Premier Corporate Bond Monthly Income Fund

Transcription

1 Premier Corporate Bond Monthly Income Fund Fund update - first quarter 2016 For professional adviser use only and not for distribution to retail investors

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3 Premier Corporate Bond Monthly Income Fund Need to know The Fund s essential characteristics: Designed to deliver a high level of income; current distribution yield 2.4% p.a., underlying yield 1.8%* Smoothed income, paid monthly, to enable easier planning for investors Focus on higher quality bonds in an actively managed, diversified, portfolio Enhanced flexibility due to liquidity of positions; a good alternative to larger bond funds Contents 4. Performance summary 5. Duration breakdown 6. The detail 7. Activity 8. Attribution analysis 9. Top 20 holdings 10. The complete portfolio 11. The complete portfolio continued 12. Glossary of terms 13. Investment risks 16. Important information 3 *Based on the class C income shares as at The distribution yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund. The underlying yield reflects the annualised income net of expenses as a percentage of the mid-market unit price. Please refer to our Glossary of terms on page 10 for an explanation of terminology. The yields are not guaranteed and will fluctuate.

4 Performance summary Quarter ending Total return (%) /12/ /01/ /02/ /03/2016 Performance since current Fund Manager Total Return (%) /07/ /03/ /11/ /07/ /03/2016 Returns versus volatility over 1 year Total return (%) Volatility (annualised) The Fund generated excess returns from the Financial, Communications and Basic Materials sectors, while consumer sector exposures provided a marginal headwind due to underperformance of floating-rate securities. The Fund underperformed the Sterling bond market during the quarter, as government bond yields tightened sharply and the duration positioning of the portfolio generated a negative active return. Active returns to credit allocation were once more positive despite difficult conditions. We continue to maintain a shorter duration profile than the broader market in expectation of further volatility in rates. Premier Corporate Bond Monthly Income Fund IA Sterling Corporate Bond sector (benchmark) IA Sterling Strategic Bond sector IA UK Gilts sector 4 Source: FE Analytics, bid to bid, total return (income reinvested), UK sterling basis, based on the C income share class, data as at Current manager start date Past performance is not an indication of future returns.

5 Duration breakdown 10+ years The duration breakdown is depicted excluding bond futures. The inclusion of bond futures reduces the overall Fund s duration to 3.12 years versus a broader market duration of 7.95 years years 5-7 years 3-5 years 1-3 years Yields Distribution yield 2.4% p.a.* Underlying yield 1.8% p.a.* 0-1 years 0% 5% 10% 15% 20% 25% 30% 35% Fund Merrill Lynch Sterling Non-Gilts index 5 Source: Bloomberg, data as at *Yield as at , based on C income share class. The distribution yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund. The underlying yield reflects the annualised income net of expenses as a percentage of the mid-market unit price. The yield is not guaranteed and will fluctuate. Past performance is not an indication of future returns.

6 The detail Sector exposures Credit ratings Technology 0.6% Cash 6.7% Basic Material 2.3% Non Rated Bonds 4.8% B 3.2% AAA 8.4% Government 4.6% BB 7.5% AA 5.2% Industrial 5.4% Consumer Cyclical 7.0% Communication 9.0% Financial 40.5% BBB 41.4% Fund s average credit rating: A- A 29.3% Utilities 11.2% Consumer Non-cyclical 12.7% Data as at , please note that the fund breakdown may be above or below 100% due to rounding. 6

7 Activity As at As at Weighting change Financial 43.3% 40.5% -2.8% Consumer Non-cyclical 12.0% 12.7% +0.7% Utilities 10.3% 11.2% +0.9% Communications 8.1% 9.0% +0.9% Consumer Cyclical 6.6% 7.0% +0.4% Industrial 4.9% 5.4% +0.6% Government 6.2% 4.6% -1.6% Basic Material 2.0% 2.3% +0.3% Technology 1.7% 0.6% -1.1% The Fund maintains at least 80% in investment grade rated bonds at all times. The average credit rating is A-. Duration continues to be actively managed, while maintaining a lower sensitivity to rate changes than the broader market. We rebalanced property exposure, selling Grainger and adding to the convertible bonds of St Modwen Properties as an equity market sell off resulted in an attractive risk/reward profile. The allocation to Technology was reduced by cutting the position in IBM and exiting the position in Apple in expectation of moderating growth in core markets and more aggressive financial policy. Fund positions are liquid enabling a flexible posture whilst overall bond market liquidity remains a concern. Cash 4.9% 6.7% +1.8% 7 Please note that the sum of the weightings may be above or below 100% due to rounding.

8 Attribution analysis Average active weight over quarter Relative total return distribution over quarter -7.41% -4.44% -1.79% -1.83% 3.05% 2.55% 2.36% 1.19% 0.56% 5.70% Consumer Non-Cyclical Consumer Cyclical Financial Communications Basic Materials Technology Industrial Energy Utilities Government -2.83% -1.55% -1.79% -0.10% 0.74% 0.67% 0.15% 0.86% 2.36% 4.09% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 8 Source: Bloomberg. Fund analysis relative to Merrill Lynch Sterling Non-Gilts index for comparison purposes only. Attribution analysis excludes cash balances. Data as at

9 Top 20 holdings Holding Weighting (%) Z-Spread Modified duration Credit rating Subgroup Aspire Defence Finance 4.674% 31/03/ A- Finance-Other Services Real Estate Credit Investment 8% 31/12/ NR Investment Companies South E Power Networks 3.053% 05/06/ BBB+ Electric-Distribution European Investment Bank 2.65% 16/04/ AAA Supranational Bank RSL Finance (No. 1) Plc 6.625% 31/03/ AA- Diversified Financial Service University Of Cambridge 3.75% 17/10/ AAA Schools Pepsico Inc 2.5% 01/11/ A Beverages-Non-alcoholic Abbey National Treasury Service 5.75% 02/03/ AAA Commer Banks Non-US British Telecom Plc 5.75% 07/12/ BBB Telephone-Integrated National Grid Plc 1.25% 06/10/ BBB+ Gas-Distribution Amlin Plc 6.5% 19/12/ BBB- Property/Casualty Insurance Lloyds Bank Plc % 16/12/ BBB Money Center Banks Ecofin Water & Power Opportunities 6% 31/07/ NR Closed-end Funds Land Securities Cm Plc 5.391% 31/03/ AA Real Estate Management/Service Anheuser-Busch InBev NV 4% 24/09/ A- Brewery CSG Guernsey I Ltd 7.875% 24/02/ BBB- Diversified Banking Institution Nats En Route Plc 5.25% 31/03/ A+ Traffic Management System RSA Insurance Group Plc 9.375% 20/05/ BBB Property/Casualty Insurance Lloyds Bank Plc 10.75% 16/12/ BBB Money Center Banks WPP Finance SA 6.375% 06/11/ BBB Advertising Agencies Source: Bloomberg, as at

10 The complete portfolio Financial Aspire Defence Finance 4.674% 31/03/2040 (2.1%) Real Estate Credit Investment 8% 31/12/2017 (2.0%) RSL Finance (No. 1) Plc 6.625% 31/03/2038 (1.7%) Abbey National Treasury Service 5.75% 02/03/2026 (1.5%) Amlin Plc 6.5% 19/12/2026 (1.4%) Lloyds Bank Plc % 16/12/2021 (1.3%) Ecofin Water & Power Opportuities 6% 31/07/2016 (1.3%) Land Securities Cm Plc 5.391% 31/03/2027 (1.3%) CSG Guernsey I Ltd 7.875% 24/02/2041 (1.2%) RSA Insurance Group Plc 9.375% 20/05/2039 (1.2%) Lloyds Bank Plc 10.75% 16/12/2021 (1.2%) HSBC Holdings Plc 6% 29/03/2040 (1.0%) Juturna Euro Loan Condui % 10/08/2033 (1.0%) Bank Of America Corp 5.25% 09/11/2016 (1.0%) Abbey National Treasury Service % 20/01/2017 (0.9%) Santander Uk Group Holdings 3.625% 14/01/2026 (0.9%) BPCE SA 2.75% 08/07/2026 (0.9%) Citigroup Inc 5.15% 21/05/2026 (0.9%) BL Superstore Finance 4.482% 04/10/2025 (0.9%) Barclays Bank Plc 10% 21/05/2021 (0.9%) Freshwater Finance Plc 6.057% 17/10/2036 (0.9%) Brit Insurance Holdings 6.625% 09/12/2030 (0.9%) Tesco Property Fin 5 Plc % 13/10/2041 (0.8%) Cooperatieve Rabobank Ua 8.375% 07/29/2049 (0.8%) Annington Finance No 4 0% 07/12/2022 (0.8%) Financial 40.5% Jefferies Group Llc 2.375% 20/05/2020 (0.7%) UBS Ag Jersey Branch 7.25% 22/02/2022 (0.7%) Argon Capital Plc (For R % 10/29/2049 (0.6%) Bank Of America Corp 4.25% 10/12/2026 (0.6%) Commonwealth Bank Aust 3% 04/09/2026 (0.6%) Aviva Plc % 11/29/2049 (0.6%) Wells Fargo & Company 3.5% 12/09/2029 (0.6%) Investec Plc 4.5% 05/05/2022 (0.6%) Credit Agricole Sa 8.125% 19/09/2033 (0.6%) Barclays Bank Plc 7.75% 10/04/2023 (0.6%) GE Capital Trust V 5.5% 15/09/2066 (0.6%) Axa Sa 5.453% 11/29/2049 (0.6%) St Modwen Prop Securitie 2.875% 06/03/2019 (0.5%) F&C Finance Plc 9% 20/12/2016 (0.5%) BL Superstore Finance 5.27% 04/07/2025 (0.5%) PGH Capital Ltd 6.625% 18/12/2025 (0.5%) Societe Generale 8.25% 09/29/2049 (0.4%) Tesco Personal Finance 1% 16/12/2019 (0.4%) Hiscox Ltd 6.125% 24/11/2045 (0.4%) Tesco Property Finance 6 Plc % 13/07/2044 (0.3%) RL Finance Bonds 6.125% 30/11/2043 (0.3%) Barclays Plc 8% 12/15/2049 (0.3%) Nationwide Building Society 10.25% 06/29/2049 (0.2%) Broadgate Financing Plc % 05/10/2023 (0.1%) 10 Data as at Please note that the asset allocation may be above or below 100% due to rounding.

11 The complete portfolio continued Technology 0.6% Cash 6.7% Basic Material 2.3% Government 4.6% Utilities South E Power Networks 3.053% 05/06/2023 (1.8%) National Grid Plc 1.25% 06/10/2021 (1.4%) SSE Plc 6.25% 27/08/2038 (1.0%) Debenhams Plc 5.25% 15/07/2021 (0.6%) House Of Fraser Funding % 15/09/2020 (0.6%) Punch Taverns Finance B 5.943% 30/09/2022 (0.5%) Punch Taverns Finance 7.274% 15/10/2026 (0.4%) Industrial 5.4% Yorkshire Water Service Bradford 3.625% 01/08/2029 (1.0%) Next Plc 4.375% 02/10/2026 (0.4%) Electricite De France SA 6.125% 02/06/2034 (1.0%) Enterprise Inns Plc 6.5% 06/12/2018 (0.4%) Consumer Cyclical 7.0% E.On International Finance Bv 6.75% 27/01/2039 (0.9%) Centrica Plc 4.375% 13/03/2029 (0.8%) Anglian Water Service Finance 2.262% 01/08/2045 (0.8%) Northern Powergrid Yorks 5.125% 04/05/2035 (0.7%) Intercontinental Hotels 3.875% 28/11/2022 (0.4%) Punch Taverns Finance 7.274% 15/10/2026 (0.2%) Industrial Airbus Group Finance Bv 2.7% 17/04/2023 (0.9%) Communication 9.0% Electricite De France Sa 5.25% 01/29/2049 (0.6%) Heathrow Funding Ltd 3.334% 09/12/2039 (0.9%) Anglian Water Service Finance 4.5% 05/10/2027 (0.4%) Heathrow Funding Ltd 7.075% 04/08/2028 (0.8%) Utilities 11.2% Consumer Non-cyclical 12.7% Thames Water Util Cay Fi 4% 19/06/2025 (0.4%) Northumbrian Water Fin 6.875% 06/02/2023 (0.4%) Communications British Telecom Plc 5.75% 07/12/2028 (1.5%) Firstgroup Plc 5.25% 29/11/2022 (0.7%) BAE Systems Plc 4.125% 08/06/2022 (0.6%) Siemens Financieringsmat 6.125% 14/09/2066 (0.6%) United Parcel Service 2.45% 01/10/2022 (0.6%) WPP Finance Sa 6.375% 06/11/2020 (1.1%) City Greenwich Lewisham 9.375% 11/10/2020 (0.3%) Consumer non-cyclical Orange SA 8.125% 20/11/2028 (1.0%) Government University Of Cambridge 3.75% 17/10/2052 (1.6%) AT&T Inc 4.25% 01/06/2043 (1.0%) European Investment Bank 2.65% 16/04/2020 (1.7%) Pepsico Inc 2.5% 01/11/2022 (1.6%) Sky Plc 3.125% 26/11/2022 (0.9%) European BK Recon & Dev 5.625% 07/12/2028 (1.1%) Anheuser-Busch Inbev Nv 4% 24/09/2025 (1.3%) Telenor Asa 2.75% 27/06/2022 (0.9%) Transport For London 2.25% 09/08/2022 (1.0%) Nats En Route Plc 5.25% 31/03/2026 (1.2%) ITV Plc 2.125% 21/09/2022 (0.6%) Nordic Investment Bank 5.25% 26/11/2019 (0.9%) GlaxoSmithKline Cap Inc 2.8% 18/03/2023 (1.1%) EE Finance Plc 4.375% 28/03/2019 (0.6%) Basic Materials Bupa Finance Plc 5% 25/04/2023 (1.0%) Verizon Communications 2.45% 01/11/2022 (0.5%) Mondi Finance Plc 3.375% 28/09/2020 (1.0%) A2D Funding II Plc 4.5% 30/09/2026 (1.0%) At&T Inc 6.375% 01/03/2041 (0.5%) Glencore Funding Llc 4.125% 30/05/2023 (0.9%) Marstons Issuer Plc % 15/10/2027 (0.8%) British Telecommunicatio 0.625% 10/03/2021 (0.3%) Glencore Canada Corp 5.5% 15/06/2017 (0.4%) Rentokil Initial Plc 3.375% 24/09/2019 (0.7%) Relx Investments Plc 2.75% 01/08/2019 (0.2%) Technology Bakkavor Finance 2 Plc 8.75% 15/06/2020 (0.6%) Consumer cyclical IBM Corp 2.625% 05/08/2022 (0.6%) Casino Guichard Perracho 4.726% 26/05/2021 (0.5%) Spirit Issuer Plc % 28/12/2031 (1.0%) Cash (6.7%) Morrison(Wm)Supermarkets 3.5% 27/07/2026 (0.5%) Marks & Spencer Plc 6.125% 02/12/2019 (1.0%) BAT International Finance Plc 4% 04/09/2026 (0.4%) Unique Pub Finance Co 6.464% 30/03/2032 (0.9%) AA Bond Co Ltd % 31/07/2020 (0.4%) Whitbread Group Plc 3.375% 16/10/2025 (0.6%) 11 Data as at Please note that the asset allocation may be above or below 100% due to rounding.

12 Glossary of terms Bonds A bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt. The holder of the bond is the lender (creditor) and the issuer of the bond is the borrower (debtor). Convertibles A bond that can be converted into shares in certain circumstances or at certain times. Contingent Convertibles (CoCos) A form of loss absorbing debt, paying a high coupon, typically issued by financial institutions where, if the financial strength of the institution declines to certain trigger levels, then the CoCos can suffer losses typically through principal writedowns or conversion into equity. Credit rating The rating assigned by an external agency based on an assessment of an entity s creditworthiness. Credit spreads Can be used to describe the difference in yield between different fixed interest securities, due to different credit quality. Derivatives Financial contracts which derive their value from the performance of another entity such as an asset, index or interest rate, referred to as the underlying. Floating rate notes Bonds which pay a floating, rather than fixed, rate of interest. Gilts A bond issued by the UK government. Index Linked Bonds Bonds in which the payment of income on the principal is related to a specific price index. Modified duration The percentage price change of a security for a given change in yield. The higher the modified duration of a security, the greater its volatility. Volatility The frequency and severity with which the price of an investment goes up and down. Z-Spread The implied yield spread of a bond over the relevant spot-rate curve, in basis points. Used as a measure of the credit risk inherent in a bond. 12

13 Investment risks General investment risks There is the potential for loss of your original investment. The degree of investment risk will depend on the fund s risk profile. We would typically expect investments that are perceived as lower risk to offer less potential for loss but with potentially lower returns, whereas we would expect higher risk investments to generate higher returns albeit with the extra risk of potential loss. However, there are no guarantees as to how a type of asset, sector or region will perform in the future. Inflation could erode the value of returns from your investment. There is a risk that the entire market of an asset will fall, affecting the value of assets and the return on your investment. There is no guarantee that the investment objective of the fund will be achieved. Past performance is not a guide to future returns. The price of shares and any income from them can go down as well as up and there is the possibility of a loss to your original investment. The levels of taxation and of relief from taxation will depend upon individual circumstances. There may be a variation in the performance between funds with similar objectives due to the different assets selected. Performance of a fund will be affected by the fund manager s investment decisions. If you withdraw part of your investment, or take an income greater than the natural income from, or growth of, your investment, there is a risk that you could get back less than you originally invested. The fund may invest directly into, or be exposed to via its underlying investments, a variety of assets, sectors or regions, all of which carry specific risks which could impact returns. The main risks are summarised on this document, with further detail available in the fund s prospectus. Concentration Funds that have a strong focus on a particular asset, sector or region, can carry a higher risk than funds with a more diversified portfolio. Credit If the issuer of a security held within the fund is unable to make income payments or repay its debt. Currency Where investments are denominated in currencies other than sterling, changes in exchange rates may cause their value to rise or fall. Derivatives This is a financial contract whose value is related to the value of an underlying asset or index, o en used with the aim to manage risk or enhance returns, and whilst their use is not necessarily expected to increase risk within a fund, they could expose the fund to higher levels of volatility from time to time. 13

14 Investment risks continued Fixed interest securities This type of asset, which includes bonds and gilts, is particularly affected by movements in interest rates. If interest rates rise, their price may fall, and vice versa. Futures/forward contracts Typically used for portfolio mangement purposes to help mitigate interest / inflation risks, but could also expose the fund to volatile returns from time to time. Geographic concentration Funds focused on a specific country or geographic region can carry greater risk than portfolios that are more internationally diverse. Inflation Fixed interest securities, such as bonds, are particularly affected by trends in interest rates and inflation. Interest rate Where the fund has exposure to fixed interest securities such as bonds, these are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Legal/Tax Arising from a change in legal/tax regulations or the application of them. Liquidity During difficult market conditions, some securities or larger holdings may become more difficult to sell quickly at a desired price. Market The risk of a fall in price of a particular asset type. Operational Occasionally processes fail. This is more likely to happen with more complex products or investments in overseas markets, such as emerging market countries, which may not have the same level of safekeeping, infrastructure or controls as more developed markets. 14

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16 Important Information Risk of investments Past performance is not a guide to future returns. The price of shares and any income from them may go down as well as up and you may get back less than you invested. Movements in exchange rates may also affect the value of your investment. Please remember that these investments are typically intended as long term investments. Disclaimer Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock does not constitute a recommendation to buy or sell the stock. All data is sourced to Premier Asset Management unless otherwise stated. This report is directed only at authorised financial advisers and professional investors. Persons who do not have professional experience in matters relating to investments should not rely on the content of this report. A free, English language copy of the Fund s full prospectus, the Key Investor Information Document and Supplementary Information Document, which include all the important information you need to consider before making an investment decision, are available on the Premier website, or you can request copies by calling us on For your protection, calls may be monitored and recorded for training and quality assurance purposes. The methodology and calculations used by the companies or organisations that provide the fund or fund manager awards and ratings are not verified by Premier Asset Management and we therefore are unable to accept responsibility for their accuracy. Ratings and awards should not be relied upon for making an investment decision, nor are they an indication, promise or guarantee of future performance of a fund or fund manager. Issued by Premier Asset Management. Premier Asset Management and Premier are the marketing names used to describe the group of companies which includes Premier Fund Managers Limited and Premier Portfolio Managers Limited, which are authorised and regulated by the Financial Conduct Authority of 25 the North Colonnade, Canary Wharf, London E14 5HS. The registered address of both companies is Eastgate Court, High Street, Guildford, GU1 3DE. Premier Portfolio Managers Ltd is registered in England No Premier Fund Managers Ltd is registered in England No For more information