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Atlantic senate march'12

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  • 1. Dedicated to Fixed IncomeFixed Income Views andProduct RangeSenate Group ConferenceMarch 2012
  • 2. Fund Range
  • 3. Atlantic Fund DescriptionsAtlantic Stable Income Fund Atlantic Enhanced Income Fund Atlantic Real Income Fund Atlantic Stable Income Fund is an Atlantic Enhanced Income Fund is an Atlantic Real Income Fund is an actively actively managed fund which is actively managed income-producing managed fixed income fund which aims to designed to deliver returns that are fund, which seeks to provide income deliver inflation beating returns over time. higher than that of call accounts and levels in excess of that provided by The Fund targets CPI+3% after cots on a traditional money market unit trust money market and income funds while at rolling 3 year basis. funds. the same time provide moderate capital growth. The fund will invest primarily in inflation This fund differs from a money linked bonds as well as other high yielding market fund due to the fact that the This will be achieved by actively fixed income securities. Fund Manager is able to invest in allocating and diversifying between income generating instruments that various interest-bearing asset classes The fund manager may also invest in listed have a higher return than typical including listed property. property and a basket of selected equity money market instruments. securities (to a maximum of 25%) to The objective of the fund is to preserve ensure the targeted return is achieved. Average weighted term to maturity capital and to maximise income returns limit is 90-180 days. for investors. It is suitable for investors The maximum combined equity and who require capital preservation and property exposure is 35%. high levels of income before and during This Fund is suitable for investors retirement. The Fund aims to protect investors capital wanting a monthly income and capital and at the same time generate an inflation stability. beating income stream. Regulation 28 Compliant Regulation 28 Compliant.
  • 4. Forward Yield and AA 4 Source: Atlantic Asset Management, Moneymate. See disclaimer for more details.
  • 5. Fixed Income Universe Instruments Stable Income Fund Enhanced Income Fund Real Income Fund Cash Money market Bonds Non-gvnt Bonds Corporate Bonds Inflation linked Bonds Preference shares Listed property Structured trades International Equity
  • 6. Atlantic Stable Income FundINVESTMENT UNIVERSEThe Fund will make use of a flexible mix of debtsecurities, including but not limited to moneymarket instruments, government bonds, fixeddeposits, listed debentures and other higheryielding securities such as short dated corporatebonds.AVERAGE TERM TO MATURITYLimited to a maximum of 180 days.ANNUAL MANAGEMENT FEE0.45% per annum (exVAT)
  • 7. Fixed Income Risk Spectrum Duration limit average 18 0 days Money Market Income Portfolios Fixed Interest-Varied Bond Portfolio Portfolios Specialist Portfolio These portfolios invest in bonds, fixed These portfolios invest in bonds, These portfolios seek to maximise deposits and other interest earning These portfolios invests in bonds, fixed fixed deposits and other interest- interest income, preserve the securities which have a fixed maturity deposits, structured money market bearing securities. These portfolios portfolio’s capital and provide date and either have a predetermined instruments, real estate, listed debentures may invest in short, intermediate and immediate liquidity. cash flow profile or are linked to and other high yielding securities, long-dated securities. The benchmark yields, but excluding any provided that not more than 5% may composition of the underlying This is achieved by investing in equities. be invested in ordinary equities. They investments is actively managed and money market instruments with a To provide relative capital stability, seek to maximise income with either will change over time to reflect the maturity of less than one year the average modified duration of the preservation and stability of capital, or an manager’s assessment of interest rate while the average maturity of the underlying assets is limited to a offer of potential growth of capital. trends. These portfolios offer the underlying assets may not exceed maximum of two years. potential for capital growth, together 90 days. These portfolios are less volatile and The underlying risk and return objectives with a regular and high level of are characterised by a regular and high of individual portfolios may vary as income. The portfolios are typically level of income. dictated by each portfolios mandate and characterised as short-term, highly stated investment objective and strategy. Benchmark: BEASSA All Bond liquid vehicles. Benchmark: BEASSA All Bond 1 to index 3 year split indexSource: Atlantic, ASISA Fund Classification Standards
  • 8. Performance review 1.0% ASIF vs MM ave 114 0.9% Atlantic Stable Income Fund vs Average Money Market Category 0.8% 112 0.7% 110 0.6% 108 0.5% 0.4% 106 0.3% 104 0.2% 102 0.1% 0.0% 100 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 ASIF MM Ave ASIF Cumulative MM Ave Cumulative Source: Bloomberg, Atlantic AM, Moneymate
  • 9. Asset Allocation – Stable IncomeFund Atlantic Stable Income Fund Asset Allocation 29 February 2012 Floating Rate > 3 months 30.9% Fixed Rate > 3 months 39.2% Money Market < 3 months 20.4% Cash on Call 9.5%
  • 10. Atlantic Enhanced Income FundINVESTMENT UNIVERSEThe fund may invest in:• government bonds• inflation-linked bonds• corporate bonds• non-sovereign bonds• money market securities• preference shares• listed property securities• other income-yielding debt securities FUND MANAGER• hedged offshore allocation Arno Lawrenz B.Sc(Hons), CFA Website: www.atlanticam.com
  • 11. Asset AllocationsAtlantic Enhanced Income Fund High Yield credit Atlantic Enhanced Income Fund Asset Allocation 29 February 2012 Short duration Money Market - Floating Rate 48.2% Foreign - Currency Hedged 12.3% Foreign Exposure Hedged into Rands Property 6.6% Pref Shares 2.8% Non-Govt Bonds 3.0% Cash on Call 11.4% Money Mkt- Govt Bonds Fixed Rate Inflation Linked 7.3% 3.3% Bonds 5.1%Cash has been used to buy bonds
  • 12. AEIF Asset Allocation over timeNotes:Included in the Floating Rate Securities are CLN’s which are linked to offshore bonds, but have no currencyvolatility. We therefore don’t have offshore un-hedged exposure. Powder is still dry! These assets are JIBAR 12linked with very good yield pick-up. See pie chart and slide showing allocation to these.
  • 13. Inflation protection via a Fixed IncomeFund the Atlantic Real Income Fund is… an income fund with an inflation protection theme: How is this achieved? → Uses Inflation-linkers to deliver real income growth → Makes us of inflation correlations to determine equity exposure, → including dividend income inherent in equity exposure → Listed property is added to provide additional income growth → in addition hybrid instruments to capture upside return
  • 14. Atlantic Real Income Fund FUND MANDATE UNIQUE FEATURES OF THE FUND → Provide income generation with an inflation-protection framework. → Maximum combined equity and property exposure of 35% → Unique features: → The conversion of equity risk into income → The capturing of inflation bias via equity exposure → Downside risk still a key requirement - capital preservation measured on a 12 month basis. → Conservative risk rating → Low TER
  • 15. Equity inclusion process
  • 16. Capturing Inflation Drivers • First Overlay : Identification of Inflation-drivers – Determination of equity bias : Food inflation, Oil, Currency risks • Second overlay : Inflation correlations – Monitoring of liquid stocks – Analysis of relative valuations – Decision on spread vs capital gain capture • Third overlay : Further breakdown of CPI basket – Decision on emerging secondary risks e.g. medical inflation • Fourth Overlay : Inflation-linked dividend yields – Decision on relative contribution of dividend yields
  • 17. Equity Holdings REAL INCOME FUND : Equity Holdings and Income Yields 12m Fwd 3 Yr Fwd Div D iv id e nd Yie ld E q uity 9.39 % Div Yld Growth KIO KUMBA IRON ORE LIMITED 1 701 802.20 3.66 8.44 6.93 ARL ASTRAL FOODS LIMITED 998 497.50 2.15 7.03 8.69 CML CORONATION FUND MANAGERS 458 280.00 0.99 7.17 11.43 CDZ CADIZ HOLDINGS LIMITED 429 420.00 0.92 9.84 10.52 ADR ADCORP HOLDINGS LIMITED 433 350.00 0.93 7.24 6.83 ALT ALLIED TECHNOLOGIES LIMITED 344 268.00 0.74 7.16 4.99 Infla tio n-the me d Eq uity 6.75 % SOL SASOL LIMITED 738 988.47 1.59 4.23 AGL ANGLO AMERICAN PLC 865 331.00 1.86 1.84 OMN OMNIA HOLDINGS LIMITED 824 568.00 1.77 1.97 GLD NEW GOLD ISSUER LIMITED 709 830.00 1.53 0 Lis te d P ro p e rty 7.80 % AWA ARROWHEAD PROP LTD A 24 504.28 0.05 10.4 AWB ARROWHEAD PROP LTD B 16 877.12 0.04 7.8 FFA FORTRESS INCOME FUND LTD A 1 391 324.80 2.99 8.6 RDF REDEFINE PROPERTIES LIMITED 630 247.92 1.36 8.6 EMI EMIRA 912 300.00 1.96 9.4 FPT FOUNTAINHEAD PROPERTY TRUST 642 941.76 1.38 8.3 P re fe re nc e Sha re s 3.02 % PGFP PSG PREFERENCE SHARE 566 190.00 1.22 7.74 SHFF STEINHOFF INV PREFS 839 031.00 1.81 7.48 26.98 8.18
  • 18. Real Income Fund :Performance Cumulative Performance 135 130 125 120 115 110 105 100 95 90 Real Income Fund CPI+3% ARIF CPI+3% Rel Perf 3m 3.78% 2.19% 1.59% 6m 4.20% 4.28% -0.08% 12m 7.90% 7.97% -0.07% 2y 20.93% 15.84% 5.09% 3y 30.44% 27.59% 2.85%
  • 19. Real Income Fund :Performance Monthly Performance 2.5000% 2.0000% 1.5000% 1.0000% 0.5000% 0.0000% -0.5000% -1.0000% -1.5000% Real Income Fund CPI+3%
  • 20. Asset Allocation – Real IncomeFund Atlantic Real Income Fund Asset Allocation 29 February 2012 Pref Shares Cash on Call 2.9% 8.7% Inflation Linkers 4.4% Money Market 42.0% Equity 16.3% Listed Property 9.7% Govt Bonds Foreign - Currency 8.0% Hedged 8.0%
  • 21. Market Views
  • 22. 1H2012 Key Global Themes• Fed/Japan /Euro are committed to keeping rates low – this will ultimately be the cause of the greatest misallocation of capital ever.• We are still in a 2-zone inflation world – DM on the lower side (with sub-par growth) and EM on the higher side, but already peaking. SA questions about structural risks in inflation outlook.• Debt crisis will continue to haunt overleveraged countries – Risk appetite will be more subdued and capital flows lower than recent past.• State, municipal and European peripheral finances destined to end in tears – Squeeze on revenues due to politically expedient austerity will lead to severe financing crunch. Banking systems are still vulnerable.• 2011’s mid-cycle growth slowdown has morphed into possible 2012 recession – flight to safety will remain as a key theme and inflation is a non- starter. High oil prices a tax on growth.• Locally, SARB at the mercy of global conditions – but constrained by rising inflation above upper target. 22
  • 23. Investment Recipe for 2012? It Ain’t over yet. Beware of (bond) Bubbles! Be Conservative.
  • 24. What’s changed? • Fed has committed to low rates into 2014. • ECB has provided unlimited 3 year liquidity to banking sector. • EM’s like Brazil & India easing more aggressively than expected. • Etc etc…
  • 25. What’s changed? • So, with a global easing bias; and • Risky assets already pricing in bad news means : Markets in risky assets will rally this year?
  • 26. Are things improving? Yes,but….
  • 27. Market scenarios Scenario 1 : Spain, Italy, France are moving into debt trap territory. Everything else is just noise. Scenario 2 : Too much is at risk for the Euro to fail. This is just a blood on the streets point in time – time to be brave. 27
  • 28. Everything else is noise… 28
  • 29. Scenarios – Expected ReturnsSCENARIO 1 : Income Capital gain TotalCash 5.0% 0.0% 5.0%Money market 5.5 1.0** 6.5Nominal Bonds 8.5 -6.5 2.0ILB’s 9.8 -1.7 8.1Listed property 8.0 -5.0 3.0Preference Shares 7.8 -1.0 6.8SCENARIO 2 : Income Capital gain TotalCash 5.5% 0.0% 5.5%Money market 6.0 1.0** 7.0Nominal Bonds 8.5 4.0 12.5ILB’s 8.5 0.3 8.8Listed property 8.2 2.5 10.7Preference Shares 8.2 0.0 8.2** Not capital gain, but credit spread. 29
  • 30. Japan is the template 6.00 Japan 10 year bond yield 5.00 4.00 3.00 2.00 1.00 0.00 May-94 Nov-95 May-97 Nov-98 May-00 Nov-01 May-03 Nov-04 May-06 Nov-07 May-09 Nov-10 30Source: Bloomberg, Atlantic AM
  • 31. South Africa Bond yields –have we “peaked” already? 21.00 19.00 SA 10 year bond yields 10 year average = 5.9% 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 Jan-97 Mar-98 May-99 Jul-00 Sep-01 Nov-02 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11
  • 32. South Africa Bond yields –going nowhere slowly? 10 year average = 5.9%
  • 33. A major 2015 worry… Japan’s debt bubble will also burst one day… 33
  • 34. A major 2015 worry… 34
  • 35. 2012 Investment Strategy • Look for safe income : Dividends, High quality credit, high running yield bonds. • Run with the bulls (and the bears!)
  • 36. Contact details Arno Lawrenz Murray Anderson alawrenz@atlanticam.com manderson@atlanticam.com 079 876 8001 083 676 5284 Disclaimer The information and opinions contained in this document are recorded and expressed in good faith and in reliance on sources believed to be reliable. However, no representation, warranty, undertaking or guarantee of whatever nature is made or given concerning the accuracy and/or completeness or such information and/or the correctness of such opinions. Any investment is speculative and involves significant risks and in making any investment decision, or in advising a third party in respect of an investment decision, you will rely solely on your own view and examination of the facts, information opinions and the records relating to such investment. Past performance of the investment is not an indication of the future performance. Atlantic Asset Management (Pty) Limited (Atlantic) shall have no liability or responsibility of whatever nature in respect of any claim, damage, loss or expense arising out of or in connection with the reliance by anyone on the contents of this document. Views expressed are those of Atlantic and are subject to change without notice. Notes on performance and asset allocation charts: Forward Yield* An expected return for the fund in 12 months time. All calculations are indicative and use current market pricing and fund compositions and will change from time. All yields are calculated net of costs. The portfolio performance is calculated on a NAV to NAV basis and does not take any initial fees into account. Income is reinvested on the ex-dividend date. Actual investment performance will differ based on the initial fees applicable, the actual investment date and the date of reinvestment of income. Past performance is not necessarily an indication of future performance. Prices are calculated on a net asset value basis. The single price (NAV) per unit reflects the total assets of a portfolio less permissible deductions, divided by the number of units in issue. Permissible deductions include any costs related i.e. running a portfolio e.g. trustee/custodian fees, audit fees, manager’s annual fee and regional services council levies, MST and brokerage fees. Lump sum investment with income reinvested. Atlantic Asset Management (Pty) Limited is an authorised discretionary financial services provider (FSP number 31756).