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Flexibility – a key attribute in today’s
global credit markets
October 2014
Euan McNeil – Investment Manager, Fixed Income
Yields in Europe at historic lows
Source: Bloomberg, Barclays Live as at 7 October 2014
2
0
1
2
3
4
5
Oct 04 Oct 05 Oct 06 Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Oct 13 Oct 14
%
10-year bund yield (%) ECB Refinancing rate
Shrinking opportunities in European Investment Grade
Source: HSBC calculations, Dealogic as at 3 October 2014. Redemption date taken as earlier of call date or maturity date.
3
-200
0
200
400
600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ne
t co
rpo
rate
su
pp
ly lo
ca
l cu
rre
ncy (
bn
)
USD EUR
$bn
Growth in AUM against shrinking market liquidity
Source: ICI, NY Fed, Bloomberg, Haver Analytics, Citi Research
4
inc ETFs
Dealer
inventory
Mutual fund
assets
900
800
700
500
400
300
200
100
0
1995 2000 2005 2010
600
Change in gross position of corporate bonds from 2010 to 2013
Added impact of more aggressive banking regulation
Source: Goldman Sachs as at December 2013
5
-12
-10
-8
-6
-4
-2
0
2
JP
Mo
rga
n
Ba
rcla
ys
RB
C
No
mu
ra
Citig
rou
p
Je
ffe
rie
s
Mo
rga
n S
tan
ley
De
uts
ch
e B
an
k
HS
BC
Go
ldm
an
Sach
s
RB
S
Me
rrill
Lyn
ch
Cre
dit S
uis
se
UB
S
$bn
Need to seek cross-market opportunities
Source: Barclays Live as at 7 October 2014
6
80
100
120
140
Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14
bps
U.S. Corporate Investment Grade - OAS Euro-Aggregate: Corporates - OAS
Sterling Non-Gilts - OAS
7
Kames Investment Grade Global Bond Fund
Launch date 8 November 2007
Fund description To maximise total return (income plus capital) by investing
primarily in investment grade government and corporate
bonds in any currency which may be at a fixed or floating
rate, rated or unrated.
Performance objectives • To deliver at least 2nd quartile returns over rolling 12
months and 1st quartile returns over rolling 3-year periods
in the Lipper Global Bond Global Corporates sector.
• To outperform the Barclays Global Aggregate Corporate
index by 1.25% per year on a rolling 36 month basis.
Flexible approach Global remit broadens opportunity set to add value for
investors.
Experienced team Highly regarded and experienced team.
Share classes Primary share class – USD.
Currency-hedged share classes GBP and EUR.
Euan McNeil
Co-manager
Stephen Snowden
Co-manager
Morningstar RatingTM of 5 stars as at 30 September 2014 is relevant in Germany and Spain only. FWW rating relates to Germany only.
3.5
4.5
5.5
6.5
7.5
8.5
Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
Ye
ars
Actively managing interest rate risk
As at 30 September 2014
8
Jan 2009-10
Global meltdown averted Jul 2011
Eurozone crisis emerges August 2012
Central bank support pays
dividends
0
20
40
60
Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
%
Historical exposure to banking debt
As at 30 September 2014
9
Jan 2009-10
Global meltdown averted Jul 2011
Eurozone crisis
emerges
August 2012
Central bank support
pays dividends
0
20
40
60
80
100
120
140
Jun 09 Mar 10 Dec 10 Sep 11 Jun 12 Mar 13 Dec 13 Sep 14
Number of holdings
Conviction investing; focused portfolio construction
Source: Kames Capital as at 30 September 2014. *Morningstar, as at 30 September 2014. **Note index tracker funds have been excluded
10
Number of
holdings**
Kames Investment Grade Global Bond 129
Lipper Global-Bond Global Corporates Median 169
Barclays Global Aggregate index 8,745
Barclays Euro Aggregate index 1,486
Highest number of holdings in sector* 844
Lowest number of holdings in sector* 24
Exploiting cross currency opportunities – primary market
Source: Bloomberg, mid-Z spread as at 7 October 2014
11
225
250
275
300
325
350
Jan 14 Mar 14 May 14 Jul 14 Sep 14
bp
s
EDF 5 ⅝ 12/29/49 ($) EDF 5 01/22/49 (€)
-40
-20
0
20
40
60
Jan 14 Mar 14 May 14 Jul 14 Sep 14
bp
s
Preferred dollar EDF bond to euro issue Spread differential: dollar bond outperformed
Spread differential between USD and euro bonds
Exploiting cross currency opportunities – secondary market
Source: Bloomberg, mid-Z spread as at 8 October 2014
12
0
10
20
30
40
50
60
70
Feb 14 Apr 14 Jun 14 Aug 14 Oct 14b
ps
Spread differential between euro and sterling bonds
Sold sterling issue and switched into euro issue Spread differential narrowed
250
300
350
400
450
500
Feb 14 Apr 14 Jun 14 Aug 14 Oct 14
Telefonica bond (€) 7.625% 09/29/49
Telefonica bond (£) 6.75% 11/29/49
bp
s
-25
-15
-5
5
15
25
35
45
55
Nov 07 Nov 08 Nov 09 Nov 10 Nov 11 Nov 12 Nov 13
%
Cumulative total return since inception Kames Investment Grade Global Bond B Inc USD
Lipper Global - Bond Global Corporates median
Barclays Capital Global Aggregate Corporate Index
Kames Investment Grade Global Bond Fund performance
Source: Lipper, NAV to NAV, noon prices, income re-invested, local currency, as at 30 September 2014. B (Inc) USD shares. Total return excluding initial charges, net of annual management charge.
Performance prior to the launch of the B (Inc) USD share class on 21 April 2010 is calculated based on the A (Inc) USD share class. Past performance is not a guide to future returns.
Morningstar RatingTM of 5 stars as at 30 September 2014 is relevant in Germany and Spain only. FWW rating relates to Germany only.
13
%1
year
2
years
3
years
4
years
5
years
Fund 6.7 10.2 27.0 21.4 37.2
Median 6.4 7.4 18.1 19.7 29.9
Outperformance 0.3 2.8 8.9 1.7 7.3
Quartile 2 1 1 2 1
Consistency of outperformance
Source: Lipper, NAV to NAV, noon prices, income re-invested, local currency, as at 30 September 2014. Kames Investment Grade Global Bond Fund B (Inc) USD shares and Lipper Global Bond
Global Corporates median. Total return excluding initial charges, net of annual management charge. Performance prior to the launch of the B (Inc) USD share class on 21 April 2010 is calculated
based on the A (Inc) USD share class. Past performance is not a guide to future returns.
14
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Nov 2
01
2
Dec 2
01
2
Ja
n 2
01
3
Feb 2
01
3
Ma
r 201
3
Apr
20
13
Ma
y 2
01
3
Ju
n 2
01
3
Ju
l 20
13
Aug
20
13
Sep
20
13
Oct 2
013
Nov 2
01
3
Dec 2
01
3
Ja
n 2
01
4
Feb 2
01
4
Ma
r 201
4
Apr
20
14
Ma
y 2
01
4
Ju
n 2
01
4
Ju
l 20
14
Aug
20
14
Sep
20
14
%
Outperformed every rolling 5-year period since launch
Strong risk-adjusted performance
Source: Lipper as at 30 September 2014. Kames Investment Grade Global Bond Fund B (Inc) USD shares and Lipper Global Bond Global Corporates median. Returns, income re-invested, volatility
and sharpe ratio are calculated on a monthly basis (annualised). Volatility is standard deviation. Performance prior to the launch of the B (Inc) USD share class on 21 April 2010 is calculated based on
the A (Inc) USD share class. Past performance is not a guide to future returns.
15
Key
Kames Fund
Median Fund
Sector
range Quartile
range
3 y
ea
rs
Return Return volatility Sharpe ratio
5 y
ea
rs
19.3
-1.4
8.3
5.7
-5
0
5
10
15
20
25 11.4
1.0
4.3 4.2
0
2
4
6
8
10
12
2.1
-0.3
1.8
1.3
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
10.5
1.6
6.5
5.4
0
2
4
6
8
10
12
11.5
2.8
4.9
4.1
0
2
4
6
8
10
12
14
1.7
0.2
1.2
1.0
0.0
0.5
1.0
1.5
2.0
Why Kames Investment Grade Global Bond Fund?
As at 30 September 2014. *Lipper. Past performance is not a guide to future returns. Morningstar RatingTM of 5 stars as at 30 September 2014 is relevant in Germany and Spain only. FWW rating
relates to Germany only.
Flexible Global remit broadens opportunity set to add value for investors
People Highly regarded managers with 36 years’ combined investment experience
Combined roles and collegiate culture
Performance Outperformance of Lipper Global Bond Global Corporates median
over 1, 2, 3 ,4, 5 years and since launch*
Highly rated
16
“We believe the managers’ experience, coupled with the support of a
well-resourced fixed-income team and rigorous company analysis,
makes this an attractive choice for investors.” (Morningstar 2014)
Kames Capital’s fixed income team – focused and experienced
As at 30 September 2014
Kevin Telfer
19 years’ experience
Patrick Gillespie
22 years’ experience
Investment assistant
David Roberts
26 years’ experience
Alastair Mair
29 years’ experience
Cash
Colette Clements
18 years’ experience
Cash
Head of Fixed Income
Cash and Liability Matching
Yvonne Christie
32 years’ experience
John McNeill
27 years’ experience
Colin Finlayson
14 years’ experience
Sandra Holdsworth
22 years’ experience
James Lynch
9 years’ experience
Rates
Scott Fleming
11 years’ experience
Philip Milburn
17 years’ experience
Debbie King
10 years’ experience
Claire McGuckin
20 years’ experience
High Yield
Stephen Baines
10 years’ experience
Nicholas Chatters
8 years’ experience
Laura Gallacher
19 years’ experience
Non-financials
Philip Small
29 years’ experience
Non-financials
Stephen Snowden
20 years’ experience
Gregory Turnbull Schwartz
19 years’ experience
Financials
Paul Dilworth
8 years’ experience
Financials
Garvin Peoples
6 years’ experience
Financials
Euan McNeil
16 years’ experience
Non-financials
Iain Buckle
17 years’ experience
Collateralised
Investment grade credit
Alexander Pelteshki
6 years’ experience
Financials
Adrian Hull
25 years’ experience
Product specialists
Dawn Adams
4 years’ experience
18
Fixed income team structure: a break from tradition
19
Client
portfolios Analysts
Model
portfolios
Fund
Managers Dealers
Fixed income
investment managers
• Idea generation
• Decision making
• Implementation
• Execution
Traditional structure
Our structure
Dealers
Client portfolios
• Retail and
institutional clients
Our fixed income sources of alpha
• Portfolios marry top-down and bottom-up performance drivers
• Alpha contributors flexed through the cycle
Assetallocation
Ratingsselection
Stock
selection
Sector
selection
Curve
Duration
Alpha
contributors
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Kames Investment Grade Global Bond Fund – Flexibilities
21
What we own and will own
Investment grade corporate bonds 67 – 100%
Government bonds 0 – 33%
High yield bonds 0 – 20%
Cash 0 – 20%
What we haven’t owned
and won’t own
Active Currency
Equity
Private Placement Debt
Convertible Bonds
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Nov 1
0
Ja
n 1
1
Ma
r 11
Ma
y 1
1
Ju
l 11
Sep
11
No
v 1
1
Ja
n 1
2
Ma
r 12
Ma
y 1
2
Ju
l 12
Sep
12
Nov 1
2
Ja
n 1
3
Ma
r 13
Ma
y 1
3
Ju
l 13
Sep
13
Nov 1
3
Ja
n 1
4
Ma
r 14
Ma
y 1
4
Ju
l 14
Sep
14
%
Outperformed every rolling 3-year period since launch
Consistency of outperformance
Source: Lipper, NAV to NAV, noon prices, income re-invested, local currency, as at 30 September 2014. Kames Investment Grade Global Bond Fund B (Inc) USD shares and Lipper Global Bond
Global Corporates median. Total return excluding initial charges, net of annual management charge. Performance prior to the launch of the B (Inc) USD share class on 21 April 2010 is calculated
based on the A (Inc) USD share class. Past performance is not a guide to future returns.
22
14.8
28.0
56.4
0.8 7.3
23.5
61.9
7.4
0
20
40
60
80
GBP EUR USD Other
% fund (pre-FX hedge) % index
Market exposure (%)
Fund positioning versus Barclays Global Aggregate Corporate index
As at 30 September 2014
23
Sectors % fund % index
Banks 30.81 29.72
Industrials 31.72 37.44
TMT 8.68 13.23
Other Financials 18.08 11.63
Utilities 4.30 7.98
Collateralised 4.88 0.00
Sub-Sovereign 1.30 0.00
Government 0.00 0.00
Cash 0.23 0.00
1.2 5.1
29.1
43.7
14.9
0.8
5.0
0.2 0.8
11.2
45.7 42.4
0
10
20
30
40
50
AAA AA A BBB BB B N/RInvestment
Grade
Cash
% fund % index
Ratings breakdown (%)
Fund size $153m
• Absolute Return Bond Fund
– Genuine absolute return fund seeking
outperformance with low volatility
– Invests in global debt instruments in any currency
• Strategic Global Bond Fund
– Invests in global debt instruments in any currency
– Ranges from AAA government bonds through to
high yield, corporate bonds and emerging market
• High Yield Global Bond Fund
– Invests primarily in high yield bonds in any
currency
– Ability to invest in selected investment grade
bonds
Other fixed income capabilities across the risk spectrum
Source: Kames Capital. Based on annualised standard deviation of daily returns. 3 Years to September 2014. Offshore figures are based on Monthly noon Lipper prices grossed up for the AMC.
24
Historic annualised volatility
0%
1%
2%
3%
4%
5%
6%
7%
KamesAbsolute
Return BondFund
KamesStrategic
Global BondFund
KamesInvestment
Grade GlobalBond Fund
Kames HighYield GlobalBond Fund
Global Aggregate offers Yield and Diversity
Source: Barclays Live as at 6 October 2014
25
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Oct 04 Oct 05 Oct 06 Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Oct 13
Yie
ld d
iffe
ren
tia
l (%
)
Global Aggregate Corporates - Euro Aggregate Corporates
This 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.
All data in this presentation is sourced to Kames Capital unless otherwise stated.
The views expressed in this document represent our understanding of the current and historical positions of the market. They 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 go down as well as up and is not guaranteed.
The primary share class has changed from A to B with effect from 31 December 2013. In order to provide performance data from inception, performance is
based on track record extensions on this fund’s B share class where launched more recently than the A share class. Performance prior to launch of B share
class is calculated on the A share class.
The Kames Investment Grade Global Bond Fund is registered in the United Kingdom, Ireland, Austria, Germany, Jersey, Guernsey, Luxembourg, Malta,
Netherlands and Switzerland. Not all available shareclasses are registered in every country. Please email [email protected] for the list of
shareclasses registered in your jurisdiction.
Kames Capital Investment Company (Ireland) Plc operates two different methods of hedging share classes. Full details of these can be found in the prospectus.
This document is accurate at the time of writing but can be subject to change without notification. Kames Capital Investment Company (Ireland) plc, is an
umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106), registered office at 25-28
North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland).
Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames Capital is an Aegon Asset Management company and
includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in
Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the
Financial Conduct Authority, (FCA reference no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames Capital Investment
Company (Ireland) plc. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an Aegon
company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (PRA/FCA reference no: 165548).
Important information
26
For Investors in Austria - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Austria by the Austrian
Financial Market Authority (Finanzmarktaufsichtsbehörde). The Prospectus, Supplement and Key Investor Information for Kames Capital Investment Company
(Ireland) plc are available free of charge from UniCredit Bank, Austria AG, 8398 Global Securities Sales & Services, PO Box 35, A-1011, Vienna, Austria. Tel:
00 43 50505/58515.
For Investors in Germany - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Germany by BaFin. The
Prospectus, Supplement and Key Investor Information for Kames Capital Investment Company (Ireland) plc are available free of charge from CACEIS Bank
Deutschland GmbH Lilienthalallee 34-36, D-80939 Munich.
For Investors in Luxembourg - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Luxembourg by the
Commission de Surveillance du Secteur Financier. The Prospectus, Supplement and Key Investor Information for Kames Capital Investment Company (Ireland)
plc are available from CACEIS Bank Luxembourg 5, allée Scheffer, L-2520 Luxembourg.
For Investors in Malta - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme authorised by the MFSA to market its units
in Malta. The Prospectus, Supplement and Key Investor Information for Kames Capital Investment Company (Ireland) plc are available free of charge from
Michael Grech Financial Investment Services Limited, 78A, Fleur de Lys Road, Birkirkara, BKR 9062, Malta (Tel: +356 21 441003).
For Investors in the Netherlands - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in the Netherlands
by the Netherlands Authority for Financial Markets in Amsterdam. The Prospectus, Supplement and Key Investor Information for Kames Capital Investment
Company (Ireland) plc are available free of charge from our website www.kamescapital.com (Dutch edition of the Key Investor Information only).
For Investors in Switzerland - On March 26th 2009, the Swiss Financial Market Supervisory Authority FINMA authorised the distribution to the public of the
shares of Kames Capital Investment Company (Ireland) plc (the “Company”) in or from Switzerland in conformity with article 120 of the Federal Law on
Collective Investments of Capital dated June 23rd 2006. The Company was authorised as a Foreign Collective Investment Scheme. The articles of the
Company, the Extract Prospectus for Switzerland, the Key Investor Information (Swiss edition), the annual and semi-annual Report for Switzerland of the
Company can be obtained free of charge on our website www.kamescapital.com or from the Representative in Switzerland, BGG Banque Genevoise De
Gestion, 15, Rue Toepffer, 1206 Geneva, Switzerland, (Tel : + 41 22 3479040; Fax: + 41 22 3479327).
Important information
FPID: 2014/18900
27