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Lux citywire conference 26 april 2012

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Lux citywire conference 26 april 2012

  1. 1. Emerging Market Local Currency Debt –risk asset or safe haven?Thanos PapasavvasStrategist,Strategist Fixed Income & CurrenciesApril 2012
  2. 2. Fixed income is a core capability of Investec ● Over 25 years successful experience in our chosen markets ● $30.8bn* under management – over 34% of Investec Asset Management’s total ● Specialist teams ensure expert decision-making ● Best investment ideas matched to mandate Best Large Bond Group Award 3 Years objectives Second year runningSource: Investec Asset Management, 31.12.11*On a net managed basisPage 2 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  3. 3. The case for emerging markets debt● Strong emerging market fundamentals – Emerging markets as percentage of world better placed than many developed Contribution to world GDP 35% markets Contribution of emerging markets to aggregate 92% growth over the 3 year period Jun 2008 to Jun 2011● Significant and g g growing part of g gp global Contribution to l b l trade C t ib ti t global t d 37% economy Government bonds outstanding (includes both 14%● History of fiscal and monetary reforms domestic and international)● Favourable demographics Population 84% Total land surface area 74%● Plenty of room for productivity gains Known oil reserves 86%● But emerging markets can be more risky Convergence to developed markets should lead to outperformance of EM assetsSource: IMF World Economic Outlook Database June 2011,BIS (Bank for International Settlements) June 2011,CIA World Fact book and EIA (US Energy Information Administration).Page 3 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  4. 4. Emerging markets do not face the challenges that thedeveloped world is facingRising public debt in industrial countries poses fiscal challenges % of GDP % of GDP o o Fiscal situation much stronger compared with developed markets g p pSource: IMF, June 2011Page 4 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  5. 5. Benefits of Emerging markets local currency versus $ debt 25 US Treasury yield Brazil USD yield Brazil local yield 20 15 10 Compensation for: Inflation and currency exposure 5 Compensation for: Credit quality Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Opportunities available from over 40 local bond and currency markets pp ySource: US treasury yield: J.P.Morgan GBI US Index YTM; Brazil USD yield: J.P.Morgan EMBI Brazil Index YTM; Brazil local yield: GBI-EM Broad Brazil IndexYTM. Updated to 24 February 2012Page 5 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  6. 6. Strong returns from two different sourcesLocal Emerging Markets Debt – Local bond andContributions fC t ib ti from B d and FX (i US$) Bonds d (in 23.0% currency performance 22.0% 25% Total return benefits from: 8.1% 9% 8% Bond return 15.7% % 16.9 % 15.3% 16.8 15.2% % 18 20% ● High yields 13.1% FX Return (incl carry) 11.4% 15% ● Economic reforms 8.6% 8.0% 7.7% 7.3% 7.2% 7.1% 6.3% 10% 5% 4% 2% 0% ● I Increased credit d dit 4.5% % 7 7 5.5 5.4 5.2 5.0 5% quality 0% ● Strong growth -1.0-% -1.8-% % -5% ● Demand for -5.2-% -6.2-% -10% commodities 0.6-% -15% -10 -20% 2003 2004 2005 2006 2007 2008 2009 2010 2011Sources: JPM, Investec Asset Management, GBI-EM Global Diversified, 31 December 2002 – 31 December 2011Page 6 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  7. 7. Local debt can absorb strong inflowsLocal vs Dollar EMD (in US dollar billion) ● AUM tracking local indices total $146bn*1,800 in a universe with a market cap of1,600 Local currency debt $1.46tn, i.e. 10.0% Dollar denominated debt1,400 ● AUM tracking $ indices total $231bn* in a g1,200 universe with a market cap of only1,000 $467bn, i.e. 49.5% 800 ● Emerging markets now account for 31% 600 of global GDP and substantially higher 400 percentage of GDP growth 200 - ● But investable bonds issued by emerging Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 markets now form 8.6% of the global government bond universe** Investors are generally underinvested in local EMD Source: JP Morgan, BarCap, Investec Asset Management.* AUM data from the J.P. Morgan Investor Survey Dec 2011. Market capitalisation from J.P. Morgan DataQuery 31 January 2012 forthe GBI-EM Broad and the EMBI Global indices. indices** The two JP Morgan EM indices as percentage of the total for all government bonds, i.e. Local EM, USD EM and Developed Marketbonds (GBI-EM Broad, EMBI Global and the BarCap Government Global Bond Index)Page 7 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  8. 8. Local debt markets compare very favourably with otherasset classesDecember 2002 to January 2012(Return/correlation data since the start of JP Morgan GBI-EM Global Diversified index,our preferred local currency comparative index) Ann Standard Sharpe Correlation with Return deviation ratio Local EM debt EM equities 17.9% 24.8% 0.72 0.79 Local EMD 12.6% 12.0% 1.05 1.00 Blended EMD 11.5% 10.0% 1.16 0.96 Dollar EMD 10.4% 9.1% 1.14 0.78 Global high yield 10.5% 11.8% 0.89 0.72 Developed property 10.5% 22.9% 0.46 0.72 EM Credit 8.1% 9.1% 0.89 0.72 EM Currencies 8.0% 8.1% 0.99 0.94 Global equities 7.7% 16.6% 0.46 0.76 Hedge funds 7.5% 6.3% 1.18 0.67 Global bonds 6.6% 7.4% 0.89 0.57 Global credit 6.3% 6.3% 1.00 0.64 S&P500 6.6% 15.2% 0.44 0.69 US bonds 5.0% 4.9% 1.04 0.11Data from 31.12.2002 – 31..1.12, standard deviation and correlation of monthly returns in USD,Local EMD = JP Morgan GBI EM Global Diversified.Blended EMD=50% JP Morgan GBI-EM GD+50% JP Morgan EMBI GD; Dollar EMD=JPMorgan Emerging Markets bonds Index EMBI GD; Developed Property= S&P/Citi Developed REIT Index TR; Hedge funds = CS/Tremont Hedge Fund Index; EM currencies =JPMorgan Emerging Local Markets ELMI Plus p g g g g gComposite; Global high yield = Merrill Lynch Global High Yield Index (100% hedged to $); EM equities =MSCI Daily Gross Returns USD EM; Global equities =MSCI Daily Gross TR USD World Indx; Global credit = Citigroup World Broad Investment-Grade Index; Global bonds = Citigroup WGBI All Maturities USD; USbonds = Citigroup US GBI All Maturities USD; Commodities = S&P GSCI Total ReturnPage 8 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  9. 9. Huge dispersion of returns offers plenty of opportunity● Additional opportunities in currency hedging, yield curve plays and issue selectionAnnual returns by country ($) 55% 45% 35% 25% 15% 5% -5% % -15% Mexico Mexico Mexico Mexico Mexico Peru Peru Chile Slovakia Chile Chile Slovakia Slovakia Chile Slovakia Chile Chile Chile Czech Poland Czech Poland Czech Poland South Africa Malaysia Malaysia GBI-EM South Africa GBI-EM South Africa GBI-EM South Africa GBI-EM Egypt Colombia Egypt GBI-EM Egypt Thailand Thailand Thailand Thailand Turkey Turkey Turkey Brazil Russia Brazil Brazil Hungary Hungary Hungary Hungary Hungary Indonesia Indonesia 2003 2004 2005 2006 2007 2008 2009 2010 Big difference between best and worst performing countries Our opportunity set is much larger pp y gSource: JP MorganPage 9 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  10. 10. Investec sInvestec’s emerging markets debt pedigree● Investec Asset Management’s origins are South African● Total assets in emerging markets approximately $50 billion* pp y● Over 75 investment professionals across our equity and fixed income teams, covering over 60 emerging countries over the world● Almost $10 billion invested in global emerging markets debt plus further debt, $18 billion* in South African fixed incomeAs at 31 January 2012 (* as at 31 Dec 2010)Page 10 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  11. 11. What sets Investec apart● A long history in Emerging Markets − More than 15 years experience in local bond markets and more than 10 years in emerging currencies − Local presence and experience across emerging asset classes gives us excellent insight in what drives emerging market returns● Process specifically designed for local currency emerging debt − Built on proven local bond and global currency processes − Focus on key local drivers y● Systematic approach identifies wide range of opportunities − Proprietary EM currency model provides objective input − W are not reliant on one theme We t li t th● Specialist and highly motivated team − Diverse and complementary skill set − Experienced professionals focused on local bond and currency markets as well as EM creditPage 11 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  12. 12. Assets under management● Increased assets significantly across different strategies Assets under managementAssets under Management 29 February 2012Emerging Markets Local Currency Debt ( g g y (Broad) ) $ , $6,851mEmerging Markets Local Currency Debt (Dynamic) $2,300mBlended EMD (50% local / 50% hard) $281mHard Currency Debt $158mEM Corporate Debt $69mEmerging Market Currency $179mCross overCross-over and other EMD $489mTotal $10,327m A well-supported capability pp p yPage 12 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  13. 13. Emerging Market Debt & Currency Emerging Market Debt & Currency Strategy Leaders Peter Eerdmans – Werner Gey van Pittius – Asia MEA & CIS Investment Specialists – Sovereign & FX Vivienne Taberer – Latam Michail Diamantopoulos – CEE Mark Evans – Asia Antoon de Klerk – Africa Duncan Ngandu – Latam & CEE Grant Webster* – MEA & CIS Investment Specialists – Credit p Victoria Harling* – Frontier and Leah Parento – EM Credit Quasi Sovereign Tammy Lloyd – EM Credit y y Sergey Bolshakov** – EM Credit g y Thanos Papasavvas Fixed Income & Currency Strategist* New joiners from August 2011** New joiner from October 2011 5 Fi d I Fixed Income & C Currency D l DealersPage 13 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  14. 14. Disciplined and repeatable process driven by bottom-up views bottom up BOTTOM UP TOP DOWN FINAL PORTFOLIO Fundamentals, valuation and Beta market behaviour discussion Structured approach Disciplined approach based on Vigorous debate unlocks captures “Compelling Forces”, covering wide insight across Investec’s experience and range of factors investment teams controls risk Portfolio built bottom-up, supplemented with top-down checks and balances p, pp pPage 14 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  15. 15. Latest Dynamic portfolio – active positionsActive duration positions Active currency positions Total: -0.18 Total: -3.89% Brazil 0.23 INR 3.95% KRW 3.94%South Africa 0.19 CZK 2.42% Russia 0.18 RUB 2.32% Qatar_USD Q t USD 0.11 0 11 CLP 1.92% Turkey 0.04 IDR 1.89% Philippines 0.00 PLN 1.87% Czech 0.00 BRL 0.06% RON 0.00% 0 00% Egypt 0.00 TRY -0.06% Malaysia -0.01 ZAR -0.09% Peru -0.01 MYR -0.12% Chile -0 01 0.01 COP -1.98% -1 98% Hungary -0.02 MXN -2.08% HUF -2.14% Poland -0.02 ILS -2.44% Indonesia -0.15 THB -2.54% Colombia -0.15 PEN -2.54% Mexico -0.19 PHP -3.90% Thailand -0.30 TWD -4.37% -0.50 0.50 -0.30 0.30 -0.10 0.10 0.10 0.30 -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00%Source: Investec Asset Management, 31 March 2012Page 15 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  16. 16. Emerging Markets Local Currency Debt (Aggregate)Performance to end of March 2012 (in USD)Emerging Markets Local Currency Debt (Aggregate) Performance vs. Local EMD (Aggregate) and USD EMDcomposite performance 20.0% EM Local Currency (Aggregate) Composite Performance Comparative AlphaEM Local Currency (Aggregate) IR 18.0% % index % % GBI-EM Global Div 16.0%One year 2.70 3.44 -0.74 -0.41 EMBI Glbl Div 14.0%Three years, annualisedTh li d 18.84 18 84 16.83 16 83 2.01 2 01 0.79 0 79 12.0% 12 0% 10.0%From 31 July 2006, annualised 13.21 11.62 1.60 0.51 8.0% 6.0%See source 1. 4.0% 2.0%EM Local Currency Debt (Broad) Lipper ranking 0.0% 1 year 3 years (ann) Since inception Rank** Rank** Rank** (ann)* 1 year 3 years since inception Lipper Universe All onshore and offshore 133/196 41/133 3/90 See source 1. Global EMD fundsSee source 2. Strong performance relative to benchmark and peer groupSource: 1. Inception date 31 July 2006. Gross performance, annualised, with gross dividends reinvested 2. Lipper, net of fees. ** Ranking of Investec Emerging Markets Local Currency Debt Fund A Acc Gross GBP The performance quoted is of actual performance post share class launch date of the A GBP share class (1 June 2007) and synthesised performance pre A GBP share class launch date The synthesised performance is based on oldest share A date. class since fund launch and takes into account the difference in total fees between the oldest and the synthesised share classesPage 16 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  17. 17. Emerging Markets Local Currency DebtPerformance attributionMajor alpha sources(relative( l ti % contribution since i t ib ti i inception) ti ) Top 5 contributors Contribution (ann) Brazil 0.32% 2.0% Currency Local Debt Other Russia 0.30% 1.5% Israel 0.28% Colombia 0.27% 1.0% Chile 0.26% 0.5% 0% Bottom 5 contributors Contribution (ann) Czech -0.07% 0 5% -0.5% Slovakia -0.02% -1.0% Indonesia -0.01% FX Beta Currency Duration Country Curve & Dollar Credit Admin Total selection Beta selection issue sov debt Namibia 0.01% selection Argentina 0.01% Positive contributions from the key bottom-up alpha sources y p pSource: Investec Asset ManagementAttribution based on actual positions and end-of-day prices. From 31 July 2006 – 31 March 2012Page 17 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  18. 18. Global Bond and Global Strategic Income
  19. 19. There are many ways to make money in fixed incomeAnnual Returns in USD for different fixed income asset types – best to worst 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 13.5% I8.9% 22.0% 27.9% 23.0% 6.3% 15.2% 18.1% 13.9% 60.9% 15.7% 9.6% Highest ● Returns vary return significantly across the 9.2% 6.7% 11.6% 18.5% 12.1% 3.7% 10.8% 11.5% 10.1% 22.0% 15.3% 5.2% range of fixed income 6.6% 4.2% 11.4% 16.9% 11.3% 3.4% 6.9% 9.0% 2.9% 16.3% 7.4% 5.0% opportunities 2.0% 3.5% I8.4% 6.3% 5.5% 3.4% 5.2% 5.4% -4.8% 4.4% 5.8% 3.2% ● We look to hold assets -2.6% 3.2% 1.8% 2.3% 3.5% 2.8% 3.8% 3.4% -5.2% 0.3% 5.2% 0.2% that suit the economic Lowest -5.3% -3.5% -1.0% 1.2% 1.5% -9.2% 3.1% 2.1% -26.6% -3.7% 0.3% -1.8% return environment and that offer value Emerging market debt Investment grade corporate bond ● We avoid those Treasuries Cash that don’t Global High yield corporate bonds A strategic fund that adapts exposure to suit different environmentsSource: Investec Asset Management Bloomberg BBA 1 month Libor Citigroup Treasury Index Citigroup WGBI-ex US, JP Management, Libor, Index, USMorgan ELMI+ in USD to 2003, JP Morgan GBI-EM Global Diversified in USD from 2003, Merrill Lynch Global HY Index hedgedinto USD, Merrill Lynch Global Corporate Index hedged into USDPage 19 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  20. 20. Global Bond and Global Strategic Income- How they differGlobal Bond Global Strategic Income● Benchmark aware* ● Benchmark Unconstrained● No High Yield ● High Yield allowed● Limits of 50% Credit & 25% EM Debt** ● No fixed limits, but well diversified limits● Focus on high quality global ● Income seeking, but total return government and corporate bonds orientated A more conservative way to exploit A more aggressive way to exploit g oba bond currency a e s global bo d & cu e cy markets g oba bond currency a e s global bo d & cu e cy markets Two sides of the same coin* Barclays Global Aggregate for performance comparisons** Please note these are internal limits and are subject to changePage 20 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  21. 21. Disciplined and repeatable process STEP Asset Allocation Decision 1 Allocation to Global government bonds, Corporate bonds, Emerging market bonds, Developed and emerging market currencies STEP Specialist Asset Decision Making 2 Underlying specialist teams manage the allocated exposure STEP Risk Management 3 Risk budget scales positions to reflect the mandate Risk analysis ensures appropriate overall risk exposure STEP Final Portfolio 4 Bringing together our best global fixed income house views A sustainable and repeatable processPage 21 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  22. 22. 08003 0% 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% Cash End 2000 HY Corp Mid 2001 End 2001 EM Local Debt Mid 2002 End 2002 Major Inflation-linked Mid 2003 End 2003 Mid 2004 End 2004 Mid 2005 Source: Investec Asset Management End 2005 EM $ Debt Major Govt IG Corporate Mid 2006 End 2006 Mid 2007 1 2 3 4 5 6 7 8 End 20 000 End 2007 Asset Allocation Mid 2008 Mid 20 001 End 2008 End 20 001 Mid 2009 Page 22 | Fixed Income Update – March 2012 | CONFIDENTIAL Mid 20 002 End 2009 End 20 002 Mid 2010 Mid 20 003 End 2010 End 20 003 Mid 20 004 End 20 004 Mid 20 005 End 20 005 Mid 20 006 End 20 006 Mid 20 007 0% 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% End 20 007 Mid 20 008 End 2000 Duration exposure (years) End 20 008 Mid 2001 Mid 20 009 End 2001 End 20 009 Mid 2002 2 Mid 20 010 End 2002 2 Mid 2003 End 20 010 End 2003 Final portfolio evolves to reflect our best ideas 4 Mid 2004 End 2004 4 Mid 2005 US Dollar End 2005 6 Mid 2006 p Western Europe End 2006 6 Currency exposure Mid 2007 Emerging Currencies End 2007 Mid 2008 End 2008 p Mid 2009 End 2009 Mid 2010 Japanese Yen End 2010 Commodity Bloc
  23. 23. Investec’s Global Strategic IncomeAllocation,Allocation Duration and Currency exposureAllocation Duration exposure (years) Currency exposureThe portfolio may change significantly over a short period of time.Source: Investec Asset Management as at 20.04.12Page 23 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  24. 24. Attractive risk adjusted returns versus competitors risk-adjusted10 Year Annualised Return & Risk versus Peer group 13.0 13 0 Investec GSF Global Strategic Income A Acc Investec GSF Global Bond A Acc 11.0 mance % chang e 9.0 nualised perf orm 7.0Ann 5.0 Past performance figures are not audited 3.0 30 and should not be taken as a guide to the future. Source: Lipper, dates to 31 March 2012, NAV based, (inclusive of all annual management fees but excluding any initial 1.0 charges), in USD. Chart axes converge on 3.0 30 5.0 50 7.0 70 9.0 90 11.0 11 0 13.0 13 0 15.0 15 0 17.0 17 0 19.0 19 0 21.0 21 0 Lipper Global Bond Global sector average. Annualised standard deviationPage 24 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  25. 25. Why Investec Asset Management?● Specialist approach ensures expert decision making● Clear investment philosophy drives investment thinking● Best ideas blended to create well diversified high conviction portfolios● Over 25 years successful experience in our chosen markets Committed to a successful, long-term partnership with our clients , g p pPage 25 | Fixed Income Update – March 2012 | CONFIDENTIAL08003
  26. 26. Important informationThis communication is not for general public distribution. If you are a private investor and receive it as part of a general circulation, pleasecontact us at +44 (0)20 7597 1900 1900.The value of this investment, and any income generated from it, will be affected by changes in interest rates, general market conditionsand other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. The Fund’sinvestment objective will not necessarily be achieved and investors are not certain to make profits; losses may be made.All the information contained in this communication is believed to be reliable but may be inaccurate or incomplete Any opinions stated incomplete.are honestly held but are not guaranteed and should not be relied upon. This is not a buy, sell or hold recommendation for any particularsecurity. The portfolio may change significantly over a short period of time.This communication is provided for general information only. It is not an invitation to make an investment nor does it constitute an offerfor sale. The full documentation that should be considered before making an investment, including the prospectus and simplifiedprospectus or offering memorandum, which set out the fund specific risks, is available from Investec Asset Management.The Fund is domiciled in Luxembourg. This communication should not be distributed to private customers who are resident in countrieswhere the Fund is not registered for sale or in any other circumstances where its distribution is not authorised or is unlawful. Please visitwww.investecassetmanagement.com/registrations to check registrations by country.In the USA, this communication should only be read by institutional investors, professional financial advisers and, at their exclusivediscretion, their eligible clients, but must not be distributed to US Persons.THIS INVESTMENT IS NOT FOR SALE TO US PERSONS.Telephone calls may be recorded for training and quality assurance purposes Issued by Investec Asset Management Ltd (IAM) purposes. (IAM),January 2012. IAM is authorised and regulated by the Financial Services Authority.Page 26 | Fixed Income Update – March 2012 | CONFIDENTIAL08003

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