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Ehyb hycb presentation jt citywire cologne june 12
 

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    Ehyb hycb presentation jt citywire cologne june 12 Ehyb hycb presentation jt citywire cologne june 12 Presentation Transcript

    • Investing in High YieldJune 2012
    • Fund Managers Biographies Stefan Isaacs • Manager of M&G High Yield Corporate Bond Fund since October 2010 • Also fund manager of the M&G European Corporate Bond Fund since 2007 • Deputy fund manager of the M&G Optimal Income Fund and the M&G European High Yield Bond Fund • Previously worked on the M&G high yield dealing desk James Tomlins • New deputy fund manager on the M&G High Yield Corporate Bond Fund • Lead manager of the M&G European High Yield Bond Fund • Previously worked as deputy fund manager of Cazenove Strategic Bond Fund • CFA Charterholder • University of Cambridge (Postgraduate Diploma in Economics and an MA in History)2 Source: M&G Investments as at 31 May 2012
    • M&G High Yield Corporate Bond Fund Fund facts Inception October 1998 Fund manager Stefan Isaacs (since October 2010) Deputy manager James Tomlins (Since December 2011) Fund size €1,431m GRY (Gross of fees) 8.2% Share classes GBP, EUR, USD Sectors Morningstar EUR High Yield Bond3 Source: M&G Investments, as at 31 May 2012
    • M&G European High Yield Bond Fund Fund facts Inception October 1999 Fund manager James Tomlins (since Dec 2011) Deputy manager Stefan Isaacs (since Dec 2011) Fund size €62m GRY (Gross of fees) 9.5% Share classes GBP Unhedged , EUR Sector Morningstar Europe High Yield Bond4 Source: M&G Investments, as at 31 May 2012
    • M&G High Yield Corporate Bond Fund Performance data 3 months 6 months 1 year % % M&G High Yield Corporate Bond Fund -1.8 6.3 0.2 (Fund sector currently under review with Morningstar)5 Source: Morningstar , Inc., Pan European database, as at 31 May 2012 , euro A-H class shares , gross income reinvested, price to price
    • M&G European High Yield Bond Fund Performance data 3 months 6 months 1 year % % M&G European High Yield Bond Fund -3.1 8.8 0.6 Morningstar Europe High Yield Bond -1.6 8.2 -0.4 Quartile 4 2 26 Source: Morningstar , Inc., Pan European database, as at 31 May 2012 , euro C class shares , gross income reinvested, price to price
    • High Yield at M&G One of the largest high yield investors in the UK M&G Retail Fixed Interest Team – High Yield AUM (£M) 5,476 3,311 1,025 516 427 98 49 50 M&G Optimal M&G High Yield M&G Strategic M&G Corporate M&G European M&G European Other M&G TOTAL Income Fund Corporate Bond Corporate Bond Bond Fund Corporate Bond High Yield Bond Fund Fund Fund Fund7 Source: M&G Investments as at 31 March 2012
    • Investing in High YieldStefan Isaacs, Fund ManagerJune 2012
    • Agenda • Macroeconomic views • Importance of credit research • Fund positioning9
    • Key convictions for the year ahead Macroeconomic and credit outlook • The eurozone is entering recession • Political risks remain elevated • Default rates are likely to rise in Europe • The banking system remains starved of capital • Credit market valuations already price in a recession and rising defaults • Excellent environment for stock selection10
    • High yield valuations Spreads are wide but defaults remain modest European high yield spreads and default rates 2500 30.00 25.00 2000 20.00 Default Rate % Spreads (bps) 1500 15.00 1000 10.00 500 5.00 0 0.00 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 S&P Euro High Yield 12m Trailing Default Rate Merrill Lynch Euroe High Yield Constrained Index11 Source: M&G Investments , Bloomberg , S&P at 31 May 2012
    • High yield valuations Expected returns on a buy-and-hold basis Annual default Total return Total return Yield-to-Mat. (%) Recovery rate (%) rate (%) 5 years (%) 5 years (% p.a.) BULL CASE 10% 30% 4.25% 40% 7.0% BASE CASE 10% 30% 6.0% 33% 5.8% BEAR CASE 10% 30% 14.0% 1% 0.2% Current YTM on Average recovery 2000-2004  6.5% ML Euro HY Index rate for unsecured 2006-2010  4.7% bonds 36.8% 1920-2010  3.3%12 Source: M&G Investments , Bloomberg , Merrill Lynch at 31 December 2011
    • Itraxx Crossover index at 700 bps =45% of these companies will default in the next 5 years
    • Agenda • Macroeconomic views • Importance of credit research • Fund positioning15
    • European high yield spreads Exceptional spread dispersion is the stockpicker’s dream 30 June 2007 1600 1400 1200 Spreads (bps) 1000 800 600 400 200 0 0 0 1 1 2 2 3 3 4 4 5 5 6 6 77 8 8 9 9 10 10 BB+ BB BB- B+ B B- CCC+ CCC CCC- CC+ CREDIT RATING16 Source: M&G Investments , Bloomberg at 31 December 2011
    • European high yield spreads Exceptional spread dispersion is the stockpicker’s dream 30 December 2011 1600 1400 1200 Spreads (bps) 1000 800 600 400 200 0 0 0 1 1 2 2 3 3 4 4 5 5 6 6 77 8 8 9 9 10 10 BB+ BB BB- B+ B B- CCC+ CCC CCC- CC+ CREDIT RATING17 Source: M&G Investments , Bloomberg at 31 December 2011
    • Market leading credit analyst teams Analysing global companies and sovereigns 7 Financials and sovereigns 137 fixed income investment professionals including 56 credit analysts 10 Industrials 8 Asset Backed Securities 1 Quantitative analysis 4 Restructuring 16 Leveraged finance 5 Private placement 5 Project & infrastructure finance18 Source: M&G, as at 30 December 2011.
    • Stock selection Examples Good Bad Business risk Diversified Non-Cyclical One product, price taker, cyclical Balance sheet Appropriate leverage and falling Appropriate leverage and falling Secured Robust legal system, Unsecured, scope for fraud, Structure Good covenants expropriation, no covenants Ownership & Strategy Publically listed Very aggressive ; private equity Valuation Cheap Rich19 Source: M&G Investments, as at 31 May 2012
    • Stock selection Examples20 Source: M&G Investments, as at 31 May 2012 * Direct claim over assets
    • Stock selection Examples • Swedish cable operator • German/US healthcare company • Stable and cash generative business • Very stable business EUR 10.75% 2019 EUR 8.75% 2015 • Unsecured, Caa1/CCC+ • Unsecured, Ba1/BB+ • M&G Rating: CCC+ • M&G Rating: BB • Yield-to-Maturity = 10.3% • Yield-to-Maturity = 3.1% • CCC-rated but strong fundamentals • Great company but no value – just BUY downside AVOID • German cable network operator • French mass-market OEM • Stable and cash generative • Weak margins and market EUR 9.625% 2019 EUR 5.625% 2017 • Unsecured, Ba1/BB+ • Unsecured, B3/B • M&G Rating: B+ • M&G Rating: BB • Yield-to-Maturity = 8.6% • Yield-to-Maturity = 5.6% • Good value • Poor company offering little value BUY AVOID21 Source: M&G Investments, as at 31 May 2012 * Direct claim over assets
    • Red Screens at Nightcrucial Pickers Delight Stock selection still , Stock 120 110 Ziggo 100 Virgin Media 90 Seat % 80 Pages Jaunes 70 60 5022 Source: M&G, Bloomberg, as at 31 March 2012. Rebased to 100
    • Agenda • Macroeconomic views • Importance of credit research • Fund positioning23
    • Key portfolio themes Rationale for fund positioning • BB and B-rated European high yield looks attractive • Preference for defensive cash generative industries • We are underweight cyclical sectors such as automotive • Peripheral credit: generally cautious but will take risk selectively • We remain cautious on financials24
    • One process – two products M&G High Yield Corporate Bond Fund M&G European High Yield Bond Fund Fund manager Stefan Isaacs (Lead) James Tomlins (Lead), James Tomlins (Deputy) Stefan Isaacs (Deputy) Description A diversified, global high yield fund that A focused, high conviction, high yield fund invests across the non investment grade that predominantly invests in non universe, predominantly in Europe & investment grade bonds denominated in North America European currencies Peer group IMA Sterling High Yield Morningstar Europe High Yield Morningstar EUR High Yield Base currency & hedged GBP EUR share classes EUR Hedged GBP Unhedged USD Hedged Investment universe Global High Yield Pan European High Yield Typical credit ratings BB+ to CCC- BB+ to CCC- Key restrictions Min 50% in sub investment grade Min 70% in European currency denominated debt Max Single Issuer Exposure: AAA – A 5% Max Single Issuer Exposure: BBB – B 4% AAA – CCC 5% CCC 3% Target # of issuers 125 +/- 25 75 +/- 15 GRY* 8.2% 9.5%25 * Internal estimate, as of 31 May 2012
    • Fund positioning I Credit rating breakdown - fund (%) including derivatives M&G High Yield Corporate Bond Fund M&G European High Yield Bond Fund AAA 2.5 AA 0.0 A 0.7 BBB 1.7 BB 37.6 B 44.8 CCC 12.0 CC & Below 0.4 NR 0.3 Cash 0.026 Source: M&G Investments as at 31 May 2012
    • Fund positioning II Top overweight positions - fund (%) including derivatives M&G High Yield Corporate Bond Fund M&G European High Yield Bond Fund 20.5 11.3 8.8 7.7 6.9 3.0 Media Utility Capital Goods M&G High Yield Corporate Bond Fund M&G European High Yield Corporate Bond Fund ML European Currency High Yield Index ML Euro High Yield Constrained Index27 Source: M&G Investments as at 31 May 2012
    • Fund positioning III Top underweight positions – fund (%) including derivatives M&G High Yield Corporate Bond Fund M&G European High Yield Bond Fund 17.5 13.3 3.1 2.9 2.6 0.0 Banking Automotive Technology & Electronics M&G High Yield Corporate Bond Fund M&G European High Yield Corporate Bond Fund ML European Currency High Yield Index ML Euro High Yield Constrained Index28 Source: M&G Investments as at 31 May 2012
    • M&G European High Yield Bond Fund Top 15 Issues Rank Issuer Issue Fund % 1 Sector breakdown, physical positions (Fund %) Bundesrepublik Deutschland Bundesobligat Obli 2 1/4 04/15/13 3.0 2 Norcell Sweden Holding 2 Ab Norcel 10 3/4 09/29/19 2.8 3 Smurfit Kappa Acquisitions Mdpac 7 1/4 11/15/17 2.4 4 Virgin Media Finance Plc Vmed 8 7/8 10/15/19 2.1 5 Kabel Deutschland Vertrieb Und Service G Kabegr 6 1/2 06/29/18 1.9 6 Edcon Pty Ltd Edcon 0 06/15/14 1.7 7 Upcb Finance V Ltd Upcb 7 5/8 01/15/20 1.7 8 New World Resources Nv Nworld 7 7/8 05/01/18 1.7 9 Kinove German Bondco Gmbh Kinove 10 06/15/18 1.7 10 Intergen Nv Intgen 8 1/2 06/30/17 1.6 11 Bormioli Rocco Holdings Sa Bormio 10 08/01/18 1.6 12 Ziggo Bond Co Bv Ziggo 8 05/15/18 1.5 13 Catalent Pharma Solutions Inc Ptsac 9 3/4 04/15/17 1.5 14 Rexam Plc Rexln 6 3/4 06/29/67 1.5 Unitymedia Hessen Gmbh and Co Kg / 15 Unityme Unity 8 1/8 12/01/17 1.529 Source: M&G Investments as at 31 May 2012
    • M&G High Yield Corporate Bond Fund Top 15 Issues Rank Issuer Issue Fund % 1 GERMANY(FED REP) 2.25% IDX/LKD 15/04/13 EUR 8.0% Sector breakdown, physical positions (Fund %) 2 UK(GOVT OF) 2.5% I/L STK 16/04/20 GBP 2.3% 3 UNITY MEDIA GMBH 9.625% SNR 01/12/19 EUR1000 1.9% 4 NORCELL SWEDEN H 2 10.75% NTS 29/09/19 EURREG 1.8% 5 GERMANY(FED REP) 1.5% I/L 15/04/16 EUR0.01 1.7% 6 NORDENIA VERPACKUN 9.75% A/BKD 15/07/2017 EUR 1.5% 7 ARDAGH PACKAGING F 7.375% SNR 15/10/17 EURREG 1.4% 8 CODERE FIN(LUX)SA 8.25% SNR 15/06/15 EURREGS 1.4% 9 EDCON HOLDINGS FRN SNR 06/14 EUR1000REGS 1.3% 10 REXAM 6.75%-FRN SUB 29/06/67 EUR 1.3% 11 SMURFIT KAPPA ACQ 7.25% SNR 15/11/17 EURREGS 1.3% 12 UNITY MEDIA GMBH 9.5% SNR NTS 15/03/21 EUR 1.2% 13 SMURFIT KAPPA ACQ 7.75% SNR 15/11/19 EUR1000 1.2% 14 BAKKAVOR FINANCE 2 8.25% EMTN 15/02/18 GBPREG 1.2% 15 INTERGEN NV 9.5% SNR 30/06/2017 GBP1000 1.1%30 Source: M&G Investments as at 31 May 2012
    • M&G European High Yield Bond Fund Peripherals = 10.2% Czech Republic 2.06 other Spain 5.18 Greece Poland 4.05 Italy Sweden 0.01 3.19 2.17 4.64 South Africa Portugal 4.14 0.37 Netherlands 5.42 United Kingdom 25.32 Switzerland 6.68 Ireland 7.44 USA 11.29 Germany 18.0431 Source: M&G as at 31 May 2012
    • M&G High Yield Corporate Bond Fund Peripherals = 8.9% Czech Republic 1.11 Other Portugal Italy Sweden 2.64 0.25 3.76 Greece South Africa 2.04 Poland 1.81 0.82 2.71 Spain Netherlands 4.07 2.94 France 3.39 Switzerland United Kingdom 3.82 24.73 Ireland 6.40 Germany 17.29 USA 22.2232 Source: M&G as at 31 May 2012
    • Investing in high yield in 2012 Key takeaways • Economic and political risk to remain elevated through 2012 • BB – B rated valuations are attractive • Spread dispersion remains elevated: it’s a stock pickers’ environment33
    • www.bondvigilantes.com www.twitter.com/bondvigilantes34
    • Appendix35
    • Investment process Bottom-up stockpicking Investment Decision M&G Risk Team High yield dealer • Daily Value at Risk • Market Insights: liquidity, new issues etc. • Liquidity, credit and interest rates stress tests • Continuous risk monitoring Recommendation • Daily meeting with fund manager Output • Recommendation based on fundamentals • Internal credit rating of over 700 issuers • All research is published on our intranet Analysis • Continuous credit risk monitoring • Market position • Cash flow • Product analysis • Growth • Management • Balance sheet36
    • Prices may fluctuate and you may not get back your original investment.This document is designed for investment professionals’ use only, not for onward distribution to any other person or entity. For Switzerland: Distribution of this document inor from Switzerland is not permissible with the exception of the distribution to qualified investors according to the Swiss Collective Investment Schemes Act, the SwissCollective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority ("Qualified Investors"). Supplied for the use by the initialrecipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective InvestmentSchemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972,M&G Investment Funds (7) reg. no 541, M&G Investment Funds (9) reg. no 930, M&G Global Dividend Fund reg. no 713 M&G Dynamic Allocation Fund reg. no 843, M&G Global MacroBond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522. The collective investment schemes referred to in this document (the "Schemes") are open-ended investmentcompanies with variable capital, incorporated in England and Wales. In the Netherlands, all funds referred to, with the exception of M&G Investment Funds (2), M&G Investment Funds(5), M&G Investment Funds (9) and the M&G Dynamic Allocation Fund, are registered with the Dutch regulator, the AFM. This information is not an offer or solicitation of an offer for thepurchase of investment shares in one of the Funds referred to herein. Purchases of a Fund should be based on the current prospectus. The prospectus, Key Investor InformationDocument (KIID), annual report and subsequent semi-annual report, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London,EC4R 0HH, GB, or one of the following: M&G International Investments Limited, German branch, Bleidenstraße 6-10, D-60311 Frankfurt am Main, the German paying agent J.P. MorganAG, Junghofstraße 14, D-60311 Frankfurt am Main, the Austrian paying agent, Raiffeisen Bank International A.G., Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P.Morgan Bank Luxembourg S.A., European Bank & Business Center, 6 c route de Treves, 2633 Senningerberg, Luxembourg, Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de laFuente, La Moraleja 28109, Alcobendas, Madrid, M&G International Investments Limited, 34 Avenue Matignon, 75008, Paris, France or from the French centralising agent of the Fund:RBC Dexia Investors Services Bank France. For Switzerland: Please refer to M&G International Investments Ltd., Bleidenstraße 6-10, D-60311 Frankfurt am Main or, for Sweden, fromthe paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm, Sweden. For Italy, they can also be obtained from one of the appointed paying agents,details of which can be found by visiting the contact section on the following website: www.mandg-investments.it. Before subscribing you should read the prospectus, which includesinvestment risks relating to these funds. This financial promotion is published by M&G International Investments Ltd. Registered Office: Laurence Pountney Hill, London EC4R 0HH,authorised and regulated by the Financial Services Authority and registered with the CNMV in Spain. Past performance is not a guide to future performance. Performance stats arequoted gross of Italian tax on capital gains