Natixis global asset management

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Natixis global asset management

  1. 1. The role of Government bonds in an institutional portfolioOlivier de Larouzière, Head of Interest Rates, Natixis Asset Management18-19/04/2013Intended for professional clients only.This material may not be distributed, published, or reproduced, in part or in whole
  2. 2. Performance of euro-zone government bonds over the last 3 years As of 28/03/2013 Natixis Souverains Euro Benchmark Excess return (cumulative, nof) (cumulative, nof) 1Y 7.52 7.98 -0.47 3Y 16.30 12.56 +3.74 2The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.
  3. 3. The increasing weight of country selection as alpha driver • Country selection has been essential in Natixis Souverains Euro’s outperformance since 2008. Contribution of the strategies to the global excess-return 200% 150% 100% 50% 0% -50% -100% -150% 04 05 06 07 08 09 10 11 12 20 20 20 20 20 20 20 20 20 Global Duration Global Curve allocation Country allocation 3*Source: Point, calculations Natixis AM, as of 12/31/2012
  4. 4. Is it really a low yield environment ? • Record levels for Core countries but the average sovereign yield still has potential (5 year maturities) : 5 Yr yields 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 8 9 0 1 2 l-0 l-0 l-1 l-1 l-1 Ju Ju Ju Ju Ju Germany France Italy Spain Portugal EMTS 5-7 Index 4Source: Natixis AM, EMTS, Bloomberg (03/28/2013)
  5. 5. Country and Curve spreads • Many opportunities on spreads versus Germany and curve trades : • Example of Italy : Italy : spread and curve 7% 3.5% 5 Yr Spread vs Germany 2-10 Yr slope (r.h.s.) 3.0% 6% 2.5% 5% 2.0% 4% 1.5% 3% 1.0% 0.5% 2% 0.0% 1% -0.5% 0% -1.0% 0 2 10 11 12 11 3 1 2 0 0 2 -1 -1 -1 -1 -1 l-1 -1 -1 n- n- n- b- ov ov ar ep ug pr pr Ju Ja Ju Ja Fe M A A N N S A 5Source: Natixis AM, Bloomberg (03/28/2013)
  6. 6. Managing a risk budget in a highly volatile environment • The granularity of the sovereign universe is low, therefore you need to multiply the number of strategies with intra-country spreads and diversifications for additional sources of excess-return and reduce the overall tracking-error. Natixis Souverains Euro - tracking-error 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% M 8 M 9 M 0 M 1 M 2 Se 8 Se 9 Se 0 Se 2 Se 1 Ja 7 Ja 8 Ja 9 Ja 0 Ja 1 12 -0 -0 -1 -1 -1 0 0 1 1 1 0 0 0 1 1 n- n- n- n- n- p- p- p- p- p- p- ay ay ay ay ay Se Natixis Souverains Euro performance statistics Ex Ante Tracking Error Ex Post Tracking Error As of TE Sharpe ratio Information 28/03/2013 ratio (I share, net of fees) Portfolio BM Portfolio 1Y 0.81 2.20 2.87 -0.53 3Y 1.03 0.87 0.71 1.06 Since 7 Sept. 0.91 1.11 0.99 0.86 2008 6Source: Natixis AM (28/03/2013). The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.
  7. 7. Managing versus a benchmark in the € sovereign universe • Market capitalization index :the concentration is huge on Germany+France+Italy : 68% currently (JPM Index) Composition of € sovereign index 30% 25% 20% 15% 10% 5% 0% y s nd a m d ly ce n al nd an tri ai an ug Ita iu an la Sp rla m us nl lg Ire ot Fr er A Fi he Be Pr G et N • Rating defined index :the composition can be unstable and behaviors are very different (barclays sovereign index by ratings) : 1 Year 3 Years Return Volatility Return Volatility AAA 6.5% 4.9% 17.3% 5.0% BBB 15.7% 9.1% 6.3% 23.4% 7Source: Natixis AM, JP Morgan (03/28/2013), Barclays (03/28/2013)
  8. 8. Suggestions in terms of benchmark evolution • Rating defined index :the composition can be unstable and behaviors are very different : Clear integration every notion of GDP, debt and many other financial ratios by Credit ratings A good solution to the risk problematic of sovereign bonds and very easy to implement! For example, on AAA: EuroMTS Eurozone AAA Government, ML EMU Direct Governments AAA Rat. 1-3Y, IBOXX Euro Sovereign AAA • GDP weighted index : Indexes combining the classic “market capitalization” weightings and the annual GDP of the countries Putting forward the notion of GDP but also considering the liquidity of these debts for the sake of the investors A very interesting alternative, but complex to apprehend, which could be used for new « thematic » funds. For example, Barclays Capital GDP weighted bond index 8
  9. 9. High volatility and low yields: a difficultenvironment from a risk/return point of view? 9
  10. 10. Sovereign rates versus Credit 5 Yr € average yields 8% Sovereign rate Corporate rate 7% • Low yields on all asset 6% classes : 5% (3-5 Yrs barclays index) 4% 3% 2% 1% 0% 07 08 09 10 11 13 12 n- n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ja 180% • The credit premium remains 160% 140% stable in proportion of sovereign 120% yields : 100% 80% (3-5 Yrs barclays index) 60% 40% 20% 0% 03 04 05 06 07 08 09 10 11 12 13 n- n- n- n- n- n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja 10Source: Natixis AM, Barclays (12/10/2012)
  11. 11. Sovereign volatility versus credit • During crisis volatility rises and is currently higher on sovereigns : (12m rolling volatility on 5yr barclays index) 6% Sovereign Credit 5% 4% 3% 2% 1% 0% 4 5 6 7 8 9 0 1 2 -0 -0 -0 -0 -0 -0 -1 -1 -1 pr pr pr pr pr pr pr pr pr A A A A A A A A A 11Source: Natixis Asset Management , Barclays (03/28/2013)
  12. 12. Sovereign versus credit : country allocation • For Local countries (Spain and Italy) : spread levels increase significantly and continuously. Correlation between Percentage change of spread (PCS) of Sovereigns and Credit increase with OAS. • For Core countries (France and Netherlands) : significant decrease in correlations even with stable corporate spreads => Significant divergence of behaviour across countries 12Source: Barclays (10/01/2012)
  13. 13. Shifting from Euro bonds to Global bonds?13
  14. 14. Allocating to Government bonds ex Euro?The case of US Treasuries • The US bond markets now reacts a lot less to macro data (ISM, ADP,..) simply because the Federal Reserve has bought considerable amounts of Treasuries since 2008. • The Fed now buys 35-40% of offered bonds versus 10-15% at the beginning of QE2 : 14Source: Natixis Asset Management , Bloomberg (03/25/2013)
  15. 15. Allocating to Government bonds ex Euro?Correlations • Correlation is very high and stable between Euro and G4 (US, UK, Jap, Euro). • Emerging markets bring a strong diversification : 12M rolling correlation of normalized returns 120% 100% 80% 60% 40% 20% 0% -20% -40% -60% 12 10 11 13 06 07 08 09 04 05 n- n- n- n- n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Emerging Markets / G4 Euro / G4 Euro AAA / G4 15Source: Natixis Asset Management , Barclays (01/14/2013)
  16. 16. Allocating to Government bonds ex Euro?Volatility • Emerging markets can be very volatile but in 2012 all volatilities converged : 12 M Rolling volatility of normalized returns 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 12 13 08 09 10 11 04 05 06 07 n- n- n- n- n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Emerging Markets Euro Euro AAA G4 16Source: Natixis Asset Management , Barclays (03/28/2013)
  17. 17. How to adapt to this context ? The Portfolio Manager has to be selective because of the convergence of the asset classes (rates, volatility)• Need for specialisation but also to coordination: Important role of analysts (country, credit) The allocation must be based on risk factors• Need for relevant risk measures : Take into account the credit risk of sovereign debts (use DTS : Duration x Spread)• Need for alternative scenarios (strategies) : Buy options or volatility in order to limit the risk of divergence versus the central scenario 17 17
  18. 18. Appendices18
  19. 19. Awards 2013Citywire Awards – Olivier de Larouzière • Olivier de Larouzière ranked 1 out of 28 in the 2013 Citywire ranking of the Best managers in the euro zone Bond - Lipper Global France category over a 3-year period (21 March 2013)(1) • Olivier de Larouzière is rated in the euro zone Bond - Lipper Global Europe category(2)Lipper Fund Awards 2013 – Natixis Souverains Euro R/C • Best fund in “Bond Euro zone” category in the European Universe over 10 years and in the Swiss Universe over 5 and 10 years (3)The figures given refer to previous years. Past performance is a not a reliable indicator of future performance. Referring to any ranking or award does not guaranteefuture results of the fund or the investment manager. (1) Source: Lipper, within a universe of funds marketed in France and belonging to the same Lipper category (Bond Eurozone) which comprises 116 constituentsover 3 years. (2) Source: Citywire. 28 March 2013 (3) Source: Lipper as of 31/12/2012. Universe: funds authorized for sale in Switzerland/in Europe. Performance certificates reward funds with performance rankingthem first of their category over one or several periods. Performance calculation as of 31/12/2012.Methodology available on: www.lipperweb.com. 19
  20. 20. Biography Olivier de Larouzière Head of Interest Rates, Senior Portfolio Manager Olivier de Larouzière began his career in 1994 at Ecureuil Gestion, the fund management arm of the French Savings Bank. He successively managed money market, European and global fixed income funds. He joined BNP-Paribas in 1998 as fixed income proprietary trader and then Credit Lyonnais Asset Management in 2001 as senior fixed income portfolio manager. Olivier de Larouzière joined Ixis Asset Management in 2003 as Head of Euro Aggregate investment team. In 2005 he became Head of the Euro Government and Aggregate investment team. In 2007, Olivier de Larouzière began working as head of the Interest Rates and Currency team within Natixis Asset Management. Since 2010, Olivier has been the head of the Euro Fixed Income team. Olivier de Larouzière holds a diploma of Advanced Studies in Mathematics Applied to Economic Studies from the University of Paris IX - Dauphine. Olivier de Larouzière has 17 years of experience and has been working within our company for more than 9 years.20
  21. 21. Legal informationNatixis Asset ManagementRegistered Office: 21 quai d’Austerlitz – 75 634 Paris Cedex 13 – Tel. +33 1 78 40 80 00Limited Liability Company, Share Capital 50 434 604,76 eurosRegulated by AMF under n°GP 90-009RCS Number 329 450 738 ParisNatixis MultimanagerRegistered Office: 21 quai d’Austerlitz – 75 634 Paris Cedex 13 – Tel. +33 1 78 40 32 00Regulated by AMF under n°GP 01 054A French simplified joint-stock company Share Capital of 7 536 452 euros – RCS Number 438 284 192 ParisThis document is destined for professional clients. It may not be used for any purpose other than that for which it was conceived and may not be copied,diffused or communicated to third parties in part or in whole without the prior written authorization of Natixis Asset Management.None of the information contained in this document should be interpreted as having any contractual value. This document is produced purely for thepurposes of providing indicative information. It constitutes a presentation conceived and created by Natixis Asset Management from sources that it regardsas reliable.Natixis Asset Management reserves the right to modify the information presented in this document at any time without notice and particularly theinformation concerning the description of the management processes which does not in any way constitute a commitment on behalf of Natixis AssetManagement.Natixis Asset Management will not be held responsible for any decision taken or not taken on the basis of information contained in this document, nor in theuse that a third-party may make of it.Figures mentioned refer to previous years. Past performance does not guarantee future results. Reference to a ranking and/or a price does not indicate thefuture performance of the UCITS or the fund manager.The funds mentioned in this document have received the approval of the French Financial Market Authority (AMF) or have received authorization to bemarketed in France. The risks and costs related to investment in a fund are described in the fund’s prospectus. The prospectus and the periodical reports areavailable on request from Natixis Asset Management. Potential subscribers must be in possession of a copy of the prospectus before making anysubscription.In the case of funds that qualify for a special tax status, we remind potential investors that the special tax conditions depend on the individual situation ofeach customer and that such conditions may be subject to future modification.Under Natixis Asset Management’s social responsibility policy, and in accordance with the treaties signed by the French government, the funds directlymanaged by Natixis Asset Management do not invest in any company that manufactures sells or stocks anti-personnel mines and cluster bombs.21
  22. 22. Additional NotesThis material has been provided for information purposes only to investment service providers or other Professional Clients or Qualified Investors and, whenrequired by local regulation, only at their written request. It is the responsibility of each investment service provider to ensure that the offering or sale of fundshares or third party investment services to its clients complies with the relevant national law.In the E.U. (outside of the UK): This material is provided by NGAM S.A. or one of its branch offices listed below. NGAM S.A. is a Luxembourg managementcompany that is authorized by the Commission de Surveillance du Secteur Financier and is incorporated under Luxembourg laws and registered under n. B115843. Registered office of NGAM S.A.: 51, avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg. France: NGAM Distribution (n.509 471173 RCS Paris). Registered office: 21 quai dAusterlitz, 75013 Paris. Italy: NGAM S.A., Succursale Italiana (Bank of Italy Register of Italian Asset ManagementCompanies no 23458.3). Registered office: Via San Clemente, 1 - 20122, Milan, Italy. Germany: NGAM S.A., Zweigniederlassung Deutschland (Registrationnumber: HRB 88541). Registered office: Im Trutz Frankfurt 55, Westend Carrée, 7. Floor, Frankfurt am Main 60322, Germany. Netherlands: NGAM, Nederlandsfiliaal (Registration number 50774670). Registered office: World Trade Center Amsterdam, Strawinskylaan 1259, D-Tower, Floor 12, 1077 XX Amsterdam, theNetherlands. Sweden: NGAM, Nordics Filial (Registration number 516405-9601 - Swedish Companies Registration Office). Registered office: Kungsgatan 48 5tr,Stockholm 111 35, Sweden. Spain: NGAM, Sucursal en España. Registered office: Torre Colon II - Plaza Colon, 2 - 28046 Madrid, Spain.The above referenced entities are business development units of Natixis Global Asset Management, the holding company of a diverse line-up of specialisedinvestment management and distribution entities worldwide. The investment management and distribution subsidiaries of Natixis Global Asset Managementconduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are notavailable to all investors in all jurisdictions.Although Natixis Global Asset Management believes the information provided in this material to be reliable, it does not guarantee the accuracy, adequacy, orcompleteness of such information.The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or arecommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of anyinvestment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of theportfolio manager(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be noassurance that developments will transpire as may be forecasted in this material.This material may not be distributed, published, or reproduced, in whole or in part.All amounts shown are expressed in USD unless otherwise indicated. Additional Notes – Authorized Countries – Professional Investors – EU Customized 24/01/2013

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