Global Fixed Income Short Duration

Transcription

1 Global Fixed Income Short Duration Christopher Koslowski August 2014

2 Protection Against Rising Interest Rates Fed Funds Target Rate and two-year U.S. Treasury Note yield since December Dec-78 Dec-83 Dec-88 Dec-93 Dec-98 Dec-03 Dec-08 Dec-13 US Generic Govt 2 Year Yield Federal Funds Target Rate US Change in Rates BofA Merrill Lynch US Treasury Index BofA Merrill Lynch Global Index 1 3 From To Fed Funds 2YR Rates 1 3 Years 7 10 Years GOVT (USD Hedged) AGG (USD Hedged) August 1980 August % -7.93% March 1983 October % 8.64% February 1988 April % 3.88% 6.57% December 1993 March % -0.23% 3.80% May 1999 June % 0.02% 4.34% 4.54% June 2004 July % 5.38% 5.87% 5.90% Short duration indices have exhibited positive returns in both rising and falling interest rate environments Staying on the short end of the curve may also mitigate exposure to rising interest rate risk Exposure to government and credit securities on the front end of the curve provides attractive yield via positive carry and roll down in a variety of market environments Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

3 Distribution of Monthly Returns of 1 3 Year Global Index Hedged in USD (since January 1997) Close to 87% of occurrences in positive territory % -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

4 Distribution of Quarterly Returns of 1 3 Year Global Index Hedged in USD (since January 1997) % of occurrences in positive territory % -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

5 Distribution of Annual Returns of 1 3 Year Global Index Hedged in USD (since January 1997) % of occurrences in positive territory. No negative year % 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

6 Current Environment and Investor Needs Environment Interest rates are at record low levels We are in an uncertain environment with high volatility The universe of risk free investments is becoming more scarce Bank accounts and deposits have single counterparty risk and earn only little or no interest Investor needs Maintain a high level of liquidity and preserve capital Reduce interest rate risk due to increasing yields Reduce single counterparty default risk Delegate continuous monitoring and reinvestments Solution have a look at our short duration capabilities Rigorous and prudent investment and credit management process Underlying securities with short maturity and limited interest rate risk Diversification in order to limit single counterparty risk High average credit quality Source: Credit Suisse August

7 Key Features of Our Short Duration Capabilities Seeks to provide current income and preservation of capital with a focus on short duration securities Invests primarily in high quality short duration securities The guidelines can be set to impose various limits to manage credit, currency, market and interest rate risk Benefits Expert analysis informed decisions based on experience, prevailing market trends and judgment Broad diversified portfolio of high quality assets and a target duration of one to three years Rigorous investment and credit management process with a long and successful track record Monitoring of idiosyncratic risks and application of critical issuer list Access to Credit Suisse resources, with extensive purchasing power and market access Risks No explicit capital protection Fixed income investments are subject to credit, interest rate and market risk Sensitive to unforeseen market developments Source: Credit Suisse August

8 Effective Yield Solutions in Risk Return Space 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% Effective Duration 4 5 US Government Yield Curve US Swap Curve 3Month Libor 1-3 Year US Treasury 1-5 Year US Treasury 1-10 Year US Treasury 1-3 Year Global Large Cap 1-5 Year Global Large Cap 1-10 Year Global Large Cap Historical performance indications and financial market scenarios are not reliable indicators Sources: BofAML/Bloomberg/Credit Suisse of current or future performance. Last data point: As of August

9 Annualized Return Appeal of a Hedged Global Short Duration Solution 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% BofAML 1 5 Year Global Large Cap, USD hedged BofAML 1 3 Year Global Large Cap, USD hedged BofAML 1 10 Year Global Large Cap, USD hedged BofAML 1 5 Year Global Large Cap BofAML 1 3 Year Global Large Cap BofAML 1 10 Year Global Large Cap Key message: A global short duration solution has historically outperformed cash (Three Month Libor) Hedging the currency exposure (in this case into USD) has greatly reduced risk (as measured by the annualized standard deviation of returns) 3.0% 3 Month LIBOR 2.5% 2.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Annualized Risk Monthly data from January 1997 until June Benchmarks are used solely for purposes of comparison and the comparison does not mean that there will necessarily be a correlation between the returns described herein and the benchmarks. There are limitations in using financial indices for comparison purposes because, among other reasons, such indices may have different volatility, diversification, credit and other material characteristics (such as number or type of instrument or security). For illustrative purposes only. Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

10 The Potential Return to Active Sector Rotation Is Significant 13% 11% 9% 7% 5% 3% 1% -1% -3% Industrials 8.50% Utilities 1.44% Supranational 6.45% Industrials 4.30% Utilities 2.57% Treasuries Industrials 2.78% 2.00% Agencies 1.83% Industrials 4.58% Local Authorities Agencies 6.42% 6.25% Utilities 3.13% Financials 4.95% Supranational 4.01% Agencies 2.42% Financials -1.29% Financials 11.49% Financials 3.87% Treasuries 2.15% Treasuries 1.48% Industrials 2.34% Utilities -0.09% Financials 7.12% Treasuries 1.42% Financials 2.33% Supranational 0.52% Key message: Significant performance dispersion among fixed income sectors has always existed In 2008 and 2009 we saw historically high dispersion of returns 2008 losers became 2009 winners Increasing dispersion in spread sectors makes active sector rotation important Yearly data from January 2001 until December Benchmarks are used solely for purposes of comparison and the comparison does not mean that there will necessarily be a correlation between the returns described herein and the benchmarks. There are limitations in using financial indices for comparison purposes because, among other reasons, such indices may have different volatility, diversification, credit and other material characteristics (such as number or type of instrument or security). For illustrative purposes only. Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: BofAML/Bloomberg/Credit Suisse Last data point: As of August

11 Key Figures of a Global Short Duration Solution Rating BBB1; 1.87% A3; 3.88% BBB3; 4.58% BBB2; 6.74% Key message: Composite rating of AA2 A2; 3.18% A1; 2.34% AAA; 47.35% AA3; 18.94% AA2; 2.25% AA1; 8.73% For illustrative purposes only. Historical performance indications and financial market scenarios are not reliable Sources: BofAML/Bloomberg/Credit Suisse indicators of current or future performance. Last data point: As of August

12 Key Figures of a Global Short Duration Solution Sectors Utility; 0.8% Cash; 0.1% Covered; 5.0% Financial; 8.4% Industrial; 6.0% Key message: High allocation to sovereigns as well as quasi and foreign governments Sovereign; 61.4% Quasi Government; 13.7% Securitized; 4.6% For illustrative purposes only. Historical performance indications and financial market scenarios are not reliable Sources: BofAML/Bloomberg/Credit Suisse indicators of current or future performance. Last data point: As of August

13 Summary US Corporate Short Duration Investment size Purpose Investment style Trading restriction Required Rating Asset allocation Instruments Restrictions Benchmark Currencies From USD 50mn Broad diversification and yield enhancement Semi-active N/a BBB/Baa Global Direct investments only, no collective investments Maximum maturity of 3 years Tbd (BofA Merrill Lynch 1 3 Year Global Large Cap Index (hedged in USD)) Tbd Source: Credit Suisse August

14 Investment Philosophy and Process

15 Investment Process Overview Implementation & Best Execution Portfolio Risk & Performance Management Source: Credit Suisse August

16 Global Strategy Investment Groups Top Down Global Fixed Income Macro Themes Committee Global Interest Rate Group Global Credit Group Global Currency Group Luc Mathys (Head) Dominic Barnes Luca Bindelli Philipp Büchler Christopher Koslowski Siegfried Cordes Anna Guglielmetti Markus Kramer Michael Markovic Eric Suter Stuart Goh Michael Schmid (Head) Oliver Gasser Stuart Goh Giuseppe Quarto di Palo Fidel Kasikci Daniele Paglia Hans Boije Philipp Büchler (Head) Christoph Durst Luca Bindelli Markus Kramer Christopher Koslowski Mónica Mastroberardino Giuseppe Traviglia Global Market Allocation Duration/Curve Strategy Swap and Credit Strategy Credit Sector Strategy Global Currency Strategy Source: Credit Suisse August

17 Scoring Process Top Down Fundamental Economic Outlook Inflation Budget & Debt Monetary Policy Flows & Sentiment Positioning Demand & Supply Risk Attitude Technical Indicators Trends & Momentum Cycles & Waves Patterns Quantitative Model Total Scores Global Interest Rate Group Global Credit Group Global Currency Group European, North American & Selected Asian Markets Market Allocation, Curve Level & Steepness Sector & Credit Allocation, Security Selection Currency Allocation Scores from +++ to Dynamically weighted Total Score (depending on market environment) Scalable total tracking error with factor weightings dependent on conviction and expected returns Portfolio Construction & Risk Budgeting This is an indicative scoreboard which may change over time and it is shown for illustrative purposes only. Source: Credit Suisse August

18 Global Credit Group Top Down Model Input Factors Fundamental Technical Sentiment Economic Outlook Inflation Budget and Debt GDP Growth Monetary Policy Leading Indicators Labor Market PMI Default Rates Trends & Momentum Cycles & Waves Patterns Chart Analysis Bollinger Bands Moving Averages Relative Strength CDS Basis Spreads Positioning Demand & Supply Risk Appetite Fund Flows Liquidity M&A Activity Fundamental Score Technical Score Sentiment Score Credit Strategy Credit Asset Class Strategy Source: Credit Suisse August

19 Credit Investment Process Bottom Up Sector Selection Underperform Issuer Selection Fundamental Rating Relative Value Critical Issuer List Restricts portfolio managers from buying critical issues Neutral Outperform Credit Sector Allocation Fundamental Rating Relative Rating Critical Issuer List Source: Credit Suisse August

20 Client Service We are committed to ensuring a regular and interactive level of contact with our clients Each client has a Client Portfolio Manager, a fixed income specialist and member of the dedicated team for that product, who keeps them up to date on strategy, investment activity and performance Our global reach means that we can always offer relationship contact within a convenient time zone Review meetings, written reports on performance and strategy and valuations are arranged to suit client requirements We offer in-house training by our own investment professionals at our annual client training seminars. These give participants a unique insight into the investment management business. Groups are intentionally small to encourage active participation and knowledge transfer. August

21 Global Fixed Income Key Contacts (1/2) Maurizio Pedrini Maurizio Pedrini, Managing Director, is Head of Institutional Fixed Income in Switzerland. He joined Credit Suisse in 1998 as a global fixed income portfolio manager. Prior to this he was Head of Bond Research and Bond Fund Management at UBS Private Banking. Maurizio graduated from the University of Zurich (specializing in finance and monetary theory), is a Certified EFFAS Financial Analyst, visiting lecturer at the University of Zurich and Fachhochschule Nordwestschweiz and a member of the Swiss Bond Commission. Philipp Büchler Philipp Büchler, Managing Director, is responsible for Global Fixed Income. He joined Credit Suisse in 2005 from the Swiss National Bank, where he was a senior portfolio manager, responsible for USD Core and EUR Corporate Portfolios. Prior to that, he worked as a consultant at Ecofin Investment Consulting. Previously, Phillip worked at UBS Brinson and Swiss Bank Corporation in New York and Geneva. He holds an MSc in Economics from the London School of Economics and an MSc in Economics and Political Science from the University of Bern. He is a Certified EFFAS Financial Analyst and a CFA charterholder. Dr. Mónica Mastroberardino Dr. Mónica Mastroberardino, Director, joined Credit Suisse in April 2006 as a senior portfolio manager. Prior to joining Credit Suisse, she was a senior portfolio manager at Vontobel & Investment Funds for eight years, responsible for managing global bond portfolios. Prior to that, Mónica worked as a macroeconomic and financial analyst at Credit Suisse. She holds a PhD in Economics from the University of Cologne (Germany) and an MBA from the Catholic University of Argentina. She also holds the IFID Certificate (ICMA s International Fixed Income and Derivatives Certificate). August

22 Global Fixed Income Key Contacts (2/2) Christopher Koslowski Christopher Koslowski, Director, joined Credit Suisse in April 2012 as a senior portfolio manager for global fixed income. Prior to that he worked for Clariden Leu as Head of Tailor Made and Institutional Mandates (Fixed Income and Balanced). From 2006 to 2010 he worked at Deutsche Insurance as a senior fixed income portfolio manager. He began his career in 1999 at the Swiss National Bank working in the Asset Management Division as a senior portfolio manager for fixed income. He holds a Bachelor of Finance from the University of Adelaide. Markus Kramer Markus Kramer, Vice President, is a senior portfolio manager for global fixed income portfolios. Prior to joining Credit Suisse in September 2011, he worked at Zurich Cantonal Bank for six years. He holds a master s degree from the University of Zurich (specializing in banking and finance) and is a CFA charterholder and a Certified FRM holder. He is a board member of the Swiss Bond Commission. Dennis Essrich Dennis Essrich is a junior portfolio manager for global fixed income portfolios. Prior to joining Credit Suisse in April 2011, he gathered experience in fixed income via various roles at Landesbank Baden-Württemberg, Germany. Dennis holds an MSc in Economics from the University of Konstanz, Germany (specializing in international financial management and international economic relations). In addition, he studied at Stony Brook State University of New York, US, for one year, with a focus on finance and economics. August

23 Disclaimer This material has been prepared by the Private Banking & Wealth Management division of Credit Suisse ( Credit Suisse ) and not by Credit Suisse's Research Department for information and educational purposes. It is not investment research or a research recommendation for regulatory purposes as it does not constitute substantive research or analysis. This material is provided for informational and illustrative purposes and is intended for your use only. It does not constitute an invitation or an offer to the public to subscribe for or purchase any of the products or services mentioned. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated financial service. It does not take into account the financial objectives, situation or needs of any persons, which are necessary considerations before making any investment decision. The information provided is not intended to provide a sufficient basis on which to make an investment decision and is not a personal recommendation or investment advice. It is intended only to provide observations and views of the said individual personnel at the date of writing, regardless of the date on which the reader may receive or access the information. Observations and views of the individual Asset Management personnel may be different from, or inconsistent with, the observations and views of Credit Suisse analysts or other Credit Suisse personnel, or the proprietary positions of Credit Suisse, and may change at any time without notice and with no obligation to update. To the extent that these materials contain statements about future performance, such statements are forward looking and subject to a number of risks and uncertainties. Information and opinions presented in this material have been obtained or derived from sources which in the opinion of Credit Suisse are reliable, but Credit Suisse makes no representation as to their accuracy or completeness. Credit Suisse accepts no liability for loss arising from the use of this material. Unless indicated to the contrary, all figures are unaudited. All valuations mentioned herein are subject to Credit Suisse valuation policies and procedures. It should be noted that historical returns and financial market scenarios are no reliable indicator of future performance. Every investment involves risk and in volatile or uncertain market conditions, significant fluctuations in the value or return on that investment may occur. Investments in foreign securities or currencies involve additional risk as the foreign security or currency might lose value against the investor's reference currency. Alternative investments products and investment strategies (e.g. Hedge Funds or Private Equity) may be complex and may carry a higher degree of risk. Such risks can arise from extensive use of short sales, derivatives and leverage. Furthermore, the minimum investment periods for such investments may be longer than traditional investment products. Alternative investment strategies (e.g. Hedge Funds) are intended only for investors who understand and accept the risks associated with investments in such products. This material is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or is located in, any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation, or which would subject Credit Suisse and/or its subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. Materials have been furnished to the recipient and should not be re-distributed without the express written consent of Credit Suisse. When distributed or accessed from the EEA, this is distributed by Credit Suisse Limited (authorised and regulated by the Financial Conduct Authority) or any other Credit Suisse entities. When distributed in or accessed from Switzerland, this is distributed by Credit Suisse AG and/or its affiliates. For further information, please contact your Relationship Manager. When distributed or accessed from Brazil, this is distributed by Banco de Investimentos Credit Suisse (Brasil) S.A. and/or its affiliates. When distributed or accessed from Australia, this document is issued in Australia by CREDIT SUISSE INVESTMENT SERVICES (AUSTRALIA) LIMITED ABN AFSL Copyright CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved. August