BlackRock Global Funds (BGF): European High Yield Bond Fund Jose Aguilar Co-Portfolio Manager November 2015
Introduction The BGF European High Yield Fund (EHYB) launched on 23 July 2015 as the latest addition to BlackRock s $53bn global leveraged finance platform EHYB is managed by a highly experienced 21 person team benefiting from BlackRock s significant resources and presence in the capital markets Team has 6yr history managing European High Yield assets within BlackRock s BGF Global High Yield fund Team currently manages over Eur3.8bn in European high yield benchmarked assets in dedicated mandates and allocations from Global High Yield and U.S. High Yield funds PM s Michael Phelps and Jose Aguilar have worked together for over 8 years EHYB implements a fundamental research orientated process targeting the optimisation of each high yield investment Index agnostic approach based on individual credit views Portfolio level exposures monitored and managed from the top down Disciplined information and idea sharing process across BlackRock s entire investment platform leveraging deep company relationships and scale Independent risk and quantitative analysis professionals embedded in investment process Note: AUM data as of 30 September 2015 2
Why Choose European High Yield? Attractive yield European HY offers attractive yield in today s low interest rate environment Improving macroeconomic environment A recovering European economy helps support credit quality and creates a flow of compelling high yield opportunities Benign default rates Given the macroeconomic and market backdrop HY defaults have been trending lower and are expected to remain low Low duration Low duration of HY reduces risk when interest rates increase Opportunities for credit selection Within HY there is significant spread decompression down the ratings spectrum as well as increasing dispersion creating opportunities to generate alpha through credit selection 3
Why BlackRock for European High Yield? High Yield expertise $40bn managed in dedicated high yield funds of which 10% is invested in European high yield Team oversees additional High Yield assets across multi-asset fixed income portfolios as well as alternative strategies Long term track record of outperformance in high yield benchmarked products with less risk through up and down markets Bottom-up research orientated investment process Intensive proprietary credit research process drives alpha generation combining both macro and micro inputs Committed index agnostic approach Deep resources Collaborative decision-making between PMs and credit analysts Share research with other investment teams to examine all parts of capital structure Network of independent information sources Superior technology and risk management systems Market access Differentiated access to dealer resources given BlackRock s position as the world s largest asset manager BlackRock s Global Capital Markets team assists in securing favourable terms and constructing attractive investments Dedicated 15 person European fixed income execution desk Note: AUM in USD as of 30 September 2015 4
BlackRock s European Leveraged Credit Investment Team Michael Phelps Lead Portfolio Manager Head of European Fundamental Credit Jose Aguilar Co-Portfolio Manager Portfolio Management Credit Research Product Strategy Henry Brennan Stefano Donati Bryan Johnson John Stamler Matthew Livas Stephen Gough Aly Hirji Head of Credit Research Antonio Barranco TMT Peter Jurik Special situations Gregor Streyzowsky Emily McEachern Leveraged Loans Stephan Caron Remi Combeaud Portfolio Assistant Sahil Shah Portfolio Assistant Gaming Leo Bian Financials Yves Blechner Transportation, Infrastructure, Distressed Jon Bensoussan Real Estate, Construction Generalist Sebastian Kaufmann Industrials, Chemicals Alice Mew Head of Investment Process Auto, Industrials Industry Experience 3-5 years 5-10 years 10-15 years >15 years Aurelie Charpentier Marion Rosenberg Consumer Healthcare Team is dedicated to running leveraged finance and alternative credit strategies as part of BlackRock s European Credit platform Research team is an integrated subset of BlackRock s Fundamental Fixed Income Credit research team Additional shared resources include a 15 person dedicated fixed income execution desk, 7 investment grade credit analysts, 4 ABS credit analysts and 2 sovereign credit analysts As of 05 October 2015 5
BlackRock s European Leveraged Credit Investment Philosophy Combination of bottom-up and top-down Fundamental Credit Analysis Proximity of PMs to credit analysts encourages live credit-focused discussions and quick reactions to news and market moves Weekly baseline and prioritisation meetings and monthly industry reviews Regular underwriting of credits Dynamic Portfolio Construction Based on individual credit selection Exposures managed to express top down views by industry, rating, and country as well as active beta Ability to utilise off-index securities as source of alpha including IG, derivatives, ABS and converts Liquidity Focus Integral to each step of the investment process Maintain constant liquidity buffer by way of cash and derivatives, active positioning towards liquid sectors and limiting bucket for less liquid credits PMs work with risk team to formally reassess liquidity on weekly basis Dedication to Risk Management Dedicated risk team produces daily reports on risk exposures including stress tests Formal weekly meeting between risk team and PMs 6
BlackRock s European Leveraged Credit Investment Process The team seeks to create value across the credit curve through intensive bottom-up research and optimisation of the risk-reward profile of each potential investment Investments are implemented through a disciplined, time-tested, dynamic process Baseline View PMs set macroeconomic baseline expectations for team discussed in weekly meeting Macro views checked with bottom-up findings Top down market relative value analysis Idea generation New issue opportunities Industry review meetings by analysts and PMs Relative value monitoring Top down themes Management and industry consultant meetings Credit analysis In-depth, bottom-up Focus on cash flows and asset coverage Upside vs. downside scenario analysis Capital structure, credit protection and regulation Fact checking with proprietary network Investment decision Based on analysts credit reviews with PMs Security selection in order to best incorporate credit views Liquidity assessment Analysis of impact on portfolio risk metrics Portfolio construction Based on credit selection Size of positions based on risk reward opportunities Management of active concentrations and beta Focus on liquidity The leveraged finance platform's scale provides immediate access to issuer management teams Ongoing surveillance is critical to continued outperformance Size of credit research and portfolio management teams allows full coverage of the market Monthly industry reviews with research analysts and PMs At least two meetings with management per annum with top issuer holdings Quick turnaround of news and reporting with capacity to react quickly due to proximity of teams on the floor Periodic and ad-hoc re-underwriting of credits 7
Available Shareclasses Fund Overview: BGF European High Yield Bond Fund Objective: To maximise total returns through a combination of capital growth and income by investing in sub investment grade securities issued by companies domiciled in or exercising the predominant part of their economic activity in Europe Fund Attributes Investment Universe and Indicative Allocation (% NAV) Fund Size Core Focus Benchmark Duration Portfolio Managers Risk target Return target Minimum Investment Eur 40mm Minimum 70% in non-investment grade transferable securities (Below BBB-) Barclays Pan-European High Yield 3% Issuer Constrained, 100% EUR Hedged No target duration band Michael Phelps, Jose Aguilar 100-300bps of tracking error over a market cycle 200bps gross excess returns p.a. (can vary depending on position in the credit cycle) Retail: $5,000 (equivalent) Institutional: $10,000,000 (equivalent) 0 10% Liquidity Management 60 90% Corporates 10 30% Financials 0 15% Other Secured Unsecured Hybrids Senior Subordinated AT1s ABS Converts IG Equity Cash Credit derivatives Equity derivatives A2 (Accumulating) EUR CHF SEK D2 (Accumulating) EUR Geographic Focus Developed Europe - Eurozone, UK, Nordics, Switzerland D4 (Annual Distribution) EUR GBP Base Currency: EUR Currency Exposure Country Exposure Issuer Exposure All non-eur positions hedged back to EUR 40% maximum exposure per country Typically 1%. 5% maximum; >3% considered high conviction position Note: Fund size as of September 2015 8
Appendix A: BlackRock European HY Strategy Track Record
% Gross Total Returns BlackRock European High Yield Strategy: Performance to 31 October 2015 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Strategy 1 month 3 month 6 month YTD Blackrock European HY Strategy Barclays Pan-European HY 3% issuer constrained Since inception (15 Sept 2013) 3.00% -0.65% -0.64% 4.46% 15.17% 2.57% -0.04% -0.53% 3.24% 13.65% Source: Barcap, BlackRock, 15 September 2013-31 October 2015. Excludes FX P&L. Benchmark is Barclays Pan European HY 3% Issuer Constrained US$ Hedged Index. Benchmark was changed from Barclays Pan European HY ex. Financials 3% Issuer Constrained US$ Hedged Index effective 31 May 2015. The performance shown represents the returns of the European High Yield Strategy from inception on 15 September 2013 through 31 October 2015 which is managed by BlackRock s Fundamental European Credit Team led by Michael Phelps. This is not performance of any particular fund or account managed by BlackRock, but only that of the European High Yield strategy of the BlackRock Multi Asset Income Trust. Performance shown, starting 15 September 2013, is based on gross returns estimated by BlackRock. Historical performance presented herein is gross of fees, and does not reflect the effect of any taxes, transaction costs and other expenses that may be borne by investors in a BlackRock-sponsored or managed fund or account with an investment objective similar to the European High Yield Strategy of the BlackRock Multi-Asset Income Trust. Had such performance accounted for taxes, transaction costs and other expenses, returns would have been reduced and the effect of which could be, in the aggregate, substantial. Historical performance depicted herein is not indicative of future performance or investment returns of any such BlackRock-sponsored or managed fund or account, and actual events or conditions may not be consistent with, and may differ materially from, those depicted herein. Further, there can be no assurance that any investment opportunity offered by BlackRock with an investment objective similar to the European High Yield Strategy of the BlackRock Multi-Asset Income Trust will achieve its investment objective, generate positive returns, or that targeted returns, anticipated diversification or asset allocations will be met. Performance represents past performance and is not a guarantee of future results 10
Appendix B: BlackRock s BGF HY Fund Range
BlackRock s BGF High Yield Range Geographic Focus European Global US Fund name BGF European High Yield Bond Fund BGF Global High Yield Bond Fund BGF US Dollar High Yield Bond Fund Fund Facts Launch Date 23-Jul-2015 08-Jun-2007 29-Oct-1993 Portfolio Managers Michael Phelps Jose Aguilar James Keenan Michael Phelps Jose Aguilar David Delbos Mitch Garfin James Keenan David Delbos Mitch Garfin Benchmark Barclays Pan-European HY 3% Issuer Constrained 100% EUR hedged BofA ML Global HY Constrained 100% USD Hedged Barclays US Corp High Yield 2% Issuer Capped Index Base Currency EUR USD USD Regional Exposure 100% Europe (up to 10% allocation to non European issuers permitted) 15-30% in non-us assets (inc. yankees and non dollar denominated) 5-20% in non-u.s. assets (inc. yankees and non dollar denominated) Portfolio Statistics NAV EUR 40mm USD 2.3bn USD 5.1bn Average Duration 3.66 years 4.16 years 4.13 years Average Rating B+ B+ B+ Yield (to worst, in base currency) 5.59% 7.19% 6.86% Source: BlackRock, September 2015 12
% Portfolio NAV % Portfolio NAV % Portfolio NAV Portfolio Statistics for the BGF European High Yield Bond Fund Regional Diversification Asset Allocation & Industry Over / Underweights 40% 35% 30% 25% 20% 15% 10% 5% 0% United Kingdom Credit Quality Allocation BBB and Above BB Italy Spain France United States Other Strategy Benchmark 25% 20% 15% 10% 5% 0% -5% -10% 8% 4% 0% 6.6% 83.88% 8.6% 1.9% 1.5% 1.0% 0.2% 23.1% 23.5% 10.9% 7.4% 7.2% 3.6% 3.6% 3.8% 1.9% 4.2% 1.6% 0.5% 1.1% 1.7% -1.7% -2.4% -2.5% -5.3% -6.2% B CCC Active Industry Exposure Total Industry Exposure CC and Below NR Strategy Benchmark 0 10 20 30 40 50 60 70 % Portfolio NAV Attributes Strategy Benchmark Average Duration 3.66 3.91 Average Rating B+ BB- Yield (to worst) 5.59 5.15 * ABS allocations are to UK pub whole business securitisations. All data as of 05 October, 2015. Credit Quality Ratings are based on the Barclays methodology - whereas the median of the three rating agencies (Moody's, S&P, Fitch) is used to determine credit rating, while the lower of split ratings is used when an instrument is only rated by two agencies. NR refers to Not Rated securities. 13
BGF Disclosure The following notes should be read in conjunction with the attached document: 1. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Services Authority. Registered office: 12 Throgmorton Avenue, London. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. 2. The fund invests a large portion of assets which are denominated in other currencies; hence changes in the relevant exchange rate will affect the value of the investment. 3. The fund invests in fixed interest securities issued by companies which, compared to bonds issued or guaranteed by governments, are exposed to greater risk of default in the repayment of the capital provided to the company or interest payments due to the fund. 4. The fund invests in fixed interest securities such as corporate or government bonds which pay a fixed or variable rate of interest (also known as the coupon ) and behave similarly to a loan. These securities are therefore exposed to changes in interest rates which will affect the value of any securities held. 5. The fund(s) may invest in structured credit products such as asset backed securities ( ABS ) which pool together mortgages and other debts into single or multiple series credit products which are then passed on to investors, normally in return for interest payments based on the cash flows from the underlying assets. These securities have similar characteristics to corporate bonds but carry greater risk as the details of the underlying loans is unknown, although loans with similar terms are typically packaged together. The stability of returns from ABS are not only dependent on changes in interest-rates but also changes in the repayments of the underlying loans as a result of changes in economic conditions or the circumstances of the holder of the loan. These securities can therefore be more sensitive to economic events, may be subject to severe price movements and can be more difficult and/or more expensive to sell in difficult markets. 6. BlackRock Global Funds (BGF) is an open-ended investment company established in Luxembourg which is available for sale in certain jurisdictions only. BGF is not available for sale in the U.S. or to U.S. persons. Product information concerning BGF should not be published in the U.S. It is recognised under Section 264 of the Financial Services and Markets Act 2000. BlackRock Investment Management (UK) Limited is the UK distributor of BGF. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available. A limited range of BGF sub-funds have a distributor status A sterling share class that seeks to comply with UK Distributor Status requirements. Subscriptions in BGF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the Simplified Prospectus which are available on our website. Prospectuses, Simplified Prospectuses and application forms may not be available to investors in certain jurisdictions where the Fund in question has not been authorised. Any research in this document has been procured and may have been acted on by BlackRock Investment Management (UK) Limited for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. 7. Unless otherwise specified, all information contained in this document is current as at the date on the front page of this presentation. 8. No part of this material may be reproduced, stored in retrieval system or transmitted in any form or by any means, electronic, mechanical, recording or otherwise, without the prior written consent of BlackRock. THIS MATERIAL IS FOR DISTRIBUTION TO PROFESSIONAL CLIENTS AND SHOULD NOT BE RELIED UPON BY ANY OTHER PERSONS. 14