Global Tandem Bloomberg Conference Nov2009


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Global Tandem Bloomberg Conference Nov2009

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Global Tandem Bloomberg Conference Nov2009

  1. 1. Convertible Bond Long-only The Jefferies Umbrella Fund Adrian Hope November 2009 Jefferies (Switzerland) Ltd., Asset Management
  2. 2. Who We Are & What We Offer • A Jefferies Group business based in London and Zurich • CB long-only specialist with 14-year track record • Predominantly institutional client base in mainland Europe • Over US$ 1.6 billion assets under management • Luxembourg-listed UCITS III Fund with daily liquidity 2 Jefferies (Switzerland) Ltd., Asset Management
  3. 3. Jefferies Group • NYSE-listed Global Full-Service Investment Bank (JEF) • 2,166 employees who own approximately 35% • 29.9% ownership by strategic partner Leucadia National • Equity market capitalization of $5.0 Billion (as of 20/10/09) • Strong and liquid capital position with a conservative risk profile • Recently designated as a Primary Dealer by Federal Reserve Bank of NY 3 Jefferies (Switzerland) Ltd., Asset Management
  4. 4. Hybrid Response to Equity Price • Asymmetric response to equity price move • Bond floor supports CB as equity price falls Delta and • Call optionality increases equity sensitivity as equity price rises Gamma • Company-issued convertible bonds offer cheap equity call optionality plus yields CB Price • Option-based valuation model • Credit analysis key to assess stability of bond floor Bond Floor Parity (Equity Price) 4 Jefferies (Schweiz) AG, Asset Management Jefferies (Switzerland) Ltd., Asset Management
  5. 5. Out-Performance Created by Volatility Stock Portfolio Unchanged CB Portfolio +7.5% Stock Portfolio Unchanged CB Portfolio +2.5% Stock +50% Stock 125% 120% +25% Starting Point 110% Stock -25% Stock 100% 100% 100% 95% -50% 90% Bond Floor 90% 90% 90% Parity 80% 60% 40% 5 Jefferies (Switzerland) Ltd., Asset Management
  6. 6. Global Convertible Bond Market Market Cap. No. of Issues (US$bn) USA 287 905 Europe 91 670 Japan 55 196 Asia ex. Japan 52 310 Other 6 24 TOTAL 491 2,105 Source: Jefferies, September 2009 6 Jefferies (Switzerland) Ltd., Asset Management
  7. 7. Market Characteristics • Fragmented market with limited transparency • Annual issuance of c. US$100bn required to prevent shrinkage • Data and analysis are elaborate and complex • Market has manifold pricing inefficiencies • Market is more liquid than non-investment grade-bond market but requires specialist dealing expertise • Passive management not an option 7 Jefferies (Switzerland) Ltd., Asset Management
  8. 8. The Global Market of Convertible Bonds 1995 to 2009 in US$bn 200.0 180.0 160.0 140.0 120.0 Others Japan 100.0 Asia ex Japan Europe 80.0 USA 60.0 40.0 20.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: UBS as of end September 2009 8 Jefferies (Switzerland) Ltd., Asset Management
  9. 9. New Issue Flow 2008 - 2009 30.0 25.0 20.0 Others 15.0 Japan Asia ex Japan Europe 10.0 USA 5.0 0.0 Source: UBS as of end September 2009 9 Jefferies (Switzerland) Ltd., Asset Management
  10. 10. Investment Philosophy • Believe in your asset class • Data is an edge • Maximise gamma • Allow risk reduction and portfolio rotation to create outperformance • Add credit and equity alpha through individual selections 10 Jefferies (Switzerland) Ltd., Asset Management
  11. 11. Investment Process Bottom-up Screening Proprietary Database CB Upside/Downside Capture Investment Selection Trading Credit and Documentation Analysis CB moves out of optimal zone Liquidity Analysis New Issue Equity and Volatility Vliew Credit Deterioration Excessive Region or Sector Concentration Portfolio Construction Change in Credit Environment Position Sizes between 1.5% and 3% Risk-based Sizing No Strategic Cash Top Down Profiling Regional and Sector Concentrations Aggregate Credit Sensitivity FX and Duration Exposures 11 Jefferies (Switzerland) Ltd., Asset Management
  12. 12. Track Record Source: Bloomberg 12 Jefferies (Switzerland) Ltd., Asset Management
  13. 13. Global Track Record - Return JUF- Global CBs MSCI World Excess Return US$ based US$ based JEFMCVI LX Equity MXWO Index YTD 29.2% 22.5% 6.7% 1 Year 17.6% -4.7% 22.3% 3 Years 7.7% -17.9% 25.6% 5 Years 27.9% 7.6% 20.4% 10 Years 48.2% -7.5% 55.8% Drawdown to date -6.2% -33.0% Source: Bloomberg as at September 30th, 2009 13 Jefferies (Switzerland) Ltd., Asset Management
  14. 14. Global Track Record - Risk JUF- Global CBs MSCI World Risk US$ based US$ based Reduction JEFMCVI LX Equity MXWO Index YTD 12.2% 26.9% 55% 33.5% 1 Year 24.5% 27% 22.4% 3 Years 16.5% 26% 5 Years 13.3% 18.2% 27% 10 Years 11.2% 17.1% 35% Source: Bloomberg as at September 30th, 2009 14 Jefferies (Switzerland) Ltd., Asset Management
  15. 15. Global Track Record Annual Returns, 2004 -2008 Currency Neutral Source: Bloomberg as of end September 2009 15 Jefferies (Switzerland) Ltd., Asset Management
  16. 16. Yield and Delta Jefferies Umbrella Fund – Global Convertible Bonds Source: Jefferies / July 2002 to September 2009 16 Jefferies (Switzerland) Ltd., Asset Management
  17. 17. Outlook • Portfolio has more compelling technical characteristics than available at any time before 2008 • Improvement in CB valuations still has a long way to go • New Issue Market wil be very active • Can be used either as a enhanced return to a bond portfolio or a risk reduction to an equity portfolio • Either way, significant out-performance of equities is the aim • Time-tested alpha-generating management team 17 Jefferies (Switzerland) Ltd., Asset Management
  18. 18. For us, it all begins with our clients 18 Jefferies (Switzerland) Ltd., Asset Management
  19. 19. Disclaimer: This document does not constitute an offer to sell or the solicitation of an offer to buy securities. The information contained in this document therefore is neither complete nor definitive. The decision of any investor to invest in shares of the sub-funds of the Jefferies Umbrella Fund may only be made on the basis of all the relevant investment information as contained in the Prospectus as and when delivered. To the best of the knowledge and belief of the Directors of the Company, the information contained in this document was obtained from sources believed to be reliable, but is not guaranteed. Additional and supporting information is available upon request. Any opinion or estimate constitutes the preparer’s best judgment as of the date of preparation and is subject to change without notice. This document has been prepared by Jefferies (Switzerland) Limited. Jefferies (Switzerland) Limited disclaims any liability for loss or damage, which may occur of any nature whatsoever, which may arise directly or indirectly from the use of this documentation and/or information, texts, graphics or other material contained therein. Jefferies (Switzerland) Limited is regulated by the Swiss Financial Market Supervisory Authority (FINMA). The distribution of this document and the offering of Shares may be restricted by law in certain jurisdictions. It is the responsibility of any person in possession of this document and of any person wishing to make an application for Shares to inform himself and to observe all applicable laws and regulations of any relevant jurisdiction. This document may not be considered as either an offer or a solicitation in any jurisdiction in which such offer or solicitation would be unlawful. Past Performance is no indicator or guarantee of future performance. In the United Kingdom this material has been approved by Jefferies International Limited and is intended for use only by persons who have professional experience in matters relating to investments falling within Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended), or by persons to whom it can be otherwise lawfully distributed. Jefferies International Limited is authorised and regulated in the United Kingdom by the Financial Services Authority. Its registered office is at Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)20 7029 8010. 19 Jefferies (Switzerland) Ltd., Asset Management