Fund Guide Ignis Absolute Return Government Bond Fund June 2016 This document is for investment professionals only and should not be distributed to or relied upon by retail clients. It is only intended for use in jurisdictions where the Ignis relevant Absolute funds Return are authorised Government for distribution Bond Fund or 101 where no such authorisation is required.
About Standard Life Investments Standard Life Investments is a leading asset manager with an expanding global reach. Our wide range of investment solutions is backed by our distinctive Focus on Change investment philosophy, disciplined risk management and shared commitment to a culture of investment excellence. As active managers, we deploy a robust and repeatable investment process that is highly disciplined, research-intensive and riskinformed. We strive to anticipate change before it happens, in order to exploit market inefficiencies and thereby add value to client portfolios. As at 31 December 2015, Standard Life Investments managed 343.5 billion on behalf of clients worldwide. Our investment capabilities span equities, fixed income, real estate, private equity, multi-asset solutions, fund-of-funds and absolute return strategies. Headquartered in Edinburgh, Standard Life Investments employs more than 1,500 talented individuals. We maintain a presence in over 20 locations across Europe, North America, Asia and Australia. In addition, we have close relationships with leading domestic players in Asia, including HDFC Asset Management in India and Sumitomo Mitsui Trust Bank in Japan. Our parent, Standard Life plc, was established in 1825. A leading provider of long-term savings and investments, Standard Life floated on the London Stock Exchange in 2006 and is now a FTSE 100-listed company. Standard Life Investments was launched as a separate company in 1998 and quickly established a reputation for innovation in pursuit of our clients investment objectives. Our investors rank among some of the world s most sophisticated and high-profile institutions. They include pension plans, banks, mutual funds, insurance companies, fund-of-fund managers, endowments, foundations, charities, official institutions, sovereign wealth funds and government authorities. Contents 1 Introducing the Ignis Absolute Return Government Bond Fund 2 What is our investment philosophy? 5 Who manages the Fund? 7 Fund information 8 Find out more 3 What are forward rates? 4 What is our investment process? 102 Ignis Absolute Return Government Bond Fund
Introducing the Ignis Absolute Return Government Bond Fund The Ignis Absolute Return Government Bond Fund (ARGBF) aims to deliver positive returns on a rolling 12-month basis, independent of market conditions, with an expected long-term volatility range of 3-6%. As the Fund s returns are entirely generated through alpha, by definition it should be uncorrelated with major asset markets. We actively manage interest rate and foreign currency positions, including directional trades on bond yields, trades related to the shape of the yield curve, foreign exchange strategies and strategies relating to the term structure of inflation expectations. We invest in low-risk and highly liquid government bonds. We also take positions in currencies, although these are limited to a quarter of the overall risk in the Fund. ARGBF is permitted to invest in the bonds of OECD countries, but holdings are generally dominated by G10 countries. This ensures a high degree of liquidity and allows us to change positions quickly when necessary. We also benefit from our innovative proprietary tool ClearCurve which gives accurate insights into the term structure of interest rates. Specifically, it efficiently isolates forward rates, allowing us to construct trades appropriately. ClearCurve allows us to test our portfolio against different scenarios, and to refine our portfolio construction. As with any form of investing, investors should be aware that their capital is at risk and that there is no guarantee that positive total returns will be achieved over rolling 12 months or any time period. Key features We seek to deliver absolute returns in all market conditions using a low-volatility approach. We express our macro views through long and short positions in government bonds, currencies and related derivative instruments. ARGBF displays low correlations to credit, equities and other absolute return products. Innovative ClearCurve software provides deeper insight into yield curves. Daily liquidity means there is no lock-in or fixed-term for investments. Ignis Absolute Return Government Bond Fund 1
What is our investment philosophy? With ARGBF, we take a unique approach to absolute return investing. This is based on the following core principles. Alpha, not beta We believe it is vital to separate alpha from beta so investors are clear about whether returns are likely to be market driven or idiosyncratic (i.e. due to the portfolio manager s active management). Managing downside risk We carefully control volatility within a prescribed range. Every strategy is assigned a target and a stop loss level at inception. While these can be revised at a later stage, this process imposes a discipline on the managers. It also ensures that downside is managed in the event of important developments outside working hours. Using these instruments we design a portfolio that seeks to deliver diversified returns; all the positions will be justified in their own right, but will not all pay off at the same time. This helps to enhance the diversification of the portfolio and reduce the volatility of returns. Forward rates offer greater scope for alpha The team seek to generate positive returns for investors by taking simple, informed decisions on forward rates. This approach differs from that employed by many other fixed income managers who typically rely on duration as a source of outperformance. A broad opportunity set We concentrate our investments in the most liquid bond and currency markets. Where appropriate, we also widely use derivatives to express our macro views. However, these are always the most commonly traded derivatives, which are liquid at both entry and exit. 2 Ignis Absolute Return Government Bond Fund
What are forward rates? The ARGBF team seek to generate positive returns for investors by taking informed decisions on forward rates. This approach differs from that employed by many other fixed income managers who typically rely on duration as a source of outperformance. Forward rates are interest rates for specific periods in the future. By looking at government bonds of different maturities, it is possible to work out the expected rate for a specific maturity over a specific period of time, say, a one year bond in five years time. This would be the price the government would pay to borrow money for one year in five years time. A government bond forward rate is therefore the interest rate on money in the future. The traditional approach Duration is the measure of how much the price of a bond will change for a given change in its interest rate. Consider a 10-year zero-coupon bond. The interest rate on the bond can be viewed as being made up of a sequence of ten one-year rates. Therefore, the traditional fixed income fund manager normally makes a single duration decision: they decide whether to go long or short duration. This will be based on their expectation of whether yields will rise or fall. Duration implicitly assumes that the yield curve can only move in parallel; in other words, that each of the ten one-year rates is perfectly correlated. This, however, is virtually impossible. The ARGBF approach A government bond curve out to ten years can be broken down into ten constituent one-year forward rates. It illustrates that each moves differently relative to the 10-year bond yield. Cutting the forward curve up into specific periods provides the team with multiple ways of looking at investment opportunities within the yield curve. In contrast to the single decision process used by the typical fixed income fund manager, our process makes use of all the available information to analyse forward rates separately. If a traditional bond manager expects that the average yield will not move in a particular period, they would either be unlikely to take any position on that bond or be forced to take a high risk position to try and generate meaningful outperformance from a very small move in the average yield. In contrast, through looking at the forward rate curve, a manager can take a number of positions, each with the potential for alpha generation. Based on this analysis, the team is able to separate forecasts for each of the individual annual forward rates. If the team expects the forward rate to fall then it will take a long duration position in that forward rate. And if it expects rates to rise it will take a short position. Ignis Absolute Return Government Bond Fund 3
What is our investment process? We designed our approach to provide the maximum amount of information with which to identify macro themes. We then use a broad range of instruments with which to accurately and efficiently express our views. Key macroeconomic themes We focus on identifying economic trends through fundamental research and in-depth debate. We use research, economic releases and central bank reports as part of this process. In addition, because Standard Life Investments is one of the largest, most active fixed income teams trading in the UK market, we benefit from access to market information from our counterparties. We also have regular meetings with central banks and monetary authorities, which provide an insight into their current thinking. We focus on a continuous six-month investment horizon. Frequent peer dialogue is encouraged and we have a series of daily, weekly and monthly meetings. ClearCurve Once we have identified our key macro themes, we use ClearCurve, a research and portfolio construction tool, to analyse the best opportunities available. At its heart is an accurate curve deconstruction function, based on refined models used by both the Bank of England and the Bank of Canada. ClearCurve allows us to calculate accurate forward curves, onto which we can overlay our macroeconomic theory. From here, we identify which forward rates are cheap or expensive (based on our economic view) and which rates positions we can implement to reflect those views. Increased diversification and reduced idiosyncratic risk We implement macro views through a wide range of independent positions with a view to improving the risk/return profile of the Fund. We split the opportunity set into seven risk strategies. Each has distinct drivers and provides us with diverse sources of adding value. This provides significant diversification benefits. Aligning risk to key themes Our aim is to make precise decisions that reflect exactly the risk we want to take. We endeavour to make sure that the portfolio matches these risk positions as closely as possible. The positions are designed to deliver pure alpha rather than beta, and positive performance in all market conditions. Monitor profit & loss intraday and dynamically hedge as required The portfolio reflects around 15-20 strategies at any one time. However, we invest pragmatically and tactically trade round these positions to reduce short-term market moves. The highly liquid nature of our investment universe allows us to quickly and efficiently reduce downside risk. While core positions remain in place, they can be dynamically hedged to reduce risk as required. 4 Ignis Absolute Return Government Bond Fund
Who manages the Fund? The ARGBF team sits within our macro investing operation. This allows it to draw on the extensive investment expertise of Standard Life Investments, while retaining a distinct voice and decision-making function. The investment views expressed within the Fund are those of the ARGBF team and do not necessarily reflect the House View of Standard Life Investments. ARGBF is managed by a team of experienced portfolio managers and dedicated ARGBF investment analysts. The ARGBF team is supported by Standard Life Investments well-resourced investment specialist, risk and cash teams. ARGBF team Head of Multi-Asset and Macro Investing Guy Stern Portfolio Management Shayne Dunlap Richard Marshall Stuart Thomson Ross Crawford Analysts Tristram Miners-Jones Anthony Cameron Oleg Gustap Investment Specialists Jonathan Gibbs Dee Clarkin Risk Team Chris Garcia Gavin McIntosh Damien Wang Cash Team Amandeep Samra Stuart Lindsay Ignis Absolute Return Government Bond Fund 5
The Ignis Absolute Return Government Bond Fund is managed by a team with a wide range of expertise. We specialise in government bonds, interest rates, currencies and other related strategies. The Fund is co-managed by Shayne Dunlap, Richard Marshall, Stuart Thomson and Ross Crawford. Meet the managers Shayne Dunlap Lead manager Shayne joined Standard Life Investments in October 2015, and has 26 years industry experience. He has held roles at an Australian merchant bank and HSBC in London, concluding his 21-year career at Mizuho Corporate Bank as a senior proprietary trader. Shayne holds a BSc in Physics from University of Melbourne. Dr Richard Marshall Investment Director Richard joined Standard Life Investments in October 2015 from Mizuho Corporate Bank. Initially hired as a senior quantitative analyst, he then moved to co-manage a proprietary portfolio with Shayne in 2007. Richard holds a PhD in Theoretical Physics from Imperial College. Ross Crawford, CFA Investment Director Ross joined Ignis Asset Management in 2006, which merged with Standard Life Investments in 2014. He began his career at JP Morgan as a senior application developer. At Ignis, he was a quantitative investment analyst and portfolio manager. Ross graduated from Glasgow University with a BSc (Hons) in Software Engineering and is a CFA charterholder. Stuart Thomson, CFA Investment Director Stuart joined Ignis Asset Management in 2006, which merged with Standard Life Investments in 2014. Stuart has held a number of senior economist and market strategist positions, including the role of Chief Economist at Ignis. Stuart graduated from the University of Edinburgh with an MA (Hons) in Economics and is a CFA charterholder. 6 Ignis Absolute Return Government Bond Fund
Fund information Fund aim The Absolute Return Government Bond Fund aims to provide positive investment returns on a rolling 12-month basis, independent of bond and equity market conditions. The Fund aims to achieve its objective within a target volatility of 3-6%. It is actively managed using a combination of assets (such as government bonds, foreign currency markets and money market instruments) and derivatives. In particular, the Fund will utilise strategies to actively manage interest rate exposure. Technical specifications Fund manager Legal structure Sector Benchmark Types of shares available Base currency Share classes available in Annual management charge Performance fee Absolute Return Government Bond Team SICAV IMA Absolute Return Cash (as measured by the overnight rate)* A Class, C Class, I Class, SI Class GBP GBP, EUR, CHF, SEK, USD Minimum Investment A 1,000, I 1,000,000 A Class: 1.0% NAV C Class 0.65% NAV I Class: 0.5% NAV SI Class 0.4% NAV Fund manager is entitled to 10% performance generated above the cash rate* *Cash is defined as follows: GBP: SONIA, EU: EONIA, CHF: SARON, SEK: STIBID, USD: Federal Funds Effective Overnight Rate For further information on different shareclasses and charges, please read the Prospectus and Key Investor Information Document (KIID). You can find these in the literature section of our website. www.standardlifeinvestments.com Ignis Absolute Return Government Bond Fund 7
Important information This communication has promotional purposes and is intended as a summary. It does not constitute an invitation, offer, solicitation or recommendation to purchase or sell shares in the Fund. It is only intended for distribution to Investment Professionals. Distribution of this document and the offering of shares in certain jurisdictions may be restricted by law and accordingly persons into whose possession this document comes are required to inform themselves about and to observe such restrictions. The views expressed do not constitute investment advice. This report does not form any part of any contract for the sale or purchase of any investment. Past performance is not a guide to future performance. The absolute return nature of the fund means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested. The Fund takes long and short positions based on the fund manager s views of the market direction. This means the Fund s performance is unlikely to track the performance of broader bond and equity markets. While this creates the opportunity for a fund to deliver positive returns in falling markets, it also means that a fund could deliver negative returns in rising markets. The value of investments and any income from them can fall as well as rise and is not guaranteed. Exchange rate movements may cause the value of investments to fluctuate. Subscriptions in the Fund are only valid if made on the basis of the current Prospectus, the Supplement to the Prospectus, the most recent financial reports and the Key Investor Information Document (KIID) which are available on our website www.standardlifeinvestments.com. UK based investors should read the KIID in conjunction with the Supplementary Information Document (SID) before investing with us. Tax assumptions and reliefs depend upon an investor s particular circumstances and may change if those circumstances or the law change. Potential investors should consult their financial & tax advisers before purchasing or selling shares in the Fund. The fund is a sub fund of Ignis Global Funds SICAV, an investment company organised under the laws of the Grand Duchy of Luxembourg as a Self Managed SICAV. The investment company has its registered office at Vertigo-Polaris, 2-4 Eugene Ruppert, L-2453 Luxembourg, and is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. The sub fund is a Recognised Scheme in the UK under Section 264 of the Financial Services & Markets Act 2000 and is promoted in the UK accordingly. The sub fund is currently registered for public distribution in the following countries: Luxembourg, UK, Spain, Germany, Austria, France, Netherlands, Belgium, Sweden, Switzerland, Finland, Italy, Denmark, Ireland & Norway. Copies of all relevant scheme documentation can be obtained free of charge from the locally appointed paying agents. Austrian Paying Agent: Unicredit Bank Austria, 8398 Global Securities Sales & Services, P.O. Box 35, A-1011 Vienna; French Paying Agent: Société Générale SA, 29 Boulevard Haussmann, F-75009 Paris; German Information Agent: Société Générale SA, Neue MainzerStraße 46-50, D-60311 Frankfurt / Main; Italian Paying Agent: RBC Dexia, Via Vittor Pisani 26, 20124 Milan; Luxembourg Paying Agent: Société Générale, 11 Avenue Emile Reuter, L-2420 Luxembourg; Netherlands Paying Agent: ING Bank NV, Van Heenvlietlaan 220, Location Code BV.06.01, NL-1083 CN Amsterdam; Belgium Paying Agent Fastnet Belgium SA, B-1000 Brussels, Avenue de Port 86C, b320; Spanish Paying Agent: RBC Dexia Investor Services España SA, calle Fernando El Santo no20, Madrid 28010; Swedish Paying Agent: SEB Merchant Banking, Sergels Torg 2, SE-106 40 Stockholm. Swiss Representative: First Independent Fund Services Ltd., Klausstrasse 33, CH-8008 Zurich. Paying Agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, P.O. Box, CH-8022 Zurich. Irish Paying Agent: Bridge Consulting Limited, 33 Sir John Rogerson s Quay, Dublin 2; Danish Paying Agent: Skandinaviska Enskilda Banken AB (publ), Bernstorffsgade 50, 1577 Copenhagen V, Denmark. Find out more For further details on the Absolute Return Government Bond Fund, visit our website standardlifeinvestments.com. Alternatively, please speak to your local contact at Standard Life Investments. Visit us online standardlifeinvestments.com The value of an investment and any income from it is not guaranteed and can go down as well as up. An investor may get back less than they invested. 8 Ignis Absolute Return Government Bond Fund
This document has been issued by Ignis Investment Services on behalf of Ignis Global Funds SICAV. Ignis Investment Services is registered in Scotland Number SC101825. Registered Office: 1 George Street, Edinburgh EH2 2LL. Authorised and regulated by the Financial Conduct Authority. Ignis Asset Management Limited and its subsidiaries are part of the Standard Life Investments group (Standard Life Investments (Holdings) Limited and its subsidiaries). 10 Ignis Absolute Return Government Bond Fund Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated in the UK by the Financial Conduct Authority. www.standardlifeinvestments.com 2016 Standard Life, images reproduced under licence INVBBRO_16_1625_IGNIS_ARGBF_Fund_Guide_TCM 0616