Fixed Income Training Seminar Asset Management Experience

Transcription

1 Asset Management Fixed Income Training Seminar Asset Management Experience Philipp Büchler, Chris Koslowski, Markus Kramer, Manuel Walker Credit Suisse Asset Management Core Fixed Income Group Zurich August 2014

2 Overview 1 Introduction 2 3 Implementing Active Views CREDIT SUISSE Fixed Income Training Seminar August

3 1 Introduction The idea of this part of the Fixed Income Training Seminar is to provide you with a practical portfolio management experience: You will construct with help of a proprietary Credit Suisse Portfolio Management software and Bloomberg a multi-currency portfolio according to a set of specific investment guidelines and market expectations. Assume a client has given you an amount of USD 500 mln to invest in a multi-currency portfolio according to the following guidelines: Benchmark JP Morgan Government Bond Index Global Traded Portfolioduration +/-2 years vs benchmark Minimum rating at purchase BBB- (Standard and Poor s) or Baa3 (Moody s) Maximum issuer limits maximum 25% per country rated AA/Aa2 or better maximum 25% per international or supranational organization rated AA/Aa2 or better and guaranteed by member countries maximum 10% for other issuers Derivatives exchange traded interest rate & bond futures currency forward agreements interest rate swaps CREDIT SUISSE Fixed Income Training Seminar August

4 In a first step you should invest the USD 500 mln as close to the benchmark as possible in order to build a base portfolio with minimal risk exposures relative to the given benchmark. (1) Market allocation: distribute the USD 500 mln (already injected in the portfolio) on the various markets according to the benchmark weights (given in the tab Overview ) CREDIT SUISSE Fixed Income Training Seminar August

5 by simulating currency spot transactions in the tab FX Forwards & Spot (see below an example of replicating the market weight of 1.2% in AUD by selling USD) (2) Currency allocation: no transactions needed (without active market or currency views the currency allocation is equivalent to the market allocation) CREDIT SUISSE Fixed Income Training Seminar August

6 (3) Duration allocation: Invest the allocated cash in each currency using one bond per currency from the benchmark universe so that the duration is similar to that of the benchmark. CREDIT SUISSE Fixed Income Training Seminar August

7 Try to analyse some of the bonds with help of Bloomberg: By marking a bond in BondWalker and right clicking with your mouse a menu appears with various Bloomberg commands directing you to the relevant bond analytics. Bond Description (DES <Go>) CREDIT SUISSE Fixed Income Training Seminar August

8 Yield and Spread Analysis (YAS <Go>) CREDIT SUISSE Fixed Income Training Seminar August

9 Fixed Income Relative Value (FIRV <Go>) CREDIT SUISSE Fixed Income Training Seminar August

10 Comparable Bond Analysis (COMB <Go>) CREDIT SUISSE Fixed Income Training Seminar August

11 Afterwards try to replicate the duration structure of each market using the duration density ( View -> Duration Density -> choose Currency ). (4) Credit allocation and selection: Since the benchmark consists of government bonds only there is no credit allocation and selection in the base portfolio. CREDIT SUISSE Fixed Income Training Seminar August

12 3 Implementing Active Positions Beginning with the base portfolio you are now asked to implement tactical risk exposures relative to the given benchmark. (1) Market allocation: Several markets have reached extreme interest rate spread differentials. Therefore allocate an overweight of 2% in GBP, 3% in USD and 2% in NOK funded by JPY -7%. Firstly simulate currency spot transactions in the tab FX Forwards & Spot and secondly buy and sell the governments bonds as necessary. For instance, buy approximately GBP 6.6 mln vs JPY and buy additional GBP government bonds while selling JPY bonds. (2) Currency allocation: The Norwegian Krona has potential from a carry perspective. Please overweigh NOK by 4% equally funded through EUR and GBP. As geopolitical risks are rising, the JPY could be supported, especially since so far there are no imminent signs of further monetary stimulus by the Bank of Japan. Please implement a long position of 2% in JPY versus USD. For instance, simulate a currency forward of JPY vs USD. (3) Duration allocation: The recent fall in interest rates could be corrective therefore, stick to a short duration in GBP (-0.75 years), USD (-0.5 years) and NOK (-2.0 years). In order to partially compensate for the underweight in the Japanese market implement a slight long duration in JPY (+0.5 years). As an example, sell some of the longer dated GBP bonds and buy some shorter dated ones. You might also use bond futures or interest rate swaps (see tabs Futures and Swaps ). (4) Credit allocation and selection: Allocate the credit conservatively in liquid credit markets with weights of 15% to USD, EUR and GBP, respectively (see Swap Exposure ). While there is no immediate trigger for a drastic spread widening evident there could be correction in thin markets over the summer months. CREDIT SUISSE Fixed Income Training Seminar August

13 3 Implementing Active Positions (4) Credit allocation and selection: Allocate the credit conservatively in liquid credit markets with weights of 15% to USD, EUR and GBP, respectively (see Swap Exposure ). While there is no immediate trigger for a drastic spread widening evident there could be correction in thin markets over the summer months. CREDIT SUISSE Fixed Income Training Seminar August

14 3 Implementing Active Positions Please choose for each of the three currencies non government bonds with the aim of a diversified credit exposure and considering the following criteria: Time to maturity: between 5 and 10 years Small allocation in the sector Financial and larger allocation the sector Corporate (see table Sector in Risk Report ) credit ratings in the rating bucket A (i.e. A1,A2,A3) and BBB (i.e. BBB1, BBB2, BBB3) (see table Rating in Risk Report ) Analyse the bonds with help of Bloomberg. CREDIT SUISSE Fixed Income Training Seminar August

15 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 Asset Management 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 Asset Management 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 Asset Management 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. CREDIT SUISSE Fixed Income Training Seminar August