Gstaad karb final

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Gstaad karb final

  1. 1. Kames Absolute Return Bond FundA simple solution in a complex worldSeptember 2012Colin Finlayson – Investment Manager Fixed Income Manager,
  2. 2. Kames Absolute Return Bond Fund• Our Absolute Return Bond Fund aims to generate returns whilst limiting downside volatility and preserving capital – Performance target: 3 month GBP LIBOR + 2% to 3% p.a. net of fees - over rolling 3 years – Primary alpha sources: y p – Rates – duration neutral cross market and yield curve relative value positioning – Credit – market neutral stock and sector selection – No alpha derived from currency risk – Offers investors low risk NOT no risk – Positive returns + low volatility + uncorrelated to underlying markets 2
  3. 3. Performance since launch 3.00 2.50 2.00% growth 1.50 1.00 0.50 0 50 0.00 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Kames Absolute Return Bond B GBP Acc Absol te Ret rn LIBOR GBP 3 Months Oct Nov Dec Jan Feb Mar Apr May June July Aug 2011 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 TotalKARB(£ B Cl Class) ) 0.60% 0 60% 0.30% 0 30% 0.49% 0 49% 0.20% 0 20% -0.01% 0 01% 0.37% 0 37% -0.02% 0 02% -0.06% 0 06% 0.26% 0 26% 0.44% 0 44% 0.32% 0 32% 2.90% 2 90%3m LIBOR(GBP) 0.08% 0.08% 0.09% 0.09% 0.09% 0.09% 0.09% 0.09% 0.08% 0.08% 0.06% 0.91%Relative 0.52% 0.22% 0.40% 0.10% -0.10% 0.28% -0.11% -0.15% 0.18% 0.36% 0.26% 1.99%This fund has been i existence f lThi f d h b in i t for less th 12 months and as a consequence th performance i di t d should not b t k as a projection of possible f t than th d the f indicated h ld t be taken j ti f ibl futureperformance and similar returns may not be achieved in the future.Source: Lipper as at 31 August 2012. NAV to NAV, income re-invested, net of fees. Total return, local currency, B (Acc) GBP class. Launch: September 2011 3
  4. 4. Kames Absolute Return Bond Fund - lower volatility opportunity y pp yAnnualised volatility Fixed Income Asset Classes - Annualised Volatility30% 8% 7%25% 6%20% 5%15% 4% 3%10% 2% 5% 1% 0% 0% KARB Global Global US GBP European UK FTSE DAX KARB Global Global US GBP European UK IG HY Govt IG Govt Govt 100 IG HY Govt IG Govt GovtSource: Kames Capital, BoAML , Bloomberg 30 September 2011 – 31 August 2012 4
  5. 5. Delivering returns uncorrelated to the underlying market g y gKARB vs Gilt Market - Total Return KARB Returns vs Credit Market Spreads3.00% 11.00% 3.00% 1802.80% 2.80% 1902.60% 2.60% 9.00%2.40% 2.40% 2002.20% 2.20% 2102.00% 7.00% 2.00%1.80% 1.80% 220 Total Return %1.60% 1.60% bps 5.00% 2301.40% 1.40%1.20% 1.20% 2401.00% 3.00% 1.00% 2500.80% 0.80%0.60% 0.60% 260 1.00%0.40% 0.40% 2700.20% 0.20%0.00% -1.00% 0.00% 280 Aug 12 Aug 12 Oct 11 Dec 11 Oct 11 Dec 11 Feb 12 Jun 12 Feb 12 Jun 12 Apr 12 Apr 12 KARB (GBP) UK Gilt Market (RHS) KARB (GBP) Global Investment Grade - OAS (inverted RHS)Source: Kames Capital, Bloomberg and BoAML as at 31 August 2012 5
  6. 6. Three key components y p Carry module Credit Rates module module d l Kames Absolute Return Bond 6
  7. 7. Three investment modulesCarry module• Minimum weighting of +20% within the overall fund g g• Diversified range of investment grade quality bonds - maximum 2 years to maturity onlyCredit module• Primary alpha focus on credit neutral relative value positions• Net exposure limited to +/-50% within the overall fundRates module• Primary alpha focus is on duration neutral relative value positions• Duration range: -2.5 to +2.5 years – neutral position of 0 years duration 2.5 2.5 years’ 7
  8. 8. Carry module – Activity and current p y y positioning g• Activity since launch – 10 bonds matured – 1 position sold outright – RBS 6% 10/05/13 – 1 issuer RV switch – TITM: EUR into USD• Current Positioning – Exposure = 41% – 41 holdings – Average credit rating = A – Modified duration = 0.6 year y – Yield = 1.87%Source: Kames Capital August 2012 8
  9. 9. Credit module – long Intesa Sanpaolo/short Banco Popolare – via CDS g p p Intesa Sanpaolo vs Banco Popolare - 5yr CDS 350 • Italian banks mired in Euro Crisis 325 • Spread between stronger and weaker 300 banks is too narrow given mounting risks 275 221bps of spread tightening • Market has mispriced relati e credit risk relative 250 Spread (bps) 225 • Action – via 5yr Senior CDS 200 Closed Trade – Long Intesa Sanpaolo risk @ 215bps 175 – Short Banco Popolare risk 150 • Result 125 Entered Trade – Spread widened 95bps @ 120bps – Value of Banco Popolare protection fell 2.9% 100 relative to Intesa Sanpaolo Jun 12 Feb 12 Mar 12 Jan 12 May 12 Apr 12 b n n y – Alpha added without taking explicit view onSource: Kames Capital and Bloomberg as at 21 June 2012. For illustrative purposes only. market direction 9
  10. 10. Rates module – long 10yr Australia /short 10yr US treasuries g y y Australia vs US Treasury - 10yr Yield Spread • Australia offers a “safe haven” alternative 200 to core rates markets ps) 195 10yr AUST vs UST Yield Spread (bp 190 • But the easy money has been made 185 180 • Discipline needed to add further value 175 Action July A ti – J l 2012 Y 170 • Entered Trade @ 165 Cheap 159bps – Buy Australia Government 2022 Bonds 160 155 – Sell 10yr US Bond Futures 150 r Neutral 145 • Result 140 – Spread narrowed 19bps 135 130 Rich Closed Trade @ Cl dT d – Australian excess total return of 1 77% 1.77% +141bps 125 – 11bps of low risk alpha for portfolio 120 04 May 12 18 May 12 25 May 12 11 May 12 06 Jul 12 13 Jul 12 20 Jul 12 30 Mar 12 06 Apr 12 13 Apr 12 20 Apr 12 27 Apr 12 01 Jun 12 08 Jun 12 15 Jun 12 22 Jun 12 29 Jun 12 A A A A M M M M M J J J J JSource: Bloomberg and Kames Capital as at 20 July 2012. For illustrative purposes only. 10
  11. 11. KARB Investment Modules – Allocation since launch KARB Module Allocation - Gross Exposure KARB Module Allocation - Net Exposure 180% 100% 90% 160% 80% 140% 70% 60% psoure % 120% oure % 50% 100% Net ExpGross Expso 40% 80% 30% 20% 60% 10% 40% 0% -10% 20% -20% 0% -30% Jan 12 Jun 12 May 12 Jul 12 Aug 12 Apr 12 Nov 11 Dec 11 Oct 11 Feb 12 Mar 12 Jun 12 2 Jul 12 2 Aug 12 2 Nov 11 Dec 11 Feb 12 2 Mar 12 2 Oct 11 2 Jan 12 May 12 2 Apr 12 2 Cash Carry Credit Rates Rates Cash Carry Credit Net Exposure Carry Credit Rates Cash Total Carry Credit Rates Cash TOTAL AVERAGE 40% 38% 52% 20% 150% AVERAGE 40% 22% -11% 20% 71%Source: Kames Capital as at 31 August 2012 11
  12. 12. Why invest in Kames Absolute Return Bond? y• Award winning fixed income team• Proven fixed income investment process• Three module investment approach• A core investment, targeting low risk cash plus returns 12
  13. 13. Appendices pp 13
  14. 14. Kames Absolute Return Bond FundLaunch date 30 September 2011Fund manager Stephen Snowden and Colin FinlaysonFund structure Irish domiciled VCIC under UCITS IIIInvestment policies Invest in diversified portfolio of fixed interest investmentsPerformance target Performance target 3 month GBP LIBOR + 2%-3% net of fees over rolling 3 yearsExpected volatility < 5% VaR – (99% 1 month VaR) Government -75%-95% Investment Grade Credit -50%-95%Asset allocation ranges g High Yield Credit g -20%-20% Emerging Market Credit -20%-20% Cash >5% Carry Module: > 20%; Minimum BBB- & <2yrs maturity Credit Module: +/-50%;; HY+EM = +/-20%FundF nd Restrictions Rates Module: +/-75%; Duration range -2.5 to +2.5yrs Cash: > 5%Base Currency UK SterlingHedged share classes Sterling, Euro, USD 14
  15. 15. Aggregate Fund positioning gg g p g• Gross exposure = +169%• Modified duration = +0.7 years 0.7• Number of holdings = 88• Unhedged currency exposure = 0.74% g y p• Average credit rating = A+• VaR = 0.68%• Spread duration = 1.0 years (non-beta adjusted)• Correlation to Gilt market = -0.15Source: Kames Capital August 2012 15
  16. 16. Know what fund you are not buying y y g• What Kames Absolute Return is… • And what it is not… – Fund offering returns in line with risk budget – Offering unrealistic returns given the risk limits – Targeting a positive total return for investors – Guaranteeing a given return for investors – Making use of six sources of alpha – Focusing on a single asset class – Sticking to what we know and are good at – Taking currency risk to generate performance 16
  17. 17. Absolute Return Bond Fund vs. Strategic Bond Fund g Absolute Return Bond Strategic Bond Performance source Alpha + Beta Beta + Alpha Management focus Absolute returns Total returns Return measurement Actual return Peer group relative Default duration Zero Positive Credit risk Limited Unlimited High yield limit Max 20% Up to 100%Source: Kames Capital 17
  18. 18. Managing and understanding risk g g g• Interest rate scenario analysis Deconstruted impact Overall impact 2.50% 2.50% 1.50% 1.50% 0.50% -0.50% 0.50% -1.50% -2.50% -0.50% Prl -100bps Prl +100bps Prl -1bp Prl +1bp Prl +10bps Prl +30bps Prl +50bps Prl -50bps Prl -30bps Prl -10bps -1.50% -2.50% 2 50% Corporate Bond Inflation Linked Pr +100bps Prl -100bps Prl -1bp Prl +1bp Prl +10bps Prl +30bps Prl +50bps Prl -50bps Prl -30bps Prl -10bps Bond Future CASH Govt Bond Forex Forward P P P rl P P P Credit Default SwapsSource: Kames Capital as at 31 August 2012 18
  19. 19. Managing and understanding risk g g g• Credit risk scenario analysis Deconstructed impact Overall impact 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0 0% -0.5% 0.0% -1.0% -0.5% -1.5% -1.0% ds ds ds ds ds Credit Spread Credit Spread Credit Spread Credit Spread Credit Spread Down 50% Down 25% -1.5% Up 100% Up 25% Up 50% redit Spreads Up 25% redit Spreads Up 50% Credit Spread Down Credit Spread Down Cre Spreads Up 100% ds ds U C C C C C 50%% 25%% Corporate Bond Inflation Linked Bond Future CASH edit Govt Bond Forex Forward Cr Cr Credit Default SwapsSource: Kames Capital as at 31 August 2012 19
  20. 20. Important information pThis document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors. Theinformation in this document is based on our understanding of the current and historical positions of the markets. The views expressed should not be interpreted asrecommendations or advice. All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed and information provided are accurate at thetime of writing. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed.While the investment objective of absolute return funds is to achieve a positive return in all market conditions, this is not guaranteed in any way.Investment professionals must ensure that they meet their obligations in relation to their understanding of this product and the risks involved, and the extent to which this productmeets the needs of their clients. Please refer to the Full Prospectus.For Investors in Switzerland - On March 26th 2009, the Swiss Financial Market Supervisory Authority FINMA authorised the distribution to the public of the shares of KamesCapital Investment Company (Ireland) plc (the “Company”) in or from Switzerland in conformity with article 120 of the Federal Law on Collective Investments of Capital datedJune 23rd 2006. The Company was authorised as a Foreign Collective Investment Scheme. The articles of the Company, the Extract Prospectus for Switzerland, the KeyInvestor Information (Swiss edition), the annual and semi annual Report for Switzerland of the Company can be obtained free of charge on our website www.kamescapital.comor from the Representative in Switzerland, BGG Banque Genevoise De Gestion, 15, Rue Toepffer, 1206 Geneva, Switzerland, (Tel : + 41 22 3479040; Fax: + 41 22 3479327).Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (CompanyNumber 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) andBrian McDermott (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland.Kames Capital is an AEGON Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (CompanyNumber SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc isauthorised and regulated by the Financial Services Authority, (FSA reference no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames CapitalInvestment Company (Ireland) plc. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an AEGONcompany, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSA reference no: 165548).FP ID: 2012/14386 20

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