Presentation on:Achieving perspective in an uncertain world – Newton’s solution - BNY Mellon Global Real Return Fund (EUR) Suzanne Hutchins – Investment Manager and lead fund manager for BNY Mellon Global Real Return Fund (USD) at Newton CitywireMontreaux - 11th -13th May 2011
Newton’s appealBusiness focus Total assets under management
Performance culture – concentrates teamwork, communication and resources towards delivering outperformance
Global specialists – 70% of mandates are global including over €30 billion in global funds
Long-term incentive plan attracts and motivates staff. We operate as ‘owners’ of the business
* ECU prior to Euro ** As at 31 March 2011 Source: Newton Our culture is aligned with your objectives
4 Newton’s Real Return strategy for long-term growth Allowable assets Strategy type Absolute return Can invest in: Target EURIBOR +4% p.a. gross of feesover rolling 5 year periods
Other assets via tradeable securities e.g.
An unconstrained active multi-asset strategy with lower volatility
Emphasis on long term investing and capital preservation
Transparent, single portfolio of direct, liquid investments
Maximum flexibility at the portfolio construction level;
emphasis on traditional asset classes
no asset allocation constraints
The power of perspective and flexibility
5 Newton's absolute return credentialsNewton Real Return Fund Risk versus return since inception1 April 2004 to 31 March 2011 Unconstrained evolution of Newton's proven global multi-asset approach Compelling long-term return; not possible through market returns in broad asset classes Absolute return in every calendar year Achieved with absolute volatility closer to bonds than equities Low High Past performance is not a guide to the futureSource: Newton, weekly data, total return in sterling, gross of fees and income reinvested. Asset class statistics relate to the following measures: FTSE All Share, FTSE World, FTSE Brit. Gov't Fixed All Stocks, FTSE Brit. Gov't Index IL All Mats, JPM Global Gov't Bond, HFRI Fund of Funds (net), IPD All Properties, LIBOR 1 Month
6 Newton’s real return strategiesOverview as at 31 March 2011 Please see important information at the end of this presentation.Source: Newton
7 Newton’s structure and multi-asset investment approachThe importance of perspective Rapid implementation of ideas Efficient idea generation Motivational Team based Highly interactive investment process Newton's structure of thinking globally from a single location allows us to utilise themes Themes provide valuable perspective Generalist multi-asset team supported by teams of specialists provide objective thinking and a powerful combination of perspectives; global cross comparison of asset types global cross comparison of securities within asset types Single ‘holistic’ portfolios enable global portfolio construction and enhanced risk awareness Assessing the world as one investment opportunity
8 Newton’s Real Return teamIdea generation and input Bond / FX Strategy Group Asset Class Strategy Group Macro Strategy Group Equity Strategy Group Strategy – 3 Avg yrs’ experience: 16 Avg yrs at Newton: 11 Global equity – 14Avg yrs’ experience: 16 Avg yrs at Newton: 13 Real Return team Global equity research – 22 Avg yrs’ experience: 14 Avg yrs at Newton: 6 Specialistregional equity – 18 Avg yrs’ experience: 12 Avg yrs at Newton: 7 JamesHarries IainStewart MatthewBrown AronPataki SuzanneHutchins Fixed income – 8 Avg yrs’ experience: 12 Avg yrs at Newton: 5 Other assets – 5 Avg yrs’ experience: 9 Avg yrs at Newton: 9 Real Return Meeting Portfolio ideas come from everywhere – powerful combination of perspectives Source: Newton, March 2011
9 3 2 4 1 5 Unconstrained multi-asset investingThe process Newton's starting point is the target… …which defines the portfolio structure… … and provides the building blocks… … and Newton's view of the world… … to construct a single, flexible portfolio Return(EURIBOR +%)
Research Recommended Lists Real Return strategy Global Strategy Risk(Volatility%) Model Portfolios A BNY Mellon Financial CompanySM MEDIUM HIGH LOW Absolutely focused – flexibility is key
10 Idea generationHow themes influence investment selection Source: Newton, 28 February 2011 Information is for illustrative purposes only and should not be construed as investment recommendations.
Market leading positions in both branded and private labels in its key markets
Company continues to delever and is targeting a range of 2.5-3.0x net debt / EBITDA
Good liquidity with no near term debt maturing
Identifying global winners As at April 2011Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations
13 BNY Mellon Global Real Return Fund (EUR) Equity analysis – Top ten holdings at 31 March 2011 Portfolio holdings are subject to change at any time without notice. This information should not be construed as a recommendation to purchase or sell any security. Source: Newton, as at 31 March 2011
14 Newton Real Return positioningConceptual representation Building an asymmetric multi-asset portfolio
Emphasis on traditional asset classes
A return seeking core with particular security characteristics
Risk offsetting positions for dampened volatility and downside protection
Not an asset allocation fund – flexibility to adjust risk hedging in addition to shifting asset allocation
Seamless management of ‘risk’ and return Source: Newton, 31 December 2010
15 BNY Mellon Global Real Return Fund (Euro)Strategic positioning at 31 March 2011 Other 4.2% Equities 57.4% Commodities 4.1% Derivatives 0.1% UK 11.1% Cash & equivalents 17.6% North America 14.1% Bonds 17.3% Corporate 10.7% Government bonds 4.7% Europe ex UK 19.4% Government index linked 2.3% Convertibles 3.0% Pacific Basin ex Japan 2.6% Emerging markets 8.3% Japan 2.0% Return enhancing assets Equities High yielding global equities Positions in unloved sectors (healthcare, telecoms) and emerging world growth Corporate debt Selective exposure at compelling yield Risk offsetting positions Derivatives Euro Stoxx optionsproviding downside protection if equity markets sell-off AUD put optionsrisk aversioncommodity cooling US Bond call optionsProviding protection if bond markets rally Euro put optionsrisk aversionincreasing peripheral Europe contagion risk Currency Approximately 40% exposure to overseas currenciesnot accounting for overseas earnings of domestic stocks Commodities Inflation hedge – gold via physical gold ETFhedge against any inflation from the scale of loose policy and QE Inflation hedge – soft commodities via agricultural ETFearth matters and developing economies support this Source: Newton Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.
16 BNY Mellon Global Real Return Fund (Euro)*Historical analysis of fund positioning The chart above illustrates changes in asset allocation for the € Real Return Fund over five years. For illustrative purposes, delta adjusted equity market option exposure is shown below the main body of the chart, to demonstrate the extent to which downside protection has been utilised over time. Similarly, synthetic bond positions (bond options) have been highlighted above the main body of the chart to illustrate clearly the different bond exposures -via options and physical positions. Importantly, the strategy does not borrow to implement derivative strategies and risk controls exist to prevent exposing the strategy to open-ended losses. * Pre July 2007, delta has been adjusted using end of day data sourced from the relevant exchanges. ** Data pre April 2010 relates to £ Newton Real Return Fund. Data post April 2010 relates to the € Newton real Return Fund Source: Newton, 31 March 2011 Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.
17 Newton’s Real Return Strategy Derivatives use since inception Source: Newton, March 2011 Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.
18 Real Return investing Controlling the risks Real Return strategy Portfolio objectives (1 month Euribor +4% target) Proprietary research Fundamentals Price Single portfolio approach Perspective A BNY Mellon Financial CompanySM Risk control (portfolio guidelines) Risk monitoring Ensuring risk is appropriate, consistent and intended * Based on long term volatility statistics
19 Newton Real Return Fund (GBP)Results analysis Contribution by asset class Results in differing equity markets since inception (to 31 March 2011)* Cumulative contribution month by month for 2008 Cumulative contribution month by month for 2009 Source: Newton* Monthly data, total return, gross of fees. Rising and falling periods defined using quarterly MSCI World NDR returns
20 BNY Mellon Global Real Return Fund (EUR)Results contribution by asset class Cumulative attribution month by month since inception to date Different investments take the strain in different environments Source: Newton as at 31 March 2011 Past performance is not a guide to the future Please remember that the value of shares and the income from them can fall as well as rise and investors may not get back the full amount originally invested
Newton Real Return Fund (£) Long-term investment results 1.9 -5.5 -2.0 -1.6 -1.8 -3.3 -11.5 -30.9 +123.74% +69.74% +65.83% -3.0 -7.8 Market downturnMarch 05 – April 05 March 2004 Market downturnApril 06 – May 06 Market downturnJune 07 – July 07 Market downturnDecember 07 – Feb 09 Market downturnApril 10 – June 10 Newton Real Return in market downturn MSCI World in market downturn Figures are based on sterling returns. Past performance is not a guide to the future Source: Newton, weekly data, total return, gross of management fees, gross income reinvested. 31 March 2011
22 Why BNY Mellon AM Specialist approach to fund management. Appointed Newton to manage the portfolio as their Global Thematic specialist with expertise in global mixed funds. Newton has €9.7 bn in multi-asset/real return strategies. Aims to beat cash returns 1 month EURIBOR +4% over a 3- 5 year rolling periods Track record Based on the Newton Real Return Fund, managed by Newton since 2004, which has achieved this objective in this time frame and has AAA rating by Standard & Poor's, 5 stars Morningstar. Flexible approach Can invest in a variety of asset classes (equity, fixed income, cash instruments, REITS, commodities) with a global approach. Can also invest in simple derivatives to capture strong returns and preserve capital in all conditions. Resourceful Fund manager is supported by a team that generates ‘global themes’ and the macroeconomic strategy as well as by a team of 21 analysts responsible for the bottom-up input. Experienced Strategy Director has 23 years investment experience at Newton. Fund manager, has 15 years’ experience managing multi-asset class portfolios. Qualitative rating BNY Mellon Global Real ReturnFund (EUR)Conclusion The strategy was launched on 31 March 2004 (the Fund was previously called Newton Intrepid and followed a completely different strategy).
23 More informationFund Microsites – www.bnymellonam.com/grr/en
25 Newton Real Return FundInvestment team Portfolio management team Iain Stewart Iain is investment leader of the global funds, a member of the Real Return team and a senior member of the strategy group, with particular responsibility for co-ordinating the development of Newton’s global investment themes. He joined Newton in 1985, and has specialised in the management of multi-asset and global equity mandates. Iain is also responsible for a significant portion of Newton’s pooled balanced portfolios. James Harries James is a member of the Real Return team, a global manager specialising in our global higher income and real return strategy. He joined Newton in 1995 and is a member of the global investment and global model groups. Additionally, he worked at Veritas Asset Management between 2004 and 2005, where he established and managed a global income fund. Matthew Brown Matthew is a global funds manager and a member of the Real Return team. He is also a member of both the multi asset and European equities groups. Since joining the Newton multi asset team in 2000, Matthew has acquired varied experience in a range of mandates including multi asset, global equity and absolute return portfolios. He is a chartered financial analyst (CFA). Aron Pataki Aron is a risk strategist for the Real Return strategy, with a particular focus on the use of derivatives and hedging. He joined Newton in 2006 as a member of the portfolio analytics team, where he was responsible for risk analysis and portfolio construction across Newton’s institutional and retail portfolios. Previously, he worked as a quantitative analyst at Lacima Group. Suzanne Hutchins Suzanne Hutchins rejoined Newton in 2010 as global investment manager and member of the Real Return team. She moved to Capital International in 2005 as Investment Specialist for global equity, income and absolute return based strategies. She had additional client facing responsibility for ESG (Environmental, Social and Governance) issues. Suzanne joined Newton in 1991 as a research analyst after completing a BA (Hons) at University College London. During her 14 years with Newton, she worked closely with Stewart Newton before becoming lead on the UK and Intrepid team. She managed multi-asset, global equity mandates and RPI+ based strategies for institutional and retail clients.
26 Investment team Overview at April 2011 Paul Brain Paul Stephany Howard Cunningham1 Robert Shelton Helena MorrisseyChief executive officer Jeff MunroeChief investment officer Simon PrykeHead of private clients & charities Andrew DownsChief operating officer Matt DuncanHead of business strategy Roger WilkinsonInvestment leader, global research Campbell WattersonDeputy chief investment officer Chris RexworthyChief risk and compliance officer Tineke Frikkee Jonathan Day Trevor Holder Carl Shepherd Simon Nichols Uzo Ekwue Scott Freedman Ben Russon Parmeshwar Chadha1 Europe Richard Wilmot Martin Chambers Rajesh Shant Thomas Beevers Caroline Tye + Onshore Roger Wilkinson Rosie Bichard Duncan Bulgin Robert Canepa-Anson Tracey Dominick Charles French Robert Gullett Paul Schenk Christopher Smith David Stephenson Jeremy StuberCharles Whall Ian Burger2 Amanda Young2 Elly Irving2 Gemma Kingsley Tim Lucas Jonathan McMullan Fatemah Naraghi Michael Plotkowiak Russell Pointon Stephen Rowntree Fred Moore Naomi Waistell Caroline Mair + International Asia Pacific Jason Pidcock Mike Connor + Edinburgh USSimon Laing Emily Fletcher Zoe Kan Caroline Keen Aidan Butler + Leeds Strategy Tim Wilson1Peter HensmanDouglas Reed Credit Howard Cunningham1 Parmeshwar Chadha1 Scott Freedman Martin Chambers Specialists Paul Flood5 Aron Pataki5 Sophia Whitbread4 Yuko Takano4 Paul Markham Ian Enslin Gemma Woodward Jon Bell Terry Coles James Korner Alan Goodwin Robert Hay Wilfred Frost Oliver Larminie Charlotte Ryland Peter Henderson Matthew Brown Rob Marshall-Lee3 Nick Moss Robert Stewart Hilary Meades James Harries Nick Clay Christopher Metcalfe Suzanne Hutchins Jeff Munroe Iain Stewart Notes Chart illustrates primary responsibilities. Regional fund management teams combine portfolio management with regional research responsibilities. 1 Combined Global Research/Investment Management roles. 2 Corporate Governance / SRI. 3 Combined Investment Management / Specialist Research. 4 Specialist Research. 5 Derivatives
27 Newton Real Return FundPerformance contribution by asset class 5 years to 31 December 2009 Annualised performance Different investments take the strain in different environments Source: Newton, gross of fees
28 Newton Real Return Fund (£)Longer term results Key Return less risk free rate (LIBOR 1 month) divided by standard deviation Standard deviation Value at risk: worst case of 95% confidence (normal distribution assumed) Ex Post Ex Ante ‘Equity like’ performance with lower volatility Source: Newton, as at 31 March 2011, total return, gross of management fees, gross income reinvested Figures are based on sterling returns. Past performance is not a guide to the future Please remember that the value of shares and the income from them can fall as well as rise and investors may not get back the full amount originally invested. †Restyle date
29 Newton Real Return FundCalendar year results (since inception) * 31 March 2004 to 31 December 2004 Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested. The value of overseas securities will be influenced by fluctuations in exchange rates. Source: Newton, as at 28 February 2011, gross of fees, COB prices
30 BNY Mellon Global Real Return Fund (EUR)Positioning Corporate bond positioning Credit rating (% of credit exposure) Bond Sector breakdown (% of credit exposure) Source: Newton as at 31 March 2011 Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations 30
31 Newton Real Return FundDistribution of weekly returns as at 31 March 2011 Newton Real Return MSCI World NDR index Weekly returns (%) Narrower, less volatile return profile than global equities Source: Newton, weekly data, total return, gross of management fees, gross income reinvested, since inception (1 April 2004 )
32 Newton Real Return Fund (£)Relaunch (1 April 2004) to 31 March 2011 Investment results Figures are based on sterling returns. Past performance is not a guide to the future. Please remember that the value of shares and the income from them can fall as well as rise and investors may not get back the full amount originally invested Source: Newton, weekly data, total return, gross of management fees, gross income reinvested
33 The benefits of appointing Newton Managing money is Newton's sole business Global specialists since Newton's inception Integrated single portfolio management a key strength for global target return mandates An investment process that has been in place for 30 years Rapid implementation of ideas Efficient idea generation Motivational Team based “The first rule is not to lose money. The second rule is not to forget the first rule” – Warren Buffett
34 Idea generationHow themes influence investment selection Source: Newton 28 February 2011Information is for illustrative purposes only and should not be construed as investment recommendations.
35 Portfolio positioning In a lower growth world, with more volatility, investors should prize both growth and stability. At the current time large capitalisation, diversified and relatively defensive equities are selling at attractive valuations. Focus on healthcare, telecoms, selected technology areas and staples. Developing world continue to have attractions in terms of growth and fiscal positions. Low western interest rates will continue to encourage capital flows into these economies. Selected developing economy exposure The effort to reflate western economies with QE type policies will continue to underpin demand for ‘real assets’. Longer term demand fundamentals and real supply challenges in various resources will continue to present opportunities. Energy, commodities and basic industries and their infrastructure Extremely selective in financials. Avoid those challenged by government interference. The “all change” world will continue to pressure financials. Divergent performances likely to yield stock selection opportunities. Source: Newton, January 2011
36 Idea generationStock selection Stock example: MTN
Very strong, under levered balance sheet and free cash flow positive
Revenue growth of 9% expected for 2011
Pure play Mobile telecoms operator in Latin America, Africa & Asia.
Current low level of Mobile and Fixed telephony penetration in Africa & Asia gives great growth potential for many years to come.
Strong strategy which focuses on brand and offering “Value” to customer is well suited to current tough economic environment.
Strong management & balance sheet means will be a survivor
Identifying global winners Portfolio holdings are subject to change at any time without notice and should not be construed as investment recommendations Source: Newton as at April 2011