High-yield investing: A Nordic perspective

Transcription

1 TOPIC PAPER APRIL 2016 High-yield investing: A Nordic perspective Enhancing fixed-income portfolios through a strategic allocation to credit: High-yield bonds Anders Lindholm Pedersen, CFA Investment Consultant Kirstein A/S Sebastian Vargas, CFA Institutional Business Development Director Eaton Vance SUMMARY Nordic high-yield investing began around the turn of the century, and has been most popular in Denmark and Finland. Most Nordic high-yield investors favour strategic allocations, but many have been surprised by the degree of volatility and illiquidity in the recent sell-off, sparked by woes in the energy sector. Several investors expressed interest in replacing underperforming managers in favour of others with stronger risk management skills, particularly in managing liquidity. The recent sell-off has resulted in a wide range of high-yield value opportunities. An Eaton Vance analysis shows that since 1988, high-yield has rebounded strongly from such drawdowns. An Eaton Vance analysis shows that adding high-yield bonds to a 30% equity/70% fixed-income allocation over the past five years has improved portfolio efficiency.

2 Foreword Over the years, Nordic investors have enjoyed the benefits of sound saving systems and sensible investment approaches. They have always been receptive to innovation and have been willing to step out of the confines of the local investment universe, when it comes to both equities and bonds. Today, Nordic institutional investors face additional novel challenges for example, onceunthinkable negative interest rates are now common features in government bonds across the region. Many investors have been forced to look closer at their fixed-income allocation and in many cases are again stepping out of historical comfort zones. On the other side of the Atlantic, seven years of easy monetary policy are now being reversed with the US Federal Reserve hiking rates for the first time since 2006 a move that has sparked controversy, with as many detractors as supporters. The Fed s move has been just one facet of a more difficult set of fixed-income market conditions, including widening spreads, greater volatility, higher default rates in the energy sector and concerns over liquidity. Against this backdrop, Eaton Vance Management (International) Ltd. (EVMI) has partnered with Kirstein A/S to publish a series of reports that look into the dynamics of non investment-grade investing in the Nordic region, particularly as it concerns the broad US non-ig universe. Since 2005, Kirstein A/S has gathered an invaluable set of views and data points on investor behaviour in the region. Eaton Vance Management (EVM) has been investing in high-yield bonds and bank loans since 1982 and 1989, respectively. Our combined efforts will hopefully provide you with insights about the challenges and the opportunities in this space. We are pleased to offer our first c ombined report o n U S h igh-yield b onds, a sector that we believe will be a focus for many investors in the months to come. Anders Lindholm Pedersen, CFA Investment Consultant Kirstein A/S Sebastian Vargas, CFA Institutional Business Development Director EVMI

3 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 3 Background Nordic investing in high yield started to spread around the beginning of the millennium. Danish investors were the first to dip their toes, and Finns were quick to follow suit. The primary appeal of the asset class was the potential for long-term returns, and the story has not changed. Investors primarily invest in high yield to outperform in the long run. Exhibit A shows that long-term returns are still of the utmost importance (see side box at bottom right). Exhibit B 4 3 Investor interest in high yield has fluctuated with perceived value. 5 = Greatest interest 1 = Least interest However, the appeal of high yield is not uniform among Nordic countries. Norwegians and Swedes have been less involved in the sector than Danish and Finnish investors. Interest in Norway has been inconsistent and generally subdued in Sweden; the countries weren t early adopters of high-yield investing and thus far, they have not caught up. Level of interest in high yield Interest in high yield has fluctuated with perceived value (Exhibit B). The peak of investor interest in high yield coincided with the wide spreads of 2012, while the tightening of spreads dampened enthusiasm slightly. Interest increased during 2015 as spreads widened and perceived value increased. High-yield volatility, sparked by declining oil prices, has also put poorly performing managers under the spotlight. Several investors expressed interest in replacing Source: Kirstein A/S, March underperforming managers with others who have demonstrated stronger risk management skills, and who can potentially mitigate large drawdowns, like those experienced in Broadly speaking, investors do not have strong opinions as to whether they prefer global or US high yield. The choice appears to be largely determined by the availability of managers. Exhibit A Long-term return potential is the biggest single attraction for high yield. 5 = Greatest interest 1 = Least interest In line with their higher level of interest, most manager hirings are expected in Denmark and Finland, both as replacements and new mandates. Norwegian investors are also anticipating a greater number of future mandates. Opinions cited in this report are based on annual Nordic studies of institutional investors by Kirstein A/S, combined with results from a special one-time study, as well as close ongoing dialogue with investors in the region. Participants include pension funds (public, labour market and corporate), commercial life insurance companies, associations and foundations. 0 Long-term return Risk reduction Alpha potential Availability of managers Source: Kirstein A/S, March 2016.

4 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 4 High-yield allocation Except for Norway, which has a substantial volume of local currency high-yield issues relative to their Nordic counterparts, most high-yield exposure is part of the international fixed-income allocation (Exhibit C). International fixed income is a somewhat stable allocation for Nordic investors in the neighborhood of 20% (Exhibit C), but high-yield weightings amongst individual investors vary widely, between roughly 1% and 8%. Naturally, the total allocation to high yield will depend upon the degree of conviction, but a scheme s liability structure is also a factor. Schemes with guaranteed liabilities will typically have lower risk tolerance than those with unguaranteed obligations. Given that the market is currently moving towards reducing guaranteed schemes, the potential for greater allocations to high yield is likely to rise with the ability of the sponsor to assume more risk. Strategic vs. tactical considerations It is difficult to say whether Nordic high-yield investors have changed preference significantly between strategic and tactical approaches over the years. However, Exhibit D clearly shows that the majority view global high yield as a strategic asset class. This means that they are fairly static in their allocation, but can choose to overweight or underweight according to conviction. In other words, there is a belief that high yield has positive benefits within a Exhibit C 100% 80% 60% High yield has been part of international fixed-income allocations. Exhibit D 80% 70% 60% 50% 40% 30% 20% 10% 0% Strategic high-yield investors are more prevalent than tactical ones in Nordic countries. Strategic Source: Kirstein A/S, March portfolio to the degree that it warrants an allocation that is seldom reduced to zero. The few investors who still perceive high yield as a tactical investment are a mix of larger commercial pension funds and smaller occupational pension funds. The choice to invest tactically is founded on the belief that they can extract value from market timing, and that high yield can be minimised in the portfolio without undermining risk diversification too much. Most investors with strategic high-yield holdings use separate accounts, which allow for the creation of bespoke solutions and reduced fee structures for sizable allocations. Funds are more often used by smaller investors or those with a tactical approach to the asset class. They are also perceived to be a more nimble way of investing, with positions that are easier to trade. Benefits of strategic investing Tactical 40% 20% 0% Local equity International fixed income Local fixed income Source: Kirstein A/S, March International equity Alternatives and other Investors with strategic allocations to high yield believe that the long-term, total return potential of the asset class outweighs the volatility experienced over the course of the business cycle. In the words of some of our survey participants: At some points in time, you might see us having a larger exposure to high yield than we would like. But it is a strategic allocation to us, and we want the potential benefits in our portfolios. (Finnish investor)

5 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 5 High yield might not be that interesting at certain points in time, but it is just an allocation we need to have. (Finnish investor) Such investors are not as focused on high yield for risk reduction or for the potential for managers to add alpha. Rather, strategic investors largely view the high-yield beta as a large part of expected returns over the long run. Challenges Nordic investors were concerned for some time about how and when the historic inflows into high yield would result in a sell-off. Danish investors were the most wary, particularly some of the larger commercial pension funds. Now that the sell-off has happened, such concerns have diminished and the risk/reward expectations for high yield look more appealing. As with most drawdowns of significance in capital markets, other challenges surface. In this case, concerns center on: Volatility, and how managers seek to mitigate portfolio risk. Perceived illiquidity, which was magnified as the entire sector repriced as a consequence of the negativity surrounding the energy sector. Next, we examine these concerns a little more closely. Exhibit E Most Nordic investors favour benchmarkaware strategies. Volatility Nordic investors are knowledgeable about fixed income and high yield, and appreciate and understand the drivers affecting the asset class. However, the volatility that accompanied the oil price declines of 2014 surprised even the most ardent Nordic high-yield investors. Oil price decreases initially hit the energy sector, but quickly spread to other sectors and companies without direct exposure to declining oil prices. Nordic investors extrapolated the negative returns into the future, and several voiced concerns about how managers navigated the choppy waters and handled energy sector exposure. For example: In 2014, the significant drop in oil prices made us focus on our high-yield exposure and our manager, since they had lost approximately 30% at one point. (Finnish investor) The performance drag for some investors was significant. As investors became aware of the increasing performance dispersion between managers, they came to believe that the gulf was wide enough to warrant strategy reviews or even replacements. As a result, more investors are looking to benchmarkaware strategies (Exhibit E). Such approaches refer to a conservative core strategy that is less likely to falter if the markets experience headwinds. Benchmark-aware strategies require high-yield managers who can document strong risk management skills over the course of changing markets. Of course, this does not preclude demand from other investors who prefer managers with higher-risk/ higher-return strategies = Greatest interest 1 = Least interest Passive Benchmarkaware Unconstrained Absolute (long/short) Liquidity Liquidity concerns are an extension of the sell-off sparked by the oil price declines, discussed above. As investors grew increasingly concerned during the energy sell-off, more sold out of their portfolios, and the outcome was magnified on a global scale. Nordic investors were surprised by the degree to which energy-related concerns spread to other sectors within the asset class. The result was a massive increase in the spreads across sectors. When Nordic investors attempted to reduce their highyield allocation, they discovered that finding the liquidity to do so was more challenging than anyone would have ever thought possible. Source: Kirstein A/S, March 2016.

6 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 6 The liquidity concerns are even more pronounced when it comes to European high-yield. This partly explains why the interest for European high yield mandates are so low, compared to their US or global counterparts. Examples from our survey participants: My concerns about pricing and liquidity center on high yield the most. (Norwegian investor) High yield is an illiquid investment. Some managers neglect that and will look extremely stupid if a sell-off materialises. (Danish investor) In retrospect, it is clear that when high-yield spreads were at their tightest in 2014 and 2015, some managers sought to boost yield with relatively illiquid issues. Going forward, investors are more determined to focus on managers with risk management skills that include a specific focus on liquidity. High-yield commentary from the Eaton Vance Group Eaton Vance recognise that the recent sell-off has been a distressing event for many investors, in the Nordics and elsewhere volatility is never pleasant, even for those committed to a long-term investment horizon. However, as we will show in this section, high-yield bonds have proven to be very resilient after major sell-offs over the past three decades, providing impressive returns in the subsequent years. We begin by addressing concerns over liquidity and volatility, and then turn to the long-term value we believe the asset class provides institutional fixed-income portfolios especially given the opportunities we now see in the market. From our perspective, backed by three decades of experience in the market, the best way to mitigate the impact of volatility and illiquidity is through a quality bias. Our due diligence extends across the entire credit cycle, seeking to maximise return whilst minimising volatility, through: Continuity and consistency as hallmarks of our leadership and investment process. Capitalising on inefficiencies in the high-yield bond market through rigorous fundamental credit research and market factor analysis. Attention to risk-adjusted metrics and the goal of maintaining strong risk-adjusted returns throughout market cycles. Gauging the cost of liquidity We find it more useful to talk about the cost of liquidity, instead of just referring to bonds as liquid or illiquid. We have absolutely been able to find bids albeit not always at prices we would like or where they were the day before. As a market of below-investment-grade bonds, prices and the cost of liquidity are always going to fluctuate with investor sentiment, especially given the extreme flows both in and out that we have seen over the past few years. One effective defence is ownership of companies best positioned to honour their obligations the quality bias referenced earlier. The reduction in dealer inventories is undeniable, but over the past 12 months, demand for high-yield bonds has consistently come from other investors in sufficient quantity to move prices down in an orderly manner. Anecdotally, we are seeing new sources of liquidity coming into the market one example would be private equity funds buying back bonds of companies that they own. We view this as evidence of a functioning market, where the cost of liquidity varies by credit quality, as has always been the case with below-investment-grade debt. Following our liquidity/quality argument, there will naturally be specific areas of the bond market subject to additional liquidity constraints, particularly distressed debt, which almost by definition tends to trade by appointment i.e., very rarely. Recently, the problems of focused, high-conviction funds investing in distressed bonds show the risk of matching the less liquid parts of the market with open-ended mutual fund structures. It was an accident waiting to happen. Lost in coverage of the overall high-yield sell-off is that investors are still discriminating among issuers it is a bifurcated market, as exemplified by the energy sector. There are good energy companies and bad ones. A lot of bad energy companies with a cost structure needing oil at $60, $70, $80 or $90 a barrel are going to default, and that might be a third of the market in a severe case. Those bonds are probably trading on average 25 cents on the dollar, so there s not that much downside left. Prices on higher-quality energy companies have been dragged down, too. But that s where we believe we will see some value once stability returns to the oil market. In such energy names, we believe you could see five, eight or 10 points of upside potential.

7 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 7 Exhibit F High yield appears cheap relative to its history and other bond sectors. Basis Points Dot above median=cheap Dot below median=expensive Wide Tight Current Median US Agg Global Agg US Agency US MBS US Corp IG US Floating Rate EM Bond US High Yield Sources: Barclays, JPMorgan, Standard & Poor s as of 31 January Spread history measures past 10 years. Data provided are for informational use only. Past performance is no guarantee of future results. See end of report for important additional information. All spreads are in basis points and measure option-adjusted yield spread relative to comparablematurity US Treasurys with the exception of floating-rate loans, which is the average discounted spread over Libor. US Agency represented by Barclays US Agency Index. US MBS represented by Barclays US Mortgage Backed Securities (MBS) Index. US Corp. IG represented by Barclays US Corporate Investment Grade Index. US Floating-Rate represented by S&P/ LSTA Leveraged Loan Index. EM Bond represented by JPMorgan Emerging Markets Bond Index Plus (EMBI+). US High Yield represented by Barclays US Corporate High-Yield Index. US Agg refers to the Barclays US Aggregate Bond Index. Global Agg refers to the Barclays Global Aggregate Bond Index. Today s value cushion The other defence against volatility and illiquidity is the value cushion made possible by attractive prices. Exhibit F shows that among major fixed-income sectors, highyield valuation on 31 January 2016 was the cheapest, based on median spread levels, relative to its history and other bond sectors. As of 31 January 2016, the spread on the Barclays US High-Yield Index was 787 bps 214 bps above its 10-year median, and the widest it has been since 30 November 2009, during the financial crisis. The yield to maturity (YTM) was 9.3%. With high-yield defaults averaging about 2% over the past 10 years and recovery rates of about 40%, exposure to credit loss would be about 120 bps per year on average. The recent yield of 9.3% leaves a considerable total return cushion if the default rate rises in the coming year Exhibit G When high-yield bonds have gotten this cheap, investors have been rewarded. Since 1988, there have been 25 times when the HY spread was +/ 30 bps of the 695-bps spread on 31 December Subsequent 3-yr. ann. tot. return (%) Subsequent 3-yr. ann. tot. return 11.7% Median return Spread (basis points) Sources: Morningstar, BofA/Merrill Lynch, as of 31 December 2015, based on monthly data. Data are provided for informational use only. Returns are based on the BofA/Merrill Lynch US High-Yield Master II Index. Past performance is no guarantee of future results. See end of report for important additional information.

8 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 8 Exhibit H High-yield bonds have had equity-like returns with lower risk. February 2006-January 2016 Return Standard Deviation Sharpe Ratio BofA/Merrill Lynch US High-Yield Master II Index 6.5% 10.5% 0.50 S&P 500 Index 6.5% 15.2% 0.35 Source: Morningstar, Inc., as of 31 January Data provided are for informational use only. Past performance is no guarantee of future results. See end of report for important additional information. something we expect, given that 15% of the asset class is exposed to the energy, metals and mining sectors. Worries about the energy sector and credit quality that have helped drive the high-yield sell-off are legitimate concerns. However, the market is already discounting default rates that are several times the current level. Strong rebounds are a high-yield habit Exhibit G shows how effective buying with a value cushion has been. There have been 25 instances since 1988 (when high-yield spreads were first tracked) through 31 December 2015 in which spreads were about as wide as they were on that date (plus or minus 30 bps). Annualised total returns for the subsequent three years ranged from 5.7% to 19.3%, with a median of 11.7%. Enhancing portfolios with high yield High-yield bonds can also be very valuable as a fixedincome portfolio diversifier. Due to the fact that credit quality trends are major factors behind high-yield bond price changes, they have historically been less sensitive to interest rates than other fixed-income sectors. In fact, high-yield bonds have been relatively highly correlated with equities but with a better risk/reward profile (Exhibit H). As a result, high yield has low correlation with other bonds. For example, the Barclays US High-Yield Index has been just 0.38 correlated with the Barclays Global Aggregate Index; only the lower-yielding floating-rate loan sector had lower correlation. Exhibit I shows how over the past five years a difficult Exhibit I Adding high yield has boosted portfolio efficiency over the past five years. 8% 7% MSCI World (Net) Return (%) 6% 5% 4% 3% 2% 30% MSCI World 50% Barclays Global Aggregate 20% BofA/ML US HY 30% MSCI World 62% Barclays Global Aggregate 8% BofA/ML US HY 30% MSCI World 70% Barclays Global Aggregate BofA/ML US HY Slope of increasing efficiency (Sharpe Ratio) Slope of = efficiency (Sharpe Ratio) 1% 0% Barclays Global Aggregate Standard Deviation (%) Sources: Zephyr, Inc., Eaton Vance as of 31 December Investment results shown are hypothetical. This material is for informational and discussion purposes only. Information is meant to be generic in nature and does not reflect the actual or implied experience of any Eaton Vance-managed product. Certain of the assumptions have been made for modeling purposes and are unlikely to be realised. Actual performance results will differ, and may differ substantially, from the hypothetical performance presented above. See index definitions at end of report for information on the BofA/Merrill Lynch U.S. High-Yield Master II Index and the Barclays Global Aggregate Bond Index. Past performance is no guarantee of future results. It is not possible to invest directly in an index. Data are provided for informational purposes only.

9 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 9 stretch for the Global Agg adding high yield to a 30% MSCI World equity/70% Global Agg fixed-income portfolio would have increased portfolio efficiency, as measured by Sharpe Ratio. We used a 30/70 portfolio as the base, as a simplified version of a common allocation in the Nordics. Adding high yield in 4% increments (replacing equal amounts of the Global Agg) boosted return for only modest increases in volatility. For example, adding 20% high yield generated 78 bps of additional return for 48 bps of volatility. Even adding just 8% high yield would have increased return by 31 bps annually, over a period when the Global Agg returned 90 bps. While Exhibit I shows the past five years, we also examined 10- and 20-year periods. In both cases, adding high yield in the same fashion also improved the Sharpe Ratios, although to a smaller extent. Over those periods, the Global Agg returned 3.7% and 4.5%, respectively, so a relatively modest allocation to high yield appears to be good insurance against lackluster fixed-income returns, with little downside risk. High-yield lessons for the future Nordic high-yield investors have come through a trying period. We have shown, however, that it is an asset class that has rewarded patient investors, and we have every confidence in the potential for the market to do so going forward. The sell-off has also been a lesson in the importance of focusing on strong fundamental credit analysis, and the ability of managers to manage risk over the entire course of the business cycle. Volatile markets inevitably spark indiscriminate selling, and the recent episode in the high-yield market was no exception we saw a fair share of investor herd mentality. This broad-based fear creates opportunities, and there are good indications that Nordic investors will seek to capitalise on them. There are undoubtedly recent developments, like smaller broker inventory levels, that Nordic investors have correctly identified as sources of change in the market s dynamics. However, the high-yield market has shown resilience and we expect managers and investors alike to adapt to the new market conditions. EVMI stand ready to discuss with you how high-yield investing may help your portfolio achieve its investment goals, and Kirstein A/S can provide insight as to how and why some of the most sophisticated Nordic investors utilise the asset class in their portfolios.

10 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 10 Anders Lindholm Pedersen, CFA Investment Consultant Kirstein A/S Anders Lindholm Pedersen is an investment consultant at Kirstein A/S. He is responsible for consulting asset managers on investment trends, strategies and changes among institutional investors in Continental Europe. He joined Kirstein A/S in Anders began his career in the financial services industry in Before joining Kirstein A/S, he worked with Nordea Investment Management in Copenhagen. Anders earned an M.Sc. from Copenhagen Business School in Denmark. He is a CFA charterholder and a member of the CFA Society in Denmark. Sebastian Vargas, CFA Institutional Business Development Director EVMI Sebastian Vargas is a vice president of Eaton Vance Management International and business development director. He is responsible for covering institutional sales in Europe, excluding the UK. He joined Eaton Vance in Sebastian began his career in the financial services industry in Before joining Eaton Vance, he was affiliated with Lloyds TSB Bank plc. Sebastian earned a B.A. from the EIA in Medellin, Colombia. He is a CFA charterholder and a member of the CFA Society of the UK.

11 Index Definitions Barclays US Aggregate Bond Index is an unmanaged index of US investment-grade bonds, including corporate, government and mortgage-backed securities. Barclays Global Aggregate Ex-USD Index is a broad-based measure of global investment-grade fixed-rate debt investments, excluding USD-denominated debt. Barclays US Corporate High-Yield Index measures USD-denominated, noninvestment-grade corporate securities. Barclays US Corporate Investment Grade Index is an unmanaged index that measures the performance of investment-grade corporate securities within the Barclays U.S. Aggregate Bond Index. Barclays US Mortgage Backed Securities (MBS) Index measures agency mortgage-backed pass-through securities issued by GNMA, FNMA and FHLMC. Barclays US Agency Index measures agency securities issued by US government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the US government. Barclays US Treasury Index measures securities issued by the US government. S&P/LSTA Leveraged Loan Index is an unmanaged index of the institutional leveraged loan market. S&P 500 Index is an unmanaged index of large-cap stocks commonly used as a measure of US stock market performance. JPMorgan Emerging Markets Bond Index Plus (EMBI+) is a market cap-weighted index that measures USD-denominated Brady Bonds, Eurobonds and traded loans issued by sovereign entities JPMorgan Domestic High-Yield Index is designed to mirror the investable universe of the US dollar domestic high-yield corporate debt market. BofA/Merrill Lynch High-Yield Master II Index measures USD-denominated, noninvestment-grade corporate securities. BofA/Merrill Lynch Indices BofA/Merrill Lynch indices not for redistribution or other uses; provided as is, without warranties, and with no liability. Eaton Vance has prepared this report, BofA/Merrill Lynch does not endorse it, or guarantee, review, or endorse Eaton Vance s products. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index. Historical performance of the index illustrates market trends and does not represent the past or future performance. About Risk Investments in non-us instruments or currencies can involve greater risk and volatility than US investments because of adverse market, economic, political, regulatory, geopolitical or other conditions. In emerging countries, these risks may be more significant. Investments in income securities may be affected by changes in the creditworthiness of the issuer and are subject to the risk of nonpayment of principal and interest. The value of income securities also may decline because of real or perceived concerns about the issuer s ability to make principal and interest payments. Derivative instruments can be used to take both long and short positions, be highly volatile, result in economic leverage (which can magnify losses), and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. If a counterparty is unable to honor its commitments, the value of the portfolio may decline and/or the portfolio could experience delays in the return of collateral or other assets held by the counterparty. The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, including weather, embargoes, tariffs, or health, political, international and regulatory developments. As interest rates rise, the value of certain income investments is likely to decline. Due to the fact that a portfolio may invest significantly in a particular geographic region or country, value of the portfolio may fluctuate more than a portfolio with less exposure to such areas. Investments rated below investment grade (typically referred to as junk ) are generally subject to greater price volatility and illiquidity than higher-rated investments. A nondiversified portfolio may be subject to greater risk by investing in a smaller number of investments than a diversified portfolio.

12 TOPIC PAPER APRIL 2016 NORDIC HIGH YIELD 12 About Eaton Vance The Eaton Vance Group is a leading global asset manager whose history dates to With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates offer individuals and institutions a broad array of investment strategies and wealth management solutions. Eaton Vance s long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today s most discerning investors. For more information about Eaton Vance, visit eatonvance.com. About EVMI Eaton Vance Management (International) Limited ( EVMI ) is a subsidiary of Eaton Vance Management ( EVM ), a leading U.S. asset management organisation, and markets internationally the investment capabilities of Eaton Vance Management and its affiliates, including Parametric. EVMI has been based in London since EVMI is a wholly owned subsidiary of Eaton Vance Management (EVM). EVM is an investment advisor registered with the United States Securities and Exchange Commission (SEC) and is a wholly owned subsidiary of Eaton Vance Corp. ( EVC ). The nonvoting common stock of EVC, parent company of EVM, is publicly traded on the NYSE under the symbol EV. For purposes of this material, Eaton Vance or the Company is defined as all three entities operating under the Eaton Vance brand. EVMI markets the services of the following strategic affiliates: Parametric Portfolio Associates LLC (Parametric) is an investment advisor registered with the SEC and is a majority-owned subsidiary of EVC and Hexavest, which is an investment advisor based in Montreal, Canada, registered with the SEC in the United States and which has a strategic partnership with Eaton Vance, who owns 49% of the stock of Hexavest. In Singapore, EVMI has a wholly owned subsidiary, namely Eaton Vance Management International (Asia) Pte. Ltd. (EVMIA), 8 Marina View, Asia Square Tower 1, #07 05, Singapore , which holds a Capital Markets License under the Securities and Futures Act of Singapore (CMS ), is an exempt Financial Adviser pursuant to the Financial Adviser Act Section 23(1)(d) and is regulated by the Monetary Authority of Singapore. This document is to be distributed to Accredited Investors ONLY. (as defined in the Securities and Futures Act, Chapter 289 of Singapore). In Australia, EVMI is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the provision of financial services to wholesale clients as defined in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission s Class Order 03/1099. EVMI is registered as a Discretionary Investment Manager in South Korea pursuant to Article 18 of Financial Investment Services and Capital Markets Act of South Korea. EVMI utilises a third-party organisation in the Middle East, Wise Capital (Middle East) Limited (Wise Capital), to promote the investment capabilities of Eaton Vance to institutional investors. For these services, Wise Capital is paid a fee based upon the assets that Eaton Vance provides investment advice to following these introductions. The views expressed in this material are those of the authors and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This material may contain statements that are not historical facts, referred to as forward-looking statements. An investment s future results may differ significantly from those stated in forward-looking statements, depending on factors such as changes in financial markets or general economic conditions, the volume of sales and purchases of fund shares, etc. This material is for professional clients only. This material does not constitute an offer or solicitation to invest in any Eaton Vance fund and/or products. Forecasts may not be attained. Past performance is no guarantee of future results. This material is communicated by Eaton Vance Management (International) Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and located at 125 Old Broad Street, London, EC2N 1AR, United Kingdom, Tel. +44 (0) Eaton Vance Management (International) Limited 125 Old Broad Street, London, EC2N 1AR, United Kingdom Telephone: +44 (0) internationalenquiries@eatonvance.com