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Rathbones

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Rathbones

  1. 1. Citywire Wealth Manager RetreatStrategic Bonds – Are you asking the right questions?Bryn Jones, Fixed Income Investment Director, Fund ManagerGreg Mullins, Sales DirectorHelen Van Heesewijk, Associate Director – Sales18th – 19th October 2012
  2. 2. Bryn Jones Fund Manager: Bryn Jones Fund size: £38.90m (mid-market value, as at 30.09.12) Additional Fund Managed: Ethical Bond Fund, valued at £93.26m (mid-market value, as at 30.09.12) Bryn was shortlisted in the IMA Sterling Bond sector for the Investment Week Awards 2011 whilst managing the Ethical Bond Fund.Bryn joined Rathbones in November 2004. He graduated from Birmingham University with a Bachelor of Artsdegree in Geography in 1995.Bryn previously worked at Merrill Lynch managing $2bn of Fixed income assets. He is a member of theStrategic Asset Allocation Committee, Chairman of Fixed Income Committee, and a member of the BankingCommittee. Bryn appears regularly on CNBC and Bloomberg TV. Bryn was awarded the accolade of one of 20of the globe’s fixed income rising Stars by II news in 2008.He is an APCIMS representative for the HMT DMO’s (Debt Management Office) Gilt market consultationprocess. He has been a guest speaker at the Euromoney bond conference in London, at the Euromoney bankcapital conference in Amsterdam, and recently at the Sterling Bond conference in London this September.Bryn holds the Investment Management Certificate and sits on the IMA Fixed Income Committee. 2
  3. 3. The Strategic Bond sector A complex world where people are looking to outsource Performance of various Fixed Income Assets130 Global High yield £ Hedged (BOFA ML GLB HY TR £ Hedged) UK High yield (BOFA ML £ HIGH YIELD125 BB-B TR £ Hedged) Global Non UK Corporate Bonds (BOFA120 ML £ CORP ALL NON-UK TR £ Hedged) UK Corporate Bonds (IBOXX £ NON-GILTS ALL MATURITIES TR)115 Global Government Bonds (CGBI WGBI WORLD ALL MATS TR £ Hedged)110 UK Gilts (FTSE BRIT.GOVT.FIXED ALL STOCKS TR £)105 Global Govt Index Linked Bonds (BOFA ML GLB GVT INFL -LKD EX UK TR £ Hedged) UK Index Linked Gilts (FTSE.BRIT.GOVT.100 IND-LNK.ALL MAT TR £) Emerging Market Debt (BOFA ML USD 95 EMRG SOV PLUS TR £ Hedged) 17.Jul.2012 09.Jan.2012 29.Jan.2012 19.Jan.2012 07.Jul.2012 27.Jul.2012 08.May.2012 18.May.2012 28.May.2012 07.Jun.2012 27.Jun.2012 17.Jun.2012 06.Aug.2012 26.Aug.2012 30.Dec.2011 09.Mar.2012 29.Mar.2012 16.Aug.2012 19.Mar.2012 05.Oct.2012 08.Apr.2012 18.Apr.2012 28.Apr.2012 18.Feb.2012 08.Feb.2012 28.Feb.2012 05.Sep.2012 15.Sep.2012 25.Sep.2012 Convertible Bonds Developed Market (ML CONVERTIBLE DEV MARKET BOND $ TR ~£ Unhedged)Data source: DataStream. Data from 30.12.2011 to 05.10.2012 3
  4. 4. Strategic Bond headlines… Author: Katie Holliday IFAonline | 03 Oct 2012 Fixed income continued to drive inflows and was the best-selling sector for the ninth consecutive month, with the IMA Sterling Strategic Bond sector the most popular with net retail sales of £187m, above the sector monthly average of £158m over the previous 12 months By Aimee Steen | Published Sep 03, 2012 Strategic bond funds have proved popular with investors looking tosecure a bond-like income stream with the flexibility to chase the best performers in the market. The sector was third most popular with retail investors in July 2012 with £109m in sales. Take a strategic view By Leonora Walters, 16 August 2012 “…many advisers argue that the greater flexibility afforded by strategic bond funds makes them a better choice than plain- vanilla corporate bond funds.” 4
  5. 5. The Strategic Bond Sector - Total FUM £s Total FUM £s Total FUM (£) since the creation of the sector30,000,000,000  Sector creation date: Launched25,000,000,000 in May 2008.20,000,000,000  How many funds in the sector: 65 (as at 31August 2012).15,000,000,000  These funds are represented10,000,000,000 across all major asset management groups. 5,000,000,000  Funds Under Management 0 (FUM) in sector: £26.2bn (as at 31 August 2012). Significant Growth in thin markets Source: The Investment Management Association as at 31.08.2012 5
  6. 6. Outsourcing – Strategic Bond 60 3 year cumulative performance (%) 50 40 30 20 10 0 0 2 4 6 8 10 12 3 year annualised volatility (5)Data source: Financial Express, as at 30.09.12 Caveat Emptor 6
  7. 7. Why use Fixed Interest?  Reduce portfolio risk.  Offset equity risk.  Increase diversification. Fixed  Correlations.Interest  Add value in falling markets.  Equity risk buffer.  Ease drawdowns. A Clear Message 7
  8. 8. What are the Strategic Bond Funds trying to achieve? Outperformance – The fund aims to provide a total return to investors based on To provide a return by investing in higher exposure to optimal income yielding assets includingThe Fund aims to achieve a high streams in investment markets. high yield bonds,income with the prospect of capital investment grade bonds,growth by seeking out the best The Fund aims to achieve a total return by government bonds,opportunities within the fixed interest investing predominantly in fixed income preference shares anduniverse globally. markets but may selectively invest in other bonds. other markets and asset classes as determined by the managers strategy from time to time. To achieve a total return by The investment seeks to generate a total return above investing principally in a sterling cash interest rates, primarily through a flexible range of fixed and variable rate income securities. allocation to investment grade bonds, non investment grade bonds and derivative instruments. No Stated Mention of Risk 8
  9. 9. Six major players in the sector compared to FTSE All Share  A Fund -6.65%  B Fund -4.75%  C Fund -6.97%  D Fund -7.82% -7.30%  E Fund -5.39%  F Fund -2.18% A Possible Mismatch Source: Financial Express, total return bid-bid performance (from 31 Jul 2011 to 16 Sep 2011), of Sterling Strategic Bond Sector from Managed Funds universe, and FTSE All Share Sector. Funds listed are Net of fees 9
  10. 10. Bryn JonesFixed Income Investment Director, Fund Manager 10
  11. 11. A utopian Strategic Bond Fund – The wish list To outperform the IMA Strategic Bond Sector median, with lower volatility. To target a top quartile Sharpe Ratio. Total return bias – yield will be determined by asset allocation not a specific nominal target. Protecting capital is an important consideration. A Total Return with an Acceptable Level of Risk 11
  12. 12. Index returns and back-tested Strategic Bond Fund – Delivering the wish listInvester Master Name 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ACTUARIES All GILT INDEXUK Gilts 18.9% -0.9% 8.8% 3.0% 9.3% 2.1% 6.6% 7.9% 0.7% 5.3% 12.8% -1.2% TOTAL RETURN STERLING - FTAGOVT BarCap Sterling Bond Non Gilts All Maturities Total Return Prior toUK Credit JAN 1997 & ML £ CORP.ALL UK (£) (CORPORATE BOND INDEX) 17.1% -0.2% 8.8% 7.2% 11.0% 6.9% 7.3% 9.5% 1.0% 0.0% -9.6% 14.7% TOTAL RETURNS STERLING THEREAFTER BOFA ML GLOBAL BROAD CORPORATE BONDSGlobal Corporate Bonds 10.8% 1.7% 8.5% 10.0% 10.7% 8.7% 8.7% 5.2% 3.3% 3.8% -3.4% 16.1% TOTAL RETURN £ HEDGED BOFA ML GLOBAL HIGH YIELDGlobal High Yield 5.0% 3.1% -4.5% 3.0% 0.4% 30.7% 14.7% 4.8% 11.4% 2.2% -27.4% 59.5% TOTAL RETURN £ HEDGED BOFA ML USD EMERGING SOVEREIGN PLUSEmerging Sovereign -12.8% 23.9% 13.7% 7.1% 16.7% 30.2% 15.1% 13.7% 10.0% 6.8% -9.9% 27.0% TOTAL RETURN £ HEDGED CITIGROUP WGBI WORLD EX UK ALL MATURITIESGlobal Government Bonds ex UK 12.6% 1.7% 10.2% 7.6% 10.3% 4.5% 8.0% 6.5% 2.9% 6.2% 11.4% 1.4% TOTAL RETURN £ HEDGED FTSE BRITISH GOVERNMENT INDEX LINKED BONDSUK Index Linked Bonds 19.9% 4.4% 4.2% -0.5% 8.2% 6.6% 8.5% 9.0% 2.9% 8.5% 3.7% 6.4% ALL MATURITIESBack-tested Back-tested Strategic Bond Fund 10.4% 4.6% 7.0% 5.5% 9.8% 12.9% 9.8% 8.4% 4.5% 4.1% -5.4% 18.3%Strategic Bond Fund Source: Rathbones, PerTrac and Datastream. Only one negative year in 12 Back-tested Strategic Bond Fund: These figures are based on a model portfolio, used for illustrative purposes only. Data: Annual calendar year returns, 1998 –2010. 12
  13. 13. Back-testing 3000 2500 2000 1500 1000 500 Nov.1997 Nov.1999 Nov.2001 Nov.2003 Nov.2005 Nov.2007 Nov.2009 Rathbones Proposed Fixed Income Fund Rathbones Back-tested Strategic Bond Fund 3M Libor + 2% Total Returns FTSE World Index Total Return £ Actuaries All Gilt Index TR £ ML UK Corp Bond TR £ UK CPI + 5% FTSE APCIMS Balanced Total Returns Sterling FTSE APCIMS Growth Total Returns SterlingSource: Rathbones, PerTrac and Datastream.Back-tested Strategic Bond Fund: These figures are based on a model portfolio, used for illustrative purposes onlyData: November 1997 – April 2010. 13
  14. 14. Core strategy - normalised rangesIn order to meet our objectives, we will undertake active asset allocation within the ranges identified below: 14
  15. 15. Rathbone Strategic Bond Fund – Philosophy put into practice 15
  16. 16. Current Market View 16
  17. 17. Current themes - Gilt yields Still underweight duration. Trading the technical range in Gilt yieldsData: Bloomberg, from13/10/2011 to 13/10/2012 17
  18. 18. Financial Credit Spreads Central Banks willingness to support the Government Bond Market is a clear positive for Financial Bonds rather than Equity.Data: Bloomberg, from 20/09/2011 to 12/09/2012 18
  19. 19. Macro drivers  Lots of cash  No liquidity  Too much bad news priced into spreads  Value, value, valueSource: Morgan Stanley; Bloomberg Where Were We? 19
  20. 20. Macro drivers  Lots of cash  No liquidity  Too much bad news priced into spreads  Value, value, valueSource: Bloomberg, Morgan Stanley Where Are We Now? 20
  21. 21. We said don’t fight people bigger than you in the playgroundSource: ECB, Federal Reserve, The Bank of England, Google Images 21
  22. 22. Current fund positionAsset Allocation  RPI recalculations 30 Oct 11 29 Feb 12 30 Sept 12 Core strategy(%overall)  Chinese landingUK Index Linked 10.38% 6.52% 5.06% 12.5%  Concerted GlobalUK Gov Bonds 3.43% 4.15% 5.75% 12.5% Policy MonetaryUK Corp Bonds 32.09% 32.19% 33.28% 25% Easing driving risk assets.Emerging Sovereign Bonds 9.57% 7.22% 8.09% 15%Global High Yield Bonds 12.36% 12.49% 18.30% 15%  Demand/supplyGlobal Corp Bonds (IG) 9.07% 8.43% 7.55% 10% imbalance in credit.Global Government Bonds 11.19% 14.83% 12.35% 10%Cash 11.14% 8.11% 3.46% -  Low outright levelsCredit Long/Short 0.00% 2.86% 2.11% - of Government Bond Yields.Other 0.77% 3.20% 3.05% - 100.00% 100.00% 100% 100% Data source: Rathbones 22
  23. 23. Since Launch data as at 08/10/2012 Volatility max gain max drawdown sharpeSource: Financial Express Analytics data from fund inception 03/10/2011 to 08/10/2012 23
  24. 24. Rathbone Strategic Bond Fund – Performance YTD 3Month 6 Months Rathbone Strategic Bond Fund 8.59 3.92 5.50 IMA Sterling Strategic Bond Sector 10.41 4.34 6.11 Rank 47/69 48/72 50/72 Fund Volatility Vs IMA Sector 2.41 Vs 2.90 1.75 Vs 2.42 2.19 Vs 2.99 *Since inception to 08/10/2012 Volatility Max Gain Max Drawdown Rathbone Strategic Bond Fund 2.57 3.51 -1.11 IMA Sterling Strategic Bond Sector 3.27 4.65 -1.62Source: Financial Express.Performance data as at 08.10.12, bid to bid, net income reinvested for I-Class Shares*Volatility, Max Drawdown, Max Gain since inception (03/10/2011) to 08/10/2012, calculated using weekly data.Past performance should not be seen as an indication of future performance 24
  25. 25. Return divided by risk – Since fund inception  Rathbone Strategic Bond Fund: 4.09%  Fund A: 3.16%  Fund B: 3.17%  Fund C: 3.35%  Fund D: 2.50%  Fund E: 3.56%  Fund F: 3.30%Source: Financial Express. Per unit of risk return is calculated by performance divided by weekly volatility as at 08/10/2012Performance: Data from 03/10/2011 to 08/10/12, bid to bid, net income reinvested for I-Class Shares.Volatility: Data from 03/10/2011 to 08/10/2012, calculated using weekly data.Rathbone Strategic Bond Fund was launched on 03/10/2011 25
  26. 26. Rathbone A utopian Strategic Bond Fund To outperform the IMA Strategic Bond Sector median, with lower volatility. To target a top quartile Sharpe Ratio. Total return bias – yield will be determined by asset allocation not a specific nominal target. Protecting capital is an important consideration. A Total Return with an Acceptable Level of Risk 26
  27. 27. Important Information The information contained in this presentation is for use by investment advisers and is not intended for circulation to private clients or the general public Past performance should not be seen as an indication of future performance. The value of investments and the income from them may go down as well as up and you may not get back your original investment.Rathbone Unit Trust Management is authorised and regulated by the Financial Services Authority and Rathbone UnitTrust Management is a member of the IMA.Rathbone Unit Trust Management Limited : Registered Address 1 Curzon Street, London, W1J 5FBRegistered No. 02376568 - A Member of the Rathbone Group. 27
  28. 28. The Website: www.rutm.comWhat’s available: For guidance, call: Sign up for the updates alert service – 0207 399 0399 notification of selected updates delivered to your inbox. Or email: Up-to-date prices and performance rutm@rathbones.com information and charting tools for comparing funds and sectors. Literature updates. Latest news, events, comment and webcasts. 28

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