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Ignis Absolute Return Government Bond Fund Diversified returns from global government bonds and currencies
This presentation is intended for professional clients and investment professionals
only and should not be relied upon by retail investors.
Investment case: the investment world has changed…
Ignis Fixed Income
Investment process
Performance
Example trade strategies
Introduction/Agenda
February 12
1
Ignis Absolute Return Government Bond Fund
Investment case
February 12
Ignis Absolute Return Government Bond Fund
2
Challenging conditions:
From NICE…
(Non Inflationary, Constant Expansion)
…to VILE
(Volatile Inflation Limited Expansion)
Resulting in:
low growth
low returns
volatile trading range
February 12
3
Investment case
The investment world has changed…
Source: Datastream at 18/01/2012.
-6
-4
-2
0
2
4
6
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
%
G10 annual GDP
Volatile nominal growth NICE economic conditions
VILE decade
February 12
4
Investment case
Fixed income: limited potential for long-only strategies
Source: Datastream at 13/01/2012
Performance:
Gains have been strong and yields
are close to historic lows (with some
divergence)
Outlook:
Correction (when it comes) will lead
to capital losses
0
2
4
6
8
10
12
14
16
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
%
G10 10 year sovereign yields
Belgium Canada France
Germany Italy UK
US Netherlands Sweden
Switzerland Japan
List header three List header four List header one List header two
• Low interest rate environment
• Unspectacular economic growth
• No clear trends in asset markets
• Highest quality and most liquid securities (long and short exposure)
• Developed market government bonds
• AAA bonds issued by supranationals (IMF, World Bank, etc)
• Foreign currency - max 25% of total risk budget (G10 only)
The Ignis Rates proposition An innovative fund:
February 12
*The fund’s target volatility is a standard deviation level of 4-6%, it is managed to deliver stable returns regardless of market moves.
Designed to deliver: Investing in: Proven performance in:
• Performance in all market conditions
• Low volatility: 4-6% standard deviation*
• Information ratio of 0.75+
• Low correlation with other asset classes
• Alpha not beta
Investment case
5
Delivering performance in challenging markets
February 12
6
Investment case
Ignis Absolute Return
Government Bond Fund:
Delivered steady returns
Low volatility
Low correlation with other asset
classes
Alpha rather than beta
-3
-2
-1
0
1
2
3
4
5
6
7
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11
%
Performance*
Ignis Absolute Return Government Bond EUR I Class (6.0%)
EONIA (0.7%)
Lipper Global Absolute Return (-1.2%)
*Source: Lipper, net of fees, since launch on31/03/2011 to 30/12/2011. EONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. **Source: Internal at 30/12/2011. Past performance is not a guide to future performance.
0%
2%
4%
6%
8%
10%
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11
Ex ante annualised volatility**
Parametric 5y99% AnnualVolatility
7
February 12
Investment case
Lowly correlated returns
Source: Lipper at 30/12/2011, correlation of daily returns in EUR based on EUR I share class since fund launch on 31/03/2011. Past performance is not a guide to future performance.
Since launch the fund has exhibited low correlation with other asset classes, and a negative correlation with equities:
Ignis Absolute Ret Govt Bond
MSCI Europe Barclays Capital Euro Aggregate Corporate
Barclays Capital Euro Government
All Maturities ETFS Physical Gold
Ignis Absolute Ret Govt Bond 100.00% -47.86% 27.23% 5.67% 24.12%
MSCI Europe -47.86% 100.00% -21.68% -15.95% -23.46%
Barclays Capital Euro Aggregate Corporate
27.23% -21.68% 100.00% 36.29% 28.90%
Barclays Capital Euro Government All Maturities
5.67% -15.95% 36.29% 100.00% 7.11%
ETFS Physical Gold 24.12% -23.46% 28.90% 7.11% 100.00%
Ignis Fixed Income
February 12
Ignis Absolute Return Government Bond Fund
8
Stable, experienced team
Flexible, innovative approach
Proprietary technology and investment tools
Led by Ignis CIO Chris Fellingham
February 12
9
Ignis Fixed Income
Ignis Fixed Income: a broad range of capabilities
39%
28%
10%
23%
Direct funds under management - €60.0bn*
Sovereign and related supras, inflation linked
Liquidity
Volatility
Credit
*Source: Ignis at 30/09/2011.
Manages €23.0bn*
Specialises in government bonds
and currencies
Multi-specialist structure provides
combination of perspectives
Team includes chief economist
Stuart Thomson
February 12
10
Ignis Fixed Income
Ignis rates team: complementary skill set
*Source: Ignis at 30/09/2011. (Figures in brackets are number of years of investment experience).
Head of Rates
Quant Team Macro
Economics Portfolio
Management Specialist Fixed Income Team
Russ Oxley (14)
Adam Purzitsky (7) Ross Crawford (11) Josh Heming (13)
Stuart Thomson (26)
Grant Peterkin (12) Paul Shanta (3)
Jin Wong (5) Rod Jack (40)
Aaron Rock (5)
Matthew Porter (15) Rowan Gallagher (5) Colin Goymer (16)
CIO
Chris Fellingham (26)
Investment process
February 12
Ignis Absolute Return Government Bond Fund
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Investment process We believe alpha is created by well thought out macroeconomic views applied precisely in a risk controlled process
Value Clarity and
precision Control
Proprietary
model
February 12
12
Investment process
Investment Themes Meeting
Academic research/
Think-tanks
Investment Banking Reports/ Market
Intelligence
Economic Data
Themes meeting is multi-disciplinary
Experienced team with a range of backgrounds
Chief economist is a member of Rates team
Value: generating the macro view
Key Investment Themes
Asset preferences
February 12
13
Investment process
Academic research/
Think-tanks
Developed country carry strategies, directional bets on global policy rates
Directional bets on developed market forward rates driven by global competition for capital
Directional bets on risk free forward rates driven by structural supply and demand
Technical analysis; macroeconomic medium term view; Short term view driven by market information
Macro driven: isolate inflation risk
Opportunities between risk free and derivative curves
Volatility positions on developed market bonds or interest rate derivatives
Uncorrelated performance sources: the Arc of Alpha
February 12 Investment process
14
< 2
2-15
>15
FX
Inflation
Asset
Swaps
Volatility
0.00
1.00
2.00
3.00
4.00
5.00
German Forward rate curve
Forward - 02/11/2011
Forward - 04/01/2011
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
1y0y 1y2y 1y4y 1y6y 1y8y 1y10y 1y12y 1y14y 1y16y 1y18y 1y20y 1y22y 1y24y 1y26y 1y28y
%
Clearcurve: a key proprietary tool Deconstructing the forward rate 'curve'
February 12 Investment process
15
Calculates forward curves for all instruments
Assists in benchmark construction and portfolio implementation
Dominated by changes in domestic structural supply and demand / regulation
Global competition for capital / global macro Expectation of base rates
Source: ClearCurve, November 2011.
Monitors portfolio risk
Scales active positions according to risk budget
Implementing views using ClearCurve
16
February 12 Investment process
German Forward Curve
Potential positions
Carry:
Long 1y4y fwd
- Long 5yr bund, short 4yr bund
Directional:
Long 1y9y fwd
- Long 10yr bund
Relative value:
Long 1y14y and 1y19y
short 1y16y and 1y17y
- Long 15yr, 16yr and 20yr bund, short
14yr, 18yr and 19yr bund
Source: ClearCurve, October 2011.
G10 sovereign bonds
Bond futures
Interest rate swaps
OTC options (on rates and currencies)
Swaptions
Currency forwards
Inflation swaps and options
Highly liquid instruments used to implement alpha strategies:
February 12 Investment process
17
Portfolio risk is controlled and managed through:
Front, UBS Delta, and ClearCurve
Fund manager parameters and oversight:
- Target volatility range: 4-6% standard deviation
- Average monthly VaR* of 2.2% since inception
Risk management at core of process
February 12 Investment process
18 *VaR at 99% confidence level, source Ignis 30/01/2012. **Source: Ignis at 30/12/2011. Past performance is not a guide to future performance.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11
Ex ante annualised volatility**
Parametric 5y 99% Annual Volatility
Diversified strategies: effective in a volatile environment
19
February 12 Investment process
Ex-a
nte
tra
ckin
g er
ror
%
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
Source: UBS Delta, data since launch on 31/03/2011 to 30/12/2011. The fund takes risks by implementing different strategies. If each strategy was well correlated, the total risk of the fund would be a sum of the parts. In fact, the strategies are lowly correlated. This creates a diversification benefit, reducing the fund’s total volatility.
Performance
February 12 Ignis Absolute Return Government Bond Fund
20
Outperformance since launch
21
February 12 Performance
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11
IARGBF EUR Class I
EONIA
*Source: BNY/DataStream, total return, net of fees, since launch on 31/03/2011 to 30/12/2011. EONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. Past performance is not a guide to future performance.
Conclusion
February 12 Ignis Absolute Return Government Bond Fund
22
List header three List header four List header one List header two
• Clearcurve – developed by Ignis in 2006
• Unique in extracting forward rates from G10 government bonds
• Provides a more accurate view of the path of G10 interest rates
• High level of experience in both long and short investing
• Chief economist part of team
• Risk management embedded within process
• Team have dedicated quant specialists
What sets us apart?
February 12
Alpha not beta Diversified skill set Innovative approach
• Performance in all market conditions
• Non-directional (although core views taken)
• Lowly correlated to credit, gilts, gold and equities
• Manager not constrained by any particular biases
Ignis Absolute Return Government Bond Fund
23
^This is the rate that large banks use to borrow from, and lend to, one another on the overnight market. **Performance fee is net of fees, over compounded cash rates and subject to a high water mark.
Fund manager Russ Oxley (lead manager), Stuart Thomson (co manager)
Launch date 31 March 2011
Sector Lipper Absolute Return Euro Low
Structure UCITS III SICAV
Domiciled Luxembourg
Benchmark EONIA^
Liquidity Daily dealing
Minimum investment EUR A Class: €1,000 EUR I Class: €1,000,000
Annual management fee EUR A Class: 1% EUR I Class: 0.3%
Performance fee Fund manager is entitled to 10% of performance
generated above EONIA^ with a high water mark**
Registered for sale: Luxembourg, UK, Spain, Germany, Austria, France, Italy, Sweden, Switzerland
and Finland
Fund profile
February 12 Ignis Absolute Return Government Bond Fund
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Example trade strategies
Ignis Absolute Return Government Bond Fund February 12
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5
5.2
5.4
5.6
5.8
6
6.2
6.4
6.6
6.8
Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11
Australian 5y5y Swap
Initial entry
Shortage of AAA safe haven assets means these markets will benefit from flight to quality
Australia - a very interesting opportunity:
- operates strong balance sheets (high credit quality)
- slowing global growth will lead to monetary easing
- yields will fall from current levels
Fund: long Australian 5y5y in varying size (since August)
Traded around position during Q4
Core strategy: long ‘true AAA’ government debt Risk bucket: 2 - 15 years
February 12 Example trade strategies
26 Source: Clearcurve at 30/11/2011.
Expectation of ongoing quantitative easing in the UK
- 25 October: final ultra-long issuance of 2011 in UK
- Supply/demand dynamics favour long UK ultra forward rates
Fund: purchased ultra long UK treasuries out of shorter dated issues
Constructed position that benefited from 70bps fall in the 20y30y rate
Strategy: long UK 20y30y forward rates Risk bucket: > 15 years
February 12 Example trade strategies
27
-180
-130
-80
-30
20
70
120
170
-6
-4
-2
0
2
4
6
1y0y 1y5y 1y10y 1y15y 1y20y 1y25y 1y30y 1y35y 1y40y 1y45y
Forward Change Forward 15th Nov Forward 25th Oct
The rally in November was predominantly in the long dated forwards.
Source: Clearcurve at 30/11/2011.
Expectation that the strengthening yen will force intervention (as in Switzerland)
- Break below $76 was final straw for the Japanese
- a short yen position offered fantastic risk/reward as intervention would push rates higher
- potential downside was relatively limited
Fund: long 4% USDJPY @ blended rate of 77.1
Profit taken at 78.87 (16bps gain)
Strategy: bearish on yen Risk bucket: FX
February 12 Example trade strategies
28
75
75.5
76
76.5
77
77.5
78
78.5
79
79.5
80
Sep-11 Oct-11 Nov-11
US dollar versus Japanese yen
Entry
Profit taken (near intraday high)
Source: Clearcurve at 30/11/2011.
Sought to take advantage of Operation Twist
Anticipated Fed would:
- Sell short-dated bonds
- Purchase longer-dated US bonds
Fund: rotated out of long 5y5y US position into long 10y5y
Core strategy: long US 10y5y Risk bucket: 2 - 15 years
February 12 Example trade strategies
29
3.00
3.20
3.40
3.60
3.80
4.00
4.20
4.40
4.60
Aug-11 Sep-11 Oct-11 Nov-11
US 10y5y
Source: Clearcurve at 30/11/2011.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
EONIA Dec 10 EONIA Dec 11
Sonia Dec 10 Sonia Dec 11
We have two base outcomes for Europe:
- i) Banking collapse
- ii) Closer fiscal union
Both have large negative outcomes for growth and inflation
Leading to period of mass deleveraging, fiscal austerity and low growth
Expectation:
- interest rates will be cut further and stay low for 5 years
- front dated forwards 3y2y are mispriced and do not reflect this
Fund: Long 3y2y through government bond futures and EONIA swaps
Strategy: European interest rates will be cut and stay low Risk bucket: < 2 years
February 12 Example trade strategies
The red lines represent the move in the EONIA (Euro) curve over the past year. The blue lines represent the move in the SONIA (UK) curve
Short dated forwards in Europe too cheap
Source: Clearcurve at 17/01/2012. 30
11.5
22.5
33.5
44.5
55.5
6
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
US 10y Yield German 10y Yield UK 10y Yield
-20
0
20
40
60
80
100
120
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
UK vs Germany 10y Spread
Front end of German market anchored by falling rate expectations
Expect concern over the credit quality of Germany - who will foot the bill for euro survival - to come through the 5y5y point in the curve
Fund: holds long 5y5y positions in Australia and US versus short 5y5y bunds position
Strategy: Short bunds versus other markets Risk bucket: 2 - 15 years
February 12 Example trade strategies
31
Following the failed auction in Germany the market turned on all Euro assets causing a 50bps relative sell off in bunds versus 10y UK bonds.
Source: Clearcurve at 17/01/2012.
Appendix
February 12
Ignis Absolute Return Government Bond Fund
32
Contact us
France and Switzerland (French)
Philip Goldsmith, Managing Director Europe
Mob: +41 (0)79 753 35 74 / +44 (0)7836 243 999
Email: philip.goldsmith@ignisasset.com Iberia and Latin America
Mauro Loran Garcia, Regional Director
Mob: +34 (0)616 463 917
Email: mauro.loran@ignisasset.com
Germany, Austria and Switzerland (German)
André Haubensack, Regional Director
Mob: +41 (0)79 373 79 13
Email: andre.haubensack@ignisasset.com Benelux
Ghislaine Fournigault, Regional Director
Tel: +44 (0)20 3003 3125
Email: ghislaine.fournigault@ignisasset.com
Italy and Ticino
Arcangelo Barletta, Regional Director
Mob: +39 (0)392 89 60 736
Email: arcangelo.barletta@ignisasset.com
Nordics
Tel: +44 (0)20 3003 3153
Email: igniseurope@ignisasset.com
Telephone calls may be monitored and/or recorded for the purpose of security, internal training, accurate account operation, internal customer monitoring and to improve the quality of service.
Your main contact Your regional support
European Sales Support Manager Dee Clarkin Tel: +44 (0)20 3003 3127 Email: dee.clarkin@ignisasset.com
Business Development Executive Riccardo Villa Mob: +39 (0)347 27 52 557 Email: riccardo.villa@ignisasset.com
Business Development Executive Julien Ricklin Tel: +44 (0)20 3003 3124 Email: julien.ricklin@ignisasset.com
Business Development Executive Johanna Pollet Tel: +44 (0)20 3003 3128 Email: johanna.pollet@ignisasset.com
February 12
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Ignis Absolute Return Government Bond Fund
Disclosure This information is intended for professional clients and investment professionals only and should not be relied upon by retail investors.
The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice. 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. This document does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to
make such offer or solicitation.
Further detailed information regarding the Fund, its Prospectus, its latest annual reports and any subsequent half-yearly reports (including information on how to switch, buy and sell units of the Fund and other unit classes available), is available free of charge from Ignis Investment Services Ltd. You can also obtain these documents through
our website www.ignisasset.com/international
Past performance is not a guide to future performance.
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 the fund to deliver positive returns in falling markets, it also means that the 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.
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, Sweden and Finland. It is
registered for institutional distribution only in Italy. 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; 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.
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: 50 Bothwell Street, Glasgow G2 6HR.
Authorised and regulated by the Financial Services Authority.
February 12
Ignis Absolute Return Government Bond Fund
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