June 2012 Citywire Germany Challenging times in markets require thinking outside the box Institutional investors and advisors only. Not for retail investors. Presented by: Miles Geldard – Fund Manager
1 Investment outlook European sovereign issues require major structural changes. Buying by official institutions is not a long term solution Excessive debt at governmental and personal levels in developed economies Sovereign bonds overpriced and certainly not risk free “Fiscal cliff” in the US can’t be ignored but politicians will not want to tip the economy into recession Turn in the US housing market should be supportive Significant valuation anomalies in forex cross rates: USD offers value Risk assets offer value but macro-economic dangers are significant Convertibles provide lower risk exposure to equitiesFund manager views at the time of presentation and will change in the future.
Relative valuation of bonds and equities is extreme…UK Forward Dividend Yield/Bond Yield Ratio Div Yld/10yr 6 Exp MvAv +/-2stdev 3.0 Dividend Yield/10 year government yield 2.5 2.0 1.5 1.0 0.5 0.0 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12…but are equities cheap or bonds expensive?Source: Bloomberg, Jupiter 31.05.12.
3 “Bonds should come with a warning label” Warren Buffett The problem for many funds during the previous decade was… too much in equities Will the problem in this decade be… too much in bonds? UK CPI YoY UK 10 Year Gilt 14% 12% 10% Real interest rates are -2.2% 8% 6% 4% 2% 0% 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11Source: Bloomberg, 31.03.89 to 31.12.11.
Western bond markets will not turn JapaneseReal 10 year yields Current Average US -0.68% 2.38% 7 UK -1.35% 3.22% DE -0.83% 2.88% JP 0.45% 1.99% 510 Year Real Rate (10yr – CPI) 3 1 -1 -3 1993 1995 1996 1998 2000 2002 2004 2006 2008 2010Nominal yields similar, but Western bonds have negative real yieldsSource: Bloomberg , Jupiter 31.05.12.
5 Total debt load of major economies is very highCombining government, business, bank and household debt reveals the true scope of a country’sobligationsSource: ZeroHedge 23.11.11.
6 Jupiter Strategic Total Return Fund is a conservative absolute return fund Target Return High Yield & Emerging Equity Funds Traditional Equity & Higher Risk Absolute Return Funds Aggressive funds enhancing Corporate Bond portfolio returns Funds Traditional Gov’t Bond Funds Diversified core investments Lower Risk Absolute Return Funds Money Market & Liquidity Funds Cash reserves & cautious section of portfolio Target Risk
7 Jupiter Strategic Total Return Fund Global multi-asset portfolio with Currency Equities absolute return aim Seeking cash +3% over a rolling 3 year basis Global Sovereign Convertibles Multi-Asset Target volatility <5% Portfolio bonds Wide opportunity set of direct investments Corporate Money bonds marketsMulti-asset strategy that has evolved since 1998These are not fund restrictions but manager aims.
8 The portfolio managers Head of Team Managed multi-asset portfolios for 14 years & Fund Manager: Miles Geldard Previously head of strategic and tactical asset allocation at JP Morgan Proven track record in bonds, currencies, equities and convertibles Fund Manager: Hands-on experience working in Asia, Africa, Lee Manzi Middle East and Europe Industry recognition: Sauren gold medal winners 2009 and 2011 (Germany)Proven team with long experience in different regions and marketsPast performance should not be seen as a guide to the future. The awards detailed above were based on the managers’ past performance figures whichare a representation of the fund manager’s experience and are not necessarily indicative of the potential performance of the Jupiter Strategic TotalReturn SICAV or Jupiter Strategic Reserve UT.
9 Fund manager support and idea sharing Jupiter Merlin Fund of Funds team Jupiter is a highly regarded and established firm in UK since 1985 Substantial employee ownership aligns our interests with yours Developed Multi-Asset and Emerging No investment committees or Equity teams Fixed Income team Equity team mandatory house views But… active discussion of macro and micro with experienced managers Financials teamSpeed of decision making and flexibility within global fund manager
10 Our investment philosophy Long term, value driven Flexible asset allocation within global opportunity set Agnostic to asset class – aim to choose assets with best risk- reward to implement views Maximum limits, no minima, no neutral positions If a core asset class is overvalued, then have none No funds* or structured products Conservative strategy seeking asymmetric return profile*The fund may invest in money market funds for cash management purposes.
11 Top down macro views combined with bottom up security selection Long term strategic views across assets, regions and sectors Asset allocation Opportunistic and agnostic to asset class, geography and sector decisions Seeking most favourable risk-reward themes Active discussion / interaction with Formal monthly review of a range of macro factors macro thinkers in Jupiter Quantitative screening of global opportunity set Security selection Followed by qualitative research of short list Flexibility in choice of investment instrument to implement view Proprietary value driven Jupiter Equity and Fixed Proprietary credit scoring models equity screening model Income Managers
12 Portfolio construction, risk controls and limits Position size dependent on: Conviction of view Stress testing Based on real world experience Position sizing Volatility of security of positions learnt over a number of Liquidity of security and portfolio market cycles Diversification from other holdings Equity: Bonds: Currency: Maximum 40% Maximum 5 year duration Maximum non-base currency 30% (including CB delta) Average implied credit quality Lower exposures on single cross Highly diversified holdings investment grade, albeit with no currency positions credit limitation on individual issues Target volatility <5% Focus on liquidity and traded securities Portfolio transparencyNot fund restrictions, represents fund manager style.
13 Strategic Total Return – risk budget Strict risk budgeting for each position Risk budgeting – Absolute VaR per strategy and portfolio Stop loss disciplines Long MXN Convertible Short ZAR Bonds Long USD Maximum limits but no minima Short JPY 0.14% 0.07% 0.03% Long USD 0.04% Short EUR Blend of traditional strategies with Equity relative value 0.11% Long USD 0.10% Short AUD Seeking uncorrelated positions 0.11% 0.09% Short Diversified, liquid portfolio: Long S&P Sovereign Short Russell Bond Futures 10 strategies 0.16% 0.13% 74 securities 0.13% Short French Financial Sovereign + Corporate Debt Bond Futures Sovereign DebtSource: Jupiter 18.06.12. Note: The VaR shown is the 99% 1-day VaR for the strategy in isolation weighted by the position size - it does not take intoaccount the correlations between strategies and so overstates the risk in the portfolio. The total portfolio 1-day 99% VaR is 0.23%.
14 Jupiter Strategic Total Return (STR) Lower risk fund Proven investment approach Experienced and established team Flexible asset allocation Diversified portfolio Low correlation to traditional asset classes
16 Current portfolio positioning Key characteristics Asset allocation 40% Fund size €126m 30% Net equity exposure (including hedges) 8% 20% YTM/P 0.94% 10% Current yield 2.46% 0% Modified duration 0.01 years Average explicit credit rating -10% A+ Average implied credit rating A -20% Sovereign Future Corporate Convertible Equities Bond Bonds Bonds Bonds No. securities 82 Fund volatility 1.87% Interest rate exposure by maturity (duration) Currency exposure: Deviation from base currency 6% 0.7 EUR USD GBP Other 0.6 4% 0.5 0.4 2% 0.3 0.2 Years 0% 0.1 0.0 -0.1 -2% -0.2 -0.3 -4% -0.4 -0.5 -6% -0.6 USD MXN HKD Other EUR JPY AUD ZAR 0-1 1-3 3-5 5-7 7-10 10+Source: Jupiter as at 30.04.12. *Note: Corporate Bonds includes FRN.
17 Proprietary equity screening model factors Price / Sales Price / Free Cash Flow Value Factors Dividend Yield Price / 8yr Average Earnings Per Share Debt / Assets Quality Factors 1yr Earnings Per Share Growth Price momentum of security; biased toward Price Momentum medium term price momentumBuilt on FactSet, all historical data, no forward looking assumptions
18 Sources of return Flexible exposure to asset classes based on macro-economic insights. Aims to avoid over-priced assets Bottom up security selection: Equity, convertible, credit Equity-related: Regional and sectoral thematic bets Interest rate: Duration positioning Relative value; inter / intra yield curve Forex: Non core, reserved for long term structural anomalies Futures used for hedging and relative value strategies Options: Premium paid to improve asymmetric return profile
19 “There’s too much froth in the Australian currency” RBA board member Australian govt bond foreign ownership AUDUSD 100% 1.2 90% Australian govt. bond foreign ownership 1.1 80% 1.0 70% AUD/USD FX Rate 0.9 60% 0.8 50% 0.7 40% 0.6 30% 20% 0.5 10% 0.4 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: Reserve Bank of Australia, Bloomberg 31.12.11.
20 Japan is a rentier economyContribution from trade balance and income to the current account Trade balance ratio Income ratio 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10Source: MizuhoSecurities, Japan MOF, July 2010.
21 Convertibles provide exposure to equitiesConvertible bonds richness / cheapness to fair value Japan AEJ Europe Americas 4 2 0 -2 -4 -6 -8 -10 Jan 11 May 11 Aug 11 Dec 11 Apr 12Source: Nomura 13.06.12.
22 The portfolio managers – biographiesMiles GeldardHead of Team & Fund Manager In the 13 years prior to his appointment Miles built and managed global convertibles, fixed income and multi asset franchises. In 2009, he was recognised in the Sauren Awards with three gold medals in the convertibles category, two gold medals in the absolute return category and two gold medals in the multi strategy international category Having spent much of his early career managing derivative teams in the Far East, Miles became an adviser on fixed income portfolio management and foreign exchange to the Central Bank of Botswana in 1994. In 1997 he joined JP Morgan Asset Management (formerly Jardine Fleming) in Hong Kong and became Head of Fixed Income, Currencies, Convertibles and Balanced In 2004 Miles moved to London and became Chief Investment Officer and Head of the Global Multi Asset Group and Global Strategy Team at JP Morgan Asset Management. In addition to building the convertibles business, he also built and managed the JPM Capital Preservation Fund, a global multi asset absolute return fund. Miles left JP Morgan in 2006 to join RWC Partners (previously MPC Investors), where he founded and headed the multi asset and convertibles teamLee ManziFund Manager Lee started his fund management career at JP Morgan Asset Management (formerly Flemings) in 1998, working in the fixed income team. After spells working on the European fixed income team and UK desk, he took over the management of the firm’s UK Sterling accounts before joining the Global Portfolios Group in 2001 where he managed the fixed income portion of the balanced funds He then worked in the Global Multi Asset Group with Miles, focusing primarily on fixed interest and convertibles In 2006 he moved to MPC / RWC to work with Miles as a Portfolio ManagerProven, experienced investment team with award winning track recordPast performance should not be seen as a guide to the future. The awards detailed above were based on the managers’ past performance figures which are arepresentation of the fund manager’s experience and are not necessarily indicative of the potential performance of the Jupiter Strategic Total Return SICAV orJupiter Strategic Reserve UT.
23 DisclosureJupiter Asset Management Limited (‘JAM’) is registered in England and Wales (no. 2036243). The registered office is 1 Grosvenor Place, London SW1X7JJ. JAM is authorised and regulated by the Financial Services Authority for business conducted in the UK whose address is 25 The North Colonnade,Canary Wharf, London E14 5HS.This presentation is intended for investment professionals and not for the benefit of private investors. However any one attending the presentation or whohas the opportunity to view the accompanying slides should bear in mind that the value of an investments and the income from it can go down as well asup. It may be affected by exchange rate variations and you may not get back the amount invested. Initial charges are likely to have a greater proportionateeffect on returns if investments are liquidated in the shorter term. Quoted yields are not guaranteed. Current tax levels and reliefs will depend on the natureof the holding and details are contained in the key features documents. Past performance should not be seen as a guide to future performance.This document contains information based on the MSCI AC Pacific and MSCI Pacific Indices. Neither MSCI nor any other party involved in or related tocompiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to beobtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitnessfor a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third partyinvolved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any otherdamages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permittedwithout MSCI’s express written consent.For your security we may record or randomly monitor all telephone calls. If. Any data or views given should not be construed as investment advice. Everyeffort is made to ensure the accuracy of the information but no assurance or warranties are given.The Jupiter Strategic Total Return Fund can use derivatives to speculate as to the direction a market index, currency or share will move and can causeperiods of high volatility. The Fund may incur losses greater than its initial investment into derivative contracts (although investors will not incur anyliabilities beyond their initial investment). The Fund is able to gain market exposure in excess of its net asset value which can increase or decrease thevalue of units to a greater extent than would have occurred had no additional market exposure beyond the Fund’s net asset been in place. The Fund’svalue is unlikely to mirror increases and decreases in line with the respective markets it is invested in to. Further information is contained within thesimplified prospectus.This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state, the fund prospectus is available from Jupiteron request.This document is for information only. In particular, it does not constitute an offer or solicitation in any jurisdiction where it is unlawful or where the personmaking the offer or solicitation is not qualified to do so or the recipient may not lawfully receive any such offer or solicitation. It is the responsibility of anyperson in possession of this document to inform themselves, and to observe, all applicable laws and regulations of relevant jurisdictions. The informationand any opinions contained herein have been obtained from or are based on sources which are believed to be reliable, but the accuracy cannot beguaranteed. No responsibility can be accepted for any consequential loss from this information.6152_CITYWIRE_COLOGNE_0612