Amundi Funds Convertible Europe An attractive asset class benefiting from market uncertainty Pierre Luc Charron, Head of Convertible Bonds Alexandre Drabowicz, Investment Specialist Citywire Berlin, 16 – 18 November 2011 Morningstar Rating TM- OverallThis material is solely for the attention of “professional” investors (seemore details and definitions at the end of the presentation).
Table of Contents 1. Convertible bonds, an attractive asset class 2. Amundi process and portfolio examples 3. Expertise and Outlook 2011 Citywire Berlin - November 2011 - page 2
Convertible bonds Universe European market composition Total EMEA size: EUR 73 billion, H1 2011 issuance EUR 7.6 billion Currency: 65% is EUR, GBP is 6.4%, USD is 22.9%, other 6.2% Sweden Others Media AAA Auto 2% 11% 3% Properties 6%Netherlands France Healthcare 4% Travel & A 23% 5% 9% 4% Leisure 4% Austria Insurance 6% 2% 5% Belgium Telecom Bank BBB 4% 7% 6% 23% Portugal Switzerland 5% Retail 4% Technology Norway 3% Spain 9% 2% 3% Construction 2% Financial UK Services Germany 20% Energy Non rated 4% 14% 9% 49% High Yield Italy Industrial and Basic others 18% 6% Resources 5% 15% Country profile Sector profile Credit Characteristics Source : Exane, data as of 4/11/2011 Citywire Berlin - November 2011 - page 3
An attractive asset classOver the long term, convertible bonds demonstrate their advantage as an assetclass in its own right. CBs are able to outperform with lower volatility compared to equities. 400 350 Convertibles Equities 300 + 197% 250 + 132% 200 + 108% 150 Bonds + 56% Money Market 100 Jan-96 Oct-97 Jul-99 Apr-01 Jan-03 Oct-04 Jul-06 Apr-08 Jan-10 Oct-11 EONIA Capitalisé (OIS) Base 360 EuroStoxx50 TR JPM EMU GBI 3-5Y € TR UBS Convertible european Focus EURSource: Amundi, Bloomberg. Data as of 31/10/2011 Citywire Berlin - November 2011 - page 4Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.CBs (Convertible Bonds)
Convexity: how it really worksIn less than 2 years, we have experienced 4 large equity selloffs 4 large draw downs that lasted maximum 2 months Convertible bonds have managed to resist fairly well in each downturn Since 31/12/2009, CBs* are up +5.5%, while equities are +1.09% (as of 31/10/2011) Convertible Equity selloff Time Frame ** Equities1 bonds 2 1- Greek worries 19 Jan – 5 Feb 2010 -8.7% -2.4% 2- Spain downgrade 15 Apr – 25 May 2010 -13.7% -7.9% 3- Japanese earthquake 17 Feb – 16 Mar 20113 -9.8% -2.9% 4- Sovereign debt crisis 5 July – 22 Sept 2011 -21.7% -9.0% 1 Equities: MSCI Europe NR 2 Convertible bonds: UBS Convertible Bonds Europe Focus 3 Period defined from top to bottom of equity market over this period, culminating in Japanese earthquake in early March 2011.Source: Amundi, Bloomberg. As at 31/10/2011. Citywire Berlin - November 2011 - page 5*CBs (Convertible Bonds). ** The dates of the timeframe represent peak to high valuesPast performance does not prejudge future results, nor is it a guarantee of future returns.
Asset class convexity demonstration Convexity: ability to participate more in the equity upside than downside UBS CB Index: +12.79% UBS CB Index: -7.16% MSCI Europe: +18.58% MSCI Europe: -14.00% Participation: 69% Participation: 51%Dates : 31 May 2010 – 28 Feb 2011 Dates : 28 Feb – 4 Nov 201125% 5%20% 0%15% -5%10% -10%5% -15%0% -20%-5% -25% May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 10 10 10 10 10 10 10 10 11 11 MSCI Europe NR UBS Europe CB MSCI Europe NR UBS Europe CBSource: Amundi, Bloomberg. Data as of 4/11/2011Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 6Past performance does not prejudge future results, nor is it a guarantee of future returns.
Amundi convexity management style To enhance the convexity so as to outperform the index on the upside & downside AF Conv.Europe 1: +15.75% AF Conv.Europe 1: -7.04% UBS CB Index: +12.79% UBS CB Index: -7.16% Outperformance: +2.96% Outperformance : +0.12%Dates : 31 May 2010 – 28 Feb 2011 Dates : 28 Feb – 4 Nov 201118% 2%16%14% 0%12% -2%10% -4%8% -6%6%4% -8%2% -10%0% -12%-2% May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- -14% 10 10 10 10 10 10 10 10 11 11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 UBS Europe CB Am undi Funds Convertible Europe IE UBS Europe CB Am undi Funds Convertible Europe IE Amundi Funds Convertible Europe has been activated on 24/06/11 following the merger with SGAM Fund Bonds Europe Convertible Source : Amundi, Bloomberg. Data as of 4/11/2011 1 Amundi Funds Convertible Europe – IE C, Net performance Citywire Berlin - November 2011 - page 7 Past performance does not prejudge future results, nor is it a guarantee of future returns.
Table of Contents 1. Convertible bonds, an attractive asset class 2. Amundi process and portfolio examples 3. Expertise and Outlook 2011 Citywire Berlin - November 2011 - page 8
Investment PhilosophyA key focus on convexity to benefit from the evolution of a CB price according tothe price of the underlying. High Yield Bond Zone Mixed Zone Equity Zone zone Bond Floor PremiumDominant Credit Credit & Bond Credit & Equity EquitySensitivity Amundi’s management style is based on a dynamic choice of traditional convertible bonds, synthetic convertible bonds and listed optionsGiven for illustrative purpose only Citywire Berlin - November 2011 - page 9
Combining several sources of performanceA convertible bond is sensitive to 4 different factors Volatility Equity Interest rates CreditOur investment process takes advantage of 4 sources of performance Sources of Performance Sensitivity to stock price: Delta Equity Convertible Bond Delta sensitivity to stock price: Gamma Option Sensitivity to the implied volatility: Vega Corporate Sensitivity to the issuer quality: Credit BondGiven for illustrative purpose only Citywire Berlin - November 2011 - page 10
Example of convexity management: Swatch The evolution of the price of the CB displays a very convex profile, which is the objective of the investment philosophy “Parachute” effect in a bear market and acceleration in a bull market SWATCH 2.625% 03/10 110 120% Stock 100% 90 80% CB 70 60% 40% 50 Delta 20% 30 0% Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 CB Price Stock Price Delta (RHS) Given for illustrative purpose onlySource: Exane Derivatives, data as of 5/10/2010Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 11Past performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale)
Example of credit management: IPW To benefit from an attractive carry and from a tightening of the CB credit spread Given the low Delta (less than 20%), the price evolution of the underlying equity has only a limited impact on the valuation of the CB International Power 4.75% EUR 08/15 0bp 100% CB 200bp 80% 400bp 5YR CDS 60% 600bp 40% 800bp 20% Delta 1000bp 0% Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 CB Price Delta (RHS) 5YR CDS (Inversed scale) Given for illustrative purpose onlySource: Exane Derivatives, data as of 12/10/2010Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 12Past performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale)
Examples of Ratchet clauses: Bulgari & Autonomy Ratchet clause to protect convertible investors in case of M&A* Upon announcement, this clause triggers a revision in the conversion ratio Bulgari takeover by LVMH in March 2011 Autonomy takeover by HP in August 2011 300 2800 170 CB +70% 2600 160 Stock +70% 250 2400 150 Parity +60% CB +40% 2200 140 200 2000 130 1800 120 150 1600 110 1400 100 100 1200 90 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 23-Aug-10 21-Nov-10 19-Feb-11 20-May-11 18-Aug-11 CB Parity Bulgari 5.375% 2014 AU/ LN Equity AULN 3.25 03/04/15 Corp Two examples demonstrating the attractiveness of CBs that offer this protection Given for illustrative purpose onlySource: Amundi, Bloomberg, data as of 30/09/2011Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 13Past performance does not prejudge future results, nor is it a guarantee of future returns.*M&A (Merger and Acquisitions)
Example of listed options: Deutsche Post Instead of just buying an expensive CB outright in order to improve convexity IV* of the CB at 37% is expensive vs. the 9 month IV* of the underlying option at 22% Feb 15 - May 31, 2011 (CB Theoretical Delta = 40% ) – Performance of equity: +0.16% vs. performance of CB: -1.30% – Performance of customized strategy of options + CB: +1.10%KFW/Deutsche Post 1.5% 2014 in March 2011 KFW/Deutsche Post 1.5% 2014 in May 2011 Given for illustrative purpose onlySource: Amundi, Exane. Example from 30/05/2011Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 14Past performance does not prejudge future results, nor is it a guarantee of future returns.* IV: Implied Volatility
Enhancing Convertible Profile by using Listed OptionsStrategy switch on KFW / Deutsche Post 1.5% 2014 : Switch to an option strategy on Deutsche Post with an equivalent equity sensitivity – Selling the convertible bond with an implied volatility of 37% – Buying options with an implied volatility of 22% Objective: reduce valuation risk – In case of volatility converging: 37%-22% = 15 volatility points potential tightening – With a vega of 0.4 (volatility sensitivity) = potential of a 6% move on the price of the CB Objective: increase the asymmetrical profile – Maintain the convexity and increase the delta sensitivity should the underlying stock continue to perform Profils de convexité Convertible / Options Convexity profile: CB vs. option strategy Evolution of Delta (equity sensitivity) Evolution de la sensibilité action (delta) 30.00 100% Convertible 25.00 Options 80% s en sib lité act io n Equity sensitivity 20.00 15.00 60% P& L 10.00 5.00 40% Delta CB 0.00 20% -5.00 Delta Options -10.00 0% 11.5 12 12.5 13 13.5 14 14.5 15 15.5 16 11.75 12.25 12.75 13.25 13.75 14.25 14.75 15.25 15.75 cours de laction Stock price cours de laction Stock price Given for illustrative purpose onlySource : Amundi, Exane, Bloomberg. Example from 30/05/2011 Citywire Berlin - November 2011 - page 15
Table of Contents 1. Convertible bonds, an attractive asset class 2. Amundi process and portfolio examples 3. Expertise and Outlook 2011 Citywire Berlin - November 2011 - page 16
Amundi’s expertise Amundi’s Convertible Bonds platform: a unique positioning Euro, Fixed Income & Credit Equity Strategies Credit & Convertibles Volatility, Arbitrages & Convertibles Convertible Bonds Investment specialists: Head: Pierre Luc Charron J Kung, A Drabowicz PMs: M.Huet, J.GuntherCredit and High Yield Equity and Volatility Sharing views with 8 Portfolio Managers in Sharing views with more than 20 Portfolio Credit and High Yield Managers in Equity and Volatility Participation in Investment Committee Experience in Convertible Bond Volatility Arbitrage Leverage experience in listed options Benefiting from views of 20 Analysts (including high yield) Benefiting from views of 18 Equity AnalystsSource: Amundi. Data and organisation as at 31/10/2011 Citywire Berlin - November 2011 - page 17
Amundi European Convertibles ExpertiseAmundi Funds Convertible Europe 125 120 115 Sub-fund of Amundi Funds, the 110 105 Luxembourg SICAV 100 95 90 Reference indicator: UBS 85 80 Convertible European Focus 75 70 65 AUM: €67 million as at 21/10/2011 60 Dec- May- Oct- Mar- Aug- Jan- Jun- Nov- Apr- Sep- 07 08 08 09 09 10 10 10 11 11 Amundi Funds Convertible Europe IE Benchmark 1 SinceRisk indicators Inception3Sub-fund volatility 9.02% Since Performance2 4.11.2011 2010 2009 2008Reference indicator Inception3 11.53%Volatility Sub-fund -4.76% 14.07% 25.55% -17.52% 12.31%Tracking Error 4.66% Reference -4.22% 9.19% 30.85% -31.84% -7.60% indicatorInformation Ratio 1.08 Spread -0.54% 4.88% -5.3% 14.32% 19.91%Amundi Funds Convertible Europe has been activated on 24/06/11 following the merger with SGAM Fund Bonds Europe Convertible1. Source: Amundi. Risk indicators based on weekly data. Given for illustrative purpose only2. Amundi Funds Convertibles Europe – IE C, Net performance. Data as of 4/11/2011 Citywire Berlin - November 2011 - page 183. SGAM Fund Bonds Europe Convertible inception date: 14/12/2007Past performance does not prejudge future results, nor is it a guarantee of future returns.
Outlook 2011: yield is back!Credit Spread Evolution CB with bond profile: their yield is starting to be equal or above that of their equivalent straight bond, thereby offering a free equity upside option Mixed CB: spreads have widened, above 2010 crisis levels CB with bond profile CB with mixed profile1600 12001400 10001200 Xover1000 800 800 Bond spread 600 600 400 400 CB 200 CB spread 200 Main 0-200 0 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 CB Asset Swap spread Bond Index: Spread/Swap CB Index Credit Spread Itraxx Crossover Itraxx MainData Source: Exane. Data as of 19/10/2011 Citywire Berlin - November 2011 - page 19The figures shown in this graph are those applicable for the years mentioned.Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.
Outlook 2011: an attractive entry pointValuations Latest selloffs have pushed up IV and realised volatilities sharply higher However, volatility implied through CB valuation is showing a drastic decline due to selling flows As a result, from a valuation point of view, CBs are becoming very cheap comparing the spread between IV on CBs and 9 month IV of listed options Last 6 years evolution Last 4 years relative evolution60% 15pt55% 10pt 5pt50% 0pt45% -5pt40% -10pt35% -15pt30% -20pt25% -25pt20% -30pt Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 CB IV 9m IV of listed option CB IV and 9m IV Spread Average +1 STDEV -1 STDEVSource: Exane. Data as of 20/10/2011 Citywire Berlin - November 2011 - page 20IV: Implied Volatility. VH: historical volatilityPast markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.
Outlook 2011: conclusionConvexity/Equity: even more compelling Average delta down 12 points, declining from 32% in July to 20% in August, now 25% 1 Asymmetrical profile of CBs: strong capacity to resist in equity market selloffsCredit: Neutral. Yield is back! Negative impact from credit spreads widening, especially on High Yield. A few dislocations have started to emerge, representing new opportunitiesVolatility/Valuation: an attractive entry point Attractive valuations offering cheap equity upsideM&A activity: positive for CBs Ratchet theme: very attractive in this M&A environment (Bulgari, Autonomy) Convertible Bonds asset class now offering an attractive profile1 As of 31/10/2011 Citywire Berlin - November 2011 - page 21
Amundi Funds Convertibles Europe: Portfolios Characteristics Amundi Funds UBS CB Amundi Funds UBS CBSensitivities Convertibles Europe Country Exposure Convertibles Europe Europe focus Europe focusDelta 23.89% 24.36% FRANCE 34.01% 31.03%Modified UNITED KINGDOM 14.85% 10.88% 2.38 2.13Duration GERMANY 8.89% 9.26%Yield 2.37% 2.90% NETHERLANDS 8.51% 8.04%Maturity 3.09 years 3.13 years NORWAY 8.13% 4.00%Avg premium 59.84% 44.29% RUSSIA 6.97% 4.97%Avg Spread 327 bp 419 bp UNITED ARAB EMI 6.66% 5.03% BELGIUM 4.36% 4.23% SWEDEN 4.23% 4.35% Amundi Funds UBS CBRatings Convertibles Europe PORTUGAL 1.72% 7.88% Europe focus JERSEY 0.95% 0.00%AAA 5.71% 7.85% AUSTRIA 0.21% 1.90%A 3.88% 4.35% SOUTH AFRICA 0.16% 0.00%BBB 27.67% 30.49% SWITZERLAND 0.15% 0.00%High Yield 16.23% 21.73% HUNGARY 0.00% 3.15%Non rated 38.08% 35.58% INDIA 0.00% 3.53%Other & SPAIN 0.00% 1.76% 8.42% 0.00%Cash Others 0.20% 0.00%Source: Amundi as of 4/11/2011 Citywire Berlin - November 2011 - page 23
Amundi Funds Convertible Europe: Key Information AE IE SE (All investors) (Institutional investors) (Distributors) Management company Amundi Luxembourg S.A. Investment manager Amundi Custodian CACEIS Bank Luxembourg Reference currency of the sub-fund EUR Share categories Accumulation / Distribution Accumulation A : LU0568615057 A : LU0568614670 ISIN code A : LU0568615305 D : LU0568615214 D : LU0568614753 Equivalent in Minimum initial subscription None None EUR of USD 500,000 Frequency of NAV calculation Daily Cut-off for dealing times Luxembourg Dealing days before 2 pm (Luxembourg time)1 Maximum subscription fee 4.50% 2.50% 3.00% Annual direct management fee 1.20% 0.55% 1.40% Maximum administration fee 0.35% 0.20% 0.35% Performance fee2 20% of the cumulative performance above the performance objective Maximum conversion fee 1.00% Maximum redemption fee None Bloomberg ticker SGBEUCA LX SGBEUCP LX SGBEUCB LXNot all share classes and, as the case may be, share categories are registered for sale in all countries. Investors may contact Amundi Luxembourg S.A. for further information.1. Or, as the case may be, an earlier cut off time applicable by the relevant distributor.2. A detailed explanation of the performance fees is provided in the Prospectus. Citywire Berlin - November 2011 - page 24
DisclaimerThis document contains information about Amundi Funds Convertible Europe, a sub-fund (the “Sub-Fund”) of Amundi Funds (the“Sicav”), an undertaking forcollective investment in transferable securities existing under Part I of the Luxembourg law of 17 December 2010, organised as a société d’investissement àcapital variable and registered with the Luxembourg Trade and Companies Register under number B68.806. The SICAV has its registered office at 5, alléeScheffer, L-2520 Luxembourg.Amundi Funds has been authorised for public sale by the Commission de Surveillance du Secteur Financier in Luxembourg.Not all sub-funds of the SICAV will necessarily be registered or authorized for sale in all jurisdictions or be available to all investors.Subscriptions in the Sub-Fund will only be accepted on the basis of the SICAV’s latest complete and simplified prospectus, its latest annual and semi-annualreports and its articles of incorporation that may be obtained, free of charge, at the registered office of the SICAV or respectively at that of the representativeagent duly authorized and agreed by the relevant authority of each relevant concerned jurisdiction.Consideration should be given to whether the risks attached to an investment in the Sub-Fund are suitable for prospective investors who should ensure that theyfully understand the contents of this document. A professional advisor should be consulted to determine whether an investment in the Sub-Funds is suitable.The value of, and any income from, an investment in the Sub-Fund can decrease as well as increase. The Sub-Fund have no guaranteed performance. Further,past performance is not a guarantee or a reliable indicator for current or future performance and returns. The performance data do not take account of thecommissions and costs incurred on the issue and redemption of units.This document does not constitute an offer to buy nor a solicitation to sell in any country where it might be considered as unlawful, nor does it constitute publicadvertising or investment advice.The information contained in this document is deemed accurate as at November 2011. This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors. It is not to be distributed to the general public, private customers or retail investors in any jurisdiction whatsoever nor to “US Persons”. Moreover, any such investor should be, in the European Union, a “Professional” investor as defined in Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments (“MIFID”) or as the case may be in each local regulations and, as far as the offering in Switzerland is concerned, a “Qualified Investor” within the meaning of the provisions of the Swiss Collective Investment Schemes Ordinance of 23 June 2006 (CISA), the Swiss Collective Investment Schemes Ordinance of 22 November 2006 (CISO) and the FINMA’s Circular 08/8 on Public Offering within the meaning of the legislation on Collective Investment Schemes of 20 November 2008. In no event may this material be distributed in the European Union to non “Professional” investors as defined in the MIFID or in each local regulation, or in Switzerland to investors who do not comply with the definition of “qualified investors” as defined in the applicable legislation and regulation. Amundi, French joint stock company (“Société Anonyme”) with a registered capital of € 584 710 755 and approved by the French Securities Regulator (Autorité des Marchés Financiers-AMF) under number GP 04000036 as a portfolio management company 90 boulevard Pasteur -75015 Paris- France – 437 574 452 RCS Paris. www.amundi.com www.amundi-funds.com Citywire Berlin - November 2011 - page 25