Jupiter Strategic Bond Citywire Wealth Manager Conference & Awards Park Plaza, Westminster Bridge, 4-5 March `13 FOR INVESTMENT PROFESSIONALS ONLY, NOT FOR RETAIL INVESTORS Presented by: Ariel Bezalel, Fund Manager Director
2 Contacts firstname.lastname@example.org Louis Wood Business Development Director 0207 314 4788 Wealth Management, UK Wholesale 07900 055 188 John Tevenan jtevenan.@jupiterinternational.com Sales Director 0207 314 7491 Global Financial Institutions, International 07841 451 425
3 Agenda Who we are & what we offer The macro environment: threats & opportunities for credit investors Our holdings: some examples Portfolio overview Conclusions
4 Profile Current Role Fund Manager, Fixed Interest/Multi-Asset Team Fund Management Director Ariel Bezalel Current Responsibilities Manager, Jupiter Strategic Bond Fund (Unit Trust), Jupiter Dynamic Bond SICAV and the fixed interest component of Jupiter High Income Fund (Unit Trust) and Jupiter Monthly Income Jupiter Asset Management Ltd. Fund (Unit Trust) 2000 – Jupiter Asset Management Fund Manager, Fixed Interest Team 1998 – 1999 Jupiter Asset Management Assistant Fund Manager, Fixed Interest Team 1997 – 1998 Jupiter Asset Management Back Office Qualifications Economics (Middlesex University)
5 Fixed Income and Multi-Asset Team Miles Geldard Head of Team & Ariel Bezalel Fund Manager Lee Manzi Fixed Income Multi-Asset Fund Manager 30 years industry exp. Fund Manager 15 years industry exp. 15 years industry exp. Rhys Petheram Total Assets: €3.6bn* Joseph Chapman Fixed Income Multi-Asset Fund Manager Quantitative Analyst 12 years industry exp. 2 years industry exp. Hilary Blandy Nicole Weiss Fixed Income Fixed Income Senior Credit Analyst Credit Analyst (Maternity leave) 11 years industry exp. 13 years industry exp. Luca Evangelisti Harry Richards Fixed Income Fixed Income Credit Analyst Absolute Return Convertibles Credit Analyst 5 years industry exp. 1 year industry exp. Michael Poole Steve Naish Specialist Dealer Specialist Dealer 9 years industry exp. 27 years industry exp.*Source: Jupiter as at 31.12.12. Note: Years of experience as at 08.02.13. Past performance is no guide to the future.Note: Miles Geldard was recognised in the Sauren Awards with two gold medals in the convertibles category, two gold medals in the absolute returncategory and two gold medals in the multi strategy international category. Ariel Bezalel won the “Best Strategic Bond Fund Manager” at the InvestmentWeek Fund Manager of the Year awards.
6 Jupiter Strategic Bond Fund net performance Ranked 2nd in sector since launch (02.06.08) Jupiter Strategic Bond TR in GB 69.05 iBoxx Stg NON-GILTS ALL MATURITIEs TR in GB 42.30 IMA Sterling Strategic Bond TR in GB 34.59 70 60 50 40 % Growth 30 20 10 0 -10 -20 Jun 08 Mar 09 Dec 09 Oct 10 Jul 11 Apr 12 Jan 13Source: FE, bid to bid, net income reinvested in GBP to 31.01.13. Fund launched 02.06.08. Ranked 2 / 53 in IMA Sterling Strategic Bond sector since launch.Past performance is no guide to the future.
7 Jupiter Dynamic Bond SICAV net performance Performance since launch Jupiter Dynamic Bond L Inc EUR TR in EU 10.67 Jupiter Dynamic Bond I Inc EUR TR in GB 11.28 Barclays Pan-European Aggregate: Corporate TR in EU 4.60 14 12 10 % Total Return 8 6 4 2 0 -2 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13Source: FE, bid to bid, gross income reinvested in EUR, net of fees 08.05.12 to 31.01.13. Fund launched 08.05.12.Past performance is no guide to the future.
8 Performance Jupiter Strategic Bond Fund1 Jupiter Dynamic Bond SICAV2 1 year 3 year Since launch 3 month 6 month Since launch Cumulative % % % Cumulative % % % Jupiter Strategic Bond 13.82 33.07 69.05 Jupiter Strategic Bond 3.73 7.55 10.67 IBOXX Stg Non Gilts All 9.80 26.93 42.30 Barclays Pan European -0.90 1.45 4.60 Maturities Aggregate: Corporate IMA Sterling Strategic Bond 10.75 23.41 34.59 FO Fixed Interest Global -2.89 -4.19 0.78 sector average sector average Sector ranking 20 / 69 8 / 61 2 / 53 Sector ranking 9 / 236 8 / 228 10 / 219 2012 2011 2010 2009 Discrete years % % % % Jupiter Strategic Bond 16.09 4.50 11.19 42.52 IBOXX Stg Non Gilts All 13.05 6.91 8.38 10.78 Maturities Sterling Strategic Bond 13.39 2.71 8.09 20.75 sector average Sector ranking 26 / 69 19 / 65 13 / 61 2 / 551. Source: FE, bid to bid, net income reinvested in GBP to 31.01.13. Jupiter Strategic Bond Fund launched 02.06.082. Source: FE, bid to bid, gross income reinvested, net of fees in Euro to 31.01.13. Jupiter Dynamic Bond Fund launched 08.05.12.Past performance is no guide to the future.
9 Post “Whatever it Takes” speech, where are we now?Don’t fight the FED… or the ECB, BofE, BofJ, SNB Major central banks appear to have To infinity… and beyond! backstopped markets… for now US appears to be establishing sustainable economic recovery. Positive tailwinds from the Far East Europe: Macro picture looks bad. Peripheral economies to struggle. Core economies likely to be pretty stagnant Expect plenty more volatility in FX marketsFund manager views at the time of writing and will change in the future. Chart source: FRB, BEA, ECB, Eurostat, BoE, UK Office for National Statistics,BoJ, Japan Cabinet Office, JP Morgan, 25.09.12.
10 Truly strategic… Strategic asset allocation since launch Sovereign (long) Sovereign (short) High Yield Investment Grade Cash 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Exploiting opportunities across the ratings spectrumSource: Jupiter as at 31.01.13. The fund manager has the power to use derivatives but it is intended that these will only be used for efficient portfoliomanagement and not for investment purposes.
11 Europe: Austerity + bank recaps + high oil prices = recession Manufacturing activity Non-manufacturing activity US Eurozone UK UK Eurozone US 65 65 60 60 55 55 Expansion Expansion 50 50 Contraction Contraction 45 45 40 40 35 35 30 30 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12Source: Bloomberg as at 31.12.12.
12 Sustainable economic recovery taking shape in the USHousing is a big part of consumer net worth NAHB housing market index1 Household cash balances & cheaper homes2 Last price Last price % of metropolitan statistical areas Percent of GDP 80 NA HB Housing Market Index (LHS) 160 US Consumer Confidence (RHS) 70 140 60 120 50 100 40 80 30 60 20 40 10 20 0 0 Dec 99 Mar 02 May 04 Jul 06 Sep 08 Nov 10 Jan 13Broadly speaking, it makes more sense to buy than rentSource: 1) Bloomberg as at 31.01.13. 2) JP Morgan, AxioMetrics, CoreLogic, FHLMC, BEA June 2012.Fund manager views at the time of writing and will change in the future.
13 Existing home inventoryBig improvement on the supply sideSource: NAR / TIS Group 2013.
14 US Consumer net worth on track to make new highThis reflects increases in house prices, stock prices, cash,bonds, insurance, etc., as well as declines in mortgage debtSource: US Consumer Net Worth (ISI) Q1 2013 $64.3 e.
15 “In the Fed we Trust?”Ben Bernanke, Chairman of the Federal Reserve “Our expectation is that the decline in activity or the slowing in activity will be moderate; that house prices will probably continue to rise but not at the same pace that they had been rising.” 15th February 2006 “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be constrained.” 28th March 2007 “The Federal Reserve is not currently forecasting a recession.” 10th January 2008Source: Grant’s, Interest Rate Observer, Vol. 30, No.19, 5th October 2012.
16 Corporate bond valuations European Investment Grade spreads* IG Non-Financials Saw Small Uptick in Leverage** ASW spreads by rating, bp Net Leverage Gross Leverage SPL (RHS) Avg SPL (RHS) 3x 160 140 120 2x 100 80 60 1x 40 20 0x 0 Dec 99 Jun 02 Dec 04 Jun 07 Dec 09 Jun 12Still scope for further tightening*Source: RBS Credit Strategy, Bloomberg, 27.11.12.**Source: Morgan Stanley Research, Bloomberg, Markit, Company Data as at 28.08.12.
17 Banks in vast parts of Europe are still under-capitalisedDisciplined approach still essential European Bank Funding Costs Now Lower than Capital Ratios Vary Greatly – Periphery Systems Spreads on New Loans* Generally Stronger than Average** Loans-to-Deposits Ratio Progress on Track*** “It all boils down to capital. If you don’t have enough simple common equity you will run into problems.” Stefan Ingves, Chairman of the Basel Committee on Banking Supervision*Source: Morgan Stanley Research, ECB, 19.10.12. **Source: Morgan Stanley Research, SNL Financials, Bloomberg, company data, 19.10.12.***Source: Morgan Stanley Research, SNL Financials, CEIC, various national regulatory bodies, 19.10.12. The views expressed are those of the fundmanager at the time of writing and may change in the future.
18 Progress against plan: RBS Capital, funding Group: Key performance indicators Worst point Q3 2012 Medium-term target and liquidity Balance sheet & risk (group): positions robust Loan: deposit ratio (net of provisions) 154%1 102% c.100% Safety and soundness Short-term wholesale funding2 £297bn3 £49bn <10% TPAs remains a key priority Liquidity portfolio4 £90bn3 £147bn >1.5x STWF Leverage ratio5 28.7x6 15.4x <18x Core Tier 1 Capital ratio 4%7 11.1%8 >10% Value drivers (core) Return on Equity (RoE)10 -31%9 10% >12% Cost: Income ratio12 97%11 59% <55% AchievedSource: RBS Group October 2012. 1) As at October 2008. 2) Amount of unsecured wholesale funding under 1 year including banks deposits <1 yearexcluding derivatives collateral. 3) As at December 2008. 4) Eligible assets held for contingent liquidity purposes including cash, government issuedsecurities and other securities eligible with central banks. 5) Funded tangible assets divided by Tier 1 Capital. 6) As of June 2008. 7) As of 01.01.08.8) Includes APS benefit of 0.7%, CT1 ex. APS 10.4%. 9) Group return on tangible equity for 2008. 10) Indicative: Core attributable profit taxed at 28%on attributable core average tangible equity (c.80% of group tangible equity based on RWAs). 11) 2008. 12) Adjusted cost: Income ratio net ofinsurance claims.
19 High yield valuationsFinancial repression, low default rates, low growth and low inflation could push spreads tighter European high yield spreads and default rates High Yield: coupon High yield default rate High yield spreads clipping year 25% 2500 Geographic exposure still important here 20% 14 year average 2000 = 4.6% Prefer secured debt & Spread to Worst 14 year average = defensive industries Default rate 15% 1500 712 bp Outside the box 10% 1000 themes: oil rig financing and pub 5% 500 securitisation 0% 0 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12Quality junk: Two thirds of EHY are BB credits vs. just 26% in 2006Source: Source: Moody’s, JP Morgan, as at 31.01.13.Note: Default rates are sourced from Moody’s. The inclusion of banks in their data tends to inflate default rates, particularly in 2009 – 2010.
20 European HY fundamentals HY balance sheets improving. Metrics FCF is above long-term averages better than 2000 – 2002 cycle LTM FCF to debt LTM FCF to Debt Avg 15% “Good quality issuance” 10% 5% Uncertain economic outlook favours 0% senior secured -5% -10% Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 HY non-financial leverage: LTM interest coverage still below average Net down, gross up Net debt / EBITDA Interest coverage Net Leverage Gross (Charting) Interest Coverage Avg 5x 7x 6x 4x 5x 3x 4x 2x 3x 2x 1x 1x 0x 0x Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11Source: Morgan Stanley Research, Bloomberg, Company Data, 31.09.12.
22 Spirit Pub Company Plc. One of the largest pub groups in the UK. Portfolio of brands with focus on eating-out market. Pubs located favourably. Bias towards south Company’s debt consists of approx. £870m legacy securitisation put in place Nov. 2004 5 pari passu tranches, all rated Ba2 / BB- Business demerged from Punch Taverns Aug. 2011. Bonds traded off 2H 2011 amidst economic stress and deteriorating operating environment Secular decline in beer drinking Negative impact of the smoking ban Higher taxation – increases in duty and VAT hike Difficult macro economic backdrop: Stagnant UK wages and rising unemploymentSource: Jupiter September 2011.
23 Spirit Pub Company Plc. – Investment Thesis Solid turnaround story Positions across 3 Whilst leased pubs (30% of portfolio) have performed poorly, the managed tranches of notes division (70%) seen decent growth as the eating-out market more resilient than Current yields to expected redemption: Benefit from growing eating-out Class A3 Bonds: 4.7% Dispose of weak leased pubs Class A4 Bonds: 7.0% Convert leased portfolio to franchised or managed pubs Class A5 Bonds: 6.8% Bonds benefit from maintenance covenants… Spirit required to maintain certain levels of cash flow cover with a loan to value covenant that activates below certain thresholds Restrictions on acquisitions and disposals Annual 3rd party property valuation …backed by substantial security package Portfolio of 1,179 pubs. EBITDA of £141m and LTV of 65%Source: Jupiter December 2012.
24 PagesJaunes: This Time It’s Different Leading directories business in France Publishes printed and online directories and offers website creation and hosting services Online services accessed by internet and mobile Pajfp has experienced significant declines in print business Directories CAGR 2007 to 2011 is -5.0% And the outlook for its customer base of French SMEs is challenging Bonds were unloved… Tainted by concerns about the sector …ongoing saga surrounding the company’s attempts to extend the maturity date of its bank facilities weighed on bonds
25 PagesJaunes: This Time It’s Different Unlike other directories business, Pajfp has successfully made the transition to online… Pajfp’s mobile app. and online directory has gained high acceptance rates amongst French consumers Online growth has offset print declines EBITDA margins: 44% Strong track record of cash flow generation (1) (in EUR millions) 2009A 2010A 2011A 2012E 2013E Free Cash Flow 338 331 307 314 291 Net Debt 1,922 1,941 1,710 1,544 Net Debt / EBITDA 3.8 x 4.1 x 3.8 x 3.5 x Committed to deleveraging - dividends stopped until leverage <3x Decent equity cushion – €472.3m market capitalisation(2) Proven management team with proven track record in online business Announced in Nov. 2012 extension of bank facilities now secured, future looks goodSource: (1) Lucror Analytics, 20.11.12. (2) Bloomberg, 27.11.12.Fund manager views at the time of writing and will change in the future.
26 PagesJaunes: This Time It’s Different Directories: an unloved 105 PagesJaunes 8 7/8% Senior Secured Notes due 2018 sector experiencing structural declines… with 100 x Indicates additional bond purchases some notable casualties… 95 Yell / Hibu Seat Pagine Gialle 90 Eniro 85 ….but this time it’s different! 80 Position PagesJaunes: redemption 75 Initiated yield 9.3%(1) 70 65 60Source: Jupiter January 2013.(1) As of January 17, 2012.
28 Portfolio breakdown by rating Jupiter Strategic Bond Fund Jupiter Dynamic Bond SICAV 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% -20% -40% -20% -60% -40% High Yield Investment Sovereign Cash Sovereign High Yield Investment Cash Sovereign Sovereign Corporates Grade long short Grade (long) (short) Corporates Average rating BB+ Average rating BBSource: Jupiter as at 31.01.13. The fund manager has the power to use derivatives but it is intended that these will only be used for efficient portfoliomanagement and not for investment purposes
0% 5% -25% -20% -15% -10% -5% 10% 15% 20% 25% 30% 35% 40% Britain Australia Norway Germany Spain Ireland South Africa Italy Czech Rep Netherlands Mexico Switzerlandmanagement and not for investment purposes Cash Poland Denmark Croatia Finland Sweden Brazil SaudI Arabia 5.9% exposure to GIPSI nations Belgium Israel Bermuda SNAT Canada Azerbaijan Singapore Austria Country – currently a European bias France US Financials Industrials Jupiter Strategic Bond Fund portfolio breakdown Consumer Discretionary Rig Financing Media Sector split Packaging HealthcareSource: Jupiter as at 31.01.13. The fund manager has the power to use derivatives but it is intended that these will only be used for efficient portfolio Telecommunications Cable Utilities Consumer Non-Discretionary Technology Business Services Cash Tobacco Property Supranational Sovereign 29
30 Jupiter Dynamic Bond SICAV portfolio breakdown Country – currently a European bias Sector split 40% 50% 35% 40% 30% 30% 20% 25% 10% 20% 0% 15% -10% 10% -20% 5% -30% 0% -40% Industrials Telecoms Financials discretionary Media Rig Financing Healthcare Technology Business Services Packaging Non-Discretionary Utilities Sovereign Property United Kingdom Europe North America Middle East Eastern Europe Far East Ex Japan South America South Africa Cash Consumer ConsumerSource: Jupiter as at 31.01.13. *Other includes Belgium, Saudi Arabia, Italy, Bermuda, Singapore, Canada, Luxembourg, Azerbaijan and Austriaall between 0% and 0.5%. The fund manager has the power to use derivatives but it is intended that these will only be used for efficient portfoliomanagement and not for investment purposes.
31 Top 10 holdings by Issuer Jupiter Strategic Bond Fund Jupiter Dynamic Bond SICAV % % Australian Government 11.9 Australia Government 4.75% 21/04/27 3.35 Eksportfinans 4.1 Eksportfinans 5.5% 26/06/17 2.69 Royal Bank of Scotland 4.0 Pagejaunes 8.875% 01/06/18 2.50 Lloyds 2.9 Unique Pub Finance 6.542% 30/03/21 1.99 Barclays Bank 2.5 Mark IV Europe 8.875% 15/12/17 1.76 Ardagh Glass 2.1 Punch Taverns 7.274% 15/04/22 1.71 Spirit Issuer 2.1 Barclays Bank 4.75% VRN PERP 1.69 PagesJaunes Finance 1.8 Unique Pub Finance 1.8 CET 21 spol 9% 01/11/17 1.50 Co-operative Bank 1.7 Lowell Group 10.75% 01/04/19 1.31 Cerba European Lab 7% 01/02/20 1.29Source: Jupiter as at 31.01.13.
32 Disclosure Jupiter Unit Trust Managers Limited (‘JUTM’) and Jupiter Asset Management Limited (‘JAM’) are both registered in England and Wales (nos. 2009040 and 2036243). The registered office of both is 1 Grosvenor Place, London SW1X 7JJ. JUTM and JAM are authorised and regulated by the Financial Services Authority 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 retail investors. However any one attending the presentation or who has the opportunity to view the accompanying slides should bear in mind that the value of an investment and the income from it can go down as well as up. It may be affected by exchange rate variations and you may not get back the amount invested. Quoted yields are not guaranteed. Past performance should not be seen as a guide to future performance. Jupiter Strategic Bond: The manager has the power to invest a significant proportion of the portfolio in high yield bonds (a type of bond with a low rating from a credit rating agency). While such bonds may offer a higher income the interest paid on them and their capital value is at greater risk, particularly during periods of changing market conditions. Due to the overall structure of the portfolio, the level of quarterly income payments will not be constant and will fluctuate. This Fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Key Investor Information Document (KIID), Supplementary Information Document (SID) and Scheme Particulars are available from Jupiter on request. For your security we may record or randomly monitor all telephone calls. If you are unsure of the suitability of an investment please contact your financial advisor. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.
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