High Yield Portfolios

Transcription

1 High Yield Portfolios December, 2015 Gary Pokrzywinski, CFA, Lead Portfolio Manager Brian Placzek, CFA, Portfolio Manager Tim Black, JD, CEO, CCO Strategic Income Management, LLC 1200 Westlake Ave N, Suite 713 Seattle, WA

2 Strategic Income Management, LLC Founded October, 2010 Independent, 100% employee owned Founders former senior portfolio managers at WM Advisers/Edge Asset Management Experienced, Cohesive, Focused Team Senior Investment Team members have over 50 years of Fixed Income experience focusing in high yield since % of those years as a team at WM Advisors/Edge Asset Management All senior team members hold the Chartered Financial Analyst (CFA) designation High Yield Focused Disciplined and methodical investment process Long-term approach to ascertain value within high yield market Over $720 million High Yield Assets Under Management 2

3 SiM High Yield Team Gary Pokrzywinski, CFA Brian Placzek, CFA Ryan Larson, CFA Jeston LaCroix Julia Landa Chief Investment Officer/Portfolio Manager 27+ years experience Director of Research - High Yield/Portfolio Manager 29+ years experience High Yield Investment Analyst 5+ years experience High Yield Trader 4+ years experience Operations Specialist 5+ years experience Mr. Pokrzywinski and Mr. Placzek Have Worked as a Team on Fixed Income Since 1992 and Dedicated High Yield Since 1998 Please see biographies located at end of presentation. 3

4 High Yield Track Record Since 1998 Utilizing same HY philosophy developed and employed for over 11 years at previous employer, Principal/Edge Asset Management Had top decile performance over those 11 years at Principal and grew assets from a few million at inception to $2.4 billion; achieved Morningstar 5-star rating in all periods (see GIPS compliant presentation - supplemental material) Have also achieved top decile performance at SiM and have grown HY assets to $720 million from a few million at inception in February of 2011 Utilizing the Same High Yield Team and Philosophy Since 1998 to Achieve Top Decile Performance 4

5 SiM High Yield Bond Investment Process 5

6 Philosophical Base Long Term Focus Secular Trends Industry Focus CFO Approach Opportunistic Out-of-Favor Sectors Capital Structure/Non-Traditional Investments Long Term Structural Advantage Combined with Market Created Opportunities 6

7 Secular Trends Demographics Low Inflation/Disinflation Technology/Productivity Evolution of Emerging Economies Globalization Regulation Wind at Your Back 7

8 Industry Focus Industry First Market Glosses over Industry Supply/Demand, Economics 101 Even Best Companies will Struggle in Poor Industries Secular Trends and Industry Focus Wind at Your Back 8

9 CFO Approach Analyze Companies as if Sole Owner Correct Capital Structure Correct Capital Expenditure Cash Flow Stability Competitive Advantage ROIC Good Business Secular Trends, Industry Focus, CFO Approach Wind at Your Back 9

10 Out-of-Favor Process Analysis Target Sectors with Long Term Viability Determine Industry Drivers Identify Path for Rebalancing of Industry Result: Typically the better companies, not the cheapest, offer compelling value in the out-of-favor areas The Market Continually Provides Opportunities 10

11 Opportunistic/Out-of-Favor Historical Asia South America Technology Healthcare Telecommunications Biotechnology Utilities Financials Auto Retail Gaming Protein Airlines Current Western Europe AG/Fertilizer Energy The Market Continually Provides Opportunities 11

12 Capital Structure/Non-Traditional Investments Equity Inv Grade Bonds REITs/ Income High Yield Bonds Emg Market High Yield Bond Portfolio Convert Bonds High Yield Loans Capture Relative Value 12

13 Capital Structure/Non-Traditional Investments Investment Grade Debt take advantage of fallen angels or out-of-favor industries and sectors. Bank Loans large liquid segment of the high yield market. structure to invest in good companies with excess debt. Move up the capital Convertibles typically rated below investment grade. Opportunities during weak equity markets when convertibles become broken and trade towards high yield. Usually decent companies in positive secular industries, but falling equity price. REITs/Income Equity high dividend payout structures. Advantages when dividend yield trades close to high yield. Mostly stable businesses with manageable debt. Emerging Markets involved since Capture strong secular trends and volatility opportunities. Increasingly EM companies mature into good businesses. Capture Relative Value 13

14 Investment Philosophy Low turnover is the result of investing in long-term secular trends and in industries undergoing multi-year restructurings Flexibility from index means can discount sectors offering little opportunity while focusing on positive sectors When out-of-favor sectors recover and become fully priced we exit and may not return for years Bottom up, analyzing with the eye of a CFO - correct financial structure, correct cap-ex, cash flow stability, competitive advantage, return on capital, downside protection Philosophy Allows for a Focused, Highly Productive Team Concentrating on Credit Investing, Not Silo/Index Investing 14

15 SiM High Yield Summary Portfolio Structure Secular Trends/Themes Industry Focus CFO Approach WindatYourBack,BetterStructure Opportunistic Out-of-Favor Sectors Capital Structure/Non-Traditional Investments Market Continually Provides Opportunities Long-Term Structural Advantage Combined with Market Created Opportunities SiM's Philosophy and Structure Allow Us to be Solely Credit Investors, not Silo/Index Investors Experienced Team With Long-Term Track Record 15

16 Biographies Gary J. Pokrzywinski, CFA Mr. Pokrzywinski is the Chief Investment Officer and High Yield Portfolio Manager for SiM. He has 27 years of experience in the fixed income financial markets. He currently manages the Morningstar 5-star*, American Beacon SiM High Yield Opportunities mutual fund, and prior to founding SiM managed the Morningstar 5-star**, Principal High Yield mutual fund from its inception in April 1998 to May Prior to SiM, He was the CIO and a High Yield Portfolio Manager for Edge Asset Management (and its predecessor), an affiliate of Principal Financial Group. He worked for Edge and its predecessor from 1992 to Prior, Mr. Pokrzywinski was an investment officer/portfolio manager for Firstar Investment Services Co. He received a bachelor's degree in finance and management information systems from the University of Wisconsin - Milwaukee. Mr. Pokrzywinski earned the right to use the Chartered Financial Analyst designation in 1989 and is a member of the CFA Society of Seattle. Brian L. Placzek, CFA Mr. Placzek is the Director of High Yield Research and High Yield Portfolio Manager for SiM. He has 29 years of experience in investment management and financial analysis, and currently manages the Morningstar 5-star*, American Beacon SiM High Yield Opportunities mutual fund. Prior to SiM, Mr. Placzek was Head of Fixed Income/Research at Edge Asset Management, an affiliate of Principal Global Investors. At Edge he worked with Mr. Pokrzywinski on the Principal High Yield Mutual Fund from its inception in 1998 until the Mr. Pokrzywinski s departure in Mr. Placzek worked at Edge (and its predecessor) from 1990 to Prior to Edge he had been at Washington Mutual Bank, where he worked as an investment grade and high yield bond analyst/trader. Mr. Placzek earned the right to use the Chartered Financial Analyst designation in 1994, is a memberof the CFA Society of Seattle and receiveda bachelor s degree in liberal arts from Seattle University. Ryan C. Larson, CFA Mr. Larson is an Investment analyst for the SiM High Yield Team. Mr. Larson is responsible for trading in the high-yield fund, investment research and reporting analytics. He has 5 years of experience in investments. Prior to SiM, Mr. Larson was a research analyst at Caelum Capital, a Los Angeles based equity long-short hedge fund, from 2009 to Before Caelum Capital, Mr. Larson worked under the direction of a Managing Director at Wells Fargo in Seattle, Washington from 2008 to Mr. Larson earned the right to use the Chartered Financial Analyst designation in 2012 and is a member of the CFA Society of Seattle. Mr. Larson is also a member of the Chartered Alternative Investment Analyst Association (CAIA). Mr. Larson graduated with honors from Brown University with a bachelor s degree in Commerce, Organizations and Entrepreneurship. Jeston S. LaCroix Mr. LaCroix is a high yield trader for the SiM High Yield Team. Mr. LaCroix is responsible for trading and reporting analytics. Prior to joining SiM in 2014, Mr. LaCroix was a fixed income trader at National Penn Investors Trust Co., a Pennsylvania based trust company. Prior to National Penn, from 2011 to 2013, Mr. LaCroix was with Munder Capital Management in Birmingham, Michigan in multiple capacities, most recently as a fixed income trader/analyst where he was responsible for trading investment grade and high yield corporate bonds for all of the firm's fixed income strategies. Mr. LaCroix has a B.A. in political science from the University of Michigan and an MBA from Wayne State University. Mr. LaCroix is a Level III CFA candidate. *Data provided by Morningstar. SHOIX (institutionalclass) **CPHYX (load waived) 5-star ranking from 11/05 to 5/09. CPHYX 4- or 5-star rating from 4/03 to 5/09. Past performanceis no guarantee of future results. 16

17 Biographies (continued) Tim Black, JD Mr. Black is the Chief Executive Officer and Chief Compliance Officer for SiM and is responsible for day to day operations and SEC compliance matters. Mr. Black is an attorney whose prior practice focused on corporate and securities matters, including issues relating to investment advisers and broker dealers. Mr. Black holds a B.A. from Colorado College and a J.D., with honors, from Seattle University. Julia H. Landa Mrs. Landa is an operations specialist for SiM and is responsible for monitoring day-to-day high yield portfolio operations, reporting and compliance. Prior to joining SiM in 2015, Mrs. Landa was an energy risk control and credit analyst at Puget Sound Energy Inc., a Bellevue based utility company. Prior to PSE, Mrs. Landa was for five years with Union Bank of Israel, the sixth largest Israeli bank, where she was an economist in the Controls and Risk Management Department, responsible for monitoring derivatives market risks and trading activity, as well as the bank s proprietary asset reporting and SOX compliance. Mrs. Landa has a B.A. in Economics from Tel Aviv University and an M.A. in Business Economics from Bar-Ilan University, Israel. 17