RWC Absolute Rate & Currency Funds –Turning Volatility Into Opportunities   May 2012
RWC Absolute Rate & Currency Funds•   Absolute Return funds investing in highly liquid bonds, interest rates and currencie...
RWC Absolute Rate & Currency Funds – Portfolio Management Team            Peter Allwright - Portfolio Manager             ...
RWC Absolute Rate & Currency Funds – Overview•   Macro-orientated Absolute Return trading funds, investing in liquid inter...
RWC Absolute Rate & Currency Funds – Beta Portfolio                                           • Provides beta element of  ...
RWC Absolute Rate & Currency Funds – Alpha Portfolio•    Managed as overlay to add return to high grade bond portfolio•   ...
Theme 1 – Japan: A Big Life Fund In Run-off? Bond Crisis On The Cards•   Japan compensates for its large fiscal deficit wi...
Japan: Debt Dynamics Are Deteriorating, So Is The Current Account    Japanese Government Debt as % of GDP Continues to Mov...
Japan: Government Now Less Able To Rely On Japanese Savers                                              The Japanese Popul...
Japan: The Demographic Situation Is Only Going to Get Worse                                    Japan’s Demographics - 2012...
Example Trade: Yen Weakness via Long CADJPY                                                                               ...
Theme 2 – Eurozone Crisis and The Pain In Spain•    Prior to the global financial crisis, Spain experienced unprecedented ...
The Pain In Spain: Medium Term Outlook for Spain•    Despite Spain’s relatively low headline government debt/GDP ratio, th...
The Pain In Spain: Storm Clouds On The Horizon       Spanish Equity Performance Indicates the Economy is in Trouble       ...
The Pain In Spain: Spanish Property Is The Weakest Link       Spanish House Prices have Fallen But have Much Further to Go...
The Spanish Fiscal Situation Is Precarious –Contingent Liabilities Large•    Spain’s current gross government debt     is ...
So What’s The Trade? Long Core European Government Bonds... For Now                  •   Whereas last year the main worry ...
Theme 3 –Back To The ‘80s: Liquidity And Leverage Have Further To Fall•    We are moving to markets that are reminiscent o...
Back to the ‘80s: Volumes Have Declined Substantially For Many Instruments                                                ...
Back To The ‘80s: FX Trading Volumes Have Mostly Recovered                                                Blue line: Avera...
Back To The ‘80s… Coming to a Theatre Near You21
Risk Warnings & DisclaimersThis document contains information relating to RWC Partners Limited and RWC Asset Management LL...
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Rwc

  1. 1. RWC Absolute Rate & Currency Funds –Turning Volatility Into Opportunities May 2012
  2. 2. RWC Absolute Rate & Currency Funds• Absolute Return funds investing in highly liquid bonds, interest rates and currencies • Alpha-generating investment positions underpinned by short-dated, high grade bond portfolio • Currently all short-dated bonds are AAA-rated and the vast majority are government guaranteed• Funds aim to make alpha-driven returns with low volatility and low correlation to markets • Agnostic approach to market direction allows funds to take advantage of both rising and falling markets • Focus on highly liquid instruments and markets; no illiquid derivative structures• Offers good diversification from traditional bond, equity and commodity funds • Low correlation with risk asset drawdowns; high volatility environments provide investment opportunities • Investment process does not depend on asset class rotation• Strategy first launched by Peter Allwright and Stuart Frost at Threadneedle Asset Management • $3.5bn AUM in absolute return and high alpha strategies; awarded two Gold Medals by Sauren • Investment strategies generated by Price, Flow & Macro investment process developed by the Portfolio Managers• Proven risk management system based on extensive experience in financial markets • Real-time, market dependent approach to risk taking • Intense focus on instrument liquidity in both short and longer term investments• Funds are UCITS IV Luxembourg SICAVS, VaR approach, with daily liquidity2
  3. 3. RWC Absolute Rate & Currency Funds – Portfolio Management Team Peter Allwright - Portfolio Manager • Co-manager of Threadneedle Target Return Bond and Macro Funds • Awarded 2 Gold Medals by Sauren in 2009 Portfolio Management • MA Engineering and Management Studies, University of Cambridge • CFA Charterholder Peter Allwright Stuart Frost - Portfolio Manager Stuart Frost • Co-manager of Threadneedle Target Return Bond and Macro Funds • Established Natwest FX Chart and Analysis Risk Fundamental Research team in London • Various trading positions at Natwest New York – prop trader, FX forward Alice Leedale Peter Harrison Alice Leedale - Market Strategist Larry Furness Robert Ritchie • Financial Analyst at Goldman Sachs • MPhil Economics, University of Cambridge • BA Economics and Management, University Operations Sales and Marketing of Oxford • CFA candidate Compliance and Legal Administrator Larry Furness - Market Strategist • Investment Analyst at Permal Investment Management • BA Economics, University of Nottingham • Investment Management Certificate holder • CFA candidate3
  4. 4. RWC Absolute Rate & Currency Funds – Overview• Macro-orientated Absolute Return trading funds, investing in liquid interest rate and currency markets • Core, high grade, fixed income portfolio supports alpha-generating trading strategies • Alpha strategies provide returns with low correlation to markets and low volatility• Strategies aim to achieve a net return* of cash +3% and cash +6%, annualised, over the market cycle • Highly liquid securities ensure exposure can be de-risked efficiently to reduce “drawdowns” • Physical high grade bond investments provide a stable yield and exposure to duration • Directional and tactical “strategies” provide the majority of excess returns • Overlay adds pure alpha • Liquid rates and currencies Alpha Portfolio • Predominantly derivative instruments • Exchange traded rates and forward and OTC FX • No illiquid derivative structures • Physical high grade bond portfolio • Short maturities High Grade • Provides a cash return on investments Bond Portfolio • Some alpha component from duration management • Highly liquid and provides collateral if needed *Net of the institutional share class fee4
  5. 5. RWC Absolute Rate & Currency Funds – Beta Portfolio • Provides beta element of Country of Issuer % of Fund Rating % of Fund Alpha Portfolio portfolio Germany 71.27% AAA 94.18% • Emphasis on liquidity and Supranational 14.85% AA 0.00% quality Norway 5.29% A 0.00% • Residual interest rate High Grade and/or credit risk can be Sweden 2.77% BBB 0.00% Bond Portfolio hedged if necessary BB and below 0.00% Unrated 0.00% Total 94.18% Country Issuer Coupon Maturity Rating Holding (%) Sector % of Fund FMS Wertmanagement (Gov Guarantee) 2 1/4 14/07/2014 AAA 16.62% Sovereign/Agency/Supra 80.23% Duesseldorfer Hypobank (Gov Guarantee) 1 7/8 13/12/2013 AAA 13.71% Financial 0.00% KRW (Gov Guarantee) 1 3/4 04/08/2014 AAA 12.03% Corporate 0.00% LFA Foerderbank Bayern (Gov Guarantee) 2 3/8 15/07/2013 AAA 11.37% Secured/Collateralised 13.95% European Investment Bank (Gov Guarantee) 3 1/8 15/04/2014 AAA 7.65% Total 94.18% Bundesobligation (Gov Guarantee) 2 1/4 10/04/2015 AAA 5.80% Sparebank Boligkreditt 5 10/09/2013 AAA 5.29% Analytics % of Fund European Investment Bank (Gov Guarantee) 3 5/8 15/10/2013 AAA 5.18% Duration 1.68 years Eurohypo AG 1 7/8 01/10/2013 AAA 4.98% Current Yield 0.59% Swedbank AB (Gov Guarantee) 3 3/8 27/05/2014 AAA 2.77% Average rating AAA Source: RWC 30/04/125
  6. 6. RWC Absolute Rate & Currency Funds – Alpha Portfolio• Managed as overlay to add return to high grade bond portfolio• Focused, highest conviction investment strategies Alpha Portfolio• Strategies can be directional or market neutral • Typically a small number of strategies deployed at any point in time High Grade • One strategy may be implemented in a number of different ways Bond Portfolio• Liquid securities ensure overlay can be collapsed or de-risked efficiently and quickly• Option strategies may be used to take exposure, hedge risk or book profit where it is economic and efficient to do so• Range of instruments potentially employed: • Physical government bonds • Global and emerging markets Government • Government bond futures and options on Currencies • Spot and forward FX Bonds futures (exchange traded) • OTC FX options • Sovereign CDS • Short term interest rate futures and options • Corporate bonds Interest on futures Credit • CDS indices e.g. iTraxx Rates • Repos • New issues • Interest rate swaps6
  7. 7. Theme 1 – Japan: A Big Life Fund In Run-off? Bond Crisis On The Cards• Japan compensates for its large fiscal deficit with a current account surplus and high domestic savings rate• However both of these pillars of support are crumbling • Japan’s trade account has recently shifted to deficit; this trend is expected to continue and eventually tip the current account into deficit too • Japan’s aging population are beginning to dis-save, selling assets for income in their retirement• Once the current account moves into deficit Japan will have to borrow from abroad and/or JPY will depreciate• To continue funding its budget deficit the Japanese government will have to sell JGBs to foreign investors • But international investors are likely to demand much higher interest rates given Japan’s huge debt burden • The alternative for the Japanese government is to pursue punishing austerity and large tax hikes• Japan’s debt level is now so high that even small changes in interest rates (if expected to be maintained) could have an extremely adverse effect on the country’s debt dynamics• We believe that the JGB market will suffer a crisis of confidence and JGBs will be significantly re-priced• Key question is not if this will happen, but when will this happen?7
  8. 8. Japan: Debt Dynamics Are Deteriorating, So Is The Current Account Japanese Government Debt as % of GDP Continues to Move Higher While the Budget Deficit Shows No Sign of Reversing 300% 4% 257% 2% 250% 0% Net Borrowing % GDP 200% Gross Debt % GDP -2% 150% -4% -6% 100% -7.6% -8% 50% -10% 0% -12% Japan Goverment Gross Debt % of GDP Japan Net Government Borrowing % of GDP The Trade Balance has Already Shifted to Deficit The Current Account Looks Set to Follow the Trade Balance into Deficit 1,600 2,500 1,400 1,200 2,000 1,000 Trade Balance (¥bn) Current Account Balance (¥bn) 800 1,500 600 400 1,000 200 ¥672bn 0 500 -200 -400 -¥268bn 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Japan Trade Balance (¥bn, 12 month moving average) Japan Current Account Balance (¥bn, 12 month moving average) Source: IMF; Japan Ministry of Finance8
  9. 9. Japan: Government Now Less Able To Rely On Japanese Savers The Japanese Population is in Decline But the Drop in Working Age Population is Most Worrying 140,000 90,000 85,000 130,000 80,000 75,000 120,000 Population (millions) Population (millions) 70,000 110,000 65,000 100,593m 60,000 100,000 53,889m 55,000 50,000 90,000 45,000 80,000 40,000 2000 2005 2010 2015E 2020E 2025E 2030E 2035E 2040E 2045E 2050E 2000 2005 2010 2015E 2020E 2025E 2030E 2035E 2040E 2045E 2050E Japan Population (millions) Japan Working Age Population (millions) Japanese Savings are Declining as Retirees Spend Rather than Save 35% 32% 29% Savings % GDP 26% 23.2% 23% 20% Japan National Savings % of GDP Source: Japan National Institute of Population and Social Security Research, “Working Age Population” refers to ages 15-64; IMF9
  10. 10. Japan: The Demographic Situation Is Only Going to Get Worse Japan’s Demographics - 2012 After Thought: China’s Demographics - 2012 100+ 100+ 95-99 95-99 90-94 90-94 85-89 85-89 80-84 80-84 75-79 75-79 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% Male Population Female Population Male Population Female Population Japan’s Demographics - 2050 China - 2050 - Is China Storing Up its Own Demographic Time Bomb? 100+ 100+ 95-99 95-99 90-94 90-94 85-89 85-89 80-84 80-84 75-79 75-79 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Male Population Female Population Male Population Female Population Source: US Census Bureau10
  11. 11. Example Trade: Yen Weakness via Long CADJPY Date: Feb-2012 • Investment view: Canadian dollar (CAD) to appreciate, in part due to the general ‘risk-on’ environment • Macro perspective: like CAD because Canada is one of the best-positioned developed economies, benefiting from an accelerating US economy, a strong financial sector, sound public finances and limited exposure to the Eurozone crisis. Dislike Investment JPY owing to Japan’s weak economy, precarious position of the JGB market and Japan’s extremely unfavourable demographics View • Flow perspective: CAD tends to benefit in risk rallies as a result of Canada’s commodities exposure, but Canada is also becoming a relative safe haven in times of Eurozone crisis turmoil, so downside in a ‘risk-off’ market rout is limited. Upside in JPY is capped due to threat of intervention and more QE; JPY generally gains in ‘risk-off’ environment • Price perspective: Rising price action, ultimately targeting 79.00, coupled with a trend line break. Follow through to CADJPY = 80.00 likely • Go long Canadian dollar vs. short Japanese yen Trade Idea • BUY 1 month CADJPY FX forward • Duration of FX forward limited to 1 month to keep counterparty exposure low • Initial CADJPY position represented 2% of CARC and 4% of EARC (high conviction, liquid G10 currency pair) • Trailing stop loss of CADJPY = 75.30; initially placed order to take profit at CADJPY = 78.50 Sizing and Risk Mgmt. • Added to position after stronger-than-expected US Non-farm Payrolls on 03-Feb-2012, total positions: 3% CARC / 6% EARC • Partial take profit on 08-Feb-2012 • Closed trade on 10-Feb-2012 as a result of Greece-related risk aversion and ahead of the weekend • Entered trade at CADJPY = 76.135 (1 month forward rate); increased position at 76.470 Entry and • Closed 1/3 of trade at 77.450, percentage change: +1.7% Exit Points • Closed remaining 2/3 of trade 2 days later at 77.841, percentage change: +2.2%11
  12. 12. Theme 2 – Eurozone Crisis and The Pain In Spain• Prior to the global financial crisis, Spain experienced unprecedented property price appreciation, and construction became an increasingly important part of the Spanish economy• Other serious imbalances also built up: a large current account deficit and high private sector indebtedness• The unwinding of these imbalances has taken its toll on the Spanish economy• In addition, Spain’s labour market has become highly uncompetitive and desperately needs reform• Severe unemployment is now plaguing the economy as construction jobs have dried up• The fate of Spain is now inextricably linked to the health of its property market and the country’s banks12
  13. 13. The Pain In Spain: Medium Term Outlook for Spain• Despite Spain’s relatively low headline government debt/GDP ratio, the deficit is high and debt dynamics look vulnerable• Furthermore, we are concerned about contingent liabilities related to the Spanish regions, government-guaranteed debt and potential bank nationalisations• The Spanish economy is back in recession and looks set to deteriorate further - fiscal consolidation is making matters worse• A bigger correction in Spanish property prices is expected, and this will wreak havoc with Spanish banks’ balance sheets once it is marked-to-market and recognised in their mortgage and loan books• Spain needs more gradual fiscal adjustment in the presence of a pro-growth Eurozone agenda, a more supportive central bank and crucially a WEAKER EURO – but will it get any of these things?• We believe that the Spanish situation is still deteriorating and that the Pain in Spain may yet be the story that breaks the Eurozone13
  14. 14. The Pain In Spain: Storm Clouds On The Horizon Spanish Equity Performance Indicates the Economy is in Trouble So Do Forward Looking Indicators Such as New Orders and PMIs 18000 9000 2% 16000 8000 1% 0% 14000 7000 -1% 12000 6000 -2% 10000 5000 -3% 8000 4000 -4% 6000 3000 -5% 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 IBEX Index (LHS) DAX Index (RHS) Change in Manufacturing New Orders (12m MA, SA) Unemployment Continues to Rise and Youth Unemployment is Dire Construction Employment Supported the Economy During the Boom 60% 14% 50% 12% 50.5% 10% 40% 8% 30% 6.5% 6% 23.6% 20% 3.9% 4% 10% 3.2% 2% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Spain: Construction Employment % Total Employment UK: Construction Employment % Total Employment Spain - Unemployment Rate Spain - Unemployment Rate Under 25 US: Construction Employment % Total Employment Source: Bloomberg; Spanish Labour Ministry; Bureau of Labour Statistics; UK Office for National Statistics14
  15. 15. The Pain In Spain: Spanish Property Is The Weakest Link Spanish House Prices have Fallen But have Much Further to Go Spanish Housing Starts Also have Further to Fall 300% 25,000 2,300,000 250% 20,000 1,800,000 15,000 200% 200% 10,000 150% 1,300,000 134% 5,000 100% 0 800,000 50% -5,000 0% -10,000 300,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Spanish House Pricing Index US House Pricing Index (Case-Shiller) Spain Housing Starts (LHS) US Housing Starts (RHS) Spanish Loan Delinquencies Highest Since 1994 and Still Rising Long-Term House Price/Income Ratio Suggests Property Still Overvalued* 10% 160 9% 150 8.2% 8% 140 133 7% 130 6% 120 109 5% 110 106 4% 100 3% 90 2% 80 1% 70 0% 60 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Spanish Loan Delinquencies (proportion of total) Ireland Spain US Source: Bloomberg; Ministerio de Formento; Federal Housing Finance Agency; Federal US Census Bureau; Bank of Spain; *OECD, Long Term Average = 10015
  16. 16. The Spanish Fiscal Situation Is Precarious –Contingent Liabilities Large• Spain’s current gross government debt is approx. 72% GDP Agencies and Banks Explicitly Guaranteed by the• But Spain has guaranteed the debts of Kingdom of Spain certain banks and agencies (see chart)• Add these to debt and cumulatively debt/GDP is closer to 90%• In addition, the central Spanish government could be responsible for Instituto de Credito Oficial runaway debt in the Spanish regions €60.0bn Fondo de Reestructuracion• Finally, bank nationalisations in relation €73.8bn Ordenada Bancaria to real estate portfolio losses are likely Fondo de Amortizacion del Deficit Electrico Administrador de• The economy of Spain is also highly €0.9bn Infraestructuras Ferroviarias leveraged*: €12.9bn Banks (estimated) €13.9bn • Household debt ~ 82% GDP • Corporate debt ~ 134% GDP • Financial institution debt ~ 76% Total: €162bn or 15% of GDP (approx.) GDP (and counting...)• In total, this is c. 365% of Spanish GDP Source: BIS, Bank of Spain, Bloomberg *Source: McKinsey Global Institute as at Q2 201116
  17. 17. So What’s The Trade? Long Core European Government Bonds... For Now • Whereas last year the main worry in the Eurozone was Greece, market attention has now moved to Spain • One of the biggest concerns is the Spanish real estate sector: property prices have further to fall and Spanish banks look precarious Macro View • There has been an increasing amount of speculation that Spain will be forced to nationalise its banks, crippling the country’s finances • The Spanish economy, back in recession, is also vulnerable, with extremely high private sector debt and a large fiscal deficit • Background concern: will Germany ultimately have to pick up the bill to save the Eurozone? If so, German debt will eventually be a sell • Interest rates in Europe will remain at this low level for at least the next two years so the short end of the yield curve is protected Flow View • The ECB’s three year LTROs have concentrated risks in the Euro area banking system, destabilising the Eurozone further • An example of this is the low foreign participation in net new supply of Spanish sovereign bonds • Bias in German yields from Shatz to Bunds remains to the downside; targets in Bobl are at 0.50% with long term buy zones in Bobl at 0.98/1.00% if seen • The perceived floor in Shatz is 0.0% and a target, but 0.0% is not a barrier and negative rates can happen; the implication would be Price View that this situation is worse than the Japanese yield plunge of the 1990s • Bund yields are now well through US and UK 10 year yields – a rare historical event with bunds now targeting 1.50% and possibly more with pullbacks to 2.00% viewed as a buying opportunity • Go long core, shorter-dated, European government bonds: German Schatz and Bobls • Short: Bunds, BTPs and OATs • Note: in both ‘risk-on’ and ‘risk-off’ scenarios we look to take positions in instruments which are less likely to sell off sharply when Trade Idea sentiment reverses, for example instead of going short Italian BTP futures contracts, we may go long German Bund futures contracts • Final thought: Long or short EURUSD is a key question • If peripheral countries leave the Eurozone will that make the euro stronger, or if they stay, weaker?17
  18. 18. Theme 3 –Back To The ‘80s: Liquidity And Leverage Have Further To Fall• We are moving to markets that are reminiscent of the 1980s in terms of liquidity and leverage• European banks are deleveraging rapidly to meet the EBA capital adequacy targets by end of June• Leverage used by market participants must also fall, reducing liquidity; volumes will fall even further• Assets classes that will be affected most include equities, ETFs, credit and some commodities such as gold • e.g. US equities appear highly leveraged since private US investors have been net sellers for years• In addition, leveraged relative value and leveraged credit trading will become more difficult• CDS and other OTC credit derivatives markets have proved time and again that they are held hostage to a small number of players – these markets have had their day until they are put onto an exchange• The ARC funds can still prosper in this environment due to our focus on exchanged-traded, highly liquid instruments • The ARC funds do not rely on excess leverage, nor make extensive use of OTC derivatives • As true long-short funds we are able to profit in rising and falling markets • We see volatility and market turmoil as creating opportunities for profitable trades18
  19. 19. Back to the ‘80s: Volumes Have Declined Substantially For Many Instruments Bund Futures Contract Daily Volume (30 day moving average) 1.8 1.6 1.4 Volume (millions of contracts) 1.2 1 0.8 0.6 0.4 0.2 0 1998 2000 2002 2004 2006 2008 2010 2012 Bund Volume 30d MA S&P 500 Daily Volume of Shares Trades (30 day moving average) 2500 2000 Volume (millions of shares) 1500 1000 500 0 1998 2000 2002 2004 2006 2008 2010 2012 S&P Volume 30d MA Source: Bloomberg19
  20. 20. Back To The ‘80s: FX Trading Volumes Have Mostly Recovered Blue line: Average monthly FX trading activity (in trillions of US dollar equivalents) Source: BIS Quarterly Review, March 201220
  21. 21. Back To The ‘80s… Coming to a Theatre Near You21
  22. 22. Risk Warnings & DisclaimersThis document contains information relating to RWC Partners Limited and RWC Asset Management LLP (collectively, “RWC Partners”), each of which is authorised and regulated in the United Kingdom bythe Financial Services Authority (“FSA”), and services provided by them and may also contain information relating to certain products managed or advised by RWC Partners (“RWC Funds”).RWC Partners may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document.RWC Partners seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.The services provided by RWC Partners are available only for and this document is directed only at, persons that qualify as Professional Clients or Eligible Counterparties under rules of the FSA. It is notintended for distribution to and should not be relied on by any person who would qualify as a Retail Client.In addition, although certain sub-funds of RWC Funds SICAV are recognised schemes for the purposes of Section 264 of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”), allother RWC Funds are unregulated collective investment schemes for the purposes the FSMA, the promotion of which either in or from the United Kingdom is restricted by law. Accordingly, this document isissued and approved by RWC Partners Limited for communication by RWC Partners only to, and is directed only at, persons reasonably believed by it to be of a kind to whom it may communicate financialpromotions relating to unregulated collective investment schemes by virtue of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, asamended (the “Order”), or the Conduct of Business Rules of the FSA. Such persons include: (i) persons outside the United Kingdom; (ii) persons having professional experience of participating inunregulated collective investment schemes; and (iii) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 22 of the Order. Any unregulated collectiveinvestment schemes described herein are available only to such persons, and persons of any other description may not rely on the information in this document.Where this document is received outside the United Kingdom, it is the responsibility of every person reading this document to satisfy himself as to the full observance of the laws of any relevant country,including obtaining any government or other consent which may be required or observing any other formality which needs to be observed in that country. Nothing in this document constitutes an offer orsolicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Interests in RWC Funds are available only injurisdictions where their promotion and sale are permitted.No person receiving this document may further distribute it, or copies of it, to any other person or publish any of its contents, in whole or in part, for any purpose.This document is provided for informational purposes only. The information contained in it is subject to updating, completion, modification and amendment. RWC Partners does not accept any liability(whether direct or indirect) arising from the reliance on or other use of the information contained in it. The information set out in this document is to the reasonable belief of RWC Partners, reliable andaccurate at the date hereof, but is subject to change without notice. In producing this document, RWC Partners may have relied on information obtained from third parties and no representation or guaranteeis made hereby with respect to the accuracy or completeness of such information. Performance figures and data analysis within this document are shown and calculated net of fees and expenses andrepresent the reinvestment of dividends and income. Market index information shown within this document is included to show relative market performance for the periods indicated and not as standards ofcomparison. Such broadly based indices are unmanaged and differ in numerous respects from the portfolio composition of RWC Funds.This document does not constitute offer or solicitation to anyone in any jurisdiction of or to acquire interests in any RWC Fund. Investment in any RWC Fund should be considered high risk. Pastperformance is not a reliable indicator of future results and may not be repeated. The value of investments in RWC Funds and the income from them may fall as well as rise and may be subject to suddenand substantial falls. Changes in rates of exchange may cause the value of such investments to fluctuate. An investor may not be able to get back the amount invested and the loss on realisation may bevery high and could result in a substantial or complete loss of the investment. In addition, an investor who realises their investment in RWC Funds after a short period may not realise the amount originallyinvested as a result of charges made on the issue and/or redemption of such investment. The value of such interests for the purposes of purchases may differ from their value for the purpose ofredemptions. No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in RWC Funds. Current taxlevels and reliefs may change. Depending on individual circumstances, this may affect investment returns. There is no guarantee that the securities referred to in this document will be held by RWC Funds inthe future. Nothing in this document constitutes advice on the merits of buying or selling a particular investment. This document does not constitute investment, legal or tax advice.This document expresses no views as to the suitability or appropriateness of the RWC Funds or any other investments described herein to the individual circumstances of any recipient. Potential investors inthe RWC Funds should refer to the latest relevant Full Prospectus, Simplified Prospectus and latest Annual and Interim Reports for more information.A United Kingdom investor may not have the right (otherwise provided under the FSA Handbook of Rules and Guidance) to cancel any agreement constituted by acceptance by or on behalf of an RWCFund of an application for interests in an RWC Fund. In addition, most if not all of the protections provided by the United Kingdom regulatory structure will not apply to investments in an RWC Fund.Shareholders in an RWC Fund will not receive compensation under the Financial Services Compensation Scheme in the United Kingdom in the event that the fund is unable or likely to be unable to satisfyclaims against it.This document is issued by RWC Partners Limited, a company registered in England and Wales (No. 03517613) with its registered address at 60 Petty France, London SW1H 9EU.22

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