Kames Strategic Global Bond Fund
October 2013
David Roberts – Head of Fixed Income
The Great Rotation?
2
Then and now – is history repeating itself?
Source: BoA Merrill Lynch, Morgan Stanley, FTSE, S&P, Bloomberg, Kames Capital...
Bond market in forward looking shocker
Source: Bloomberg, Kames Capital as at 30 August 2013
-1
0
1
2
3
1983
1984
1985
198...
Kames Strategic Global Bond Fund – Flexibilities
5
What we own and will own
Government bonds
Investment grade corporate bo...
6
2013 – Volatility and divergent returns
Source: Bloomberg, Kames Capital and BoA Merrill Lynch as at 31 July 2013
Asset ...
Kames Strategic Global Bond Fund performance
Source: Lipper as at 30 September 2013. NAV to NAV, income re-invested. Total...
Strong risk adjusted performance
Source: Lipper Hindsight, Kames Capitalas at 28 June 2013. Kames Strategic GlobalBond Fun...
Kames Strategic Global Bond Fund positioning
Source: Kames Capital as at 31 July 2013
9
Asset allocation Dec 2007 – Jul 20...
Kames Strategic Global Bond Fund duration allocation
Source: Kames Capital as at 31 July 2013
-4
-2
0
2
4
6
8
Nov07
Jan08
...
Asset class flexibility is key
11
Asset class Current environment Strategy
Government
bonds
• Monetary cycle turned in the...
• FOMC: “exceptionally low levels…
at least through late 2014”
• ECB: “we will do all that it takes (to
save the Euro)”
• ...
Investment grade strategy
Source: Barclaysas at 31 July 2013
0
100
200
300
400
500
600
700
800
900
Jan07
Apr07
Jul07
Oct07...
High yield: cheap relative to any realistic default scenario
Source: Left hand chart - Moody’s Investors Service, MerrillL...
• Growing list of problems:
– Over-owned asset class
– Fed “Tapering”
– EM currency depreciation
– Slower Chinese GDP
• In...
• US housing market is recovering
– Non Agency RMBS a greatway of gaining exposure to this
– Specificallythe sub-sectorOpt...
• Strategic global bond portfolio
– Total return fixed income fund
– Managed fixed income solution; delegate your fixed in...
Kames Strategic Global Bond Fund
Launch date 8 November 2007
Fund manager David Roberts and Philip Milburn
Support manager...
This document is not intended for retail distribution and is directed only at investment professionals. It should not be d...
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Citywire madrid 2013 kames strategic global bond fund

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Citywire madrid 2013 kames strategic global bond fund

  1. 1. Kames Strategic Global Bond Fund October 2013 David Roberts – Head of Fixed Income
  2. 2. The Great Rotation? 2
  3. 3. Then and now – is history repeating itself? Source: BoA Merrill Lynch, Morgan Stanley, FTSE, S&P, Bloomberg, Kames Capital as at 31 August 2013 -25 -20 -15 -10 -5 0 5 10 15 20 EM$debt EMEquity FTSE100 Gilts USTs USCorps USHY S&P500 1994 Total return -25 -20 -15 -10 -5 0 5 10 15 20 EM$debt EMEquity FTSE100 Gilts USTs USCorps USHY S&P500 Is history repeating? 1994 returns to end August 2013 returns to end August 3
  4. 4. Bond market in forward looking shocker Source: Bloomberg, Kames Capital as at 30 August 2013 -1 0 1 2 3 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Yield% The US yield curve is very steep 4
  5. 5. Kames Strategic Global Bond Fund – Flexibilities 5 What we own and will own Government bonds Investment grade corporate bonds High yield bonds Emerging market bonds Index-linked bonds Asset backed securities Cash What we haven’t owned and won’t own Foreign Exchange Ordinary Equity Private Placement Debt Convertible Bonds
  6. 6. 6 2013 – Volatility and divergent returns Source: Bloomberg, Kames Capital and BoA Merrill Lynch as at 31 July 2013 Asset type Total return % Drawdown % US Corporates -3.2 -5.0 US Treasuries -3.3 -6.4 Emerging Market Debt -9.3 -11.3 US TIPS -8.7 -10.7 Kames Strategic Global Bond 0.2 -3.9% -11% -9% -7% -5% -3% -1% 1% 3% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Totalreturn% Kames Strategic Global Bond US Treasuries Emerging Market Debt US TIPS US Corporates
  7. 7. Kames Strategic Global Bond Fund performance Source: Lipper as at 30 September 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future. 7 67.2% 30.9% -10 0 10 20 30 40 50 60 70 80 Sep08 Nov08 Jan09 Mar09 May09 Jul09 Sep09 Nov09 Jan10 Mar10 May10 Jul10 Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 %growth Cumulative 5 year medians Kames Strategic Global Bond B Inc USD Lipper Global - Bond Global median
  8. 8. Strong risk adjusted performance Source: Lipper Hindsight, Kames Capitalas at 28 June 2013. Kames Strategic GlobalBond Fund B(Inc) USD, returns, volatilityand sharpe ratio are calculated on a monthlybasis(annualised). Volatility isstandard deviation. Key Kames Fund Median Fund Sector range Quartile range 3years Return Return volatility Sharpe ratio 5years 2.4 12.4 -2.9 5.2 -5 0 5 10 15 4.0 13.3 1.5 6.5 0 2 4 6 8 10 12 14 0.3 1.8 -0.6 0.9 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 3.6 14.7 -0.2 7.9 -5 0 5 10 15 20 6.7 15.6 2.2 9.9 0 5 10 15 20 0.4 1.5 -0.3 0.8 -0.5 0.0 0.5 1.0 1.5 2.0 8
  9. 9. Kames Strategic Global Bond Fund positioning Source: Kames Capital as at 31 July 2013 9 Asset allocation Dec 2007 – Jul 2013 Min (%) Max (%) Cash -3.90 17.60 Government 0.00 48.00 Index-Linked 0.00 1.91 Investment Grade 35.40 85.00 High Yield 4.20 32.50 US RMBS 0.00 5.57 Emerging Markets 0.00 3.39 0 10 20 30 40 50 60 70 80 90 100 Nov07 Feb08 May08 Aug08 Nov08 Feb09 May09 Aug09 Nov09 Feb10 May10 Aug10 Nov10 Feb11 May11 Aug11 Nov11 Feb12 May12 Aug12 Nov12 Feb13 May13 %ofassets Active asset allocation Cash Govt Index Linked IG HY US RMBS Emerging Markets
  10. 10. Kames Strategic Global Bond Fund duration allocation Source: Kames Capital as at 31 July 2013 -4 -2 0 2 4 6 8 Nov07 Jan08 Mar08 May08 Jul08 Sep08 Nov08 Jan09 Mar09 May09 Jul09 Sep09 Nov09 Jan10 Mar10 May10 Jul10 Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Modifiedduration(semiannual) Duration by currency bloc excluding high yield AUD CAD EURO GBP NZD SEK CHF USD YEN Grand Total 10
  11. 11. Asset class flexibility is key 11 Asset class Current environment Strategy Government bonds • Monetary cycle turned in the US • Rest of the world not immune • A large part of the move already in the price Remain underweight interest rate risk, but temper position Investment grade • Valuations still attractive on a long-term basis • Avoid re-leveraging event risk Core part of strategic bond funds. Capture spread and manage duration risk High yield • Total return prospects attractive • Preference for US High Yield over European High Yield Stick to higher quality high yield Emerging markets • Sell-off brings some realism back to markets • Fund outflows mean it is too early to catch the falling knife Selected exposure to stock specific corporates, too early to buy RMBS • US housing market strong even with increasing mortgage rates • Supportive technicals Non Agency RMBS (Option ARM sub-segment ) offers value and diversification
  12. 12. • FOMC: “exceptionally low levels… at least through late 2014” • ECB: “we will do all that it takes (to save the Euro)” • SNB: now own more than 10% of the entire stock of Bunds* • BoE: QE program at £375billion and forward guidance • BoJ: ¥140 trillion of planned asset purchases over two year period Ignore technicals at your peril Source: Central Bank websites as at 31 March 2013. *SNB assumes 50% of CHF 400bn+ balance sheet. Ignores ECB covered bonds €70bn, US MBS $1.5trn 12 0 200 400 600 800 1000 1200 1400 1600 Fed BoE ECB SNB BoJ $billions Quantifying quantitative easing
  13. 13. Investment grade strategy Source: Barclaysas at 31 July 2013 0 100 200 300 400 500 600 700 800 900 Jan07 Apr07 Jul07 Oct07 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09 Oct09 Jan10 Apr10 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13 Apr13 Jul13 Benchmarkspread(sa) Non-Gov A rated BBB rated Financials 13
  14. 14. High yield: cheap relative to any realistic default scenario Source: Left hand chart - Moody’s Investors Service, MerrillLynch and Kames Capitalas at 31 July 2013. Right hand chart - Deutsche Bank, Kames Capital, data as at 30 June 2013, average recoveryrates and default experiencessince 1970 14.2% 30.1% 44.8% 15.2% 29.5% 39.3% 5.8% 23.0% 41.1% 1.9% 10.1% 25.0% 0% 10% 20% 30% 40% 50% BBB BB B 5yearcumulativedefaultrate Credit Rating Implied default rates vs actual experiences Implied 5yr cumulative default rate, 40% recovery rate EUR Implied 5yr cumulative default rate, 40% recovery rate USD Actual 5yr cumulative default rates (since 1970) worst Actual 5yr cumulative default rates (since 1970) average 0 500 1,000 1,500 2,000 0% 5% 10% 15% 20% Jan85 Sep86 May88 Jan90 Sep91 May93 Jan95 Sep96 May98 Jan00 Sep01 May03 Jan05 Sep06 May08 Jan10 Sep11 May13 Spreadbps Defaultrate% High yield spreads and default rates Global Speculative DR Average DR Projected Global Speculative DR HY Spreads Average Spread 14
  15. 15. • Growing list of problems: – Over-owned asset class – Fed “Tapering” – EM currency depreciation – Slower Chinese GDP • Inevitable result: – Outflows and wider spreads... – ….prompting more outflows? Emerging Markets – the perfect storm Source: EPFR Global, Thomson Reuters Datastream, HSBC 15 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 0 100 200 300 400 500 600 700 800 2007 2008 2009 2010 2011 20132012 EMBI GI Spreads (rhs) 4wma flows to EXD funds (lhs) %AUM bps
  16. 16. • US housing market is recovering – Non Agency RMBS a greatway of gaining exposure to this – Specificallythe sub-sectorOption ARMs(Adjustable Rate Mortgages) Non Agency RMBS – very attractive fixed income asset class Desired attribute Benefit High originalmortgage balance c.$500k House stillhas some value,aids recovery Preferencefornon-judicialstates i.e.California over Florida Speedsup any repossessionprocess Selected originalunderwriters Relatively betterquality of borrowers and assets 2006/07vintages with fastamortisation Capitalpayback opportunity greatest Superseniortranchesonly,with lots ranking below you Subordinated bonds absorb losses first 16
  17. 17. • Strategic global bond portfolio – Total return fixed income fund – Managed fixed income solution; delegate your fixed income strategy – €/$/£/¥/CHF/SGD – track your clients’ needs Kames Strategic Global Bond Fund Source: Lipper as at 30 September 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future. 17 1 year 2 years 3 years 4 years 5 years Fund 2.64% 15.20% 14.61% 29.02% 67.21% Median -0.38% 6.96% 7.11% 15.31% 30.89% Quartile 2 1 1 1 1 Outperformance 3.02% 8.24% 7.50% 13.71% 36.32%
  18. 18. Kames Strategic Global Bond Fund Launch date 8 November 2007 Fund manager David Roberts and Philip Milburn Support manager Colin Finlayson Investment policies Invests across fixed income universe, ranging from AAAgovernment bonds through to high yield and emerging market corporate bonds in any currency. Primary performance target Second quartile over rolling 12 months and top quartile over a rolling 3 year periods in the Lipper global bond global sector. Secondary performance target To outperform the Barclays Capital global aggregate index by +2% p.a. over rolling 3 year periods. Asset allocation ranges Investment grade corporate bonds 0-100% Government bonds 0-100% High yield bonds 0-100% Emerging market bonds 0-100% Unhedged currency 0-10% Cash 0-20% Base currency US Dollar Hedged share classes Sterling, Euro, US Dollar, Yen, Swiss Franc, Singapore Dollar 18
  19. 19. This document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors. All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed in this document represent our understanding of the current and historical positions of the market. They should not be interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. This document is accurate at the time of writing but can be subject to change without notification. Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames Capital is an Aegon Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority, (FCA reference no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an Aegon company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (PRA/FCA reference no: 165548). The Kames Strategic Global Bond Fund is registered in the UK, Channel Islands, Ireland, Netherlands, Switzerland, Luxembourg, Germany, Malta, Austria and Spain. Not all available shareclasses are registered in every country. Refer to the full prospectus for details. For Investors in Spain - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Spain by the Comisión Nacional del Mercado de Valores (Spanish Securities Market Commission). The Prospectus, Supplement and Key Investor Information for Kames Capital Investment Company (Ireland) plc are available free of charge from Allfunds C/ Estafeta nº 6 (La Moraleja) Complejo Pza. de la Fuente- Edificio 3 28109 Alcobendas (Madrid). Tel: Tel: 00 34 91 274 64 00 Important information 19 FPID: 2013/16654

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