Kames Strategic Global Bond FundMaking your Fixed Income allocationwork harderMarch 2013David Roberts – Joint Head of Fixe...
Introducing Kames Capital•    Specialist investment management business                               Our investment capab...
Our investment capabilities                                                        Total                      Retail      ...
Government Bonds: Bubble….or just overvalued?Bond market bubble                              Bond market overvaluationPric...
Asset class flexibility is key for 2013  Asset class                 Current environment                            Strate...
Investment grade strategy – buy the spread but not the duration                          900                          800 ...
High yield valuation – spreads still attractive   High yield spreads and default rates                                    ...
High yield valuation – capital upside limitedPrice history by rating segment115110105100  95  90  85  80       Feb 12     ...
Expertise in High Yield – the advantage of a global approach  Current full peer group analysis 3yr               Global   ...
Non Agency RMBS – very attractive fixed income asset class•   US housing market is recovering     –   Non Agency RMBS a gr...
RMBS – understanding the cash flowsHomeowner servicing mortgage              Home sold or repossessed and sold            ...
Asset class flexibility is key for 2013  Asset class                 Current environment                            Strate...
Kames Strategic Global Bond Fund – Flexibilities                           Investment grade corporate bonds   0-100%      ...
Kames Strategic Global Bond Fund positioningActive asset allocation100.0                                                  ...
Kames Strategic Global Bond Fund•   Strategic global bond portfolio       –   Total return fixed income fund       –   €/$...
Kames Strategic Global Bond Fund performanceCumulative 5 year returns            70            60                         ...
Making your fixed income allocation work harder                                                                           ...
Appendices             18
Peer group analysis – 5 years Risk return (pa)                                                                            ...
Kames Strategic Global Bond FundLaunch date                    8 November 2007Fund manager                   David Roberts...
Strategic Global Bond Fund – asset allocation by currency since launchGovernment Bond Allocation - Currency Split         ...
Strategic Global Bond Fund – asset allocation by currency since launchInvestment Grade Allocation - Currency Split        ...
Strategic Global Bond Fund – asset allocation by currency since launchHigh Yield Allocation - Currency Split              ...
Kames Capital’s fixed income team – focused and experienced                                  Joint heads of fixed income  ...
Important informationThis document is not intended for retail distribution and is directed only at investment professional...
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Kames at citywire vienna march 2013

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Kames at citywire vienna march 2013

  1. 1. Kames Strategic Global Bond FundMaking your Fixed Income allocationwork harderMarch 2013David Roberts – Joint Head of Fixed Income
  2. 2. Introducing Kames Capital• Specialist investment management business Our investment capabilities• 268 employees, including 83 investment professionals in Edinburgh, London and the Fixed income Equities Netherlands• Funds under management of €64 billion* Property Multi-asset• Expertise in four principal areas: fixed income, equities, properties and multi-asset Our clients• Clients in the UK, Europe and Asia • Corporate pension funds• Wholly-owned subsidiary of AEGON NV, one of • Public funds the world’s leading financial services businesses • Financial institutions • Charities/foundations • Wealth managers • Financial advisersSource: Kames Capital as at 31 January 2013. *As at 31 December 2012 2
  3. 3. Our investment capabilities Total Retail Team* client funds pooled funds Products and services • Credit • Core plus Fixed 22 €35.1 billion €5.0 billion • High-yield • Absolute return income • Strategic bond • Ethical • All companies • Unconstrained Equities 23 €19.3 billion €1.3 billion • High dividend • Absolute return • Smaller companies • Ethical • Direct (pooled and segregated) Property 14 €1.2 billion - • Indirect • Specialist e.g. healthcare • Asset Allocation Service Multi-asset 10 €4.0 billion €0.5 billion • Inflation Linked • Strategic AssetsSource: *Kames Capital as at 31 January 2013. AUM as at 31 December 2012.In addition, Kames Capital manages €4.7 billion in cash and other assets in categories not attributable to the asset classes shown. 3
  4. 4. Government Bonds: Bubble….or just overvalued?Bond market bubble Bond market overvaluationPrices not justified by economic fundamentals Prices not justified by economic fundamentalsObservable ex-post Observable ex-anteIrrational price movements Rational price movementsPanic buying Predetermined buyingDramatic “pop” and deflate “Orderly” loss of value Government bonds lack many of the attributes of a speculative bubble 4
  5. 5. Asset class flexibility is key for 2013 Asset class Current environment Strategy • Yields at historically low levels Government Short duration, but not • Growth outlook remains difficult bonds negative duration • Financial repression remains • Valuations still attractive on a long-term Modest overweight, skewed Investment basis to quality eg. securitised, grade • Sovereign debt crisis necessitates Northern Europe, US prudence • Total return prospects attractive Stick to higher quality high High yield • Preference for US High Yield over yield European High Yield • Hard currency sovereigns remain very Selected exposure to stock Emerging expensive specific corporates markets • Value in some corporates Avoid sovereigns • US housing market beginning to stabilise Non Agency RMBS (Option RMBS • US unemployment falling ARM sub-segment ) offers • Supportive technicals outstanding valueProjected beta is of the opinion of the fund manager as at March 2013 5
  6. 6. Investment grade strategy – buy the spread but not the duration 900 800 700 Benchmark spread (sa) 600 500 400 300 200 100 0 May 10 Jan 07 Jun 07 Mar 11 Jan 12 Jun 12 Feb 09 Oct 10 Nov 07 Apr 08 Jul 09 Dec 09 Nov 12 Sep 08 Aug 11 Non-Gov A rated BBB rated FinancialsSource: Barclays as at 1 February 2013 6
  7. 7. High yield valuation – spreads still attractive High yield spreads and default rates Implied default rates vs actual experiences 20% 2,000 60.00% 5 year cumulative default rate 44.68% 41.08% 15% 1,500Default rate % 39.28% Spread bps 40.00% 29.31% 10% 1,000 27.22% 25.04% 22.98% 20.00% 13.78% 5% 500 12.61% 10.07% 5.80% 1.88% 0% 0 0.00% BBB BB B Jan 85 Jan 88 Jan 91 Jan 94 Jan 97 Jan 00 Jan 03 Jan 06 Jan 09 Jan 12 Jul 86 Jul 89 Jul 92 Jul 95 Jul 98 Jul 04 Jul 07 Jul 10 Jul 13 Jul 01 Credit Rating Global Speculative DR Implied 5yr cumulative default rate, 40% recovery rate EUR Average DR Implied 5yr cumulative default rate, 40% recovery rate USD Projected Global Speculative DR Actual 5yr cumulative default rates (since 1970) worst HY Spreads Actual 5yr cumulative default rates (since 1970) averageSource: Left hand chart - Moody’s Investors Service, Merrill Lynch and Kames Capital as at 31 January 2013. Right hand chart - Deutsche Bank, Kames Capital, data as at 31 December 2012,average recovery rates and default experiences since 1970 7
  8. 8. High yield valuation – capital upside limitedPrice history by rating segment115110105100 95 90 85 80 Feb 12 Feb 13 Mar 12 Jun 12 Jan 13 Dec 12 Apr 12 May 12 Jul 12 Oct 12 Nov 12 Aug 12 Sep 12 Global BB HY non fin Global B HY non fin CCC & lower HY (RHS)Source: Bloomberg, Merrill Lynch as at 28 February 2013 8
  9. 9. Expertise in High Yield – the advantage of a global approach Current full peer group analysis 3yr Global EUR USD 16 16 16 14 14 14 12 Kames 12 Kames 12 KamesReturn (%pa) Return (%pa) Return (%pa) 10 10 10 8 8 8 6 6 6 4 4 4 2 2 2 0 0 0 0 5 10 15 20 0 5 10 15 20 0 5 10 15 20 Risk (pa) Risk (pa) Risk (pa) Source: Lipper Hindsight, Kames Capital as at 28 February 2013. Returns and risk calculated on a monthly basis (annualised). Risk is standard deviation. Shown in local currency. Global chart - peer group is Lipper Global – Bond Global High Yield. For illustrative purposes Kames High Yield Global Bond has been added to the Lipper Global – Bond EUR High Yield and Lipper Global – Bond USD High Yield as shown above 9
  10. 10. Non Agency RMBS – very attractive fixed income asset class• US housing market is recovering – Non Agency RMBS a great way of gaining exposure to this – Specifically the sub-sector Option ARMs (Adjustable Rate Mortgages)Desired attribute BenefitHigh original mortgage balance ~$500k House still has some value, aids recoveryPreference for non-judicial states i.e. California over Speeds up any repossession processFloridaSelected original underwriters Relatively better quality of borrowers and assets2006/07 vintages with fast amortisation Capital payback opportunity greatestSuper senior tranches only, with lots ranking below you Subordinated bonds absorb losses first 10
  11. 11. RMBS – understanding the cash flowsHomeowner servicing mortgage Home sold or repossessed and sold Home sale proceeds Super senior Super senior Interest debt debt payments Subordinated Subordinated debt debt Any losses on mortgage 11
  12. 12. Asset class flexibility is key for 2013 Asset class Current environment Strategy Projected beta • Yields at historically low levels Government Short duration, but not • Growth outlook remains difficult -1 to +1% bonds negative duration • Financial repression remains • Valuations still attractive on a long-term Modest overweight, skewed Investment basis to quality eg. securitised, +3 to +5% grade • Sovereign debt crisis necessitates Northern Europe, US prudence • Total return prospects attractive Stick to higher quality high High yield • Preference for US High Yield over +5 to +7% yield European High Yield • Hard currency sovereigns remain very Selected exposure to stock Emerging expensive specific corporates 0 to +2% markets • Value in some corporates Avoid sovereigns • US housing market beginning to stabilise Non Agency RMBS (Option RMBS • US unemployment falling ARM sub-segment ) offers +8 to +10% • Supportive technicals outstanding valueProjected beta is of the opinion of the fund manager as at March 2013 12
  13. 13. Kames Strategic Global Bond Fund – Flexibilities Investment grade corporate bonds 0-100% Government bonds 0-100% High yield bonds 0-100%What we own and will own Emerging market bonds 0-100% Non-base currency exposure 0-10% Cash 0-20% Foreign Exchange 0% Ordinary Equity 0%What we haven’t owned Private Placement Debt 0%and won’t own Convertible Bonds 0% “Local Currency” Debt 0% 13
  14. 14. Kames Strategic Global Bond Fund positioningActive asset allocation100.0 Asset allocation Dec 2007 – Jan 2013 90.0 80.0 Min (%) Max (%) 70.0 Government 0.0 48.0 60.0 50.0 Cash -3.9 17.6 40.0 Investment Grade 35.4 85.0 30.0 High Yield 4.2 32.5 20.0 10.0 US RMBS 0.0 5.6 0.0 -10.0 Nov 11 May 11 Aug 11 Feb 08 Feb 09 Feb 10 Feb 12 Feb 11 Nov 07 Nov 08 Nov 09 Nov 10 Nov 12 May 08 May 09 May 10 May 12 Aug 08 Aug 10 Aug 12 Aug 09 Cash Govt IG HY US RMBSSource: Kames Capital as at 31 January 2013 14
  15. 15. Kames Strategic Global Bond Fund• Strategic global bond portfolio – Total return fixed income fund – €/$/£/¥/CHF/SGD – track your clients’ needs 1 year 2 years 3 years 4 years 5 years Fund 8.98% 12.06% 23.59% 64.12% 58.23% Median 4.66% 10.32% 14.47% 30.80% 29.39% Quartile 1 2 1 1 1 Outperformance 4.32% 1.74% 9.12% 33.32% 28.84%Source: Lipper as at 28 February 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future. 15
  16. 16. Kames Strategic Global Bond Fund performanceCumulative 5 year returns 70 60 58.23% 50 40 % growth 30 29.39% 20 10 0 -10 -20 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Feb 08 Feb 09 Feb 10 Feb 11 Feb 12 Feb 13 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Apr 08 Dec 08 Apr 09 Dec 09 Apr 10 Dec 10 Apr 11 Dec 11 Apr 12 Dec 12 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Kames Strategic Global Bond B Inc USD Lipper Global - Bond Global medianSource: Lipper as at 28 February 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future. 16
  17. 17. Making your fixed income allocation work harder Active asset allocation 900 100.0 800 90.0 700 80.0Benchmark spread (sa) 600 70.0 500 60.0 400 50.0 300 40.0 200 30.0 20.0 100 10.0 0 0.0 Aug 11 Jan 07 Jun 07 Jan 12 Jun 12 Nov 07 Dec 09 May 10 Nov 12 Sep 08 Jul 09 Mar 11 Oct 10 Apr 08 Feb 09 -10.0 Nov 11 May 11 Aug 11 Feb 08 Feb 09 Feb 10 Feb 12 Feb 11 Nov 07 Nov 08 Nov 09 Nov 10 Nov 12 May 08 May 09 May 10 May 12 Aug 08 Aug 09 Aug 10 Aug 12 Non-Gov A rated BBB rated Financials Cash Govt IG HY US RMBS Cumulative 5 year returns 70 Global 60 16 50 14 40 12 Kames % growth 30 Return (%pa) 20 10 10 8 0 6 -10 4 -20 2 Jun 11 Aug 11 Jun 08 Jun 09 Jun 10 Jun 12 Feb 11 Dec 08 Dec 09 Dec 10 Dec 12 Oct 08 Oct 09 Oct 10 Oct 12 Aug 08 Aug 09 Aug 10 Aug 12 Apr 08 Apr 09 Apr 10 Apr 12 Dec 11 Oct 11 Feb 08 Feb 09 Feb 10 Feb 12 Feb 13 Apr 11 0 Kames Strategic Global Bond B Inc USD Lipper Global - Bond Global median 0 5 10 15 20 Risk (pa)Source: Top left chart - Barclays as at 1 February 2013. Top right chart - Kames Capital as at 31 January 2013. Bottom left chart - Lipper as at 28 February 2013. NAV to NAV, income re-invested.Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future. Bottom right chart - Lipper Hindsight, Kames Capital as at 28 February2013. Returns and risk calculated on a monthly basis (annualised). Risk is standard deviation . Shown in local currency. Peer group is Lipper Global – Bond Global High Yield 17
  18. 18. Appendices 18
  19. 19. Peer group analysis – 5 years Risk return (pa) Sharpe ratio (pa) 15 2.0 13 1.5 1.4 11 Kames 9 1.0Return (%pa) 7 0.7 0.5 5 0.3 Barclays 3 Global 0.0 Aggregate -0.2 1 -0.5 -1 Fund -3 0 5 10 15 20 Risk (pa)Source: Lipper Hindsight, Kames Capital as at 28 February 2013. Returns and risk calculated on a monthly basis (annualised). Risk is standard deviation. Shown in local currency. Index is BarclaysGlobal Aggregate USD TR USDH 19
  20. 20. Kames Strategic Global Bond FundLaunch date 8 November 2007Fund manager David Roberts and Philip MilburnSupport manager Colin Finlayson Invests across fixed income universe, ranging from AAA government bonds through toInvestment policies high yield and emerging market corporate bonds in any currency. Second quartile over rolling 12 months and top quartile over a rolling 3 year periods inPrimary performance target the Lipper global bond global sector. To outperform the Barclays Capital global aggregate index by +2% p.a. over rolling 3Secondary performance target year periods. Investment grade corporate bonds 0-100% Government bonds 0-100% High yield bonds 0-100%Asset allocation ranges Emerging market bonds 0-100% Unhedged currency 0-10% Cash 0-20%Base currency US DollarHedged share classes Sterling, Euro, US Dollar, Yen, Swiss Franc, Singapore Dollar 20 20
  21. 21. Strategic Global Bond Fund – asset allocation by currency since launchGovernment Bond Allocation - Currency Split Strategy50% 1 1. Initial high allocation to Government45% bonds in the midst of the global40% 2 3 financial crisis35% 2. Sold down on growing evidence of30% coherent policy response and25% economic recovery20% 3. Positions rebuilt as Sovereign crisis15% spreads - purposely avoiding Euro zone markets10% 5% 0% Aug 10 Aug 08 Aug 09 Aug 12 May 11 Aug 11 Nov 11 Feb 08 Feb 09 Feb 10 Feb 12 May 08 May 09 May 10 May 12 Feb 11 Nov 07 Nov 08 Nov 09 Nov 10 Nov 12 AUD CAD EUR GBP NZD SEK USD YENSource: Kames Capital as at 31 December 2012. Chart excludes derivatives weighting. 21
  22. 22. Strategic Global Bond Fund – asset allocation by currency since launchInvestment Grade Allocation - Currency Split Strategy 90% 1. Low weighting at launch 80% 3 2 2. Growing macroeconomic certainty 70% Investment Grade was the 60% preferred market on a risk/reward 1 and liquidity basis 50% 3. Core allocation to bonds in G10 40% currency blocs maintained 30% throughout, reducing over time 20% 10% 0% Aug 08 Aug 09 Aug 10 Aug 12 Nov 11 May 11 Aug 11 Feb 08 Feb 09 Feb 10 Feb 12 Feb 11 Nov 07 Nov 08 Nov 09 Nov 10 Nov 12 May 08 May 09 May 10 May 12 AUD EUR GBP NZD USDSource: Kames Capital as at 31 December 2012. Chart excludes derivatives weighting. 22
  23. 23. Strategic Global Bond Fund – asset allocation by currency since launchHigh Yield Allocation - Currency Split Strategy 40% 1. Low weighting given levels of 35% 3 volatility and uncertainty post- 30% 2 Lehman Brothers collapse 25% 2. Aggressive increase on confidence that a sustainable 20% 1 systemic recovery was on track 15% 3. Allocation pared back by reducing Euro based exposure 10% from Q2-2011 as Euro Crisis intensified 5% 0% Aug 08 Aug 09 Aug 10 Aug 12 May 11 Aug 11 Nov 11 Feb 08 Feb 09 Feb 10 Feb 12 May 08 May 09 May 10 May 12 Feb 11 Nov 07 Nov 08 Nov 09 Nov 10 AUD CAD CHF EUR GBP USD Nov 12Source: Kames Capital as at 31 December 2012. Chart excludes derivatives weighting. 23
  24. 24. Kames Capital’s fixed income team – focused and experienced Joint heads of fixed income Stephen Jones David Roberts Joint Head of Fixed Income Joint Head of Fixed Income 22 years’ experience 24 years’ experience Rates & government bonds specialist Credit specialist Government bonds Investment grade credit Specialist credit John McNeill Stephen Snowden Euan McNeil Philip Milburn 25 years’ experience 18 years’ experience 16 years’ experience 16 years’ experience Rates & government bonds Credit Non-financials High yield Sandra Holdsworth Gregory Turnbull Schwartz Philip Small Melanie Mitchell 25 years’ experience 19 years’ experience 27 years’ experience 25 years’ experience Rates & government bonds Financials Non-financials High yield Colin Finlayson Garvin Peoples Laura Gallagher Debbie King 12 years’ experience 6 years’ experience 17 years’ experience 12 years’ experience Rates & government bonds Financials Non-financials High yield Greg Mackay Paul Dilworth Claire McGuckin 15 years’ experience 7 years’ experience 19 years’ experience Rates & government bonds Financials High yield Iain Buckle Team and product support 22 fixed income professionals 16 years’ experience Asset backed securities Kevin Telfer Patrick Gillespie Average industry experience of 17 years’ experience 20 years’ experience Fixed income specialist Investment assistant 17 years Daniel Uhlemann James Lynch Average tenure with Kames 5 years’ experience 7 years’ experience Collateral manager Capital of 6 years Quant analystSource: Kames Capital as at 31 December 2012. 24
  25. 25. Important informationThis document is not intended for retail distribution and is directed only at investment professionals/qualified Investors. It should not be distributed to, or reliedupon by, private investors. All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed and information provided isaccurate at the time of writing. The views expressed in this document represent our understanding of the current and historical positions of the market. Theyshould not be interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the incomefrom them may go down as well as up and is not guaranteed.This document and information contained herein has been prepared for the audience at the Citywire Vienna Forum only. It may not be reproduced, redistributedor passed on to any other persons or published in whole or in any part for any purpose.This document is accurate at the time of writing but can be subject to change without notification.Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic ofIreland (Company Number 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: AndrewBell (UK), Mike Kirby (Ireland) and Bronwyn Wright (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 ManagementLimited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh,EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Services Authority, (FSA reference no: 144267). Kames Capital plc is theInvestment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc. Kames Capital Management Limited is an appointedrepresentative of Scottish Equitable plc (Company Number SC144517), an Aegon company, whose registered office is 1 Lochside Crescent, Edinburgh Park,Edinburgh, EH12 9SE (FSA reference no: 165548).Kames Strategic Global Bond Fund is registered for sale in the UK, Channel Islands, Ireland, Netherlands, Switzerland, Luxembourg, Germany, Malta andAustria only.FP ID: 2013/15401 25
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