Miami citywire conf oct 2013 v02


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Miami citywire conf oct 2013 v02

  1. 1. Is the strategic case for EMD still intact? October 2013 Thanos Papasavvas Fixed Income and Currency Strategist
  2. 2. Global specialist asset manager Investec Asset Management ● Founded in 1991 by current leadership ● Independently managed entity within Investec Group ● Employees have direct equity participation in the firm ● Origins are African – presence and perspective is global ● Investment and Operational hubs in London & Cape Town ● Client group teams in Africa, Americas and Japan, Asia Pacific, Europe, Middle East and the UK ● Over 760 employees* ● Approximately US$ 100 billion in assets under management UK Client group: 26 Investment professionals: 85 Europe Client group: 12 Middle East Americas and Japan Client group: 2 Client group: 18 Africa Client group: 76 Investment professionals: 69 Asia Pacific Asia client group: 21 Australia client group: 5 Client group Investments and Client group As at 30 June 2013 * Permanent employees Page 2 | CONFIDENTIAL 14873
  3. 3. A focus on global and emerging market investing across asset classes Equity – US$40bn • • • • Global Regional Emerging Markets Frontier Markets Fixed Income – US$32bn • • • Developed Markets Emerging Markets Multi-Strategy AUM by asset class Alternative 6% Multi-Asset 18% Equity 42% Fixed Income 34% Multi-Asset – US$17bn • • • Global Emerging Markets Income Alternative – US$6bn • • • AUM by underlying asset Commodities Private Equity Private Debt Global 43% Emerging Markets 57% Figures reflect assets under management on a net sourced basis. A further US$6.3bn assets under management are third party funds on advisory platform Source: Investec Asset Management, as at 30 June 2013 Page 3 | CONFIDENTIAL 14873
  4. 4. Fixed Income mandate range reflects our skill set Multi-Strategy Emerging Markets Allocation & Credit Global Debt & Currency Target Return Global Bond Global Strategic Income Investment Grade High Income Emerging Markets Local Currency Debt Emerging Markets Hard Currency Debt Emerging Markets Blended Debt Emerging Markets Corporate Debt Emerging Markets Currency Southern African Rates Rates & Currency Liquidity Reserve Management Managed Currency Money Market Absolute Income Dynamic Bond Flexible Bond Hedge Frontier & African Credit Credit Income Corporate Bond Credit Opportunities Page 4 | CONFIDENTIAL 14873
  5. 5. EM Fixed Income Assets under management ● Increased assets significantly across different strategies Emerging Market Fixed Income Strategies Emerging Markets Local Currency Debt Assets under management 30 June 2013 $m 12,654 Emerging Markets Blended Debt1 Emerging Markets Hard Currency Debt 369 Emerging Markets Corporate Debt 446 Emerging Markets Currency 211 Global EMD subtotal2 SA Rates 497 13,994 9,924 Bond Cash Multi-Strategy 2,830 5,955 1,140 SA & African Credit 3,727 Credit Income High Income SA Credit Opportunities Regional EMD subtotal Total 498 404 2,826 13,651 27,829 ● Further $650 million managed for internal fixed income and multiasset portfolios 1. Emerging Markets Blended Debt includes a double count of assets held within Emerging Markets Local Currency Debt, Emerging Markets Hard Currency Debt and Emerging Markets Corporate Debt strategies. 2. The total Global EMD subtotal AUM removes the double count of these assets. Source: Investec Asset Management, as at 30 June 2013 Page 5 | CONFIDENTIAL 14873
  6. 6. Global outlook
  7. 7. The US is close to stepping back from QE Unemployment rate US Unemployment ● Unemployment will take time to reach its target, which Bernanke might still adjust ● With actual tightening still 2 years away ● Recent data has been relatively disappointing with the latest Non-Farm Payrolls number below expectations Source: St. Louis Fed Page 7 | CONFIDENTIAL 14873
  8. 8. …but this does not mean automatic rate hikes Japanese National Consumer Price Index US, Japan and EU Inflation Composites (Normalised) 1.50 3 1.00 2 0.50 1 0.00 -0.50 0 -1.00 -1 -1.50 -2.00 -2 -2.50 -3 99 00 01 02 03 04 05 06 07 Nat'l CPI year on year % change ● 08 09 10 11 2% Target 12 13 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 EU Inflation Composite Japan Inflation Composite US in the 1930’s and two decades of Japan have shown that we can deal with inflation but not deflation Bernanke’s worst nightmare: deflation Source: Japanese Ministry of Internal Affairs and Communication Page 8 | CONFIDENTIAL 14873 US Inflation Composite
  9. 9. Eurozone stability US and EU Dataflow EU Dataflow v GDP growth ● Merkel expected to form coalition government and enforce the restructuring programme ● ECB will continue to do whatever is necessary to ensure economic stability ● European PMIs continue to improve Source: Investec Asset Managment, Bloomberg Page 9 | CONFIDENTIAL 14873
  10. 10. China soft-landing Chinese activity indicators Chinese equities have recovered 2600 Shanghai Composite Index 2500 2400 2300 2200 2100 2000 1900 Nov-11 Mar-12 Aug-12 Dec-12 May-13 ● New administration still targets growth rate of 7% - 7.5% by pursuing structural change ● US, UK, Eurozone and Japanese pick-up will be supportive ● Most recent Chinese data has shown improvements, Chinese equities are up 14% from June lows Source: Bloomberg, UBS estimates, CEC, August 2013 Page 10 | CONFIDENTIAL 14873 Sep-13
  11. 11. Manufacturing PMIs have recovered from August ● Purchasing Managers’ indices in EM rose to 51.6 on average ● Inflation remains well-behaved with falling food prices and moderate domestic demand offsetting the affects of a slightly higher oil price and currency weakness Manufacturing PMIs Seasonally Adjusted Latin America Mexico Average 60.0 EM Inflation Forecasts 5.5% China Brazil CPI Hong Kong 55.0 5.0% Turkey CPI F'cst India Asia 50.0 South Africa Indonesia 45.0 MEA 4.5% 40.0 Israel Korea 4.0% Russia Singapore 3.5% Poland Taiwan Post-Crisis Average Hungary Thailand Czech Vietnam CEE Source: Investec Asset Management, September 2013 Page 11 | CONFIDENTIAL 14873 50 Current (Aug-13) Previous Reading 3.0% Sep 10 Jun 11 Mar 12 Dec 12 Sep 13 Jul 14
  12. 12. A Strong US Economy should turn this around Associated responses to US and China Growth Mexico: Industrial Sector v US ISM Accumulated response (over 4 quarters) of EM growth to US and China growth shocks Accumulated response (over 4 quarters) of EM growth to US and China growth shocks 0.8 % 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 1 SD shock to US growth rate 1 SD shock to China's growth rate LatAm Asia EMEA ● US and China have similar effects on EM growth ● However, the US strength is enough to offset the Chinese slowdown Sources: Citi Research, Bloomberg, 22 July 2013 Page 12 | CONFIDENTIAL 14873
  13. 13. Emerging market fundamentals remain strong ● EM debt, both external and foreign currencydenominated, are lower now Cumulative current account differences plus FDI As a percentage of final GDP, both leading up to the Asian financial crisis and more recently Source: Moody’s, Investec Asset Management calculations, 2013 Page 13 | CONFIDENTIAL 14873 ● EM not as vulnerable as late 90’s as some suggest
  14. 14. EMD offers value vs. developed market bonds ● EM bonds have attractive yields of 5.7 – 6.6 % with low interest rate risk Bond yields EMD vs. Global* 14.0 Local EMD Dollar EMD 12.0 ● Spreads of 3.6 – 4.5% over developed markets attractive Corp EMD 10.0 Developed Govt 8.0 ● Return vs. risk very attractive as interest rate risk currently much lower in EM 6.0 4.0 2.0 0.0 Jan-07 Yield Duration Local EMD 6.5 Hard Currency EMD 5.8 Corp EMD 6.0 6.9 5.2 Jan-09 Developed Govt 2.5 4.8 Jan-08 6.7 Past performance should not be taken as a guide to the future, losses may be made. Data is not audited Source: JP Morgan, Bloomberg, 31 August 2013. *As at 19 September 2013 Page 14 | CONFIDENTIAL 14873 Jan-10 Jan-11 Jan-12 Jan-13
  15. 15. Return estimates over three years JPM GBI-EM (Local Currency Sovereign Debt) returns Local Currency Bond Yield in three years' time ● Even under the scenario currently priced into markets, Local EMD offers attractive returns Annualised Crncy Apprec. 7.00% 7.20% 7.40% 7.60% 7.80% 8.00% 8.20% 3.0% 10.1% 9.8% 9.5% 9.1% 8.8% 8.5% 8.2% 2.0% 9.1% 8.8% 8.5% 8.1% 7.8% 7.5% 7.2% 1.0% 8.1% 7.8% 7.5% 7.1% 6.8% 6.5% 6.2% 0.0% 7.1% 6.8% 6.5% 6.1% 5.8% 5.5% 5.2% -1.0% 6.1% 5.8% 5.5% 5.1% 4.8% 4.5% 4.2% 2. The roll down of the curve -2.0% 5.1% 4.8% 4.5% 4.1% 3.8% 3.5% 3.2% 3. Reinvesting matured bonds at higher yields -3.0% 4.1% 3.8% 3.5% 3.1% 2.8% 2.5% 2.2% -4.0% 3.1% 2.8% 2.5% 2.1% 1.8% 1.5% 1.2% -5.0% 2.1% 1.8% 1.5% 1.1% 0.8% 0.5% 0.2% ● The returns are driven by strong components often overlooked: 1. Yield or accrued income BofAML US Govt Bond – three year forecast 10-year UST Yield in three years' time 3.3% 3.5% 3.7% 3.90% 4.1% 4.3% 4.5% 2.7% 2.5% 2.4% 2.2% 2.1% 1.9% 1.7% Source: Investec Asset Management Calculations, JPMorgan, BofAML, Bloomberg, as at 17 September Page 15 | CONFIDENTIAL 14873
  16. 16. Accessing Emerging Market Debt
  17. 17. Accessing the emerging market themes Asset classes EM themes Key drivers and relationships Macroeconomic strength Aggregate demand growth Inflation improvement Fiscal policy strength BOP strength Local Currency Debt Hard Currency Debt EM Currencies EM Blended Debt Source: Investec Asset Management Page 17 | CONFIDENTIAL 14873 Higher productivity EM Corporate Debt Corporate balance sheet strength Growing company earnings EM Equities Infrastructure spend Commodities
  18. 18. Global Emerging Market Fixed Income team Strategy Leaders Peter Eerdmans – Asia Werner Gey van Pittius – MEA & CIS Investment Specialists – Sovereign & Currency Vivienne Taberer – Latam Michail Diamantopoulos – CEE Mark Evans – Asia Antoon de Klerk – Africa Duncan Ngandu – Latam & CEE Grant Webster – MEA & CIS Investment Specialists – Corporate Victoria Harling – Quasi-sovereign Leah Parento – Utilities, Consumer & Light Industrials Tammy Lloyd – Telecom, Real Estate & Heavy Industrials Sergey Bolshakov – Resources Stacy Xie – Financials Wilfred Wee* – Asia Julia Poszmik *New joiner May 2013 Page 18 | CONFIDENTIAL 14873 Thanos Papasavvas EMD Investment Support Fixed Income & Currency Strategist 5 Fixed Income & Currency Dealers
  19. 19. Our philosophy in managing local EMD ● Focus on bottom-up decisions: − Top-down decisions and market-timing are notoriously difficult − Much easier to add value in relative country and currency positions ● Cover all the bases, don’t get caught up in a single theme: − Market very good at getting caught up in a single theme − Much better to analyse wide range of factors so one can be contrarian and be prepared for the next theme ● Use a structured approach to unlock a wide range of opportunities: − Use quantitative tools and detailed scorecards to provide discipline − Separate the analysis on local currency bonds, hard currency bonds and currency ● Apply strong diversification through a disciplined portfolio construction process: − The best way to manage and limit risk in the portfolio − A wide range of independent ideas should lead to much more consistent alpha Page 19 | CONFIDENTIAL 14873
  20. 20. Disciplined and repeatable process driven by bottom-up views Bottom-up Fundamentals, valuation and market behaviour Disciplined approach based on “Compelling Forces”, covering wide range of factors Top-down Beta discussion Vigorous debate unlocks insight across Investec’s investment teams FINAL PORTFOLIO Structured approach captures experience and controls risk Portfolio built bottom-up, supplemented with top-down checks and balances Page 20 | CONFIDENTIAL 14873
  21. 21. Latest Dynamic portfolio – active positions Active duration positions Active currency positions Total = +0.20 Total = -7.17% Russia ruble 5.02% Brazil real 4.20% Korea won 4.04% Indonesia rupiah 3.82% Russia 0.21 Mexico 0.20 Brazil 0.16 Chile 0.10 Poland zloty 2.13% Thailand 0.09 Mexico peso 1.93% Nigeria Naira 1.81% Hungary f orint 0.14% Israel 0.05 Hungary 0.01 Philippines peso 0.04% South Af rica 0.00 Thailand baht 0.01% Poland 0.00 Romania leu 0.01% Turkey -0.01 South Af rica rand -0.03% Peru nuevo sol -0.13% Peru -0.01 Turkey lira -1.94% Romania -0.02 Colombia peso -2.12% Nigeria -0.05 Malaysia ringgit -2.51% Philippines -0.05 Czech koruna -2.52% Chile peso -4.97% Israel shekel -4.99% Singapore dollar -5.03% Taiwan dollar -6.09% Colombia -0.13 Malaysia -0.14 Indonesia -0.16 -0.40 -0.20 0.00 0.20 The portfolio may change significantly over a short period of time Source: Investec Asset Management, 30 September 2013 Page 21 | CONFIDENTIAL 14873 0.40 -0.08 -0.06 Off-composite index positions -0.04 -0.02 0.00 0.02 0.04 0.06
  22. 22. Investec Emerging Markets Local Currency Debt (Aggregate) Performance track record Annual (Gross) performance in USD* Annualised (Gross) performance in USD* 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 15% 10.3% 8.8% 10% 9.0% 7.3% 5% 2.1% 1.8% 0% -0.7% -0.4% -5% -3.9%-3.7% -8.0% -7.6% -10% 2006 (Jul) 2007 2008 2009 2010 2011 2012 2013 (YTD) 3 months EM Local Currency Debt Aggregate YTD 1 year 3 years p.a. 5 years p.a. EM Local Currency Debt Aggregate JPMorgan GBI-EM Global Diversif ied Composite Unhedged JPMorgan GBI-EM Global Diversif ied Composite Unhedged 2006 (Jul) 2007 2008 2009 2010 2011 2012 2013 (YTD) 10.9% 20.4% -7.1% 31.5% 16.7% -2.3% 18.3% -8.0% JPMorgan GBI-EM Global Diversified Composite Unhedged 18.1% 10.9% -5.2% 22.0% 15.7% -1.8% 16.8% -7.6% Relative performance -1.9% 9.5% 1.0% -0.5% 1.5% -0.5% EM Local Currency Debt Aggregate 0.0% 2.3% Past performance should not be taken as a guide to the future, losses may be made. Data is not audited Source: Investec Asset Management GIPS Report. Data to 30 September 2013 *GIPS compliant. **Composite inception date 31 July 2006 Performance would have been lower had management fees been included Page 22 | CONFIDENTIAL 14873 Since Inception p.a.**
  23. 23. Emerging Markets Local Currency Debt Performance attribution Major alpha sources (relative % contribution since inception) 2.0% Currency Local Debt Top 5 contributors Other Contribution (ann) Russia Turkey 0.17% Israel 0.5% 0.18% South korea 1.0% 0.21% Brazil 1.5% 0.25% 0.17% Bottom 5 contributors 0% Contribution (ann) Indonesia Currency Duration Country selection Beta selection Curve & Dollar issue sov debt selection Credit Admin* -0.07% Slovakia -0.07% India FX Beta -0.07% Czech -1.0% -0.10% Poland -0.5% -0.05% Total Positive contributions from the key bottom-up alpha sources Past performance should not be taken as a guide to the future, losses may be made. Data is not audited Source: Investec Asset Management Attribution for Emerging Market Local Currency Debt Aggregate composite, based on actual positions and end-of-day prices. From 31 July 2006 to 30 September 2013 *Admin includes taxes, transaction costs, timing and methodology Page 23 | CONFIDENTIAL 14873
  24. 24. Why Investec Asset Management? ● Our emerging market roots give us insight into the drivers of emerging markets ● Tried and tested local bond and global currency processes ● Experienced professionals focused on local bond and currency markets ● Bottom-up process aims to generates consistent long/short alpha ● Systematic top-down review of portfolio biases ● We will limit capacity if necessary to preserve alpha opportunities A passionate team to capture the EM opportunity Page 24 | CONFIDENTIAL 14873
  25. 25. Thank you
  26. 26. Important information It should be noted that emerging markets may have less developed political, economic and legal systems therefore these markets carry a higher than average risk of investment and capital loss. This communication is not for general public distribution. If you are a private investor and receive it as part of a general circulation, please contact us at +44 (0)20 7597 1900. The value of this investment, and any income generated from it, will be affected by changes in interest rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. The Fund’s investment objective will not necessarily be achieved and investors are not certain to make profits; losses may be made. The Fund may invest more than 35% of its assets in securities issued or guaranteed by an EEA state. Past performance should not be taken as a guide to the future. Performance would be lower had initial charges been included and will vary between different share classes dependant upon their applicable charges. Returns to individual investors will vary in accordance with their personal tax status and tax domicile. All the information contained in this communication is believed to be reliable but may be inaccurate or incomplete. Any opinions stated are honestly held but are not guaranteed and should not be relied upon. This is not a buy, sell or hold recommendation for any particular security. The portfolio may change significantly over a short period of time. Please note that as the Emerging Markets Local Currency Debt Fund’s expenses are charged to capital, this has the effect of increasing the Fund’s distribution (which may be taxable) and constraining its capital performance to an equivalent extent. This communication is provided for general information only. It is not an invitation to make an investment nor does it constitute an offer for sale. The full documentation that should be considered before making an investment, including the Prospectus and Key Investor Information Documents, which set out the fund specific risks, is available from Investec Asset Management. This communication should not be distributed to private customers who are resident in countries where the Fund is not registered for sale or in any other circumstances where its distribution is not authorised or is unlawful. Please visit to check registrations by country. For Funds registered in Switzerland, the Prospectus, Key Investor Information Documents and Report & Accounts may be obtained free of charge from the Swiss Representative and Paying Agent, RBC Investor Services Bank S.A., Esch-sur-Alzette, Badenerstrasse 567, P.O. Box 101, CH-8066 Zurich. In the USA, this communication should only be read by institutional investors, professional financial advisers and, at their exclusive discretion, their eligible clients, but must not be distributed to US Persons. THIS INVESTMENT IS NOT FOR SALE TO US PERSONS. Telephone calls may be recorded for training and quality assurance purposes. Issued by Investec Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, October 2013. Page 26 | CONFIDENTIAL 14873
  27. 27. Composite disclosure C o m po s it e : E m e rging M a rk e t s Lo c a l C urre nc y D e bt ( A ggre ga t e ) A s o f : 3 0 - S e p- 2 0 13 C o m plia nc e S t a t e m e nt Investec A sset M anagement (IA M ) claims co mpliance with the Glo bal Investment P erfo rmance Standards (GIP S®) and has prepared and presented this repo rt in co mpliance with the GIP S standards. Investec A sset M anagement has been independently verified fo r the perio ds 01 -Jan-2000 to 31 -Dec-201 .The verificatio n repo rts are available upo n request. 1 Verificatio n assesses whether (1 the firm has co mplied with all the co mpo site co nstructio n requirements o f the GIP S standards o n a firm-wide basis and (2) the firm's po licies and pro cedures are designed to calculate and present ) perfo rmance in co mpliance with the GIP S standards.Verificatio n do es no t ensure the accuracy o f any specific co mpo site presentatio n. D e f init io n o f t he F irm Fo r the purpo ses o f GIP S®, the firm is defined as including all institutio nal and retail assets managed by the Lo ndo n entity o f Investec A sset M anagement (IA M ). C o m po s it e D e s c ript io n Lo cal currency emerging market debt, excluding tailo red mandates, run against the JP M o rgan GB I-EM Glo bal Diversified benchmark, targeting gro ss o utperfo rmance o f between 1 and 4% o ver ro lling 3-year windo ws, regardless o f % universe. A ggregate o f B ro ad and Dynamic co mpo sites. P e rf o rm a nc e P erfo rmance stated as gro ss, is gro ss o f investment management fees and where appro priate, po rtfo lio net o f fees returns have been gro ssed up using their respective To tal Expense Ratio s. P erfo rmance stated as net, is net o f the highest standard institutio nal segregated po rtfo lio management fee sho wn belo w.B o th gro ss and net perfo rmance are sho wn net o f all trading expenses.A ll po rtfo lio returns are calculated net o f irreco verable tax and gro ss o f reco verable tax o n inco me and capital gains, and the calculatio n is based o n the assumptio n that tax is deducted fro m inco me o n the ex-dividend date. A dditio nal info rmatio n regarding the firm's po licies fo r valuing po rtfo lio s, calculating perfo rmance and preparing co mpliant presentatio ns are available upo n request. C urre nc y The currency used to repo rt perfo rmance fo r this co mpo site is as deno ted o n the acco mpanying Co mpo site P erfo rmance Results repo rt. D e riv a t iv e s D is c lo s ure P o rtfo lio s in this co mpo site regularly use bo nd futures, interest rate swaps, credit linked no tes and fx fo rwards to explo it investment o ppo rtunities in emerging markets. M aximum expo sure (and therefo re implicit leverage) is co ntro lled by a VA R limit. D is pe rs io n Dispersio n is calculated as the asset weighted standard deviatio n o f all co nstituent po rtfo lio s that were included in the co mpo site fo r the entire year. If a co mpo site co nsists o f less than five po rtfo lio s, no measure o f dispersio n is presented. E x- P o s t S t a nda rd D e v ia t io n The three year annualised standard deviatio n measures the variability o f the co mpo site and benchmark returns o ver the preceding 36 mo nth perio d.Standard deviatio n measures are no t sho wn where there are less than 36 mo nthly o bservatio ns available. M a na ge m e nt F e e s The management fee fo r this co mpo site is based the highest standard institutio nal segregated po rtfo lio management fee which is 0.75% per annum. C o m po s it e C re a t io n D a t e This co mpo site was created o n 01 ar-201 . -M 1 A full co mpo site list with descriptio ns is available upo n request. C o m po s it e Inc e pt io n D a t e The inceptio n date fo r this co mpo site is 31 -Jul-2006 Align left Page 27 | CONFIDENTIAL 14873
  28. 28. Composite disclosure Composite Performance Results Composite: Emerging Markets Local Currency Debt (Aggregate) Benchmark: JPMorgan GBI-EM Global Diversified Composite Unhedged Base Currency: US Dollar Gross Returns as of: 30-Sep-2013 Firm: IIM London Number of Portfolios Composite 3-Yr Benchmark 3-Yr (*throughout Ann St Dev Ann St Dev period) Composite Return Benchmark Return 2013 (Aug) -8.05% -7.56% 13.45% 13.12% 15 (13) 0.41% 10,360,778,335 2012 18.30% 16.76% 13.12% 12.59% 14 (10) 0.33% 10,905,522,842 17.66% 61,748,125,093 2011 -2.27% -1.75% 14.01% 13.37% 10 (7) 0.45% 6,528,109,391 13.38% 48,804,774,923 2010 16.66% 15.68% 17.55% 15.82% 5 (2) N/A 4,911,421,443 11.45% 42,897,339,433 2009 31.47% 21.98% 17.09% 15.22% <5 N/A 905,087,311 3.04% 29,788,291,172 2008 -7.09% -5.22% N/A N/A <5 N/A 148,678,679 0.74% 20,090,966,300 2007 20.39% 18.11% N/A N/A <5 N/A 65,349,749 0.21% 30,599,090,684 2006 (Aug) 10.89% 10.91% N/A N/A <5 N/A 23,049,882 0.10% 23,778,330,870 Year Page 28 | CONFIDENTIAL 14873 Dispersion Market Value at Percentage of end of Period Firm Assets Total Firm Assets