Nothing contained herein should be construed in any jurisdiction as tax, accounting, regulatory, legal, investment or other advice. Investing involves risk and past performance does not guarantee future results. Global fixed income securities are subject to interest rate risk, currency risk, credit risk, prepayment risk and market risk. Emerging Market and High yield securities are subject to a greater risk of loss of principal and interests than higher-rated, investment grade fixed income securities. Investors in offshore vehicles advised or sub-advised, in whole or in part, by the Adviser employing the investment strategy described herein may be subject to currency exchange risk. There is no guarantee that the objectives of the investment strategy described herein will be achieved. Investment in the strategy is speculative and involves substantial risks, including a high degree of risk, potential conflicts of interest and risks of loss. It is suitable only for sophisticated investors that have the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the strategy. 43
  44. 44. Disclaimer This presentation is intended for institutional non US investor use only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited. The Adviser is not a tax or legal advisor. Prospective investors should consult their tax and/or legal advisors before making tax-related and/or legal-related investment decisions. 44
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