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Citywire retreat kames capital arb fund


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Citywire retreat kames capital arb fund

  1. 1. Fixed income is the answer…and the question?October 2011Stephen Snowden – Investment Manager, Fixed Income
  2. 2. Key personnelDavid Roberts Philip Milburn Euan McNeil Melanie Mitchell Colin Finlayson Iain Buckle Stephen Snowden• Our fixed income range of funds are all rated by OBSR: – Investment Grade Bond Fund – AA – Sterling Corporate Bond Fund – AA – Investment Grade Global Bond Fund – A – Strategic Bond Fund – AA – High Yield Bond Fund – AA – Strategic Global Bond Fund – A – High Yield Global Bond Fund – AA – Ethical Corporate Bond Fund – A• Awards include: – Investment Week Fund Manager of the Year Awards 2011, Sterling High Yield Bond category – UK Lipper Fund Awards 2011, Best High Yield Bond Fund (GBP) – Kames High Yield Bond Fund, highly commended at the Portfolio Adviser Awards 2011 – Citywire Team All Stars, Asset Group Winner (Bonds) 2007 and 2008 – Citywire Team All Stars 2007, Sector Winner (UK Corporate Bonds) 2
  3. 3. Absolute Return Bond Fund vs. Strategic Bond Fund Absolute Return Bond Strategic BondPerformance Source Alpha + Beta Beta + AlphaManagement Focus Absolute returns Total returnsReturn Measurement Actual return Peer group relativeDefault Duration Zero PositiveCredit Risk Limited UnlimitedHigh Yield Limit Max 20% Up to 100% 3
  4. 4. Kames Absolute Return Bond Fund• Fund aims to generate capital returns whilst limiting downside volatility and preserving capital – Flexibility to access the complete range of fixed income securities – … and only in fixed income assets and risks – Performance target: 3 month GBP LIBOR + 2%-3% net of fees – Controlled investment and within risk parameters – No alpha derived from currency risk – Offers investors low risk NOT no riskKames Absolute Return Bond is subject to FSA Approval. 4 4
  5. 5. Three key components 5
  6. 6. Three key components – Carry module• Minimum weighting of +20% within the overall fund• Bonds of maximum 2 years maturity only• Low interest rate volatility• “Pull-to-par” should dominate mark-to-market impact• Examples of positions– Telefonica 5.58% 12/06/2013 – yield = 3.7%– RBS (Senior) 5.25% 15/05/2013 – yield = 5.3%Source: iBoxx and Bloomberg as at 30 September 2011 6 6
  7. 7. Three key components – Credit module• Exposure limited to +/-50% within the overall fund• Invests across the full corporate bond spectrum – cash bonds + derivatives• High Yield and Emerging Market combined limit of +/- 20%• Aggregate issuer exposure: IG +/- 2% ; HY/EM+/- 1%• Duration and currency risks hedged out• Examples of positions: – ANZ 6.54% 2012/49 – 8.1% Yield-to-call in June 2012 – Sprint 8.375% 15/03/2012 = 8.3%*Source: iBoxx and Bloomberg as at 30 September 2011. * as at 4 October 2011 7 7
  8. 8. Three key components – Rates module• Captures all rates market positions and strategies• Duration range: -2.5 to +2.5 years - neutral position of 0 years duration• Yield curve exposure: +/- 2yrs active duration per maturity bucket• Currency risks are hedged out• Examples of positions – Long 10yr Australian Government Bonds Short 10yr US bond futures – Long 10yr Canadian Government Bonds Short 5yr German bond futures 8 8
  9. 9. Know what fund you are not buying• What Kames Absolute Return is… • And what it is not… – Fund offering returns in line with risk budget – Offering unrealistic returns given the risk limits – Targeting a positive total return for investors – Guaranteeing a given return for investors – Making use of six sources of alpha – Focusing on (leveraged) single asset classes – Focusing on alpha to generate performance – Relying on beta to achieve performance – Only permits risk controlled investments – Broad “limits” that permit excessive risk taking – Sticking to what we know and are good at – Taking currency risk to generate performanceKames Absolute Return Bond is subject to FSA Approval. 9 9
  10. 10. Why invest in Kames Absolute Return Bond?• Part of award winning fixed income team• Building on a proven and tested fixed income investment process• Three module investment approach• Ability to take long and short positions – maintaining market neutrality• Robust risk control framework• A core investment, targeting cash plus returnsKames Absolute Return Bond is subject to FSA Approval. 10 10
  11. 11. Market outlook 11
  12. 12. Appendices 12
  13. 13. Kames Absolute Return Bond FundLaunch date 30 September 2011Fund manager Stephen Snowden and Colin FinlaysonFund structure Irish domiciled VCIC under UCITS IIIInvestment policies Invest in diversified portfolio of fixed interest investmentsPerformance target Performance target 3 month GBP LIBOR + 2%-3% net of feesExpected volatility < 5% VaR – (99% 1 month VaR) Government -75%-95% -50%-95%Asset allocation ranges Investment Grade Credit -20%-20% High Yield Credit -20%-20% Emerging Market Credit >5% Cash Carry Module: > 20%; Minimum BBB- & <2yrs maturity Credit Module: +/-50%; HY+EM = +/-20%Fund Restrictions Rates Module: +/-75%; Duration range -2.5 to +2.5yrs Cash: > 5%Base Currency UK SterlingHedged share classes Sterling, Euro, USD 13 13
  14. 14. Investment philosophy• Our fixed income specialists are guided in their research and fund-management duties by a three-pronged philosophy – Markets are inefficient. We exploit this through robust research and active management – It is vital to identify, analyse and manage risk – Investment strategies should be transparent and easily communicated 14
  15. 15. Strategy process – top down into bottom up Analysis, challenge and Team focus Portfolio decision Top down Duration, yield curve andMACRO to MICRO blend strategy group Macro positioning asset allocation Credit rating and sector Whole team Top down credit strategy preferences Credit specialists Issuer and issue selection Bottom up credit strategy 15
  16. 16. Kames Capital fixed income idea cycle Quadrant analysis Specialist Monitor Recommendation Fund manager Specialist, following Duration and specialist peer review Asset Curve PERFORMANCE Allocation Sector DRIVERS Ratings selection selection Stock Implementation selection Challenge Fund manager Team debate and specialist Strategic decision Team leaders and specialist 16
  17. 17. Kames Capital quadrant analysis approach • Common research framework applied to: Fundamentals Valuations – Interest rate and credit markets – Credit sectors and companies • Quadrant analysis – Fundamentals – Valuations Sentiment Technicals – Technicals – Sentiment • Each scored from -2 to +2 to give overall score • Template approach ensure consistency, ease of use and record keeping 17
  18. 18. Ability to short • UCITS powers enable us to mitigate losses or benefit from circumstances generally seen as poor for bonds – Duration management – Pair trades – Cross-market interest rates – Playing the curve – Adding value from being short – … but awareness of the cost of shorting is essential 18
  19. 19. Use of derivatives – EPM and Risk Control• Credit risk management – CDS indices used to manage credit beta – Single name CDS used to manage individual credit exposures• Currency risk management – Currency forwards used to manage exposure; 100% hedged is default position• Head of Portfolio Derivatives responsible for derivative usage oversight – Derivative Operations responsible for day to day valuation and collateral management – Specific derivative trading authorisation required, within overall risk control framework 19
  20. 20. Risk control framework – client protectionsOn desk Philosophy Analytics • Identification, analysis and understanding of • On desk resource to aid idea generation, risk is essential testing and sizing • Utilise multiple sources of alpha, none to dominate • UBS Delta quantitative risk analysis system • Fund manager responsibility with independent • Independent Risk Management Team oversight monitors risks taken • Review discipline • Daily VaR reporting Controls Governance • Portfolio limits set in thinkFolio front office system • Monthly meeting with CIO assessing performance • Trades require separate fund manager authorisation and risks • Centralised independent dealing team • Regular off-desk fund reviews with peer challenge Off desk • Independent Risk Control Team monitors positions • Investment Management Portfolio Risk & taken Control Committee 20
  21. 21. Important informationThis 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. The information in this document is based on our understanding of the current and historicalpositions of the markets. The views expressed should not be interpreted as recommendations or advice. Past performance is not aguide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed.While the investment objective of absolute return funds is to achieve a positive return in all market conditions, this is not guaranteedin any way.Kames Capital is an AEGON Asset Management company and includes Kames Capital plc (no: SC113505) and Kames CapitalManagement Ltd (no: SC212159). Both are registered in Scotland and have their registered office at 3 Lochside Avenue, EdinburghPark, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Services Authority (FSA reference no:144267). Kames Capital plc provides segregated and retail funds and is the Authorised Corporate Director of Kames Capital ICVC,an Open Ended Investment Company. Kames Capital Management Ltd provides investment management services to AEGON,which provides pooled funds, life and pension contracts. Kames Capital Management Ltd is an appointed representative of ScottishEquitable plc, an AEGON company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSAreference no: 165548).AEGON Asset Management UK rebranded to Kames Capital on 1 September 2011.Kames Absolute Return Bond Fund is subject to FSA Approval.FP ID: 2011/12480 21