citiwire north september 2012
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For professional use only – Not for Public distribution
September 2012
Aberdeen Emerging Market Debt
Max Wolman, Portfolio Manager, Emerging Market DebtAberdeen Asset Management
Our investment approach
• Intensive, fundamental research is key
• Having the confidence to take high conviction positions
• Avoiding the distraction of short term volatility
• Investing for the long term
• Team based decision making
1
Leaving no stone unturned
The investment team
• Well resourced team
• Broad range of specialist skills across the asset class
• Strong research focus
• Formal weekly portfolio review and six-weekly strategy meetings
• Monthly meetings with emerging markets equity, global macro, US and Asian fixed income teams
2
Brett Diment(21 years)
Edwin Gutierrez(17 years)
Kevin Daly(23 years)
Esther Chan(9 years)
Max Wolman(12 years)
Siddharth Dahiya(6 years)
Andrew Stanners(12 years)
Viktor Szabo(12 years)
Ewa Gray(8 years)
Anthony Simond(4 years)
Flora Sexton(4 years)
Strong challenge culture
(-) denotes years
industry experience
Source: Aberdeen
Asset Management,
30 June 2012
Kathy Collins(4 years)
Debora Confortini(4 years)
Five steps to delivering alpha
3
Risk Framework
Portfolio
Relative value
Scenario forecasts
Gauging market dynamics
Fundamental research
Sample of current positions
% Index Portfolio SovereignUS$
bonds
Corporate US$
bonds
SovereignLocal bonds
Currency exposure
Brazil 7 6 1 3 2 2
China 3 2 1 1 1
Georgia 1 1
Indonesia 6 4 3 1
Ivory Coast 1 2 2
Lithuania 3 4 4
Malaysia 2 2 2 2
Mexico 6 15 9 1 5 5
Philippines 6 1 1
Qatar 2 2
Russia 6 6 3 3
S. Africa 4 7 3 4 1
UAE 5 3 2
Uruguay 2 2 2 2
Venezuela 4 6 64
Source: Aberdeen Asset
Management
Positions for the
Aberdeen Emerging
Markets Bond Fund,
8 Aug 2012
EMD 2012 outlook
• Chinese growth will continue to moderate, consensus around 8% for 2012
• Potential scope for further quantitative easing by both the Fed and ECB
• Hard currency spreads remain attractive given low default risk
• Selective exposure to EMFX and corporates offers further potential for outperformance
• Inflows into EMD remain supportive as investors seek yield in ‘lower for longer’ world
• Rising agricultural and oil prices may halt disinflationary trend
• Risks: Eurozone sovereign debt crisis, stronger US economic data and China hard landing
5
EMD yields stand out in ‘lower for longer’ world
EM external, domestic and corporate indices are all investment grade
EM Local currency index: JPM GBI-EM GD, EM Hard currency index: JPM EMBI GD, EM Corporate index: JPM CEMBI BD
Source: JP Morgan, S&P, Bloomberg, 28 June 12
0
2
4
6
8
10
12
14
Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
Yield (%)
EM Local Currency (BBB+) EM Corporates (BBB) EM Hard Currency (BBB-)
US 10yr (AA+) Germany 10yr (AAA)
6
Country 10 year bond yield (%) Inflation yoy (%) Real yield Credit rating S&P
Brazil 9.7 5.2 4.5 A-
Colombia 6.6 3.0 3.6 BBB+
Russia 7.9 5.6 2.3 BBB+
Malaysia 3.4 1.6 1.8 A
Hungary 7.4 5.6 1.8 BB+
South Africa 7.1 5.5 1.6 A
Peru 4.5 3.3 1.3 BBB+
Indonesia 5.7 4.6 1.1 BB+
Mexico 5.4 4.3 1.0 A-
Japan 0.8 -0.2 1.0 AA-
Poland 4.9 4.3 0.6 A
Thailand 3.2 2.7 0.5 A-
US 1.7 1.7 0.0 AA+
Germany 1.4 1.7 -0.3 AAA
UK 1.6 2.4 -0.8 AAA
Turkey 8.2 9.1 -0.9 BBB-
Source: S&P, Bloomberg, 9 Aug 12
Real yields yet to reflect dramatic improvement in fundamentals
7
Consumption on the rise
China: rebalancing is underway
8
Real wage growth during the past decade
Source: Lu Feng, "Employment expansion and wage growth (2001 - 2010)", China
Macroeconomic Research Center, Peking University, Beijing, Feb 12 Source: CEIC, Barclays Capital, Feb 12
350
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010
Real salary Polynomial trendM
igra
nt
work
ers
month
ly s
ala
ry (
CN
Y,
1978p)
Consumption Investment Net export
1998 2002 2004 2006 2010
0
10
20
30
40
50
60
70
80
90
100
20082000
Hourly wage in manufacturing
Mexico: gaining export competitiveness vs China
Dollars China Mexico
* Estimate for China
Source: ILO and INEGI, Feb 12
* Mexican FDI on manufacturing as a percentage of total FDI flows
Source: OECD, ECLAC, UNCTAD and Central Banks, Feb 12
Mexican foreign direct flows on manufacturing
% of worldFDI*
% of Latin American total FDI
% of total Latin American FDI on
manufacturing
2007 0.61 11.06 33.47
2008 0.40 5.50 18.48
2009 0.44 6.88 23.53
2010 0.92 10.27 28.47
• The convergence in costs with China has led to an increase in market share and in foreign direct investment flows in manufacturing
9
2.5
2.0
1.5
1.0
0.5
0.0
2002
2003
2004
2005
2006
2007
2008
2009*
2010*
237.9%
17.4%
South Africa: primed for take off
• In October, South Africa will become the 23rd country to be admitted to the Citigroup World Government Bond Index (WGBI). It will join Poland, Malaysia and Mexico as the only Emerging Markets constituents.
• AuM benchmarked against the WGBI is estimated to exceed US$2trn (with significant passive tracking in Europe and Japan), resulting in an estimated US$5bn inflow into the local market, representing over 5% of the total value of outstanding government bonds.
• South Africa will have the highest average yield to maturity at 7.6% currently vs. 1.6% for index overall; compared to 3.4% for Malaysia, 4.7% for Poland, and 5.9% for Mexico.
• Mexico’s entry into the WGBI coincided with a period of risk aversion which weighed heavily against its bonds’ yields for three months – subsequently on-going foreign buying has helped to reduce yields to record low rates.
South African 10 Year Yield-to-Maturity* (%)
Source: Citigroup;
Bloomberg, 27 Jul 12;
Banco de Mexico.
10
Announcement of WGBI inclusion
Foreign Holdings of Mbonos
5.00
5.50
6.00
6.50
7.00
7.50
8.00
20%
25%
30%
35%
40%
45%
50%
04/10 08/10 12/10 04/11 08/11 12/11 04/12
Foreign Holdings of Mbonos (%Total, LHS)
Mexican 10yr YTM (%, RHS)
Actual WGBI inclusion
6.4
6.6
6.8
7
7.2
7.4
7.6
7.8
8
8.2
8.4
01/12 02/12 03/12 04/12 05/12 06/12 07/12
*SAGB 6 ¾ 03/21
Lithuania: the Baltic solution works
11
Fiscal Deficit (%GDP)
-0.5 -0.4 -1.0
-3.3
-9.5
-7.1
-5.1
-2.8
-10.0
-9.0
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
2005 2006 2007 2008 2009 2010 2011E 2012F
Real GDP Growth (%Change)
7.8 7.8 9.8
2.9
-14.7
1.3
6.03.4 3.6
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2005 2006 2007 2008 2009 2010 2011E 2012F 2013F
Source: Lithuania Ministry of Finance, Jan 12; IMF World Economic Outlook, Sep 11
• The economy contracted by a cumulative 18% from the second quarter of 2008 to the end of 2009 as the country suffered from an unsustainable consumption and real estate boom
• Output has since rebounded by a cumulative 15% in the two years ending in 2011. Export growth has been the main driver of the recovery, aided by strong economic growth in Lithuania’s main export partners – Russia, Germany and Poland
• Significant nominal wage declines have also helped to restore competitiveness
• Authorities have implemented significant budgetary restraint since 2009, mostly through a reduction in wages and social security expenditures – the fiscal consolidation has totalled approximately 12% of GDP
• In 2012, the budget deficit is expected to be -2.8% of GDP and public debt is forecast to be 38.8% of GDP. Both of these figures are below the targets as set out by the Maastricht criteria
Searching for yield in Frontier Markets
12Sources: IMF World Economic Outlook Database, Apr 12; Figures are for 2012 forecasts. Bloomberg, 31 Jul 12.
Ivory Coast Ghana Gabon Senegal
Real GDP growth (%) 8.1 8.8 5.6 4.4
Fiscal balance (%GDP) -4.4 -4.9 5.1 -5.8
C/A balance (%GDP) -2.8 -6.9 11.7 -10.0
Total public debt (%GDP) 50.0 42.1 17.3 43.7
Eurobond yield-to-maturity (%) 8.44% 5.57% 4.20% 6.78%
Rating (S&P/Moody’s/Fitch) NR/NR/NR B/NR/B+ BB-/NR/BB- B+/B1/NR
Attractive yields (%)
2
4
6
8
10
12
14
16
18
May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12
Ivory Coast
Senegal
Ghana
Gabon
GCC: Uncorrelated safe haven
• Dubai reinvents itself post the construction boom.
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GCC FX reserves are at an all-time high – providing the region with an unprecedented war chest
Source: Haver, IFS, BofA Merrill Lynch Global Research
Dubai real GDP by economic sector – 2008 Dubai real GDP by economic sector – 2011
Source: Dubai Statistics Centre, Dubai EMTN prospectus, Haver, BofA Merrill Lynch Global Research, July 2012
Oil (US$/bbl) GCC Fx reserves (US$bn, rhs)
140
120
100
80
60
40
20
01964 1970 1976 1982 1988 1994 2000 2006 2012
700
600
500
400
300
200
100
0
Oil2%
Manufacturing11%
Construction& Real Estate
31%
Trade, Hotels& Restaurants
33%
FinancialCorporations
11%
Other12%
Oil2%
Manufacturing14%
Construction& Real Estate
21%
Trade, Hotels& Restaurants
35%
FinancialCorporations
11%
Other17%
EMD solutions
EMD Plus – invests in hard currency sovereigns, quasi sovereigns and corporate bonds, localcurrency debt and FX
• Pooled funds: Aberdeen Global – Select Emerging Markets Bond Fund ($2,073m)
Aberdeen Emerging Markets Bond Fund ($64m)
• Benchmark: JP Morgan EMBI Global Diversified
• AUM: $3,551m
EMD Local Currency – invest primarily in local currency debt and FX
• Pooled fund: Aberdeen Global – Emerging Markets Local Currency Bond Fund ($231m)
• Benchmark: JP Morgan GBI-EM Global Diversified
• AUM: $3,240m
EMD Core – invest primarily in hard currency sovereign and quasi sovereign bonds
• No pooled fund
• Benchmark: JP Morgan EMBI Global Diversified
• AUM: $1,913m
EM Corporates – invest in hard currency corporate bonds
• Pooled fund: Aberdeen Global – Emerging Markets Corporate Bond Fund ($128m)
• Benchmark: JP Morgan CEMBI Broad Diversified
• AUM: $800m
As of 31 August 2012 14
Aberdeen Global – Select Emerging Markets Bond FundKey fund facts as at 31 July 2012
Source: Aberdeen Asset
Managers, BPSS,
Datastream, Gross, USD, 50
150
250
350
450
Sep 01 Sep 02 Sep 03 Sep 04 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11
Fund (Gross) JPM EMBI GD USD
Performance (Gross)
Performance (Gross)
Key facts
Fund Size US$2.0 billion
Launch date 15 Aug 01
Investment Team Emerging Markets Bond Team
Benchmark JPM EMBI GD USD
Number of holdings 133
% in top ten holdings 27.2%
ISIN LU0132414144
Valoren 1292009
Annual Management Charge (AMC) 1.50%
Share class A2 Acc
Total Expense Ratio (TER) 1.69%
Fund domicile Luxembourg
% YTD 1 year Annualised
3 years 5 years Launch
Fund 12.63 11.81 16.86 10.61 14.50
Benchmark* 11.09 11.77 13.33 10.21 10.96
Difference +1.53 +0.04 +3.53 +0.40 +3.53
* Benchmark: JP Morgan EMBI Global Diversified
Risk analysis 3 years
Tracking error 3.02
Information ratio 1.08
Sharpe ratio 1.89
15
Aberdeen Emerging Markets Bond Fund
16
Key fund facts as at 31 July 2012
Source: Aberdeen Asset
Managers, BPSS,
Datastream, Gross, USD,
95
100
105
110
115
120
Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12
Fund (Gross) JPM EMBI GD USD
Performance (Gross)
Performance (Gross)
Key facts
Fund Size £39.1million
Launch date 9 March 2011
Investment Team Emerging Markets Bond Team
BenchmarkJPM EMBI Global Diversified (Hedged to GBP)
Number of holdings 105
% in top ten holdings 27.3%
ISIN GB00B5BV9P41
Bloomberg ABEEBAA LN
Annual Management Charge (AMC) 1.50%
Share class A Acc
Total Expense Ratio (TER) 1.87%
Fund domicile UK
% YTD 1 year Annualised
3 years 5 years Launch
Fund 12.17 10.41 - - 13.09
Benchmark* 10.90 11.34 - - 12.90
Difference +1.28 -0.93 - - +0.19
* Benchmark: JP Morgan EMBI Global Diversified (Hedged to GBP)
Risk analysis Since inception
Tracking error 2.82
Information ratio 0.10
Sharpe ratio 1.39
Aberdeen Global – Emerging Markets Local Currency Bond FundKey fund facts as at 31 July 2012
90
100
110
120
130
Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
Fund (Gross) JPM GBI-EM GD USD
Performance (Gross)
% YTD 1 year Annualised
2 years 5 years Launch
Fund 9.44 -1.39 6.20 -- 6.49
Benchmark* 9.38 -0.85 6.76 -- 6.93
Difference +0.06 -0.54 -0.56 -- -0.45
* Benchmark: JP Morgan GBI-EM Global Diversified
Source: Aberdeen Asset
Managers, BPSS,
Datastream, Gross, USD
Performance (Gross) Key facts
Fund Size US$230.1 million
Launch date 6 April 10
Investment Team Emerging Markets Bond Team
Benchmark JPM GBI-EM GD
Number of holdings 57
% in top ten holdings 41.6%
ISIN LU0396317926
Valoren 4983937
Annual Management Charge (AMC) 1.50%
Share class A2 Acc
Total Expense Ratio (TER) 1.75%
Fund domicile Luxembourg
17
Risk analysis Since launch
Tracking error 1.76
Information ratio -0.22
Sharpe ratio 0.44
Aberdeen Global – Emerging Markets Corporate Bond FundKey fund facts as at 31 July 2012
Source: Aberdeen Asset
Managers, BPSS,
Datastream, Gross, USD
Performance (Gross)
90
100
110
120
Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
Fund (Gross) JPM CEMBI BD
Performance (Gross) Key facts
Fund Size US$120.3 million
Launch date 30 Dec 10
Investment Team Emerging Markets Bond Team
Benchmark JPM CEMBI Broad Diversified
Number of holdings 111
% in top ten holdings 16.2%
ISIN LU0566480116
Valoren 12575568
Annual Management Charge (AMC) 1.50%
Share class A2 Acc
Total Expense Ratio (TER) 1.81%
Fund domicile Luxembourg
* Benchmark: JP Morgan CEMBI Broad Diversified
** Annualised
% 3 months 6 months YTD 1 year Launch**
Fund 2.98 7.64 11.31 6.53 8.21
Benchmark* 3.25 6.64 9.31 6.63 7.33
Difference -0.28 +1.00 +2.01 -0.10 +0.87
18
Risk analysis Since launch
Tracking error 3.57
Information ratio 0.31
Sharpe ratio 0.76
Total assets under management $286.5bn
Total emerging market assets $100.4bn**
About Aberdeen Asset Management
• Aberdeen is an LSE listed* asset management company
- Sole focus on our clients' portfolios and their interests
• Global reach and local understanding
- 30 offices and over 500 investment professionals worldwide
- Investors based in all the key regions in which we invest, providing strong local knowledge
• Core investment expertise in emerging markets across both fixed income and equities
• Transparent investment processes
- As fundamental investors, our investment decisions are based on our own research
Equities51%
Fixed Income
21%
Aberdeen Solutions
13%
Property10%
Money Market
5%
* Since 1991
** Specialist mandates
Source: Aberdeen Asset
Management, 30 Jun 12Emerging Market
Debt $7.8bn
Emerging Market Equities$52.6bn
Asian Debt$2.6bn
Asian Equities$37.4bn
19
Emerging Markets Debt team
20
Brett Diment, Emerging Market & Sovereign Debt Brett joined Aberdeen via the acquisition of Deutsche Asset Management's London and Philadelphia fixed income businesses in 2005. He held the same role at Deutsche Asset Management from 1999. Brett joined Deutsche Asset Management in 1991 as a graduate and started researching emerging markets in1995. Brett graduated with a BSc from the London School of Economics.
Edwin Gutierrez, Portfolio ManagerEdwin joined Aberdeen following the acquisition of Deutsche Asset Management's London and Philadelphia fixed income businesses in 2005. He held the same role at Deutsche Asset Management, joining in 2000. Previously, Edwin worked as an emerging debt portfolio manager at Invesco Asset Management and as a Latin American economist at LGT Asset Management. Edwin graduated with an MSc from Georgetown University.
Kevin Daly, Portfolio ManagerKevin joined Aberdeen in April 2007 having spent the previous 10 years at Standard & Poor's in London and Singapore. During that time Kevin worked as a credit market analyst covering global emerging debt, and was head of origination for Global Sovereign Ratings. Kevin was a regular participant on the Global Sovereign Ratings Committee, and was one of the initial members of the Emerging Market Council, formed in 2006 to advise senior management on business and market developments in emerging markets. Kevin graduated with a BA in English Literature from the University of California, Los Angeles.
Max Wolman, Portfolio ManagerMax joined Aberdeen in 2001 from Liontrust Asset Management initially working as a currency dealer. In 2002, Max moved to the emerging market debt team as an assistant portfolio manager to focus on developing local currency bond and foreign exchange investments. More recently Max has been specialising in emerging market corporate bonds having helped develop the corporate bond investment process. Max graduated with a BA (Hons) in Business Management and is a CFA Charterholder.
Esther Chan, Portfolio ManagerEsther joined the Singapore office of Aberdeen in 2005. In Singapore, she was a member of the Asian fixed income team, first as a credit analyst in financials and corporates, then as a portfolio manager. She moved to London in 2007, joining the emerging market debt team where she specialises in managing corporate bonds. Prior to that, she worked as a analyst in corporate finance advising companies undergoing debt restructuring in Jakarta, Indonesia. Esther has a LLB (Hons) from University College London and is a CFA Charterholder.
Viktor Szabó, Portfolio ManagerViktor joined Aberdeen in July 2009 following the acquisition of certain asset management businesses from Credit Suisse Asset Management. Previously, Viktor worked for Credit Suisse Asset Management Hungary as country chief investment officer. Prior to that, he worked for the National Bank of Hungary as the head of market analysis team. Viktor holds an MSc in Economics from the Corvinus University of Budapest. Viktor is a CFA charterholder.
London
Emerging Markets Debt team
21
Siddharth Dahiya, Credit AnalystSiddharth joined Aberdeen in June 2010 working as a credit risk analyst for the counterparty risk team. Previously, he worked for four years at ICICI Bank UK plc in London. He was part of the treasury investment team focussing on Indian bond investments. He started his career at ICICI with the corporate finance team focussing on cross-border M&A. Sid completed a post-graduate degree in business management from the Indian Institute of Management, Lucknow in 2006. Prior to that he completed a Bachelors degree (Honours) in Electronics & Electrical Engineering from Punjab Engineering College, India.
Andrew Stanners, Dealer and Portfolio AnalystAndrew is a Trader and Portfolio Analyst on the EMD team. Andrew joined Aberdeen via the acquisition of Deutsche Asset Management's London and Philadelphia fixed income businesses in 2005. Andrew held a similar role at Deutsche Asset Management, which he re-joined in 2004 following a short appointment as an analyst at Cheyne Capital. Andrew initially joined Deutsche Asset Management in 2001. Andrew graduated with a BA joint honours in Economics and Economic History from York University.
Ewa Gray, Portfolio AnalystEwa worked as head of liquidity controllers within our treasury department where she was responsible for managing a team of 6 people, responsible for instructing FX trades and placing cash out in various money market instruments for yield curve pick up as well as managing the daily collateral merging for OTC derivatives. Ewajoined Aberdeen via the acquisition of Deutsche Asset Management's London and Philadelphia fixed income businesses in 2005. Ewa graduated with BSc (Hons) in Mathematics with Business Management from Queen Mary University in 2003.
Anthony Simond, Investment AnalystAnthony is an investment analyst on the EMD team, where he covers a range of frontier markets including Belarus, Georgia, Serbia, Vietnam, Mongolia, Egypt and Ecuador. Anthony joined the Aberdeen graduate scheme in 2008, completing placements in different areas of the business including the Pan European equities and Global equities team, before joining the EMD team in 2009. Anthony graduated with a BA (Honours) in Classics from the University of Bristol.
Flora Sexton, Dealer Flora is responsible for dealing in emerging market corporate debt. She joined Aberdeen in 2011 from Paternoster where she was an investment analyst on the fixed income portfolio. Flora graduated with a BA (Hons) in History from Trinity College Dublin.
Kathy Collins, Junior Credit AnalystKathy is a corporate analyst on the emerging market debt team. Kathy joined Aberdeen in June 2009 on the RFP team before joining the graduate scheme in October 2010. Previously, Kathy completed a year long internship at Standard Chartered Private Bank in New York as part of the Mountbatten Internship Programme. Kathy graduated with an MSc in Economics from St. Andrews University.
London (continued)
São Paolo
Debora Confortini, Credit AnalystDebora is a credit analyst on the emerging market debt team, and is based in Brazil. Debora joined Aberdeen in 2012 from Standard & Poor’s Ratings Service where she was a ratings specialist. Debora graduated with a BA in Accounting & Finance from the University of São Paulo.
For professional use only
• Past performance is not a guide to future results. The value of investments, and the income from them, can go down as well as up and your clients may get back less than the amount invested
• The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible counterparties (ECPs) and not the general public. The information is being given only to those persons who have received this document directly from Aberdeen Asset Management (AAM) and must not be acted or relied upon by persons receiving a copy of this document other than directly from AAM. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of AAM
• The information contained herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by us to be reliable but is not guaranteed as to the accuracy or completeness
• Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Services Authority in the United Kingdom
22
Not for public distribution