Kames capital final

756 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
756
On SlideShare
0
From Embeds
0
Number of Embeds
176
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Kames capital final

  1. 1. Citywire BerlinKames Capital Fixed IncomeNovember 2011Philip Milburn – Investment Manager, Fixed Income
  2. 2. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  3. 3. High yield spreads and default rates 20.00% 2,000 15.00% 1,500 Spread bpsDefault rate % 10.00% 1,000 5.00% 500 0.00% 0 Jan 85 Jan 92 Jan 99 Jan 06 May 87 May 94 May 01 May 08 Sep 89 Sep 96 Sep 03 Sep 10 Jul 88 Nov 90 Jul 95 Nov 97 Jul 02 Nov 04 Jul 09 Nov 11 Mar 86 Mar 93 Mar 00 Mar 07 Global Speculative DR Average DR Projected Global Speculative DR HY Spreads Average SpreadSource: Moody’s Investors Service, Merrill Lynch and Kames Capital as at 30 September 2011 Back to choices
  4. 4. Kames High Yield Global Bond Fund performance 90 80 78.34% 703 year rolling returns 62.66% 60 50 40 30 20 10 0 Jun 11 Jan 11 Feb 11 Nov 10 Dec 10 Apr 11 Oct 11 Aug 11 Sep 11 May 11 Jul 11 Mar 11 Kames High Yield Global Bond A Inc USD Lipper Bond Global High Yield Source: Lipper Hindsight as at 31 October 2011. NAV to NAV, net income re-invested. Total return, local currency, USD. Returns shown are rolling 3 year periods calculated on a cumulative basis. Past performance is not a guide to the future. Back to choices
  5. 5. High Yield XOVER v Emerging Markets at an extreme differentialCDS Indices: High Yield XOVER vs EM Spread Differential 500 400 300 200 100 0-100 Feb 07 Feb 09 Feb 08 Feb 10 Feb 11 Oct 10 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 11 Apr 11 Aug 07 Aug 08 Aug 09 Aug 10 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Aug 11 Jun 10 Jun 07 Jun 08 Jun 09 Jun 11Source: Bloomberg as at 3 October2011 Back to choices
  6. 6. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  7. 7. Negative real yields 10yr Yields CPI YoY 10yr "Real" Yield Sep-09 Sep-11 Sep-09 Sep-11 Sep-09 Sep-11USA 3.31% 1.92% -1.30% 3.90% 4.61% -1.98%EU 3.22% 1.89% -0.30% 3.00% 3.52% -1.11%Germany 3.22% 1.89% -0.30% 2.60% 3.52% -0.71%UK 3.59% 2.43% 1.10% 5.20% 2.49% -2.77%Japan 1.30% 1.03% -2.20% 0.00% 3.50% 1.03%China 3.51% 3.93% -0.80% 6.10% 4.31% -2.17%Source: Bloomberg Back to choices
  8. 8. Financial repression: Real rates • In the three and a half decades(share of observations %) following World War II and the three years since the global crisis, real rates, as exemplified by those on treasury bills from advanced economies, were on average negative. (real interest rate %)Sources: Reinhart and Sbrancia (2011); IMF, Internal Financial Statistics; and authors’ calculations. Note: The economies represented are Australia, Belgium, Canada, Finland, France, Germany,Greece, Ireland, Italy, Japan, New Zealand, Sweden, the United Kingdom, and the United States. Interest rates for 2011 reflect monthly observations through February. Back to choices
  9. 9. Financial repression: The liquidation of government debt Carmen M. Reinhart, M. Belen Sbrancia NBER Working Paper No. 16893 Issued in March 2011Historically, periods of high indebtedness have been associated with a rising incidence of default orrestructuring of public and private debts. A subtle type of debt restructuring takes the form of “financialrepression.” Financial repression includes directed lending to government by captive domestic audiences(such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capitalmovements, and (generally) a tighter connection between government and banks. In the heavily regulatedfinancial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reductionin public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debtservicing costs while a high incidence of negative real interest rates liquidates or erodes the real value ofgovernment debt. Thus, financial repression is most successful in liquidating debts when accompaniedby a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect,it need not be very high (by historic standards). For the advanced economies in our sample, real interestrates were negative roughly ½ of the time during 1945-1980. For the United States and the UnitedKingdom our estimates of the annual liquidation of debt via negative real interest rates amounted onaverage from 3 to 4 percent of GDP a year. For Australia and Italy, which recorded higher inflation rates,the liquidation effect was larger (around 5 percent per annum). We describe some of the regulatorymeasures and policy actions that characterized the heyday of the financial repression era. Back to choices
  10. 10. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  11. 11. A lesson from Argentina?Source: Press Association Back to choices
  12. 12. Looking for the least worst solution Problems Too much debt, too little growth Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  13. 13. Looking for the least worst solution: Problems• Too much debt too little growth• Liquidity versus solvency• Fiscal deficits• Current account deficits• Competitiveness Problems• Lacking institutional fiscal oversight Too much debt, too little growth• ECB single mandate Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  14. 14. Looking for the least worst solution Problems Too much debt, too little growth Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  15. 15. Looking for the least worst solution: Solutions• EFSF• Quasi fiscal union – Wealth transfer – Hard rules• Euro bonds• Euro break up Problems Too much debt, too little growth• Supply side reforms• Monetisation (QE) Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  16. 16. Looking for the least worst solution Problems Too much debt, too little growth Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  17. 17. Looking for the least worst solution: Obstacles• German constitution• Liquidity versus solvency• Fiscal deficits• Current account deficits• Competitiveness Problems• Lacking institutional fiscal oversight Too much debt, too little growth Obstacles Solutions German politics Fiscal union Peripheral politics Euro break up Monetisation (QE) Back to choices
  18. 18. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  19. 19. Financial credit: weighing up the risks • Avoid PIIGS’ banks • Prepared to go overweight when the time is right Positives Negatives– Increased equity – Resolution regimes below bondholders and bail-ins– Basel 3 – redundant instruments – Sovereign crisis– Decreased wholesale funding– Compelling valuations Back to choices
  20. 20. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  21. 21. Kames Strategic Global Bond Fund positioningActive asset allocation 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Jan 11 Sep 08 Sep 10 Sep 09 Nov 07 Nov 08 Nov 09 Nov 10 May 08 May 10 May 09 May 11 Sep 11 Jul 08 Jul 09 Jul 10 Jan 08 Jan 09 Jan 10 Mar 08 Mar 09 Mar 10 Jul 11 Mar 11 Cash Govt IG HY US RMBSSource: Kames Capital as at 31 October 2011 Back to choices
  22. 22. Kames Strategic Global Bond Fund performance 60 50 50.29%3 year rolling returns 40 30 21.48% 20 10 0 May 11 Aug 11 Sep 11 Jul 11 Mar 11 Jun 11 Jan 11 Feb 11 Nov 10 Dec 10 Apr 11 Oct 11 Kames Strategic Global Bond B Inc USD Lipper Global Bond GlobalSource: Lipper Hindsight as at 31 October 2011. NAV to NAV, net income re-invested. Total return, local currency, USD.Returns shown are rolling 3 year periods calculated on a cumulative basis. Past performance is not a guide to the future. Back to choices
  23. 23. Kames Strategic Global Bond Fund positioningDuration by currency bloc excluding high yield 8 7 Modified duration (semi annual) 6 5 4 3 2 1 0 -1 -2 -3 Jan 11 Nov 07 Nov 08 Nov 09 Nov 10 May 08 May 09 May 10 Sep 08 Sep 09 Sep 10 Sep 11 Jul 08 Jul 09 Jul 10 Jan 08 Jan 09 Jan 10 Mar 08 Mar 09 Mar 10 May 11 Jul 11 Mar 11 AUD CAD EURO GBP NZD SEK USD YEN Grand TotalSource: Kames Capital as at 31 October 2011 Back to choices
  24. 24. Your choice of topic Are negative European The value in real yields sovereign high yield sustainable? crisis Making your Financial bond allocation Your choice credit work harder
  25. 25. Your choice Back to choices
  26. 26. Important informationThis document and information contained here is confidential and has been prepared and is intended for use on a confidential basis.It may not be reproduced, redistributed or passed on to any other persons or published in whole or in any part for any purpose.This presentation does not constitute an offer to the public and is to qualified investors only; it is strictly for private use by its holderand may not be passed on to any third parties or otherwise publicly distributed. Subscriptions will not be accepted from any personsother than the person to whom this presentation has been delivered, by the Fund or its representative. This presentation has notbeen produced in accordance with any prospectus requirements and has not been approved or disapproved by the financial servicesregulatory authorities in the country in which it is being offered. Accordingly there is no requirement to publish or make available aProspectus.The value of investments can go down as well as up. For investments in overseas markets, the return may increase or decrease asa result of currency fluctuations.Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capitalregistered in the Republic of Ireland (no: 442106), registered office at 25-28 North Wall Quay, International Financial ServicesCentre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Brian McDermott (Ireland). Kames CapitalInvestment Company (Ireland) plc is regulated by the Central Bank of Ireland.Kames Capital is an AEGON Asset Management and includes Kames Capital plc (no: 113505) and Kames Capital InvestmentManagement Ltd (no: 212159). Both are registered in Scotland and have their registered office at 3 Lochside Avenue, EdinburghPark, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Services Authority, (FSA reference no:144267). Kames Capital is the Investment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc.Kames Capital Investment Management Ltd is an appointed representative of Scottish Equitable plc, an AEGON company, whoseregistered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSA reference no: 165548).AEGON Asset Management UK rebranded to Kames Capital on 1 September 2011.FP ID: 2011/12746

×