citywire march 2011 aegon
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AEGON Asset Management
Beating the BetaMarch 2011
David Pringle
Investment Manager
AEGON UK Equity Absolute Return Fund
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Investing in AEGON UK Equity Absolute Return
o Aims to deliver a return significantly above Bank of England base rate with similar volatility to government bonds
o A disciplined, repeatable process
• Delivers on buy and sell decisions
• Generates returns from a multi-cap approach
• Volatility of less than 8% annualised
• Uncorrelated returns
Delivering strong risk adjusted returns
-10
-5
0
5
10
15
20
25
-18m -12m -6m -3m -1m 1m 3m 6m 12m 18m
Average relative return of sells
Capturing alpha from sell ideaso Third party verification of our
sell decision expertise
o Sell decisions on average
underperform the market
o Long only funds cannot fully
harvest this skill
o Extensive test period to prove
capability
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Source: Inalytics. Fund: AEGON UK Equity OEIC from April 2004 to December 2010
Adding alpha from sell decisions
SELL
Volatile markets…
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…becoming the norm?Low correlation in uncertain times
Q. In a model portfolio, how much would you allocate to Absolute Returns?
A. 0% - unconvinced
B. < 15%
C. > 15%
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The alpha squeeze
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Source: Bloomberg
CBOE Implied Correlation Index
Collapse of Lehman Brothers
Uncovering alpha
The case of the disappearing hedge
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Source: Bloomberg
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar65
70
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100
105
WTI Crude Oil (ICE $/bbl
Fund manager = Risk manager
Fund structure
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Themes
Pair trades
Best ideas
oSeveral names to diversify individual stock
risk
oLong, short and long-short
oBottom-up uncorrelated stock ideas
oLong and short
oGradual outperformers
oCatalyst-driven
Diversification at various levels
Risk management
o Batting for singles
• Correlation = 6.5%
• Realised volatility = 2.1%
• Information Ratio = 1.2
• Sortino Ratio = 2.1
• Average VaR = -2%
9Delivering uncorrelated returns
Source: AEGON Asset Management as at 21 March 2011
-5.0%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Jun
-10
Jul-
10
Au
g-1
0
Se
p-1
0
Oct
-10
No
v-1
0
De
c-1
0
Jan
-11
Fe
b-1
1
Expected Shortfall Value at Risk
0
10
20
30
40
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70
-0.4
0%
-0.3
5%
-0.3
0%
-0.2
5%
-0.2
0%
-0.1
5%
-0.1
0%
-0.0
5%
0.0
0%
0.0
5%
0.1
1%
0.1
6%
0.2
1%
0.2
6%
0.3
1%
0.3
6%
0.4
1%
Histogram of Returns
Q. What do you think is an appropriate benchmark for an Absolute Return fund?
A. LIBOR
B. Peer group
C. Specific target
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Fund outlook – still favouring emerging markets
Source: Longview Economics
East over west
US Deleveraginge.g. Consumer Credit outstanding US$trn
India, China & BrazilLoans Outstanding
US & West – Deleveraging
Emerging Markets – Leveraging
Fund outlook – preference for corporate spend
o The investment share of GDP in major
economies is close to an all-time low
o Whilst non-financial corporates free
cash flow is close to a record high
share of GDP
o With balance sheets and profitability
now in good shape, corporates are
looking to the drive further growth
through investment
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Source: Thomson Reuters, Credit Suisse Research
UK CBI investment intentions are at their highest since 1997
Corporates to lead the recovery
Fund outlook – and what we don’t like
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Source: FactSet
Generating short ideas
o The domestic outlook remains in doubto Margins being squeezed by input costs
'01 '02 '03 '04 '05 '06 '07 '08 '09 '100
100
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400
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5S&P GSCI Sugar - Commodity Index (Left)Tallow ($ per lb.) (Right)
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'86'87'88'89'90'91'92'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10-6
-4
-2
0
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-30
-20
-10
0
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(% 1YR) Index Of House Price (1983) (Right)
(% 1YR) Real Household Final Consumption Expenditure (Left)
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Investing in AEGON UK Equity Absolute Return
o Delivering excess returns over base rate with low volatility
o Returns are generated from the proven UK equity process
• Capitalising on our sell ideas
• Uncorrelated returns
• Lipper Awards 2011, Best UK Equity Group (Small)
• Four funds rated by OBSR
Delivering strong returns at low risk
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Important informationThis document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors.
The information in this presentation is based on our understanding of the current and historical position of the markets. The views expressed should not be interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the income from them may fall as well as rise and is not guaranteed.
The value of the fund may also be impacted by a decline in an entire market or a specific asset class. Regardless of market conditions, the fund aims to deliver a positive absolute return for clients, rather than tracking or seeking to outperform a benchmark or index. This fund is a medium to long-term investment. Fluctuations in exchange rates may affect the capital value of the fund.
The AEGON UK Equity Absolute Return Fund is a sub-fund of AEGON ICVC, an Open Ended Investment company. AEGON Asset Management UK plc is the Authorised Corporate Director of the Company.
AEGON Asset Management includes AEGON Asset Management UK plc (no: 113505) and AEGON Investment Management UK ltd (no: 212159). Both are registered in Scotland and have their registered office at AEGON House, 3 Lochside Avenue, Edinburgh Park, Edinburgh, EH12 9SA.
AEGON Asset Management UK plc provides segregated and retail funds and is the Authorised Corporate Director of AEGON ICVC, an Open Ended Investment Company. AEGON Asset Management UK plc is authorised and regulated by the Financial Services Authority, (FSA reference no: 144267).
AEGON Investment Management UK ltd provides investment management services to AEGON, which provides pooled funds life and pension contracts. AEGON Investment Management UK ltd is an appointed representative of Scottish Equitable plc, an AEGON company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSA reference no: 165548).
FP ID No: 2011/11599