Strategic IncomeForward EM Corporate Debt Fund2Q /2012                            FOR INVESTMENT PROFESSIONAL USE ONLY. NO...
Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corpor...
Forward EM Corporate Debt Fund                                                                        Fund OverviewCategor...
Forward EM Corporate Debt Fund                                                                     Fund StatisticsDuration...
Table of ContentsI.    Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Cor...
The Fixed Income “Mis-Allocation” Problem                                        · High leverage and external debt balance...
Table of ContentsI.    Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Cor...
Potential advantages of EM Corporate Debt                Compelling Yields                                                ...
EM Corporate Debt vs. Other Asset ClassesVarious factors of the EM corporate debt market make it an attractive addition to...
The Rise of EM Corporate DebtSovereign debt crises during the 1990s marked a transformation in EM fiscal policiesand set t...
The Evolution of EM Opportunity SetThe emerging market opportunity set has changed—the future is EM corporate debt.       ...
EM Corporate Debt UniverseCredit Suisse publishes an emerging market corporate bond index comprised of dollar-denominated ...
EM Sovereign vs. EM Corporate DebtThe EM corporate debt market has grown sharply since 2001 and EM economies havebecome a ...
Correlations                                                       Correlation of Monthly Returns                         ...
Table of ContentsI.    Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Cor...
EM Debt vs. EM Equity PerformanceEM debt has performed better than EM equity from a risk-adjusted standpointsince 1994    ...
EM Corporate Debt Yields  Credit Suisse EM Corporate Index  BB & B Historical Yields  11/30/2001 – 06/13/2012         40.0...
EM Assets in Market VolatilitySince 2001, EM corporate debt has generally sold off less than EM sovereign debt andEM equit...
Table of ContentsI.    Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Cor...
SW PhilosophyA different approach to credit managementThe best opportunities exist in the least developed markets        ·...
SW Investment Process                                        · Macro country and industry views     Thematic      Macro   ...
SW Portfolio ConstructionHow does investment process feed into portfolio construction?Our portfolio comprises of four type...
SW Asset ManagementWhy SW?· Decades of institutional investment, operational and business management experience· Complemen...
Investment Team                         David C. Hinman, CFA*                                                             ...
Table of ContentsI.    Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Cor...
About ForwardThe New Direction of InvestingThe world has changed, leading investors to seek new strategies that better fit...
DefinitionsThe Credit Suisse Emerging Market Corporate Bond Index consists of U.S. dollar-denominated fixed incomeissues f...
Important InformationPlease consider the objectives, risks, charges and expenses carefully before investing in the fund. A...
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Em corp-debt-overview

  1. 1. Strategic IncomeForward EM Corporate Debt Fund2Q /2012 FOR INVESTMENT PROFESSIONAL USE ONLY. NOT FOR PUBLIC VIEWING OR DISTRIBUTION.
  2. 2. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 2
  3. 3. Forward EM Corporate Debt Fund Fund OverviewCategory Emerging market corporate fixed incomeObjective The Fund seeks to achieve high total return (capital appreciation and income)Inception Date October 5, 2007 FFXRX – Investor ClassTickers FFXIX – Institutional Class FFXCX – Class CBenchmark Credit Suisse Emerging Market Corporate IndexThere is no guarantee that the Fund will achieve its objectiveFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 3
  4. 4. Forward EM Corporate Debt Fund Fund StatisticsDuration 4.96Top 5 Country Weights Mexico (16.4%), Russia (13.6%), South Korea (7.7%), Brazil (7.6%), Peru (7.2%)Top 3 Sector Weights Financial (30.5%), Energy (20%), Communications (11.2%)As of June 29, 2011Current and future portfolio holdings are subject to changeFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 4
  5. 5. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 5
  6. 6. The Fixed Income “Mis-Allocation” Problem · High leverage and external debt balances Traditional bond · Low yields allocations are to countries that have: · Slowest economic growth · Least ability to repay debts · Allocate to countries with higher economic growth rates Potential Solutions: · Refine asset allocation · Invest using new methods and alternative strategiesFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 6
  7. 7. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 7
  8. 8. Potential advantages of EM Corporate Debt Compelling Yields New Asset Class Supportive Backdrop Yields on EM corporate debt may Emerging market corporates EM corporate debt may have higher returns than EM are under-researched, offer investors strong bondholder equities and may offer more yield under-followed and protections along with exposure to per unit of duration than EM under-appreciated. rapid economic growth in emerging sovereign or US corporate debt. market countries.Source: JP Morgan, Bloomberg, Jan ’94 – Dec ’11. Sharpe ratios were calculated based on the annualized returns divided by the annualized volatilities over the state time period.Past performance does not guarantee future results.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 8
  9. 9. EM Corporate Debt vs. Other Asset ClassesVarious factors of the EM corporate debt market make it an attractive addition to theinstitutional investors’ portfolio EM Corporate EM Sovereign EM U.S. Debt Debt Equity High Yield Issued primarily in USD and under U.S. or UK law:    Highest Sharpe Ratio:  Generally secured by assets and/or owner guarantees:  Least research coverage:  Fewest dedicated mandates: FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 9
  10. 10. The Rise of EM Corporate DebtSovereign debt crises during the 1990s marked a transformation in EM fiscal policiesand set the stage for more balanced private sector growth in EMFactors Contributing to the Rise of EM Corporate Debt: · Transformation accompanied by globalization and the economic growth of developing markets · Capital needs in EM countries and the trend toward privatizations · Movement away from fixed exchange rates by many EM countries · Net external creditor status by many EM economies · Rise of a middle class in EM countries · Many upgrades to investment grade status for both EM sovereign and corporate debtFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 10
  11. 11. The Evolution of EM Opportunity SetThe emerging market opportunity set has changed—the future is EM corporate debt. EMERGING EMERGING EMERGING STOCKS SOVEREIGN DEBT CORPORATE DEBT PAST FUTURE Amount Outstanding EM Stocks EM Sovereign Debt EM Corporate Debt $6.88T $337B $714BSource: Credit Suisse, BloombergData is as of June 29, 2012FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 11
  12. 12. EM Corporate Debt UniverseCredit Suisse publishes an emerging market corporate bond index comprised of dollar-denominated corporate debt in global emerging markets. Credit Suisse EM Corporate Index Number of issues 1,073 Number of issuers 521 Market value outstanding $707.6 Billion Countries 42 Yield 5.32% Duration 4.98 Top 5 Sectors 1. Financial (33.6%) 2. Energy (24.2%) 3. Basic Materials (9.5%) 4. Utilities (7.8%) 5. Communications (7.3%)Source: Credit SuisseAs of June 29, 2012FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 12
  13. 13. EM Sovereign vs. EM Corporate DebtThe EM corporate debt market has grown sharply since 2001 and EM economies havebecome a larger percentage of World GDP Market Value Outstanding 800 CS Sovereign Bond Index 40% 700 35% CS EM Corporate Index 600 30% EM GDP as a percentage of World GDP (RHS) In billions, USD 500 25% 400 20% 300 15% 200 10% 100 5% 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Sources: IMF, Credit Suisse. 2011 GDP data are based on IMF Estimates. As of June 29, 2012.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 13
  14. 14. Correlations Correlation of Monthly Returns November 1, 2002 to June 29, 2012 Index 1 2 3 4 5 6 1 CS EM Corporate Bond 1.00 2 BarCap US Agg Bond 0.56 1.00 3 BarCap US Corporate High Yield 0.78 0.21 1.00 4 S&P 500 0.56 0.02 0.72 1.00 5 MSCI EM GR 0.64 0.08 0.71 0.82 1.00 6 S&P GSCI 0.39 -0.02 0.36 0.40 0.53 1.00Source: Morningstar from 01/01/02 – 06/29/12FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 14
  15. 15. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 15
  16. 16. EM Debt vs. EM Equity PerformanceEM debt has performed better than EM equity from a risk-adjusted standpointsince 1994 Sharpe Ratios: EM Debt vs. EM Equity CS EMCI MSCI EM 1 year -0.85 (0.53) 3 year 2.06 0.44 5 year 0.68 0.01 10 year 1.02 0.58 Since Inception 0.95 0.64Source: Credit Suisse, Bloomberg, November 2001 (Inception) to June 29 2012. Sharpe ratios were calculated based on the annualized returns divided by the annualized volatilities over the state time period.Past performance does not guarantee future results.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 16
  17. 17. EM Corporate Debt Yields Credit Suisse EM Corporate Index BB & B Historical Yields 11/30/2001 – 06/13/2012 40.00% 35.00% EMCI Index BB Bucket Yield To Maturity EMCI Index B Bucket Yield To Maturity 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%Source: Credit SuisseAs of June 13, 2012Past performance does not guarantee future results.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 17
  18. 18. EM Assets in Market VolatilitySince 2001, EM corporate debt has generally sold off less than EM sovereign debt andEM equities during periods of heightened volatility Total Return in Market Volatility CS EM Corporate CS Sovereign MSCI EM Index Bond Index Equity Index May 02 – Jul 02 -3.2% -9.2% -15.9% Apr 04 – May 04 -4.4% -6.6% -10.0% May 06 – Jun 06 -0.7% -1.9% -10.6% Sep 08 – Oct 08 -24.1% -19.7% -40.1% Aug 11 – Sep 11* -5.3% -4.4% -22.2%Sources: Credit Suisse, Bloomberg.The time periods above were selected based on total returns for all three indices being negative for at least 2 consecutive months.*During August 2011, the SBI Index returned 0.38% while CS EM Corporate Index and MSCI EM Equity Index had negative returns but this period was included for comparison purposes.Past performance does not guarantee future results.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 18
  19. 19. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 19
  20. 20. SW PhilosophyA different approach to credit managementThe best opportunities exist in the least developed markets · We believe emerging market credit opportunities outnumber those in developed credit markets · We believe emerging market corporates are under-researched, under-followed and under-appreciatedFundamental credit analysis is necessary but not sufficient; a multifaceted approach works best · We believe bonds often trade on factors unrelated to fundamentals · Systemic risks to risk assets have risen since 2008Credit risk can and should be hedged · We believe “risk-managed” shorts significantly mitigate tail risk · We believe innovative hedges are necessaryFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 20
  21. 21. SW Investment Process · Macro country and industry views Thematic Macro · Identify opportunities in dislocated market segments Orientation · Utilize extensive contacts in global credit network · Analyze asset value, debt structure and free cash flow generation Fundamental · Evaluate business model and competitive landscape Analysis · Create pro forma debt structure and assess liquidation value · Critical as to purchase timing and entry price Technical Analysis · Identify type of holders to assess potential magnitude of forced selling or buying · Await technical opportunities to purchase/short credit bonds significantly below/above fundamental value · CIO and portfolio manager must agree on all purchases and sales Invest · Establish price and position size targets · Scale into positions based on dealer positioning and forced sellers or buyers · Understand catalysts and exit opportunities Monitor and Harvest · Focus on company news releases, regulatory filings and bankruptcy court recordings · Reassess return potential in relation to other opportunities · Which factors – outside credit fundamentals – could cause a significant shock to valuations? Risk Management · Which securities/credits are likely to have an intuitive and opposite reaction to such an event? · Which of the hedges has the highest cost benefit ratio in the event of a tail shock?FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 21
  22. 22. SW Portfolio ConstructionHow does investment process feed into portfolio construction?Our portfolio comprises of four types of trades: · Based on fundamental analysis and focused on carry Yield · Target allocation: 30% - 60% Event- · Based on special situations and focused on principal appreciation Driven · Target allocation: 20% - 50% · Based on technical analysis and focused on market inefficiencies Trading · Target allocation: 0% - 30% · Based on macro analysis and focused on systemic risk factors Hedging · Target allocation: 0% - 150%FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 22
  23. 23. SW Asset ManagementWhy SW?· Decades of institutional investment, operational and business management experience· Complementary buy side investment backgrounds in EM and developed market credit· Five-year track record and demonstrated ability to navigate various credit markets· Experience successfully managing credit portfolios in crisis periods (2001/2002, 2007/2008)· Significant business commitment by managing partnersFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 23
  24. 24. Investment Team David C. Hinman, CFA* Raymond T. Zucaro, CFA* Managing Principal Managing Principal Chief Investment Officer Portfolio ManagerDavid has over twenty years of experience investing in global credit strategies. Prior to co-founding SW Asset Management LLC, Ray was a Portfolio ManagerPrior to co-founding SW Asset Management LLC, David was Global Head of at Drake Management where he concentrated on investment opportunities inCredit at Drake Management in New York where he oversaw $5Bn in credit Emerging Markets. Prior to joining Drake Management, Ray was a Seniorassets with hedge funds and various fixed-income portfolios. Prior to Drake, Investment Analyst for two years at INTL ConsiliumDavid was a Portfolio Manager at Ares Management, based in Los Angeles, in Florida. In this capacity, he was the Portfolio Manager responsible forwhere he managed credit-based portfolios, including the Ares Total Value researching and recommending corporate fixed-income and equity securitiesFund, an absolute-return, long/short credit hedge fund. across two absolute return vehicles and two benchmarked long-only accounts. Ray was also a key participant in the structuring and execution of privatePrior to joining Ares Management, David was a Portfolio Manager at Pacific placements in EMEA and Latin America.Investment Management Company (“PIMCO”) in Newport Beach, California.During his ten-year tenure at PIMCO, David managed a variety of credit- Previously, Ray was a Corporate Research Analyst working with the same teamoriented portfolios, including several CDOs and credit-derivative products, as at Standard (Bank) Asset Management in Florida. During his four years atwell as several public funds, including the PIMCO Corporate Opportunity Fund Standard, Ray sourced, analyzed and managed a portfolio of traditional and(NYSE: PTY), the Corporate Income Fund (PCN) and the Dublin-registered alternative emerging market investment vehicles totalingPIMCO Global Credit Fund. In addition, David held the lead analyst position for $2 billion. He started his career as a corporate analyst at Americas Trust Bankseveral industry sectors. David was formerly a member of the High Yield (ATB) in Florida evaluating global credit investment opportunities as part ofSyndicate and Investment Banking Group at Merrill Lynch & Co. in New York, the portfolio management team.and began his professional career as a credit analyst with First Union (now Ray received a Masters of Business Administration degree with a concentrationWells Fargo) in Charlotte, North Carolina. David has lived in both South Korea in International Business Administration and graduated with a Bachelor of Artsand Thailand. degree in Spanish and Psychology from Temple University graduating with HighDavid holds a Masters of Business Administration degree in Finance and Honors. Ray also earned the Chartered Financial Analyst designation. Ray isAccounting from the Wharton School of Business of the University of fluent in Spanish and Portuguese and is currently studying Russian.Pennsylvania and a Bachelor of Science degree in Finance from the University As part of Ray’s due diligence he has traveled to the following countries:of Alabama, graduating with High Honors. David also earned the Chartered Argentina, Azerbaijan, Belarus, Brazil, China, Colombia, Dominican Republic,Financial Analyst designation. Ecuador, Ghana, Kazakhstan, Kenya, Malaysia, Malawi, Mexico, Nigeria, Paraguay, Peru, Philippines, Russia, South Africa, Tanzania, Uganda, Ukraine and Venezuela. *David C. Hinman and Raymond T. Zucaro have earned the right to use the Chartered Financial Analyst designation. CFA Institute marks are trademarks owned by the CFA Institute.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 24
  25. 25. Table of ContentsI. Forward EM Corporate Debt Fund OverviewII. A New Approach to Corporate Credit ManagementIII. EM Corporate Debt Market OverviewIV. Historical Performance & RiskV. SW Philosophy, Process & TeamVI. ForwardFOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 25
  26. 26. About ForwardThe New Direction of InvestingThe world has changed, leading investors to seek new strategies that better fit an evolving global climate.Forwards investment solutions are built around the outcomes we believe investors need to be pursuing –non-correlated return, investment income, global exposure and diversification. With a propensity forunbounded thinking, we focus especially on developing innovative alternative strategies that may helpinvestors build all-weather portfolios. An independent, privately held firm founded in 1998, Forward(Forward Management, LLC) is the advisor to the Forward Funds. As of March 31, 2012, we manage morethan $5.2 billion in a diverse product set offered to individual investors, financial advisors and institutions.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 26
  27. 27. DefinitionsThe Credit Suisse Emerging Market Corporate Bond Index consists of U.S. dollar-denominated fixed incomeissues from Latin America, Eastern Europe and Asia.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed tomeasure equity market performance in the global emerging markets.One cannot directly invest in an index.FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 27
  28. 28. Important InformationPlease consider the objectives, risks, charges and expenses carefully before investing in the fund. Aprospectus with this and other information may be obtained by calling (888) 312-4100 or by visitingwww.forwardinvesting.com. It should be read carefully before investing.RISKSThere are risks involved with investing, including loss of principal. Past performance does not guarantee future results, share prices willfluctuate, and you may have a gain or loss when you redeem shares.Derivative instruments involve risks different from those associated with investing directly in securities and may cause, among other things,increased volatility and transaction costs or a fund to lose more than the amount invested.Investing in Exchange-Traded Funds (ETFs) will subject a fund to substantially the same risks as those associated with the direct ownership ofthe securities or other property held by the ETFs.Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate fluctuations, social andpolitical instability, less liquidity, greater volatility and less regulation.Investing in lower-rated (“high yield”) debt securities involves special risks in addition to those associated with investments in higher-rateddebt securities, including a high degree of credit risk.Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio.Performance figures and other portfolio data shown for period prior to February 14, 2011, do not reflect the current sub-advisor’sperformance or strategy.Forward Funds are distributed by Forward Securities, LLC.Not FDIC Insured | No Bank Guarantee | May Lose ValueFWD004127 103112FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 28
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