Ci062624 strat bond presentation - citywire 25 april electronic version

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Ci062624 strat bond presentation - citywire 25 april electronic version

  1. 1. 1PERFORMANCE OVERVIEWCONSISTENT RETURNS DEMONSTRATEDAviva Investors Strategic Bond* *Since Inception: 22nd September 2008. Source: Date as of End March 2013: Retail Share Class 1 Inc.,Total Return, net income reinvested, net of managementfees. Past performance is not a guide to the futureAviva Investors Strategic Bond Fund66.52% Fund vs. 38.89% Peer Group (since inception*)-20-1001020304050607080Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13
  2. 2. Chris Higham, CFAThis document is for investment professionals only. It is not to be viewed by or used with retail clients.AVIVA INVESTORS STRATEGIC BOND FUNDDISPELLING MYTHS &IDENTIFYING OPPORTUNITIESCitywire Wealth Manager Retreat, April 2013James Vokins, CFA
  3. 3. 3MYTH 1: THE GREAT ROTATIONDEMOGRAPHICSAviva Investors Strategic BondDemographics continue to support bondsPopulation in the age group 60+ (%)051015202530351950 1975 2000 2025 2050World More developed regions Less developed regionsSource: Deutsche Bank, October 2012Any future returns and opinions expressed are based on the internal forecasts of Aviva Investors and should not be relied upon as indicating anyguarantee of return from an investment managed by Aviva Investors.
  4. 4. 4MYTH 1: THE GREAT ROTATIONDEMANDAviva Investors Strategic BondMoney still out of cashSource: Deutsche Bank Investor Positioning and Flows as at 31 March 2013. Past performance is not a guide to the future.
  5. 5. 5MYTH 2: FEAR OF INTEREST RATES RISINGAviva Investors Strategic BondSource: ONS, OBR as at 31 March 2013Any future returns and opinions expressed are based on the internal forecasts of Aviva Investors and should not be relied upon as indicating anyguarantee of return from an investment managed by Aviva Investors.Budget deficit still highPublic Sector Net Borrowing (PSNB) fan chart
  6. 6. 6MYTH 2: FEAR OF INTEREST RATES RISINGAviva Investors Strategic BondSource: RBS, Bloomberg.Any future returns and opinions expressed are based on the internal forecasts of Aviva Investors and should not be relied upon as indicating any guarantee of returnfrom an investment managed by Aviva Investors.Market implied rates lower for even longer
  7. 7. 7MYTH 3: CORE INFLATIONAviva Investors Strategic BondInflation is only a UK concern-2-10123456Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13HarmonisedIndexofConsumerprices(%)US Inflation UK Inflation EU InflationSource: Bloomberg as at 31 March 2013. Past performance is not a guide to the future.
  8. 8. 8UK inflation protection is expensive-0.500.511.522.533.544.52006 2007 2008 2009 2010 2011 2012UK US Germany ItalyMYTH 3: CORE INFLATIONAviva Investors Strategic BondSource: Aviva Investors as at March 2013. Past performance is not a guide to the future.
  9. 9. 9MYTH 4: VALUATION – ARE CORPORATE BONDS EXPENSIVE?Aviva Investors Strategic BondGovernment bonds are expensive0%10%20%30%40%50%60%0123456782000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013iBoxx Sterling Non-Gilts iBoxx Sterling Gilts % Yield Spread (RHS)Source: Aviva Investors as at March 2013. Past performance is not a guide to the future.Yield(%)%YieldSpread
  10. 10. 10MYTH 4: VALUATION – ARE CORPORATE BONDS EXPENSIVE?Aviva Investors Strategic BondNote: Implied defaults calculated using 35 % recovery rate. Historic defaults calculated using Moody’s default data since 1970 and current indexratings composition.Source: Morgan Stanley Research, Bloomberg, Moody’s as at31 March 2013. Past performance is not a guide to the future.Enough compensation for defaults
  11. 11. 11MYTH 4: VALUATION – ARE CORPORATE BONDS EXPENSIVE?Aviva Investors Strategic BondSource: Moody’s, based on trailing twelve-month speculative-grade corporate default rate forecasts . Past performance is not a guide to the future.Defaults expected to remain at low levelsGlobal Speculative-Grade Default Rates (Actual and Forecast)
  12. 12. 12MYTH 4: VALUATION – UK VS. US AND EUROPEAviva Investors Strategic BondSource: BofA Merrill Lynch indices. as at 31 March 2013. Past performance is not a guide to the future.GBP much better value than Euro
  13. 13. 13MYTH 5: POSITIVE CREDIT SPREADS?EUROPEAN PERIPHERYAviva Investors Strategic BondSource: Bloomberg as at 31 March 2013. Past performance is not a guide to the future.Negative credit spreads in Europe-150-100-500501001502002500123456789Mar08Sep08Mar09Sep09Mar10Sep10Mar11Sep11Mar12Sep12Telefonica 2033 Spain 2032 SpreadYield(%)Spread(bps)
  14. 14. 14MYTH 5: POSITIVE CREDIT SPREADS?EMERGING MARKETSAviva Investors Strategic BondSource: JPMorgan, Indices: CEMBI BROAD, EMBIGLOBAL astat 31 December 2012. Past performance is not a guide to the future.A lesson from Emerging Markets?02468101231-Dec-01 31-Dec-03 31-Dec-05 31-Dec-07 31-Dec-09 31-Dec-11Yield(%)EM Corporates EM Sovereign
  15. 15. 15MYTH 6: LIQUIDITY IN CREDIT MARKETSAviva Investors Strategic BondSource: Morgan Stanley Research, Bloomberg, Trace as at 31 March 2013. Past performance is not a guide to the future.Liquidity in other markets?
  16. 16. 16MYTH 6: LIQUIDITY IN CREDIT MARKETSAviva Investors Strategic BondSource: Morgan Stanley Research, Bloomberg, Federal Reserve Bank of New York, Markit iBoxx, as at 31 March 2013. Past performance is not a guide tothe future.Liquidity unchanged for 4 years
  17. 17. 17MYTH 7: FUNDS VS. RETAIL CORPORATE BONDSAviva Investors Strategic BondInefficiency in Retail corporate bond marketSource: Bloomberg as at 31 March 2013. Past performance is not a guide to the future.1. New BeazleydealIssuer Beazley plcMaturity 09/28/2019Coupon 5.375%Rating BBBSize £75millionUse of ProceedsBuy back moreexpensive debt 80859095100105Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-132. Original Beazley issue: 7.25% 10/17/2026Price
  18. 18. 18OPPORTUNITY 1: EVERY TIME IS DIFFERENTAviva Investors Strategic BondDepositsCoveredSeniorSubordinatedEquityDepositsCoveredSeniorSubordinatedEquityBEFORE… …AFTERRespecting the capital hierarchy
  19. 19. 19OPPORTUNITY 2: CORPORATE HYBRIDSEDF 6% 2026-2049Aviva Investors Strategic BondSource: Bloomberg as at April 2013.Any opinions expressed are Aviva Investors and are subject to change. They should not be relied upon as indicating any guarantee of return from an investment.Better than equity return for a lower level of riskTickerCurrencyCouponRatingFTVREDFGBP6%A3 / BBB+433+2– Subordinated capital with 50% equity credit– Strong likelihood of call– Largest energy company in the world with a strong credit profile4.95.25.55.86.1Jan-13 Feb-13 Mar-13 Apr-13Yield To Next Call
  20. 20. 20OPPORTUNITY 3: BANK CONTINGENT CAPITAL (COCO)BARCLAYS 7.625% 2022Aviva Investors Strategic BondSource: Bloomberg as at April 2013.Any opinions expressed are Aviva Investors and are subject to change. They should not be relied upon as indicating any guarantee of return from an investment.Almost equity return for similar level of riskTickerCurrencyCouponRatingFTVRBACRUSD7.625%BBB-411-1– 100% write-down at PRA determined Tier 1 ratio of 7%– Optional coupon deferral– High yield coupon with final maturity6.97.27.57.88.1Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13Yield To Maturity
  21. 21. 21OPPORTUNITY 4: PAYMENT IN KIND NOTES (PIK TOGGLE)SUNRISE COMMUNICATIONS 8.75% 2019Aviva Investors Strategic BondSource: Bloomberg as at April 2013.Any opinions expressed are Aviva Investors and are subject to change. They should not be relied upon as indicating any guarantee of return from an investment.Equity like return for a lower level of riskTickerCurrencyCouponRatingFTVRSUNCOMEUR8.75%B-433+1– Second largest Swiss mobile company with fundamentally solid business– Issuer rationale to pay dividends to private equity owners– Weak structure but significant value below bondholders8.18.48.719-Mar-13 26-Mar-13 02-Apr-13 09-Apr-13 16-Apr-13Mid Yield To Maturity
  22. 22. THE FUND22
  23. 23. FIXED INCOME AND THE ECONOMIC CYCLEAviva Investors Strategic BondAbility to asset allocate through the investment cycle23
  24. 24. FIXED INCOME ASSET CLASS CORRELATIONAviva Investors Strategic BondFund flexibility allows for greater diversificationSource: BofA Merrill Lynch indices - correlation is based on 10 year weekly data to end December 2012. Past performance is not a guide to the future.24UK Gilts UK IL Gilts £ Non Gilt Euro Corp US Corp EUR HY US HY EMDUK Gilts 1 0.7605 0.8445 0.476 0.5053 -0.2072 -0.1757 0.0213UK IL Gilts 1 0.6812 0.4335 0.526 0.006 0.05 0.0665£ Non Gilt 1 0.7528 0.6797 0.1345 0.109 0.1818Euro Corp 1 0.7482 0.3948 0.3163 0.3047US Corp 1 0.4166 0.4252 0.4358EUR HY 1 0.9007 0.6058US HY 1 0.6369EMD 1
  25. 25. FUND CHARACTERISTICSAviva Investors Strategic Bond25Aviva Investors Strategic Bond FundInvestment policy / objective Aim to provide a high return through a combination of capital growth and income byinvesting in global bonds issued by companies, governments and large internationalorganisations. The manager can invest across the fixed income spectrum and will aim toposition the fund to take advantage of market conditions.Performance target Top Quartile IMA £ Strategic Bond SectorInterest frequency QuarterlyMax in governments 100%Max in investment grade 100%Max in high yield 100%Max in emerging markets 50%Max currency exposure 20% non £Max cash position 10%Max exposure to single issuer 5% for corporate issuerMax exposure to any issue 3%Source: Aviva Investors as at 31 March 2013
  26. 26. 26AVIVA INVESTORS STRATEGIC BOND FUNDFUND CHARACTERISTICSAviva Investors Strategic BondCharacteristicsPortfolio Market Value £128 millionDuration 5.05 yearsGross Redemption Yield 4.38%Holdings 106Benchmark Total Return vs. Peer GroupSector AllocationRating Allocation No. of Holdings Fund WeightAAA 1 1.35%AA 11 23.35%A 14 9.01%BBB 30 26.80%BB 25 18.47%12%13%20%11%2%21%5%10%5% ABSConsumerFinancialsIndustrialsNon-SovereignsPropertySovereignsTelecomsUtilitiesOther inc. CashRating Allocation No. of Holdings Fund WeightB 15 10.73%CCC 5 3.29%<CCC 0 0.00%Unrated 5 1.80%Cash & Other - 5.20%Source: Aviva Investors as at 31 March 2013
  27. 27. CREDIT TEAMAviva Investors Strategic Bond27Chris Higham, CFAPortfolio ManagerQuin Casey, CFAHY InvestmentAnalystJames Vokins, CFAPortfolio ManagerPaul SimmonsPortfolio AnalystNancy Utterback, CFACredit Analyst -TMT,RetailLondonEquity investment(9)Alessandro RovelliCredit Analyst –Industrials, UtilitiesGaurav Koolwal, CFACredit Analyst –Consumer, TelecomsReto BachmannCredit Analyst - ABSOliver JuddCredit Analyst - FinancialsPaarus ShahCredit Analyst –FinancialsMumbai (8), Chicago (12), Paris (4), Singapore (3)Emerging MarketDebt(6)Quantitativeresearch(4)Rates (12)Strategy(23)Skilled and experienced teamSource: Aviva Investors as at 31 March 2013.
  28. 28. AVIVA INVESTORS STRATEGIC BOND FUNDASSET ALLOCATION EVOLUTIONAviva Investors Strategic Bond0%10%20%30%40%50%60%70%80%90%100%Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13IG HY Government Unrated CashActive asset allocation decision is made using FTVSource: Aviva Investors as at 31 March 201328
  29. 29. PERFORMANCE OVERVIEWCONSISTENT RETURNS DEMONSTRATED-20020406080100Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13-20-1001020304050607080Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13-20-1001020304050Mar 08Sep 08Mar 09Sep 09Mar 10Sep 10Mar 11Sep 11Mar 12Sep 12Mar 13-30-20-1001020304050Mar 08Sep 08Mar 09Sep 09Mar 10Sep 10Mar 11Sep 11Mar 12Sep 12Mar 13Aviva Investors High Yield Bond74.30% Fund vs. 48.27% Peer Group (since inception*)Aviva Investors Strategic Bond Fund66.52% Fund vs. 38.89% Peer Group (since inception*)Aviva Investors Distribution Fund44.23% fund vs. 24.26% Peer Group (5 years)Aviva Investors Corporate Bond Fund42.7% Fund vs. 34.95% Peer Group (5 years)Quartile Ranking since inception* 1stQuartile Ranking over 5 years 2nd Quartile Ranking over 5 years 1stQuartile Ranking since inception* 1stAviva Investors Strategic Bond*Since Inception: 22nd September 2008. Source: Date as of End March 2013: Total Return, net income reinvested, net of management fees. Past performance isnot a guide to the future.29Solid track record across all IMA sectors
  30. 30. 30IMPORTANT NOTESAviva Investors Strategic BondThis document is intended for investment professionals and experienced advisors only. It is not to be viewed by or used with retailclients. Private investors and scheme members should seek professional advice before making an investment decision.Except where stated as otherwise, the source of all information is Aviva Investors as at 31 March 2013.Any opinions expressed are based on the internal forecasts of Aviva Investors and are subject to change. They should not be reliedupon as indicating any guarantee of return from an investment managed by Aviva Investors. Any underlying research or analysis hasbeen procured by Aviva Investors for its own purposes and may have been acted on by Aviva Investors or an associate for its or theirown purposes. No part of this document is intended to constitute advice or recommendations of any nature.Performance figures sourced from Lipper and illustrated on a bid to bid, gross income reinvested basis in the currency shown. Otherinformation sourced from Aviva Investors. The value of an investment in the fund can go down as well as up and can fluctuate inresponse to changes in exchange rates. Past performance is not a guide to the future.The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as arecommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawfulto make such an offer or solicitation. Full terms and conditions of the Aviva Investors products and services are available on request.Aviva Investors UK Funds Limited, the ISA Manager and Aviva Investors UK Fund Services Limited, the Authorised Fund Manager.Registered in England Nos. 2503054 and 1973412 respectively. Authorised and regulated by the Financial Services Authority.Registered addresses: No.1 Poultry, London EC2R 8EJ. Both are Aviva companies. www.avivainvestors.co.ukCI062624 04/2013

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