BlueBay            Euro Government & Aggregate Fixed Income                               gg gLong OnlyL    O l    Novembe...
About BlueBay• BlueBay is a fixed income fund management specialist founded in 2001• BlueBay Asset Management Ltd is a who...
Government Bond Supply – A Bigger Asset Class Than Ever• A consequence of large government fiscal deficits is that the out...
Rates at Low Levels Globally: Alpha Increasingly Important• We believe core government bond yields are set to remain at lo...
Government Bonds: The Skill Set to Succeed Has Changed• In Euro government bonds, the sources of alpha in government bond ...
Sovereign Credit Analysis – Fiscal Sustainability• Modelling our forecasts for growth, inflation, fiscal performance and f...
The Role of Sovereign Credit Ratings               • Over the past several years sovereign credit ratings have lagged move...
Is Adopting a AAA Portfolio an Answer?• Some investors have sought safety in adopting a AAA only approach to government bo...
German Government Bonds – Really a Risk Free Asset ??  • As yields on German government bonds have fallen, so the risk of ...
Peripheral Europe: Opportunity as well as Risk• Widening of sovereign credit spreads creates opportunities as well as risk...
Opportunities in Sovereign CDS• The role of the sovereign CDS market has met with some criticism from policy makers – but ...
Government Guaranteed Bonds – Attractive Opportunities to Add Yield• Government guaranteed bonds can trade at divergent yi...
Yield Ratio Theory & Lessons From Japan• In Japan, after government bond yields fell to ultra-low levels, high quality cre...
Corporate Bond Valuations Appear Attractive      • Credit fundamentals have had little role to play in the recent sell-off...
Weaker Growth Backdrop is Especially Challenging for Peripheral Europe• Base forecast sees slowing of Eurozone growth, wit...
A Roadmap To Solving The Current Credit & Sovereign Crisis• For EMU to work effectively a more integrated Europe needs to ...
Eurozone Debt Levels Are Manageable on a Global Context• Eurozone government bond index            • Yield                ...
Is Higher Inflation Likely in the Medium Term?• Ultimately, it could be argued that there is too much debt in the world to...
Why A Euro Break-up Remains Unlikely• If Greece defaults and exits the Euro, we estimate:           • Greece GDP to fall b...
BlueBay Investment Grade – The TeamA dedicated team of 20 investment professionals                                        ...
BlueBay Investment Grade – Investment ProcessTypical sources of alpha                                        Euro Governme...
BlueBay Investment Grade – Investment ProcessInternal exposure targets                                        Euro Governm...
BlueBay Investment Grade – Investment Process    Investment Process has six distinct stages                               ...
Why Select BlueBay: Strong Track Record in Euro Credit Products                 Performance – BlueBay Investment Grade Bon...
European Investment Grade at BlueBay – Our Track Record         Long Only Products – BlueBay Investment Grade Euro Governm...
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Blue bay

  1. 1. BlueBay Euro Government & Aggregate Fixed Income gg gLong OnlyL O l November 2011 Funds Mark Dowding Senior Portfolio Manager
  2. 2. About BlueBay• BlueBay is a fixed income fund management specialist founded in 2001• BlueBay Asset Management Ltd is a wholly owned subsidiary of the Royal Bank of Canada (RBC)• BlueBay manages over US$37.8 billion for a range of institutional and private clients globally Assets Under Management (US$mn to 30 September 2011) Historical Assets Under Management (US$mn to 30 September 2011) 50,000 50 000 Convertibles Investment Grade* 17,843 Multi Strategy 39,633 40,000 37,827 High Yield / Distressed 6,132 Emerging Market 34,277 (US$mn) High Yield / Distressed Emerging Market 12,660 30,000 Investment Grade* Multi Strategy 616 20,000 16,423 16,701 Convertibles 576 9,588 10,000 4,343 Total Company AUM 37,827 1,875 173 626 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sep-11Data source: BlueBay Asset Management*The Investment Grade category includes the Investment Grade Constrained strategy which has a lower benchmark outperformance (‘alpha’) target and more restrictive investment guidelines. 2As at 30 June 2011 the Investment Grade Constrained strategy had US$1.36 billion of AUM.
  3. 3. Government Bond Supply – A Bigger Asset Class Than Ever• A consequence of large government fiscal deficits is that the outstanding stock of government bonds is greater than ever before• Investors may tactically pursue attractive alternatives in other asset classes – but government bonds as an asset class are not about to disappear Market Capitalisation of Global Government Bond Index, US$ trillions 23 21 19 17 US$ trillion 15 13 11 9 7 5 Dec-99 Feb-01 Apr-02 May-03 Jul-04 Aug-05 Oct-06 Nov-07 Jan-09 Mar-10 Apr-11 O M A A D F N M J AData source: Bloomberg, Bank of America, BlueBay Asset Management, as at April 2011 3
  4. 4. Rates at Low Levels Globally: Alpha Increasingly Important• We believe core government bond yields are set to remain at low levels offering limited scope for absolute returns levels,• Alpha generation is increasingly important; as are assets that can offer attractive yields with transparency, liquidity and security 2-Year Government Bond Yields (%) 7% Germany UK US Japan 6% 5% 4% 3% 2% 1% 0% y-10 r-11 c-06 c-09 t-10 n-07 p-08 Jul-06 r-08 Jul-09 Aug-11 Nov -07 Feb-06 Feb-09 Oct Jun Dec Sep Dec Mar May AprData source: BlueBay Asset Management, Bloomberg, as at November 2011 4
  5. 5. Government Bonds: The Skill Set to Succeed Has Changed• In Euro government bonds, the sources of alpha in government bond investing are changing: Rising importance of sovereign credit analysis• We believe that we are unlikely to return to the way markets were at the start of the last decade 10 year benchmark bond yields (%) 14 Germany 12 Greece Spain 10 Portugal Ireland 8 6 4 2 0 Sep 00 Sep-00 Jul 01 Jul-01 May 02 May-02 Apr 03 Apr-03 Feb 04 Feb-04 Dec 04 Dec-04 Oct 05 Oct-05 Sep 06 Sep-06 Jul 07 Jul-07 May 08 May-08 Mar 09 Mar-09 Jan 10 Jan-10 Dec 10 Dec-10Data source: Bloomberg, BlueBay Asset Management, as at December 2010 5
  6. 6. Sovereign Credit Analysis – Fiscal Sustainability• Modelling our forecasts for growth, inflation, fiscal performance and funding costs enables us to understand the evolution of debt / GDP ratios on a forward looking basis and how our views differ to official projections• Fiscal sustainability is an important factor driving sovereign spreads. However, political factors are also just as important in the context of the Eurozone BlueBay European 5-year Forecasts Projected Average Real 5 Years Time Fiscal Projected Economic Projected Expected Change In Sustainability Current C t Primary P i Growth R t G th Rate Inflation Rate I fl ti R t Current Yi ld C t Yield Debt D bt / GDP Debt/GDP D bt/GDP Score S Country Debt / GDP Balance (%) (%) (%) (%) (%) (%) (1 To 10) Austria 70% -0.1% 2.0% 2.0% 3.0% 65% -6% 2.9 Belgium 97% 0.0% 2.0% 2.5% 3.5% 92% -5% 4.3 Finland 51% -1.5% 2.0% 2.5% 2.8% 47% -4% 2.2 France 88% -2.5% 2.5% 2.0% 2.0% 3.0% 92% 5% 4.8 Germany 80% 2.0% 2.0% 2.5% 2.5% 64% -16% 2.4 Greece 152% 0.5% -1.0% 1.0% 4.0% 200% 48% 10.0 Ireland 118% 1.0% 2.5% 1.5% 4.0% 116% -2% 5.7 Italy 120% 2.0% 1.0% 1.3% 4.8% 129% 9% 6.9 Netherlands 66% -0.5% 0 5% 2.0% 2 0% 2.5% 2 5% 2.8% 2 8% 59% -7% 7% 2.6 26 Portugal 91% -1.0% -2.0% 1.0% 4.0% 119% 29% 7.4 Slovakia 45% -0.8% 3.0% 2.0% 4.0% 40% -5% 1.7 Slovenia 42% -1.7% 1.0% 2.0% 4.0% 43% 1% 2.2 Spain 64% -3.0% 1.0% 1.5% 5.0% 76% 12% 4.4Data source: BlueBay Asset Management, Bloomberg as at September 2011 6
  7. 7. The Role of Sovereign Credit Ratings • Over the past several years sovereign credit ratings have lagged movements in sovereign markets • Arguably rating agencies have performed poorly and ratings have ultimately needed to be revised lower in multi-notch downgrades as a result • It is clear that investors should not seek to rely on credit ratings alone...... There is a real need for proprietary sovereign credit analysis Ireland/Germany 10yr spread versus credit rating (Moody’s) Portugal/Germany 10yr spread versus credit rating (Moody’s) ps) s)Spread (bp Spread (bps Baa3 Baa1 Baa1 A3 A1 AA2 AA2 AA1 AAA Data source: Bloomberg, BlueBay Asset Management, Moody’s 7
  8. 8. Is Adopting a AAA Portfolio an Answer?• Some investors have sought safety in adopting a AAA only approach to government bond investing – but is this acting after the horse has already bolted from the stable!• Ireland was AAA rated until mid 2009 as was Iceland until mid 2008 2009,• Some AAA countries may not be as safe as investors assume – for example, France has the worst performance in fiscal primary balances of any Eurozone country in the past 20 yearsEurozone GE Government Fi t Fiscal P i l Primary B d t Balances as a % of GDP; 1990-2010 Budget B l f GDP 1990 2010Year Belgium Italy Ireland Netherlands Luxembourg Finland Austria Germany Greece Portugal Spain France Slovakia1990 4.26 -1.84 4.52 -1.15 1.59 3.46 0.00 - -5.39 1.86 -1.35 -0.22 -1991 3.21 -0.49 4.17 1.68 -1.82 -3.02 -0.14 -0.79 -1.60 1.19 -1.75 -0.58 -1992 2.22 1.32 3.56 0.29 -2.52 -7.46 0.82 0.04 -1.06 3.73 -0.53 -2.02 -1993 2.80 2 80 2.09 2 09 3.36 3 36 1.64 1 64 -0.46 -0 46 -8.73 -8 73 -1.33 -1 33 -0.42 -0 42 -1.16 -1 16 -0.34 -0 34 -2.84 -2 84 -3.66 -3 66 -1994 3.66 1.53 3.59 0.65 0.90 -5.72 -1.97 0.29 3.60 -1.14 -2.39 -2.54 -1995 3.85 3.32 2.84 -4.78 1.02 -5.35 -2.52 -6.73 1.63 0.75 -1.83 -2.45 -2.141996 4.01 3.83 3.99 2.51 0.09 -2.13 -0.70 -0.41 3.38 0.49 -0.13 -0.84 -8.351997 5.08 6.09 4.87 2.92 2.61 0.35 1.23 0.26 2.20 0.39 0.84 -0.18 -4.491998 6.05 4.74 5.36 3.10 2.34 3.08 0.62 0.77 3.63 -0.16 0.59 0.40 -3.241999 5.88 4.59 4.73 3.99 2.50 2.98 0.47 1.28 3.51 0.25 1.82 1.00 -4.532000 6.24 5.22 6.50 4.87 4.73 7.76 0.93 3.99 2.96 0.09 1.93 1.20 -9.132001 6.43 2.92 2.07 2.15 4.75 5.46 2.53 -0.25 1.52 -1.29 1.96 1.19 -3.452002 5.28 2.42 0.75 0.06 1.02 3.97 1.66 -1.16 0.40 0.00 1.89 -0.44 -5.232003 4.86 1.41 1.50 -1.14 -0.42 2.22 0.81 -1.46 -1.03 -0.18 1.87 -1.52 -1.112004 4.18 1.09 2.41 0.14 -1.85 2.02 -2.30 -1.30 -2.81 -0.71 1.47 -1.02 -0.912005 1.27 0.14 2.51 1.55 -0.68 2.35 0.47 -0.91 -0.96 -3.48 2.52 -0.48 -1.692006 3.98 3 98 1.08 1 08 3.79 3 79 2.16 2 16 0.62 0 62 3.52 3 52 0.54 0 54 0.78 0 78 0.33 0 33 -1.17 1 17 3.33 3 33 0.07 0 07 -2.55 2 552007 3.41 3.26 1.00 1.80 2.63 4.55 1.48 2.63 -1.17 0.23 3.03 -0.24 -0.902008 2.32 2.25 -6.08 2.19 1.66 3.18 1.53 2.39 -3.33 0.08 -2.99 -0.65 -1.452009 -2.58 -0.82 -12.40 -3.66 -2.00 -3.02 -1.34 -0.99 -8.81 -6.58 -9.93 -5.44 -5.752010 -1.56 -0.62 -9.03 -4.58 -5.03 -4.18 -2.47 -3.07 -2.72 -4.05 -8.01 -5.55 -5.01Maximum 6.43 6.09 6.50 4.87 4.75 7.76 2.53 3.99 3.63 3.73 3.33 1.20 -0.90Average 3.56 2.07 1.62 0.78 0.56 0.25 0.02 -0.25 -0.33 -0.48 -0.50 -1.14 -3.75(20 yrs)Data source: Bloomberg, BlueBay Asset Management 8
  9. 9. German Government Bonds – Really a Risk Free Asset ?? • As yields on German government bonds have fallen, so the risk of investors receiving negative absolute returns on their investment has risen based on an analysis of historical volatilityExample showing a normal distribution of returns, with mean of 1.5% and standard deviation of 3.7% German Statistics, as at 31st October 2011 Governments Probability P obabilit (%) Annual standard deviation of returns, since Dec 3.70 1999 Annual standard deviation of returns, since Dec 2009 5.17 34.5% 34 5% probability of return below zero Yield to Maturity 1.48 0.4 standard deviations Statistical normalised probability of negative absolute return 34.5% (standard deviation data since 1999) Statistical normalised probability of negative absolute return 38.7% (standard deviation data since 2009) -1.5 0 1.5 3.0 4.5 Return (%) Data source: Bloomberg, Bank of America, BlueBay Asset Management, as at 31 October 2011 9
  10. 10. Peripheral Europe: Opportunity as well as Risk• Widening of sovereign credit spreads creates opportunities as well as risk. Not all countries in Europe will necessarily default• Experience may be similar to what was seen in Emerging debt asset class following Russian (and other crises) JP Morgan Emerging Market Bond Index Spread (bps) 1800 1600 1400 1200 1000 800 600 400 200 0 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10Data source: Bloomberg, BlueBay Asset Management, JP Morgan 10
  11. 11. Opportunities in Sovereign CDS• The role of the sovereign CDS market has met with some criticism from policy makers – but CDS are not responsible for the crisis and are actually an important risk management tool• There are opportunities in taking both long and short risk positions using CDS, given views on the basis and the involvement of different groups of market participants with different needs• CDS movements have become important to government bonds and specialist expertise is required to understand and exploit opportunities in these markets France 5-year CDS and France / Germany 5-year Government bond spread (bps)Data source: Bloomberg, BlueBay Asset Management, as at October 2011 11
  12. 12. Government Guaranteed Bonds – Attractive Opportunities to Add Yield• Government guaranteed bonds can trade at divergent yields to government bonds due to different investors bases• Irish government guaranteed bonds appear to offer substantial value versus similar maturity government bonds Bond Yields For Irish Government 2014 and Irish Government Guaranteed, EBSBLD 2015 bond (%) 25 20 15 10 Irish 2014 EBSBLD 2015 5 0 2/2010 3/2010 4/2010 5/2010 6/2010 7/2010 8/2010 9/2010 0/2010 1/2010 2/2010 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 0/2011 19/02 19/03 19/04 19/05 19/06 19/07 19/08 19/09 19/10 19/11 19/12 19/01 19/02 19/03 19/04 19/05 19/06 19/07 19/08 19/09 19/10 Data source: Bloomberg, BlueBay Asset Management, as at October 2011 12
  13. 13. Yield Ratio Theory & Lessons From Japan• In Japan, after government bond yields fell to ultra-low levels, high quality credit spreads contracted as investors focussed on maximising yields• A similar outcome could occur in Europe; as German yields remain at low levels for longer, so other ‘core’ AAA-rated spreads may converge Bond Yields in Japan for Government and non-government bonds (%)Data source: Bloomberg as at November 2011 13
  14. 14. Corporate Bond Valuations Appear Attractive • Credit fundamentals have had little role to play in the recent sell-off in a market dominated by a loss of confidence • At current spread levels investors are widely over-compensated compared to historical defaults iBoxx Euro Corporates Index - Spread to Benchmark, to 30 September 2011 Breakeven Spreads, 5-year (bps) 800 Average iBoxx Euro Corp spread Financial Non-Financial 2003 to since 1998 to 700 Rating 30 Sept 2011 30 Sept 2011 2007 1980 2003 iBoxx Euro Non-financial spread AAA 127 64 0 1 2 600 AA 290 122 1 3 7 iBoxx Euro Financial spread A 501 163 3 6 15 500 BBB+ 959 248 9 19 47bps 400 BBB 1,360 344 16 31 78 BBB- 1,265 391 35 70 174 300 BB+ 1,398 491 47 94 236 BB 1,608 627 70 140 350 200 BB- 1,614 729 98 196 491 100 B 1,763 965 166 329 823 CCC 4,665 1,923 471 942 2,242 0 an-99 ep-04 ep-11 un-00 pr-03 Jul-07 pr-10 ov-01 ov-08 eb-06 Ap Ap Ju Ja Se Se No No Fe Data source: iBoxx Data source: Moody’s, iBoxx, Merrill Lynch Index 14
  15. 15. Weaker Growth Backdrop is Especially Challenging for Peripheral Europe• Base forecast sees slowing of Eurozone growth, without recession. However, risks to the central forecasts are very much skewed to the downside• Within the Eurozone, there remains divergence between stronger Northern European economies and weaker Southern European economies. This will be exacerbated by fiscal tightening in the periphery Eurozone GDP Growth BlueBay Forecasts, yoy basis (%) 5% 4% 3% 2% Bullish Forecast 1% Base Forecast 0% ‐1% ‐2% ‐3% Bearish Forecast “EMUgeddon” ‐4% ‐5% ‐6% Dec‐0 Dec‐0 Dec‐0 Dec‐0 Dec‐0 Dec‐1 Dec‐1 Dec‐1 Dec‐1 Sep‐05 Sep‐06 Sep‐07 Sep‐08 Sep‐09 Sep‐10 Sep‐11 Sep‐12 Sep‐13 Jun‐05 Jun‐06 Jun‐07 Jun‐08 Jun‐09 Jun‐10 Jun‐11 Jun‐12 Jun‐13 Mar‐0 Mar‐0 Mar‐0 Mar‐0 Mar‐0 Mar‐1 Mar‐1 Mar‐1 Mar‐1 05 06 07 08 09 10 11 12 13 05 06 07 08 09 10 11 12 13 5 6 7 8 9 0 2 3Data source: Bloomberg, IMF, BlueBay Asset Management, as at September 2011 15
  16. 16. A Roadmap To Solving The Current Credit & Sovereign Crisis• For EMU to work effectively a more integrated Europe needs to emerge: • A Franco-German initiative to work to a new Treaty (other countries opt in or out) • Moves to commit countries towards common bond issuance at a future point on a portion of sovereign debt • Moves to amend national constitutions in order to cede some national sovereignty to the EU • A robust Federal framework to ensure future national fiscal discipline• The ECB needs to continue to buy bonds in unlimited quantities, while politicians progress their medium term plans • EFSF is of limited use due to capital constraints and overly complex leveraging structure • Quantitative easing is necessary in order to stabilize markets• Banks need to be recapitalized in order to restore confidence • A Euro wide solution is needed to break the circular link between sovereigns and banks • Deleveraging cannot be the focus, or else the growth outlook will deteriorate furtherData source: Bloomberg, IMF, BlueBay Asset Management, as at September 2011 16
  17. 17. Eurozone Debt Levels Are Manageable on a Global Context• Eurozone government bond index • Yield 3.38% • Average Rating AA+ • Duration 6.2 years • Average debt / GDP in index 85%• Global government bond index • Yield 1.77% • Average rating AA+ • D Duration ti 6.6 6 6 years • Average debt /GDP in index 120%Data source: Merrill Lynch indices as at 20/10/2011 17
  18. 18. Is Higher Inflation Likely in the Medium Term?• Ultimately, it could be argued that there is too much debt in the world today and inflation is a necessary evil• Debt restructuring is p g painful and strong economic g g growth is unlikely. Inflation via quantitative easing may become an y q g y increasingly attractive path for policy makers to follow Germany DBRi 2016 inflation linked bond breakeven rate of inflation (%) 2.5 2 1.5 1 0.5 0 07/10/20… 07/11/20… 07/12/20… 07/01/20… 07/02/20… 07/03/20… 07/04/20… 07/05/20… 07/06/20… 07/07/20… 07/08/20… 07/09/20… 07/10/20… 07/11/20… 07/12/20… 07/01/20… 07/02/20… 07/03/20… 07/04/20… 07/05/20… 07/06/20… 07/07/20… 07/08/20… 07/09/20… 07/10/20… 07/11/20 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Data source: Bloomberg, BlueBay Asset Management, as at November 2011 18
  19. 19. Why A Euro Break-up Remains Unlikely• If Greece defaults and exits the Euro, we estimate: • Greece GDP to fall by 40% over 2 years (assumes 30% devaluation on New Drachma and EU exit) • Banking collapse in Eurozone periphery & need for capital controls across the Eurozone • GDP in the rest of the Eurozone to fall by 5% over 2 years (due to contagion and banking crisis)• If a ‘core’ EMU country decides to leave the Euro, we estimate: • Exit country sees GDP fall by 7% over 2 years (assumes 15% appreciation and EU exit) • Banking collapse in Eurozone periphery & need for capital controls across the Eurozone • GDP in the rest of the Eurozone to fall by 5% over 2 years (due to contagion and banking crisis)• L Legally th ll there i no mechanism for a country to be expelled from the E is h i f t t b ll d f th Eurozone. A country would need t exit the EU t ld d to it th• Fixing EMU is much cheaper than breaking it apart: • A 5% fall in Eurozone GDP = Euro 600 billion • The US ‘TARP’ invested Euro 180 billion in the banks. A similar initiative could be envisaged in EuropeData source: Bloomberg, IMF, BlueBay Asset Management, as at September 2011 19
  20. 20. BlueBay Investment Grade – The TeamA dedicated team of 20 investment professionals Risk Management, Compliance & Legal Dominique Kobler • Experience: The team has an average (Head of Risk & Performance) Jenny Winter investment experience of 11 years (Compliance Officer) James Brace (General Counsel) • Specialisation: Each team at BlueBay Asset Lucien Orlovius IG Investment Team (Head of Transactional Legal) Management has long only and long/short specialists p a 6 Portfolio Managers Raphael Robelin (Senior. Non-Sovereigns) Mark Dowding (Senior. Sovereigns) Geraud Charpin (Non-Sovereigns) Andrzej Skiba (Non-Sovereigns) • Participation at Investment Committee: Marc Stacey (Covered Bonds) Russel Matthews (Sovereigns) Senior investment professionals across all 3 Assistant Portfolio Managers product areas are members of the Investment Sheraz Hussain Tom Moulds Committee, chaired b the CIO C i h i d by h Chau Tran 8 Analysts Robert Lambert (Analyst – Utilities, Telecom, Media) • Dedicated research: Supported by a Nesche Yazgan (Analyst – Industrials) Russell Vincett (Junior Analyst – Industrials) dedicated unit of credit analysts focusing on Caroline McQueston (Analyst – Financials) James MacDonald (Analyst – Financials) financials, industrials and crossover Investment I t t Rodrigo Da Fonseca (Analyst – Sovereigns) Committee Stanislav Gelfer (Analyst – Sovereigns) companies/issues Fred Kooij (Analyst – Crossover) Mark Poole (CIO) Trade Execution Alex Khein (COO) & Treasury Adam Borneleit (EM) Iain Burnett (DD)* • Demonstrable track record: Since inception John Orrock (Head of Trade Execution) Richard Cazenove (DD)* Geraud Charpin (IG) Daniel Grimstead (Execution Trader – IG) BlueBay Investment Grade Bond Fund has Mark Dowding (IG) David Dowsett (EM) Christopher Lemmo (Execution Trader – IG) produced an annualised excess return of Alessandro Esposito (CB) Natalie Webb (Execution Trader – IG/CB) Jonathan Fayman (EM) 2.63% with an information ratio of 1.97 Ian Hartrey (Financing & Repo, Treasury) Peter Higgins (HY) Polina Kurdyavko (EM) Michael McGill (Financing & (figures to 28 April 2011) Russel Matthews (IG) Repo, Treasury) Neil Phillips (EM) Mike Reed (CB) Raphael Robelin (IG) Anthony Robertson (HY) Andrzej Skiba (IG) Cian Walsh (EM)*Distressed Debt 20Please refer to the Disclaimer located at the back of this presentation for important information regarding the performance shown above
  21. 21. BlueBay Investment Grade – Investment ProcessTypical sources of alpha Euro Government Euro Aggregate Euro Credit Euro Credit Libor IG Absolute Return Alpha Alpha Alpha Alpha Alpha Target Alpha Target Alpha Target Alpha Target Alpha Target Alpha Alpha Source (bps) Range (bps) Range (bps) Range (bps) Range (bps) Range Term Structure 45 20-60% 35 10-50% 22.5 0-30% 15 0-25% 65 10-50% Sovereign credit beta 15 0-30% 10 0-20% 3 0-10% 3 0-10% 20 0-20% Sovereign credit alpha 35 10-40% 25 10-40% 7 0-10% 7 0-10% 40 10-40% Non-Sovereign credit beta 7.5 0-15% 20 0-30% 22.5 0-30% 30 0-40% 40 0-30% Non Sovereign Non-Sovereign credit alpha 17.5 17 5 0 30% 0-30% 40 20 50% 20-50% 95 40 100% 40-100% 95 40 100% 40-100% 90 20 60% 20-60% Non-Euro country spread 15 0-25% 10 0-20% 25 0-25% Inflation linked 5 0-15% 3 0-10% 5 0-10% Currency 10 0-20% 7 0-15% 15 0-20% Total 150 150 150 150 300 0-3% 0-3% 0-3% 0-4% 0-6% Tracking Error (relative) (relative) (relative) (absolute) (absolute)Please refer to the Disclaimer located at the back of this presentation for important information regarding the target performance shown aboveData source: BlueBay Asset Management Please note – expected contribution is not guaranteed 21
  22. 22. BlueBay Investment Grade – Investment ProcessInternal exposure targets Euro Government Euro Aggregate Euro Credit Euro Credit Libor IG Absolute Return Target Exposure Target Exposure Target Exposure Target Exposure Target Exposure Alpha Source (versus benchmark) (versus benchmark) (versus benchmark) (versus benchmark) (versus benchmark) + / – 2.0 years + / – 1.6 years + / – 1.0 years 0 to 1.0 years -2.5 to +2.5 years Term Structure interest rate duration interest rate duration interest rate duration interest rate duration interest rate duration + / – 3.75 years + / – 2.5 years + / – 1.0 years + / – 1.0 years + / - 3.75 years Sovereign credit beta spread duration spread duration spread duration spread duration spread duration Sovereign credit alpha 2-30 issuers 2-30 issuers 0-10 issuers 0-10 issuers 0–30 issuers 0 to + 1.0 years –1.25 to +2.0 years + / – 2.0 years -1.0 to +4.0 years -4.0 to +4.0 years Non-Sovereign credit beta spread duration spread duration spread duration spread duration spread duration Non-Sovereign credit alpha 0-80 issuers 0-80 issuers 80-200 issuers 30–150 issuers 0–150 issuers 0 to + 2.25 years 0 to + 1.5 years -1.5 to + 1.5 years Non-Euro country spread interest rate duration interest rate duration interest rate duration 0 to + 1.5 years 0 to + 1.0 years 0 to +1.5 years Inflation linked interest rate duration interest rate duration interest rate duration Maximum 7.5 % Maximum 5 % Maximum 10% Currency active currency risk active currency risk active currency riskData source: BlueBay Asset Management 22
  23. 23. BlueBay Investment Grade – Investment Process Investment Process has six distinct stages • Strategy input discusses macro trends within the overall investment environment Macro and credit issuer • Macro alpha sources identified and issuer outputs: -5 to +5 universe screened by liquidity, credit quality, sector and issuer spread • Fundamental macro and bottom up analysis bottom-up identifies trends in alpha sources and underlying credit worthinessStage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 • Relative Value analysis place our fundamentalStrategyS Preliminary P li i Fundamental F d l Relative V l R l i Value Technical T h i l Portfolio P f li views within th prevailing market context i ithi the ili k t t tInput Screening Analysis Analysis Analysis Construction • Technical analysis assesses shorter term supply and demand factors as well as other issue and instrument specific influences • Macro and credit issuer outputs are recorded on a consistent scale from -5 (most bearish) to +5 (most bullish) and fed into the portfolio Portfolio monitoring Risk Control construction process • Portfolio construction utilises macro and issuer outputs to determine target positions. • Risk control and portfolio monitoring is an integral part of the process throughout 23
  24. 24. Why Select BlueBay: Strong Track Record in Euro Credit Products Performance – BlueBay Investment Grade Bond Fund Performance (€ gross of fees to 31 October 2011) ( g ) 1M 3M YTD 2010 2009 2008 2007 2006 2005 Ann. SI* BlueBay Funds - BlueBay Investment Grade Bond Fund 1.69% -2.23% 0.84% 5.05% 20.87% 1.70% 3.11% 1.80% 5.26% 6.15% iBoxx Euro Corporates Index 1.87% -0.52% 2.26% 4.73% 16.02% -4.00% -0.21% 0.39% 3.98% 3.96% Alpha -0.18% -1.71% -1.42% 0.32% 4.84% 5.70% 3.33% 1.41% 1.28% 2.19% Cumulative Gross Relative Performance (to 31 October 2011) Risk/Return Characteristics 70% BlueBay Funds - BlueBay Investment Grade Bond Fund iBoxx Euro Corporates Index 2.19% 2 19% 60% Alpha 1.50% p.a. gross 50% of fees eturn 40%% Re 1.60 Actual Annualised SI Information Ratio 30% >0.5 Target 20% 1.37% 10% Tracking Error 0-3% 0% Dec-10 Nov -03 Aug-04 Aug-08 May -09 Mar-06 Jan-07 Mar-10 Oct-07 Oct-11 Jun-05 0 1 2 3 4 Data source: BlueBay Asset Management Fund Type: UCITS IV Fund (Part I SICAV) *Annualised return. Fund inception date: 11 Nov 2003 Please refer to the Disclaimer located at the back of this presentation for important information regarding the performance shown above 24
  25. 25. European Investment Grade at BlueBay – Our Track Record Long Only Products – BlueBay Investment Grade Euro Government Bond Fund Performance (€ gross of fees to 31 October 2011) 1M 3M YTD Cum. SI* BlueBay Funds - BlueBay Investment Grade Euro Government Bond Fund -1.55% 1.59% 3.60% 3.57% Barclays Capital Euro Aggregate Treasury Index -1.95% 1.72% 1.89% 1.80% Alpha 0.40% -0.13% 1.71% 1.77% Cumulative Gross Relative Performance (to 31 October 2011) Risk/Return Characteristics*7.0% BlueBay Investment Grade Euro Government Bond Fund6.0% Barclays Capital Euro Aggregate Treasury Index 1.77% Actual Cumulative SI p Alpha 1.5% 1 5% p.a. Target5.0% gross of fees4.0% Information 1.063.0% Ratio >0.5 >0 52.0%1.0% Tracking 1.99%0.0% Error 0-4%-1.0% 0 1 2 3 4 5-2.0% May-11 Jan-11 Mar-11 Dec-10 Oct-11 Sep-11 Jun-11 Apr-11 Jul-11 Aug-11 Feb-11 M A M D J J F S A Please refer to the Disclaimer located at the back of this presentation for important information regarding the performance shown above 25 Data source: BlueBay Asset Management Fund Type: UCITS IV fund (Part I SICAV) *Cumulative return. Fund inception 22 December 2010

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