Where’s the alpha in global government bonds?Ignis Asset Management
Wheres the alpha in global government bondsOctober 12Pragmatic approach requiredFixed income Long only mandates have an inferior risk/reward profile Unconstrained mandates result in more efficient portfolio management True alpha can be applied to any benchmark Investors need to consider return per unit of risk not return for return’s sake 1
Wheres the alpha in global government bondsOctober 12Pragmatism in practiceWe believe: it is vital to separate alpha and beta management of downside is critical investors’ requirements for liquidity must be matched with the instruments invested in 2
Wheres the alpha in global government bondsOctober 12Ignis Absolute Return Government Bond FundAn innovative fund:Designed to deliver: Performance in all market conditions Low volatility: 4-6% standard deviation* Low correlation with other asset classes Alpha not betaInvesting in: Highest quality and most liquid debt instruments (long and short exposure) Foreign currency - max 25% of total risk budget (G10 only)*The fund’s target volatility is a standard deviation level of 4-6%, it is managed to deliver stable returns regardless of market moves. 3
Wheres the alpha in global government bonds October 12 Delivering performance in challenging markets Performance*15% Ignis Absolute Ret Gov Bond EUR I class (10.3%) EONIA (0.9%)10% Lipper Global Absolute Return EUR Low (0.7%)5%0%-5% Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Volatility**15% Ex ante volatility Ex post volatility10%5%0% Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 *Source: Lipper, NAV to NAV, gross income reinvested since launch on 31/03/2011 to 28/09/2012. EONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. The performance data does not take account of the commissions and costs incurred on the issue and redemption of shares (including the initial charge). Performance comparisons are inappropriate due to the diverse nature of the objectives of the funds populating this sector, including differing benchmarks, risk characteristics and timeframes for delivering performance. **Source: Ignis, ex post volatility daily over one month since inception to 28/09/2012 based on Euro I Hdgd share class. 4 Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Wheres the alpha in global government bonds October 12 Positive skew of returns Performance (since launch): 10.26%** Histogram showing distribution of weekly returns* 20 Average weekly return: 0.12%* 18 16 Information ratio: 1.86 Normal distribution at 5% volatility 14 Realised tracking error: 3.29% 12Frequency 10 8 6 4 2 0 -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%0.8% 1.0% 1.2% 1.4% 1.6% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 1.0% 1.2% 1.4% 1.6% Source: Ignis, information since inception 31/03/2011 to 28/09/2012, based on EUR I Hdgd share class and net of fees.*Source: Lipper, based on weekly data from 31/03/2011 to 26/09/2012. **Source: Lipper, NAV to NAV, gross income reinvested since inception to 28/09/2012 based on EUR I Hdgd share class. 5 Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Wheres the alpha in global government bondsOctober 12Lowly correlated returnsSince launch the fund has exhibited low correlation with other asset classes, and a negativecorrelation with equities: Ignis Absolute Barclays Capital Correlation, % Citigroup ETFS Physical Return Govt MSCI World Global Aggregate WGBI Gold 100 Bond Fund Corporate 80 Ignis Absolute Ret 100% Govt Bond Fund 60 40 MSCI World -30% 100% 20 Barclays Capital 0 Global Agg 44% -21% 100% -20 Corporate -40 Citigroup WGBI 39% -23% 92% 100% -60 -80 ETFS Physical Gold 13% -13% 26% 25% 100% -100Source: Lipper at 28/09/2012, correlation of daily returns in EUR based on EUR I Hdgd share class since fund launch on 31/03/2011. 6Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Wheres the alpha in global government bondsOctober 12Ignis Fixed Income: a broad range of capabilities Direct funds under management - €70bn* Stable, experienced team 3% Flexible, innovative approach 30% 39% Proprietary technology and investment tools Led by Ignis CIO Chris Fellingham 4% 24% Rates Credit Stock Lending Liquidity Other*Source: Ignis at 30/06/2012. 7
Wheres the alpha in global government bonds October 12 Ignis rates team: complementary skill set CIO Chris Fellingham (26) Manages €27.3bn* Head of Rates Specialises in government bonds Russ Oxley (15) and currencies Multi-specialist structure provides Product combination of perspectives Macro Portfolio Liquidity, Repo and Quant Team Economics Management Specialists Collateral Management Grant Peterkin (13) Team includes chief economistAdam Purzitsky (8) Stuart Thomson Paul Shanta (4) Helen Farrow (26) Brian Jack (12) Josh Heming (14) (27) Ross Crawford (12) Joanna Howley (15) Colin Goymer (20) Stuart Thomson Jin Wong (6) Aaron Rock (7) *Source: Ignis at 30/06/2012 (Figures in brackets are number of years of investment experience at 28/09/2012) 8
Wheres the alpha in global government bondsOctober 12Portfolio construction Express each key Analysis of view through Monitor Portfolio Allocate risk to Identify key forward curves multiple intraday 5 key themes key themes macro- in clearcurve to positions to P&L and expressed depending on economic find optimal increase dynamically through 10- short term themes expression of diversification hedge as 15 different conviction view and reduce needed positions idiosyncratic risk 9
Wheres the alpha in global government bondsOctober 12Key macro economic themes US growth to accelerate through Q4 Acceleration likely to be driven by additional Fed easing (QE4 likely in December - consisting of $45bn purchases of longer dated treasuries per month), stimulus from ultralow interest rates and positive seasonal factors. Extension of this improvement into Q1 13 depends upon the fiscal cliff being delayed at least until the spring and net fiscal tightening likely to amount to 1.0-1.5% UK economy to accelerate in Q4 Economy to benefit from the rebound from the distortions in the first half of 2012, a temporary easing of the fiscal tightening and further stimulus from the Bank of England Europe stuck in destructive cycle of Crisis, Response, Anticipation, Improvement, Complacency Expect Spanish request for aid before end of October to trigger ECB buying of shorter-dated bonds. But ECB buying cannot solve Europe’s sovereign debt crisis and lack of growth will re-ignite the crisis in 2013 Global growth recession to re-emerge as key driver in 2013 Better US/UK growth and domestic stimulus should help stabilise activity over the winter, but with emerging economies remaining in growth-recessions and negative fiscal multipliers in the major industrialised economies during 2013 10
Wheres the alpha in global government bondsOctober 12ClearCurve: a key proprietary toolDeconstructing the forward rate curve 5.0 German forward rate curve Forward - 04/01/2012 Forward - 30/04/2012 4.0 3.0 2.0 % 1.0 0.0 -1.0 1Y0Y 1Y2Y 1Y4Y 1Y6Y 1Y8Y 1Y10Y Global competition for capital/global macro 1Y12Y 1Y14Y 1Y16Y 1Y18Y 1Y20Y 1Y22Y 1Y24Y 1Y26Y 1Y28Y 1.0 Expectation Dominated by changes in domestic of base rates structural supply and demand/regulation 0.5 0.0 % -0.5 -1.0 1y0y 1y2y 1y4y 1y6y 1y8y 1y10y 1y12y 1y14y 1y16y 1y18y 1y20y 1y22y 1y24y 1y26y 1y28y Calculates forward curves for all instruments Monitors portfolio risk Assists in benchmark construction and portfolio implementation Scales active positions according to risk budgetSource: ClearCurve, May 2012. 11
Wheres the alpha in global government bondsOctober 12The Arc of Alpha: current positioning <2 Short-dated inflation bonds cheap relative to expectations of inflation years Fund positioned long of short-dated UK and German inflation-linked bonds 2-15 Rates ‘low for longer’ now fully priced into markets years Fund positioned short US1y5y and UK1y3y rates > 15 Given scale of central bank intervention, we expect rates to rise from current levels years Fund positioned short 20y10y forward rates in the US Global growth recession: emerging economies to slow and US to be best performing economy FX Fund positioned long USD and short AUD Inflation expectations in the US are too high, and in the UK we expect further falls in inflation, driven by Inflation changes to the inflation calculations Fund positioned short 5y5y US and 25y25y UK inflation assets to benefit from falling inflation Asset Further concerns likely to emerge over banks related to the Libor scandal - this is likely to impact Libor- Swaps related products Fund positioned long 10y10y UK government bonds forward rates relative to 15y15y UK swap forward rates Volatility Rise in rates expected to be led by shorter-dated maturities strategies Fund positioned short volatility in long-dated rates and long volatility in short-dated rates 12
Wheres the alpha in global government bonds October 12 Using diversification to control risk Risk taken by independent risk buckets Risk mitigated by diversification 20 20 18 18 16 16 14 14 12 12 10 10Ex-ante tracking error % Ex-ante tracking error % 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10 -12 -12 -14 -14 -16 -16 Source: UBS Delta, data at 28/09/2012. The fund takes risks by implementing different strategies. If each strategy was well correlated, the total risk of the fund would 13 be a sum of the parts. In fact, the strategies are lowly correlated. This creates a diversification benefit, reducing the fund’s total volatility.
Wheres the alpha in global government bondsOctober 12Theme: crisis, response, anticipation, improvement, complacency Merrill Lynch Option Volatility Estimate move Index 100Strategy: sell volatility European policymakers will do just enough 90 Market attaching too high a probability to extreme events eg Grexit 80 %Risk bucket: volatility 70 Short volatility through option strategies Volatility levels fell as central banks intervened 60 in July and September 50 Jun 12 Jul 12 Aug 12 Sep 12Source: Bloomberg at 28/09/12 14
Wheres the alpha in global government bondsOctober 12Theme: rates low for longer German 3y2y forward rate 2.5Strategy: long short-dated forward rates Deleveraging continues to weigh on economic 2 growth Failure to address European issues will prolong 1.5 crisis % Rates therefore set to remain low for longer 1 than market pricing suggests 0.5Risk bucket: 2-15 years Long position taken in German 3y2y forward 0 rates Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Theme also expressed through 3y3y UK forward ratesSource: ClearCurve at 28/09/12 15
Wheres the alpha in global government bondsOctober 12Theme: tough love from central banks US 5y5y inflation swap 3.2Strategy: sell US inflation Bernanke emphasised importance of Fed’s inflation credibility 3 Policy to be less accommodating than market expects, reducing inflation expectations 2.8 Recognised risks to this strategy around Sept Fed meeting but 5y5y rates at extreme level 2.6Risk bucket: inflation Short position taken in US 5y5y inflation swap 2.4 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Fed announcement of QE3 in September impacted this position as inflation rates rose for all maturitiesSource: ClearCurve at 28/09/12 16
Wheres the alpha in global government bondsOctober 12Theme: UK yield curve to steepen UK forward rate curve 6 0.5Strategy: long short-dated rates, short long- 0.4dated rates 5 0.3 Relaxation of policy would anchor short-dated rates 4 0.2 Long-dated rates would rise due to longer term 0.1 3 growth expectations 0 Any relaxation of regulatory rules would cause a 2 -0.1 further sell off in long-dated rates -0.2 1 -0.3Risk bucket: 2-15 years and >15 years 0 -0.4 -0.5 Yield curve flattened in September due to a large UK -1 -0.6 insurer buying long-dated forwards 1Y0Y 1Y5Y 1Y10Y 1Y15Y 1Y20Y 1Y25Y 1Y30Y 1Y35Y 1Y40Y 1Y45Y In addition front-dated forwards sold off Change (RHS) UK forward 03/09/2012 UK forward 28/09/2012Source: ClearCurve at 28/09/12 17
Wheres the alpha in global government bondsOctober 12Outperformance since launch 12% 10.3% Ignis Absolute Ret Gov Bond EUR I Hdgd class 10% EONIA Lipper Global Absolute Return EUR Low 8% 6% 4% 2% 0.9% 0% 0.7% -2% -4% Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12Source: Lipper, NAV to NAV, gross income reinvested since launch on 31/03/2011 to 28/09/2012. EONIA is the rate that large banks use to borrow from, and lend to, oneanother on the overnight market. The performance data does not take account of the commissions and costs incurred on the issue and redemption of shares (including theinitial charge). Performance comparisons are inappropriate due to the diverse nature of the objectives of the funds populating this sector, including differing benchmarks, riskcharacteristics and timeframes for delivering performance.Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed. 18
Wheres the alpha in global government bonds October 12 Strong performance in all market conditionsCitigroup G7 GBI Weekly returns of Ignis Absolute Return Government Bond Fund versus Citigroup G7 weekly returns Government Bond Index 1.5% 18% 51% 1.0% 0.5% 0.0% -0.5% -1.0% 15% 16% -1.5% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% ARGBF weekly returns Source: Ignis, Lipper; ARGBF data based on EUR I Hdgd share class net, Citigroup G7 data shown in local currency; all information based on weekly data from 31/03/2011 to 19 26/09/2012. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Wheres the alpha in global government bondsOctober 12Contribution by strategy Contribution by strategy: cumulative since launch 350 300 250 200Bps 150 100 50 0 Rates < 2y Rates 2-15y Rates 15y+ Asset Swap Global Inflation FX: Active VolatilitySource: Ignis, internal trading systems, indicative only, base currency, data since launch on 31/03/2011 to 28/09/2012. The fund generates performance by implementingdifferent strategies. 20Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise and is not guaranteed.
Wheres the alpha in global government bondsOctober 12What sets us apart?List header one List header two List header three List header four Alpha not beta Diversified skill set Innovative approach Designed to deliver High level of experience in ClearCurve – developed performance in all market both long and short by Ignis in 2005 conditions investing Unique in extracting Non-directional (although Chief economist part of forward rates from core views taken) team government bonds Lowly correlated to credit, Risk management Provides a more accurate gilts, gold and equities embedded within process view of the path of interest rates Manager not constrained Team have dedicated by any particular biases quant specialists 21
Wheres the alpha in global government bondsOctober 12Fund profileFund manager Russ Oxley (lead manager), Stuart Thomson, Adam Purzitsky, Grant Peterkin (co managers)Launch date 31 March 2011Sector Lipper Absolute Return Euro LowStructure UCITS IV SICAVDomiciled LuxembourgBenchmark EONIA^Liquidity Daily dealingMinimum investment EUR A Class: €1,000 EUR I Class: €1,000,000Annual management fee EUR A Class: 1% EUR I Class: 0.3%Performance fee* Fund manager is entitled to 10% of performance generated above EONIA^ with a high water markRegistered for sale: Luxembourg, UK, Spain, Germany, Austria, France, Italy, Sweden, Switzerland, Finland, Belgium and the Netherlands^This is the rate that large banks use to borrow from, and lend to, one another on the overnight market. In Europe this is EONIA (Euro Over Night Index Average). 23*Performance fee is net of fees, over compounded cash rates and subject to a high water mark.
Wheres the alpha in global government bondsOctober 12Contact us Your main contact Your regional support France and Switzerland (French) Philip Goldsmith, Managing Director Europe Mob: +41 (0)79 753 35 74 / +44 (0)7836 243 999 Email: email@example.com Business Development Executive Johanna Pollet Iberia and Latin America Tel: +44 (0)20 3003 3128 Mauro Loran Garcia, Regional Director Email: firstname.lastname@example.org Mob: +34 (0)616 463 917 Email: email@example.com Germany, Austria and Switzerland (German) André Haubensack, Regional Director Mob: +41 (0)79 373 79 13 Email: firstname.lastname@example.org Sales Support Executive Benelux Christina Kniep Roger de Passe, Regional Director Tel: +44 (0)20 3003 3124 Email: email@example.com Mob: +32 (0) 470 99 16 68 Email: firstname.lastname@example.org Italy and Ticino Business Development Executive Arcangelo Barletta, Regional Director Riccardo Villa Mob: +39 (0)392 89 60 736 Mob: +39 (0)347 27 52 557 Email: email@example.com Email: firstname.lastname@example.org Nordics European Sales Support Manager Philip Goldsmith, Managing Director Europe Dee Clarkin Mob: +41 (0)79 753 35 74 / +44 (0)7836 243 999 Tel: +44 (0)20 3003 3127 Email: email@example.com Email: firstname.lastname@example.orgTelephone calls may be monitored and/or recorded for the purpose of security, internal training, accurate account operation, internal customer monitoring and to 24improve the quality of service.
Wheres the alpha in global government bondsOctober 12DisclosureThis information is intended for professional clients and investment professionals only and should not be relied upon by retail investors.The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice.Distribution of this document and the offering of shares in certain jurisdictions may be restricted by law and accordingly persons into whose possession this documentcomes are required to inform themselves about and to observe such restrictions. This document does not constitute an offer or solicitation to anyone in any jurisdiction inwhich such an offer is not authorised or to any person to whom it is unlawful to make such offer or solicitation.Further detailed information regarding the Fund, its Prospectus, its Key Investor Information Document (KIID), its latest annual reports and any subsequent half-yearlyreports (including information on how to switch, buy and sell units of the Fund and other unit classes available), is available free of charge from Ignis Investment ServicesLtd. You can also obtain these documents through our website www.ignisasset.com/international.Past performance is not a guide to future performance.The fund takes long and short positions based on the fund manager’s views of the market direction. This means the fund’s performance is unlikely to track theperformance of broader bond and equity markets. While this creates the opportunity for the fund to deliver positive returns in falling markets, it also means that the fundcould deliver negative returns in rising markets. The value of investments and any income from them can fall as well as rise and is not guaranteed. Exchange ratemovements may cause the value of investments to fluctuate.The fund is a sub fund of Ignis Global Funds SICAV, an investment company organised under the laws of the Grand Duchy of Luxembourg as a Self Managed SICAV. Theinvestment company has its registered office at Vertigo-Polaris, 2-4 Eugene Ruppert, L-2453 Luxembourg, and is authorised and regulated by the Commission deSurveillance du Secteur Financier (CSSF) in Luxembourg.The sub fund is a Recognised Scheme in the UK under Section 264 of the Financial Services & Markets Act 2000 and is promoted in the UK accordingly.The sub fund is currently registered for public distribution in the following countries: Luxembourg, UK, Spain, Germany, Austria, France, Netherlands, Belgium, Sweden,Switzerland, Finland and Italy. It is registered for institutional distribution only in Italy. Copies of all relevant scheme documentation can be obtained free of charge fromthe locally appointed paying agents. Austrian Paying Agent: Unicredit Bank Austria, 8398 Global Securities Sales & Services, P.O. Box 35, A-1011 Vienna; Belgium PayingAgent: Fastnet Belgium SA, B-1000 Brussels, Avenue de Port 86C, b320; French Paying Agent: Société Générale SA, 29 Boulevard Haussmann, F-75009 Paris; GermanInformation Agent: Société Générale SA, Neue MainzerStraße 46-50, D-60311 Frankfurt / Main; Italian Paying Agent: RBC Dexia, via Vittor Pisano 26, 20124 Milan;Luxembourg Paying Agent: Société Générale, 11 Avenue Emile Reuter, L-2420 Luxembourg; Netherlands Paying Agent: ING Bank NV, Van Heenvlietlaan 220, Location CodeBV.06.01, NL-1083 CN Amsterdam; Spanish Paying Agent: RBC Dexia Investor Services España SA, calle Fernando El Santo no20, Madrid 28010; Swedish Paying Agent: SEBMerchant Banking, Sergels Torg 2, SE-106 40 Stockholm; Swiss Paying Agent: NPB Neue Privat Bank AG, Limmatquai 1, P.O. Box, CH-8022 Zurich.This document has been issued by Ignis Investment Services on behalf of Ignis Global Funds SICAV. Ignis Investment Services is registered in Scotland Number SC101825.Registered Office: 50 Bothwell Street, Glasgow G2 6HR. Authorised and regulated by the Financial Services Authority. 25