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Natixis euro high income fund  pitch book - may 2011 en montreux demode mod Natixis euro high income fund pitch book - may 2011 en montreux demode mod Presentation Transcript

  • Natixis Euro High Income Fund Montreux – Citywire event Philippe Berthelot, CFA Head of Credit May, 11-13th 2011 Natixis International Funds (Lux) I
  • Agenda
    • High Yield at Natixis Asset Management
    • Why invest in Euro High Yield?
    • Why now?
    • Natixis Euro High Income Fund
  • Agenda
    • High Yield at Natixis Asset Management
    • Why invest in Euro High Yield?
    • Why now?
    • Natixis Euro High Income Fund
      • 10 specialised credit portfolio managers
        • 18 years of professional experience on average
      • AUM
        • 3.9 Bn€ as at 12/31/2010
      • Experience since 2000 across the credit spectrum
        • Core Credit
          • Core
          • Core Plus
        • Satellite Credit
          • High Yield
          • Hold To Maturity
          • Absolute return
          • Convertible bonds
        • Synthetic credit
          • Credit collateral
          • CPPI
    Head of Fixed Income Ibrahima Kobar, CFA [22,17] Head of Credit and Structured Credit Philippe Berthelot, CFA [19;1] Portfolio Managers Christine Barbier [25;21] Hanna Stekelorom, CFA [28;17] Philippe Garnier [22;11] Vincent Marioni, SFAF [13;2] Cyrille Philippe [18;4] Denis Passot [26;20] Fabien Vieillefosse [11;11] Sophie Pensel [10;0] Ousséni Parkouda [4;4] Credit investment management team at Natixis AM [Years prof. exp.; Y at NAM]
      • 2 Senior Credit Portfolio Managers
        • CFA and SFAF charterholders with a credit analysis experience.
    * Covering HY with levaraged loans skills Dedicated resources to High Yield at Natixis AM Portfolio Managers and Credit analysts work closely together Philippe Berthelot, CFA Head of Credit 19 years of professional experience Vincent Marioni, SFAF Senior Portfolio Manager 13 years of professional experience Cynthia Voorhees, CFA [21;1] + 11 Sector credit specialists
      • A research team comprised of 11 credit industry analysts.
        • Including 1 analyst fully dedicated to High Yield*
      • 2 quantitative analysts
        • Chafic Merhy
        • Guillaume Bernis
    Consumer cyclical Basic industry Capital Goods Technology Transportation Consumer non cyclical Consumer products Food and Beverage Pharmaceuticals Tobacco Supermarckets Communication Utilities Energy Banks Brokers Insurers Real Estate Bertrand Rocher Maggie Cheng, CFA Quentin Girod Sylvie Sauvage, SFAF Marie-Aude de Lavallade, SFAF Fabien Frappart Sanda Molotcov, CFA Saad Benlamine Kaysser Cherif Jérôme Loire, SFAF To be Hired High yield - Stéphanie Iem, CFA* Cyclical Defensive Financial
  • Investment discipline +
    • Stable business model with predictable cash flows
    • Improving industry fundamentals
    • Positive year-over-year cash flow
    • Excess cash flow being used to improve credit worthiness
    • Companies with deteriorating fundamentals & high default probabilities
    • Issuers whose management focus is shareholder oriented
    • Companies with business models that we do not understand
    - Idea Generation through… Proprietary research We aim to allocate to… We aim to avoid… Our Credit analysis include recovery assessment and liquidity analysis for HY companies
  • A disciplined investment process PORTFOLIO CONSTRUCTION & MANAGEMENT Bottom-up Process & diversification Outperform the benchmark and be ranked in the first quartile*, With a defined risk budget Directional (Over- or Under-weight) 3 Aim Drivers Objectives 2 1 Security selection Ensure risk-adjusted return * In the Morningstar / Lipper peergroups or equivalent Portfolio Managers and credit analysts work closely together HY DIRECTION Defined during our Credit Strategic Committee IDEA GENERATION Supported by fundamental credit analysis
  • Agenda
    • High Yield at Natixis Asset Management
    • Why invest in Euro High Yield?
    • Why now?
    • Natixis Euro High Income Fund
  • Why invest in Euro High Yield?
    • The High Yield asset class is very appealing:
      • A diversifying asset class
        • Negative or low correlation of the HY spreads with other asset classes
      • Asset class expected to experience significant growth ahead
        • From bank financing (loans) to public debt market (bonds)
      • Appealing returns over the past 10+ years vs equities:
      • Regulatory framework (Solvency 2) favours HY investing compared to equities
    Source : Natixis Asset Management Source : Bloomberg, BOAML -0.50 0.49 -0.34 -0.47 HY Euro OAS correlation EuroStoxx VDAX Swap 5 years Govies 5 years
  • Source : Merrill Lynch Indices HP00, décember 2001, december 2010 The size and the number of issuers have grown over the last decade. Why invest in Euro High Yield? Euro High Yield no longer considered a niche
  • From a niche market to a true asset class (Dec.01-Jan 11) 2011 : Market Value : € 151 bn 360 issues 204 issuers 2001 Market Value : € 20 bn 144 issues 94 issuers 2007 Market Value : € 88 bn + €20 bn off benchmark (PIKs, FRNs…) 222 issues 159 issuers Source : Merrill Lynch Indices HP00
  • Euro High Yield vs US High Yield Euro HY market used to lag behind US market but Euro High Yield is catching up (Size difference: 1 to 5). Source : HP00 et H040, figures as of end 2010 1013 2114 746 B€ HY – United States (H040) 151 B€ Size 360 Number of issues 204 Number of isuers HY – Europe (HP00)
  • Why invest in Euro High Yield ? Regulatory framework favours high yield investing (e.g. Solvency II)
    • Capital requirement is much less a burden for HY assets vs Equity investments (based on the specifications from QIS 5)
    • For instance, capital requirement that has been calculated for the HY Merrill Lynch index (HEC4, refrence index of Natixis Euro high Income) amounts to ca 20% with an average modified duration of 3.70 and an average rating BB- (linear) / B+ (WARF) vs 39% for listed equities.
    NB: Calculation above made on a stand alone basis, ignore diversification benefits in case of diversified portfolios blending various asset classes Source Crédit Suisse
  • Agenda
    • High Yield at Natixis Asset Management
    • Why invest in High Yield?
    • Why now?
    • Natixis Euro High Income Fund
  • Why now?
    • Key interest rates still low despite some further rate hikes to expect from the ECB in order to fight headline inflation which is above ECB target…
    • Low growth in Euroland (but Germany) and low core inflation…
    • Strong fundamentals and a decreasing default rate
    • Attractive yields compared to the other fixed income asset classes
    • Attractive risk premium whatever the rating within the speculative grade segment
    Yields on High Yield stay attractive 7.49% 4.00% 3.63% 2.60% 1.42% Yields 29 /04/2011 404 117 70 -39 N/A Spreads in bps vs swaps IG Index (ML EROO) Government Bond Index (ML E2AS) HY Index (ML HEOO) Obl (5 years) EONIA 390 BB 536 B 1093 C/CCC 281 (vs Treasuries) EMBI 215 BBB Risk premium (in bps, OAS) 29 /04/2011
  • Macro-economic outlooks
    • Contrasted macro background in Euroland :
    • Low growth but Germany , low core inflation but headline inflation (much above target) and still low rates but short term interest rates on the rise …
    Source: CIS, Natixis Asset Management, March 2011 2.50 2.00 -0.20 1.90 Inflation 2012 4.00 2.30 -0.30 2.00 Inflation 2011 1.70 1.70 2.00 3.00 GDP 2012 1.60 1.80 1.50 3.10 GDP 2011 UK Europe Japan USA Quantitative factors (annual average) in %
  • HY Fundamentals: Ratings trend and defaults forecasts for US & EUROPE (sources Bloomberg as of 19/04/11 / Moody’s as of march 2011)
    • In Europe the Upgrade/Downgrade ratio is OK
    • The US Upgrade/Downgrade ratio stays OK
    • Moody’s forecast a European Speculative default rate of 1.0% and 1.6% in the US at the end of 2011.
    • Our internal NAM model exactly confirms this base scenario.
  • EUR High Yield Supply: € 50 bn exp. in 2011 (as of 1/04/2011, source BOAML) HY EUR new Issues (USD equiv.) % fallen Angels within US & Europe HY universe JP Morgan Survey result on 2011 primary supply investors expectations
  • HY Valuation: US Leveraged Loans & Eur HY The S&P/LSTA U.S. Leveraged Loan 100 Index weighted average bid price of constituents based upon dollar outstanding amounts as of 19/04/2011 JPM Rock Bottom Spread (as of 07/04/2011)
  • Valuation Euro High Yield Source: CSC NAM, April 2011 8.13 9.15 2.88 Total Return 1 year 0.77 1.47 -2.38 Price Return YTD 2011 3M 1M 2.78 3.10 1.59 Total Return 1.29 1.49 0.82 Total Return 2.60 4.86 1.04 0.72 EUR HY BB/B 3% (HEC4) 3.37 5.72 1.31 0.89 HY Europe (HP00) 0.09 1.77 0.28 0.37 EurBBBCorp (ER40) Price Return Total Return Price Return Price Return Index returns in local currency as of 04/25/2011 18.92% 21.73% (20% recovery) European Itraxx XOver @ 375 bp Historical average Implied default rate Cum 5 year default rate @ 19/04/11
  • Agenda
    • High Yield at Natixis Asset Management
    • Why invest in High Yield?
    • Why now?
    • Natixis Euro High Income Fund
  • Natixis Euro High Income Fund
    • Features
      • UCITS III-compliant subfund of the SICAV Natixis International Funds (Lux) I
      • Investment universe: High Yield corporates (including financials)
      • The fund is hedged against currency risk and does not look to take on relative duration
      • A fundamental Bottom Up approach
      • Main alpha driver : security selection
      • Resources:
        • 2 senior Portfolio Managers
        • 11 experienced credit analyts
        • 2 quantitative analysts
  • Reference information Swing pricing: In the event of large subscriptions, redemptions and/or switches in and/or out of a Fund in a same business day, and in order to take the dilution impacts into account and to protect the Shareholders’ interests, the Management Company reserves the right to apply a “swing pricing” as part of its daily valuation policy. This means that, if on any business day, the aggregate transactions in Shares of a Fund exceed a threshold determined by the Management Company, the Net Asset Value of the Fund may be adjusted by an amount, not exceeding 2% of the relevant Net Asset Value, in order to reflect both the estimated fiscal charges and dealing costs that may be incurred by the Fund and the estimated dealing spread of the assets in which the Fund invests/disinvests. Where a dilution adjustment is made, it will typically increase the Net Asset Value per Share when there are important net inflows into the Fund and decrease the Net Asset Value per Share when there are important net outflows * À titre indicatif Reference index BofA Merrill Lynch Euro High Yield BB-B Rated Constrained Index Inception date November 18, 2010 Investment vehicle Sufund of the Natixis International Funds (Lux) I SICAV Custodian Brown Brothers Harriman (Luxembourg) S.C.A. Audit PricewaterhouseCoopers S.à.r.l. – Luxembourg Investment Manager Natixis Global Associates Sub-delegated Investment Management Company Natixis Asset Management Lead Portfolio Manager Philippe Berthelot, Vincent Marioni ISIN I/A (EUR) – LU0556616935- I/D (EUR) LU0593537219 R/A (EUR) – LU0556617156 –R/D (EUR) LU0593537482 S/A (EUR) – LU0556617313- S/D (EUR) LU0593537565 RE/A (EUR) – LU0556617586 EUR 1,000 3.00 1.65 R – Retail EUR 250 - 2.00 RE – Retail E Share class TER, % Max sales charge, % Minimum initial amount S - Super institutional 0.75 3.00 EUR 15,000,000 I - Institutional 1.00 3.00 EUR 100,000 Valuation frequency Daily Cut off D, 13h30 Luxembourg time
  • Few recent investments
    • Recent investments made in the portfolio :
    • Kion 7.875% 2018 NC 14 (B2/B) @ 100.00% (YTW 7.875 % / ASW + 455 bps)
    • CMA CGM 8.875% 2019 NC 15 (B2/B-) @ 100.00% (YTW 8.875% / ASW + 529 bps)
    • Elster 6.25% 2018 NC 14 (Ba2/BB-) @ 100.00% (YTW 6.25% / ASW + 280 bps)
    • Erste Bank 5.294% Perp T1 call 16 (Ba2) @ 83.00% (YTW 9.44% / ASW + 548 bps)
    • GEO 10.375% 2019 NC 14 (B-/Caa1) @ 100.00% (YTW 10.375 % / ASW + 680 bps)
    • Ontex 7.5% 2018 NC 14 (Ba3/B+) @ 101.75% (YTW 7.20% / ASW + 408 bps)
    • Eaccess Ltd 8.375% 2018 NC 15 (Ba3/BB) @ 100.00% (YTW 8.375% / ASW + 492 bps)
    • Goodyear 6.75% 2019 NC 15 (Ba2/BB) @ 100.00% (YTW 6.75% / ASW + 323 bps)
  • Focus on a recent investment :
    • Why we like the new € Foodcorp 8.75% 2018 :
    • A low cyclical Food & Retail Issuer which offers a good visibility on cash flows in a country with a structurally growing middle class population.
    • Strong market shares on various products from Mayonnaise (44%) to Dry Dog Food (50%).
    • Good deleveraging potential from a 5.9X Net Debt/Ebitda Ratio in early 2011 thanks to healthy growing margins.
    • Ability to pass raw material price increases.
    • Sound liquidity position with R 312M cash on balance sheet and R 250M undrawn RCF.
    • The company is owned for more than 50% by Managenement and Staff.
    • Likely M&A target for bigger and better rated Food producers like Nestle or Unilever.
    • A decent return with a Yield of 8.75% for a Secured Note
    A South African producer of private label food products (Moody’s B2 / S&P B-) Source : Company reports EBITDA Breakdown Source : Company reports FCF Breakdown
  • Natixis Euro High Income Snapshot, 30/04/11
  • Natixis Euro High Income Snapshot, 30/04/11
  • Natixis Euro High Income Snapshot, 30/04/11
  • Performance Natixis Euro High Income since launch Portfolio HEC4 Performance from 22/11/2010 to 21/04/2011 (source: Natixis Performances) 4.23 3.87
  • APPENDIX
  • TEV Natixis Euro High Income, Barclays POINT at 29/04/11
  • Credit case : Ziggo B.V.
    • Why we like Ziggo :
    • Ziggo’s cable infrastructure passes through 55% of Dutch households, of whom 80% are client
    • Good deleveraging potential supported by Best-in-class EBITDA margin at 54% of revenues
    • The Netherlands are highly densely populated allowing low maintenance and investment costs
    • Negligible event risk given the nature of the business and its leading market position
    • Moderate revenue growth expected on the next 3 years supported by triple play penetration
    • Soft competition in the Dutch cable market at this stage
    • Adequate liquidity position
    The largest cable operator in the Netherlands (Moody’s Ba3 / S&P B+ / NAM HY2+)
  • Credit case : Ziggo B.V .
    • Because :
    • We believe in Ziggo’s ability to deleverage over time
    • We like the predictable nature of the business
    • We think that the yield of the 2018 bond at nearly 7% is attractive given our risk assessment and the liquidity of the bond
    • Even if :
    • The competition by the incumbent telecom operator KPN is growing
    • The expected recovery rate on the bond given the structural subordination to senior secured bank debt could be nihil
    Ziggo 8% 2018 ___ Price (Left) ___ Yield to Worst (Right) Souce JP Morgan Inc as of 13/10/10
  • Company – Review
    • Fundamental Score (3 year horizon)
    • Investment Grade: IG1, IG2, IG3, IG4, IG5
    • High Yield: HY1, HY2, HY3
    • Not rated (NR)
    • Default (D)
    • Workout (W)
    • Avoid (A)
    • 12 month Outlook
    • = + -
    • Event Risk
        • Negative High
        • Negative Low
        • Negligible
        • Positive Low
        • Positive High
        • Uncertain
    • Ratings Target
    • (what will rating agencies rate company in 12/18 months time)
    IG5 = Severe deterioration ahead IG3 = Slightly higher risk + volatility but very low risk of default IG 4 = Higher risk and volatility but low risk of default. IG1 = very low risk & volatility IG2 = relatively low risk & volatility HY1 = Core HY2 = Alpha HY3 = Cautious
  • HY & IG correlation with rates EAC = IG index ECHY / ECHY BB-B = HY index / HY constrained index
  • Xover Equilibrium Model
  • Valuation : Total Return Credit vs Govt Bonds
    • The outperformance of the Credit asset class over Govies continues
    • European HY performance remains far ahead IG one
    • In the US, the outperfor-mance of credit is as appealing
    Source : Barclays, Natixis AM
  • Biography
    • Philippe Berthelot, CFA - Head of credit teams (Corporate credit and structured credit)
    • Philippe Berthelot holds a Master’s degree in Management Science
    • from the European business school (Paris), and a Master’s degree in Finance
    • from ESC Tours, a French graduate business school. He is also a CFA
    • charter-holder.
    • Philippe Berthelot began his career in 1992 at CDC Gestion, as fixed income and money market portfolio manager. In 1998, he joined AXA Investment Managers (Paris) where he was fixed income portfolio manager on euro aggregate and credit expertise. He became Head of euro credit team in 2002, and then Head of euro fixed income in 2006. In January 2009, he was promoted Head of continental credit Europe at AXA Investment Managers.
    • He oversaw two co-lead portfolio managers of the High Yield fund ‘AXA IM Europe Haut Rendement’ from early 2005 to June 2009.
    • AXA IM Europe Haut Rendement (C) FR0000979841 / AXAEHYC FP Equity
    • In January 2010, Philippe Berthelot joined Natixis Asset Management as Head of credit teams.
    • He is currently the co-lead portfolio manager of the Natixis Euro High Income Fund.
    • Philippe Berthelot has 19 years of professional experience and has been working for our company for 1 year.
  • Biography
    • Vincent Marioni – Credit and high yield portfolio manager
    • Vincent Marioni is a postgraduate in Finance at ESC Lille (now SKEMA Business
    • School) and is certified by EFFAS (the European Federation of Financial Analysts Societies).
    • Vincent Marioni started his career in 1998 as a credit analyst at Ixis Capital Markets. In 2002 he became credit portfolio manager at La Banque Postale Asset Management and was responsible for European ABS management. In 2005, he joined BPCE in order to manage a total return portfolio of investment grade and high yield credit, cash and synthetic.
    • Vincent Marioni joined Natixis Asset Management in 2009 as a portfolio manager specialised in structured credit and high income. He is currently the co-lead portfolio manager of the Natixis Euro High Income Fund.
    • Vincent Marioni has 13 years of professional experience and has been working for our company for 2 years.