Kames Absolute Return Bond Fund

Transcription

1 Kames Absolute Return Bond Fund March 2014 Colin Finlayson Investment Manager, Fixed Income

2 Kames Absolute Return Bond Fund Performance target: 3 month GBP LIBOR +2-3% p.a. net of fees over rolling 3 years No performance fee Primary alpha sources: Rates duration neutral relative value positioning Credit market neutral stock and sector selection No alpha derived from currency risk Offers investors low risk NOT no risk Positive returns + low volatility + uncorrelated to underlying markets 2

3 Performance since launch % growth Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Total since launch Total return (net) 5.99% Benchmark total return 1.71% Difference (net) 4.28% Total return (gross) 7.67% Best month (Oct 2011) 0.60% Worst month (Jun 2013) -0.07% Up months 22/29 Down months 7/29 Maximum Drawdown -0.32% Volatility 0.65 Sharpe Ratio 2.67 Kames Absolute Return Bond Fund LIBOR GBP 3 Months Source: Lipper, NAV to NAV, noon prices, local currency, as at 28 February Kames Absolute Return Bond Fund B (Acc) GBP shares. Total return excluding initial charges, net of annual management charge. Table All Fund returns based on cumulative noon Lipper data. Gross returns based on Lipper data grossed up for AMC. Benchmark is at close. Risk statistics based on annualised monthly returns. Maximum Drawdown period based on daily returns. Past performance is not a guide to future returns. Note: the Fund launched within the last 5 years. 3

4 Delivering returns uncorrelated to the underlying market Total returns vs. US Treasury yields Total returns vs. Credit market spreads Total return % 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 1.3% 1.6% 1.9% 2.2% 2.5% 2.8% Yield % 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Correlation = % Correlation = % 3.1% 0.0% Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Total return % Jan Spread bps Kames Absolute Return Bond (LHS) 10yr UST yield (RHS) Kames Absolute Return Bond (LHS) IG OAS (RHS) Source: Bloomberg and BoAML as at 28 February Kames Absolute Return Bond Fund B (Acc) GBP shares. Past performance is not a guide to future returns. 4

5 Uncorrelated returns Taper talk Q Kames Absolute Return Bond Fund vs Fixed Income Asset Classes Asset type Q return Q return Total return Volatility Total Return % 4% 0% -4% -8% -12% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 US Treasuries -0.26% -2.24% -2.49% 3.29% Global Investment Grade 0.45% -2.40% -1.96% 3.14% Global High Yield 2.57% -1.54% 0.99% 3.53% Emerging Market Debt Kames Absolute Return Bond Fund -2.20% -5.61% -7.69% 7.02% 0.64% 0.27% 0.91% 0.68% KARB US Treasuries Global IG Global HY EMD Source: BoAML, Bloomberg as at 28 June Kames Absolute Return Bond Fund B (Acc) GBP shares. Volatility is based on annualised standard deviation of daily returns - 1 st January June Past performance is not a guide to future returns. 5

6 Three key components Carry module Credit module Rates module Kames Absolute Return Bond Fund 6

7 Carry module Strictly investment grade quality bonds Strictly maximum 2 years to final legal maturity only Net exposure +59% Holdings 54 Average credit rating Modified duration A 0.9 years Credit module Carry module Rates module Kames Absolute Return Bond Fund As at 28 February

8 Credit module long Intesa Sanpaolo/short Banco Popolare Intesa Sanpaolo vs Banco Popolare - 5yr CDS bps of spread tightening Italian banks mired in Euro Crisis Spread between stronger and weaker banks is too narrow given mounting risks Market has mispriced relative credit risk Spread (bps) Closed 215bps Action via 5yr CDS Long Intesa Sanpaolo risk Short Banco Popolare risk Result 150 Spread widened 95bps Jan 12 Jan 12 Jan 12 Feb 12 Feb 12 Mar 12 Mar 12 Entered 120bps Apr 12 Apr 12 May 12 May 12 Jun 12 Jun 12 Value of Banco Popolare protection fell 2.9% relative to Intesa Sanpaolo Alpha added without taking explicit view on market direction Source: Kames Capital and Bloomberg as at 21 June For illustrative purposes only. 8

9 Credit module long non-financials/short financials itraxx Main vs itraxx Senior Financials - 5yr CDS itraxx Main - Senior Financials spread (bps) Entered +27bps Closed -12bps ECB's OMT Programme fuels risk rally Financials outperform non-financials Good news looks to be "priced in Action - October 2012 Long risk non-financials (itraxx Main) Short risk financials (itraxx Snr Fins) Result Spread widens and position reviewed Financials weaken post Italy/Cyprus Target hit and position closed -80 Low risk alpha generated for fund May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 Source: Bloomberg and Kames Capital as at 2 April For illustrative purposes only. 9

10 Rates module long 10yr Australia /short 10yr US Treasuries Australia vs US treasury - 10yr yield spread Australia offers a safe haven alternative to core rates markets But the easy money has been made 10yr AUST vs UST yield spread (bps) Cheap 120 Apr 12 Apr 12 Apr 12 May 12 May 12 Jun 12 Jun 12 Jul 12 Jul 12 Aug 12 Aug 12 Sep 12 Sep 12 Oct 12 Fair Rich Entered 159bps Closed 141bps Entered 162bps Closed 137bps Discipline needed to add further value Action July and August 2012 Buy Australia Government 2022 Bonds Sell 10yr US Bond Futures Result Two trades successfully undertaken Low risk alpha generated for portfolio Source: Bloomberg and Kames Capital as at 10 October For illustrative purposes only. 10

11 Rates module exploiting opportunities in Canadian bonds Long 10yr Canada vs. short 10yr US Treasuries Yield spreads (bps) Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Market expects BoC rate hikes but we disagree long 10yr Canada vs. 10yr US Treasuries Weaker data forces BoC into an easing bias position closed profitably Source: Bloomberg as at 17 February 2014 Jun 13 Jul 13 Closed -28bps Aug 13 Sep 13 Oct 13 Entered -8bps Nov 13 Dec 13 Jan 14 Short 10yr Canada vs. long 10yr Germany Yield spread (bps) Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Closed 122bps Canadian bonds overshoot and look expensive short 10yr Canada vs. German Bunds Market corrects and Canada underperforms position closed profitably Sep 13 Oct 13 Nov 13 Entered 107bps Dec 13 Jan 14 11

12 Breakdown of returns since launch 8.0% 0.5% 7.0% 0.4% 6.0% 0.3% Total return % 5.0% 4.0% 3.0% 0.2% 0.1% 0.0% -0.1% 2.0% -0.2% 1.0% -0.3% 0.0% -0.4% Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Carry Credit Rates Kames Absolute Return Bond Fund (LHS) Source: Sylvan as at 31 December Kames Absolute Return Bond Fund B (Acc) GBP shares. The contribution from the Rates module includes the profit/loss from the duration hedges (bond futures) used in the Credit module. Past performance is not a guide to future performance 12

13 Module allocation history Exposure % 100% 80% 60% 40% Three Module approach Can adapt to volatile market conditions Not reliant on a single asset class Increases ability to deliver returns 20% 0% Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Cash Carry Credit Rates As at 28 February

14 Balanced risk profile Parallel Moves 1.5% Credit Spreads 2.0% Estimated fund of return 1.0% 0.5% 0.0% -0.5% Estimated fund return 1.0% 0.0% -1.0% -2.0% -1.0% Prl -100bps Prl -50bps Prl -30bps Prl -10bps Prl -1bp Prl +1bp Prl +10bps Prl +30bps Prl +50bps Prl +100bps -3.0% Credit Spreads Down 50% Credit Spreads Down 25% Credit Spreads Up 25% Credit Spreads Up 50% Credit Spreads Up 100% As at 28 February

15 Why invest in Kames Absolute Return Bond? Core investment A low risk, not a no risk solution that aims to limit downside volatility and preserve capital Flexible investment approach Strong performance record Award-winning fixed income team Proven fixed income investment process Three module investment approach No alpha derived from currency risk Targets low risk cash plus returns irrespective of market conditions 76% positive monthly returns since launch Performance delivered with 2.67 Sharpe ratio and 0.65% volatility Co-managed by Stephen Snowden and Colin Finlayson, who have a combined investment experience of more than 30 years, and have managed the Fund since launch. As at 28 February

16 Appendices 16

17 Kames Absolute Return Bond Fund Launch date 30 September 2011 Fund objective and investment policy The investment objective of the Fund is to generate positive absolute returns for investors over a rolling 3 year period irrespective of market conditions. The Fund will seek to achieve its investment objective by investing in global debt instruments in any currency, ranging from AAA Government Bonds through to high yield and emerging market bonds. The Fund may invest in all types of fixed and floating rate fixed income securities. Colin Finlayson Co-manager Performance summary The Fund s performance objective is to outperform the 3 month GBP LIBOR +2-3% net of fees over a rolling 36 month period Stephen Snowden Co-manager Expected risk Base currency Share classes < 3% VaR (95% 1 month VaR) GBP GBP, Euro (Hedged), USD (Hedged), CHF (Hedged) On 1 November 2013 the VaR confidence interval was changed from 99% to 95% 17

18 Kames Absolute Return Bond Fund Flexibilities Carry Module Exposure Minimum 20% Final legal maturity Credit rating Maximum 2 years Minimum BBB- Credit Module High yield + Emerging market exposure Maximum 20% Issuer limit: Investment Grade Maximum 3% Issuer limit: High yield or Emerging Markets Maximum 2% Rates Module Neutral duration 0 years Duration range +/- 2.5 years Cash & Currency Cash Minimum 5% Unhedged currency Maximum 5% 18

19 Absolute return strategies risk vs. return Low Performance target and risk High Market neutral Market directional Aspires to be neutral Market exposure Longs and shorts Typically low Volatility Can be significant Should be low Market correlation Can be significant 19

20 Monthly returns since launch Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 0.30% 0.49% 1.39% % -0.01% 0.37% -0.02% -0.06% 0.26% 0.44% 0.32% 0.09% 0.50% 0.02% -0.03% 2.08% % 0.24% 0.28% 0.24% 0.10% -0.07% 0.22% 0.06% -0.03% 0.31% -0.01% 0.24% 1.71% % 0.31% 0.68% Source: Lipper, NAV to NAV, noon prices, local currency, as at 28 February Kames Absolute Return Bond Fund B (Acc) GBP shares. Total return excluding initial charges, net of annual management charge. Past performance is not a guide to future returns. Note: the Fund launched within the last 5 years. 20

21 Absolute Return Bond Fund vs. Strategic Bond Fund Absolute Return Bond Strategic Bond Performance source Alpha + Beta Beta + Alpha Management focus Absolute returns Total returns Return measurement Actual return Peer group relative Default duration Zero Positive Credit risk Limited Unlimited High yield limit Max 20% Up to 100% 21

22 Why invest in Kames Absolute Return Bond? Limit volatility Blend with a bond fund Blend with a higher beta absolute fund Boost returns An alternative for a portion of cash holdings 22

23 Important information This document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors. All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed in this document represent our understanding of the current and historical positions of the market. They should not be interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. The Kames Absolute Return Bond Fund is registered in the UK, Channel Islands, Ireland, Austria, Netherlands, Switzerland, Luxembourg, Germany, Belgium and Malta. Not all available share classes are registered in every country. Please retailsales@kamescapital.com for the list of shareclasses registered in your jurisdiction. Kames Capital Investment Company (Ireland) Plc operates two different methods of hedging share classes. Full details of these can be found in the prospectus. While the investment objective of absolute return funds is to achieve a positive return in all market conditions, this is not guaranteed in any way. Investment professionals must ensure that they meet their obligations in relation to their understanding of this product and the risks involved, and the extent to which this product meets the needs of their clients. Please refer to the Full Prospectus. This document is accurate at the time of writing but can be subject to change without notification. Kames Capital Investment Company (Ireland) plc, is an umbrella type openended investment company with variable capital registered in the Republic of Ireland (Company Number ), registered office at North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames Capital plc is the Investment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc. Kames Capital is an Aegon Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority (FCA reference no: ). Kames Capital plc provides segregated and retail funds and is the Authorised Corporate Director of Kames Capital ICVC, an Open Ended Investment Company. Kames Capital Management Limited provides investment management services to Aegon, which provides pooled funds, life and pension contracts. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an Aegon company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (PRA/FCA reference no: ). For Investors in Switzerland - On March 26th 2009, the Swiss Financial Market Supervisory Authority FINMA authorised the distribution to the public of the shares of Kames Capital Investment Company (Ireland) plc (the Company ) in or from Switzerland in conformity with article 120 of the Federal Law on Collective Investments of Capital dated June 23rd The Company was authorised as a Foreign Collective Investment Scheme. The articles of the Company, the Extract Prospectus for Switzerland, the Key Investor Information (Swiss edition), the annual and semi-annual Report for Switzerland of the Company can be obtained free of charge on our website or from the Representative in Switzerland, BGG Banque Genevoise De Gestion, 15, Rue Toepffer, 1206 Geneva, Switzerland, (Tel : ; Fax: ). FP ID: 2014/